Intangibles, monopoly and the sluggish economy

The latest issue of the Cambridge Journal of Economics carries an interesting article on what the author, Özgür Orhangazi, calls the ‘investment-profit’ puzzle. He focuses his analysis on the US economy, and tries to account for the slowdown in investment and growth there since the early 2000s, and particularly since the crisis of 2008, despite a rise in the rate of profit.

The puzzle in question is the disconnect between rising profits and sluggish or falling rates of investment. It contributes to the literature blaming factors such as globalisation and financialisation for the disconnect. In particular, ‘investment’ in intangible assets in the high technology, healthcare, telecoms and non-durables sectors has risen relative to investment in tangible capital assets, cementing monopoly power and reducing some of the competitive stimulus for increasing investment in tangibles, thereby slowing economic growth. Continue reading

Digits won’t replace states — Emergent Economics

I’m all for new technologies that subvert convention — but i’m cautiously sceptical about this piece on new multilateralism from Anne-Marie Slaughter in the Financial Times. I love the sentence “while antediluvian men strut back and forth on the world stage beating their chests, a different kind of multilateralism may be on the horizon.” Slaughter […]

via Digits won’t replace states — Emergent Economics

Reflections on industrial policy – France and ‘Les Trente Glorieuses’

Les30Glorieuses‘The Glorious Thirty’ was originally coined by the French demographer Jean Fourastié in 1979 to describe his country’s unprecedented economic boom between 1945 and 1975. Lasting from the end of World War Two to the first oil shock of the 1970s,  it saw growth in output, productivity, wages and consumption faster than before or since, and significant structural change, as resources moved from the agricultural sector and luxury artisan products towards industry.

France rapidly closed the gap in living standards with the US over the period, more or less matched West Germany’s performance, and overtook the UK. It managed an average growth rate of 5.1% throughout the 1960s.

This was in many ways the heyday of state intervention in the major capitalist economies, and the use of various forms of industrial policy was widespread. Post-war France, as elsewhere in Europe, required a major rebuilding of infrastructure and industrial capacity after the damage wrought by conflict. These included transport, the utilities, capital goods and heavy industry.

Beyond this, the government felt that a high standard of living and strong national defence to preserve relative independence required industrialisation. It was decided that this could not be wholly left to the uncertain outcomes associated with market forces. After the experiences of economic planning in many countries during the war, state intervention was felt to be both necessary and effective for the purposes of accelerating recovery while preserving freedom, democratic institutions and private property as far as possible. Continue reading

Corruption and development: the importance of political economy

DSC00236aCorruption is generally seen as a major social problem, and is particularly prevalent in many developing countries (DCs), but also to a lesser degree in middle income and advanced economies. We frequently read in the media about new political leadership in all sorts of places promising to fight corruption in order to improve the social, political and economic environment, from China and Angola to South Africa and Mexico, to take some fairly recent examples.

Unfortunately, such battles against corruption in DCs frequently end in failure, an outcome that is demoralising, not least for the populations of the countries concerned, but also for those external actors who set great store by these kinds of reforms.

Corruption is often conceived of as a moral issue, but some heterodox economists have argued that it is frequently much more than this. They contend that it is more a political and structural problem symptomatic of societies undergoing change as new social forms struggle to emerge. This is typically the case in poor countries experiencing a socioeconomic transformation towards capitalism. Continue reading

The G20 and the cold war in technology — Michael Roberts Blog

Last weekend’s G20 summit in Osaka resolved nothing substantial in the ongoing trade and technology war that the US is now waging with China. At best, a truce was agreed on any further escalation in tariffs and other measures against Chinese tech companies. But there was no long-lasting agreement reached. And that’s because this is […]

via The G20 and the cold war in technology — Michael Roberts Blog

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

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