Archive for the ‘Growth and development’ Category

The constitution won’t save American democracy, only its people can..

September 26, 2019

Daron Acemoglu and James Robinson write a timely piece. Fair bit of world leaders are justifying their actions saying they are doing things as per Constitution. Any Constitution for all you know is a human creation and has many gaps. It requires the leadership to understand the gaps and not exploit them, but we are hardly seeing this.

A & R write:

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Philippines economy: Weaving an unprecedented 20 year growth story (without much hype)

August 21, 2019

There is much hype around Indian economy and how high its growth has been all these years. There are some others who manage it without much hype.

Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (their central bank) in this speech highlights how Philippines economy has been growing for 20 years:

Let me begin with our growth story thus far in the Philippines. Our economy has experienced uninterrupted growth for over 20 years since 1999 despite challenges such as the 2004 fiscal crisis and the 2007 global financial crisis-that is 81 consecutive quarters of continuous growth, with annual growth averaging 6.4 percent in the past five years (2014-2018).

Growth in recent years has become more broad-based.

On the demand side,  private consumption remained robust in the first quarter of 2019, as in the previous quarters through the years. This is further supported by rising contribution from investments from 2010 up to present.

On the supply side, services remain the main driver of growth-but the industry sector has also stepped up in recent years.

Meanwhile, the government’s economic managers remain optimistic about achieving our GDP growth target of 6 to 7 percent this year despite the lower than expected 5.6 percent growth in the first quarter of this 2019.

Private consumption is expected to remain robust, aided by remittance inflows and sustained “cooling” inflation. Private capital formation, on the other hand, should likewise contribute more significantly to economic growth, with construction and investments in durable equipment expected to remain solid in light of the government’s projects and other infrastructure programs.

The International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) share these expectations. In fact, all three forecast that the Philippine economy will grow by about 6.2 to 6.5 percent this year.

This has been due to three measures:

The bold reforms and initiatives in the past three years have prompted the government to capitalize on and sustain these gains. It is because of this that we believe the Philippine growth momentum will be sustained moving forward.

First is the government’s ambitious infrastructure program-“Build, Build, Build” which aims to boost the economy’s mobility and connectivity, enabling equitable growth and development. At present, there are 75 high-impact national government infrastructure, with 46 projects (61 percent) already in the implementation stage. 

The government is expected to invest over PhP 4.6 trillion (or US$90 billion at PhP52:USD1) in public infrastructure from 2019 to 2022.

Second, is the recent passage of reforms aimed at strengthening our investment climate. The Ease of Doing Business and Efficient Government Service Delivery Act, the revised Corporation Code, and the Philippine Innovation Act support the government’s agenda of improving competitiveness and ease of doing business in the country, promoting transparency and cutting red tape in the government for a more conducive business environment.

At present, the Philippines’ current standing has improved based on different third-party assessors. For instance, the Philippines’ ranking rose from 68th to 56th place under the 2018 Global Competitiveness Report.

It also received an upgrade in its sovereign credit rating from Standard & Poor’s to “BBB+” from “BBB.” These favorable standings are also boosted by the improved business sentiment and the stable consumer outlook based on the BSP’s latest round of expectations surveys.  

Finally, the continued demand for Philippine skills locally and abroad are evident in the growth of our BPO industry and strong remittance inflows. This further highlights the importance of our country’s most prized resource-our labor force. Based on our estimates, production efficiency has improved over the years with the incremental capital-output ratio (ICOR) declining steadily. As you know, the higher the ICOR, the less efficient the production process is.

Recognizing the skills of our workforce, the government has invested heavily in various social programs such as the Universal Health Care Act and the Access to Quality Tertiary Education Act (RA No. 10931).

You may not know this but 40% of our budget goes to social services.

He goes on to highlight the role central bank has played and is playing to maintain the momentum.

India and its policymakers make much noise about how growth rates have been higher during their tenure and getting into a lot of mud slinging. They make it look as if India is the only country growing and they are the sole reasons for this growth. Examples from smaller countries such as Philippines tells us none of this is needed really.

Locating Equality: Real estate the main driver of rising inequality?

August 9, 2019

Harold James has a fascinating piece:

For years, wealth and income inequalities have been rising within industrialized countries, kicking off a broader debate about technology and globalization. But at the heart of the issue is a fundamental good that has been driving social and economic inequality for centuries: real estate.

Inequality is the leading political and economic issue of the current era, yet debates about it have long suffered from a degree of imprecision. For example, the standard measure of inequality, the Gini coefficient, reduces a country’s entire income distribution to a single number between zero and one, and is thus highly abstract. Similarly, while inequality is rising in many parts of the world, there is no simple correlation between that trend and social discontent or unrest. France is much less unequal than the United States, and yet it has similar or even greater levels of social polarization.

Today’s inequality debate effectively began in 2013 with the publication of French economist Thomas Piketty’s Capital in the Twenty-First Century, which found that the rate of return on capital tends to outpace the rate of growth, thereby causing inequality to increase over time. Specifically, appreciating real-estate values seem to be a fundamental driver of rising inequality. But here, too, one encounters a degree of imprecision. Real estate, after all, is not a homogenous good, because its value famously depends on “location, location, location.” There are elegant castles and palaces that now cost less than small apartments in major cities.

Wealth stirs the most controversy where it is most tangible, such as when physical spaces become status goods: the corner office is desirable precisely because others cannot have it. More broadly, as major cities have become magnets for a global elite, they have become increasingly unaffordable for office workers, policemen, teachers, nurses, and the like. While the latter must endure long, tiresome commutes, elites use global cities as they see fit, often hopping around from place to place. Large swaths of Paris and London are eerily shuttered at night. Manhattan now has nearly a quarter-million vacant apartments.

Whenever violence and revolution have  unequal societies, real estate has been a focus of discontent. 

Hmm..

Was Mr Say the ultimate nemesis of Lord Keynes?

August 6, 2019

Profs. Alain Béraud and Guy Numa in this piece says we usually think that Keynes and Say were at opposite ends of each other. However, they are far more proximate than it is imagined:

In economics we love this comparison of this vs that. But if we analyse closely, there are more similarities than differences.  

Are some dictators more attractive to foreign investors?

July 29, 2019

Abel François, Sophie Panel and Laurent Weill in this Bank of Finland working paper:

Since political uncertainty is greater in dictatorships than in democracies, we test the hypothesis that foreign investors scrutinize public information on dictators to assess this risk. In particular, we assume they use five suitable dictators’ characteristics: age, political experience, education level, education in economics, and prior experience in business. We perform fixed effects estimations on an unbalanced panel of 100 dictatorial countries from 1973 to 2008 to explain foreign direct investment (FDI) inflows.

We find that educated dictators are more attractive to foreign investors. We obtain strong evidence that greater educational attainment of the leader is associated with higher FDI. We also find evidence that the leader having received education in economics and prior experience in business is associated with greater FDI. By contrast, the leader’s age, and political experience have no relationship with FDI. Our results are robust to several tests and checks, including a comparison with democracies.

Hmm..

 

The impact of the Transcontinental Railroad on Native Americans

June 5, 2019

Nice interview of Dr. Manu Karuka, American Studies scholar and author of Empire’s Tracks: Indigenous Nations, Chinese Workers, and the Transcontinental Railroad, about the impact of the railroad on Indigenous peoples and nations.

The author calls railways as an imperialism project across colonies:

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Foreign banks in Central and Eastern Europe becoming easy prey for the populists…

April 10, 2019

Erik Berglöf, a former chief economist of EBRD in this Proj Syndicate piece:

After socialism collapsed, a small number of banks based in the European Union invested heavily in retail networks, helping to build these countries’ financial systems from scratch and massively increasing citizens’ financial access. And these strategic retail banks stayed put during the crisis when other capital flows dried up.

They stayed thanks to the Vienna Initiative, an ambitious coordination effort involving home- and host-country regulators and supervisors, finance ministries, international financial institutions, and, most importantly, the strategic banks. On March 27, veterans of the crisis gathered in the Austrian capital to mark the initiative’s ten-year anniversary. There is much to celebrate: it saved Europe from a devastating banking collapse, and helped to manage risks during the eurozone crisis.

But the Western European banks that the initiative saved now face an uncertain future in Central and Eastern Europe. Their investments in the region have become stranded assets ready to be picked off by local populists. And, unsurprisingly, Hungarian Prime Minister Viktor Orbán has led the attack.

Foreign banks in Hungary and elsewhere became objects of hate and loathing during the financial crisis. Urged on by the banks’ over-eager financial advisers, citizens rushed to take out loans in euros, dollars, and even yen, and suddenly found themselves with crushing debts when the crisis caused domestic currencies to tumble. When repayments lagged, banks were quick to foreclose on homes, cars, and companies. Taxing the banks, as Orbán did, seemed only fair.

Furthermore, Orbán’s taxes allowed OTP, Hungary’s own cross-border bank, to rebuild its balance sheet and strengthen its domestic franchise after it had itself become overextended before the crisis. Foreign banks in Hungary had to redefine their strategies radically, and in some cases seek support from international financial institutions. Many simply pulled up stakes and left.

This is part of a broader pattern across emerging markets. Most foreign banks intend to continue withdrawing, and those that stay increasingly fund themselves through local deposits. Although there are fewer foreign banks, some – especially Russian and Chinese banks – have increased their presence through acquisitions and growth, resulting in greater market concentration. (And Russian banks would have had a much greater presence were it not for international sanctions.)

Foreign banks’ ongoing retreat from emerging Europe is all the more remarkable given that the regulatory framework within the EU has improved massively over the past decade. Although the EU’s banking union is certainly not perfect, cross-border banking is now supported by institutions and instruments that those leading the Vienna Initiative could only have dreamed about.

The return of the policy that shall not be named: Principles of Industrial Policy

March 27, 2019

What a title of a research paper: The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy!

IMF economists Reda Cherif and Fuad Hasanov in this research paper:

Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.

Hmm.. Looks like a good read.

Gulzar had earlier posted that industrial policy is coming back:

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Italy joins China’s Belt and Road Initiative – here’s how it exposes cracks in Europe and the G7

March 25, 2019

Winnie King, Teaching Fellow at University of Bristol explains:

While the current Italian government has not been fully unified toward China, a severe economic downturn has made the world’s second largest economy look more appealing to it. Alberto Bradanini, Italy’s former ambassador to China, has stressed that Europe’s own indecision and inability to tackle trade deficits with China (of which Italy contributed approximately €176m, or an eighth of the EU’s total trade deficit) is a key motivator behind this decision.

Italy wants to enhance its “Made in Italy” brand through increasing trade – especially in the form of exports – to China. The BRI is seen as a vehicle to achieve this. Italy offers goods (in particular luxury goods and foodstuffs) that are attractive to China’s growing middle class and increasingly affluent population.

China is also interested in investing in Italian firms. More significant, however, are Italy’s key infrastructure assets. This would enhance the transport and trading network of the BRI, giving it strategic access to Europe. Less than 2% of Italy’s sea imports come from China so there are substantial prospects for growth in that area.

A deal between Genoa’s port authority and shipping firm China Communications Construction Company (CCCC) has already been approved by the Italian government. And the port city of Trieste hopes for something similar. This would offer China and the BRI a more direct route to move goods onto the European continent and an ideal hub for accessing new rail lines and transport networks to Germany, Austria, Slovenia and other regional economies. By giving China access to its ports, Italy is hoping for infrastructure investment from China’s Asian Infrastructure Investment Bank (AIIB) – something the Italian government is trying to link to its role in the BRI.

Interesting! The game of power ensures there are no permanent allies and enemies.

Italy’s status as a G7 country is a coup for the Chinese leadership and the legitimacy of the BRI. While the prospect of Italy’s participation underscores growing fault lines in the EU’s joint approach to China, China has also been effective at dividing and conquering EU member states by targeting them individually.

So Italy’s decision to join the BRI is significant. But four years ago we saw Italy, France and Germany join China’s AIIB, contrary to US wishes. Therefore, Italy is neither the first, nor will it be the last European economy that will “go rogue” and follow its own national interest with regard to China.

 

Bretton Woods at 75: History and current relevance

March 25, 2019

In July 2019, BW will mark its 75th anniversary.

Arminio Fraga, a former president of the Central Bank of Brazil (1999-2002) has a piece on its history and current relevance:

So, what can we say about Bretton Woods in a world in transition?

First, with the US less dominant and less willing to provide global economic and financial leadership, systemic instability is likely to increase. As the American economic historian Charles Kindleberger famously warned, this typically occurs in transitional moments when a global hegemon is absent. Some signs of this are already visible in trade and regional tensions, growing leverage, and rising nationalism.

Second, “Bretton Woods” should now be seen to include not only the original institutions, but also more recently established global forums and regional arrangements. These mechanisms of cooperation constitute a realistic practical response to current challenges.

Third, one must ask whether developing countries will continue trying to converge with more advanced economies, and whether the expanded Bretton Woods family of institutions can remain meaningful stewards of global progress. My answers tend toward yes to both, if one takes a long-term view. Developing countries will aim to emulate the earlier successes of the Asian Tigers and Eastern Europe. And countries will prefer dialogue and cooperation to the failures of those such as Venezuela and North Korea that opted out of the global system.

Lastly, this hopeful vision may now be under threat from the disturbing shift toward illiberal and populist political regimes around the world. But history shows that liberal politics and economic policies have undoubtedly delivered more progress and peace than any other system.

Seventy-five years ago, economic policymakers gathered at Bretton Woods to create a new financial order for the postwar world. Today, their successors can still draw on some of these achievements in designing a global economic governance system for the twenty-first century.

Hmm..

Building a gender inclusive economy: Case of Iceland..

March 22, 2019

Katrin Jakobsdóttir, Prime Minister of Iceland has an interesting article in IMF’s F&D (Mar-2019 theme is Women and Growth).

She writes on how Iceland has tried to make women participate in their workforce:

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Interview of Deirdre McCloskey

March 22, 2019

This interview of Prof McCloskey appeared a month earlier:

She says liberalism should not be adopted selectively but comprehensively:

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Can Economics Shake Its Shibboleths and move to a bolder economics?

March 15, 2019

Two related pieces:

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11 economic stats that sum Venezuela’s misery

March 12, 2019

Jon Miltimore in this piece:

A tragedy common to human history is unfolding in Venezuela. It’s impossible to predict how it will end or what the human toll will be.

As we watch events and hope for a peaceful resolution that restores liberty in Venezuela, here are some noteworthy facts about the Land of Grace.

    1. Venezuela has the largest oil reserves in the world. While the US is the top producer of oil, its total reserves represent a mere fraction—roughly 10 percent—of Venezuela’s 300-plus billion barrels of oil. (Source: UPI)
    2. In Venezuela today, the median monthly income is $8. (source: FEE)
    3. A two-pound bag of onions currently costs about $2 in Venezuela. (source: FEE)
    4. In 2016, the price of a gallon of gasoline in Venezuela was less than one cent per gallon. (source: Washington Post)
    5. Roughly 90 percent of Venezuelans today live below the poverty line. (source: The Borgen Project)
    6. In 1950, Venezuela ranked among the top ten most prosperous nations in the world. (source: Human Progress)
    7. In 2018, inflation in Venezuela topped 1 million percent. (source: Reuters)
    8. Economic projections show inflation in Venezuela is expected to hit 10 million percent in 2019. (source: Miami Herald)
    9. In 1959, the Venezuelan GDP per capita was 10 percent higher than America’s. (source: Human Progress)
    10. As of June 2018, about 2.3 million people had emigrated from Venezuela following its economic collapse, or 13 percent of its population. (Source: The Panam Post)
    11. When Hugo Chavez came to power in 1999, the Venezuelan GDP per capita was 27 percent higher than the average in Latin America. (source: Human Progress)

Italian Opera, World Fairs and Innovation

March 4, 2019

Prof Petra Moser of NYU has done some fascinating research on the topic.

IMF Podcast interviews her over the research findings.

The effects of copyright and patent laws on artistic creativity and technological innovation are gaining more and more significance in today’s economy driven to a large part by content. Economic historian Petra Moser uses data from 19th century Italian operas and world fairs to examine the economic implications of basic copyright and patent protection for innovators. In this podcast, Moser describes how Napoleon’s military victories in Italy in the late 1700s changed the copyright landscape and created an excellent model to study the effects on Italian opera composers.

 

Universal Basic Income in the Developing World

March 4, 2019

Two interesting articles on UBI.

First is this new NBER paper by Abhijiet banerjee, Paul Niehaus and Tavneet Suri:

Should developing countries give everyone enough money to live on? Interest in this idea has grown enormously in recent years, reflecting both positive results from a number of existing cash transfer programs and also dissatisfaction with the perceived limitations of piecemeal, targeted approaches to reducing extreme poverty. We discuss what we know (and what we do not) about three questions: what recipients would likely do with the incremental income, whether this would unlock further economic growth, and the potential consequences of giving the money to everyone (as opposed to targeting it).

Bottom line:

First, the benefits of targeting may be overestimated by analyses that do not take into account the incentives it generates or the realities of implementation on the ground. Universal or near-universal approaches deserve more consideration than they often receive.

Second, the kinds of targeting that will make most sense will often be relatively simple, such as geographic targeting. Designers should guard against creating too much discretion for the front-line staff who implement targeting, including the implicit discretion that is created when a policy is too
complicated for beneficiaries to understand it and hold local officials to account. However, these targets may perform extremely poorly in reaching the poor.

Third, it may be possible to build small ordeals into the design of programs to create some targeting by self-selection and hence make programs more progressive. For example, if a government offered a small basic income to everyone but with some hassle costs involved in collecting it (e.g.
a weekly trip to an ATM), then the wealthier households might simply not bother to participate. The danger here of course will be to not exclude those for whom the ordeals are simply too difficult (e.g. the disabled) and so special provision should be made for them.

Finally, we note that the per-person costs of delivering transfers are falling rapidly in many places due to advances in last-mile digital payments infrastructure. All else equal this will tend to further increase the appeal of broad or universal targeting.

Hmm..

Mint features this interview of Prof Guy Standing of  School of Oriental and African Studies, University of London. He says instead of spending billions on subsidies and government programs, one should just transfer a basic income universally:

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Econfip: A network of academic economists committed to an inclusive economy and society..

February 25, 2019

Interesting initiative by a team of economists. It is named Econfip or Economists for inclusive prosperity.

We live in an age of astonishing inequality. Income and wealth disparities between the rich and the poor in the United States have risen to heights not seen since the gilded age in the early part of the 20th century. Technological changes and globalization have fueled great wealth accumulation among those able to take advantage of them, but have left large segments of the population behind. Advances in automation and digitization threaten even greater labor market disruptions in the years ahead. Climate change fueled disasters increasingly disrupt everyday life.

This is a time when we need new ideas for policy. We think economists, among other social scientists, have a responsibility to be part of the solution, and that mainstream economics – the kind of economics that is practiced in the leading academic centers of the country – is indispensable for generating useful policy ideas.

Much of this work is already being done. In our daily grind as professional economists, we see a lot of policy ideas being discussed in seminar rooms, policy forums, and social media. There is considerable ferment in economics that is often not visible to outsiders. At the same time, the sociology of the profession – career incentives, norms, socialization patterns – often mitigates against adequate engagement with the world of policy, especially on the part of younger academic economists.

We believe the tools of mainstream economists not only lend themselves to, but are critical to the development of a policy framework for what we call “inclusive prosperity.”

While prosperity is the traditional concern of economists, the “inclusive” modifier demands both that we consider the interest of all people, not simply the average person, and that we consider prosperity broadly, including non-pecuniary sources of well-being, from health to climate change to political rights.

Hmm…Surprised that something like this has come so late…

There are policy briefs on different topics as well on the website.

 

How the great fire of London created the insurance industry…(and moving towards a creative economy)

February 25, 2019

As usual good speech by Andy Haldane of Bank of England.

The key to his speech is that humans have managed to be very creative in response to the several challenges posed to them. The same approach is needed to the challenges posed by the 4th industrial revolution.

He points how humans reacted creatively to the Great Fire in London. There were 3 responses:

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Poland is Europe’s growth champion. What explains its success and can it continue?

February 20, 2019

Marcin Piatkowski has recently written a book on Poland growth story.

In this column he writes on the Poland growth story and gives a preview of his book.

Amidst all the current political hoopla, the key story concerning Poland’s path over the past 30 years is not receiving the attention it deserves. The country has been recording high levels of growth since 1989 and is making strides in catching up with Western Europe.

The Polish economy has become a key European success story. Since 1995, Poland has also become the fastest-growing large economy in the world among large countries at a similar level of development. It is beating even the Asian tigers such as South Korea, Singapore and Taiwan.

Historically, Poland has always done badly:

To get a sense of the historic achievement, it is worth recalling that, for most of more than a thousand years of its history, Poland (along with the rest of Central and Eastern Europe) was a perennial economic underachiever.

The country was essentially stranded on the periphery of the European economy. Internally as well, Poles never managed to pull together enough social consensus to create a dynamic economy.

Adam Smith, the venerable voice of market thinking, had derided 18th century Poland for not being able to produce “any manufactures of any kind, a few of those coarser household manufactures excepted, without which no country can well subsist.”

It is no surprise under those circumstances that Poland’s per capita GDP, measured on a purchasing power parity basis, from the start of the 17th century until very recently, almost never exceeded half of the average level of Western Europe.

And as recently as 1991, at the bottom of the post-communist recession, the average income of Poles plummeted to less than one-third of the real income of an average German (and to less than one-tenth in nominal terms).

At the time, Poles even earned less than the citizens of Gabon, Ukraine or Suriname. In 1989, there were hardly any experts who would bet any money on Poland’s future economic success.

And yet, almost 30 years later, Poland has become by far the most successful economy in Europe. Since 1989, it has increased its GDP per capita by almost 150%, more than any other country on the continent.

By comparison, per capita incomes in the Czech Republic increased by only three-quarters, in Hungary by barely half, while the Eurozone’s performance improved by less than 40%. In purchasing power terms, Poland’s GDP per capita grew even faster from $10,300 in 1990 to more than $28,000 in 2018 (in 2011 constant dollars).

In 2018, the average level of income in Poland exceeded two-thirds of the average level of the Eurozone. That is an impressive achievement for a country that only entered the EU in 2004 and had to shed the painful legacy of decades of Communist rule (See Figure 1 below).

What explains Poland’s success? Good economic policies!

In a new book, I argue that after 1989 Poland was successful for the first time ever because it adopted good economic policies, including a deep economic reform in 1990-91, fast institution building, foreign debt restructuring, a boom in education as well as an open and transparent privatization process.

Crucial as well has been the fact that Poland, unlike most other Central and East European economies, did not produce oligarchs. At the beginning of the post-communist transition, it did not matter what last name one had, where he or she was from or what parents someone had. All of today’s billionaires in Poland are market-based and self-made.

What drove good economic policies? Good economists as policymakers.

Of course, the key question is this: If good economic policies drove good economic outcomes, then what drove good economic policies?

For most of its history, Poland was a perfect illustration of an extractive society. It was the Second World War and – above all – the shock of communism that demolished the old, feudal, pre-modern and harmful social structures, opening up society.

This newly emerged, socially inclusive society was not visible until 1989. It was buried under the distortions, dysfunctions and absurdities of a planned economy. But when real socialism collapsed, it established the foundations for the subsequent economic miracle.

And yet, this element should not make Poland’s performance so different to that of similar countries like the Czech Republic and Hungary, where people had been better off than Poland in Communist times.

Needless to say that all these countries, as well as the other ex-Warsaw Pact countries, shared a strong social consensus that their respective country should become like Western Europe and meet all the conditions to accede to the European Union as quickly as possible.

This is where the second – and perhaps decisive – element explaining Poland’s success comes in. Almost the entire transition period, including those 17 different governments, was based on the high quality of policymaking elites, especially finance ministers and central bankers.

Unlike their Eastern peers in Ukraine or Russia, for instance, Polish officials, even while representing quite different parties, knew exactly where they needed to be going.

It helped that almost every single economic policymaker in Poland after 1989 had studied in the West, learning modern economics. In contrast, until 2002, no Bulgarian minister of finance even spoke English, to give but one example.

Hmm…This reads too simple.

Will it continue?

In many ways, key elements of the Polish success story resemble that of the German post-war economic story, especially if one thinks of social and economic inclusiveness as a key driver of economic success.

Thankfully, the dynamics of economic history do not just move in one direction. For that reason, it is relevant to ask what lessons Poland’s recent experience and current performance now holds for the German and the Western European economy.

One key lesson is the importance of education: Today’s 15-year old high-school students in Poland are as well educated as their German peers, even though Germany spends more than 60% more on each student (in PPP terms, see Figure below).

Over the last 20 years, more young Poles have also studied at the university level than in Germany (see Figure 3 below).

The other lesson is the importance of investment in modern infrastructure: The level of Poland’s mobile broadband penetration, for instance, is higher than in Germany (Figure below) and the speed and the costs are lower, too.

The third lesson is the importance of open markets: Poland’s economic success is a blueprint for the win-win benefits of the EU single market. German exports to Poland are now more than twice as high as exports to Russia.

The benefits of open markets, supported by good economic policies, are also larger than the benefits of public subsidies: Eastern Germany, despite having received more than one trillion euro since the unification, has caught up on Western Germany less than Poland did with much less money (since its EU accession, Poland has received slightly more than 100 billion euro from the EU funds).

Hmm.. Impressive.

Risk? EU

But the key risk to Poland’s future is the weakening of the European Union. Without the EU, Poland would revert back to the dark periods of its history and be relegated again to the periphery of the European continent, where it has languished for long centuries in the past.

 

Capitalism with Scandinavian Characteristics

February 20, 2019

Nice piece by Prof Timothy Taylor on Scandinavian economies:

It is a truth universally acknowledged that arguing about the definitions of terms like “capitalism” and “socialism” is a waste of time. So I will simply assert that the world has many flavors of capitalism — U.S./British, Japanese, Scandinavian, German, French/Italian/Southern European and others.

I’ve known some genuine socialists who favor outright government ownership and control of the means of production, which necessarily means government making all the decisions about what is produced, where it is produced, how it is priced, who gets hired and how much workers get paid.

But most people who talk a socialist game, when asked for real-world examples, tend to sidestep the more extreme (and less attractive) possibilities and point to European countries — in particular, to Northern European countries like Sweden, Denmark, Norway and sometimes Finland. The genuine socialists I know view these countries as sellouts to capitalism. The Scandinavians themselves are quick to deny that they are socialists, too. 

There are higher taxes and more equality in lower income percentiles compared to US:

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