Internal and external constraints: economic development without currency crisis

basiloberholzerLeave a comment

Simply speaking, development macroeconomics can be summarized as the challenge of improving productivity and production capacity in poor countries. This involves the conditions that need to be fulfilled for a development process to start as well as the policy framework and instruments that support it. Heterodox approaches consider the state鈥檚 role in steering productivity growth as essential (Cardim de Carvalho, 1997). Markets may be able to exploit price signals and adjust resource allocation correspondingly. However, they guarantee neither sufficient profitability of key sectors nor the demand for the goods produced. Both the profit rate and effective demand are conditions for investment to take place (Oberholzer, 2020). It is thus up to the government to make public investment in priority sectors and to apply instruments such as taxes and subsidies in ways that simultaneously allow for economies of scale, higher productivity large-scale employment and demand. This is what is generally referred to as industrial policy (see for example Chang, 2006; Oqubay, 2018).

But this is not everything. Policymakers have to pursue such a development strategy in face of an (often permanent) shortage of foreign currency. While domestic currency can be generated via the domestic banking system including public development banks, the availability of foreign currency is limited unless a country is able to increase exports or restrict imports. Since larger export capacity and a higher degree of import substitution are long-term goals, the current account is determined by domestic and foreign economic growth. This insight has come to be known as the balance-of-payments-constrained model or Thirlwall鈥檚 law, respectively (Thirlwall, 1979, 2013): it is reasonable to assume that demand for a country鈥檚 exports grows in income in the rest of the world while imports increase with domestic economic growth because a part of increasing incomes is reliably spent on imported goods. Therefore, stability in the balance of payments requires that imports do not grow faster than foreign exchange earnings via exports allow. A limit to the growth of imports implies a limit to the country鈥檚 economic growth, hence the balance-of-payments-constrained growth rate.

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Who will Benefit from the Bitcoinization of El Salvador?

Guy Cowman-SharpeLeave a comment

On 8 June, El Salvador鈥檚 Legislative Assembly voted to pass the (Bitcoin Law), with a majority vote of 62 out of 84. The legislation was presented to the Assembly days after President Nayib Bukele , speaking via video broadcast to the Bitcoin 2021 Conference in Miami. Effective from 7 September, all businesses in the country will be required to accept bitcoin alongside the United States dollar, El Salvador鈥檚 current currency. Since the bill鈥檚 passing, and have expressed interest in recognizing bitcoin as legal tender.

Rather than China鈥檚 or Venezuela鈥檚 , El Salvador will not be pursing the creation of its own cryptocurrency. Bukele is adamant that at this stage Bitcoin will not make up any of the nation鈥檚 reserves, held in the Central Reserve Bank of El Salvador. Rather, (BANDESAL) worth US $150 million will guarantee convertibility to dollars as a safeguard against bitcoin鈥檚 volatility. In doing so, the BANDESAL trust would make sure that the price of a commodity does not widely fluctuate between point of purchase and completion of transaction.

In Bukele鈥檚 address he made mention of the lack of financial inclusion for Salvadorans being a motivation for the law. In a country where informal employment makes up around 70% of the labor force, anonymous peer-to-peer cash transfers without the formal requirements of a bank account or the high charges of Western Union make sense as an alternative. Bukele has also expressed his hope that the move will make El Salvador 鈥溾 on the United States, given that dollarization ceded monetary independence to the Federal Reserve. But given the increasing centralization of Bitcoin and its reliance on big tech money, it is far more likely that bitcoinization will merely make El Salvador dependent on a different section of US capital.

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A need to re-examine the temporality of anti-trust action

Anushka mLeave a comment

The structure of anti-trust laws is generally and neatly divided into ex-post enforcement and ex-ante regulation of market conduct and its participants. It is a matter of social and economic policy choice as to whether any regulation should precede 鈥榟arm鈥 or follow it, as is the construction of 鈥榟arm鈥 across statutes. For example, the requirement of a means to understand and assess the market impact of a merger. On the other hand, abuse of dominant position is an ex-post assessment once the dominance has set in, which may be in the long run. The determination of abuse is subject to a rule of reason and analysis by the competition authorities. Against this background, the question is what happens in the intervening period when an undertaking is slowly and surely inching towards domination, engaging in conduct which would be punished only once it becomes dominant ? What happens to the process of concentration of markets, along with the practices in concentrated markets? These questions are not borne out of academic interest alone and are not completely answered by a simple focus on anti-competitive agreements, as will be seen below. The analysis will zoom in on the Indian market conditions to make a case for questioning the timing of regulatory intervention and proceed to show that new economic methods may be required in this task.

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The limits of 鈥渄esign ethics鈥 under capitalism

victoriasgarroLeave a comment

Working as a product designer in media for the past five years, I鈥檝e witnessed the topic of 鈥溾 raised at industry conferences, presentations, and meetups. Yet I鈥檝e noticed that in our discussions, designers rarely mention the economic context within which we design. We hold up examples like and and we ask: how might we design better? Conventional discourse presents these unintended consequences of our work as technical problems: how might we design and code ethically, while maintaining profitability and growth? (Perhaps the most well-known example of this framing is The Center for Humane Technology鈥檚 鈥淭he Social Dilemma,鈥 which confuses correlation with causation by attributing negative mental health and political trends to technology, with no mention of technology鈥檚 place in capitalism.)

We will not solve problems of authoritarianism, racism and xenophobia, misinformation and addictive technology, mental health and public health, or climate change with design ethics. While designers should thoroughly consider the consequences of our work, the problems facing the design and technology industry are not ones of individual bad actors (though some exist). Rather, we must acknowledge that design decisions are economic decisions鈥撯揳nd in our current economic system, the economic interests of individuals often conflict with their social consequences. Technology firms are not cultural or ideological actors, but 鈥渆conomic actors within a capitalist mode of production…compelled to seek out profits in order to fend off competition鈥 (Srnicek 2017, 3). If we truly want to design ethically, we must first consider how technology is embedded in capitalism. Our ability to make technology work better for society as a whole depends upon our willingness to reorder our priorities and redefine value as more than profit maximization.

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We Need to Talk about Economics

plbds2 Comments

By Paulo L. dos Santos and No茅 Wiener

What鈥檚 Wrong with Economics? The title of economic historian Robert Skidelsky鈥檚 latest book captures well a prevailing mood of popular disaffection with the dismal science. Many have come to associate the discipline with specific lines of political partisanship鈥攊ncluding forms of and the . Economics has also been widely criticised for its failure to grapple with actual, urgent economic problems. Within academic circles, the discipline has become widely regarded as of the contributions other fields of social and historical inquiry make to the study of economic life. Among the public at large, the has faced considerable scrutiny, even while individual by dissenting economists are and generally .

Recent political developments like the rise of the Movement for Black Lives and the #MeToo movement have helped broaden the sense of crisis in economics; encouraging examination of the discipline鈥檚 deeply problematic relationship with realties of race, gender, and other elements of people鈥檚 social identity. As a number of critics have noted, the problems are reflected most obviously in the profession鈥檚 basic institutional composition, which is grossly unrepresentative. In the United States women account for in PhD-granting departments. Of all doctorates conferred in the academic year 2015鈥2016, . This dismal performance was significantly worse than the 3 percent average across all STEM disciplines. That same year, only 3.6 percent of all full economics professors at PhD-granting institutions were Latino; a meagre 1.6 percent were Black.

The problem is also evident in prevalent attitudes and values among economists. Casual and among leading economists appears to have few or no repercussions. A 2019 of academic economists by the American Economic Association found that nearly half of Black economists reported being targets of discrimination in the profession. It also found that 鈥渙nly 45 percent of all . . . respondents (regardless of race) believed economists who are not White are respected in the field.鈥 When the work on the economics of racial stratification by scholars like and was finally included in the alphanumeric classification system for research topics in economics, it was placed in the last, residual category, 鈥淶 – Other Special Topics.鈥 Recent work by Alice Wu uncovered evidence that these attitudes are , while work by Valentina Paredes, Daniele Paserman, and Francisco Pino found evidence suggesting that economics programs both bigotry.

What has so far received comparatively less attention are the ways these attitudes are embodied in the basic concepts and analytical tools that most contemporary economists use to understand the world. Yet it is over this terrain that the discipline鈥檚 problems with issues of social identity prove most harmful to society at large.

The frameworks at the heart of contemporary economic thinking reflect analytical choices that ultimately betray the social position and outlook of those developing economic theory. In all of these choices, contemporary economic thinking has created a stilted conceptual terrain where it is easy to ignore or downplay the economic expressions of systemic inequities by social identity and class. This is evident in some of the discipline鈥檚 core analytical stances, like what is and what is not considered as economic activity, and in its rejection of social categories like gender, race, and class as useful in the analysis of markets and economies. It is also evident in the ways most economists think about the nature of discrimination, its relationship to market competition, and the statistical measurements of its effects on economic outcomes.

Given the outsized influence economics exerts across all fields of social inquiry and policy, these biases exert an insidious, conservative influence over public thinking and over the very framing of debates about those iniquities. Countering this influence requires understanding these biases, which in turn requires engagement with a few foundational methodological and technical issues in economic analysis. In what follows we draw on contributions by many critically minded economists and political economists, and on some of our own recent work, to contribute to a conversation among social scientists and political actors about these biases and about how they may be overcome.

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The Uncomfortable Opportunism of Global Development Discourses

pbehuriaLeave a comment

Since the 2008 financial crisis and the end of the Millennium Development Goals, academics and practitioners working in 鈥榙evelopment鈥 have been groping for a new development paradigm. Yearning for the end of neoliberalism and stumped by the rise of China, hopped on the Sustainable Development Goals (SDGs) bandwagon to call social scientists to think 鈥榞lobally鈥 beyond national-centric analyses. This was, of course, a noble goal 鈥 no different from the . New 鈥楪lobal Development鈥 proponents argued that we must think globally and relationally, surprising some within development studies that this had not been happening already (think ).

As Development Studies departments found themselves new names and new networks were established, some academics took the opportunity to stake claim over the meaning of Global Development. argued that a new Global Development paradigm would rescue us from development studies鈥 oppressive past, which obsessed over distinguishing between a backward developing world and a utopian 鈥榙eveloped鈥 heaven. They reasoned that this was necessary because the 鈥楽outh鈥 was actually rising in comparison to the 鈥楴orth鈥 on the basis of growth and human development indicators. But in presenting this trend as a these scholars misdiagnosed the problem. They presented the entire 鈥楽outh鈥 as rising, failing to isolate China鈥檚 rise and obscuring the fact that countries may have experienced very different trajectories.

In a section that appeared in Development and Change, the case for Global Development was subjected to open debate. The case for Global Development is based on 鈥榗onverging divergence鈥, which suggest that there is increasing convergence between the North and South while there is increased evidence of sustained within-country inequalities (divergence). of 鈥楪lobal Development鈥 selected 1990-2015 as the time series within which convergence was identified in terms of growth, health and education. The paper was roundly for its sloppy use of indicators. For example, generalisations of wellbeing were based on (in every intro to development studies course) Human Development Indicators. In selecting the time period 1990-2015, the paper implies that convergence resulted from the implementation of market-led policies, implicitly condoning neoliberalism, as Andrew Fischer argued. Of course, such claims stand directly opposed to the experiences of most countries in 鈥榯he South鈥 where structural adjustment and the legacy of market-led reforms has limited prospects for structural transformation.

The paper was also criticised within the Forum on several other counts (see 鈥檚 contribution for example). For their part, Global Development proponents most criticisms. However, they refuse to nuance their claims of converging divergence. They replied that the study was a purely empirical exercise and converging divergence was . It is as if selecting which data you use, as well as the time period, is not a choice.

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If the Washington Consensus was really over, what would that look like for development strategy?

RRowden3 Comments

If it still looks like a duck, swims like a duck, and quacks like a duck – then it probably still is a

Recent years have witnessed a notable re-embrace of the state鈥檚 role in the economy, leading to declare that the set of free market economic policy reforms widely known as the Washington Consensus has .

First popularized by U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher in the 1980s, the Washington Consensus policies offered a set of policy guidelines for developing countries, many of which were struggling with high debt and high inflation at the time. These free market reforms included trade and financial liberalization, privatization, deregulation, the removal of capital controls, fiscal austerity (cutting public spending) in order to achieve strict targets for maintaining low inflation and low fiscal deficits, the adoption of independent central banks, and deregulating restrictions on foreign investment, among others. Broadly speaking, the policies sought to roll back the role of the state in the economy and unshackle the animal spirits of the free market. In the 1980s, adopting the policies became binding conditions for developing countries to receive debt relief and new lending by the International Monetary Fund (IMF) and World Bank, in the 1990s, the policies served as the basis for World Trade Organization (WTO) membership rules 鈥 and ever since then, the policies have become a cornerstone of the curricula in economics departments at universities across the world.

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Philosophy as if the world mattered: critical development studies and the work of Tony Lawson

jamorganleedsbeckettacukLeave a comment

No reader of this blog needs reminding that positivism retains a powerful grip on development studies. Not because every theorist, researcher and department carries a card or flies a flag self-identifying as positivist, but because positivist concepts of what knowledge is and how it is assessed continue to dominate, in so far as these have captured the concept of 鈥榮cience鈥. As Ingrid Kvangraven鈥檚 establishes, one need look no further than the dominance of random control trials (RCTs) for evidence of this. While there are many specific problems one might identify with RCTs, such as the capture of policy by what can be researched using RCTs rather than by what may be more significant as structural causes of poverty, perhaps the fundamental one is the model form, which stands behind RCTs. It is this that lends authority to RCTs, as it does to many other branches of economics.

Tony Lawson is probably the best known critic of mainstream mathematical modelling and in a he reprises his argument. Lawson is a 鈥榗ritical realist鈥 and 鈥樷 and his, and other critical realists鈥 argument, is deceptively simple. All knowledge claims involve assumptions about the nature of the world, what and how it might appropriately be investigated. Whether this is acknowledged or not this presupposes a theory of reality or being (an ontology) and an orientation to knowledge (an epistemology). Philosophy thus has an important role in making these assumptions explicit and in exposing them to critical scrutiny to address their plausibility, consistency etc. Such philosophy does not replace the sciences or social sciences, but rather 鈥榰nder-labours鈥 for or supports their endeavours and is itself subject to critique in this context.

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