Archive for the ‘Growth and development’ Category

Crony Capitalism: Shifting fortunes of Indonesia and Malaysia

February 22, 2017

Interesting piece on how tides have turned for the two countries.

Earlier Indonesia was a hotbed of cronyism but now it is Malaysia:

With populists emulating autocrats from Azerbaijan to Zimbabwe, free markets are being forced to confront crony capitalism.

One response is visible in the reversal of fortunes of Malaysia and Indonesia. The two nations still wrestle with the politics of ethnicity and religion at odds with the capitalism of market competition. In Indonesia, Basuki Tjahaja Purnama, a Chinese Christian who is the governor of Jakarta, is running for office while defending himself against charges of blasphemy against Islam in a country of predominantly Muslim voters. Malaysia’s embrace of an ideology of Malay supremacy and the low interest rates that invite a debt bubble are impediments to a dynamic economy.

But the historic advantage that Malaysia, with just 30 million people, has enjoyed over its Southeast Asian neighbor of 250 million is disappearing amid a barrage of corruption allegations challenging Prime Minister Najib Razak.

Najib, who was elected in 2009, says hundreds of millions of dollars in his personal bank accounts came from a gift from an unidentified Saudi donor, denying a U.S. Justice Department complaint filed in federal court last July that accuses Najib of stealing from a Malaysian government investment fund, 1Malaysia Development Berhad, or 1MDB. 

The markets have noticed this:

The divergent growth rates are reflected in the stock market, where the 539 companies in the Jakarta Stock Exchange Composite Index gained 287 percent during the past 10 years, according to Bloomberg data. That’s more than three times the 95 percent return during the same period for the 30 companies that make up the FTSE Bursa Malaysia Kuala Lumpur Index, and amounts to Indonesia outperforming Malaysia by 7.6 percent each year. The gap has grown more pronounced since 2014, as the Indonesia market has outperformed Malaysia’s by 9.3 percent annually.

In the bond market, Indonesian government securities provided a total return (income plus appreciation) of 100 percent since 2010. That’s 6.5 percent per year more than Malaysian government debt, which returned 30 percent over the same six years, according to Bloomberg data. Since 2014, Indonesia’s advantage has widened to 7 percent.

The inferior performance of Malaysia’s debt is reflected in the country’s deteriorating fiscal outlook during the past two decades. Since 1997, when both countries saw their surpluses transformed into deficits, Indonesia kept its budget close to balanced with an average annual deficit of 1.32 percent of its GDP, according to data compiled by Bloomberg.

Nothing is granted..

Wasted urban infrastructure: The city of Detroit

February 17, 2017

City/urban economics is always more interesting to read. Even if the papers are highly technical, atleast there is something real to learn and ponder.

This interesting bit of research looks at the issue of why in Detroit people do not live near the business centre of yore?

McCloskey’s Dutch Problem: Capitalist Rhetoric and the Economic History of Holland

February 9, 2017

A nice paper reviewing Deridre McCloskey’s work on Dutch economic history. It is written by Prof. Michael Douma of Georgetown University.

One gets a good glimpse of differences between Dutch and Other Scholars on why Dutch made progress ahead of others:

Deirdre McCloskey argues that rhetoric and ideas were essential for the rise of capitalism in the Netherlands in the seventeenth century. Dutch scholars could benefit from McCloskey’s views on the topic, but they will be reluctant to engage her work because it is void of primary research and does not engage most major works in the relevant historiography. Indeed, McCloskey appears to mostly select older English-language works sympathetic to her thesis, but ignores competing views. Contemporary scholarship, in Dutch and in English, emphasizes the important role of institutions and government actors in early Dutch capitalism. This article aims to situate McCloskey’s work within this literature, with the hope for more discussion in the field.
Superb stuff..

The Long Economic and Political Shadow of History

January 25, 2017

Voxeu team is coming up with a series of three e-books (free) all of which make one’s eyes to lighten up.

The first one is there on the website:

 Volume 1 of the e-book starts with our more detailed discussion of the recent literature on economic history that aims to explain the considerable persistence in economic and political development. It also includes some additional introductory chapters that review works on the spatial distribution of development, as depicted in satellite images on light density at night, summaries of fascinating new papers on the macrogenoeconomics of comparative development, and studies on environmental economic history. Next, it includes chapters which explore watershed events that have global repercussions, such as colonisation, the role of the Enlightenment on the Industrial Revolution, and the spur of commerce during the first era of globalisation.
The chapters in Volume 2 (forthcoming) feature research on the deep origins of African development and works on the legacy of colonial practices in India, China, and Australia. They cover a diverse set of major historical issues, such as the impact of the slave trades, colonial divide-and-rule policies and investments in infrastructure and human capital, the legacy of British direct and indirect rule in India, the long-lasting effect of convict resettlement in Australia, and the role of colonial ports in China. 
Volume 3 (also forthcoming) focuses on Latin and North America and Europe. The chapters on the Americas cover a plethora of colonisation-related events, such as the legacy of the mita (forced labour system in Peru), the role of Christian missions, the resettlement of indigenous communities in reserves in North America, and many more. The chapters on Europe discuss, among other topics, the role of the Protestant Reformation on industrialisation and the legacy of the Holocaust, Nazi occupation, and communism on social structure, politics, and norms. They also cover research tracing beliefs, trust and norms related to trust and social capital to the medieval times.

Fascinating…

Importance of teaching about migration in economics: Learning about girmitiyas and geet gawai..

January 11, 2017

The more you read and follow, the more you realise how much of economics training is just so narrow. It hardly tells you anything about the society at all.

Thanks to the ongoing Pravasi Bharatiya Diwas in Bangalore one came across this group of migrants from India- Girmitiyas (pardon this blog’s ignorance). They were not migrants per se but forced labor from India taken onto further British interests in their other colonies of Fiji, Mauritius, Caribbean and so on.

Girmitiyas’ (indentured labourers), the name given to generations of Indians, who were forced to leave the country in the middle and late 19th century to serve as laborers in the then British colonies where they eventually settled down for more than a century. Girmit is a corrupt form of the English word ‘agreement’; an agreement under which thousands of laborers used to emigrate, a labour so emigrating under Girmit is a Girmitia. The word ‘Girmitia’ was coined by Father of the Nation, Mahatma Gandhi, who called himself ‘Pehla Girmitia’ (first Girmitia), as a recognition of his fight for the cause of the community.

Migration of unskilled manual workers from Bihar and other parts of India is not a new phenomenon. It began in the middle of the 19th century, when they left for Mauritius, Fiji, Suriname, Guyana, the Caribbean Islands and other distant lands during the British Raj as indentured labourers. Years of toiling by these people in their adopted countries has transformed barren lands into the mines of golden crops, bringing prosperity and abundance for themselves, fellow African labourers and the natives.

Most of them ended up leading lives of unmitigated hardship and abject penury. But some fought against all odds to not only to survive, but also to pave the way for a better future for their descendants. They embraced the local culture and assimilated themselves totally in the alien lands. In fact, some of their descendants went on to become the heads of the governments in those countries, underlining the triumph of human spirit over all impediments.

One just partly knew all this but did not understand the linkages and details.

It was also fascinating to read about how this diaspora is keeping traditions alive by singing geet gawai – songs in bhojpuri:

Geet Gawai, a musical ensemble that encapsulates the cultural heritage in the Girmitiya nations (to which indentured labourers were brought from India’s Bhojpuri belt by the British two centuries ago) was recognized by UNESCOas “The Intangible Cultural Heritage of Humanity” last December.

Geet Gawai came to Mauritius when the first batch of indentured labourers arrived at its capital city Port Louis in 1834 and has been orally passed down through generations. The Indian diaspora emphasized the need for making Geet Gawai a recognized cultural expression and worked towards it. One such Mauritian who was instrumental in getting the “intangible heritage” tag for Geet Gawai was Sarita Boodhoo, the chairperson of Mauritius Bhojpuri speaking union and head of Global Woman Council of GOPIO.

Amazing to read all this.

These migratory forces are so so crucial to understand economics not just from a historical perspective but to understand issues until today. But these matters are termed as soft and not discussed in mainstream economics at all. How people migrate (forcefully or intentionally) from one place to the other in search of better livelihood or economic opportunities. Then how they bring their own traditions and mix with their new place. Sometimes this mixing becomes positive and other times negative. These outcomes eventually matter for development. If we look at it, this is all there is to economic development after all..

What wind, currents and geography tell us about how people first settled Oceania

October 26, 2016

Alvaro Montenegro, Professor of Geography at The Ohio State University has this really interesting research:

Just look at a map of Remote Oceania – the region of the Pacific that contains Hawaii, New Zealand, Samoa, French Polynesia and Micronesia – and it’s hard not to wonder how people originally settled on these islands. They’re mostly small and located many hundreds to thousands of kilometers away from any large landmass as well as from each other. As our species colonized just about every region of the planet, these islands seem to be the last places our distant ancestors reached.

A comprehensive body of archaeological, linguistic, anthropological and genetic evidence suggests that people started settling there about 3,400 years before present (BP). While we have a relatively clear picture of when many of the major island groups were colonized, there is still considerable debate as to precisely where these settlers originated and the strategies and trajectories they used as they voyaged.

In new experiments, my colleagues and I investigated how environmental variability and Oceania’s geographical setting would have influenced the colonization process. We built computer seafaring simulations and analyzed wind, precipitation and land distribution data over this region of the Pacific. We wanted to understand how seasonal and climate variability in weather and currents might lead to some potential routes being favored over others. How would these factors, including the periodic El Niño and La Niña patterns, affect even the feasibility of different sailing strategies? Did they play a role in the puzzling 2,000-year pause we see in eastward expansion? Could they have provided incentives to migration?

Findings? Yes wind patters played a role:

Overall, our results lend weight to various existing theories. El Niño and La Niña have been proposed as potential migration influences before, but we’ve provided a much more detailed view in both space and time of how this could have taken place. Our simulations strengthen the case for a lack of technology being the cause for the pause in migration, and downwind sailing as a viable strategy for the first colonization pulse 3,400 BP.

In the future, we hope to create new models – turning to time-series of environmental data instead of the statistical descriptions we used this time – to see if they produce similar results. We also want to develop experiments that would evaluate sailing strategies not in the context of discovery and colonization but of exchange networks. Are the islands along “easier” pathways between distant points also places where the archaeology shows a diverse set of artifacts from different regions? There’s still plenty to figure out about how people originally undertook these amazing voyages of exploration and expansion.

As this blog keeps saying. knowing geography is so crucial to understanding much of the world. Even economists are discovering the same as research of recent years has shown. Just that it keeps being ignored in curriculums…

Here’s what economists don’t understand about race…

October 21, 2016

We just ape economics taught in the US. But now US seems to be looking at issues which have long troubled India.

I had written about Fed looking to increased diversity in both its employment and policy. But perhaps this is just the tip of iceberg. Large ignorance of racial differences and subsequent inequality is leading to a much wider discussion and need for reservations.

These issues are not new to US but have been ignored by economists for a long time.  The 2008 crisis and its eventual fallouts are leading all these buried issues to come back.

An undergraduate at Brown University in the 1970s, William Darity, Jr. expected to learn the reasons behind the inequality he’d seen all around him growing up in the Middle East and North Carolina. He realized pretty quickly that economists were not going to be much help.

Darity, the son of North Carolinians, spent his first eight years in Lebanon and Egypt while his father worked for the World Health Organization, then lived until the age of twelve in Chapel Hill, North Carolina. During the Jim Crow era, he visited his grandmother in a town where a railroad track divided the city into black and white sections, marking two separate economic worlds.

At Brown, Darity was disappointed by how his teachers explained why some people reap the benefits in a society and some don’t. Most taught that some individuals and groups grew more prosperous than others because of differences in education — what economists refer to as “human capital.” Labor economists tended to say that educational differences meant that some people were more productive than others, which explained why some flourished and others languished in the long run. They believed that competitive markets would ensure that everybody ended up earning according to what they produced. Those with higher earnings were able to save more, and so they accumulated more wealth over the course of their lifetime.

Darity wondered, then, why disparities persist, even when markets are competitive. Black Americans, for example, are paid less than their white counterparts at every level of education.Motivated by what he describes as youthful hubris, Darity got a Ph.D. in economics and set out to change the way economists deal with these issues.

This is so so similar to India.

The solutions too. They recommend jobs reservations!

 

Darity is unimpressed.

“If you buy the black dysfunction story, then the key is for young black men to pull up their pants or the equivalent,” he says. “But that’s a very different policy from saying, well, we should assure all Americans a human right to work. Or even if we don’t talk about an employment guarantee, then at least the basic income guarantee.”

“If we’re concerned about black-white disparities specifically and we want to have a race-specific policy, then I think we have to start talking about a program of reparations [for slavery].” (Darity and his wife, Kirsten Mullen, are currently completing a book that details how a reparations program might be executed, due to hit the shelves by mid-2017).

“If we are not willing to pursue race-specific policies,” Darity argues, “then we need universal programs that are race-conscious in the sense that they will disproportionately benefit the most disadvantaged groups even though they are programs that everyone is eligible for.” One such program would be a Federal job guarantee.

INET is even holding a conference looking at reasons for decline of Detroit which is linked to all these differences:

The racism of the prevailing political order was baked into the economics profession from its inception. Race is a social construct rather than a scientific concept. But that construct expresses a power relationship with profound consequences for the lives of millions of Americans, black, brown and white.

Detroit was the first major American city to fall victim to badly-managed globalization, but it won’t be the last. Race, particularly focused on the failings of African-American administration in the City of Detroit, was used as a mask to avoid the real failures of the American economy and governance. The violence and velocity of Detroit’s decline frightens everyone who holds a belief in the American Dream. Attempts to blame racial tension for the problems of Detroit is a mask and an anesthetic.  The nation’s failure to manage the city’s de-industrialization left tens of thousands of working-class Americans to fend for themselves on an increasingly bleak economic landscape, deepening political polarization. Racial animosity did not cause these problems, but it was certainly inflamed by them. 

Understanding the causes of Detroit’s decline — and potential pathways to renewal — is a critical challenge facing policy makers, and the economists who advise them.

Our conference on “Detroit’s Tomorrows and Tomorrow’s Detroits”, will investigate how a clear-eyed perspective on new methods of healing of racial polarization can contribute to the revitalization of this great city, and also lend insight to the challenges facing myriad other multi-ethnic cities in America and around the world facing the stress of economic adjustment in the era of globalization.

Hmmm..

All such solutions for India have obviously invited mock from media and experts. We have long been sold on the idea of meritocracy as “it happens in US”. Now with US talking about all these matters as well, what will we say?

Globalized fruit, local entrepreneurs: How one banana exporting country achieved worldwide reach

October 14, 2016

An interesting book review on history and growth of Ecuador banana industry.

Role of geography was  just crucial:

Ecuador’s many assets for having a successful industry are also identified. It has optimal soils for growing the fruit, an appropriate and relatively storm-free climate (bananas are easily damaged by strong winds), and an ample labor force already living in the lowland regions that would become the country’s banana zones. In addition, it had just experienced the failure of its prior primary export crop, cacao, adding some urgency to the interest in switching to bananas on the part of many farmers.

Another unique dimension of the Ecuadorean industry is its relatively late beginning. The country’s location on the west coast of South America had been the biggest deterrent to the successful export of the fruit prior to 1914 when the Panama Canal opened. While Colombia and Central American exporters all had Caribbean coasts through which their exports could pass, Ecuador’s trading links to Europe and most of North America involved an arduous voyage around the southern tip of the continent. The canal alleviated that necessity and, while adding on the expense of the canal toll, it allowed Ecuadorean bananas to be competitive in foreign markets. The country first attempted to develop a banana export industry in the 1930s but the Great Depression and the ensuing world war caused major reductions in global demand for the fruit. Instead, the industry got its real start in the late 1940s and took off during the first half of the following decade when Ecuador became the world’s leading exporter of the fruit, a position it continues to occupy. The late start actually worked to its benefit as it was able to learn from the problems confronted by its competitors in the region to its north. That helped both its entrepreneurs and its government make better choices, while also taking advantage of the U.S. Consent Decree of 1958, an anti-monopoly measure that required United Fruit to divest many of its landholdings in Latin America.

…..

Foremost among Ecuador’s distinctive characteristics is the prior existence of an important port city, Guayaquil (now the country’s largest city). Guayaquil has played a significant role from the colonial period on and, in the process, fostered the development of entrepreneurial skills of many of its residents. These were largely in place by the time bananas became a major export commodity for the country in the 1950s. The city spawned several entrepreneurs who would be instrumental in the development of the banana industry. The most notable among these was Luis Noboa. His story, recounted at length throughout the book, was a classic rags-to-riches tale of a driven man who became Ecuador’s wealthiest man and whose firm ultimately became its largest banana trading company (and the fourth largest in the world).

Fascinating to know all this…

Agriculture linked to trade is as old and as modern as it can get..

New Zealand’s remarkable economic transformation – an unsung story

September 23, 2016

Daniel Mitchell has a post on the small open economy which is hardly in anybody’s focus. Being from Cato, Mitchell obviously makes it a more market less government story:

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Singapore as a model for economic transformation – case of state planning or markets?

September 22, 2016

Recently Govt of India invited Singapore PM Tharman Shanmugaratnam for the inaugaral Niti Aayog’s transformation lecture. As expected, much of discussion which followed was around we could use Singapore’s market driven model to drive economic growth.

Prof. Pulapre Balakrishnan disagrees with the narrative.  He says it is Singapore’s history of development is as close to socialistic planning as it can get. This is even more ironic as the lecture was held at Niti Aayog which recently replaced Planning Commission:

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India and Pakistan: A tale of two economies

September 19, 2016

Ankit Mittal has a nice article comparing India and Pakistan economies historically. The younger lot may not know but there was a time when Pakistan had better economic and social indicators. Infact as Mittal shows, there is very little to seperate between the two countries.

In the end it all boiled down to institutions in the two countries. In India, they were bent but did not break down. Though in Pakistan this was not the case:

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The Scandinavian fantasy: The sources of intergenerational mobility in Denmark and the US

September 15, 2016

Rasmus Landersø and James Heckman poke holes at the Scandinavian economic model:

Robot Macroeconomics: What can theory and several centuries of economic history teach us?

September 6, 2016

Bank of England may be clueless on what next, but its blog Bank Underground keeps giving us food for thought via its posts.

In the recent one, John Lewis looks at this question of how robotics will impact macroeconomics. Will it lead to lower jobs as said and so on. For this, he draws upon years of history where some new technology has replaced an existing one.

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Europe needs its own Alexander Hamilton (why not Sardar Patel?)…

September 2, 2016

History keeps going in circles. Adam Smith had said US should not get into industrialization. But Hamilton as the first Treasury secretary went against Smith and proposed industrialization. Infact, Hamilton actually tried to shape US like Europe based on his tour of the continent.

With the ongoing Europe mess, the continent is searching for its own Hamilton. Earlier Prof Harold James had suggested Europe to search for its Hamilton and now Prof. Sylvester Eijffinger of Tilburg University makes the case:

 It goes through similar arguments made in the past as well.
In all these discussions, we hardly read any research on lessons from Sardar Patel who integrated India despite all odds. Patel is mostly called as Bismarck of India but the comparison is hardly apt. What Patel did was much more and far more complex. But we seem to love these tags which connect our leaders to some western leader no matter the context and scale of operations.
In this we are ourselves to be blamed. We have just played our integration story in a superficial manner. Older generations atleast knew much but current is mostly clueless on these matters. Even knowing that so many princely states were made part of the Union is seen as enough.
The story could be given a different spin to appeal to today’s audience especially on the economic front. How did fiscal and monetary union happen as these princely states ran variety of policies. Some just did as British said and some others were more independent to do their bit. These latter ones opened their state banks which were like central banks for their provinces. These State Banks were later called as SBI Associate Banks and now being merged with SBI. How did the transition from their state banks to RBI happen?
Likewise,  most princely states would be doing their own fiscal policy as well. Infact they could be having more control over fiscal policy than monetary policy. There is little clarity over these matters. It is fascinating to read how India and Pakistan seperated their monetary union in RBI’s first history volume. This itself could be spun into if Euro does away with its union, what lessons can be learnt from India-Pakistan union?
So Sardar Patel and team not just got this political integration but even the economic integration as well. There is some clarity on political side but very little on the economic side.
Much of India’s economic history is about how little we have achieved. It is the usual stuff on how we were 25% of world economy till British came in. An since then we became more and more insignificant in world affairs till 1991 came and changed everything.
But there are areas where we achieved quite a bit. This political and economic integration exercise is as big an achievement as any. To see how it has stuck despite so many stalwarts warning it will break-down is a huge testimony of the achievement. Just that we don’t tell the story enough in as many ways as possible.
Infact who knows, we could have very different set of people who are unknown who stitched these ideas. Sardar Patel could have played a minor role on these very matters. It is actually not the individuals that matter but the ideas that were generated in the process.
There is a lot to learn and figure in Indian economy than just the usual stuff…

Why would a government adopt harmful policies, and why would society go along?

August 5, 2016

Prof Ricardo Hausman asks this question taking the Venezuelan example:

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Seeing China Through Its Economic History

July 29, 2016

Tyler Cowen who also writes for Bloomberg View now has a piece there.

He says we are too pessimistic on China. He draws lessons from history:

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How industrial cluster policy leads to inter-firm transaction networks

July 22, 2016

Three Japanese researchers (Toshihiro Okubo, Tetsuji Okazaki and Eiichi Tomiura) point to this interesting research.

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What after all is meant by One Belt, One Road? Will it reshape global trade?

July 21, 2016

A good discussion at McKinsey over the One Belt One road or OBOR plan by China.

The first q is what exactly is One Belt, One Road?

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Welcome To Hell – Central Banking At Work In Brazil and Beyond

July 7, 2016

But Lula’s term was anything but that. Brazil made major inroads in Global Economy Prospects. It is part of BRIC club, hosting both Olympics and World Cup Football etc.

Why Ecuador escaped the fate of Venezuela despite following near similar policies?

June 30, 2016

With Prof Hanke you know the answer is always going to be dollarisation or currency boards.

So here it is. Prof Hanke says Ecuador which adopted dollarisation before its Socialist President helped save the country:

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