Governance reform and development: a heterodox view – Part 2

Following yesterday’s post, here are the final two parts of the discussion on governance reform and development by Mushtaq Khan, Professor of economics at SOAS in London.

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Governance reform and development: a heterodox view

Today and tomorrow, I will be posting a series of short videos discussing the relationship between governance and development. So-called ‘good governance’ covers such factors as support for the rule of law, anti-corruption and effective democracy, which I think most people would agree are desirable, but are usually missing in the poorest countries.

Professor Mushtaq Khan of SOAS discusses how, in contrast to the ‘good governance’ agenda of the World Bank, these desirable factors have historically been the outcome of successful development rather than its cause.

Instead of policymakers in poor countries trying in vain to achieve good governance, they should instead try to promote developmental governance, which would enable their economies to successfully grow and develop and to some extent ‘catch up’ with their richer neighbours. This would then create the conditions for good governance to be more easily promoted and sustained. Continue reading

The difficulty of industrial policy in developing countries

My former tutor, SOAS Professor Mushtaq Khan, on the difficulty of industrial policies in developing countries. Political, economic and technological conditions are specific to each country and to different stages of development, and this should be borne in mind when designing and implementing such policies, if they are to have a good chance of success. Such an outcome is badly needed to help the poorest on our planet improve their situation.

Classical economics, rents and the surplus under capitalism

rents-rent-seeking-coverAn extract from SOAS Professor Mushtaq Khan‘s illuminating chapter on ‘Rents, Efficiency and Growth’ which summarises the classical economists’ concern with the economic surplus. He discusses the relation of the surplus to economic rents, and how conflicts over their distribution can affect economic growth and development.

By drawing on ideas from classical economics in his discussion of rents and rent-seeking, it is possible to broaden the analysis of neo-classical economics, which dominates the modern mainstream, by bringing in the insights of Smith, Ricardo and Marx. The book that this quote comes from ‘radically’ extends the rent-seeking framework, ‘by incorporating insights developed by political scientists, institutional economists, and political economists’.

For me, an interdisciplinary political economy such as this can yield deeper insights into the nature of economic processes by considering notions such as power, conflict and the resultant distribution of resources and their effect on growth and development.

“Our analysis of rents can be substantially extended by introducing some insights from classical political economy. Classical economists were interested in the size and allocation of the economic surplus which constitutes the potential investment fund of a society. In particular, they were concerned with the allocation of the surplus since this determined growth. The surplus could be productively invested, or ‘wasted’ in luxury consumption, and, even when it was invested, its allocation across sectors could determine the rate of growth achieved. While there were differences between classical economists, they defined the surplus not as the excess income of any group but, rather, as the income accruing to property owners after paying the direct costs of production. In a capitalist economy, the principal property owners are capitalists, but landlords and some of the middle classes may also be recipients of parts of the economic surplus. What is interesting about the classical analysis is that distributive conflicts and the associated re-allocations of the ‘economic surplus’ can determine the rate of growth. Thus, like rents, surpluses can be associated with a wide range of economic outcomes, depending on the technological context, and the type of distributive conflict going on over the allocation of the surplus. Since rents too can be the subject of distributive conflicts, the classical analysis is of immediate relevance (my emphasis).”

Mushtaq Khan (2000), Rents, Rent-Seeking and Economic Development, Ch.1, p.23

Rent-seeking and inequality: thinking beyond Joseph Stiglitz

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Nobel memorial prize winner Joseph Stiglitz

Inequality in the US is in part a political choice. This is the claim of Nobel memorial prize winner in economics Joseph Stiglitz, who has written extensively about it. Some of his views are outlined by Eideard here.

The claim is that inequality in the US has become self-reinforcing. The wealthiest are able to spend resources lobbying politicians, who then tend to support policies that favour them, such as tax cuts for high earners. If so-called ‘trickle-down’ economics fails to work, as indeed it has for many years, and dramatically so since the Great Recession, then the majority do not benefit from policies that favour the rich. The resources or economic ‘rents’ that accrue to top earners as a result of government policies promote further lobbying or ‘rent-seeking’. Thus rather than economic growth benefiting the majority, only those at the top make substantial gains, and the process continues. Continue reading