Successful economic development in Palestine will require an adequate theory of development, industrial policy, and institutional reforms.
Recently, the Palestine Economic Policy Research Institute (MAS) published a comprehensive study on Palestinian economic development. In this report, co-authored by my colleagues Heiner Flassbeck, Michael Paetz, and I, we explore possible solutions as to how Palestine could sustainably finance its deficits. Now, after the Israeli elections, Jared Kushner, the US President’s son-in-law and senior advisor, is set to announce the details of the US Peace Plan for the Israeli-Palestinian conflict. Given that the Peace Plan is expected to include a large economic component to solve the conflict, it will be interesting to see to what extent it addresses the fundamental problems we identified in our research.
Our results suggest, succinctly, that under current conditions of excessive imbalances in the external sector (trade and current account), any issuance of debt securities requires fixing these imbalances first, for which, in turn, strategic public intervention is critical. This finding may come as a surprise to most policymakers, as orthodox economic theory suggests that the most efficient ways for countries to develop is through market led (as opposed to state led) policies. Historical evidence demonstrates that none of the advanced countries followed this path in their own development, yet the idea of ‘the market’ as the most efficient development tool is still widespread. Based on this belief, Western institutions wreaked havoc in developing countries during the 1980s and 1990s, and continue to do so (although some institutions, notably the IMF, show significant progress in learning from past experiences).
An excerpt from a chapter by my old tutor at SOAS, Mushtaq Khan, who has written extensively on industrial policy in a range of late-industrialising countries, analysing case-studies with a range of outcomes in terms of development, successful or otherwise. Here he considers both the differences and the similarities with an industrial policy in the UK, which needs to innovate, rather than simply emulate already existing technologies and catch-up with the richest countries:
“For an advanced country like the UK, industrial policy clearly has to support both innovation and the development of competitive production capabilities that can convert ideas and knowledge into marketable products. There is no question therefore that industrial policy must have a focus on supporting innovation and the development of new knowledge. This involves investment in public bodies such as universities as well as in networks linking public and private players engaged in innovation. Countries such as the UK still have a lead over most emerging Asian countries in the organization of innovation, though there may be particular strategies of financing or organizing innovation that may be worth looking at. However, the second plank of any effective industrial policy has to be the development of competitive manufacturing capabilities so that good ideas and technologies can be converted into competitive products. Here the UK can learn a lot about the types of problems countries can face when they try to acquire (or, in the case of the UK, re-acquire) firm-level competitive capabilities. Britain’s gradual loss of manufacturing competitiveness after the Second World War was exacerbated after the 1980s in the context of rapid de-industrialization. The country lost much of the tacit knowledge embedded in the organizational routines of manufacturing firms, and as a result fell even further behind in terms of its capacity to regain a broad base of competitive firms. The experience of Asian industrial policy shows that the achievement of competitiveness in new sectors and technologies can be a difficult problem to crack. The two planks of industrial policy are closely connected because without a broad base of firms that can organize production competitively, a successful innovation strategy will simply result in the offshoring of manufacturing somewhere else.”
Mushtaq Khan (2015), The Role of Industrial Policy- Lessons from Asia, in David Bailey, Keith Cowling, and Philip R. Tomlinson, New Perspectives on Industrial Policy for a Modern Britain, Oxford University Press, p.80.
Jason Hickel is an anthropologist who has written extensively on global poverty and inequality, as well as political economy. Here is a recent post of his, discussing the nature and measurement of, and trends in, global poverty, as a response to a critique by Steven Pinker.
Hickel strongly disputes the idea that falling poverty, where it has occurred, has been due to neoliberal globalisation. Rather, the successful industrialisation and economic development that are necessary for sustained poverty reduction have been achieved with state intervention, industrial policies, and strategic integration with the global economy in countries such as South Korea, Taiwan, Singapore and China.
There is a huge literature on this, but Ha-Joon Chang is perhaps one of the best known academics to have written popular books on how particular forms of state intervention have promoted capitalist development. 23 Things They Don’t Tell You About Capitalism is the easiest read and I have posted a number of excerpts from it over the last few years. Bad Samaritans is also good value. For a more academic discussion see Kicking Away the Ladder.
Thanks to the excellent blog The Case For Concerted Action for posting on this first and drawing my attention to Hickel’s work.
A nice paper from the Levy Institute on the beginnings of recovery in Greece following the painful combination of austerity and ‘reforms’ imposed by the so-called Troika of the IMF, the European Commission and the European Central Bank.
The Levy Economics Institute of Bard College is ostensibly non-partisan but much of its published output is in the post-Keynesian tradition, and inspired by the work of Hyman Minsky and Wynne Godley, who both worked at the Institute in their later years. Continue reading
In the fall of 2017, SPERI’s Matthew Bishop and Anthony Payne gathered essays from a group of nine development economists who produced essays on ‘Revisiting the developmental state’ (SPERI Paper No. 43). They drew upon a body of work published on the SPERI Comment blog and in other publications about the state’s appropriate role in […]
Apple recently became the first public company in history to be worth $1 trillion. It therefore seems like a good moment to consider how there is more to its success than the private initiative touted in much of the media.
Here are some enlightening extracts from Professor Mariana Mazzucato‘s 2013 book The Entrepreneurial State, which aims to debunk mainstream economic theory and history on the sources of innovation under capitalism: Continue reading
“Free trade is the sensible rule of thumb most of the time in most sectors. It is sensible because the efficiency gains are often real, even if the theory of comparative advantage over-generalizes them; and it is a simpler rule for any state and for inter-state agreements than rules for managed trade. But the argument…about production and employment, in the context of economic growth rather than static resource efficiency, suggests that inter-state agreements, including the rules of the WTO, should be revised to permit more government “leadership” and “followership” of the market – sometimes by leading the production structure into activities the private sector would not undertake on its own, sometimes by making bets on initiatives already underway in the private sector to assist those initiatives to scale up. This contrasts with the current situation, in which the WTO restricts the use of instruments relevant to developing countries’ efforts to upgrade the national production structure – including tariffs, non-tariff barriers, and direct industry subsidies – while allowing instruments relevant to advanced countries’ efforts to grow new activities on the world frontier, such as R&D subsidies. The WTO is, put crudely, an industrial upgrading device for advanced countries, an industrial downgrading device for developing countries. President Trump surely does not intend his skepticism of free trade to benefit developing countries, but it gives the potential for others to modify international rules towards more “policy space””.
Robert H. Wade (2017), Is Trump wrong on trade? A partial defense based on production and employment, in E. Fullbrook and J. Morgan (eds.), Trumponomics – Causes and Consequences, College Publications and World Economic Association, p.97
The full article can be viewed for free here.