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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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.

How did South Korea become so rich?

Here is a rather lively video introduction to South Korean development from VisualPolitik, describing how in the post-war period the political economy of the country encouraged rapid growth and transformation for many years. This enabled it to significantly catch up with the rich world’s economies. In the history of economic development, Korea has been a success story.

The video is partly wrong on the nature of trade policy: companies were encouraged to become successful exporters but there was at least temporary protection from selected imports at certain times.

It leaves out aspects such as the legacy of Japanese colonialism which bequeathed a particular political and social structure to the country. This certainly affected the path of development.

It also fails to mention the enlightened self-interest of the US, which provided aid and military support, as well as access to its markets, during the years of rapid growth. After all, they wanted to prevent the spread of communism and help create a successful capitalist South Korea. Continue reading

Oil and industrial policy in Venezuela: what went wrong?

Nodding-Donkey-pump-Venezuela-By-Rjcastillo-CC-BY-SA-3.0Marxist economist Michael Roberts recently posted on the dire economic and social situation in Venezuela. An oil price boom in the 2000s allowed the government of Hugo Chavez to pour the resultant tax revenues into boosting the incomes and welfare of the poor. Significant progress was made with poverty reduction during this period and the economy grew relatively rapidly for a number of years.

All that is now going into reverse as the economy experiences a deep contraction, galloping inflation, and shortages of basic goods in the shops, alongside a consolidation of anti-democratic forces. With oil prices subdued and a lack of industrial diversification, the sources of any future economic recovery remain unclear.

As he has often argued when confronting the downsides of capitalism, Roberts argues that the problem is ‘not enough socialism’. His favoured policy response would be increased government ownership and direction of the economy via central planning, in order to boost investment and diversify the structure of the economy.

The intended ends of such a response are indeed laudable: during the boom years, the government relied on oil revenues to reduce poverty, as already mentioned. But it failed to encourage the diversification of production into higher value-added goods and services. Continue reading

Supporting an ageing population: the need for a new economic strategy

workersThe UK, in common with all rich nations and some poorer ones too, faces an ageing population. The health and social care needed to support this needs to be well-funded, which requires sufficient wealth creation across the country.

At the moment, the UK’s productivity lags significantly behind other rich countries and needs to be seriously addressed by whichever government takes office after the upcoming election. The growth of productivity, or how much output is produced from given inputs (land, labour, capital, entrepreneurship etc), is the key to a rising standard of living. It makes possible choices between, for example, more work for a higher income, or more leisure for the same income.

The Guardian’s economics editor Larry Elliott here discusses these issues and makes a strong case for an ambitious industrial and regional policy to boost productivity growth. As he says, the average productivity in the UK’s Greater South-East, including London, is higher than that in Germany. If the average productivity of the UK as a whole is well behind that in Germany, as well as France and the US, this means that there is a strong regional dimension to the problem. The rest of the UK lags well behind the Greater South-East, and this is a major reason for the country’s high level of regional income inequality. Continue reading

The Koreas: totalitarian socialism vs industrial policy

A link below to Michael Roberts’ blog post on the Koreas. It focuses mainly on some analysis of the post-Korean War economic history of the North, but also some comparison with the capitalist South and his desire to see the two of them reunified under centrally-planned socialism, something that I cannot see being a success.

The diverging fortunes of North and the South in terms of economic (and political) development illustrate the potential dynamism of capitalism versus largely autarkic socialism. But it does not lend support to an idealised and unfettered free-market capitalism either. Continue reading