Some links on economic subjects
(posted by jackson)
Brad Delong quotes Paul Krugman, regarding the effects of global trade. My own view is that we all tend to underestimate the importance of earlier periods of globalization. This is what Krugman has to say:
One message from this story is that globalization as a profound source of change is nothing new. In fact, the combination of things that made the widespread consumption of bananas in America possible — railroads, steamships, refrigeration, and, not least, regime change often backed by American military might — where do you think banana republics came from? — makes containerization and the Washington Consensus look low-key by comparison…
I think we all tend to suffer from “recency bias” - we give too much importance to recent events, because we lack perspective. For instance, “9-11 changed everything” because now, unlike before, America is taking a keen interest in the politics of the MidEast, is worried about the supply of oil, is actively seeking allies in the area, is threatening military action against its enemies, etc. None of this happened before 9-11?
Likewise, with the effects of world trade. Try to imagine a pizza without tomato sauce. Unusual? And yet, Italy has had pizzas for a long time, but tomatoes come from the New World. Potatoes came from the New World - imagine Ireland without potatoes. We are speaking of changes that altered our perception of national identities. Tobacco came from the New World. The French historian, Fernand Braudel, in his work Civilization and Capitalism, in volume 1, The Structures Of Everyday Life, records that there is a Chinese wood block print, from 1525, which shows two peasants smoking pipes, and the print is inscribed with a character for tobacco. Even nowadays, this is fast uptake for a product - to introduce a new foodstuff and have the poor of every nation consuming it within 30 years is on par, perhaps better, than what Coco-Cola or Kellogs was able to acheive. The most explosive effects of world trade were the early ones - they were world-changing. Not only did new crops change people’s consumption habits all over the world, but establishment of a world market was pre-requisite for the Industrial Revolution (I’m not saying this is good or bad, I’m only saying the early effects of world trade were profound).
Also, Delong has a good piece comparing Argentina with Europe during the period 1945-1973:
In 1929 Argentina had appeared as rich as any large country in continental Europe. It was still as rich in 1950, when Western Europe had for the most part reattained pre-World War II levels of national product. But by 1960 Argentina was poorer than Italy and had less than two-thirds of the GDP per capita of France or West Germany. One way to think about post-World War II Argentina is that its mixed economy was poorly oriented: the government allocated goods, especially imports, among alternative uses; the controlled market redistributed income. Thus neither the private nor the public sector was used to its comparative advantage.
In post-World War II Western Europe, by contrast, market forces allocated resources–even, to a large extent, for nationalized industries–the government redistributed income, and the outcome was much more favorable….
In Díaz Alejandro’s estimation, four factors set the stage for Argentina’s relative decline: a politically-active and militant urban industrial working class, economic nationalism, sharp divisions between traditional elites and poorer strata, and a government used to exercising control over goods allocation that viewed the price system as a tool for redistributing wealth rather than for determining the pattern of economic activity.
From the perspective of 1947, the political economy of Western Europe would lead one to think that it was at least as vulnerable as Argentina to economic stagnation induced by populist overregulation. The war had given Europe more experience than Argentina with economic planning and rationing. Militant urban working classes calling for wealth redistribution voted in such numbers as to make Communists plausibly part of a permanent ruling political coalition in France and Italy. Economic nationalism had been nurtured by a decade and a half of Depression, autarky and war. European political parties had been divided substantially along economic class lines for a generation.
Yet post-World War II western Europe avoided this trap. After World War II Western Europe’s mixed economies built substantial redistributional systems, but they were built on top of and not as replacements for market allocations of goods and factors. Just as post-World War II Western Europe saw the avoidance of the political-economic “wars of attrition” that had put a brake on post-World War I European recovery, so post-World War II Western Europe avoided the tight web of controls that kept post-World War II Argentina from being able to adjust and grow…
May 5th, 2008 at 1:50 am
Tomatoes and potatoes are the kinds of “trade” that makes perfect sense. Seed is something that only has to be transported once. Their present geographical distribution results from the widespread diffusion of the *ability* to produce them *anywhere*. The closest modern analogy is the free movement of skills, technologies, and capabilities we’d have if “intellectual property” didn’t create artificial comparative advantage and prevent the diffusion of technique.
Bananas make a certain amount of sense, as well. Even in a decentralized economy of primarily local production, whatever geographically limited commodities with a high value-to-weight ratio would make up a large part of whatever long-distance trade still remained.
What we don’t need is precisely what constitutes the bulk of trade under neoliberalism: 1) trade that results from artificial comparative advantage, because of barriers to the diffusion of technique, and 2) trade that results from subsidies that make shipping stuff in artificially cheap compared to making it at home.