The policy that shall not be named

Production_LineThe IMF recently published a refreshing paper on the principles of industrial policy. The paper is quite lengthy, so I will summarise and discuss some of the main points here. The authors do not speak for the IMF of course, and it merely reflects their current research, but it remains important.

The paper is important because it unambiguously makes the case for an active industrial policy in developing countries to enable them to catch up with the richest countries.

They argue that successful examples of such a development strategy have been extremely rare in recent decades, but that it is vital to learn from them. They use the case studies of the ‘Asian miracle’ economies of South Korea, Taiwan, Singapore and Hong Kong, which were relatively poor some decades ago, but managed to industrialise and grow rapidly, enabling them to catch up and graduate into the club of advanced economies.

They also note that most if not all of today’s rich countries, including the US, Japan and Germany, followed such a strategy during their catch-up phases of growth, and continue to employ industrial and technology policies, albeit in different forms.

The paper is also refreshing because the IMF, and the World Bank, are not known for supporting the principles of industrial policy as a viable development strategy. In their dealings with financial crises and developing countries in recent decades, they have tended to promote and enforce an anti-developmental state neoliberal policy agenda, known as the Washington Consensus, with often dire results for levels of poverty and inequality and the ability of governments to encourage successful development. Continue reading

Advertisements

The UK’s pay squeeze – no end in sight?

workersSince the Great Recession, and among the world’s richest economies, pay growth in the UK has been historically weak. The Economist magazine reported on 20th April that the pay squeeze in the UK has eased during the last year or two, but is by no means over.

Nominal wages are now growing at around 3.5% year, while real wages (adjusted for inflation) are growing at 1.5%. In a way, this slight improvement is to be expected, with employment at a high level and unemployment relatively low, creating a tightening labour market, and shifting bargaining power from employers towards workers.

Another piece of good news is that more of the jobs now being created have higher pay. To put it another way, the composition of the workforce is changing. As The Economist put it, “strawberry-pickers have made way for stock-pickers”. Continue reading

Modern Monetary Theory and disguised unemployment

Thomas Palley, a post-Keynesian economist, here provides a critique of recent policy proposals by US Democratic politicians employing some ideas from Modern Monetary Theory. They variously want to fund programmes such as universal healthcare and a ‘Green New Deal’, financed to a large degree by increased government borrowing.

MMT, as a set of ideas, is an offshoot of post-Keynesianism, but is perhaps more straightforward to grasp when it comes to budget deficits and its opposition to austerity; hence its current popular appeal. Continue reading

Chinese development – the end of the miracle?

800px-Chinese_draakThe Economist magazine has an interesting article this week questioning the sustainability of the Chinese growth model and drawing some parallels between it and the Soviet Union in the post-war period.

During the last 40 years, the rapid development of China has been perhaps the most extraordinary example of economic transformation in human history, both in speed and scale. The economy grew by around ten percent per year for three decades. Growth has in recent years begun to slow, but is apparently still humming along at more than six percent, a decent clip by any standard. Hundreds of millions of its population have escaped from poverty and the new ‘workshop of the world’ has flooded the world with cheaper goods.

But cracks have begun to show, particularly since the financial crisis of a decade ago. The Chinese government’s response to a collapse of exports was to ramp up lending from state-owned banks and embark on a massive spending spree on infrastructure. Continue reading

Harder or smarter? Work intensification and reforming capitalism

stress_at_workBritish workers are suffering, with little to show for it. As Sarah O’Connor writes in last Wednesday’s FT: “[they] are working harder than at any time in the past 25 years, to tighter deadlines and with less autonomy. Medical research shows a link between “high strain” jobs, which combine high pressure with a lack of control, and cardiovascular disease, musculoskeletal problems, stress and depression.” She notes that the recent World Mental Health Day brought news of employer initiatives to combat workplace exhaustion. But will this be enough? Continue reading

Wages and technological progress – a walk on the demand-side

What is the link, if any, between wages and technological progress in a capitalist economy? An article in this week’s The Economist magazine sheds some light on the issue. In particular, it considers the apparently lesser-studied effect that wages might have on productivity growth.

The reverse relationship, that productivity growth allows growth in wages, is studied more often. This has certain implications for economic policy. Boosting the supply-side determinants of innovation, such as education, and research and development, become important.

But what of the demand-side? The article mentioned above describes how some economic historians are engaged in a debate over the “high-wage hypothesis” put forward by Robert Allen, which he suggests helped drive industrialisation in Britain. Continue reading

Perspectives on the UK’s productivity problem: the end of the puzzle?

workersThe UK’s productivity problem continues. Output per worker has barely grown since the beginning of the financial crisis in 2008. Why is this a problem? Because if we want rising living standards, we must have rising productivity over time.

In theory, rising productivity in our economy gives us choices between increased income and increased leisure time. We can choose on a spectrum between more income for the same hours worked and the same income for fewer hours worked, in other words, more leisure time. Depending on how we in society value work and leisure, increased productivity should make possible increases in human welfare.

Today, output per hour worked in the US is at a similar level to that in France and Germany. However, total hours worked per head in the US have tended to outstrip those in the latter two countries, meaning that output per head remains higher there.

Americans are on average richer (although greater inequality means that many of them are not), but they achieve these greater riches by working longer, while their French and German counterparts have more leisure time, including a shorter working day and longer holidays. This is down to collective economic and social choices, although these are also necessarily political in nature, and far away from simple choices freely made by individuals, as some might choose to believe. Continue reading