Are We all Structuralists Now?
In the immediate aftermath of the global financial crisis even the deepest market fundamentalists embraced the core Keynesian insight that when in deep recession, monetary policy will be ineffective and fiscal stimulus is required. They have now abandoned that view as calls for fiscal austerity abound regardless of the increasingly fragile nature of the global recovery.
While economists and policy-makers debate the short and medium-term remedies to the crisis, there is an incredibly surprising and under-discussed consensus emerging for the longer run. From the Financial Times to the South Centre there is agreement that the United States and East Asia (notably China) have to change the ‘structures’ of their economies.
The US has to stop over-consuming on credit and actually produce things for export again. East Asian nations have to slow down their over-reliance on exports and increase domestic consumption. Another way of putting it: the key actors in the world economy need to undergo structural change.
So are we all structuralists now?
In a new book, Growth and Poverty in Developing Countries, which serves as an overview and contemporary renewal of “structuralist macroeconomics,” Jose Antonio Ocampo, Codrina Rada, and Lance Taylor define “economic structure” as the “composition of production activities, the associated patterns of specialization in international trade, the technological capabilities of the economy,” and so forth. The goal of development, to structuralists, is to transform the structure of both domestic and international economies to enable the developing world to “catch-up” to higher income nations.
The founders of structuralism are seen as Hollis Chenery and Raul Prebisch, who drew on the work of classical economists Smith, Mill and Marx. Structuralism also draws heavily from Keynes, Kaldor, (Joan) Robinson, Hirschman, and Schumpeter. The book by Ocampo et al, is the first concise and contemporary treatment of structuralism and is a must read for students and practitioners of the world economy.
There may be an emerging similarity of diagnoses of the world economy that one could term structuralist but the remedies proposed continue to diverge along predictable lines.
If you listen to the US government, mainstream US economists, and some organized actors in civil society, the rebalancing will occur if China rapidly appreciates its exchange rate and the US signs a flurry of free trade deals. We don’t have to look too far back to see what happens. Between 2005 and 2008 China’s currency appreciated by 21 percent and a rash of trade deals with Chile, Central America, Peru and elsewhere went into effect. During that time the US current account deficit increased and the US became ground zero of the worst crisis since the Great Depression.
Yilmaz Akyuz of the South Centre, in a recent study, offers a better view that may be slowly gaining ground in Asia. China and other East Asian nations should change the structures of their economies by increasing wages and re-focusing industrial policy toward higher value-added goods to spur domestic demand.
There are signs that China is inching down that path. China has already put its exchange rate back on a gradual course of appreciation. In the past month most of China’s manufacturing centers have raised the minimum wage, some by up to 48 percent. Also this month China initiated a green car subsidy program whereby car companies get a subsidy for producing cleaner cars for the domestic market. The latter program is an industrial policy that will not only spur domestic demand and increase the technological capabilities of Chinese manufacturers, it will also help reduce pollution in China which is estimated to cost the nation at least 3 percent of GDP on an annual basis and of course contributes to global climate change.
Structuralism at its core is a set of theory and policy for macroeconomics, and here too many nations are now borrowing policy tools from the structuralist toolkit. Russia, Venezuela, Brazil, China, Indonesia, Taiwan, Argentina, and South Korea, among others, have all deployed capital controls of one form or another since the crisis hit. Ilene Grabel points out the rationale for this and refers to them as the ‘new normal’ because such tools have even recently been advocated by the IMF and other international financial institutions which once shunned capital controls.
It is quite a stretch to say we are all structuralists now. But there is a broad agreement that the current structure of the world economy has to fundamentally change. Many nations, primarily in Asia but some also in Latin America are drawing from the structuralist toolkit to address these problems. Such tools could become the “new normal.” It remains to be seen if the US can match its proper diagnosis with a proper set of policies.
First posted on http://www.triplecrisis.com
If the global economy is imagined as a system not radically different from the weather system, in that events take place and patterns appear when history is the subject, but predictions of the future are forever unreliable, we have a way to join empiricism to the logic of needs satisfaction versus the more formal logics applied in banking, accounting and law, especially corporate, commercial and property law.
It is pleasing to imagine the day when every stomach signals its needs and it current condition. These would be on line–and the patterns of hunger, thirst, and, say, stomach cancer, while not being immediately predictable, would nevertheless be objective and not subject to dispute.
The disciplines of economics and supply logistics could merge; and Keynesian monetary systems of production might become the powerhouses they were always capable of being.
It is particularly gratifying to me to anticipate sovereign money as far superior to debt as the starting point for banking and accounting. Were his to happen, functional finance, a set of ideas that are a nearly forgotten foundation for structuralism, would dictate fully funded labor and capital markets in which necessities were subsidized, nothing was taxed, and private and public profit on sale of high margin luxuries, kept demand and supply of necessities in appropriate balance, and the pattern of stomach signals made sense of which patterns of mere auction prices were never capable.
If the global economy is imagined as a system not radically different from the weather system, in that events take place and patterns appear when history is the subject, but predictions of the future are forever unreliable, we have a way to join empiricism to the logic of needs satisfaction versus the more formal logics applied in banking, accounting and law, especially corporate, commercial and property law.
It is pleasing to imagine the day when every stomach signals its needs and its current condition. These would be on line–and the patterns of hunger, thirst, and, say, stomach cancer, while not being immediately predictable, would nevertheless be objective and not subject to dispute.
The disciplines of economics and supply logistics could merge; and Keynesian monetary systems of production might become the powerhouses they were always capable of being.
It is particularly gratifying to me to anticipate sovereign money as far superior to debt as the starting point for banking and accounting. Were this to happen, functional finance, a set of ideas that are a nearly forgotten foundation for structuralism, would dictate fully funded labor and capital markets in which necessities were subsidized, nothing was taxed, and private and public profit on sale of high margin luxuries, kept demand and supply of necessities in appropriate balance, and the pattern of stomach signals had a purpose where patterns of mere auction prices had none.
Cant help wondering if the over reliance on ideas like comparative advantage has resulted in just this situation where current economic disadvantage is the result.
“The US has to stop over-consuming on credit and actually produce things for export again. East Asian nations have to slow down their over-reliance on exports and increase domestic consumption.”
This over reliance on one sector is dangerous. It does not afford any protection to domestic production where those industries are not globally competitive. A lot of people will not like me saying this – I will likely will be accused of being protectionist or nationalist or worse – but I remain willing to say it. The danger in protection is not protection per se…it is the extent on a continuum to which it is pursued. The danger in globalisation and free markets is not free markets per se…it is the extent on a continuum to which it is pursued.
What point to comparative advantage if those industries in an economy that dont have a comparative advantage are decimated…many industries with no global comparative advantage have a domestic advantage for employment and income. What point is there to a global comparative advantage if, even at the lowest most efficient price possible for goods and services, the rising unemployed in many nations cant afford to buy them? What point to the most efficient price if the true price is unemployment and inequality and loss of living standards for many. What better contribution can domestic economies make to global outcomes than their own economic health?
Structural changes that implicity raise protection levels are being made by countries through necessity now.
Common sense from Alice on our duty to the whole earth and it populations not to sacrifice lives, communities and society for dubious ideas on lowest cost producers and how protection of producers not the cheapest is a no-no. See also
http://www.tpoal/com/structuralism.htm
correction
http://www.tpoal.com/structuralism.htm