European crisis resolution seems to rest on one hope: austerity can bring growth. History and most of economic theory seems to suggest that this is not possible. The Baltics peg to differ. Or so it seems. During the 2008-2010 crisis the Baltic economies of Estonia, Latvia and Lithuania experienced peak-to-trough reductions in GDP as high as 20%, 25% and 17% respectively. Governments decided to stick to currency pegs and opt for austerity and internal devaluation by cutting government expenditure in 2009 around 8-9% and additional 3-4% (of GDP) in 2010. By 2011, all Baltic economies were growing again, real GDP growth, driven by rapid recovery in exports, topping European charts with 7.6% (Estonia), 5.5% (Latvia) and 5.9% (Lithuania). Based on our forthcoming paper, “The Baltic States and the Crisis of 2008-2010”, we discuss in what follows whether in fact the Baltic internal devaluation worked and, more importantly, whether it can be replicated anywhere else, Europe or elsewhere. All data comes from our paper, where the reader can also find detailed references.
During the post-war decades the direct creation of jobs through the expansion of employment in the public sector or through the government funding of public works was a reliable policy workhorse for employment policy. However, over the past three decades this policy has been replaced by market-oriented strategies such as labor market deregulation and cuts in corporate and marginal income tax.
We are at a critical juncture with respect to the worldwide need for scholars who understand the broad forces shaping economic development and its impact on poverty reduction. These forces are driven from the macro economy, with critical sectoral and political dimensions that are virtually impossible to navigate without broad-based and policy-oriented training.
Since the development failures of the 1970s, and especially since the failures of post-Soviet privatizations to produce the predicted rapid growth in the Eastern bloc, mainstream economists have understandably been increasingly reluctant to claim that they have answers to big problems. By contrast, when economic development first came of age as an academic topic in the 1960s, economists were trained to conduct research on the big problems of world poverty. Crucially, this research was valued by the profession itself, in the form of academic appointments and international recognition.
Strange things happen in the world. Imagine a grouping of countries spread across the globe, which gets formed only for the simple reason that an analyst for an investment bank decides that these countries have some things in common, including future potential for growth, and then creates an acronym of their names! Bizarre but true.
The original categorization by Jim O’Neill of Goldman Sachs contained only Brazil, Russia, India and China – subsequently South Africa was added to the group. And while the origin of the grouping may be odd, and the countries are indeed remarkably diverse, there are some commonalities that are important. And in any case, these countries have since shown significant appetite for meeting periodically, working together, finding some synergies and new ways of co-operation. It is interesting to note that trade between BRICS countries soared after they became recognized as a combination, although of course this is a period when trade between developing and emerging markets in general has grown much faster than aggregate world trade.
Brazil has acquired a new role in the 2000s: offering assistance to other countries in their national development efforts. In the climate negotiations in Copenhagen in 2009, for example, former President Lula da Silva said that Brazil not only would shoulder its own costs of emissions reductions, but might even give resources to poorer countries to do so. This commentary examines Brazil’s experience as an environmental donor, placing it in the context of its emerging donor profile, and arguing that implementation of the promises is still incipient.
Last week, guest blogger Robert Wade sounded the alarm about efforts on the part of some developed country governments to severely restrict the mandate of the UN Conference on Trade and Development (UNCTAD) at the organization’s April 21-26 ministerial conference in Doha, Qatar. We follow up on that post with a sign-on letter from former UNCTAD senior staff members urging that the institution’s broad mandate be maintained, as a critical source of heterodox economic thinking and policy analysis. We reprint their letter and signatories below.
Statement by former staff members of UNCTAD
Geneva, 11 April 2012
Silencing the messageor the messenger …. or both?
Since its establishment almost 50 years ago at the instigation of developing countries UNCTAD has always been a thorn in the flesh of economic orthodoxy. Its analyses of global macro-economic issues from a development perspective have regularly provided an alternative view to that offered by the World Bank and the IMF controlled by the west.
Now efforts are afoot to silence that voice. It might be understandable if this analysis was being eliminated because it duplicated the work and views of other international organizations, but the opposite is the case – a few countries want to suppress any dissent with the prevailing orthodoxy.
Every market is a process of social and power relationships. In every market there are price makers and price takers. The oil market, however, is no ordinary market, and the struggle to control the oil market, therefore, is no ordinary struggle. With oil being rudimentary to global accumulation and the monetary system remaining in part commodity-based, the degree of control of the oil market translates into some degree of enhanced power in all other markets. But to control an oil market, the principal player, which is undoubtedly the US, has to develop a strategy of intervention at the source, military or otherwise, which cuts down to size other players. Consequently, the extent to which the US infuses tensions in oil producing areas, calibrates the degree to which oil-states relinquish sovereignty over oil and keeps at bay other major players are measures that represent the collateral necessary to lay the foundation of the oil-dollar standard. This unending power exercise constitutes the cornerstone of the commodity-money or, more concretely, oil-dollar based global monetary system.