Tag Archives: globalisation

Mainstream Economics On A Better Globalisation

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The United States policies and maintains the “liberal international order”, a totally unfair game built on laissez-faire/anti-Keynesian ideas. That was advantageous for the United States because its corporations are highly competitive because of historical reasons and who don’t need protection at home. Of course the US has still been using protectionist measures, so there’s hypocrisy there too. But the general system is the removal of protection from countries whose producers need it. Free trade in general. Low tariffs, no import quotas and industrial policy is shooed away.

There’s a good Noam Chomsky video on What Is The WTO? (with transcripts on that page).

Post-Keynesians have argued how the system of free trade has a deflationary bias and causes polarisation in the fortunes of nations.

The solution is, as proposed by Nicholas Kaldor in his book Causes Of Growth And Stagnation In The World Economy, page 87:

… coordinated fiscal action including a set of consistent balance of payments targets and “full employment” budgets.

Anyway, China has gamed this too well to cause troubles to the United States. The US balance of payments and international investment position is on an unsustainable path now because of this. Slower growth for the US also implies slower growth for the world as a whole because the United States is a spender of the last resort (or more like the first resort). High imbalance also means that many countries can’t expand fiscal policy.

So there is a need to change the rules of globalisation, which is more than about free trade but free trade is an important part of it.

Dani Rodrik has two interesting recent articles on this. He is different from the establishment but unfortunately falls short. In his article US-China Rivalry: Geopolitics Is Ruining The Chance To Shape A Better Globalisation, he talks of how the US has taken measures which are more than just tariffs raised by Trump:

US President Joe Biden has added to these challenges by launching what Edward Luce of the Financial Times has called “a full-blown economic war on China”. Just before the party congress, the United States announced a vast array of new restrictions on the sale of advanced technologies to Chinese firms.

As Luce notes, Biden has gone much further than his predecessor Donald Trump, who targeted individual companies such as Huawei. The new measures are astounding in their ambition, aiming at nothing less than preventing China’s rise as a hi-tech power.

In Trump’s four years, economists led by Paul Krugman dismissed Trump’s actions on China but the current Biden administration for which Krugman—acts as a lackey—have gone way beyond.

It’s such a blot on the economics profession that almost nobody saw all this coming. The exception of course was Wynne Godley who was recommending import controls and policies to expand exports in the 2000s. The bigger solution of course is one in which trade is overall balanced. Wynne Godley mentions in his article The United States And Her Creditors — Can The Symbiosis Last? written in 2005:

A resolution of the strategic problems now facing the U.S. and world economies can probably be achieved only via an international agreement that would change the international pattern of aggregate demand, combined with a change in relative prices. Together, these measures would ensure that trade is generally balanced at full employment.

The other Dani Rodrik article How To Build A Better Order although interesting doesn’t go much far than proposing some changes. And Rodrik is a kind of dissenter from mainstream economics from within the establishment, so the profession doesn’t have a clue!

Industrial Policy And Global Tax Coordination: Some Changes In How The World Is Run

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Senate Poised To Pass Huge Industrial Policy Bill To Counter China is the headline of a recent news item from The New York Times.

US politicians have come to realise—especially after the rise of Trump—that free trade and globalisation is a major cause of damage to the US economy. The purpose of industrial policy is to make US producers more competitive. This results in increase of exports and fall in imports, relative to gdp.

Wynne Godley had been warning for quite some time on how the US government should address the trade imbalance instead of leaving it to market forces. In March 2003, in an article The U.S. Economy: A Changing Strategic Predicament he said:

The default conclusion is that the U.S. economy will not recover properly in the medium term, but rather will enter a prolonged period of “growth recession.” The only lasting solution will be to get U.S. exports to rise much faster than imports over a prolonged period.

And also suggested non-selected protectionism for the short term.

Another recent news article from NYT is about a global tax coordination. Globalisation has led to a race to the bottom. To raise price competitiveness, countries have been wrongly incentivised to reduce tax rates on firms and this led to some competition between countries to keep reducing tax rates on corporations. And this has led to lot of economic damage.

The Democratic Party of the US has learned from mistakes in the past and is trying to correct them but the Dems are total corporatists and these measures are just for elite preservation. For example, they were talking of reversing Trump’s tax cuts for corporations but the party is a champion in performative politics: it seems they’re not reversing it now.

As Joseph Stiglitz points out, the problem with this 15% tax rate is that it become the de facto the maximum tax rate.

In his last paper, Wynne Godley said on rebalancing:

It is inconceivable that such a large rebalancing could occur without a drastic change in the institutions responsible for running the world economy—a change that would involve placing far less than total reliance on market forces.

Although the steps taken by the US government looks in the right direction, there’s still a large way to go, especially considering how the Democrats pretend to do all sorts of good things. Still far from a Keynes like plan to fine surplus countries and to remove imbalances in balance of payments and international investment position.

Two Perry Anderson Quotes From His Recent London Review Of Books Articles

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As mentioned in my previous post, Perry Anderson has three essays in London Review Of Books on Brexit, where he is quite critical of the EU.

Two quotes:

Everyone has an idea what a nation-state is, and many know that 27 countries (with the UK’s departure) are member states of the European Union. What is the conceptual difference between the two? Bickerton’s definition is succinct. ‘The concept of member state expresses a fundamental change in the political structure of the state, with horizontal ties between national executives taking precedence over vertical ties between governments and their own societies.’

and

After a referendum campaign of ten weeks, 58 per cent of Tory, 37 per cent of Labour and 96 per cent of Ukip voters opted for Leave, yielding an overall majority of 52 per cent for Brexit, rising to 64 per cent in the poorest three categories of the population, C2DE. The only socioeconomic group where a majority voted to Remain was the most affluent stratum of the population, composed of members of categories A and B. All others preferred Leave. But if voters were divided not by income but by age and education, the result looked very different. Of those between 18 and 24 who voted, 73 per cent chose Remain; between 25 and 34, 62 per cent; between 35 and 44, 52 per cent; the majority of those over 44 voted for Leave. Similarly, 57 per cent of those with university degrees opted to Remain, 64 per cent with higher degrees, and 81 per cent in full-time education. Geographically, in England it was in university towns alone that Remain won handsomely.

So the ‘Remain’ camp consisted of globalists trying to defend their interests!

Ingrid Harvold Kvangraven On The Dependency Research Program

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Ingrid Harvold Kvangraven has a new paper Beyond The Stereotype: Restating The Relevance Of The Dependency Research Programme in the journal Development And Change in which argues for the high importance of “dependency theory” which she wants to call a research programme.

There’s a good Twitter thread by her summarising the paper.

The central idea of the theoretical framework is that:

core countries benefit from the global system at the expense of periphery countries, which face structural barriers that make it difficult, if not impossible, for them to develop in the same way that the core countries did.

And from the summary at the end:

… defining dependency theory as a research programme provides an alternative way of categorizing dependency scholarship that captures the breadth of the scholarship as well as its strengths. This research programme — characterized by 1) theorization on the persistence of uneven development; with a focus on 2) the specific constraints peripheral countries face; and 3) structures of production; with 4) a global historical approach to these issues — provides a foundation from which to fruitfully explore important questions related to development and global inequality.

Although, the paper doesn’t mention the name of Nicholas Kaldor, I look at such issues using his work, and agree quite a bit with the dependency research programme.

Thomas Piketty On The Winners Of Globalisation

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Thomas Piketty gets dismissed a lot: from the right-wing since they either think there’s much inequality or that it’s unimportant. From the left, he gets ridiculed for not being a Marxist or even Post-Keynesian/Keynesian enough. Whatever the criticisms, there are some things which he says which are useful and highly important in the current political climate. My view is that he is a bit late to it but some of his analysis adds more light.

Snapshot from a promotional video for Seuil.

In his book Capital And Ideology, he talks of how the dynamics of winners against losers of globalisation creates interesting politics. For example in pages 812-817:

Will the Democratic Party Become the Party of the Winners of Globalization?

…

Nevertheless, other factors cast doubt on the long-term viability of a transformation of the Democratic Party into the party of the winners of globalization in all its dimensions: educational as well as patrimonial. First, the presidential debates of 2016 showed the degree to which cultural and ideological differences remain between the Brahmin and merchant elites. Whereas the intellectual elite stressed values of level-headed rationality and cultural openness, which Barack Obama and Hillary Clinton sought to project, business elites favored deal-making ability, cunning, and virility, of which Donald Trump presented himself as the embodiment.16 In other words, the system of multiple elites has not yet breathed its last because at bottom it rests on two different and complementary meritocratic ideologies. Second, the 2016 presidential election showed the risk that any political party runs if it becomes too blatantly identified as the party of the winners of globalization. It then becomes the target of anti-elitist ideologies of all kinds: in the United States in 2016, this allowed Donald Trump to deploy what one might call the nativist merchant ideology against the Democrats. I will come back to this.

Last but not least, I do not believe that this evolution of the Democratic Party is viable in the long run because it does not reflect the egalitarian values of an important part of the Democratic electorate and of the United States as a whole …

  1. Note that the recourse to overtly anti-intellectual and anti-Brahmin leaders like Donald Trump is not limited to the US Republican Party: the European right has gone in a similar direction as shown by the choice of a Silvio Berlusconi in Italy or a Nicolas Sarkozy in France.

and on the EU referendum/Brexit, page 861, Chapter Sixteen, Social Nativism: The Postcolonial Identitarian Trap:

… in all three countries [United Kingdom, United States, and France], the “classist” party systems of the period 1950–1980 gradually gave way in the period 1990–2020 to systems of multiple elites, in which a party of the highly educated (the “Brahmin left”) and a party of the wealthy and highly paid (the “merchant right”) alternated in power. The very end of the period was marked by increasing conflict over the organization of globalization and the European project, pitting the relatively well-off classes, on the whole favorable to continuation of the status quo, against the disadvantaged classes, which are increasingly opposed to the status quo and whose legitimate feelings of abandonment have been cleverly exploited by parties espousing a variety of nationalist and anti-immigrant ideologies.

Planned Trade

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The latest edition of The Economist has this cover, worrying about the rise in the idea of national self-sufficiency.

Obviously, The Economist whose purpose is to promote the propaganda of free trade doesn’t like this as any country achieving self-sufficiency would mean a reduction of market share of large corporations whose interests the magazine has spoken since 1843, the year it was founded.

John Maynard Keynes wondered about national-self sufficiency too. In an article titled National Self-Sufficiency in the year 1933, which he argued:

Of course self-sufficiency is one thing, but there’s also the idea of planned trade. These two concepts are related but are potentially different.

One of the promoters of planned trade was Nicholas Kaldor. In The Role Of Increasing Returns, Technical Progress And Cumulative Causation In The Theory Of International Trade And Economic Growth, Economie Appliquée, 34(4): 593–617, 1981, he motivates the reasons for a planned trade:

At the moment the world suffers from an insufficiency of demand for industrial products which most industrial countries however are not in a position to remedy, because of the need to avoid deficits in their balance of payments. It does not follow therefore that free trade leads to the maximum development of trade: if it involves chronic imbalances it might lead to a situation in which the world economy is in a state of continued recession, which cannot be effectively counterbalanced by national policies of economic management. Most governments and economists are in constant fear lest the state of recession will lead to the haphazard introduction of protective measures to domestic industries, which on balance will cause a further shrinkage of world demand. This may well happen in the absence of a coordinated policy, but my own prescription would not be that we must stick to free trade (whatever the cost), but to introduce a system of planned trade between the industrially developing countries, so as to remove the balance of payment constraint on their internal expansion.11

Contrary to the actual policies adopted—which put trade restrictions mostly on imports from low wage developing countries—I would allow such imports freely since these countries have an unlimited appetite for manufactured imports of capital goods, which is only restrained by their ability to pay for them. Contrary to the general view, therefore, it is not the imports coming from the developing countries, but the import penetration of goods produced in developed countries which threatens major industries of other developed countries (such as the motor car industry in Britain or the television industry in the U.S.) and which requires some system of regulation of trade if we wish to remove existing impediments for the expansion of production and employment in the industrial countries of the world.12

11 The French Government in the year preceding the legislative election, under the leadership of M. Barre, advocated something similar with their slogan “Croissance ordonnée des échanges”. It is possible however that it was a temporary slogan for the sake of electoral popularity since not much was heard about these policies after the last French elections.

12 It also requires the recycling of OPEC surpluses—a function which has been performed up to now, not by official institutions such as the IMF, but mainly American private banks, operating through the Euro-dollar market. While I have no time to develop this theme on the present occasion, I think I ought to mention that I would favour as an instrument of such planning the introduction of some licensing system for imports of manufactures which is directly linked to exports, so that imports and exports are kept in some agreed balance.

Basically in the regime of free trade, the market mechanism does not bring balance-of-payments imbalances in balance. The price mechanism to keep global imbalances in check simply doesn’t work. Instead it works by putting a deflationary bias on the whole world.

Hence there is a need for using official mechanisms to keep imbalances in check without output suffering.

Link

Dani Rodrik On Globalisation After COVID-19

Suppose a poor isolated country opens to business to the rest of the world. There is high risk that producers in that country file for bankruptcy because of competition from foreign producers. Hence the poor country might look at various ways of integrating, such as protection of its industries.

In Post-Keynesian theory, success and failures of nations are strongly the result of performance of corporations in world markets. Winners keep winning and those are left behind keep struggling. Free trade destroys countries.

Of globalisation isn’t just about trade but also finance. So one pet peeve of activists against globalisation is the investor rights agreements which gives corporations power over national governments. And globalisation is also about movement of people for employment and business.

Dani Rodrik is a mainstream economist but his views are on the dissenting edge of mainstream, so he is interesting despite his shortcomings.

So for example, he realises that the rules of the game of globalisation is the result of rigging by top corporations but then claims that the economics profession is innocent:

Political settlements are the joint product of vested interests and prevailing ideas. Our present system of globalisation is no different. After the Bretton Woods regime ran aground with the oil shocks of the 1970s, many developing nations proposed a new mode of integration organised through the UN agencies. But in the end the west and its allies pushed through rules that served the interests of large corporations, financial markets, and skilled professionals quite well, but did not do much for others—those who did not have the networks, skills, or assets to profit from global markets. Had there been powerful lobbies pushing for global co-operation over public health or the environment—and had those in power not bought into the misguided belief that “mainstream” economics dictated they pursue economic efficiency over every other priority, and ever-freer trade as an end in itself—then we might have erected one of the other types of globalisation I just sketched.

On “open-borders”, he rightly dissents from the mainstream view:

A complete opening of borders to foreign labour is neither feasible nor desirable.

Although Rodrik’s ideas are a break from “mainstream”, it doesn’t go too far. Post-Keynesians stress outcome based rules such as balance-of-payments targets via asymmetric protectionism where poor countries are allowed a mix of higher industrial policy and protectionism without facing retaliation and creditor countries being required to boost domestic demand, remove import restrictions and lend to poor countries at cheap interest rates. All this with a coordinated fiscal expansion which maintains economies at full employment.

Asymmetric Protectionism

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Imperialism and free-trade is the most important reason for why some countries are rich and others poor. Because of the principle of circular and cumulative causation, they rarely catch up. Poor countries aren’t “underdeveloped”—it’s a misleading word—they’re exploited. Hence there’s a need for global rules to allow for convergence of fortunes of nations. The current rules of globalisation lead to polarisation and welfare of a few, not the many.

I recently recommended Ha-Joon Chang’s lecture series. It’s a long one—13 lectures followed by discussions.

In the discussion part of the talk Why Are Some Countries Rich And Others Poor, Ha-Joon Chang calls for asymmetric protectionism. The global rules are in favour of poor countries and not the rich ones.

Nicholas Kaldor was proposing “planned trade” in the 70s and the 80s and also a plan to have balanced trade. So a part of planned trade would be to allow poor countries to use tariffs and quotas without the fear of retaliation by rich countries.

UK Elections 2019 And Brexit

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The nicest prison in the whole world fought an election to become the Prime Minister of the UK 🇬🇧 and lost. Jeremy Corbyn isn’t just a nice person but the politician with the best politics, not just in the current times, but maybe ever. And he ran the most compassionate campaign and appealed to a lot of voters.

Jeremy Corbyn with El Gato

It looks like Brexit was a huge factor in the election. In many constituencies Labour has always won since almost 100 years and has now suffered losses. So there’s a backlash against Labour. Before the election, Labour had promised to do put together a trade deal with the EU and then put that to vote with the other option to remain in the EU. Labour voters don’t seem to have liked this and revolted by voting for other parties, such as the Conservatives.

Jeremy Corbyn has resigned, although he will continue to be an MP from Islington North. It’s unfortunate given that Jeremy Corbyn is—in my opinion—the number one Brexiter. In this video clip from 2009, he is seen saying that that the EU is a massive, great Frankenstein. Lovely clip, one of his best.

So Jeremy Corbyn cannot be blamed for this mess. The problem is inside Labour, their cheerleaders, and the general consensus which fails to understand the damage globalisation causes. It looks like Corbyn had to cave in to them.

Oh, Jeremy Corbyn 💔

Link

Michael Hardt And Antonio Negri — Empire, Twenty Years On

The latest issue of New Left Review is out. Has an interesting article by Michael Hardt and Antonio Negri on how globalisation isn’t dying but just shifting to a path where global powers want to change it to their advantage. Again!

Twenty years ago, when our book Empire first appeared, the economic and cultural processes of globalization occupied centre stage: all could see that some kind of new world order was emerging. Today globalization is once again a central issue, but now commentators across the political spectrum are conducting its postmortem. Establishment political analysts, especially in Europe and North America, lament the decline of the liberal international order and the death of the Pax Americana. Newly dominant reactionary forces call for the return of national sovereignty, undermining trade pacts and presaging trade wars, denouncing supranational institutions and cosmopolitan elites, while stoking the flames of racism and violence against migrants. Even on the left, some herald a renewed national sovereignty to serve as a defensive weapon against the predations of neoliberalism, multinational corporations and global elites.

Despite such prognostications, both wishful and anguished, globalization is not dead or even in decline, but simply less easily legible. It is true that the global order and the accompanying structures of global command are everywhere in crisis, but today’s various crises do not, paradoxically, prevent the continuing rule of the global structures. The emerging world order, like capital itself, functions through crisis and even feeds on it. It works, in many respects, by breaking down. The fact that the processes of globalization are less legible today makes it all the more important to investigate the trends of the past twenty years in both the variegated constitution of global governance, which includes the powers of nation-states but extends well beyond them, and the global structures of capitalist production and reproduction.

Interpreting the primary structures of rule and exploitation in a global context is the key to recognizing and furthering the potential forces of revolt and liberation. The emerging global order and networks of capital undoubtedly constitute an offensive operation, against which we should support resistance efforts; but they should also be recognized as responses to the threats and demands forwarded by the long history of revolutionary internationalisms and liberation struggles. Just as today’s Empire was formed in response to the insurgencies of the multitudes from below, so too, potentially, it could fall to them, as long as those multitudes can compose their forces into effective counter-powers, and chart the path towards an alternative form of social organization. Today’s social and political movements are, in many respects, already pointing in this direction.

…

Most important at this aristocratic level of Empire is the extent to which, despite appearances, its general contours remain unchanged. From this perspective, the much-heralded return of the nation-state—along with nationalist rhetoric, threatened trade wars and protectionist policies—should be understood not as a fracturing of the global system, but rather as so many tactical manoeuvres in the competition among aristocratic powers. America first!, Prima l’Italia! and Brexit! are the plaintive cries of those who fear being displaced from their positions of privilege in the global system.

Like the conservative French peasants whom Marx portrayed as being mobilized by memories of lost Napoleonic glory (and who yearned to make France great again), today’s reactionary nationalists aim not so much at separation from the global order as moving back up the rungs of the global hierarchy to their rightful position. In similar fashion, the conflicts between dominant nation-states and the supranational infrastructure—think of Trump railing against ‘globalism’ in his 2018 UN General Assembly address—entail a ploy for a more dominant position within, rather than an attack upon, the global system. The elites leading the dominant nation-states and supranational institutions are all driven by the dictates of a neoliberal ideology irrevocably dedicated to constructing and maintaining the capitalist global order.

…

… We need today an international cycle of struggles with the intelligence to investigate the structures of the ruling global order. Sometimes, after all, the theoretical work done in social movements teaches us more than that written in libraries. Reversing their invisibility is the first step toward being able to challenge and eventually overthrow the structures of Empire.