Commodity dependence in comparative perspective

Last weekend at the Eastern Economic Association Meetings in Boston Bilge Erten presented her work, together with José Antonio Ocampo, on the commodities super-cycle (see here). The figure below (click to enlarge) was on her power point (not in the paper) and is from UNCTAD's State of Commodity's Dependence 2012.

Note that much of Sub-Saharan Africa has levels of commodity exports as a share of total exports of between 80 and 100%. South America is not too far. China has only 8%, even if one can arguably suggest that some of the manufactured goods exported by China, which are highly standardized, are commodified. That would also explain why Mexico and some Central American economies depend less on commodities, i.e. the export of manufactured goods from 'maquilas.' South Korea is also low at 12%. A few Asian countries do better than most of Africa and Latin America in this respect. That is, they would be less vulnerable to changes in commodity prices.

Josh Bivens: Nowhere Close: The Long March from Here to Full Employment

By Josh Bivens

The last official business cycle peak occurred in December 2007. After that, the economy entered 18 months of virtual freefall—with job losses averaging more than 750,000 per month for the worst six-month stretch. The official end of the recession was June 2009—and some have recently declared full recovery has been reached in the 54 months since, as 2013 per capita GDP finally exceed its pre-recession levels. However, for the very large majority of Americans who rely on paid employment for the vast majority of their income, recovery likely still feels very far off. And they’re right—by any reasonable definition the United States is far from having reached a full recovery. That’s because simply clawing back to the per capita income level that prevailed before the start of the Great Recession is far too low a bar to clear to declare mission accomplished on recovery. The reason for this is simple: Joblessness (and the sapping of bargaining power that accompanies its rise even for still-employed workers) rises whenever a gap develops between the economy’s underlying productive potential and aggregate demand for goods and services. The intuition here is simple: A given number of customers’ demands can be satisfied with fewer people as each incumbent worker becomes more productive, and each new potential worker (new graduates, for example) seeking to enter the workforce will only be employed if there is extra consumer demand for what he or she produces. So, demand has to rise in line with the economy’s productive potential in order to keep joblessness from rising.

Read rest here. 

Heidi Shierholz: Still No Jobs for More Than 60 Percent of Job Seekers

By Heidi Shierholz

The Job Openings and Labor Turnover Survey (JOLTS) data released this morning by the Bureau of Labor Statistics showed that job openings increased by 60,000 in January, bringing the total number of job openings to 4.0 million. In January, the number of job seekers was 10.2 million (unemployment data are from the Current Population Survey). Thus, there were 10.2 million job seekers and only 4.0 million job openings, meaning that more than 60 percent of job seekers were not going to find a job in January no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. We are not in a strong labor market. Furthermore, the 10.2 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.7 million would-be workers who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will become job seekers when we enter a robust jobs recovery, so job openings will be needed for them, too.

Read rest here.

On Argentina's secular decline: why The Economist is wrong

The Economist had a few weeks ago an issue on Argentina (here; subscription required), which I wanted to address, but had no time before today. The argument implies that the current Argentine woes (discussed here before) are part of a pattern which is associated to the long decline in income per capita from the late 19th century and early 20th century until now.

The Economist suggests that:

"In 1914 Argentina stood out as the country of the future. Its economy had grown faster than America’s over the previous four decades. Its GDP per head was higher than Germany’s, France’s or Italy’s. It boasted wonderfully fertile agricultural land, a sunny climate, a new democracy (universal male suffrage was introduced in 1912), an educated population and the world’s most erotic dance. Immigrants tangoed in from everywhere. For the young and ambitious, the choice between Argentina and California was a hard one."

In a sense that's true. According to Maddison's data in 1913 Argentina per capita GDP (in 1990s dollars) was 3,797 while France and Germany had respectively 3,485 and 3,648 (data available here). However, the reasons for the decline in the 20th century are based on simplistic notions, typical of the so-called New Institutionalism of North and more recently Acemoglu and Robinson (for a critique go here). In their words:

"Building institutions is a dull, slow business. Argentine leaders prefer the quick fix—of charismatic leaders, miracle tariffs and currency pegs, rather than, say, a thorough reform of the country’s schools."

They blame corruption and populism (mind you currency pegs were actually typical of liberal governments, both the ones that adopted the Gold Standard, an international institution, back when the economy was fine according to The Economist, and during the 1990s during the Neoliberal experiment, that The Economist fully supported; but I'm glad that now they admit that currency pegs might be sometimes dangerous. The Economist is not for the Gold Standard anymore, it seems. Any day now they will abandon their beliefs on free trade).

On a different note they also suggest that commodity production might be a problematic path to development (yes, The Economist again has a positive take on Prebisch-Singer; see before here). They say:

"Commodities, Argentina’s great strength in 1914, became a curse. A century ago the country was an early adopter of new technology—refrigeration of meat exports was the killer app of its day—but it never tried to add value to its food (even today, its cooking is based on taking the world’s best meat and burning it). The Peróns built a closed economy that protected its inefficient industries; Chile’s generals opened up in the 1970s and pulled ahead. Argentina’s protectionism has undermined Mercosur, the local trade pact. Ms Fernández’s government does not just impose tariffs on imports; it taxes farm exports."

In other words, Pinochet was great (Chile is developed it seems; again according to Maddison's data the Chilean GDP per capita in 1990 dollars in 2008 was 13,185 while the Argentine was 10,995. Not much of a difference; back in 1913 Chile's was 2,968 and like Argentina's high for Latin America's standards. In other words, while France and Germany had in 2008 22,223 and 20,801 respectively in 2008, both Chile and Argentina had fallen behind), and redistribution towards the poor (read Perón and the Kirchners) is bad. That's why the lesson is "that good government matters."

Don't get me wrong, the State matters, and a developmental state matters a lot. However, when and how you connect with global markets also matters. While France and Germany might have had a slightly smaller GDP per capita in 1913 than Argentina, they were quite ahead in the second Industrial Revolution, with firms that were leaders in steel production, in the chemical and pharmaceutical sectors, and with a developed network of firms and universities producing first rate scientists and technological innovations. Meanwhile, Argentina (but also Chile) produced mostly commodities (and only adopted imported technology) and the vast majority of their exports were concentrated in one or two commodities exported to a limited number of countries. Hence, only someone with the limited understanding of The Economist would have thought that Argentina and Chile were in 1913 as developed as France and Germany.

The lesson is more complex than The Economist's 'the state matters' (interestingly enough if markets did matter, which is their traditional motto, specialization in commodities due to comparative advantage should pose no problems). The state matters, but so does your colonial past (being an exploitation colony rather than a settlement one is a problem), what you export matters, and the access to international capital markets also matters (France and Germany got a Marshall Plan to reconstruct, since the US was afraid of Uncle Joe, but in Argentina we weren't that lucky). The parable of Argentina is a rich one, from which many should learn, but The Economist still has no clue.

PS: Don't get me wrong, building schools is nice, and Argentina actually produced three Nobel prizes in sciences (the last one in the 1980s), but schools alone do NOT produce development.

PS': Also, why is Messi a symbol of Argentina's secular decline?

Tokunaga & Epstein - Endogenous Finance of a Dollar-Based World-System: A Minskian Approach

Junji Tokunaga & Gerald Epstein 

From the Abstract:

Global financing patterns have been at the center of debates on the global financial crisis in recent years. The global imbalance view, a prominent hypothesis, attributes the financial crisis to excess saving over investment in emerging market countries which have run current account surplus since the end of the 1990s. The excess saving flowed into advanced countries running current account deficits, particularly the U.S., thus depressing long-term interest rates and fuelling a credit boom there in the 2000s. According to this view, the financial crisis was triggered by an external and exogenous shock that resulted from excess saving in emerging market countries, not the shadow banking system in advanced countries which was the epicenter of the financial crisis. Instead, we argue that a key cause of the global financial crisis was the dynamic expansion of balance sheets at large complex financial institutions (LCFIs)(Borio and Disyatat [2011] and Shin [2012]), driven by the endogenously elastic finance of global dollar funding in the global shadow banking system. The endogenously elastic finance of the global dollar contributed to the buildup of global financial fragility that led to the global financial crisis. Importantly, the supreme position of U.S. dollar as debt- financing currency, underpinned by the dominant role of the dollar in the development of new financial innovations and instruments, and was a driving force in this endogenously dynamic and ultimately destructive process.

Read rest here 

Resource Curse - Natural Gas is What Detonated the Ukraine Crisis

Very few, if none at all, in the West are willing to address what really triggered the latest geopolitical ‘crisis’ in the Ukraine.

From Global Research Canada

Defending Moscow’s December 18, 2013 agreement to provide Ukraine with an aid package estimated at about $15 billion, and cheaper natural gas through discounts and “gas debt forgiveness” estimated as able to save Ukraine $7 bn in one year, Vladimir Putin said the decision to invest $15 bn in ‘brotherly slavic’ Ukraine, and grant the gas discount was “pragmatic and based on economic facts”. At the time, the “investment” in Ukraine was already conditional – not only on the political issue of Ukrainian loyalty to Moscow – but on Ukraine complying with previous longstanding, often revoked, modified or extended commitments to repay gas debts dating from as far back as the early 1990s.  In December, Russia’s Finance minister Anton Siluanov said payment of the “aid or investment” funds to Ukraine, in tranches of about $2 bn each, would need Ukraine making a serious response to end-2013 estimates, by Russia, of the minimum “monetized gas debt” Ukraine has to pay. Siluanov’s ministry said this was about $2.7 bn, itself a large downward revision on other published figures from Russian sources, extending well above $5 bn. His ministry also published statements suggesting that Ukraine’s non-payment of gas taken and consumed by the country, since 2010, ran at a yearly average as high as $2 – $2.25 bn. To be sure, events starting in February as the “Maidan movement” drew massive public support in the capital and western Ukraine to overthrowing the government-in-place. This was a repeat of Egypt’s anti-Morsi flash mob street revolution, followed by the Saudi-financed military coup against elected president Morsi. In Ukraine, however, the street magic stopped in the east, and especially in Crimea where 75%-85% of votes cast in the 2010 election were for Viktor Yanukovych. To be sure, this blood-colored version of the Orange Revolution aimed at aligning Ukraine with the European Union may have scarpered further bail out payments by Moscow. Any upping of the ante, as enacted and supplied by NATO and John Kerry, could lead to Russia also making a total shutdown of gas supply to Ukraine – Kiev’s Independence Square flash mob could hope that Global Warming will shorten the winter, ease heating needs, and give Ukraine a head start for becoming a debt wracked European Union associated country – but this is far from a sure thing. The national gas debt will surely feature in the round of proposals for “Ukraine bailout” being developed by the IMF, European Commission, EU member states on a bilateral basis, the US and potentially other actors, including the ECB and the UN ECE (the UN’s European economic agency), as well as private banks and energy companies. One thing is sure and certain, much higher gas prices for Ukraine are inevitable, under any scenario.

Read rest here

Mark Weisbrot on Venezuela’s Struggle - Widely Misrepresented, Remains a Classic Conflict Between Right and Left

By Mark Weisbrot

The current protests in Venezuela are reminiscent of another historical moment when street protests were used by right-wing politicians as a tactic to overthrow the elected government. It was December of 2002, and I was struck by the images on U.S. television of what was reported as a “general strike,” with shops closed and streets empty. So I went there to see for myself, and it was one of the most Orwellian experiences of my life. Only in the richer neighborhoods, in eastern Caracas, was there evidence of a strike, by business owners (not workers). In the western and poorer parts of the city, everything was normal and people were doing their Christmas shopping – images unseen in the U.S. media. I wrote an article about it for the Washington Post, and received hundreds of emails from right-wing Venezuelans horrified that the Post had printed a factual and analytical account that breathed air outside of their bubble. They didn’t have to worry about it happening again. The spread of cell-phone videos and social media in the past decade has made it more difficult to misrepresent things that can be easily captured on camera. But Venezuela is still grossly distorted in the major media. The New York Times had to run a correction last week for an article that began with a statement about “The only television station that regularly broadcast voices critical of the government …” As it turns out, all of the private TV stations “regularly broadcast voices critical of the government.” And private media has more than 90 percent of the TV-viewing audience in Venezuela. A study by the Carter Center of the presidential election campaign period last April showed a 57 to 34 percent advantage in TV coverage for President Maduro over challenger Henrique Capriles in the April election, but that advantage is greatly reduced or eliminated when audience shares are taken into account. Although there are abuses of power and problems with the rule of law in Venezuela – as there are throughout the hemisphere– it is far from the authoritarian state that most consumers of western media are led to believe. Opposition leaders currently aim to topple the democratically elected government – their stated goal – by portraying it as a repressive dictatorship that is cracking down on peaceful protest. This is a standard "regime change" strategy, which often includes violent demonstrations in order to provoke state violence.

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Noam Chomsky on The Death of American Universities

 

By Noam Chomsky

When universities become corporatized, as has been happening quite systematically over the last generation as part of the general neoliberal assault on the population, their business model means that what matters is the bottom line.

The effective owners are the trustees (or the legislature, in the case of state universities), and they want to keep costs down and make sure that labor is docile and obedient. The way to do that is, essentially, temps. Just as the hiring of temps has gone way up in the neoliberal period, you’re getting the same phenomenon in the universities.

In the past thirty or forty years, there’s been a very sharp increase in the proportion of administrators to faculty and students; faculty and students levels have stayed fairly level relative to one another, but the proportion of administrators have gone way up.

There’s a very good book on it by a well-known sociologist, Benjamin Ginsberg, called The Fall of the Faculty: The Rise of the All-Administrative University and Why It Matters, which describes in detail the business style of massive administration and levels of administration — and of course, very highly-paid administrators. This includes professional administrators like deans, for example, who used to be faculty members who took off for a couple of years to serve in an administrative capacity and then go back to the faculty; now they’re mostly professionals, who then have to hire sub-deans, and secretaries, and so on and so forth, a whole proliferation of structure that goes along with administrators. All of that is another aspect of the business model.

But using cheap and vulnerable labor is a business practice that goes as far back as you can trace private enterprise, and unions emerged in response. In the universities, cheap, vulnerable labor means adjuncts and graduate students. Graduate students are even more vulnerable, for obvious reasons. The idea is to transfer instruction to precarious workers, which improves discipline and control but also enables the transfer of funds to other purposes apart from education.

The costs, of course, are borne by the students and by the people who are being drawn into these vulnerable occupations. But it’s a standard feature of a business-run society to transfer costs to the people. In fact, economists tacitly cooperate in this. So, for example, suppose you find a mistake in your checking account and you call the bank to try to fix it. Well, you know what happens. You call them up, and you get a recorded message saying “We love you, here’s a menu.” Maybe the menu has what you’re looking for, maybe it doesn’t. If you happen to find the right option, you listen to some music, and every once and a while a voice comes in and says “Please stand by, we really appreciate your business,” and so on.

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A classic text concerning this erosion of higher education is Thorstein Veblen's (1918) The Higher Learning in America: A Memorandum on The Conduct of Universities by Business Men

Herbert Marcuse on Paul Baran’s Critique of Modern Society and of the Social Sciences

Paul Baran and Herbert Marcuse's (author of One Dimensional Man) friendship went back to their days together at the Institute for Social Research (the foundational school of critical theory in the social sciences, which led to the future establishment of The New School For Social Research in NYC, and became the intellectual impetus for spawning the 'New Left' in the US - for more on this, see here) in Frankfurt in pre-Hitler Germany. Their close connection is revealed in a series of letters they wrote to each other in the 1950s and early ’60s (posted this month on the Monthly Review website).

From John Bellamy Foster:

The following talk, delivered only days after the publication of Monopoly Capital: An Essay on the American Economic and Social Order by Baran and Paul M. Sweezy, Marcuse reveals his admiration for Baran’s article on “The Commitment of the Intellectual.”Marcuse also provides his understanding of the critical importance of Baran’s notion of economic surplus, as introduced in The Political Economy of Growth and its significance for the critique of monopoly capital. This throws light on Marcuse’s own use of the concept of monopoly capitalism, which is frequently mentioned in his work (see for example his Counter-Revolution and Revolt).

Marcuse criticizes Baran for rejecting—in “Marxism and Psychoanalysis”—the use of psychological terms and for distancing himself from Freudian psychoanalysis and its left interpretations. Marcuse was clearly disappointed (as he indicated in a letter to Baran on September 22, 1959, where he commented on the galleys to Baran’s article) that Baran had not embraced the kind of argument he himself had put forward in Eros and Civilization. Nevertheless, it is worth adding that Baran—as Marcuse no doubt understood and as their own correspondence reveals—was far from simply rejecting psychological issues out of hand. Baran’s essay on psychoanalysis was aimed at the critique of what he called “psychologism” and “social psychologism”—and not psychology and social psychology. He insisted in this respect that what was needed was a more revolutionary social psychology—that took into account as its initial datum the structure of capitalist society as a whole. He sought to push this view forward near the end of his life through the critique of the cultural apparatus, overlapping in this way with the concerns of such thinkers as Marcuse, Fromm, Williams, and Mills. (See the special July-August 2013 issue of Monthly Review on “The Cultural Apparatus of Monopoly Capital”). To the end Baran remained an uncompromising critic of the narrow economic rationalism of monopoly-capitalist society and the damaging effect that it exerted on the material existence, culture, and consciousness of humanity.

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Malcolm Sawyer - Financial Development, Financialization and Economic Growth

 

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