World Economy PDF

WORLD ECONOMY [email protected] [email protected] What is World Economy about? Analysis of gl...

WORLD ECONOMY [email protected] [email protected] What is World Economy about? Analysis of global economy dynamics, evolution and current state: – Production, income and socioeconomic development of countries and regions. – External insertion of national economies. Analysis of international economic exchanges and interactions: – Trade of goods and services, monetary and financial flows, investment, labor and migration, etc. – Actors and forces that shape them: international organizations, multinational corporations, governments, etc. – Rules that define them: international agreements, integration processes, economic conflicts, etc. There are multiple contending approaches to the understanding of world economy depending on: – The importance of theories and models and the relevance of applied analysis and empirical evidence. – The use of other scientific fields beyond economics (history, politics, sociology, etc). – The perspective on neutrality and the role of social and political interests. Basic distinction: orthodox (or mainstream) approaches and heterodox (or radical) approaches. Regarding theory Theory is essential to provide useful tools that offer general explanations of the evolution of economic variables and their mutual relationships. Examples: macroeconomics, microeconomics, international relations, international economics... Applied economics is essential both to reflect past and present economic phenomena and to forecast their evolution. Examples: economic history, international political economy, statistics, econometrics.. Our approach is both applied and theoretical, we’ll describe and analyze real, specific, context-based economic facts and processes, rather than hypothetical models. We’ll use theory to provide us with concepts and tools useful to understand and interpret the real world. Regarding neutrality Economic science is a social science that deals with the production, distribution and consumption of goods and services. It studies how societies are organized to achieve their material reproduction throughout history. – Use of scientific method → Science – Conflict between social classes → Social science with competing approaches. Objectivity is a must: reality cannot be ignored, even if it rejects our theoretical presumptions. Neutrality is impossible: all economists are conditioned by personal and social factors (class, country, time..). But, anyway, is neutrality desirable? “Economic theories are rationalizations of the political interest of conflicting classes and groups and should be treated as such. Behind economic alternatives lurk visions of society, models of culture, and thrust for power. Economic projects entail political and social ones”. Adam Przeworski (Capital and Social Democracy, p. 206). Orthodox (or mainstream) approaches: “ECONOMICS” – A single approach or diverse approaches with minor differences (neoclassic, neo-Keynesian..) – Dominant in universities and political institutions – Compatible with the needs of capitalism – Individualistic, rationalist conception of human beings: - Focused exclusively on the interaction between individuals. - Societies are considered as simple aggregation of individuals. – Harmonic conception of societies without class conflicts – Static and ahistorical conception of capitalism as the ultimate mode of production. – Economics as a unidimensional science. Fragmentation of social sciences into closed knowledge fields. – Full confidence in mathematical models. Heterodox (or radical) approaches: “POLITICAL ECONOMY” – Plural approaches with remarkable differences (Marxism, post-Keynesianism, institutionalism, feminism, environmentalism..) – Minority (but influential) in universities and political institutions. – Uncomfortable and even potentially dangerous for capitalism – Social, complex, systemic, and dialectical conception of human beings and societies. – Conflictual conception of societies defined by competing interests (classes, nations, firms). Close relationship between economic phenomena and power. – Dynamic conception of capitalism as a historical mode of production. – Political economy as a multidimensional science. Close interaction with other social sciences: history, sociology, politics. – Less importance of mathematical models and more relevance of qualitative analysis (social, historical, political…). Economics ≠ Political Economy → changed with Marshall at the end of the 19th century Everything was linked so it had to be presented together. Now everyone uses Economics, to give it a scientific profile. GPE looks at global systems, emphasizing the interconnectedness of economies, politics, and social processes on a worldwide scale. It includes not only nation-states but also non-state actors like multinational corporations, non-governmental organizations (NGOs), and global institutions. GPE tends to focus on contemporary issues such as globalization, global governance, inequality, and sustainability, offering a more interdisciplinary approach that often includes critical and alternative theories (e.g., feminist or post-colonial perspectives). IPE, on the other hand, is more state-centric, analyzing the political and economic interactions between countries. It focuses on how states influence and are influenced by international trade, finance, and economic policy. Theoretical approaches in IPE are often rooted in traditional frameworks such as liberalism, realism, and Marxism, emphasizing the role of international institutions and state actors. In short, GPE has a broader, global perspective that includes non-state actors and alternative theories, while IPE centers primarily on relations between nation-states and their economic policies. UNIT 1 A Theoretical Introduction to Growth and Development GROWTH Economic growth: increase in the production of goods and services in an economy over a period. Typically measured by the rise in Gross Domestic Product (GDP). GDP: total monetary value of all finished goods and services produced within a country's borders over a specific period (usually measured yearly or quarterly). Three approaches: Expenditure approach: total spending on goods and services. C (consumption) + I (investment) + G (gov spending) + X (exports) – M (imports) Income approach: total income earned by individuals and companies. W (wages) + P (profits) + I (interests) + R (rents) + T (taxes) – S (subsidies) Production or value-added approach: total value added at each stage of production, i. e., contribution of each sector to the economy. Types of GDP: Nominal GDP: value of goods and services at current prices, not adjusted for inflation. It can rise due to both real economic growth and price increases. Real GDP: value of goods and services adjusted for inflation by fixing prices at a base year. It provides a more accurate reflection of an economy's growth in terms of actual output. GDP per capita: average GDP per person in an economy. It divides GDP (nominal or real) by total population. GDP in purchasing power parity (PPP): GDP adjusted for differences in price levels between countries. GDP (PPP) is lower than GDP in developed countries and the opposite in non-developed countries because prices are higher in the former than in the latter. Limits and contradictions of GDP: - doesn't account for income (and wealth) inequality - overlooks non-market individual transactions (i. e., without prices: household work, informal economy) - can only estimate non-market government activities (i. e., public services without prices: education, health, security) - ignores environmental, social and human consequences of production and consumption (pollution, resource exploitation, labor stress, destruction caused by war economy…) - is limited to a single dimension of human life: consumption of goods and services. Key contradiction: GDP does not distinguish between use value (utility) and exchange value (price) → all profitable production is considered to contribute to growth, regardless of its social and environmental effects. Growth depends on 2 essential factors: A) Accumulation of capital (quantity of productive forces): 1. Labor force (L) 2. Means of production: - Capital goods (K) - Natural resources ® B) Technical change (quality of productive forces, i. e., productivity) (A): - Technology: machinery, tools, hardware, software, infrastructures. It is determined by scientific advances. This factor improves: efficiency of capital goods, productivity of labor force and quality and availability of natural resources. - Organization: distribution of tasks, processes and interactions in the workplace. It is determined by management advances. This factor changes: efficiency of capital goods and productivity of the labor force. - Education and culture: training, skills, discipline, motivation of workers. Both are determined by historical, social and political factors. This factor enhances: productivity of the labor force. - Institutions: organizations, political processes and rules. It is determined by historical, social and political factors. This factor leads to: better productivity of the labor force. (All these factors are profoundly influenced by external factors) Conventional production function: Y = A F(K, L, R) 1A. The amount of labor force depends on: - Population growth (births – deaths). Natural, historical and cultural determinants. - Net migration (immigration – emigration). Social, political and economic determinants. Bidirectional factor. - Labor force participation rate (labor force/population). Social and cultural determinants. - Employment rate (employed/labor force) and, alternatively, unemployment rate (unemployed/labor force). Economic determinants. Bidirectional factor. 2A. The amount of capital goods depends on: - Investment rate (investment / profits or investment / output). Depends on the real and expected profit rate and political factors (industrial policy, fiscal policy…) - Rate of profit (profit / investment). Depends on actual economic performance (production, sales, labor costs, productivity…) and political factors (labor policy, fiscal policy). The quantity and quality of natural resources depends on: - Geographical distribution: exogenous factor based on natural and geological processes. - Historical and political dynamics. Wars, invasions, colonialism, diplomacy determine the international distribution of territories. - Technical and scientific capability. To discover, extract, transform and use natural resources. Determined by the degree of development. B. Technical change Technical change: combination of factors that improves the productivity of productive forces. Productivity: output / input = production outcome / costs of production. Productivity measures the efficiency of the production process and, specifically, the efficiency of labor. Efficiency has two dimensions: - Technical efficiency. In terms of physical production (use value). - Economic efficiency. In terms of monetary results (exchange value). Technical efficiency is fully conditioned by economic efficiency: the former must always lead to the latter. In other words, the only feasible and reasonable technical change is the one that increases profits. DEVELOPMENT GROWTH DEVELOPMENT Considers only quantitative variables (production and Includes growth + other quantitative and qualitative income) variables (life expectancy, freedom, democracy..) Ignores distribution between individuals or classes Considers a fair distribution as a key condition of well-being Assumes one single dimension of human life (material Studies various dimensions of human life (health, needs) education, political rights, opportunities..) Towards a definition of development Concept of development according to development economists: - Economic development approaches: development as economic growth, via productive development or efficient allocation of resources. - Basic needs approaches (1970s, 2010s): development as reaching minimum satisfaction of needs (basic income, food and water, housing, medical care, etc.) - Human development approaches (1990s, 2000s, 2010s): development as expansion of human beings' capabilities, as a source of freedom (negative and positive → pos= obstacles and barriers that prevent us from being free, if removed= neg). - Post-development conceptualizations (since the 1990s): concept of development reflects Western-Northern hegemony over the rest of the world (growth/industrialization as preconditions for development). So, the term must be reconfigured from the pov of other cultures and social contexts and by their peoples, rather than by dominant political and academic institutions. E.g.: Swaraj (India), Buen Vivir (Ecuador, Bolivia), Ubuntu (Africa), De-growth (Germany, France). Each dimension of development can be addressed by measuring one or more variables: - Income: GDP (PPP) per capita.. - Economic equality: Gini Index, income percentiles, extreme poverty gap.. - Poverty: prevalence of undernourishment, access to water, access to electricity.. - Health: life expectancy, child mortality rate, government expenditure.. - Education: literacy rate, government expenditure.. - Gender equality: female labor force, contraceptive prevalence.. - Political rights: freedom index, democracy index.. (quite controversial). - Environment: CO2 emissions, ecological footprint.. Measuring development (1) The Human Development Index (HDI) is the most extensively used. Published by the UNDP since 1990 and created by economists Amartya Sen and Mahbub ul Haq. It presents 3 dimensions of development: (2) The 17 Sustainable Development Goals (SDG) Promoted by the United Nations in 2015. Part of the so-called 2030 Agenda. UNDERDEVELOPMENT Various terms refer to countries that have not been able to achieve development: underdeveloped, non-developed, developing, poor, Third World… Our vision: Underdevelopment or non-development not as a simple lack of development, a delay or a detour on the path to development, but as a structural situation with multiple internal and external economic, political and social causes that forces a country to play a subordinated role in the international division of labor and has serious consequences in terms of standards of living, human rights and real freedom. Consequences of underdevelopment - Hunger and chronic or acute malnutrition - Social, regional, ethnic and sexual inequality resulting from inequality of income, wealth and property - Poor health systems and lack of basic supplies (water, electricity) - Poor and segregated educational systems - High unemployment and massive precarious work (informal economy) - Inefficient, corrupt and authoritarian political systems with weak states. No democracy or real freedom - Systematic violation of human rights - Permanent loss of young people and workforce via mass migration Measuring underdevelopment: MPI The most extensively used: Multidimensional Poverty Index (MPI). Published by the UNDP and the Oxford University since 2010. Three dimensions of underdevelopment: THE CORE-PERIPHERY MODEL Based on the World-Systems Theory by Wallerstein and used extensively by structuralism and dependency schools. Two basic kind of countries according to their places in the world economy: – Core countries. Developed countries with a hegemonic role in world production, trade, finance, migrations and politics. – Periphery countries. Non-developed countries with a subsidiary role in world production, trade, finance, migrations and politics. We can also identify a third type: Semi-periphery countries. Between core and periphery countries. Dominant in relation to the periphery and dominated in relation to core countries. Core Countries – Very productive labor force due to high capital endowment and advanced, universal education systems. Relatively high wages and developed social security systems. Reduced informal sector. – Capital-intensive production. Highly diversified production and X. Very dominant and profitable role in global value chains (GVC). Beneficial terms of trade (pX/pM). – Leading-edge technology. Net X of capital goods and patents. – Large X of capital via FDI and loans. – Monetary and financial dominance (world reserve currencies, leading banks, control over capital markets). – Political and military hegemony. Strong states and control over international organizations. – Examples: US, EU-15, UK, Japan, Canada, Australia. Periphery countries – Poor labor productivity due to low capital endowment and poor education systems. Low or very low wages. Small and modest social security systems. Extensive informal sector. – Labor-intensive production. Over-specialized production and X in primary products. Occasional and subordinate role in GVC. Problematic terms of trade. – Backward, obsolete technology. Net M (and dependence) on foreign capital goods and patents. – Large M of capital via FDI, loans and aid. – Monetary and financial dependence (weak currencies, underdeveloped financial system, large external debt). – Political and military dependence. Weak or failed states, subordinated to international organizations. – Examples: Sub-Saharan Africa, Central America and some South America countries (Bolivia, Paraguay..), Central Asia. Semi-periphery Countries – Very productive labor force thanks to low wages + growing capital endowment + improving education systems. Small social security systems. Extensive informal sector. – Transition from L-intensive to K-intensive production. Diversifying production and X: specialized in basic capital goods and simple consumer goods; first steps to more complex products. Subordinated and not too profitable but an important role in GVC. Improving terms of trade. – Advanced imported technology + some developments and patents. – M of capital via FDI and loans from core countries + X to periphery countries. – Monetary and financial dependence (weak currencies, underdeveloped financial system, large external debt) along with strong regional power. – Political and military dependence, though strong states. Marginal role in international organizations and some projects to create new ones. – Examples: BRICS (Brazil, Russia, India, China, South Africa), Eastern EU, South Korea, some other Latin American countries (Argentina, Chile) and Northern Africa (Algeria, formerly Libya, Egypt). THEORIES OF DEVELOPMENT 4 KEY POINTS, 2 OPPOSITE APPROACHES 1) State versus market. – Direct, permanent and active participation of the state (industrial policies and indicative planning) to solve market imperfections and build a specific economic structure to play a certain role in the international division of labor. – Limited role of the state, only to protect private property and investment, manage the currency and represent the interests of domestic capital abroad. All power to the market. 2) Industrialization versus comparative advantage. – Industrialization is key to solve the problems related to primary products specialization (low value added, high international competition, declining terms of trade, high tariffs…) and the only way to play more profitable roles in GVC. – According to the principle of comparative advantages, specialization in primary products is a necessity for these countries and a viable way to increase production and income by participating extensively in international trade. 3) Free trade versus protectionism. – Temporary and specific tariffs and other trade barriers are necessary to protect new industries in periphery countries from stronger foreign competitors of core economies. Infant industry argument. – Protectionism disrupts market mechanisms, increases consumer costs, creates rents and is inefficient by definition. Free trade allows periphery countries to benefit from their comparative advantage in primary products. 4) Freedom of capital movements and FDI versus regulation and control. – Capital movements must be controlled because their speculative tendency can provoke severe crises in periphery countries. FDI must be regulated to avoid serious drawbacks: loss of ownership and control over national resources, overexploitation of labor and natural resources, unfair competition against domestic firms, economic dependence, fiscal and labor dumping.. – Free movement of capital is essential for periphery countries to gain access to financing. FDI is the best strategy for periphery countries to attract capital, technology and know how. It creates jobs, raises wages, improves the skills of workers, boosts X, opens access to international markets… Orthodox / Mainstream (Classical, Neoclassical, Neo-Keynesian, Neoliberalism). Rostow, Lewis, Nurske, Bauer, Seers, Balassa, Bhagwati.. – Development as a gradual process of defined stages. Developed countries as the model to follow. – Strategy: market-led economy without state intervention, specialization according to comparative advantage, free trade, free capital movements and free FDI. Heterodox / Radical (Post-Keynesianism, Structuralism –CEPAL–, Dependency School, Neo-Marxism, Regulation School, Radical School). Prébisch, Furtado, Emmanuel, Frank, Amir, Marini, Dos Santos, Bambirra.. – Underdevelopment of periphery countries as a counterpart of development in core countries and an expression of their role in the international division of labor. Development as a country-specific process. – Strategy: state-led development strategies, industrialization, temporary and concrete protectionism, control and regulation of capital movements and FDI. In some cases, post capitalist or socialist proposals. UNIT 2 Growth, development, and the global political economy in stages 1. Growth and development in the world economy 2. The global political economy in stages: main norms and actors 1.1 GDP AND ECONOMIC GROWTH In view of the previous information, there are economic superpowers: – Amongst developed countries: USA, Western Europe, and Japan – Amongst non-developed countries: China, India, and to a lesser degree Russia, Brazil,South Africa (the BRIC countries) Evolution of GDP Since WW2 and regarding changing shares in total GDP: – US held an outstanding position in the post-war period, only challenged by a few developed countries (no developing countries held a prominent position until recently) – The emergence of China or India as super-powers implies the recovery of their pre-industrial-revolutions position 1.2 DEVELOPMENT IN TERMS OF PER CAPITA GDP AND HDI  In view of the previous information, there is a huge between-country inequality: – Ranking at the top: what we know as developed countries + small resource-rich countries and financial centers – At the bottom, most Sub Saharan African countries + several South Asian countries – Large heterogeneity between non-developed countries Evolution of per capita GDP The Golden Age (1950-73) → then, crisis in the 1970s Growth was higher than ever before or after. Particularly high: – In Japan among developed countries – In Latin America and West Asia, among developing countries Partial recovery, with growth lower than in the Golden Age → then, crisis since 2007-08 – Among developed countries, Japan’s crisis since 90s – Negative growth in transition countries, 80s and 90s – Among developing countries, East Asia’s growth higher than in the Golden Age vs the “Lost Decade” (the 80s) and sluggish growth in the rest of countries 1.3 INEQUALITIES IN GAINS AND ENVIRONMENTAL DAMAGE Europe is the least extreme case. China’s figures are more extreme. The perception of inequality in countries like China and India is different from the western countries’ perspective due to the even more extreme difference between the bottom 50% and the 10%. Blue: global concentration of growth gains (“elephant”) = poorest people enjoyed only 1% yearly growth, while the top 1% in the western world enjoys 5% as the middle class of the poor world. While the middle class of the top of the world is not among the 1% and does not enjoy any type of growth. Poverty cuts concentration, geographically speaking, has been very focused: East Asia, South Asia. Overall global development has increased both in a long-term view and during the last globalization phase, but gains in income have been unequal, with: – Distribution of global income improved since the 80s, via decreasing between-country inequality, but still huge - – Convergent growth concentrated in some countries – Rising within-country inequality since the 80s – Growth gains concentrating in bottom-middle- and highest-classes of the world (Asian middle-classes and the richest) until the 2008 crisis – Poverty cuts concentrated in some regions/countries Environment issue Historically industrialized countries are now service economies and the former un-industrialized are the ones polluting (debating). Carbon emissions and other environment-damaging activities are closely linked to modern economic growth. Some details on emissions: – Cumulative emissions have been caused largely by countries that have enjoyed modern economic growth – But current emissions are very much affected also by population size – Limiting warming to 1.5º implies bringing net CO2 emissions to zero by 2050.. So far, advances during economic crisis and too slow technological improvements 2.1 STATES AND MARKETS (TNCs) Political economy studies are linked to (1) norms, rules (including policies, laws, informal laws that corporations might impose on others – by relationships) and (2) relationships between actors, who makes the rules and who has to abide by the rules. Why do states matter in the economy? The matter of public goods, monetary policies for inflation (to avoid fluctuating recessions and crises), avoid market failures and in general to protect the people. The State The Golden Age of Growth In spite of the existence of hegemonies, international organizations, and increasingly powerful TNCs, preservation of regulatory power of national states. Goals of states: – Stability of economic cycles – Sectoral intervention for strategic and/or developmental purposes – Directly providing welfare (the Welfare State) Preservation of power over domestic economies (sovereignty) was due to will (rules at all levels) and to ability (globalization still not full-fledged) The post-70s crisis era Less prone to multilateral cooperation hegemonies and mostly increasingly powerful TNCs (both bargaining and market powers, means oligopolies became what they are now, from large companies becoming super large and states starting to lose sovereignty over decisions to facilitate and help TNCs) → erosion of the regulatory power of the nation state. Goals of states (from the welfare state to the competition state): – Combating inflation and attracting investment – Promoting a competitive environment (liberalization and flexibilization) – Weakening of the welfare state Loss of power over domestic economies (sovereignty) was due to will (changing of rules) and to loss of ability to regulate (globalization implies actual loss of sovereignty) The post-08 crisis era Towards an increased role of the state? Still debated.. – On the one hand, powerful states with strong leaders (Trump, Putin, Xi Jinping... even Von der Leyen?) – Even in less relevant countries, a certain trend towards nationalism and/or increased interventionism – And then the pandemic and the energy crisis brought about new roles for the state (both from “right” and “left”) Goals of states (from the competition state to what?): – Back to an interest in keynesian stabilization (in crisis) – A renewed interest in new industrial/sectoral policies (e.g. NextGen) – A questioning of the erosion of the welfare state Liberalism vs. interventionism The Golden Age of Growth Generally speaking, liberalism with interventionism (non laissez-faire) Capitalism and economic liberalism, but intervention of states: – At the domestic level, intervention in order to achieve the state’s goals → political pact between conservative and social-democratic parties – At the international level, liberalization with restrictions to economic relations (highest for financial exchanges) Relevant explanatory events: Democratization and new social demands in developed countries Decolonization and new developmental needs in developing countries Revolutionary tensions everywhere The post-70s crisis era Towards increasingly liberal rules (laissez-faire) Capitalism and economic liberalism (no “buts”): – At the domestic level, liberalization ← first, erosion of the political pact between conservative and social-democratic parties; later, social democratic parties convergence towards liberalism – At the international level, liberalization with virtually no restrictions to economic relations Relevant explanatory events: Victory of Reagan and Thatcher in the US and the UK, respectively The debt crisis and policies pushed by the IMF and the World Bank Dismantling of communist regimes → liberalization The post-08 crisis era Anti-globalist liberalism vs. “open” social-democracies? Capitalism and econ. liberalism, but questioning from “right” and “left”: – At the domestic level, so far polarization of choices ← some, toward liberal-conservative (e.g. Trump); others, toward increased intervention (e.g. EU, China, Biden) ← disappearance of political pacts – At the international level, a break in liberalization with some instances of neo protectionism (more from the “right” than from the “left”) Relevant explanatory events: Victory of Trump and Johnson in the US and the UK, respectively China as a model for non-developed countries The crises: 2008 financial crisis, pandemic, energy and inflation crisis 2.2 HEGEMONIES AND MULTILATERALISM International organizations and associations of countries The Golden Age of Growth Most importantly, creation of multilateral institutions (the UN): – Security Council (members with veto powers: USA, Russia, China, France, and United Kingdom) – General Assembly and its organizations: UNCTAD, UNDP.. – ECOSOC, which included World Bank, IMF, and GATT Regional integration became another important way of cooperating; especially relevant the beginning of European integration Associations of countries: – Developed: OECD (OEEC 1948; OECD 1961), G7 (1975; USA, Japan, Germany, France, Italy, UK, and Canada) – Non-developed: Non-Aligned Countries, UNCTAD The post-70s crisis era Tension between less and more power of multilateral institutions.. – Some UN bodies loose effective power: ineffectual Security Council → unilateralism; weakened agencies within the General Assembly; more informative than operative – But there is a reinforced and renewed role of some organizations within ECOSOC (World Bank, IMF, GATT WTO) European integration strengthens, with currency cooperation and integration; many other integration projects in the 90s The post-08 crisis era Reorganization of “strong” areas within international organizations? – Certain discredit and/or ineffectiveness of some of the organizations that gained strength in the 90s: IMF, WTO…) – Strengthened focus on UNFCCC (United Nations Framework Convention on Climate Change), for instance on its Paris Agreement Tension between reinforced integration (EU developing new areas of cooperation and new tools; developing countries cooperation…) and neo-protectionism (Brexit), anti-Europeanism (right-wing parties), unilateralism (e.g. industrial policies) Hegemonies The Golden Age of Growth Certain countries exert power over others and over international organizations… In this era, bipolarity of hegemonies: – USA (superior in terms of pc income, productivity, education and technology, economic exchanges, military power…) – USSR leads in Soviet bloc Developing countries do not hold hegemonic power, but some countries (in the decolonization context and by virtue of international cooperation) acquire notable power The post-70s crisis era Bipolarity disappears, leading to a tension between unipolarity and multipolarity.. End of the Cold War and dismantling of planned systems → the USA becomes: – The only military hegemony – And the only political economy model But at the same time the US loses economic hegemony (lower productivity gap, trade deficit…) vis-à-vis: – Other developed countries: Germany, Japan (70s, 80s) – Newly industrialized economies: South Korea, Taiwan (70s, 80s) – Emerging economies, especially China (00s) The post-08 crisis era A new bipolarity? – The USA is still a major military hegemony, but other advantages have eroded – China has become a clear hegemony: superior in terms of economic growth, productivity growth, education and technology, economic exchanges, increasingly military power.. And after the Ukraine conflict? A new axis of democracies vs. autocratic powers (USA, EU vs. Russia, China)? Where do other developing countries stand? Multilateralism, regionalism, bilateralism, and sovereignty The Golden Age of Growth Generally, multilateralism with preservation of domestic sovereignty Multilateral cooperation for the determination of rules but with: – Especial influence of the US on said cooperation – But new voice to non-hegemonic countries and preservation of sovereignty of the nation state Relevant explanatory events: Trade wars in the in-between wars period and the 1930s financial crisis in developed countries Decolonization and underdevelopment in developing countries The post-70s crisis era Generally, multilateralism coexists with regionalism and bilateralism.. with loss of domestic sovereignty Persistence of the power of multilateral institutions: – Still with a special influence of the US on cooperation – Less preservation of sovereignty of the nation state Coexistence of multilateralism with a plethora of regional (NAFTA, ASEAN +3…) and bilateral agreements Relevant explanatory events: – End of bipolarity → disinterest by the US in leading multilateral cooperation and in promoting development preference for regional and bilateral dialogues (easier and quicker) – New economic poles (EU, Japan, China…) imply regionalism The post-08 crisis era Generally, multilateralism coexists with unilateralism.. still with loss of domestic sovereignty (of those with not enough power to exert unilateral actions). Still, some power of multilateral institutions, maybe with less of an influence of the US, in coexistence with now more questioned regional and bilateral agreements. UNIT 3 Characteristics and dynamics of growth in developed countries 1. Similar and differing features and dynamics 2. Possible explanations of stages of growth 1.1 LEVELS AND TRENDS IN (SOCIO-ECONOMIC) DEVELOPMENT What we know as developed countries all display: – A high per capita GDP, of a minimum $20,000-25.000 – Very high HDI + other development areas generally covered (absolute poverty is negligible, civil and political freedom..) In any case, among the few developed countries, there are even fewer that are particularly developed and also relevant in terms of economic size: the US, the UK, Germany, France, Japan.. Countries that first enjoyed growth from the industrial revolution. Growth and (socio-economic) development Before “modern economic growth” (before 1820), growth went from positive to negative, so that pc income stayed roughly constant. Since 1820, particularly high growth of pc GDP in developed countries, in spite of cycles and with negative growth rates becoming exceptional Growth has brought about enormous increases in per capita GDP and consequently socio-econ. development 1.2 DYNAMICS OF GROWTH IN A LONG TERM PERSPECTIVE The roles of productivity and capital intensity Modern economic growth has been based: – More on labor productivity (Y/L) growth than on labor growth – In turn, Y/L growth has been based on a combination of growth of capital intensity (K/L) and capital productivity (Y/K) growth y = L x Y/L delta Y= delta L x delta Y/L Y/L = Y/K (gdp per worker) x K/L (capital per worker) Although with some differences between countries regarding the role of capitalization vs. capital productivity. Relationship between gdp per worker (asse y) and capital per worker (asse x). Economic growth has been high and persistent due to the endogeneity to growth of the variables explaining Y/L (K/L and Y/K): Y → I → K/L → Y/L→ Y Y → I in technology, human capital → Y/K → Y/L → Y Modern economic growth has related with structural changes in supply, demand, and income distribution, in a bidirectional way: – Growth structural change – Structural change growth Productive structural change → Empirical regularities in view of sectorS Empirical regularities regarding supply (GDP = GVA = Ag + Ind + Serv): – Agriculture loses share in total GVA and in total labor used (even with increases in total production), in favor of industry and services – Industry gains share (industrialization), and later loses it in favor of services (tertiarization) Deindustrialization, in terms of participation of manufacturing in total value added, with differences between countries → does it matter what you produce in growth? → terms in trade for developing country → impossible to solve it, hot debate in 2000s on whether services were good for growth or not? Services good because they create a lot of value added without the need of investment and capital → efficient in creating VA On the other hand manufacturers did matter → large increases to productivity because of their linkages. Who won? The general consensus is that we need to go back to industrialization, reason off autonomy security but also for economic and spillover Deindustrialization, in terms of participation of industry in total employment, with differences between countries Still regarding supply, there is also structural change within sectors: – Countries diversify their production – Also, they produce increasingly sophisticated goods Complexity of industrial factors diversified production technology and value added (called in the index is the level of sophistication) Increasing complexity, but differences between countries as to their position in the economic complexity ranking. Indeed, countries diversify as they grow (at least up to a certain point). Then, what is the role of specialization? Specialization at a microeconomic level increases Y/L: – From a static perspective, as productive units focus on producing goods and services that take advantage of skills or resources at their hand (absolute and comparative advantage arguments) – From a dynamic perspective, as productive units become more efficient, via learning by doing or economies of scale Possible explanation of correlation Y/L-diversification at a macro level: – Diversification allows for specialization at a micro level – The larger the variety of goods and services that a country knows how to produce, the easiest it will be to learn how to produce more things Empirical regularities regarding demand First, consumption loses share in total AD, in favor of investment , then public expenditure, and sometimes exports In most cases, investment (sometimes also public expenditure) ends up losing share in total AD, in favor of consumption Still, there are different growth regimes from a demand perspective: – Investment-led regimes: typical in the first stages of modern growth – Later, divergence between: consumption-led regimes (via more wages or via indebtedness) and export-led regimes Empirical regularities regarding distribution Regarding functional income distribution (GDP = income = GOS + W; that is that is gross operating surplus + wages), frequently: – Redistribution towards wages in the first stages of modern growth – And redistribution towards profits later (in the chart, changes in labor shares 1970-2014, source: OECD). Supposed bad consequences for wage-led economies → so what in terms of growth is wages losing shares of the gdp? less functional redistribution and more inequalities. What about growth? investment and employment levels. → minimum wages and investment: 1. higher minimum wages burden cost for entrepreneur that are not having resources anymore 2. higher minimum wages = more consumption and therefore more investment 1.3. CAPITALISM AS THE INSTITUTIONAL BASIS OF GROWTH We here define economic institutions as the laws and social customs governing the production and distribution of goods and services. Capitalism is an economic system where the main institutions are private property (very important, over capital goods), markets, and firms. How would capitalism be good for growth? Capitalism incentives investment and development of new technologies, knowledge, and labor organizations. Capitalism facilitates specialization → learning by doing, taking advantage of differences in skills or resources, and economies of scale An important clarification The idea that capitalism matters for growth was already advanced by Adam Smith; and is still at the center of many explanations of growth. But capitalism is not tantamount to cut-throat competition or absence of State intervention… Actually there are “varieties of capitalism”. The general ideas Developed countries, although all capitalist, vary in their political economies, even after the same liberalizing trends since the 80s. No system is necessarily better than others for firms to obtain what they need, but internal complementarities exist within distinct systems. Liberal market economies (LME), such as in Coordinated market economies (CME), such as US or UK; in Germany or Japan; companies relate with companies basically use markets for their other actors through coordination economic exchanges: Relations depend more on prior Arm’s length relations between actors knowledge (you don't know the other actors) Conditions of relations are set Formal contracting informally (contracting is less detailed, Under competition element of trust) Individual decisions in view of prices Collaboration between actors → how we normally think of a capitalistic Collective decision-making by virtue of society collaborative information → in financial markets all the above thanks to → more European and Nordic countries and east the tons of state regulation Asia. a) Financing of companies mostly through a) Financing of companies mostly via bank financial markets → criteria for financing is credit and retained earnings → criteria is short-term profitability and prices; info is public long-term company perspectives; information is b) Technologies and knowledge are generated private/shared and acquired via competition and arms-length b) Technologies and knowledge are generated relationships (eg. no cooperative training, and acquired via collaboration and based on technology transfer through markets) shared information (eg. collaborative industrial c) Regarding workers, skills are general training, joint research and identification of (exchangeable between companies) and industrial needs..) generated out-of-company; they are barely c) Regarding workers, skills are specific and tied organized; and managers are the prime to the firm or the industry, with in-company decision-makers (over wages, firing…) training; are organized in trade unions and other d) The State reinforces.. For example, requires organizations; managers share decision-making standardization of financial information; allows d) The State reinforces.. For example, allows of short-term incentives for executives; sets leveraging and/or certain bank risks; fosters antitrust laws; liberalizes labor markets coordination mechanisms among companies and → rules promoted everywhere even when this between companies; preserves relatively rigid type of capitalism is non liberal. Ex: flexibility labor markets of workforce 2.1 A BRIEF INTRODUCTION TO STAGES Growth in cycles General ideas Economic growth (not even modern economic growth) does not occur lineally; instead, there are cycles (longer and shorter cycles). From a long(-ish) term perspective, cycles of three to four decades are usually observable, after which the prevalent growth dynamic erodes, leading to a crisis and to the emergence of a new growth dynamic Reminder of recent cycles in developed countries Golden Age of Growth, 1950-1973 → 70s crisis Partial recovery and new growth, 1985-2008 → the Great Recession Post-crisis recovery, since roughly 2013 and until the COVID-19 crisis Reminder of theoretical explanatory factors for growth In order to characterize growth dynamics, we need to assess: – Supply-side factors that may aid in explaining, mostly, labor productivity growth – Demand-side factors that may aid in explaining: mostly investment, but also C (domestic or foreign) or other aggregate demand sources.. Demand side-factors will be affected by distribution of income In all cases, we may have to also contextualize in institutional developments 2.2. SUPPLY-SIDE DYNAMICS Labor accumulation (L) In the Golden Age of Growth period Not the main cause of growth.. Actually, a very slight increase in L: – More population – But fewer working hours (unionization, labor protection…) In the 1985-2008 growth period A more important cause of growth than in the previous period: – Increase in labor due to higher activity rates and arrested decrease in working hours – But more than anything, lower growth of Y/L growth reliant on L Since 2008.. Recovery linked to recovery of jobs and hours worked Labor productivity (Y/L) The Golden Age technological revolution Very relevant technological revolution, given: – Research throughout previous decades; especially military during WW2 (transportation, materials, nuclear) – Public financing for R+D Which implied investment and higher productivity: – Especially relevant in branches such as chemicals, electrical machinery, and transportation equipment – Important spillover effects on most sectors via inputs (eg. fertilizers, synthetic fibers, metal alloys…) and production methods (mechaniz.) In the 70s, curbing of technological revolution: – No remaining sectors in which to apply new technologies – Competition through differentiation (oligopolization) – Reduction of the part of public expenditure used in R+D Changes in labor organization in the Golden Age A new and more productive labor organization, known as Fordism: – Taylorism (in place since the end of the 19th century): fragmentation and repetition of tasks; separation of design and execution of tasks (design by managers and scientists / execution by workers) – Mechanization and automated production (production chains) In the 70s, Fordism no longer able to increase Y/L: – Discontent of workers with work and health problems – Difficulties in adapting production chains to new technologies (segmented) or new demand (diversified and changing) The 1985-2008 technological revolution Very relevant technological revolution, given: – New military research (ex.: Reagan’s Strategic Defense Initiative biochemical and intelligent weapons) – New innovation systems, still with a public role (the entrepreneurial state in LME, the coordinator state in CME) Which implied investment and higher productivity in sectors related to information technologies (computer science, microelectronics, telecom.); also, biochemistry.. But limited productivity increases due to diffusion limited: – to some particular industries: e.g. pharma; – to certain high value added services: finance, telecommunications.. Changes in labor organization in 1985-2008 Flexibility vs. fordist rigidity as a reaction to stagnant Y/L and to satisfy differentiation (vs. standardization): – Some options promoting Y/L: autonomy and polyvalence (implication of workers, work teams, kaizen or continuous improvements..) like toyotism, mainly CMEs countries – Some options reducing labor costs: externalization and delocalization of employments, “right-sizing” of workforce (both: adjustment to demand, and less need for specialized laborers), more like LMEs countries Segmentation by sector/country, and partial survival of the Fordist organization of labor (with or without labor institutions of Fordism), even in services. Deindustrialization in the 1985-2008 period As we saw, especially marked in terms of employment, and due to economic features of manufactures vs. services: – Growth of services is more intensive in L growth whereas growth of manufactures is more intensive in Y/L – Higher income-elasticity of domestic demand in services sectors (income growth → relatively larger growth in services) – Growth of external demand (except in some countries) does not compensate for the previous effect But also, due to disdain towards industrial policies Since 2008 Regarding technology: – 4 th industrial revolution, with increased investment and higher productivity in sectors related to interconnectivity and smart automation (IA, advanced robotics…); also biotechnologies.. – Doubtful impact on overall productivity, due to fragmentation of applicability and labor substitution Regarding labor organization: – Pushing towards larger Y/L: relocalization, higher wages, tele-working – Pushing towards decreased costs: weakening of labor in industrial relations, new labor relations (e.g. “falsos autónomos”), tele-working.. Attempts at re-industrializing. E.g. Biden’s CHIPS and Science Act; EU Industrial Strategy (Japan never really abandoned industrial policy) 2.3 DEMAND AND DISTRIBUTION-SIDE DYNAMICS Investment and private consumption Investment in the Golden Age Important growth of investment, due to.. a) High profit expectations, mostly in industrial production, by virtue of the technological revolution and new labor organization b) Access to funds for investment (i) via profits, (ii) via financial credit (development of financial markets, but also very important support of monetary policies) In the 70s, lower profit expectations and access to funds: – Labor cost growth > productivity growth → labor power – Growing energy costs → oil crises – At the beginning of the 80s, pronounced elevation of interest rates Consumption in the Golden Age Consumption increased by virtue of.. Fordism, which had a “demand side” (mass consumption) apart from the “supply side” (mass production): – Industrial relations that allow for collective bargaining and unions – States that protect labor rights → Wages growth more or less hand in hand with productivity The Welfare State, which implied the provision of public services, permitting households to save less. In the 70s, consumption is sustained via demand-related institutions of Fordism; but emergence of a distributive conflict between workers and capitalists Investment in 1985-2008 Profit expectations were restricted (still debated why): limitations imposed by new technologies and labor organization, insufficient demand.. ; compensated by: redistribution from salaries to profits, profit-making in the financial sector Access to funds for investing: – Huge development of financial markets (financial liberalization and financial engineering) – Relaxation/expansion of monetary policies in the late 80s and again in the 2000s → liquidity Financial transactions for profit-making; cheap liquidity, increasing dependence of investment on credit, and consequent debt Consumption in 1985-2008 Consumption held back by a decreasing purchasing power of wages, which was possible via: – The erosion of Fordist labor institutions – The state’s abandonment of labor protection (labor liberalization and requirements of wage moderation) and the erosion of the welfare state But kept high via: – Access to credit for durable and non-durable goods – Cheapening of consumption (delocalization) → Increased dependence of consumption on access to credit, and consequent debt of households Since 2008 Investment: – Behaving according to cycles (structural shift in profit expectations not observable yet): rebound from the crisis around 2013; down in 2020 – Access to funds: more development of financial markets, now expanding towards market-based finance even for medium enterprises. Expansion of monetary policies (including QE) as a response to the 2008 crisis; until the 2022 energy and inflationary crisis Consumption: – Consumption suffers from job losses, increased inequalities, debt – But its fall may be contained by some reversal in the state’s role Public and external (im)balances Public (im)balances In the Golden Age: – Public expenditure also grows, in infrastructures, direct public production, the Welfare State.. → In the 70s, public expenditure is sustained; but emergence of deficits and inflation (for several reasons) and a new discourse on the need reduce expenditure In 1985-2008: Moderation of public expenditure and imbalances as states move from “welfare states” to “competition states” Since 2008: Increased public expenditure in a back-to-Keynesian reaction to the 2008 crisis (and later to the 2020 crisis) External (im)balances In the Golden Age of Growth period: – International trade increases for developed countries → they take advantage of open trade gains – But net exports are not a main source of growth: economies are driven by domestic demand In the 1985-2008 period: – Net exports become a particularly dynamic source for growth in some developed countries, such as Germany (but not in others whose deficits grow to enormous levels) → Between-country trade imbalances and corresponding external debt Since 2008: Partial correction of trade imbalances, in part via contraction of demand (and imports) UNIT 4 Characteristics and dynamics of growth in non-developed countries. 1. Common features and dynamics 2. Possible explanations of stages of growth and development (growth dynamics and the political economy of development) 1.1. LEVELS AND TRENDS IN (SOCIO-ECONOMIC) DEVELOPMENT What we know as developing (non-developed) countries all display: – A relatively low pc GDP, although with vast differences between regions, from roughly $12,000 in Latin America and the Caribbean to slightly above $2,000 in Sub-Saharan Africa – A relatively low HDI + other development areas not fully covered (absolute poverty, lack of civil and political freedom, etc.); although also vast differences between regions In developing countries, growth of course has not been absent since the onset in developed countries of “modern” economic growth. What characterizes the long-run trend of growth in developing countries is a later, lower, and more erratic growth Some East Asian countries excel for having enjoyed “modern” growth late, but at sufficient rates and duration for them to converge with developed countries (Figure 1) → convergence yes but below 0.02 countries have been growing less than the US. Many Latin American and Sub-Saharan African economies had low and/or not sustained growth; although the former started at quite higher levels than the latter (Figure 2). It is not that there are no Sub-Saharan African economies with growth spurts; but, as said, growth has been not sustained These countries have not reached the material wealth of developed countries. 1.2 DYNAMICS OF GROWTH → In these regions (60-94) the growth of labor was larger than in developed countries. How does Latin America de-accumulate physical capital? L is growing fast, the denominator is growing fast. investment is not keeping up with the increase of L growth. Economic growth has been based (graph is 1960-1994): More on L growth than in developed countries. Growth of Y/L relies more on growth of Y/K (being K/L affected by the relatively high growth of the denominator) Hence, it is frequently said that growth in developing countries is non-endogenous (or exogenous, or external): – Reliant on bouts of growth of L, which is limited – Growth of Y/L reliant on growth of Y/K.. In countries with barely no capacity to generate productivity-increasing innovations of their own, this means non-endogenous sources of growth of Y/K Structural change: unequal and “not-so-good” for growth Low growth that hinders structural change Basically, low pc GDP hinders structural change: – Regarding supply, it hinders the development of new sectors, due to insufficient resources for capital formation, technological innovation, education, training.. (also regarding supply, insufficient resources hinder diversification and sophistication of production) – Regarding demand, low pc income hinders savings and therefore investment; also, it implies insufficient income for public expenditure – Regarding distribution, low pc income hinders redistribution towards wages and therefore a sufficient consumption base Focusing only on supply, countries now with low pc income, have barely had any structural change: – Highest shares in agriculture (as compared to rest of world) – Lowest levels of industry (similar to those in high income countries) – Lowest levels of services But countries now with medium pc income have had some change: – Regarding agriculture, decrease in shares – Most of them, initial phase of industrialization; some of them (NOT East Asia), a second phase of deindustrialization – Most of them, tertiarization, to a lesser degree than developed countries, and some preserving industry (East Asia, oil countries) Structural change that does not sustain growth With absence of structural change, absence also of consequences of structural change that are “good” for growth; and even when some structural change has happened, certain structural features that are “bad” for growth remain. These are concentration of production in sectors intensive in natural resources (agricultural or mining countries) or labor (new industrial countries) → sectors with lower Y/L growth Features of structural change – growth: how they influence each other Modern productive sectors in enclaves: – Export orientation and propensity toward imports (no trade articulation) – Controlled by foreign capital (no productive/financial relation with the rest of the economy) – Use of cheap labor or natural resources (no professional training or technology transfer) → Very little impact of modern sectors on the rest of the economy Extreme inequality in income distribution (Is it good? yes, for some people + egalitarian society = more similar possibilities and that can help. Is it bad? yes at the macro level: debate) → insufficient consumption for an increasing of production; but also economic and political elites trying to preserve the status quo In the case of inequalities the political and economical elite will do anything in their power to keep the status quo, typical argument for the corruption of state practice. Dependent external relations: – Regarding production: dependency on FDI and foreign technology – Regarding trade: need for external demand (given low pc income and inequality); dependency of certain (high value added) imports – Regarding finance: dependency of foreign savings → debt → Non-endogenous growth and reinforcement of structural features that are not “good” for growth Shows era of low growth (1990-2005) Within sectors = growth of sectors that were already there in 1990, no structural change. structural change = contribution to growth of the fact that the shares of what is being produced shifts from one thing to another Black bar going down = productivity decreases because you changed the structure by making it negative (e.g. i was working in industry, then i move to agriculture, hence less production for industry which is not good for the society) Premature deindustrialization in Latin America. 2.1 DEFINITION OF STAGES THROUGH REGULATORY CHOICES Definition of stages through regulatory frameworks Growth dynamics very determined by regulatory frameworks Primary exports model: inherited from colonialism; maintained or reinstituted in many countries up to now Import Substitution Industrialization (ISI): used in most of the developing world from the 1930s (Latin America); and especially since the 1950s (everywhere) until the 1980s. Used all over the place for decades, even in developed countries (spain with franco, south korea, etc.) → it was the “right thing to do” East Asian Export Oriented Industrialization (EA-EOI): although with differences, used in East Asia since the 1960s (also in some points in time elsewhere) The Washington Consensus and the Post-Washington Consensus: applied in most countries since the 1980s 2.2 IMPORT SUBSTITUTION INDUSTRIALIZATION = attempts to industrialize based on domestic demand Influenced by development theories that emphasized the weaknesses of the primary exports model: – Theories that found the origin of underdevelopment in damaging economic relationships with rich countries (structuralism, dependentism) – Theories that considered public intervention necessary to overcome said economic relationships → A regulatory framework that included: – Trade protection and public aid for nascent industries – Overvaluation of currencies (Plus attempts to increase demand via income redistribution and regional integration) How ISI facilitated growth Time wise it coincided with high growth and successes in industrializing many countries (e.g. Brazil, Argentina, South Africa, South Korea..) Investment in capital (K) by domestic (private or public) corporations: – Trade protection → lower competition → more investment – Public aid → lower costs → more investment – Overvaluation of currencies → lower import costs → higher profitability → more investment Increases in labor productivity (Y/L): – In countries with relatively lower accumulation of labor (L), investment implied increases in K/L – Application of new technologies, skills, and labor organization through industrialization (with the consequent increases in Y/K) (Except in East Asia, growth and structural change was at its highest when ISI) → so what can go wrong? trade war (everybody does the same, race towards tariffs), fiscal deficits and public debts, exports suffer (= trade deficit grows = country gets into external debt, unable to finance their growth). Incentives to innovate decrease: under ISI, there are few incentives for innovation due to protectionism and public aid policies. High tariffs and trade barriers shield domestic industries from foreign competition, reducing the pressure to improve technologies or increase productivity. With a guaranteed domestic market, firms often become complacent, focusing on local demand rather than striving for global competitiveness. Government subsidies create a dependency culture, where industries rely on continuous support instead of investing in costly innovation. ISI also limits foreign technology and knowledge transfer, further stifling technological advancement. As a result, industries prioritize short-term survival over long-term growth, remaining inefficient and uncompetitive globally. The weaknesses of ISI Trade protection and public aid to nascent industries → no incentives for improving technologies, skills, or labor organization – No further increases in productivity – Dependence on protection (industries don’t “overgrow” their initial need for protection and public aid) Insufficient demand, given failures in redistributing and creating middle classes, as well as failures in regional integration Overvaluation of currencies damaged exports (especially in primary sectors) → insufficient currency to purchase imports that had not been substituted for – Outright balance-of-payments problems – Financing of imports from abroad and debt Public intervention, via fiscal instruments → public deficit and inflation Political economy-related problems: the link between public intervention and rent-seeking and corruption The debt crisis (1982) → still not repaid and some countries are still stuck on them In oil countries, increases in export prices → liquidity that was partly deposited in international markets (petrodollars) → credit from Western banks to developing countries (developed countries were in crisis) → debt (with variable interest rates and in dollars) In 1982 the debt crisis erupted, consisting of the default of developing countries on their debt (first of all, Mexico in 1982). It was caused by a mix of domestic and external factors: – Use of foreign credit for consumption, capital flight, conflict.. – Hike of US interest rates under Reagan → hike of international interest rates (interest became more expensive) + dollar appreciation (principal became more expensive) Petrol dollar into feeding ISI 2.3. EAST ASIAN EXPORT ORIENTED INDUSTRIALIZATION = Attempts to industrialize (and, more in general, to promote continuous productive upgrading) based (also) on external demand Influenced by no theoretical model; but by idiosyncratic views on the weaknesses of ISI: – Pragmatic views on the origin of underdevelopment: nationalist projects of development, but embedded in international relations – Pragmatic views regarding public intervention: emphasis on goals (growth) rather than on policy instruments A regulatory framework that included: – Selective trade protection in favor of exports and other public aids to export industries (favorable access to credit, low taxes..) → used ISI but specific to some sectors – Undervaluation of currencies Countries (with more or less successful stories): South Korea, Taiwan, Singapore, Thailand, Malaysia, Indonesia, China, Vietnam How EA-EOI facilitated high growth Similar to ISI Investment in capital (K) by mostly private (domestic in some countries, foreign in others) corporations: – Low trade protection for inputs → more profitability → more investment – Public aid (favorable access to credit, low taxes…) lower costs of exporting → more investment Increases in labor productivity (Y/L): – Application of new technologies, skills, and labor organization through industrialization (with the consequent increases in Y/K) – Great efforts in learning (via technology transfer, technical training..) Different from ISI Selective trade protection and public aid to export industries did not eliminate incentives for improving technologies, skills, or labor organization: – Competition for obtaining public support (State-firms quid pro quo) – Competition in external markets when sectors mature Sufficient demand: – Via exports, increasingly diversified and sophisticated – In the most successful cases (South Korea, Taiwan, China?), via appearance of a middle class Undervaluation protected exports → currency to purchase the necessary imports; sometimes to finance the rest of the world (no debt) Public intervention rarely through fiscal instruments, plus cautious monetary policy → less problems with public deficits or inflation In most cases (not all) less political economy-related problems, due to what is known as the developmental state: – A state focused on pursuing development (at first, growth) goals – In absence of economic elites, or with a certain ability to control them (hence, the quid pro quo with firms and banks) – With capable, meritocratic bureaucracies THE WASHINGTON CONSENSUS AND POST-CONSENSUS = attempts to grow via efficiency and competitiveness through free markets Influenced by development theories that emphasized the weaknesses of the ISI model (neoclassical development theories) – IMF and WC realized the ISI was the problem: – Theories that found the origin of underdevelopment in domestic factors, mostly public intervention and “bad institutions” – Theories that considered free markets as necessary to overcome domestic limits to growth -- A regulatory framework that included: – The Washington Consensus policies.. Macro stabilization, liberalization of domestic markets, and openness to foreign relations – The Post-Consensus addition.. improving “institutions”, plus attending basic needs How WC and Post-WC intended to facilitate growth Investment and improvements in technology, skills, labor organization would stem from (examples): – Macroeconomic stabilization (lower inflation, public deficit, and balance-of-payments imbalances) → prices would be set right – Liberalization of domestic markets → competition – Openness to foreign relations → taking advantage of comparative advantages, foreign direct investment (FDI), access to foreign savings.. – “Good institutions” (understood as a State that protects private property, maybe corrects some market failures, and does very little else, in order to control rent-seeking and corruption) → competition, efficiency, incentives for production.. The weaknesses of WC and Post-WC Difficulties for investing, stemming from (examples): – Diminished public investment (to avoid public deficit and inefficiency) – “Excessive” competition via trade or FDI – Higher interest rates (to avoid inflation) + exposure to foreign credit ups and downs (90s financial crises) Difficulties for increasing labor productivity: – Diminished public expenditure in R+D, underfunding of universities – Elimination of entry barriers need not bring about increased innovation (private monopolies/oligopolies) – Imports or FDI need not bring about technology transfer (enclaves) – No further structural change (even de-industrialization) Questionable “quality of institutions” agenda in the Post-WC: – Institutions understood solely as institutions of the State (what about firm-related institutions?) – Institutions of the State understood solely as minimizing its role and eliminating corruption (what about State resources, legitimacy?) – Capitalism understood solely as an idealized type of LME – Disregard of the fact that causality between quality of institutions and development/growth might run in both directions (The targeted poverty reduction agenda did manage to improve some indicators, but it was dependent on aid and conditioned to the “quality of institutions” agenda, such as in the PRSP) 2.5 PROPOSALS IN THE 21ST CENTURY Post-development Post-development does not define itself as one additional development proposal: it rejects development almost in its entirety “[development] sees the Other merely as a deficient and retarded version of one’s Self, converting geo-cultural differences into historical stages” (Ziai, 2017) Its general features: – Relevance of autonomy of diagnoses and solutions (decolonization) – Acceptance of diversity (non-universality) of diagnoses and solutions – Concern for the environment and rural areas – Inclusion of all stakeholders (especially social movements) in decision-making processes Post-development in new development proposals New development proposals incorporate criticisms and some ideas from post-development: decolonization, ecology, feminism, inclusion.. There are examples in practice of neo-structuralism or neo-extractivism: proposals that attempt growth and structural change with those new considerations (e.g. Brazil, Chile, Bolivia, Ethiopia, Botswana..) Still, rejection on the part of post-developmentalists, due to new development proposals still not genuinely embracing: – Post-growth or degrowth – Post-capitalism – Post-colonialism – Participative or radical democracies Examples of post-development proposals in practice Latin America Buen vivir or sumak kawsay, in Ecuador and Bolivia, originated in indigenous communities in the Amazonia, emphasizing decolonization of power and knowledge, post-capitalism, and bio-centric policies Asia Swaraj or radical ecological democracy, in India, originated in local communities, emphasizing ecological wisdom, social justice, radical democracy, and cultural and knowledge openness and plurality Africa Ubuntu in countries such as South Africa or Malaui, based on the idea of humans only being through other humans, therefore emphasizing the relational aspects of a generous and compassionate self