Much has been made of how there has been a substantial shift in the balance of economic power between the advanced capitalist economies (or the “North”) and some economies of the global South. It is true that very recently the hype surrounding “emerging markets” has died down, as international capital flows have swung away from them and many of them have shown decelerating growth or even declines in income as global exports fall. Nevertheless, the feeling persists that – in spite of a supposedly resurgent US economy – the advanced economies are generally in a process of relative decline, while the developing world in general and certain economies in particular have much better chances of future economic dynamism. And this process is generally seen to be the result of the forces of globalisation, which have enabled developing countries, especially some in Asia, to take advantage of newer and larger export markets and improved access to internationally mobile capital to increase their rates of economic expansion.
But how significant has this process actually been?
To what extent is the problem of unemployment in some countries of the Arab World an outcome of monetary policy that targets low rates of inflation with no regard to unemployment? To what extent is the problem of stagflation in some countries an outcome of the policy mix of raising short term interest rates while devaluing national currencies? To what extent has the adverse impact of a chronically high rate of unemployment aggravated the contraction triggered by an external shock (falling oil price), and thus created a debilitating path dependence?
The mechanisms that answer these questions are like irrigation valves channelling income flows between various nationally based working strata and internationally based financial interests. They are about who (which class) has enough power to get a higher share of income and how much. As the labour share from total income fell, in the Arab World, to the lowest global ranks—a result of the absence of politically organised labour, inflation, and wage compression—the steadying of the national currency against the dollar (pegged rate) channelled wealth not only up within the same society, but also abroad. Countries with balance of payments constraints are short-leashed by institutional lenders who can wreak havoc on nation states by simply delaying disbursements that support the national currency (if the national currency devalues, inflation rises and so on.). In a sense, this policy, like many other neoliberal measures, makes corruption legal. If corruption is defined as the diversion of public wealth to private use, the exchange rate and monetary policy under open capital account regimes, which was not only legal but also supported by major international financial institutions, is corruption writ large.
On March 10, the Global Development and Environment Institute (GDAE) awarded the 2016 Leontief Prize to Amit Bhaduri and Diane Elson for their work to improve our economic understandings of development, power, gender, and human rights.
Dr. Bhaduri’s lecture focused on issues of power in economics. He says that current economic curricula teach the subject as “Adam Smith minus Karl Marx.” Bhaduri’s work has covered many fields, but his driving force is the question of how people relate to and dominate one another. He calls into question the ideas of the mutual dependence” of labor and capital and “market equilibrium” in an efficient market. He stressed the necessity of equality in order to achieve true mutual dependence, otherwise the mutual nature of the relationship falls apart. There are few cases in which market equilibrium is achieved. Standard economic theory requires that all firms in a market are in perfect competition, and therefore must accept the going rate for selling their goods and services. It is more likely that firms, often using misinformation campaigns, act more as price-setters than price-takers. Bhaduri also spoke on the history of banking regulation in the United States and development and growth strategies in India.
An interview with Dr. Bhaduri, conducted on the occasion of the Leontief Prize ceremony, is below. The transcript of the talk he delivered at the ceremony is posted after the jump. An interview with Dr. Elson is available here. (The full video of the ceremony is available online, with Dr. Bhaduri’s talk beginning here and Dr. Elson’s here.)
On March 10, the Global Development and Environment Institute (GDAE) awarded the 2016 Leontief Prize to Diane Elson and Amit Bhaduri for their work to improve our economic understandings of development, power, gender, and human rights. An interview with Dr. Elson, conducted on the occasion of the Leontief Prize ceremony, is below. The transcript of the talk she delivered at the ceremony is posted after the jump. An interview with Dr. Bhaduri will be posted later this week. (The full video of the ceremony is available online, with Dr. Elson’s talk beginning here and Dr. Bhaduri’s here.)
Dr. Elson, emeritus professor at the University of Essex, spoke about her research on development through a gender lens. She prefaced her talk with the following quote, “Standard macroeconomic policy is not gender neutral. It emphasizes the expansion of market activity and devalues non-market activity. Development measures should be adjusted to account for this.” Elson quoted from time-use surveys and research on gender and non-market activity. A man in Buenos Aires spends an average of 89 minutes per day on unpaid work, while a woman spends 256 minutes per day. Adding paid work, men average 422 minutes per day and women 436 minutes per day. In India, the numbers for men and women are 36 and 354, respectively. By Elson’s estimates, putting a monetary value (even just minimum wage) on unpaid work would inflate GDPs by 20-40%. She suggests a system to remedy this situation: Recognize, Reduce, and Redistribute. Recognize unpaid work by incorporating it into GDP. Reduce the imbalance by improving, for example, water infrastructure, which women in developing countries spend disproportionate time and energy gathering. Finally, redistribute unpaid work by offering parental leave for new fathers in addition to new mothers.
The news that India is introducing a new tax on car sales to help combat severe air pollution and congestion problems has unsurprisingly been decried by the country’s car industry.
The chair of India’s largest car manufacturer, Maruti Suzuki, says the tax “is going to hurt the industry, and will impact growth and affect job creation”. Following the announcement, shares in Maruti Suzuki traded more than 5% lower.
But others have celebrated the move, recognising that business as usual cannot continue in a country home to the four most polluted cities in the world. “Once Indians owning cars was seen as a sign of economic success. Now this sort of tax is seen as Indians being responsible,” a senior research fellow at a Delhi-based think tank told the Guardian.
The tax comes on the heels of the Delhi government’s unprecedented step this winter of imposing an emergency “odd-even” license plate number rule to restrict private car use to alternate days.
Reports of extreme air pollution in Delhi and other Indian cities are nothing new. The World Health Organisation estimates that more than 600,000 people die each year as a result of outdoor air pollution in India. Much less discussed is the fact that not all residents are equally affected, nor equally responsible.
Claiming to address contrarian findings that the TPP may well cause job losses and increase income inequality, Lawrence and Moran assume away the causes – downward pressure on wages and employment due to the consequent “race to the bottom” – which have made free trade agreements so controversial.
Jomo Kwame Sundaram was the Coordinator for Economic and Social Development at the Food and Agriculture Organization of the United Nations (FAO) and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.
Nutrition is complex and multi-dimensional. Micronutrient deficiencies or ‘hidden hunger’ are much more widespread than chronic undernourishment or hunger, understood as inadequate dietary energy. Micronutrient deficiencies refer to the lack of essential vitamins, minerals and other substances required over the human life cycle by the body in small amounts. Micronutrient undernutrition has long-term effects on health, learning ability and productivity, leading to high social and public costs, reduced work capacity in populations due to high rates of illness and disability, and loss of human potential.
Although the most severe problems of micronutrient malnutrition are found in developing countries, people of all population groups in all regions of the world are affected by some micronutrient deficiencies. More than two billion people in the world are deficient in key vitamins and minerals, particularly vitamin A, iodine, iron and zinc. This is a serious impediment to socio-economic development, exacerbating the vicious cycle of malnutrition, underdevelopment and poverty. Not surprisingly then, the economic gains to society of reducing micronutrient deficiencies are estimated to have a benefit-to-cost ratio of almost thirteen to one!
Financial Stability at the Expense of the Real Economy
Sunanda Sen is a former professor of economics at Jawaharlal Nehru University (JNU). She can be reached at email@example.com
The success achieved by the Indian economy, as highlighted in the central government’s recent budget, rests on four pillars: a current GDP growth rate of 7.6%, a decline in inflation (as measured by the CPI) to around 6%, record official reserves of $350 billion, and most importantly, a reduced fiscal deficit of 3.5% of GDP.
Looking beyond the official figures, one comes across reservations: First, the GDP growth, if calculated by the long-standing earlier method, would have generated a rate around 5%. Second, the stock of official reserves depends on inflows of short term and volatile capital, which may evaporate without much warning. Third, the comfortable inflation rate may also not last very long if the current lows in oil and commodity prices reverse. Finally, to come to the much-touted claim of achieving growth via financial stability with reductions in the fiscal-deficit-to-GDP ratio, the argument, as shown below, just does not stand up to scrutiny.
The government of Venezuela has often denounced an “economic war” against it, and of course this is part of the current situation. The primary weapon of mass destruction in this war is the black market for the dollar. It is no coincidence that the main source of information for this market — the extreme right-wing “DolarToday” — is run by someone who played an important role in the U.S.-backed military coup in 2002. He was then an army officer — Colonel Gustavo Díaz Vivas — and he now resides in Alabama, with DolarToday operating out of the U.S.
This is also no coincidence. Washington has been trying to topple the Venezuelan government for at least 15 years, and almost every journalist I have talked to during this time — including from every major international media outlet — has been well aware of this effort; although they almost never write about it.
The black market for the dollar is especially destructive because it is part of an inflation-depreciation spiral that has been growing since the fall of 2012. When the price of a dollar on the black market rises, importers must pay more for the dollars that they need, and this increases inflation. But then the higher inflation encourages more people to buy dollars on the black market, as a store of value. This pushes up the black market dollar price, which increases inflation, in a continuing spiral. In October 2012, inflation was at 18 percent and the black market dollar was at 13 Bf (Bolivares Fuertes). At the end of 2015, inflation hit 181 percent, and the black market dollar had passed 800.
The main reason that the current spiral does not get even worse is that the economy is in recession. It shrank by 5.7 percent last year. But attempts to stimulate the economy through government spending would likely feed the inflation-depreciation spiral. This means that the economy is currently trapped in recession.
The government must therefore incapacitate this weapon of mass destruction. The only way to do that is to unify the exchange rate.
Across the developed world the persistence of a phenomenon that was initially seen as a freak occurrence—negative interest rates—is now a cause for concern. One form the tendency takes is for central banks to set their policy rates, which signal their monetary stance, below zero. The process was triggered by the European Central Bank (ECB). Under pressure to forestall deflation in the region, the ECB reduced its deposit rate to (minus) 0.1 per cent in June 2014. Since then, according to the Bank for International Settlements (BIS), till January 2016 four national central banks, from Denmark, Sweden, Switzerland and Japan, have moved the interest ‘paid’ on part of their deposits with them to negative territory.
After the Great Recession began in late 2008, there was a widespread trend observed for policy rates to be cut to stall and reverse the economic downturn. This process has now gone so far in some countries, that rates have breached the zero-barrier. The ECB itself has in three steps cut its deposit rate to (minus) 0.2, (minus) 0.3 and (minus) 0.4 in September 2014, December 2015 and March 2016 respectively (Chart 1).
Underlying this trend is a much more pro-active role for monetary policy in countering deflationary trends. Thus, in March 2016 the ECB reduced the interest it pays on deposits (or further lowered the negative rate from -0.3 to -0.4 per cent). In addition, it offered zero interest loans to banks, with the promise that if they use that money to lend 2.5 per cent or more than they were previously doing, then the ECB would pay them the equivalent of 0.4 per cent of what they borrowed from it as interest. In sum, the central bank is promising to pay banks that borrow from it, as long as they increase their lending to households and firms.