Disparate Models, Desperate Measures: The Convergence of Limits ∗

This chapter was originally written back in 2003 and published in 2005 in the volume edited by David Coates (god father to a Miliband son I think) Varieties of Capitalism, Varieties of Approaches.  The data contained inter alia is by now stale in one sense.  However in another sense the document holds up for its time and place in the early Anglo-American debates on neoliberalism.  The trends I analyzed–rising income inequality, reduced welfare state effort, eroding quality and conditions of work, and a secular decline in productivity growth–across the rich OECD zone regardless of which model of capitalism was being pursued were in fact, as I noted at the time, secular trends.  At the time, 2003, most academics still had their heads in the ground about inequality and the punitive dynamics of neoliberal labour market policies.   Indeed the  hegemony of neoliberalism was so complete at that time most social democratic intellectuals refused or were incapable of acknowledging the state of affairs.  Even worse many were actively crafting and implementing neoliberal policies.

In the above sense I think the chapter still holds up.  Moreover, it also holds up in terms of its main hypothesis that the advanced capitalist zone, despite being populated by nation states with very different institutions and public policy regimes, was producing increasingly poor outcomes for workers and citizens. For A version of the chapter “Disparate Models, Desperate Measures: The Convergence of Limits,” leave a comment to request the document.

∗This article was originally published in David Coates (ed.) Varieties of Capitalism, Varieties of Approaches. New York: Palgrave Macmillan, (2005). The version of the article reproduced herein may be reproduced on a not for profit basis subject to the GNU Free Documentation License and provided proper citation is provided.
Advertisements

Stapled to the Front Door: Neoliberal Extractivism In Canada

This article discusses several aspects of the reliance in the Canadian economy on the natural resource extraction (NRE) industries. The NRE sector illustrates the dual nature of Canadian capital in a global context. The intensification of resource extraction is associated with an increase in inequality along several vectors. These increases in inequality, however, cannot be decoupled from the institutionalization of neoliberal policies at both the federal and provincial levels over the last 30 years.

Varieties of Capitalism: A Critique

Abstract

The Varieties of Capitalism (VoC) has become the dominant approach in comparative political economy and enjoys wide application and attention in disciplines outside of political science and sociology. Indeed the VoC approach has enjoyed much attention in comparative industrial/employment relations (IR). This article undertakes a critical evaluation of the importation of the VoC paradigm into comparative IR. Inter alia, it is argued that the VoC approach, as it is presently configured, may have little to teach IR scholars because its basic theoretical concepts and methodological priors militate against accounting for change. This article begins with a summary of the routine problems researchers in comparative political economy and comparative IR have encountered when attempting to account for change within the constraints of the VoC paradigm. Here the focus is on the limitations imposed when privileging the national scale and the problems engendered by a heavy reliance on comparative statics methodology infused with the concepts of equilibrium and exogenous shocks. The article then goes beyond these routinely recognized limitations and argues that the importation of terminology from neoclassical economic theory, of which the original VoC statement makes foundational reference, further serves to constrain and add confusion to the comparative enterprise; namely, comparative advantage, Oliver Williamson’s neoclassical theory of the firm, the use of the distinction made between (im)perfect market competition in neoclassical economics and the fuzzy distinction made between firms, markets and networks.In the concluding section we argue that the VoC’s narrow focus on the firm and its coordination problems serve to legitimate IRs traditional narrow focus on labour management relations and the pride of place that HRM now enjoys in the remaining IR departments. Ultimately, however, the embrace of the VoC paradigm by comparative IR is a net negative normative move.

The full article can be found here

Trumped up and buried under the ashes of neoliberalism

Introduction

At the time of preparing this talk, January 2017, Donald Trump had just been elected the 45th president of the United States of America.    This talk is not really about the United States under the tutelage of the newly elected American President Donald Trump.  Rather this talk is more about how we arrived here: about the legacy of neoliberal policies that forged the trump card for the explosion of right wing populist movements and their victories across the advanced capitalist zone including in the United States.  As the vivid title of this talk makes clear, I am not arguing that we have moved to a post neoliberal order as of yet–although there are signs we may be in a bad transition out of the neoliberal epoch.  Alternatively, I will argue that we are living with the consequences of neoliberal institutions and policies: suffocating under the ashes of neoliberalism with Donald trump as the brightest burning coal at the top of the ash heap.

As most people know, to play the “trump card” in any game—political, economic or otherwise—confers a decisive advantage to the person who plays it given the right circumstances and timing.  The idiomatic expression “trumped up” refers to situation that has been manufactured to produce one set of outcomes while falsely claiming to produce another.  A trumped up criminal case is promulgated on phony evidence where the wrongly accused faces a criminal sanction while the broader public is misled to believe justice is being done.  There is close analogue here to the phrase gaslighting.  Much of neoliberalism, indeed an important explanation for its ideological spread was the initial promise of employment and renewed economic growth, i.e., what we might call the remedy to economic shame[i].  There is a sense in which neoliberalism is and was a scam and a manipulation of public morale: the difference today is most, including significant sections of the ruling classes admit this. They simply do not care because its all just a contemporary communications game.

If you are on the left it is easy, in this context, to simply be against Donald Trump and the sundry list of right wing populist movements and leaders. Who reading this post is for racism, sexism, xenophobia and soft and hard bigotries of all stripes?

Rather the problem for the putative left, particularly but not solely, its formal parliamentary forms; the Democratic Party in the United States, the New Labour Party in Britain and Australia, the Socialist party in France, the New Democratic Party in Canada, and the Sozialdemokratische Partei in Germany, for example, is to come to terms with what is now 40 years of their own internal drift to the right and their own hand in building the very neoliberal institutions which  created the conditions in which right wing populism and inequality flourish and left wing politics languishes.[ii]

In the above regard, it is my suspicion that it will be much harder for the institutionalized left to come to grips with the folly of neoliberalism than the right.  This is particularly so in the upper echelons of the progressive social structure (intellectuals, academics, politicians and the quasi woke citizenry).

Here is why.  For the right, neoliberalism was an internally motivated project, which sought to roll back, dismantle, and or fundamentally restructure the post World War II social order.   Neoliberalism was never about jobs, productivity, or economic growth for conservative elites: it was about a redistribution of power upwards.  In this regard, the adoption of neoliberalism did not require a conversion of ideological convictions as it did for the left. It was broad and important segments of the left which made the conversion:  It is the Clinton democrats, Tony Blair’s ‘new labour’, Gerhard Schröder’s ‘third’ way, and the legions of intellectuals and academics which made their own accommodations, and indeed in many cases who crafted neoliberal innovations that will have to do the hard work of soul searching, shame letting, and back tracking.

I am not very sanguine about the prospects of the aforementioned coming to pass for three reasons.  For one thing, most left accommodations to neoliberalism were made within the reality of a very constrained political economy characterized by high unemployment,fears of high inflation, and low economic growth and a concomitant ideological restructuring to the right.  For example, Tony Blair inherited Margaret Thatcher’s new United Kingdom, and Bill Clinton inherited Ronald Reagan’s “New Day in America.”  It would be impish to maintain that these were not real reconfigurations to the possibilities facing policy makers—left or right.

The second reason I am not optimistic about the chances of a volte-face on the part of the neoliberal left is quite simply that we are now almost two generations into the neoliberal epoch and easily one generation into its hegemony.  Educational attainment, political identities and careers have been formed and built within a neoliberal cognitive and material framework.  None of which is particularly easy (and in some cases possible) to walk away from.

Third, the left remains fractured between insiders and outsiders.  Because the political insiders on the left will not admit to the paucity of neoliberalism and the role they played in constructing the neoliberal order, the most vigorous and energized elements of the left remain largely outside formal political institutions and the broader public policy processes.  Indeed many insiders on the political left are still gaslighting the outsiders.  And if they are not merely sociopaths, its fairly hard for serial abusers to admit they have a problem…lotta shame needs to be overcome.

Moreover, it is by now blatantly apparent in American politics that the political process is over-determined by campaign and party financing—with the democrats still requiring that some professional politicians and administrators be the front for the donors and with Trump era republicans increasingly disposing of the political ‘middle men’ (sic) and opting instead to just put the donors in power. That is, within American politics it is increasingly the case that the Democrats and Republican parties do not merely represent different fractions within the haute bourgeoisie–they are the haute bourgeoisie.  There is, therefore, a toxic stasis on the European and North American left facing a dynamic, well funded, and popularly organized right.

Afterword to the introduction

It has been almost a year since I gave this talk and there is reason today to feel a bit more sanguine than one may have felt in the morning after Trump was inaugurated.   The British labour party had a major coup d’état with the victory of Corbyn. Equally positive has been the increasing traction of non normie style democrats.  Moreover, and I think more importantly, there are some positive signs that that the non parliamentary left is finally working through some of its major dysfunctions of which I will just touch on two below.

First, there are strong signs that the non parliamentary left intelligentsia is moving beyond the internecine, unproductive and self defeating debates of the naughties and teenies.  I think Trump’s election was a brutal wake-up call signalling that the prosaic and bitter debates of grad school educated lefties had become a waste of real resources.  Do not get me wrong, I think those debates had to be had, but they went beyond their best before date and ossified  into petty silos.  It was as if by sitting in grad school seminars and by standing giving grad lectures we were going to change something all on our own, as if the logical consistency of our interior ontological righteousness could alone change the world:  to be sure a much more meaningful exercise than Dynamic Stochastic General Equilibrium models, but often not much (there is a future post in this analogue, someone remind me of it).

Second, while we were busy, people like Jane McAlevey and countless others were actually being a part of helping communities organize.  Her title gets right at the problem, there are no shortcuts to the real work of organizing: there is no one big existential idea, no coupling of mobilizing and online communication hubs (often falsely called communities) for living in, and being a part of, organizing ourselves in the broader (as in not self selected) communities we live in.  Life has an unavoidable spatial context and real social complexity.  Organizing involves dealing with both.  I think the non parliamentary left is finally getting this.

[i]   See Arlie Russel Hochschild, “Strangers in their Own Land: Anger and Mourning on the American Right”, (2016), The new press.
[ii]  It remains to be seen if Jeremy Corbyn marks a shift in English politics.

How Can a Political Scientist get this and many (freshwater) economists do not

O.k. I wrote this years ago. Maybe 2003, maybe 2005:

And while NKs accept the basic logic of the rational expectations augmented Philips curve (that is, that the NAIRU is semi-fixed in the long run) monetary and fiscal policy can nonetheless be deployed in the short- run so long as the cause of the deterioration in effective demand is not caused by adverse supply shocks such as an unemployment rate below the NAIRU, insufficient capacity or medium to long-run supply constraints.  This essentially amounts to a hawkish policy stance against inflation and support for less than full employment.[1]  Or alternatively stated, outside of a liquidity trap, NKs are almost indistinguishable in terms of macroeconomic policy from their new classical cousins.


[1] As we shall see below Shapiro and Stiglitz (1984) make the argument that unemployment (above its frictional level) is functional to aggregate efficiency.

Should Ontario Become an Independent Country?

Ok just forget how crazy the question sounds.  The recent wrangling between Ontario and Alberta over the value of the Canadian dollar, oil output and the decline of manufacturing in Ontario (and other provinces east of Ontario) raises some reasonable questions about the Canadian monetary and fiscal union, aka the Confederation of Canada, aka, British North America, aka Canada.

Critics have long argued that the Bank of Canada’s single minded attention to price stability, i.e., inflation, and to a single policy instrument, i.e., the interest rate, was both too crude and too cruel.  Too cruel because it makes unemployment the site of dynamic economic dynamic adjustment and too crude because it is both geographically insensitive and structurally daft.

Here I will put the cruel to one side and consider the crude.  Interest rate adjustment is a crude way to attempt to manage the macro-economy.  Think about the regional dimensions.  If you exclude Western Canadian growth the beavers teeth look not nearly so sharp, or as long.  The present interest rate regime is probably too low for western Canada and too high for eastern Canada.  Suggesting that, all things being equal, the Canadian dollar is probably too high and too low.  Too low for the resource sector and too high for manufacturing.

Federal tax policy has not helped either.  The unilateral decrease in corporate income tax rates deprived the federal government of resource revenue while having little if any impact on investment in the manufacturing sector.   The west did not need a GST rebate the east did.  And to add insult to injury, the Federal government has decided to move to an austerian footing.  Again viewed through the lens of the west probably not a totally idiotic position to take (countercyclical one might say).  Viewed from the east, however, a completely counter-productive, pro-cyclical policy.

All of which raises the question if Ontario, or indeed if all of the provinces east of Manitoba, would not be better off with their own federal government and their own central bank.

O.k. time to remember how crazy the question was.  Not that crazy after all.  But it is only a sane question because macroeconomic policy (fiscal and monetary policy) is so cruel and crude.

Gordon V Jackson: the corporate tax cut myth

Apparently Stephen Gordon is having a hard time figuring out where Andrew Jackson, the chief economist for the CLC, got the bizarre idea that:

The argument for corporate income tax cuts has been that increased after-tax corporate profits would be re-invested in company operations, boosting economic growth, productivity, and jobs.

Stephen replies in the comments section:

No. That’s not the argument. At least, I’ve never heard anyone make it.

No one, ever, anywhere, has insinuated or made that argument.  Really?  To continue reading and comment click.

Stimulative austerity bearing fruit in Britain? Not. Nor globally

George Osborne was quick out of the gates with the austerity as stimulus gambit.  Which as everybody from myself to Paul Krugman predicted was going to be a flop.  Osborne has been trying to save face by arguing that his government’s austerity package saved Britain from becoming Greece  (the most disingenuous piece of clap trap coming from the other side of the Atlantic since Tony last spoke of the need to go to war in Iraq).  The bond vigilantes are not swarming in on fully sovereign countries (i.e., those with the power to go around the bond market if they so choose; see almost any post by Bill Mitchell).  Indeed, Japan has a debt to GDP of over 200% and is issuing ten year bonds with great fan fare at below 2%.

Meanwhile Cameron has been trying to save face with an alternative: namely, that it is the crisis in the Eurozone that is to blame.  As Bill Mitchell points out the Eurozone was in crisis before Cameron pushed through austerity.  That is to say, if the British economic recovery hinged on a buoyant Europe it was a silly plan.

Now some fair-minded reader might insist that neither Osborne or Cameron could have known that the crisis in Europe would go from bad to worse and they are therefore the victims of optimism but not stupidity.  Not so.  Like the Canadian Finance Minister, Osborne has been preaching austerity and public sector restructuring to all and sundry.  The problem is that the austerity gambit requires that exports do the heavy lifting in terms of dragging the domestic economy up, up and away.  But if all the countries that buy your imports are also trying to do the same then in the aggregate we all loose: a in an anchor cut loose.

Canada and Britain could have perhaps used austere means to jump start their domestic economies by free riding on a massive stimulus in the US and Continental Europe.  Again it has been clear for some time that was not going to happen.  So even if austerity could have worked its funky magic it would have been because Europe was doing stimulating fiscal stimulus.

Gangster Capitalism: Same as it ever was?

If you are going to read one thing and just one thing on the financial crisis and how it is working itself out you need to read this blog post at naked capitalism:  the one stop shop for understanding contemporary finance.

After the September 2008 crash, Iceland’s government took over the old, collapsed, banks and created new ones in their place. Original bondholders of the old banks off-loaded the Icelandic bank bonds in the market for pennies on the dollar. The buyers were vulture funds. These bondholders became the owners of the old banks, as all shareholders were wiped out. In October, the government’s monetary authority appointed new boards to control the banks. Three new banks were set up, and all the deposits, mortgages and other bank loans were transferred to these new, healthier banks – at a steep discount. These new banks received 80 percent of the assets, the old banks 20 percent.

Then, owners of the old banks were given control over two of the new banks (87% and 95% respectively). The owners of these new banks were called vultures not only because of the steep discount at which the financial assets and claims of the old banks were transferred, but mainly because they already had bought control of the old banks at pennies on the dollar.

The result is that instead of the government keeping the banks and simply wiping them out in bankruptcy, the government kept aside and let vulture investors reap a giant windfall – that now threatens to plunge Iceland’s economy into chronic financial austerity. In retrospect, none of this was necessary. The question is, what can the government do to clean up the mess that it has created by so gullibly taking bad IMF advice?

In the United States, banks receiving TARP bailout money were supposed to negotiate with mortgage debtors to write down the debts to market prices and/or the ability to pay. This was not done. Likewise in Iceland, the vulture funds that bought the bad “old bank” loans were supposed to pass on the debt write-downs to the debtors. This was not done either. In fact, the loan principals continued to be revalued upward in keeping with Iceland’s unique indexing designed to save banks from taking a loss – that is, to make sure that the economy as a whole suffers, even suffering a fatal austerity attack, so that bankers will be “made whole.” This means making a windfall fortune for the vultures who buy bad loans on the cheap.

Go read the whole article.

The economy lab, the dark age of free trade theory, and the naive view on natural resources and economic development

Over at the Economy Lab in the Globe which Failed, which itself has gone from bad to worse, one of the economists they keep in their stable has either produced an extraordinarily naive analysis or a dishonest one.  I am going to go with naive for the sake of professional courtesy.  Not that that is the MO of economists but I am atheist fan of Jesus and not an economist…so here goes.

To be honest I can’t figure out which vintage trade model Gordon is using.  My informed gut tells me something like an off the shelve H-O-S intro text book model of free trade.  That would fit with his own vintage and the fact that he is an econometrician.  Although that creates a paradox because, as surely Gordn knows, the H-O-S free trade theorem preforms dismally–by even economic standards–in econometric work outs.  In layman’s terms: the work-horse model of free trade which is standard in introductory economics texts fails at a predictive level.

There are any number of reasons for this but just for fun here are few in no particular order:

  1. The economies entering into trade were in a state of autarky (self sufficiency) and full employment.  Both of which are patently false.  More often than not nations pursue trade in the search for a remedy to chronic underemployment and unemployment and have already been engaged in trade.
  2. Product and capital markets are perfectly competitive.  Again patently false.
  3. Factors (capital and labour) are perfectly mobile within a national jurisdiction but not between.  You might get me to agree on labour but the whole point of neoliberal globalisation and its animating quintessential core is the free movement of capital.
  4. As a corollary, capital (investors) is made up of 100% domestic nationals.  Extremely dubious assumption with respect to mining, oil and gas and a whole host of other sectors.
  5. There are no firms.  While capital and labour are the only inputs (and resource endowments) there are no firms.  Just one large something or other allocating labour and capital according to their scarcities.  A model without firms that actually do the trading?  Bizarre me thinks.  This becomes particularly important with respect to determining who benefits from the gains of trade.
  6. Capital is a natural endowment.  Which translated means that for the standard model the explanation is that some countries have lots of capital some do not.  Why that is; the model does not care.  But saying that you don’t care is far cry from saying anything remotely interesting.  Capital is after all nothing other than produced means of production in its physical form and its ephemeral and essential form a complex social relation.  Sorry I can’t really simplify that at this time.  But to get a sense of what I am getting at just recall that the origins of Canada is a colonial enterprise in which colonial settlement was driven by the desire to expropriate natural resources from the original inhabitants.  The origins of Canada, and its rich endowment of natural resources is thus the history of politically constituted property and not some “natural” process of economic development.

O.k. so that is that.  Of course the OEM version of free trade theory is going to be a predictive disaster.  Why anybody bothers to teach it outside of using it is an example of what happens when liberal geeks go wild is beyond me.  But let me do a real world work-out.

Let us take Newfoundland and Labrador as a historical case in point.  Here is region that has leaped from one natural resource boom to another and it has always ended in some form of administration.  The failure to develop a modern diversified economy in which resources play a role but not the primary role.  Contrast the fortunes of early diversifiers in the union, who did so via a tariff wall and you get the picture.

In Newfoundland and Labrador Gordon’s advice is being followed as the mining and oil and gas sectors account for around 40-45% of provincial output but only 4-5% of direct employment including temporary construction employment.  Neither the oil, nor the profits touch land (outside of royalties taxes and wage payments which are all relatively low) in that province because of the weak to non-existent processing of raw materials.

Gordon thinks this is the road map to economic success, I think it leads to ruin.  He is willing to bet standard trade theory on it, I am going with history.

Here is why.  Two seconds of reflection will reveal that in Newfoundland and Labrador almost every single assumption built into the standard free trade model is violated: most certainly 1 through 6 outlined above.  Perhaps most interestingly is that Newfoundland and Labrador would not have a comparative advantage in oil and gas had it not been for the federal and provincial governments.  I am sure Gordon was decrying Hibernia as white elephant back in the day.  The problem is today the two levels of government are fighting over the allocation of royalty payments as the project is paid in full and is churning out lucrative profits for all involved.

Maybe Gordon can write something about that in his next post to the Economy Lab.  I won’t hold my breath.  My discipline right or wrong and all that jazz.