Could Ecuador be the most radical and exciting place on Earth?

Jayati Ghosh

Ecuador must be one of the most exciting places on Earth right now, in terms of working towards a new development paradigm. It shows how much can be achieved with political will, even in uncertain economic times.

Just 10 years ago, Ecuador was more or less a basket case, a quintessential “banana republic” (it happens to be the world’s largest exporter of bananas), characterised by political instability, inequality, a poorly-performing economy, and the ever-looming impact of the US on its domestic politics.

In 2000, in response to hyperinflation and balance of payments problems, the government dollarised the economy, replacing the sucre with the US currency as legal tender. This subdued inflation, but it did nothing to address the core economic problems, and further constrained the domestic policy space.

A major turning point came with the election of the economist Rafael Correa as president. After taking over in January 2007, his government ushered in a series of changes, based on a new constitution (the country’s 20th, approved in 2008) that was itself mandated by a popular referendum. A hallmark of the changes that have occurred since then is that major policies have first been put through the referendum process. This has given the government the political ability to take on major vested interests and powerful lobbies.

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The culture of debt

Edward B. Barbier
(also available in Portuguese from INESC)

In an article in Newsweek, Niall Ferguson argues that, the main reason why Americans should care about the European debt crisis is that “what is happening in Europe today could ultimately happen here.”

I have news for Professor Ferguson.  He has his diagnosis the wrong way around.

An important reason why Europe is in its current debt crisis is because for decades it has been emulating the US example of creating a permanent “culture of debt”.

I use the term “culture” here deliberately.  The global debt crisis is not just about the growing government debt burdens of economies, nor about the financial liquidity crisis plaguing banks.  The true debt crisis is much deeper than that.  It involves entire economies and societies evolving towards a mind-set in which more and more benefits are expected today –  but any costs are either increasingly postponed to the future, or preferably, dumped on others.

The problem with such a mind-set is that it ultimately leads to economies creating debt rather than wealth.

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A three-step programme to re-civilise capitalism

Stephany Griffith-Jones, Michael Lipton and Robert Wade, guest bloggers

What should protesters protest for? They rightly oppose the many faults of the current economic system, but what is the alternative? What ground should occupiers occupy? What can politicians who reject corporatist politics-as-usual, and economists who reject wrong economic thinking do in response to justified protest? How can the economy be transformed to serve the 99%, instead of the 1%?

Capitalism can work if reformed, and history can teach us much. In the period 1940-80, the Keynesian, mixed-economic models of north-west Europe, North America and many developing regions delivered to the poor and weak, while not frightening the strong. The financial sector was fairly small, well-regulated and simple; it financed the real economy, as it is supposed to. Growth, employment and security were high, poverty was reduced and liberty preserved, partly because social democracy helped both to moderate capitalism and to oppose communism.

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Open Economics: Weigh in

Norbert Häring, guest blogger

The World Economics Association’s forum for the open review of proposed articles for the World Economics Journal and for Economic Thought is now open. 19 submissions have been posted so far. It is located at

The World Economics Association has been founded in spring 2011 and has so far attracted more than 7000 members from around 120 countries. The Journals of the association are committed to a policy of inclusiveness, openness and transparency. You are encouraged to read and comment on submitted papers that interest you. Editors will also make public comments to make their final decision making process transparent and to allow readers and authors to react and interact.

Papers submitted to the World Economics Journal include:

Microfinance and the Illusion of Development: from Hubris to Nemesis in Thirty Years, by Milford Bateman and Ha-Joon Chang

Incorporating the Rentier Sectors Into a Financial Model, by Michael Hudson

External Fragility or Deindustrialization: What is the Main Threat to Latin American Countries in the 2010s? by Roberto Frenkel and Martín Rapetti

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Capital controls are not beggar thy neighbour

Kevin P. Gallagher

Emerging markets have fallen victim to unstable capital flows in the wake of the financial crisis. In an attempt to mitigate the accompanying asset bubbles and exchange rate pressures that come with such volatility, a number of emerging markets resorted to capital controls. Although these actions have largely been supported by the International Monetary Fund, some policy-makers and economists have decried capital controls as protectionist measures that can cause spillovers that unduly harm other nations.

Recently-published research shows that these claims are unfounded. According to the new welfare economics of capital controls, unstable capital flows to emerging markets can be viewed as negative externalities on recipient countries. Therefore regulations on cross-border capital flows are tools to correct for market failures that can make markets work better and enhance growth, not worsen it.

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The role China plays

C.P. Chandrasekhar

Growth in China, it is said, is slowing. GDP growth has reportedly fallen from 9.7 per cent in the first quarter of 2011, to 9.5 per cent in the second quarter, 9.1 per cent in the third and 8.9 per cent in the fourth. Much is being made of these numbers, though the 9.2 per cent average over 2011 is still high and the government has itself attempted to slow the system to rein in inflation.

One can sense an element of schadenfreude here. For too long now China has been showing up the rest of the world with its high rates of growth. This is especially true of the United States, which imports much from China, depends on inflows of capital from that country to finance its deficits, and is always looking for the next country to challenge its global supremacy.

However, if China’s growth is indeed slowing, this is no cause for even the US government to celebrate. A poorly performing China can drag the US down as well. Not just because China, with its large geographical size and population, is the growth pole that prevents the multi-speed global economy from sinking into another crisis. But because China is too important a market for the large multinational corporations that symbolise US economic power.

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Bamboozled by the TPP: The Small Benefits and Real Costs of the Trans-Pacific Partnership Agreement

Kevin P. Gallagher

The Obama administration has launched a “21st Century” trade negotiation with a number of pacific-rim nations referred to as the Trans-Pacific Partnership (TPP).  While the full details of the proposed treaty are yet to be made public, early estimates show that the economic benefits of the agreement will be relatively small and the regulatory costs could be significantly high—especially for the emerging market and developing countries engaged in the negotiations.

The gains of the agreement may be a mere $20 billion, or just over one percent of GDP on average for the nations involved.  To get those small gains nations will have to trade away the ability to use measures to prevent and mitigate financial crises, to develop a growth-based innovation system, to protect public health and the environment, and more.

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“Stronger than I expected” – Gerald Epstein on AEA disclosure guidelines

Triple Crisis blogger Gerald Epstein was recently interviewed by Olaf Storbeck of Economics Intelligence on the American Economic Association’s (AEA) new guidelines requiring economists to disclose conflicts of interest. In 2011, Epstein and Jessica Carrick-Hagenbarth spearheaded an effort to get the AEA to adopt an ethics code for economists with a sign-on letter that garnered the support of over 300 economists.

One year ago, Gerald Epstein and Jessica Carrick-Hagenbarth, two economists at  the University of Massachusetts Amherst, organised an open letter to the American Economic Association urging the organisation to

“adopt a code of ethics that requires disclosure of potential conflicts of interest that can arise between economists’ roles as economic experts and as paid consultants, principals or agents for private firms”.

More than 300 economists signed the letter, among them Nobel laureate George Akerlof and Christina Romer, a former advisor to US president Barack Obama.

Almost exactly one year later, the American Economic Association in fact agreed on a new disclosure codex. (Luigi Zingales also presented an interesting paper on the “Capture of Economists”.)

What do the authors of the open letter make of the new guidelines? I did an interview with Gerald Epstein, who wasn’t involved in the discussions about the new rules.

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Searching for Gold in the Highlands of Guatemala

Lyuba Zarsky

For nearly a decade, Goldcorp’s Marlin gold and silver mine in the Guatemalan altiplano has been at the center of intense local conflict and international scrutiny. The conflict was ignited in 2005 when local Mayan communities overwhelmingly rejected mining in popular plebiscites called consultas. Chief among their concerns was the potential for water contamination in the agricultural areas.

Virtually every international human rights organization—from the ILO to the UN Special Rapporteur – has weighed in, urging Goldcorp and the Guatemalan government to suspend mine operations to ensure protection of the rights, health and livelihoods of the indigenous people. In mid-2010, the Inter-American Commission on Human Rights of the Organization of American States (IACHR) went one step further and issued precautionary measures ordering the Guatemalan government to suspend operations at the Marlin mine.

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