Globalisation, Brexit and Rodrik’s political trilemma

From Brexit to trade wars, the advance of globalisation has not had a great few years. Hoping for a bit of enlightenment to counter the political rhetoric we are so often exposed to, I thought I would turn to Dani Rodrik’s 2011 book The Globalisation Paradox: why global markets, states and democracy can’t coexist.

At the core of Rodrik’s theoretical contribution in the book is what he calls his ‘political trilemma’ in relation to globalisation and politics: the impossibility of combining hyperglobalisation, democratic politics and the nation state or national sovereignty. In this reading, one country can combine any two of the three, but not all three at once.

Thus, under the postwar Bretton Woods compromise, countries were able to combine democracy and national sovereignty with moderate globalisation. Trade in goods between the richer capitalist nations became gradually more free during the 1950s and 60s, while there were restrictions on global capital flows and fixed but adjustable exchange rates, freeing up monetary policy to target growth in aggregate demand to support full employment. Continue reading

On Joan Robinson

Joan Robinson was a brilliant economist at the University of Cambridge and a member of the ‘circus’ of thinkers led by John Maynard Keynes in the 1930s. In the lecture below, John Eatwell, a pupil and co-author of Robinson, and who advised the British Labour Party on economic policy in the 1980s and 90s, gives a very clear and stimulating introduction to her life and work.

Eatwell covers topics in economics addressed by Robinson that remain highly relevant today, such as disguised unemployment and the trade protectionism that tends to result from a deflationary global economic environment.

As the talk makes clear, Robinson published path-breaking work on imperfect competition as distinct from theories of perfect competition and monopoly; she later contributed to the development of Keynes’ magnum opus The General Theory, which put forward an explanation for the persistence of mass unemployment under capitalism and gave birth to the modern discipline of macroeconomics. After the war she attempted to extend Keynes’ theory to deal with problems of economic growth in a number of books and papers, particularly her own magnum opus The Accumulation of Capital.

A strong intellectual personality and something of a zealot, one of Robinson’s most notable quotes regarding economics was: “I never learned mathematics, so I’ve had to think”.

As a liberal socialist, latterly she increasingly favoured central planning to achieve full employment and social justice, as well to promote economic development in the poorest countries. On this, as well as in her enthusiasm for Maoist China, she was perhaps naive and misled and these aspects of her thinking discredited her somewhat in her later years.

Robinson also supervised Amartya Sen who went on to win the Nobel Memorial Prize for his work on welfare economics.

Thanks to the blog The Case For Concerted Action for sharing this video.

For the least developed countries, revitalising multilateralism is life or death — Emergent Economics blog

By Daniel Gay and Kevin Gallagher

Few would deny that the international system governing the environment and economy is under pressure. Globalisation itself is wobbling, to the chagrin of governments in rich and emerging economies. What’s less talked about is the effect on the world’s 47 least […]

via For the least developed countries, revitalising multilateralism is life or death — Emergent Economics

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

Heiner Flassbeck on the global economy: the problem of Europe

In the video below from the Real News Network, former economist at UNCTAD, Heiner Flassbeck, discusses some of the problems besetting today’s global economy and claims that they have deep historical roots. Germany may be heading for a recession due to shrinking exports linked to the ongoing US-China trade war and weak demand in Europe.

Flassbeck argues that the cause of sluggish global demand lies in the weakness of corporate investment compared to corporate saving alongside stagnant wages and the insufficient response of governments in Europe to counter this with more expansionary fiscal policy.

This has been brewing since the 1970s. The US under Reagan, Bush junior and most recently Trump has on a number of occasions responded to sluggish growth with higher fiscal deficits. The exception came under Clinton, when a booming economy and fiscal tightening produced several years of budget surpluses, which ultimately proved unsustainable.

In contrast, many European economies have remained wedded to tighter fiscal policies and austerity in the run-up to the creation of the euro. Since 2000 Germany has relied on foreign demand to drive growth, and now runs, in absolute terms, the largest current account surplus in the world.

Corporate surpluses are also excessively large in Japan, but the government continues to run a moderately large budget deficit which absorbs some of these savings and sustains aggregate demand to a degree. The German government is now running a budget surplus, which withdraws demand from the economy, leaving net exports as the driver of growth.

Ideally, corporations would use more of their retained earnings for investment, rather than running up surpluses as they are doing at the moment, particularly in Germany. This would increase spending on the demand side, and the capital stock on the supply side, boosting growth in output and some combination of employment and productivity.

In the absence of strong corporate investment growth, sufficient demand to support economic growth has to come from household consumption, net exports, or from the government. With insufficient household income growth, Germany has relied excessively on growth in exports enabled by sluggish wage increases for twenty years. In a weakening global economy, it is now suffering again and could be on the brink of recession.

A more sustainable return to healthy economic growth and fuller employment with rising living standards would see household incomes rising for the majority through significant wage increases, stimulating consumption and providing greater incentives for companies to increase investment in new capacity and employment. Also needed is some degree of fiscal expansion which includes public investment in necessary infrastructure and support for those on the lowest incomes.

The corporate sector surplus (the excess of savings over investment) in a number of large economies needs to shrink as wages and household incomes rise alongside corporate investment. This would lessen the need to rely on large and persistent fiscal deficits, which have supported demand in Japan on and off for well over two decades but have not by themselves created the conditions for a return to more balanced economic growth over the longer term. It would also lessen the need for consumption to be excessively dependent on rising debt, as in the UK and US.

More balanced global growth and reduced inequality within countries which have seen the latter soar since the end of the 1970s can be achieved together.

Flassbeck does not really discuss the reasons behind excessive corporate savings relative to investment, aside from a brief reference to neoliberalism, and he ignores the problem of private debt in China, but the interview is interesting and worth a watch.

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.

Asia’s ‘other communist dynamo’ – Vietnam and economic transformation

Moneyweek magazine recently ran a piece extolling the virtues of the Vietnamese economy and pinpointing it as an emerging market worth investing in. Perhaps as an unintended consequence of Trump’s trade war, Vietnam may benefit from US-China tensions as production and exports shift away from China to some extent. However this outcome remains highly uncertain, since Vietnam itself may also become a victim of US tariffs.

The story of Vietnam since it began its own version of China’s ‘opening up’ and path of development as a ‘socialist-oriented market economy’, called Doi Moi, literally meaning ‘renovation’, has to date been pretty successful. This began in 1986, and since 1990 the country “has notched up the world’s second fastest growth rate per person after China”. This has led to dramatic falls in poverty as wages have kept up with or exceeded productivity, which has itself grown fairly rapidly. Continue reading