Monthly Archives: September 2018

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UNCTAD Trade And Development Report 2018

The United Nations 🇺🇳 Conference On Trade And Development, UNCTAD publishes a detailed trade and development report every year and this year’s is titled: Power, Platforms and The Free Trade Delusion.

It stressed how free trade and globalisation has led to protectionism and that although the latter is not the solution, free trade isn’t the alternative either. The report details how free trade has led to rising power for a small number of corporations.

From the Overview:

Arguably the greatest damage of all has been dwindling trust in the system. Here economists have no excuses, at least if they have bothered to read Adam Smith. In any system claiming to play by rules, perceptions of rigging are guaranteed eventually to undermine its legitimacy. The sense that those who caused the crisis not only got away with it but profited from it has been a lingering source of discontent since 2008; and that distrust has now infected the political institutions that tie citizens, communities and countries together, at the national, regional and international levels.

The paradox of twenty-first century globalization is that – despite an endless stream of talk about its flexibility, efficiency and competitiveness – advanced and developing economies are becoming increasingly brittle, sluggish and fractured. As inequality continues to rise and indebtedness mounts, with financial chicanery back in the economic driving seat and political systems drained of trust, what could possibly go wrong?

Marc Lavoie — Was Hyman Minsky A Post-Keynesian?

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A good lecture by Marc Lavoie on whether Hyman Minsky was a Post-Keynesian. The answer is in the end and I won’t give out the answer!

One of the points Marc discusses when discussing the financial instability hypothesis is that Minsky’s analysis avoids discussing dynamic effects: a rise in production of firms leads to a rise in demand for their products because of incomes generated and will hence generate profits for firms. Hence firms’ debt ratios needn’t worsen necessarily. Minsky’s narrative makes it look like it is always worsening. Also Minsky assumes that the rise in supply of debts will raise interest rates, which has a sound of the loanable funds model to it.

Which is no to say that the hypothesis is irrelevant but just that a better articulation is required.

Marc Lavoie at Poznan Summer School 2018

The video was live at the Review Of Political Economy‘s page on Facebook but still available.

Some background papers on this:

  1. Minsky’s Financial Fragility Hypothesis: A Missing Macroeconomic Link?, Marc Lavoie and Mario Seccareccia, 2001.
  2. Loanable Funds, Endogenous Money and Minsky’s Financial Fragility Hypothesis, Marc Lavoie, 1997.

There’s now a paper, Was Hyman Minsky A Post-Keynesian Economist?, at Review Of Evolutionary Political Economy.

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IMF Paper On How Export Sophistication Is The Determinant Of Growth

Missed this working paper Sharp Instrument: A Stab At Identifying The Causes Of Economic Growth from May 2018 from three IMF authors with an impressive conclusion.

From the abstract

We find that export sophistication is the only robust determinant of growth among standard growth determinants such as human capital, trade, financial development, and institutions. Our results suggest that other growth determinants may be important to the extent they help improve export sophistication.

Note, not only is it saying that it is robust but that other factors are important as long as they improve export sophistication.

Cambridge Keynesians were clear on this. Here’s Wynne Godley in a 1993 article Time, Increasing Returns And Institutions In Macroeconomics, in Market And Institutions In Economic Development: Essays In Honour Of Paolo Sylos Labini, page 79:

… In the long period it will be the success or failure of  corporations, with or without active help from governments, to compete in world markets which will govern the rise and fall of nations.

and Nicholas Kaldor in Causes Of Growth And Stagnation In The World Economy, first published in 1996 and based on lectures given in 1984:

The growth of a country’s exports thus appears to be the most important factor in determining its rate of progress, and this depends on the outcome of the efforts of its producers to seek out potential markets and to adapt their product structure accordingly. The income elasticity of foreign countries for a particular country’s products is mainly determined by the innovative ability and the adaptive capacity of its manufacturers. In the industrially developed countries, high income elasticities for exports and low income elasticities for imports frequently go together, and they both reflect successful leadership in product development. Technical progress is a continuous process and it largely takes the form of the development and marketing of new products which provide a new and preferable way of satisfying some existing want. Such new products, if successful, gradually replace previously existing products which serve the same needs, and in the course of this process of replacement, the demand for the new product increases out of all proportion to the general increase in demand resulting from economic growth itself. Hence the most successful exporters are able to achieve increasing penetration, both in foreign markets and in home markets, because their products go to replace existing products.

[italics: mine]

The IMF paper is surprising, since the IMF believes in free trade in which market mechanisms work to achieve convergence in fortunes of nations, so exports is hardly important.

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Jayati Ghosh — The Real Problem With Free Trade

Jayati Ghosh writing for Project Syndicate: 

Globalization’s detractors are right that free trade has created serious imbalances. But a trade war completely misses the point. The problem is not that free trade has led to too much global competition, but rather that it has enabled a few companies to secure monopolies or near-monopolies. This has given rise to massive inequalities, blatant rent-seeking, and predatory behavior. Only by addressing these trends can the benefits of trade be increased and equitably shared.

She also reminds of the forthcoming UNCTAD report which discusses this. So watch out!