Lectures 7 - 14 PDF

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LECTURE 7INDUSTRIAL POLICYINTRO Why industrialisation still important (Don Wilfredo)   But.. reasons to think industrialisation is v hard  o Dependency theory and Don Wilfredo...  o Also, similar&nb...

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LECTURE 7 INDUSTRIAL POLICY INTRO  Why industrialisation still important (Don Wilfredo)  But…also reasons to think industrialisation is v hard o Dependency theory and Don Wilfredo… o Also, similar views on industrial policy  Unfair / declining terms of trade  Cost of capital  Technological monopolies o Mainstream views (especially 1980s)  Government attempts to industrialise in 60s and 70s (ISI) failed  It’s difficult  Political incentives to be soft on infant industries o But giving up and leaving it to comparative advantage (structural adjustment in 1980s) didn’t work o And East Asia looks like a risky special case o New industrial policy? JUSTIN LIN ARTICLE  Lin was chief economist at the World Bank when he wrote this  Argues countries should have active industrial policy as ’structural change’ (agriculture-toindustry) is key to dvt.  But (in contrast with 70s ISI) should correspond with ‘comparative advantage’ and avoid ‘picking winners’  A kind of pragmatic ‘new industrial policy’ (see also Dani Rodrik’s writing) WHY INDUSTRIALISE (LIN'S INTRO AND S. 1)?  Since early dev studs, growth = shift from ag to industry  Even in recent years strong correlation growth in manufacturing value added and GDP growth  Akamatsu – flying geese – out-sourcing should produce jobs in poorer countries  Empirically, Asia has seen strong structural change (including 1990-2005) but LA and Africa less so  Africa has not (yet) benefitted much from ’de-industrialisation’ in developed world HOW TO AVOID THE PROBLEMS OF OLD-STYLE ISI (S.2)?  ‘State cannot be better than private sector at identifying possibilities’  But countries did things differently, some worked some didn’t o Going straight to heavy industries doomed to fail – capital intensive in capital poor economy  GIFF framework o Look at similar countries’ goods over last 20 years  If already producing, look to help adoption  Attract FDI into new sectors  If overall environment (institutions etc.) problematic, consider SEZs  Some limited assistance to compensate for costs of pioneering

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Great timing, 85 million Chinese workers getting too expensive o Total African manufacturing workforce about 10 million

CRITIQUE I: STILL PICKING WINNERS?  If interventions go ‘with’ comparative advantage, why do you need them? o Kreuger says just a license for the bad old days of ISI (commentary in Lin (2011) o Rodrik says it’s mostly an issue of terminology:  Today’s industrial policies need to have a softer touch than that which structuralists of old tended to recommend. They must be more respectful of markets and incentives; they must show greater awareness of the potential of government failures; and they must focus specifically on market failures rather than vague shortcomings of the private sector Rodrik, commentary in Lin (2011) p.56 o Ha-Joon Chang thinks Lin doesn’t go nearly far enough (Lin & Chang 2009 on reading list)  If Lin is doing more than just ’putting industrial policy on the agenda’…need to know what’s OK and what isn’t CRITIQUE 2: ONGOING DEPENDENCE  Lin borrows from ‘flying geese’ o ‘Industrialisation’ but as subordinate parts of an MNC production chain o Not self-sustaining, dependent on picking up the crumbs industrialised world doesn’t want  eg Kaplinsky argues industrial products getting less rewarding as they diffuse across developing world  Maybe better than agriculture but (a) not independent (b) ongoing unfair terms of trade  Do you need to be more ambitious to escape dependence like eg. Korea? (see for example Lin v Chang 2009 on reading list) CRITIQUE 3: WHERE'S THE POLITICS?  The original critique of ISI was partly that governments wouldn’t distribute ‘rents’ rationally. o If we’re still ’picking winners’ will government be effective at doing that (see Kreuger’s critique again)  Capacity  Vested interests / corruption  Governments that were successful at industrial policy tended to be authoritarian o Need to work closely with business o Tend to get government-business coallition (against workers?) o See my piece on Korea on blackboard….and think about whether you like the sound of the government Wade (on reading list) talks about  Does Lin’s more modest programme solve the problem by suggesting something less ambitious? THE NEW INDUSTRIAL POLICY  No easy choices o Arguments against Lin suggest (a) too limited (b) too difficult for governments o But the alternative – (post) Washington consensus ‘good governance’ plus institutions also hard and only creates slow growth (Rodrik & MacMillan) o So, imperfect but may be the best available option  Closer to dependency pessimism than modernisation optimism

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Note trade rules, WTO problems, control over IP and capital all work against development At best, poverty won’t disappear fast…so, back to fair trade and Don Wilfredo

FAIR TRADE  Gets around the ‘Coyotes’  Offers fixed price, gives farmers certainty May pay them a bit earlier in the cycle  Modest ‘premium’…though some compulsory need to spend that on coop infrastructure  Costs involved in registration / compliance…  Overall, makes things modestly better for moderately poor producers  Not wrong…I buy fairtrade coffee when I can….but not solving fundamental problems of dependency  (Unless you have a very non-materialist green vision of development)

LECTURE 8 SECURITY Lecture notes  Goes back to the 18 century arguments where everything changed  Updated in the90s by globalisation. Redeveloped these arguments with new ideas for a changed world Overlapping debate that’s lss aobut world order and peace anad war, more about security planning. The link between the two is the idea that 1. Having lots of money translates into military strength (money buys bombs) 2. Secondly, partly because of the aforementioned reason, and partly on its own account, one of the reasons you might engage in warfare is to try and garner more economic resources  How does this fit into war and peace in a globalised argument? Security  For our purposes, state/military security  Which is about (war and peace mainly) o Military strength o Alliances, how reliable are these friends? How militarily strong are they o Evaluations of other countries’ strength  Realism o High politics – security as the over-riding value o States are and should be selfish o Foreign policy run by narrow, rational, state-elite driven by national interest  Realists argue that this kind of security is the most important political value. The argument is basically that you can think about policy to make people happier and stronger, but if someone takes over your government, this is no use.  The realist argument is you have to start with maintaining power before you can do good, assuming they are doing good  The states should see security as the overriding value, because without this you cant do anything else  Because of this, they argue that states are and should be selfish, in the sense that they should see their OWN security as their overriding value, and be weary of anything that might compromise that  Its not necessarily selfish in

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Its about self protection more than it is about evil. Emphasising how states need to be frightened of security concerns, and thus take security very seriously. This may mean to compromising etc. The best way to do foreign policy is to get a rational state elite, somewhat insulated from democratic politics. This insulation enables the elite politics makers to take security really seriously and not bother with the other stuff Money matters, largely because of its convertability into military superiority and weapons, and various consequences come from this

Basic argument Trade is good, because trade creates ties and relationships between countries, making war less likely. Trade freely as much as you possibly can Realists saw this is very well, but sometimes people fight despite whatever the economic consensus might be, so you always need to be nervous of frightened, and the interesting debate is when it is that you need to override good economic policy in the interest of defence.  STICK INTO DETAIL  PICK 2 OR THREE GOOD ARTICLES AND READ THEM CAREFULLY. TELL ME THE DETAIL OF THE ARGUMENT  PARTICULARLY FOR LIBERALS, THE TRICKY BIT IS TO SPELL OUT EXACTLY WHAT IS IS ABOUT ECONOMIC RELATIONSHIPS THAT PRODUCE PEACE. THEY HAVE 3 OR 4 DIFFERENT THINGS THEY SAY.  Writing essay, separate out what these things are, and evaluate them separately and as carefully you can on the evidence Liberal argument  WHEREAS LIBERALS ARE INCLINED TO PRIORITITSE MONEY MAKING, AND THEY SEE THE JOB OF GOVERNMENT AS ENABLING PEOPLE TO COME PROSPERSOU. THEY HAVE ARGUMENTS ABOUT HOW ECONOMIC RELATIONSHIPS NOT ONLY MAKE US RICH, BUT THEY ALSO TEND TO PROMOTE FRIENDLY RELATIONSHIPS, AND TO LIMIT THE DANGERS OF WAR.  LIBERALS ARE INTENDED ON PUSHING BACK THE SPACE FOR REALISTS.  Liberals and realists quite opposed  Adam Smith 18th century, explicitly acknowledged that sometimes you need to make bad economic decisions in the interest of national security. He was willing to accept that national security could override most considerations of economic wealth Similar:  Likewise, because realists know that money turns into bombs, a good realist should be interested in making money, and therefore to the extent that liberals can tell us things about how to do economics better, realists are inclined to listen. Opposed in value terms, not always quite so opposed in practical terms LIBERALS AND MERCANTILE PEACE  ‘Free trade! What is it? Why breaking down the barriers that separate nations; those barriers behind which nestle the feelings of pride, revenge, hatred and jealousy, which every now and then burst their bounds and deluge whole countries with blood  (Richard Cobden famous 19th century English trade advocate) o Trade breaks down barriers, gets rid of irrational hatred of people and states, as they become your business partner so it is in your best interest to trade with them positively, and in some way reduce the chances of war MORE RECENTLY - 'INTERDEPENDENCE'  Cost of war is increased, due to trade plus creation of friendship  Increased economic ties have reduced the potential for war

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One reason for this, regardless of the costs of the war itself, back in the day when most of your wealth came out of the land, and most of your military capability came from how many humans you had to throw at one another across battlefields, getting territory could in itself, make you stronger. The territory provided more land, agricultural resources, humans, and so you might capture territory as a way of becoming richer and stronger, in a classic realist way o Liberals suggest that realists still have a tendency to think this way, and they tend to think that just expansion makes you strong o In the contemporary world, it might be less valuable to conquer a country, o Less profitiable to grab territory o Argument 2: war is very costly Because capturing territory no longer provides immediate benefits, it may become less attractive to be an expansionist state [Why might capturing territory be less profitable than it was?] Brooks on the Additional reading is particularly good for this debate…emphasizing production as well as trade. He concludes that conquest is less profitable in the developed world but it’s less clear in developing. See Kirshner in Internatioanl Security Vol.16 No.4 for critique) o This reading is an argument that international production is more important than international trade o Review of what Brooks says, quite good for a realist argument response to liberalism (See also Gartzke, E (2007) ‘ The Capitalist Peace’ American Journal of Political Science Vol.51 No.1)

Liberals basically have two arguments 1. One is an incentives based argument which says that as countries are becoming more interdependent, eople are doing more trade with one another, the things that are made in one country require pieces from lots of other countries, countries prosperity requires an ability to keep attracting investment, all these things make war potentially more costly in economic terms. Plus, they argue that the nature of economies, the way we make money, ahs also changed in ways that make war for economic purposes less attracitve than in the past  Incentives: based argument that global market economy has made war les economically attractive in various kinds of ways 2. Then there is a more sort of constructivist argument, which is more from Cobden, that says that also as people do lots of business with one another, this has a cosmopolitan impact (you think of yourself less as a New Zealander, more as a citizen of the world) the argument is that as people do business, they cease to see each other as strange foreigners they no longer understand, and see each other more as people they do business with. This is not friendly and beautiful relationship, but it is to some extent mutual respect, and mutual understanding. o War is costly. The more trade partners you have, the higher chance there will be a bigger economic hit if you go to war  The idea for liberals is that this combination of economic incentives and of learning to see the other in less threatening, problematic mysterious terms, will both work together to make war less likely. If we all do trade with one another.  Constructivists follow the cosmopolitan argument that hasn’t really changed over time  Economic incentive stuff has changed over time, because the global economy has changed drastically since the 19th century when liberals and realists started arguing about this stuff.  The first bit is basically that

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Increased economic ties have re  Starts out with just trade makes us friends. Unpacks this into trade and war does not mix well, as they reduce the economic incentives for having a war in the first place, and increase the cost of having war once you have it  Harder to assess stuff about how economic ties may change peoples perceptions of each other

REALISTS  Trade can make you rich o Great if you're a realist, can buy bombs which in turn buys security  Trade can cement alliances o They accept economic incentive argument, but suggest these aren't as important as other factors o Kirshner says he understands brooks, but it only applies in examples where they may have been a war except for multinational production, but there arent very many cases here. Lots of cases where the liberal argument doesn't really happen, war happens for the reasons that realists always says it happens for  BUT o War isn’t only about money (tends to be about deep seated identity based animosity, or about calculations of power and oppression of one kind or another that aren't particularly closely related to making money.  Friend-enemy  Karl Scmith, Once you decide who your enemies are, trade becomes quite irrelevant as if you have decided you don't like them, this is not going to change how much they trade with you  Put in this light, he suggests that hardcore animosity is unlikely to be susceptible to a bit of economic calculation on average  Calculations are also about military strength, resolve, alliances etc.  Arms race times reasons  US is inclinced to see North Korea as weird and communist, but there is arguments about whether its better to take out nuclear capability before it occurs  China US conflict not really about identity politics  There's a whole other line of arguments that’s about rational calculation of military strength, may be better to stop someone from becoming powerful before its too late  About calculations of military capability and likely threat  If youre really worried that someone might invdae you, has the military capability to do so, the fact that you're currently making quite a lot of money buying and selling from them might not intervene in the more fundamental calculation about security - so say the realists. o Trade can create vulnerabilities  Behind the liberal arguments, is the assumption that trade is good for everybody, everyone benefits from trade, and that the economic position is not very complicated.  Everyone trades and gets richer.  There are realist arguments that question this side of things  This point is particularly important in terms of defence procurement  From an economic point of view, products are interchangeable through the medium of money, all that really matters is what they're worth.

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What if you're reliant on food, or reliant like Britian in WW2, a big part of the German war effort was to try and stop convoys of food and supplies getting across the Atlantic, to isolate the economy, so theres this suggestion that becoming trade dependent may make you rich but also make you vulnerable.  Even Adam Smith accepts that particularly food politics and military procurement politics might well override what would otherwise be sensible efficiency based economic policy. There may be good reasons for setting aside classic economic arguments, when you're talking about  A bit more sophisticatedly, talking about developing countries with the ideas of industrial policy, from a market perspective it doesn't really matter what you produce, what matters is economic values, the dollars you get out of it. That’s why you respond to comparative advantage by stopping producing one thing and producing another thing based on dollar per unit put in o Production decisions should also include a strategic-military dimension  So may be more open to infant industry arguments (especially as also very keen on ‘the state’)  EH Carr, Southern Europeans didn’t want to make oranges, they wanted to make tanks  Bombs, food etc.  Not just thinking about profit, thinknig In a sense realists are saying liberals are too focused on money.

1. Might not rely on free trade to produce peace as it may not solve war 2. Tecnhical argument, might want to override what orthodox economics tells you, because you might care about some products more than others, particular stuff that leads to bonds or food security  For both these reasons, realists suggest that a liberal embrace of free trade under all circumstances will not work WHAT DIFFERENCE MIGHT SECURITY AWARENESS MAKE?  In terms of concrete policy…  Liberalists and realists both agree that making money is good, as you can increase defence through weaponry o Argument of how much economic incentives can reduce the chance of war  The realists say the commodities is not just about what they're worth, there are some specific commodities that are not malleable in this way, can't be exchanged for money all the time o Argument about how widely you want to interfere with the market in the interests of various kinds of strategic considerations  Economic sanctions / economic warfare  Trade with your friends not your enemies, so you exclude others from the gains trade can produce o Realist argument more complex than liberal o US-Russia in Cold war o Hurt both sides but price worth paying?  Lots of stuff in readings about US and Russia in Cold War, suggesting that the US's ability to trade with other nations really helped them prosper, and maintain military superiority

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Ine thig that pushed the Cold War over the edge was when Reagen started upping investment in military things, the Russians just couldn't keep up, as they had been gradually weakened economic through having not as grade trade partners  However the division of the world into two halves made the US poorer as well  However thinking of this in military terms, comparative advantage says that everyone will be better off trading than if they weren't, but it doesn’t tell you how the gains are distributed. The realist argument is that it may be better/sensible for them to slightly poorer, in the interests of narrowing the gap with your military rivals as security is more important than money  This is talked about in terms of relative and absolute gains. Absolute is classic trade argument that says if you trade youre better off than if you weren't the relative gains argu...