From Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism:
“We may be living in a post-industrial society in the sense that most of us work in shops and offices rather than in factories. But we have not entered a post-industrial stage of development in the sense that industry has become unimportant. Most (although not all) of the shrinkage in the share of manufacturing in total output is not due to the fall in the absolute quantity of manufactured goods produced but due to the fall in their prices relative to those for services, which is caused by their faster growth in productivity (output per unit of input). Now, even though de-industrialization is mainly due to this differential productivity growth across sectors, and thus may not be something negative in itself, it has negative consequences for economy-wide productivity growth and for the balance of payments, which cannot be ignored. As for the idea that developing countries can largely skip industrialization and enter the post-industrial phase directly, it is a fantasy. Their limited scope for productivity growth makes services a poor engine of growth. The low tradability of services means that a more service-based economy will have a lower ability to export. Lower export earnings means a weaker ability to buy advanced technologies from abroad, which in turn leads to slower growth. (p.88-9)
…[E]ven the rich countries have not become unequivocally post-industrial. While most people in those countries do not work in factories any more, the manufacturing sector’s importance in their production systems has not fallen very much, once we take in to account the relative price effects. But even if de-industrialization is not necessarily a symptom of industrial decline (although it often is), it has negative effects for long-term productivity growth and the balance of payments, both of which need reckoning. The myth that we now live in a post-industrial age has made many governments ignore the negative consequences of de-industrialization.
As for the developing countries, it is a fantasy to think that they can skip industrialization and build prosperity on the basis of service industries. Most services have slow productivity growth and most of those services that have high productivity growth are services that cannot be developed without a strong manufacturing sector. Low tradability of services means that a developing country specializing in services will face a bigger balance of payments problem, which for a developing country means a reduction in its ability to upgrade its economy. Post-industrial fantasies are bad enough for the rich countries, but they are positively dangerous for developing countries.” (p.101)
I have been doing some reading on economic development in Africa recently. The continent, if it is even possible to lump its many diverse nations together when discussing development, which is probably unwise, gets some bad press. But as development economist Ha-Joon Chang has said in his bestselling book, ‘Africa is not destined for underdevelopment‘.
That is refreshingly optimistic, and I humbly concur. Having said that, Chang thinks it is all about policies, but for me this is only part of the story. Why do bad policies persist? This is what we need to study. Poor nations whose people want things to improve via economic and social development need pragmatic and effective governments who can implement policies appropriate to their particular national contexts. These will vary from country to country, and over time.
Below I will share some of the ideas I have gathered which mainly draw on the work of political economists who have studied development processes across the African continent. Continue reading →
In this brief video, a journalist gives his view as to why development in Africa has been so difficult. The answer apparently lies in the colonial legacy of (mis)dividing up the continent into states in a way that has failed to give rise to nation-building, both economically and politically. He also points a finger at self-serving elites, who have built great personal wealth but not, in general, the wealth of their own nations.
However, he does ignore the uneven record of growth on the continent since World War Two, which saw varying degrees of economic transformation. It is a tragedy that much good was undone during the ‘lost decades’ of the 1980s and 90s. A number of countries grew more rapidly in the 2000s, mainly due to the expansion of primary commodity exports, but a widespread problem is the failure of governments to diversify their economies into sectors which have more potential for growth in output and productivity, such as manufacturing.
Zimbabwe is in political turmoil. Now that Robert Mugabe has gone, many are wondering what will come next. Given my interest in development economics and my own ignorance of the political economy of this troubled nation, beyond the reporting of the mainstream media, I thought it would be helpful to draw on some of the ‘literature’ to further my understanding and, hopefully, that of the readers of this blog. I can’t pretend to have expertise in this area, but one of the aims here is to share useful knowledge, so here goes.
I have included a brief summary of Zimbabwe’s economic performance since the War and follow that with some quotes from political economists who have studied the country, as well as the historical emergence of capitalism through what Marx called ‘primitive accumulation’. Continue reading →
Success breeds success, and failure breeds failure. This seems to be the trend in the UK’s regional inequalities, as pointed out last week by Andy Haldane, chief economist at the Bank of England. The division in growth rates and income levels between London and the South East, and the North, are particularly stark. Only in the former are income levels now above those before the Great Recession, which began more than eight years ago, while the latter has fallen further behind.
This regional divide is not a new phenomenon. It has been the result of decades of uneven economic development in the regions of the UK. The almost relentless decline in the share of manufacturing output and jobs for the UK as a whole, particularly since the 1980s, hit the North of England and parts of Wales hard. Private sector dynamism has tended to be concentrated in London and the South East, particularly in the service sector, which makes up the majority of GDP and employment.
Successive governments have responded in different ways to regional inequality. Continue reading →
A nice post here by British economist Paul Ormerod which describes how the US is leading the world in the development of Artificial Intelligence (AI). In the last paragraph, he discusses how the development of key technologies that are perceived to be in the national interest there are initially funded and developed by the public sector, with an eye to their subsequent practical application by the private sector.
The idea that the world’s most powerful nation and largest economy owes many of its strengths to public sector-led innovation is an important one. In her eye-opening book, The Entrepreneurial State, Professor Mariana Mazzucato shows as a key example how many of the technologies that make up the smart phone were initially developed by the US government, and only later combined into desirable consumer products by private companies such as Apple and Samsung. From the internet and GPS, to the touchscreen and voice activation, government institutions led the way, mostly to try to maintain the country’s military superiority.
Mazzucato argues that we should acknowledge the key role of the public sector in taking on certain financial risks which the private sector will not bear, and support these kinds of innovation policies. Of course, there will be failures as well as successes, but this should not be a reason for abandoning state intervention. The private sector can fail as much as the public, sometimes on an enormous scale, ‘wasting’ resources in the process. As long as an experimental approach and a willingness to learn are adopted, there is the potential for a greatly positive public-private co-evolution which can help to drive economic progress.
The public-private divide under capitalism should be seen as something of a myth: the two are symbiotic and support each other in successful economies more extensively than is often believed. It is misleading and potentially damaging to call public provision or even public-private partnerships ‘socialist’. The truth is that the development of capitalism from its inception to today’s increasingly complex economy remains dependent on the state as much as the private sector.
A connection between dialectics, in which everything is considered to be in the process of becoming (something else), and Chinese language and Daoist philosophy. This is a helpful way of thinking when analysing economic growth and development, drawing on Marx’s method, which in turn drew on Hegelian thinking.
“In Chinese, properties take a processual or verbal form. One cannot say that the grass is green but must say that the grass is greening…there is no absolute or simple distinction between noun and verb in Chinese. Metaphysically…in their thought one thing is always passing into something else.”
Roy Bhaskar (2016), From East to West, Odyssey of a soul, Second Edition