Daniel Cohen: Globalization and Its Enemies (2006; paperback, 2007, MIT Press)

(pp. 35-37):

However, a principal fact disarms the theory according to which colonialism would be a significant factor in Western wealth: the colonial powers all experienced slower growth rates than non-colonial powers. "The correlation is almost perfect," according to Paul Bairoch. Germany and the United States, latecomers to the colonial scene, experienced faster economic growth than France or the United Kingdom; Sweden and Switzerland experienced faster economic development than the Netherlands or Portugal. Better, if it dare be said, Belgium saw its growth rate slow the moment it became a colonial power, at the turn of the nineteenth century. Conversely, the Netherlands saw its growth rebound upon losing its colonial empire. Similarly, according to Bairoch, "it is very probable that one of the reasons for the relative absence of the United Kingdom from 'new' industrial sectors at the end of the nineteenth century was precisely its very great access to colonial empires."

The idea that wealthy countries got rich thanks to the exploitation of raw materials imported from poor countries is false for one simple reason: rich countries themselves have long produced said raw materials. The fate of the developing countries was already sealed with importing raw materials became the norm for the rich countries. As Paul Bairoch explains once more, on the eve of World War I, while the developed world already possessed a manufacturing productive capacity 7-9 times the global average in 1750, 98 percent of metallic ore and 80 percent of textile fibers came from industrialized countries themselves. Energy production does not escape the rule either. Until the 1930s, the developed countries produced more energy than they consumed and released a gross excess, notably coal. The biggest energy exporter was, in fact, England, the first industrialized country. It is only due to the role played by Middle East petroleum after World War II that the scheme was reversed. Even in this case, it was not until 1957 that the United States became a net energy importer. Until World War II, energy self-sufficiency was practically assured in the West, whence comes Bairoch's formula that "rich countries did not need poor countries."

(pp. 76-77):

The simple lesson that Mexico is learning anticipates what China may learn one day: that a country cannot hope to prosper solely on the basis of the international division of labor. Just as yesterday the industrialization of rich countries was responsible for the South's poverty, the deindustrialization of advanced economies will not by itself create tomorrow's prosperity in the developing world. In order to grow, a country must become a "center" in its own right; that is to say, a place dense with production and consumption. Because the new economy gives rise to the illusion of a world without borders, it fosters the hope that the North-South tension is going to be resolved. However, reducing the costs of distance does not bring either people or wealth any closer. It tends, moreover, to heighten the polarity between the center and the periphery, in the image of the town center and its suburbs. Contrary to the Braudelian plan, according to which the periphery lives a "history [that passes] in slow motion, lives repeat themselves from generation to the next," the suburban life illustrates the novelty of the new world economy. Through the commuter railway or the movies, the suburbs of Paris, Cairo, Mexico, and China all evenly gaze upon the world. It is the world which ignores them.

(pp. 144-145):

The nature of intellectual property is entirely different. A song or a chemical formula is neither bought nor consumed in the usual sense of the term that describes the use of physical goods. These are ideas and not objects; they survive the various private uses made of them. When an idea is discovered, nothing stops everyone from using it if not intellectual property rights, such as patents or copyright. Whereas physical property alone makes the appropriation of an object possible, intellectual-property laws restrict the free use of something that theoretically has no limits. Deprived of an owner, an ordinary good is not consumable. In the case of intellectual property, nothing of the sort takes place. An idea can be used by everyone without contradiction, and nothing guarantees that a system in which all potential ideas would be protected by property rights would be efficient.

In principle, the best way to find a new idea with which to solve a given problem is to coordinate the research of those whose work in the area and, once the discovery is made, to put the result at everyone's disposal. The reference model here is not the market but academic research, which compensates the researcher while leaving the discoveries free to all. The intellectual-property system manages to do exactly the opposite. Competing teams researching the same topic (for example, a drug for a certain illness) do not share their knowledge, and once the discovery is achieved it will be the exclusive property of the one who first realized it. For the contemporary world, here is an extension of an idea articulated by Marx, a contradiction between productive forces (here, innovation) and property rights.

Jared Bernstein: Crunch: Why Do I Feel So Squeezed? (And Other Unsolved Economic Mysteries) (2008, Berrett-Koehler)

(p. 9):

Something's wrong, something fundamental. Not Third World-poverty fundamental, nor blood in the streets, massive homelessness, or Great Depression fundamental. If the problem were that obvious, it would be less amorphous, less indecipherable, less of a head-scratcher.

The name of the problem is economic inequality, and it's been on the rise for decades. It's at the heart of th squeeze, and it's a sign that something important is broken: the set of economic mechanisms and forces that used to broadly and fairly distribute the benefits of growth. What "mechanisms" am I thinking of? They are unions, minimum wages, employer and firm loyalty, global competitiveness, full employment, the robust creation of quality jobs, safety nets, and social insurance, all of which are discussed in the following pages.

On the measurement of poverty (pp. 38-39):

The official thresholds were based on food costs of low-income families in the mid-1950s. Surveys showed that these families spent about a third of their income on food, so we simply tripled the value of the "economy food plan" (the cheapest nutritionally adequate food plan derived by the Department of Agriculture) for a given family size.

Amazingly, with very few changes and with adjustments for inflation, this remains the official poverty measure to this day. Food consumption represents a much smaller share of family budgets than was the case 50 years ago (its average share has fallen by about half), while housing, transportation, and health care, for example, constitute larger shares. Simply updating the official thresholds for this change alone would lead poverty thresholds (and poverty rates) to be much higher today.

But there's a deeper problem with the official approach: As living standards rise for the rest of society, those deemed poor by a fixed income level that is adjusted solely for price changes will fall behind the rest of us. Back in 1960, the official poverty threshold for a family of four was about half the typical (median) income for a four-person family. Today, it's around 30 percent of the four-person median.

(p. 50):

When too many economic resources are held by too few, when the benefits of growth elude broad swaths of working families, opportunity itself becomes a rare commodity, out of the reach of the majority. Too much inequality precludes a meritocracy. We see this most clearly in educational opportunity, where college-completion rates for high-score poor kids are about equal to those of low-score rich kids.

(pp. 51-52):

There have never been signs of greater effort in periods of high levels of inequality. If anything, the opposite has occurred, as the have-nots drop out of a game they perceived to be rigged against them, and the haves, content that the game [is] rigged in their favor, chill by the swimming pool (that's just snark -- the rich work a lot, but their effort is uncorrelated with inequality). Some interesting behavioral research has shown that the inequality incentive structure does have one noticeable impact: It leads insiders to cheat more, because they figure the system is tilted their way anyway, so who'll notice if they cut a corner? Call it the Halliburton effect.

A recent variant of this "greed is good" motif has been applied to college attendance. Some prominent economists, including Nobel laureate Gary Becker, claim that high inequality sends a market signal to high school grads that they should attend college. They even go so far as to oppose progressive tax changes as a move that would dampen people's incentives to get more education. Raising taxes on wealthy people, in their model, would be advocating "a tax on going to college and a subsidy for dropping out of high school."

(pp. 77-78):

That's the what. Here's the why: Recessions result from some shock to the economic system. As of this writing, the last recession hit in March 2001 and was the result of the bursting of speculative bubbles in financial markets and IT (information technology) investment. Investment is a key components of GDP, and when it headed south in late 2000, it triggered a recession that was quite mild in GDP terms, though acutely felt on the jobs side. Once we got that recession out of our system, a housing bubble inflated and then burst circa 2007, and this too put a hurtin' on the economy.

(p. 97):

I wrote about this (d-)evolution in my last book, under the heading of YOYO economics. That's an acronym for "You're on your own," and it embodies a political philosophy that got us in our current mess. Under YOYO economics, the sole plan to meet any economic challenge we face, from globalization to health care, is a tax cut, a private account, and a solid push off the plank into the deep and murky waters of competitive market forces, where "you're on your own" to sink or swim.

Operating in this mode leads its proponents to oppose worthy ideas that strengthen the diminished bargaining power of most working persons -- ideas like minimum wages; a level playing field for those who would organize unions; a universal, nonmarket-driven approach to health care and pensions; progressive taxes; and less porous safety nets. Each of these ideas strikes at the heart of YOYOism, as they seek to pool the risks of economic insecurity over large groups of people, while unifying less advantaged groups under a WITT ("We're in this together") agenda.

(p. 99):

Let's consider how it works. The sweat from the brows of today's workforce generates the wealth that helps to fund the economic security of those who came before us. (OK, I only break a sweat at the office when the AC goes down, but you get the point.) At the same time, when those of us at work today finally call it a day, we will leave behind an economy that is a lot more productive than when we found it. The investments we made, in both human and physical capital, will help the next generation create yet more wealth. And yes, we will skim some of that wealth off the top -- that is, we tax some of that income -- for Social Security, as did our forebears.

The key point here is that Social Security solves an intergenerational problem -- the natural dependence of those whose working years are behind them on the working-age population -- with an intergenerational solution: the transfer of a portion of today's wealth to today's retirees.

(pp. 115-116):

Most economists are pretty hawkish about the deficit, meaning they're against it. The main reason is, they worry that the big gorilla in the room -- the government -- will gobble up all the savings in the room, leaving too little for the private sector. This gobbling, they fear, will push up interest rates -- the cost of borrowing money -- and depress productive investments in the private economy. They call this phenomenon crowding out, as Uncle Sam swaggers into the bank, elbows his way to the front of the line, and borrows all the capital in the vault, leaving nothing for the rest of us.

Not an unreasonable hypothesis, but recalling principle #3 from crunch economics, many of the simple, sensible, logical economic relationships don't always play out in the way you'd expect. What with all the moving parts -- and in this case, with globalizaiton hugely boosting the supply of capital available for borrowing -- evidence for the crowding-out hypothesis is surprisingly elusive.

So, with moderate deficits, it's pretty unlikely that you'll see any upward pressure on interest rates associated with your mortgage, car loan, and so on.

(p. 142):

Factory workers who go over to th services usually lose a lot. We're often talking here about moving someone from a high-productivity, unionized job with high-tier wages and fringes to a sector that's less productive, has much less collective bargaining, and has a much wider dispersion of compensation. Recent research into the consequences of layoffs reveals that just under three-quarters of reemployed factory workers suffer a real pay cut, and for 40 percent, it's a cut of at least 20 percent.

(pp. 145-146):

Those of us who bemoan "protectionism" need to recognize that for the first time in years, poll results reveal a majority of people worried that the next generation won't do as well as they did. One representative poll from March 2007 found that 69 percent of respondents said the "American Dream" will be harder to reach for the next generation. Reporting on exit polls from the 2006 midterm elections, the New York Times wrote: "In exit polls on Election Day, fewer than one in three people said they expected life for the next generation of Americans to be better than life today." A Pew Research Center poll from 2006 found that half of the respondents worried that children growing up today will be worse off than people are now.

(p. 165):

This puts us on a collision course with the power principle. It's tough to get to the inconvenient truths regarding the potential damage of inaction when deep-pocketed interests are relentless in their pushback. If you want to swim in these waters, never forget this immortal sentence from Upton Sinclair: "It is difficult to get a man to understand something when his salary depends upon his not understanding it." Junk science and its purveyors appear to be pretty deeply embedded in government. Even the venerable Smithsonian Institution, reacting to fears "that it would anger Congress and the Bush administration," recently altered an exhibition on climate change to inappropriately inject some doubt into the mix.

(p. 177):

We've been fed a very divisive political gruel for the past few decades, and it has served to empower many mean-spirited, greedy people. They have revealed themselves to be incapable of recognizing that some problems -- and health care is the best example -- are more efficiently solved by collective cooperation than by individuals competing. The glaring failures of their "You're on your own" philosophy are becoming clear in many areas of our political life, from Middle East policy to taxes, globalization, and health care. With that, their influence appears to be waning.

(p. 181):

The next PPP comes from research that shows the following: College-completion rates are about the same for smart, poor kids as they are for -- hmmm . . . how shall I put it? -- less-than-smart rich kids. About a third of low-income kids with test scores in the top tier complete college. That's about the same share for rich kids with low test scores. Again, I suspect I don't need a lot of research to drive this point home. While it's true that few even upper-income kids pay the sticker price for college, the real costs of tuition have been surpassing income growth, and that's average income growth. For those at the low end, college is increasingly out of reach. This, as much as any problem I've raised in this book, is a pure violation of what we ought to be about in America. As a result, college-completion rates are now rising considerably more slowly than they did even in recent years.

Ha-Joon Chang: Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2007, Bloomsbury Press)

Chang starts with a future story about Mozambique, then points out that Korea was as poor in the early 1950s, when he was young, as Mozambique is today (p. 5):

Years later, in 2003, when I was on leave from Cambridge and staying in Korea, I was showing my friend and mentor, Joseph Stiglitz, the Nobel Laureate economist, around the National Museum in Seoul. We came across an exhibition of beautiful black-and-white photographs showing people going about their business in Seoul's middle-class neighbourhoods during the late 1950s and the early 1960s. I twas exactly how I remembered my childhood. Standing behind me and Joe were two young women in their early twenties. One screamed, 'How can that be Korea? It looks like Vietnam!' There was less than 20 years' age gap between us, but scenes that were familiar to me were totally alien to her. I turned to Joe and told him how 'privileged' I was as a development economist to have lived through such a change. I felt like an historian of mediaeval England who has actually witnessed the Battle of Hastings or an astronomer who has voyaged back in time to the Big Bang.

(pp. 14-15):

The popular impression of Korea as a free-trade economy was created by its export success. But export success does not require free trade, as Japan and China have also shown. Korean exports in the earlier period -- things like simple garments and cheap electronics -- were all means to earn the hard currencies needed to pay for the advanced technologies and expensive machines that were necessary for the new, more difficult industries, which were protected through tariffs and subsidies. At the same time, tariff protection and subsidies were not there to shield industries from international competition forever, but to give them the time to absorb new technologies and establish new organizational capabilities until they could compete in the world market.

The Korean economic miracle was the result of a clever and pragmatic mixture of market incentives and state direction. The Korean government did not vanquish the market as the communist states did. However, it did not have blind faith in the free market either. While it took markets seriously, the Korean strategy recognized that they often need to be corrected through policy intervention.

Now, if was only Korea that became rich through such 'heretical' policies, the free-market gurus might be able to dismiss it as merely the exception that proves the rule. However, Korea is no exception. As I shall show later, practically all of today's developed countries, including Britain and the US, the supposed homes of the free market and free trade, have become rich on the basis of policy recipes that go against the orthodoxy of neo-liberal economics.

(p. 16):

Today, there are certainly some people in the rich countries who preach free market and free trade to the poor countries in order to capture larger shares of the latter's markets and to pre-empt the emergence of possible competitors. They are saying 'do as we say, not as we did' and act as 'Bad Samaritans,' taking advantage of others who are in trouble. But what is more worrying is that many of today's Bad Samaritans do not even realize that they are hurting the developing countries with their policies. The history of capitalism has been so totally re-written that many people in the rich world do not perceive the historical double standards involved in recommending free trade and free market to developing countries.

(pp. 17-18):

In the main chapters of the book that follow the historical chapters (chapters 3 to 9), I deploy a mixture of economic theory, history and contemporary evidence to turn much of the conventional wisdom about development on its head.

• Free trade reduces freedom of choice for poor countries.
• Keeping foreign companies out may be good for them in the long run.
• Investing in a company that is going to make a loss for 17 years may be an excellent proposition.
• Some of the world's best firms are owned and run by the state.
• 'Borrowing' idea from more productive foreigners is essential for economic development.
• Low inflation and government prudence may be harmful for economic development.
• Corruption exists because there is too much, not too little, market.
• Free market and democracy are not natural partners.
• Countries are poor not because their people are lazy; their people are 'lazy' because they are poor.

(p. 31):

To sum up, the truth of post-1945 globalization is almost the polar opposite of the official history. During the period of controlled globalization underpinned by nationalistic policies between the 1950s and the 1970s, the world economy, especially in the developing world, was growing faster, was more stable and had more equitable income distribution than in the past two and a half decades of rapid and uncontrolled neo-liberal globalization. Nevertheless, this period is portrayed in the official history as a one of unmitigated disaster of nationalistic policies, especially in developing countries. This distortion of the historical record is peddled in order to mask the failure of neo-liberal policies.

On British development under Robert Walpole, from 1721 (p. 45):

Walpole's protectionist policies remained in place for the next century, helping British manufacturing industries catch up with and then finally forge ahead of their counterparts on the Continent. Britain remained a highly protectionist country until the mid-19th century. In 1820, Britain's average tariff rate on manufacturing imports was 45-55%, compared to 6-8% in the Low Countries, 8-12% in Germany and Switzerland and around 20% in France.

Tariffs were, however, not the only weapon in the arsenal of British trade policy. When it came to its colonies, Britain was quite happy to impose an outright ban on advanced manufacturing activities that it did not want developed. Walpole banned the construction of new rolling and slitting steel mills in America, forcing the Americans to specialize in low value-added pig and bar iron, rather than high value-added steel products.

Britain also banned exports from its colonies that competed with its own products, home and abroad. It banned cotton textile imports from India ('calicoes'), which were then superior to the British ones. In 1699 it banned the export of woollen cloth from its colonies to other countries (the Wool Act), destroying the Irish woollen industry and stifling the emergence of woollen manufacture in America.

Finally, policies were deployed to encourage primary commodity production in the colonies. Walpole provided export subsidies to (on the American side) and abolished import taxes on (on the British side) raw materials produced in the American colonies such as hemp, wood and timber. He wanted to make absolutely sure that the colonists stuck to producing primary commodities and never emerged as competitors to British manufacturers. Thus they were compelled to leave the most profitable 'high-tech' industries in the hands of Britain -- which ensured that Britain would enjoy the benefits of being on the cutting edge of world development.

(pp. 73-74):

In recommending free trade to developing countries, the Bad Samaritans point out that all the rich countries have free(ish) trade. This is, however, like people advising the parents of a six-year-old boy to make him get a job, arguing that successful adults don't live off their parents and, therefore, that being independent must be the reason for their successes. They do not realize that those adults are independent because they are successful, and not the other way around. In fact, most successful people are those who have been well supported, financially and emotionally, by their parents when they were children. Likewise, as I discussed in chapter 2, the rich countries liberalized their trade only when their producers were ready, and usually only gradually even then. In other words, historically, trade liberalization as been the outcome rather than the cause of economic development.

(pp. 86-87):

These flows are not just volatile, they tend to come in and go out exactly at the wrong time. When economic prospects in a developing country are considered good, too much foreign financial capital may enter. This can temporarily raise asset prices (e.g., prices of stocks, real estate prices) beyond their real value, creating asset bubbles. When things get bad, often because of the bursting of the very same asset bubble, foreign capital tends to leave all at the same time, making the economic downturn even worse. Such 'herd behaviour' was most vividly demonstrated in the 1997 Asian crises, when foreign capital flowed out on a massive scale, despite the good long-term prospects of the economies concerned (Korea, Hong Kong, Malaysia, Thailand and Indonesia).

(pp. 118-119):

Privatization of natural monopolies or essential services will also fail if they are not subject to the right regulatory regime afterwards. When the SOEs concerned are natural monopolies, privatization without the appropriate regulatory capability on the part of the government may replace inefficient but (politically) restrained public monopolies with inefficient and unrestrained private monopolies. For example, the sale of the Cochabamba water system in Bolivia to the American company Bechtel in 1999 resulted in an immediate tripling of water rates, which sparked off riots that resulted in the renationalization of the company. When the Argentinian government partially privatized roads in 1990 by awarding contractors the right to collect tolls in return for road maintenance, '[c]ontractors in control of a road leading to a popular beach resort sparked protests by building earthen barriers across alternative routes in order to force motorists to pass through their pay booths. And after travellers complained about the rip-off along another highway, contractors parked a fleet of phony squad cars at tollbooths to give the appearance of police backing.' Commenting on the privatization of the Mexican state-owned telephone company, Telmex, in 1989, even a World Bank study concluded that 'the privatization of Telmex, along with its attendant price-tax regulatory regime, has the result of "taxing" consumers -- a rather diffuse, unorganized group -- and then distributing the gains among more well-defined groups; [foreign] shareholders, employees and the government.'

(p. 125):

This is not a fringe phenomenon. A lot of research is conducted by non-profit-seeking organizations -- even in the US. For example, in the year 2000, only 43% of US drugs research funding came from the pharmaceutical industry itself. 29% came from the US government and the remaining 28% from private charities and universities. So, even if the US were to abolish pharmaceutical patents tomorrow and, in response, all the country's pharmaceutical companies shut down their research labs (which will not happen), there would still be more than half as much drugs research as there is today in that country. A slight weakening of patentee rights -- for example, being forced to charge lower prices to poor people/countries or being made to accept a shorter patent life in developing countries -- is even les likely to result in the disappearance of new ideas, despite the patent lobby mantra.

(pp. 158-159):

Gore Vidal, the American writer, once described the American economic system as 'free enterprise for the poor and socialism for the rich.' Macroeconomic policy on the global scale is a bit like that. It is Keynesianism for the rich countries and monetarism for the poor.

When the rich countries get into recession, they usually relax monetary policy and increase budget deficits. When the same thing happens in developing countries, the Bad Samaritans, through the IMF, force them to raise interest rates to absurd levels and balance their budgets, or even generate budget surplus -- even if these actions treble unemployment and spark riots in the streets. As noted above, during Korea's financial crisis in 1997, the IMF allowed the country to run budget deficits equivalent to only 0.8% of GDP (and, at that, after trying the opposite for several months, with disastrous consequences); when Sweden had a similar problem (due to the ill-managed opening-up of its capital market, as was the case with Korea in 1997) in the early 1990s, its budget deficits were, in proportional terms, ten times that (8% of its GDP).

Zaire vs. Indonesia, both countries with similar records of corruption, different records of development (pp. 160-161):

Zaire's income per capita in purchasing power terms in 1997, when Mobutu was deposed, was one third of its level in 1965, when he came to power. In 1997, the country stood 141st among the 174 countries for which the UN calculated a 'human development index' (HDI). The HDI takes into account not only income but also 'quality of life' measured by life expectancy and literacy.

Considering the corruption statistics, Indonesia should have performed even worse than Zaire. Yet where Zaire's living standards fell by three times during Mobutu's rule, Indonesia's rose by more than three times during Suharto's rule. Its HDI ranking in 1997 was 105th -- not the score of a 'miracle' economy, but creditable nonetheless, especially considering where it had started.

The Zaire-Indonesia contrast shows the limitations of the increasingly popular view propagated by the Bad Samaritans that corruption is one of the biggest, if not necessarily the biggest, obstacle to economic development. The argument goes that there is no point in helping poor countries with corrupt leaders, because they will 'do a Mobutu' and waste the money. This view is reflected in the World Bank's recent anti-corruption drive, under the leadership of former US deputy defence secretary Paul Wolfowitz, who declared: 'The fight against corruption is a part of the fight against poverty, not just because corruption is wrong and bad but because it really retards economic development.' After Wolfowitz assumed leadership in January 2005, the World Bank suspended loan disbursements to several developing countries on grounds of corruption. Wolfowitz resigned from the Bank in 2007 [because of his own corruption scandal], but its campaign against corruption continues.

Corruption is a big problem in many developing countries. But the Bad Samaritans are using it as a convenient justification for the reduction in their aid commitments, despite the fact that cutting aid will hurt the poor more than it will a country's dishonest leaders, especially in the poorest countries (which tend to be more corrupt, for reasons I shall explain).

(pp. 172-173):

The answer is no. Unlike what neo-liberals say, market and democracy clash at a fundamental level. Democracy runs on the principle of 'one man (one person), one vote.' The market runs on the principle of 'one dollar, one vote.' Naturally, the former gives equal weight to each person, regardless of the money she/he has. The latter gives greater weight to richer people. Therefore, democratic decisions usually subvert the logic of market. Indeed, most 19th-century liberals opposed democracy because they thought it was not compatible with a free market. They argued that democracy would allow the poor majority to introduce policies that would exploit the rich minority (e.g., a progressive income tax, nationalization of private property), thus destroying the incentive for wealth creation.