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Dani Rodrik — Globalization’s Wrong Turn And How It Hurt America

Some comments on globalisation by Bill Clinton and Tony Blair caught my attention in a recent article by Dani Rodrik for Foreign Affairs:

Globalization, exclaimed U.S. President Bill Clinton, “is the economic equivalent of a force of nature, like wind or water.” British Prime Minister Tony Blair mocked those who wanted to “debate globalization,” saying, “you might as well debate whether autumn should follow summer.”

Rodrik’s article takes issue with this, explaining how globalisation’s rules of the game aren’t immutable by going through its history.

As Noam Chomsky says, the term globalisation has been appropriated by a narrow sector of power and privilege to refer to their version of international integration and it makes sense for them to own the term because anyone who is opposed to their version becomes anti-globalisation—someone who is primitive and wants to go back to the stone age and that everyone likes international integration but not the investor rights version of it.

Although Rodrik proposes changes to the system/order, his proposals aren’t radical enough. He also presents it as if before neoliberalism became mainstream, it was great for poor countries but this isn’t the case. It was always unfair but became more unfair in the neoliberal era. Anyways, worth a read.

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BadMouse On How The Left Abandoned Opposing The EU

BadMouse, the vlogger on the EU and Brexit:

The right has been a stickler when it comes to appropriating leftist talking points, as I have spoken numerous times now. The EU used to be lot more of a conservative tradition opposed by many factions of the left including, of course, the late Tony Benn. But after sections of the right-wing discourse took it by their shoulders, all the left could seem in response was to go, “No! EU good”.

The EU is an undemocratic monolithic entity that controls large hegemony over the continent. This is something the left has always been against and now we seem to have all been been shovelled into the pro-EU corner just to own the right is baffling. How dare they! How dare we allow them to take control of this narrative, on the topic of narratives.

Anthony Thirlwall — A Plain Man’s Guide To Kaldor’s Growth Laws

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An old article, worth your time.

Excerpt:

In the course of his Inaugural Lecture at Cambridge in 1966 on the causes of the U.K’s slow growth rate, Kaldor (1966) presented a series of “laws” to account, for growth rate differences between advanced capitalist countries; he later elaborated these laws in a lecture at Cornell University (1967). These laws, and their interpretation and validity, have been the subject of considerable scrutiny and debate, and Kaldor himself has clarified and modified his own position since their enunciation. The basic thrust of the model consists of the following propositions:1

  1. The faster the rate of growth of the manufacturing sector, the faster will be the rate of growth of Gross Domestic Product (GDP), not simply in a definitional sense in that manufacturing output is a large component of total output, but for fundamental economic reasons connected with induced productivity growth inside and outside the manufacturing sector. This is not a new idea. It is summed up in the maxim that the manufacturing sector of the economy is the “engine of growth.”
  2. The faster the rate of growth of manufacturing output, the faster will be the rate of growth of labor productivity in manufacturing owing to static and dynamic economies of scale, or increasing returns in the widest sense. Kaldor, in the spirit of Allyn Young (1928), his early teacher at the L.S.E., conceives of returns to scale as macroeconomic phenomena related to the interaction between the elasticity of demand for and supply of manufactured goods

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  1. The growth of manufacturing output is not constrained by labor supply but is fundamentally determined by demand from agriculture in the early stage of development and exports in the later stages. Export demand is the major component of autonomous demand in an open economy which must match the leakage of income into imports. The level of industrial output will adjust to the level of export demand in relation to the propensity to import, through the working of the Harrod trade multiplier:2 the rate of growth of output will approximate to the rate of growth of exports divided by the income elasticity of demand for imports (see Thirlwall, 1979).
  2. A fast rate of growth of exports and output will tend to set up a cumulative process, or virtuous circle of growth, through the link between output growth and productivity growth. The lower costs of production in fast growing countries make it difficult for other (newly industrializing) countries to establish export activities with favorable growth characteristics, except through exceptional industrial enterprise.

This catalogue of propositions is more or less the full Kaldor model of growth rate differences in advanced capitalist countries …

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Notes

  1. Some of the propositions are not as Kaldor originally stated them, but we shall
    return to the original argument later.
  2. For an exposition and an elaboration of the Harrod trade multiplier, see Kennedy and Thirlwall (1979) and Thirlwall (1982).

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References

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Kennedy, C, and Thirlwall, A. P. “Import Penetration, Export Performance and Harrod’s Trade Multiplier.” Oxford Economic Papers, July 1979.

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Thirlwall, A. P. “The Balance of Payments Constraint as an Explanation of International Growth Rate Differences.” Banca Nazionale del Lavoro Quarterly Review, March 1979.
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⸻, “The Harrod Trade Multiplier and the Importance of Export Led Growth.” Pakistan Journal of Applied Economics, 1(1), Summer 1982.

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Young, A. “Increasing Returns and Economic Progress.” Economic Journal, December 1928

Links:

  1. SpringerLink
  2. Google Books
  3. JSTOR
  4. Palgrave Macmillan
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Ashwani Saith: Ajit Singh Of Cambridge And Chandigarh – An Intellectual Biography Of The Radical Sikh Economist

Has interesting stories from Cambridge:

Anthony Thirlwall provides us with this aphoristic nugget that sums it all up: “The distinguished development economist Ajit Singh tells how, when he first went to Cambridge to study economics, Nicholas Kaldor taught him three things: first, the only way for a country to develop is to industrialize; second, the only way for a country to industrialize is to protect itself; and third, anyone who says otherwise is being dishonest!” (Thirlwall quoted in Hein 2014, p. 178, footnote 35).

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References

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Hein, E. (2014). Distribution and growth after Keynes: A post-Keynesian guide. Cheltenham: Edward Elgar.

Labour Day!

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Nicholas Kaldor on how neoliberalism weakened labour power:

The centrepiece of the Government’s economic strategy, the control of the money supply, however genuinely believed in by some people, is really only a façade or a smokescreen. The important consequence of the strategy is to alter the balance of bargaining power, to weaken the trade unions through the intensification of unemployment and through the loss of jobs, through factory closures and bankruptcies, and thereby to succeed in bringing wage settlements well below the rate of inflation; that is to say, to reduce real wages.

– Nicholas Kaldor, The Economic Consequences of Mrs. Thatcher, page 62

Nicholas Kaldor, picture from National Portrait Gallery

To understand how labour power has been weakened, you need to understand monetary economics.

Happy Labour Day 🥂

The UK Labour Party Talking Keynesian Multiplier Effects

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There’s a nice new video posted by the UK Labour Party on Twitter on the multiplier effect of spending with the complication about the propensity to consume of the super-rich vs. others.

click to see the video on Twitter

This isn’t the first time, it has got Keynesianism right. In August last year, there was another video which got the economics right.

Mainstream Economics Compared To Keynesian Times

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Paul Krugman has endorsed an article by Jason Furman and Lawrence Summers on fiscal policy. It has a mix of pre-Keynesian orthodoxy and the Keynesian thinking of the 40s.

The economics profession got it wrong on fiscal policy, claiming it is impotent for raising real output and is now making it look like they already knew this.

For comparison, here’s Nicholas Kaldor, free of all pre-Keynesian orthodoxies:

It is impossible to judge intelligently the system of taxation, or the scale of public expenditures, without a quantitative record of the total economic activity of the nation, which forms the background. This is perhaps even more important in war-time, when the Government controls so much larger a part of the national income; but it is vital in peace-time as well. If a statement of this kind had been presented year by year, simultaneously with the Budget, many financial mistakes of past Governments might have been avoided.

Moreover, the regular publication of this document would stimulate both Government and Parliament to look upon the level and the stability of the National Income, rather than the conventional and narrowly financial standards, as the true criterion of budgetary policy; to regard the movements of the national expenditure, and not merely of the expenditures of public departments, as within their province. It is on the assumption of this wider responsibility that our best hope lies for the post-war world.

– Nicholas Kaldor, The White Paper On National Income And Expenditure, 1941

Anthony Thirlwall On Nicholas Kaldor On Joining The European Union

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There’s a new book, The Elgar Companion To John Maynard Keynes, edited by  Robert W. Dimand, Harald Hagemann. Chapter 76 titled Nicholas Kaldor is written by Anthony Thirlwall.

Thirlwall reminds us of Kaldor’s dislike to enter the common market in the 70s:

The Labour Party lost power in 1970 and Kaldor had more time to campaign on two main public issues which concerned him greatly. The first was the acceptance by economists and policy-makers of the doctrine of monetarism which had spread with the virulence of a plague from the University of Chicago under the influence of Milton Friedman to infect policy thinking at the highest level in the UK. The second concerned the UK’s entry into the Common Market (now the European Union). With regard to monetarism, Kaldor led the intellectual assault worldwide against the monetarist view that inflation is always and everywhere a monetary phenomenon in a causal sense caused by excessive government expenditure financed by money creation. On the contrary, argued Kaldor, because money consists largely of credit, and credit only comes into existence if it is demanded, money is endogenous to an economy not causal in the determination of output and prices. The major cause of inflation, at least in mature industrial countries, is rising wages and other costs. Kaldor could find no evidence in the UK. or across countries, of any relationship between the size of countries’ budget deficits and measures of broad money (Kaldor 1980c). Kaldor lost the battle against monetarism in the UK, but won the war because the doctrine of monetarism is now dead.

On the issue of the UK joining the Common Market. Kaldor was highly sceptical of the alleged dynamic benefits stemming from a larger market for the export of goods and services. He argued that because imports are likely to grow faster than exports, as trade barriers come down, the UK would need to deflate the economy to preserve balance of payments equilibrium, and this would slow growth. In addition to this, the budgetary contribution would be huge, the price of food would rise leading to wage increases and Britain would be letting down the Commonwealth countries which had a preferential access to the UK market. The vote in 1975 against joining the Common Market was lost, but Kaldor appears to have been correct in his predictions. The dynamic benefits of having become a member of the European Union are nowhere to be seen. If anything, productivity growth has been slower post-1975 than pre-1975 (although other factors have also been at work).

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REFERENCES

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Kaldor, N (1980c), Memorandum of Evidence on Monetary Policy submitted to the House of Commons Select Committee on the Treasury and the Civil Service, 17 July, London: HMSO.

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Nicholas Kaldor, picture from Cambridge Journal Of Economics

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Jason Hickel Features Again On Citations Needed

The latest episode of the podcast Citations Needed features Jason Hickel again who together with the hosts Nima Shirazi and Adam Johnson explain how the mainstream narrative hides the correct story about success and failure of nations by spreading the wrong idea that corruption is the main factor.

Jason Hickel: So, of course I teach on global economics and, and one of the questions I like to ask my students at the beginning of term is something along the lines of, okay, so we have this massive inequality between global north and global south, rich countries and poor countries, why do you think poor countries are so poor? And I would say, you know, 80 and 90 percent of the students will put their hands up and say they believe it’s because of corruption, you know, because the global south has corrupts leaders. But the problem with that story is it erases, you know, the history of colonization, the history of structural adjustments, the history of unfair trade arrangements. And so it’s a very de-politicized way of thinking about the drivers of impoverishment because the focus is solely on the nation states as opposed to the relationships between nation states and geopolitical regions of the world. And that’s really what I want to draw attention to.

💯 🎯