Wednesday, June 29, 2011


Updated 7/17/2011

Have you heard of the saying...'first they came for the Jews, then the Catholics, then the gays...and finally they came for me?"

No longer are SALs confined to lesser developed countries. Today, after the 2007-8 economic crisis, we are seeing quite advanced countries such as Iceland, Greece and Ireland, in line for the same treatment: loans with conditions.

See this from the IMF:

IMF Approves €30 Bln Loan for Greece on Fast Track

May 9, 2010

IMF and EU loans come with conditions: the cutting of social benefits to Greeks. We are witnessing vast protests in Athens this week due to this type of austerity measure. See this:

At this point, you might be interested in this:

Say you have a mortgage, but you have fallen into financial difficulties. Your house then defaults back to the bank. This is, in a nutshell, how banks acquire physical assets. On the international stage, banks and countries that loan, can acquire physical assets if loans aren't paid back. In the future, I expect to see large chunks of US real estate being acquired by China and other countries which are in a more stable financial situation.

Greece's debt was at 127% of its GNP when it decided to take out more loans. The US' debt is at roughly 90% of its GNP. The so-called solutions are a) to pile on more debt to pay for the interest on the old debt; b) 'austerity' measures for the masses; and c) buying up the debtor country's physical assets.

I liked how Robert explained the blame game, as countries fail to repay their debt:

'It's remarkable that IOs like the IMF and WorldBank continue to champion SAPs as the vehicles for economic growth, given the obvious failures since the 1980s. Ha-Joon Chang's summarized the typical attitude of the IMF/WorldBank in his lecture. He talked about how, when SAPs were producing bad results early on, people kept saying, "we just need more time." Over time, when the programs still failed to produce positive results, they said its because countries did not abide by recommendations. Then, if a country did follow the recipe but the policies were unsuccessful, IMF/WorldBank folks would say the country's government was corrupt, that their culture is incompatible with the programs, or that the country suffered from bad geography. How long does it take before someone can step back and admit that the policies might just be wrong?'
How did LDCs get into this position in the first place? The causes can be traced back to European colonization of pre capitalist countries from the 15th century to the 19th century. The colonization disrupted and virtually ended, pre-capitalist economies which were largely based on subsistence agriculture. A capitalist economic model was imposed on these militarily weaker societies by the French, British, Germans, Japanese. These countries then became the resource basket for the wealthy. For example, Congo's agricultural crops were decimated to make way for the rubber industry.

Independence came after WWII, but it could be called an imperfect de-colonization. So while LDCs achieved a formal separation from imperialist powers, financial structures were set up to retain their dependency.

That's how the core dependency theory explains the situation. A class analysis does a better job to explain why the working masses will bear the brunt of a state's debt, whether it's a LDC or a powerful state like the US.

Thursday, June 23, 2011

Technological Innovation and Capitalism

This week in INTL 5400, you discussed the differences between comparative and competitive advantage. Briefly, comparative advantage belongs to the liberalism school of thought. It promotes free trade, product specialization and cheap prices. Competitive advantage belongs to the realist school of thought, which promotes protectionism and government intervention that increases national security. As some of you noted, Japan’s economy reflects aspects of both theories. Most countries tend to blend aspects of both theories.

Both theories operate within the paradigm of capitalism, which promotes the private acquisition of capital, mass production and consumption, and intense use of technology. This is the modernist approach.

By now, you’ve understood that ‘political economy’ is the study of the political distribution of power as expressed through the economy. This has raised philosophical issues about who controls what resource, and who benefits from that control. In fact, there is a bachelor’s degree in the UK called Politics, Philosophy and Economics (PPE).

The question has become, in this day and age of protests against food prices and unemployment, is capitalism the most efficacious way of a) distributing resources, and b) promoting advancements in technology that improve our quality of life?

In Week 7, you will be studying these protests and how they are linked to economies that rely on food imports. In Week 8, we will look at the issue of global water.

Technological innovations are usually believed to be an outcome of capitalism. The idea is to produce advanced machines that lower labor costs, make cheaper widgets which then sell on a massive scale.

Historically we know that other economic models spur innovation. For example:the Romans focused on engineering, the Islamic Renaissance from 900 to 1200 CE, gave us much of our modern medicine and mathematics. The European Middle Ages spurred advancements in building construction.

Technological innovations also arise from:
1) Creativity combined with altruism. For example, the alternative energy industry in the US has been innovating for decades, but with very little promise of profit. It has to contend with the power of the oil lobbies, and lack of US government support. We will learn in Wk 5 that China’s government is financing research and development in this field.
2) Necessity is the Mother of Invention. Here we can look at prehistory: the success of agriculture is largely due to inventions by what have been mis-named ‘primitive’ societies.
3) Military Matters. Here is where you see protectionism at work. Most governments pour money into military research and development, which have benefits for civilian society. For example: the Internet. Marilyn Waring, as you know, critiques the ‘benefits’of weapons.