Convergence and divergence – emerging markets, global value chains and industrial policy

Containers are loaded onto a container ship at a shipping terminal in the harbour in Hamburg

According to a recent piece in The Economist, economic convergence with the US among so-called emerging markets has slowed in the ten years since the great recession. The difference in the growth rate of GDP per capita has slipped since the 2000s from an average of over six percent in emerging Asia to about four percent. Emerging Europe has slowed less, but from a lower rate, while Latin America, North Africa, Sub-Saharan Africa and the Middle East are now beginning to fall behind again, at least on average.

This is disappointing for champions of economic theories of convergence resting on the globalisation of the world economy. It is also bad news for those still living in poverty in the countries slipping back. Of course, slowing convergence need not mean that absolute poverty is no longer falling. But it does mean that the prospects for reducing inequality between rich and poor nations and more widely-shared prosperity are for now receding. Given that the US has not grown particularly fast since it emerged from recession, it means that only emerging Asia continues to be a truly dynamic region in economic terms. And even this mantle may be under threat as growth slows in China, affecting supply chains throughout Asia. Continue reading

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Economics and ideology — LARS P. SYLL

Mainstream (neoclassical) economics has always put a strong emphasis on the positivist conception of the discipline, characterizing economists and their views as objective, unbiased, and non-ideological … Acknowledging that ideology resides quite comfortably in our economics departments would have huge intellectual implications, both theoretical and practical. In spite (or because?) of that, the matter has […]

via Economics and ideology — LARS P. SYLL

With a proper strategy, industrial change can deliver better jobs for all

Tim Page of the Trades Union Congress, in this short post summarising a recent TUC report, examines how a comprehensive industrial strategy led and coordinated by the state can help the regions of the UK successfully manage economic change. The report draws on case studies from Spain, Iceland and the Netherlands to illustrate how policies which bring together government, businesses, and unions can significantly improve outcomes in a changing economy.

A successful capitalist economy with growing output and productivity will generate a changing composition of that output and the associated employment over time, as new more productive industries expand and old less productive ones decline. This tends to create an uneven distribution of costs and benefits across the economy, so that in the absence of the right policies, particular regions can be left behind.

Emigration from declining regional economies to expanding ones tends to worsen outcomes in the former, as the more skilled and ambitious seek new opportunities. The declining region will lose their spending power, weakening local demand, as well as their potential skills. Those left behind are therefore likely to doubly suffer, as their local economy becomes locked into a spiral of decline, with reduced job opportunities and growing relative poverty.

While policy cannot totally prevent workers moving to find new work, it can encourage new industries to locate or emerge in declining areas with support for business, infrastructure and retraining, as well as reducing insecurity with a strong social safety net. In this way, regional and industrial policies which involve genuine social partnership can combine to increase new employment opportunities in poorer areas and prevent ever-widening regional inequality, which has proven to be a major problem for the UK in recent decades, compared with much of the rest of Northern Europe.

The state doing nothing, and leaving it all up to the individual, has failed the poorest regions of the UK. Similarly, the state doing everything, and replacing private employment with public sector employment, as happened under the last Labour administration, has proved all too vulnerable to a change of government. A more inclusive approach is now called for.

Corruption and development: the importance of political economy

DSC00236aCorruption is generally seen as a major social problem, and is particularly prevalent in many developing countries (DCs), but also to a lesser degree in middle income and advanced economies. We frequently read in the media about new political leadership in all sorts of places promising to fight corruption in order to improve the social, political and economic environment, from China and Angola to South Africa and Mexico, to take some fairly recent examples.

Unfortunately, such battles against corruption in DCs frequently end in failure, an outcome that is demoralising, not least for the populations of the countries concerned, but also for those external actors who set great store by these kinds of reforms.

Corruption is often conceived of as a moral issue, but some heterodox economists have argued that it is frequently much more than this. They contend that it is more a political and structural problem symptomatic of societies undergoing change as new social forms struggle to emerge. This is typically the case in poor countries experiencing a socioeconomic transformation towards capitalism. Continue reading

Michael Hudson: Trump’s new tariffs on China help pay for his corporate tax cut

A video interview below with the always original Michael Hudson on the Real News Network (transcript here). He discusses the impact of Trump’s tariffs, the failure to bring back manufacturing production to the US, and how the President is managing to isolate America and unite much of the rest of the world.

The blinkered vision of free-market economics

“[T]he academic models that are supposed to explain how, and under what circumstances the ideal system of human interaction in markets is supposed to work as well as the prerequisites for the existence of such a system to actually work not only ignore the essential role of government in our economic, social and political lives, but the assumptions on which these models depend – the most important being that no economic actor has the power to influence a market price, to influence the political process, to manipulate consumers, that information is free and therefore all market participants have perfect information about the determination of market prices, that there are no external costs or benefits associated with the production or consumption of goods, that an individual’s choices are unaffected by the choices of others, and that people behave rationally as ‘rationally’ is defined within the discipline of economics – are impossible to achieve in the real world…”

Taken from a recent review in the journal Contributions to Political Economy, 38, p.96-98, by George H. Blackford of John Komlos, The Foundations of Real-World Economics: What Every Student Needs to Know. Routledge: Abingdon, 2019.

US profits revision — Michael Roberts Blog

Last Friday, the US real GDP growth figures for the second quarter of 2019 were released. The annualised rate of real GDP growth slowed in Q2 to 2.1% from 3.1% in the first quarter. This was the slowest growth rate since the end of 2016. US real GDP was 2.3% higher than in the same […]

via US profits revision — Michael Roberts Blog