By Owen Paine on Friday May 15, 2009 07:52 AM
I'm a great fan of Dani Rodrik, shown above. He's for government 'industrial intervention' in the global south states; for regulating cross border private credit flows; for balanced trade; and for an open throttle for job seekers across the north/south borders.
You can hardly ask for more out of an elitist merit class social scientist. But there are some nuts it's pretty hard to crack. Here's Dani on the plight of the developing world in the coming days:
Growth in the developing world tends to come in three distinct variants. First comes growth driven by foreign borrowing. Second is growth as a by-product of commodity booms. Third is growth led by economic restructuring and diversification into new products.No quarrel with any of that, Now Dani gets into the devilish details:Today the first two models are at greater risk than the third. But we should not lose sleep over them, because they are flawed and ultimately unsustainable. What should be of greater concern is the potential plight of countries in the last group. These countries will need to undertake major changes in their policies to adjust to the new realities.
"By capturing a growing share of world markets for manufactures and other non-primary products, these countries increased their domestic employment opportunities in high-productivity activities. Their governments pursued not just good "fundamentals" (e.g., macroeconomic stability and an outward orientation), but also what might be called "productivist" policies: undervalued currencies, industrial policies, and financial controls.Enter the south room's class star:
"China exemplified this approach. Its growth was fueled by an extraordinarily rapid structural transformation toward an increasingly sophisticated set of industrial goods... China also got hooked on a large trade surplus vis-a-vis the U.S. ― the counterpart of its undervalued currency."But there's a complication:
"Global macroeconomic stability requires that we avoid such large current-account imbalances in the future. But a return to high growth in developing countries requires that they resume their push into tradable goods and services.... In the past, this push [into world markets] was accommodated by the willingness of the U.S. and a few other developed nations to run large trade deficits. This is no longer a feasible strategy for large or middle-income developing countries."So scrap the China model?
"Are the requirements of global macroeconomic stability and of growth for developing countries at odds with each other? Will developing countries' need to generate large increases in the supply of industrial products inevitably clash with the world's intolerance of trade imbalances?"This question leads to Bleak House -- or does it? The sun mayhaps also rises over a new dawn, accordin' to Dani:
"There is in fact no inherent conflict, once we understand that what matters for growth in developing countries is not the size of their trade surpluses, nor even the volume of their exports. What matters is their output of modern industrial goods (and services), which can expand without limit as long as domestic demand expands simultaneously. "Yikes, Doc Pangloss has arrived, and he prescribes
"encouraging industrial production directly... it is possible to have the upside without the downside."Really, doc? Really really?
"There are many ways that this can be done, including reducing the cost of domestic inputs and services through targeted investments in infrastructure."Standard social market advice, so I wonder why it might not be happening all over down south. But Dani moves on:
"Explicit industrial policies can be an even more potent instrument."Indeed. Shades of gosplan 2.0. I'd like to have him dilate here, but instead he sells the turn away from undervaluation strategies:
"The key point is that developing countries that are concerned about the competitiveness of their modern sectors can afford to allow their currencies to appreciate (in real terms) as long as they have access to alternative policies that promote industrial activities more directly."Whoops. Recall the old joke about economists: "Assume a can opener". What if world markets close to southies that have industrial policy systems? Dani slips in another huge conditional improbability in his sum-up:
"... developing countries will have to substitute real industrial policies for those that operate through the exchange rate.... External policy actors (for example, the World Trade Organization) will have to be more tolerant of these policies as long as the effects on trade balances are neutralized through appropriate adjustments in the real exchange rate. Greater use of industrial policies is the price to be paid for a reduction of macroeconomic imbalances."But Dani, you're talkin' about global institutions that are totally dominated by the trans-nat tower trolls -- limited-liability wire-pullin' hegemons -- viciously jealous ravenous hegemons. They "contain" competitors, they don't "tolerate" 'em.
Dani, I love you, my man -- but are you shittin' me?
Comments (9)
Another problem here: how do developing countries finance their internal development when the major creditor countries have all become debtors and skinflints? China won't be able to fill this role either, since it will have to use its vast reserves to finance its own internal development.
Posted by hce | May 15, 2009 9:06 AM
Posted on May 15, 2009 09:06
Right OP (and HCE), there's no "power relations" (sorry, I sound like a 1992 Grinnell grad) in his castle-in-the-clouds global equilibrium models.
To the extent the BRICs adopt emergency public works solutions to prop up growth, they're also worried about emboldening the economic leverage of their respective working classes.
The BRICs also prefer relatively cheap currencies vis a vis the dollar-euro-yen. It gives them the transnational investor constituency they need in the core capitalist states... otherwise Global North elites might get a little jumpy about "rising BRICs".
Book Dani, Dano!
Posted by gluelicker | May 15, 2009 10:00 AM
Posted on May 15, 2009 10:00
Hce
The credit can be internalyl generated
If the commanding heights are in state hands
Throw out usury
And these south systems can generat ample
Capacity for productive investments
Short of draconian measures even
Its north hemi market access
And world class technical transfer that the trans nats can control
The forex adjuster
As glue nicely
Points out allows
Trans nat global "traders" to rake up just about all the producers surplus here
That wage reg and tax arbitrage offer up
Dani really has no answer for this
Because short of politics there is no answer
China held one hell of a good hand when deng in 80 went for open shop
Trade max
Mao won the kold war for uncle
And deng gets the credit for exploiting it
The kold war rebuilt germany and japan by providing them both north markets closed to them in the tweener years
Etc with korea taiwan...
All political over ride
When almost
all
of the south was
All carved up and
Doled out to the "allied" democratic powers
And their junior partners
Posted by op | May 15, 2009 11:24 AM
Posted on May 15, 2009 11:24
I yield to the learned comrades!
Posted by hce | May 15, 2009 12:29 PM
Posted on May 15, 2009 12:29
what happened to his eyebrows?
Posted by bob | May 15, 2009 4:47 PM
Posted on May 15, 2009 16:47
more detail from dani:
premise china is developing because its increasing its manufacturing sector
"tradeables"
"If China wants a larger supply of tradables than the market equilibrium produces,"
the international market
"it can achieve this by directly subsidizing the domestic production of tradables (through tax incentives or rebates or reduction in the cost of inputs)..while letting the real exchange rate appreciate to equilibrate the external balance."
" Direct subsidies don't tax the domestic consumption of tradables the way that currency undervaluation does. "
ie lower the relative domestic price of domestic industrial product prices
vs all imports and domestic raw materials and services
while raising the foreign price of domestic industrial products and domestic real assets
"Presto! We have both the structural change China needs, and the external balance the world economy requires."
ie
reduced trade surplus while increasing domestic demand allows the industrial sector to keep expanding
"Put differently, if China gives up the exchange rate as an instrument of industrial policy, it will need a substitute. Explicit industrial policies are the obvious substitute."
first "obvious question
if this option existed before now why was the export max forex fiddle trade surplus method prefered ??
" Across the board spending by China on infrastructure and other things doesn't quite achieve the required goal, unless the spending is targeted on projects that disproportionately reduce the costs of producing tradables."
this is a key point
effective demand management and bottle neck reduction do not directly increaes
the relative size and growth rate of the industrial sector
"There are of course small details to worry about, such as the WTO's Agreement on Subsidies. "
small details??
that's dani ironic pass
by the 800 pound gorilla
ie the big trans nat corporations
and the international markets and :institutions"
they control directly and or indirectly ...
will they allow a fiddle that doesn't benefit them
only increases their han inc competitors
they won't allow will they
at least not without a price
contain not co operate
"But we do need to think creatively about squaring the circle in question, and I cannot come up with any other alternative."
indeed
btw squaring thew circle isn't difficult its impossible
Posted by op | May 16, 2009 11:24 PM
Posted on May 16, 2009 23:24
I finally get the drift of this post. If anyone is still around to respond, is this bloke (Dani) saying that western capital, having broken itself to pieces in a frenzy of speculation, can now be rescued by China following an eminently sensible path of internal development? Sounds rather like a new New Deal, only on a global scale.
Eddie Izzard would do a number on this: "Hello, China, we hope you're doing well! We've really loved you all these years -- your civility, your, um, ancientness -- Could you do us a favor now, just for a while. Just hold things together, while we get back on our feet. Won't take long! You'll see! We always do what we say. Obliged to you, you know, good show! Yours truly. . . "the West"
Posted by hce | May 18, 2009 10:45 AM
Posted on May 18, 2009 10:45
yes..hce yes
if for the miasmically vague
'western capital '
you substitute :
the oxidental trans national
limited liability
internally self conflicted corporate
7 ocean fleet
ps china new dealing itself
would be a welcome development
regardless of your class pov
but apres the hang over lifts
the trans nats want to re open
the two way door
asap
that return to the trans pacific profit slurry
is only in their very special interests
and a proper new deal might convince
the polit bureau in the interim they don't need no fuckin
trans nat tech transfer
and thus refuse to re open
the question of open dooring
their "capital markets"
after all revaluing the rmb
hardly requires more then n stages of lift
i worked it out
4 years ago
lift it at random intervals eaxctly enough to
squelch the prior intervals carry game gains
we'll see...
Posted by op | May 18, 2009 1:12 PM
Posted on May 18, 2009 13:12
thanks, I think I've got it! Another fantasy -- Globalization, Part II.
Financial Times today reports Brazil and China working toward conducting mutual trade in their own currencies, rather than the dollar. I'm not quite sure how this works, but American Leftist calls it "The Beginning of the End."
BTW, OP, since you didn't ask me who the hell is Eddie Izzard, I have to urge you to look him up and try one of his performances on DVD. Life's not all deep thoughts and bon mots, after all!
Posted by hce | May 18, 2009 8:48 PM
Posted on May 18, 2009 20:48