The ‘organised hypocrisy’ of US industrial policy

“[O]rganised hypocrisy…characterises American industrial policy…mostly tucked away from public and academic attention, the US government has not had to navigate the tensions inherent in telling other countries–directly in bilateral and regional trade and investment agreements and indirectly through structural adjustment programmes in the interstate organisations where it is the dominant actor–‘do as I say, not as I do’. It says simply, ‘do as I (say I) do’. And so, ever since the 1980s, American and other Western governments have applied strong pressure on developing countries to ‘follow comparative advantage’ and keep specialising in exportable primary commodities, tourism and cheap-labour assembly manufacturing and to stop pressing for ‘policy space’ to develop production capabilities. This pressure continues imperial countries’ long history of trying to stop peripheral countries from entering dynamic sectors. The post-1980s push relies not on gunboats, colonial restrictions and racial ideology, but on conditional lending, ‘free trade’ agreements and neoclassical theory-the latter apparently justifying the proposition that developing countries should stick to their sectors of comparative advantage in their own best interest. This is a prescription for sustaining the core-periphery structure of the world economy, in which the activities with increasing returns, high linkages and high price and income elasticity of demand are located mainly in the core, sustaining the core’s prosperity relative to the periphery. One lesson…is that policy communities in other countries and interstate development organisations such as the World Bank and IMF should push pack when American policy makers and academics urge them to stick to the Washington Consensus ‘fundamentals’, whose efficacy can be seen from the economic success of the USA. The key point is this. For a developing country to sustain movement of the production structure into higher value-added activities (deploying technologies mostly developed elsewhere) the Washington Consensus agenda–opening the economy to the international economy and improving institutions of exchange–is at most a necessary condition. The American experience, and that of just about all the post-Second World War success stories, underlines the need for public policies to incentivize the production of some activities over others. Creating a level playing field does not ensure that the players turn up to play.”

Robert Wade, Cambridge Journal of Economics, May 2017

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Large-scale immigration: the costs and benefits

workersImmigration can be a divisive but also a sensitive issue. Arguments surrounding last year’s referendum here in the UK on EU membership could not avoid it. Media hysteria, particularly from the right, has focused mainly on the negative impacts, and rational debate has been drowned out. The right seemed to shout loudest, and the left often ended up talking to itself.

This post aims to make a small contribution to rational debate, drawing mainly on an interesting little book by Cambridge Professor Robert Rowthorn, published in 2015 by the think tank Civitas.

The overall findings of the study suggest that, at least in the UK, the overall net economic and fiscal (tax and public spending) outcomes from large-scale immigration are small when compared with the effects of more rapid population growth. Rowthorn argues that considerations of the latter should play a more important role when deciding future government policy. Continue reading

Industrial policy: the last 30 years, the next 30 years

More on industrial policy, this time from Carol Newman of Trinity College, Dublin. She outlines some key findings on industrial development from some of the more successful late developers and looks ahead to what is necessary to encourage development in Sub-Saharan Africa. Interesting stuff. For such a short video, she manages to pack in quite a lot of information.

More education in itself is not going to make a country richer (Ha-Joon Chang’s Thing 17)

23-things-they-don-t-tell-you-about-capitalismAnother golden nugget from development economist Ha-Joon Chang‘s book 23 Things They Don’t Tell You About Capitalism, continuing this occasional series:

“There is remarkably little evidence showing that more education leads to greater national prosperity. Much of the knowledge gained in education is actually not relevant for productivity enhancement, even though it enables people to lead a more fulfilling and independent life. Also, the view that the rise of the knowledge economy has critically increased the importance of education is misleading. To begin with, the idea of the knowledge economy itself is problematic, as knowledge has always been the main source of wealth. Moreover, with increasing de-industrialization and mechanization, the knowledge requirements may even have fallen for most jobs in the rich countries. Even when it comes to higher education, which is supposed to matter more in the knowledge economy, there is no simple relationship between it and economic growth. What really matters in the determination of national prosperity is not the educational levels of individuals but the nation’s ability to organize individuals into enterprises with high productivity (p.178-9).

…take the case of the East Asian miracle economies, in whose development education is supposed to have played a critical role. In 1960, Taiwan had a literacy rate of only 54 per cent, while the Philippines’ was 72 per cent. Despite its lower education level, Taiwan has since then notched up one of the best economic growth performances in human history, while the Philippines has done rather poorly. In 1960, the Philippines had almost double the per capita income of Taiwan ($200 vs. $122), but today Taiwan’s per capita income is around ten times that of the Philippines ($18,000 vs. $1,800). In the same year, Korea had a 71 percent literacy rate – comparable to that of the Philippines but still well below Argentina’s 91 per cent. Despite the significantly lower literacy rate, Korea has since grown much faster than Argentina. Korea’s per capita income was just over one-fifth that of Argentina’s in 1960 ($82 vs. $378). Today it is three times higher (around $21,000 vs. around $7,000) (p.180-1)…

What really distinguishes the rich countries from the poorer ones is much less how well-educated their individual citizens are than how well their citizens are organized into collective entities with high productivity…[d]evelopment of such firms needs to be supported by a range of institutions that encourage investment and risk-taking – a trade regime that protects and nurtures firms in ‘infant industries’, a financial system that provides ‘patient capital’ necessary for long-term productivity-enhancing investments, institutions that provide second chances for both the capitalists (a good bankruptcy law) and for the workers (a good welfare state), public subsidies and regulation regarding R&D and training, and so on.

Education is valuable, but its main value is not in raising productivity. It lies in its ability to help us develop our potentials and live a more fulfilling and independent life…the link between education and national productivity is rather tenuous and complicated. Our overenthusiasm with education should be tamed, and, especially in developing countries, far greater attention needs to be paid to the issue of establishing and upgrading productive enterprises and institutions that support them” (p.189).

John Weeks on the Economics of the 1%

Below is a useful excerpt from the book launch of Professor John Weeks‘ Economics of the 1%. It came out in 2014, and I can wholeheartedly recommend it. The book is aimed at the intelligent general reader, and contains plenty of ‘debunking’ of myths in economics from a left perspective, as well as the author’s ideas for economic reform.

Weeks has written other more technical books for those who are interested, most recently Capital, Exploitation and Economic Crisis and The Irreconcilable Inconsistencies of Neoclassical Macroeconomics. The first is Weeks’ constructive take on Marx’s theory of capitalism and crisis, while the second is a thorough critique of neoclassical macroeconomics, as the title suggests.

Mark Blyth on Bernie and Scandinavian welfare

Another clip from the engaging Professor Mark Blyth. Here he shares his thoughts on taxes, public spending and welfare in Scandinavia. He paints a positive picture, but admits that he wouldn’t want to live there and finds it ‘boring’, because ‘everything works!’