February 1, 2018
Dear Friends and Family,
We have learned a great deal about the world, its poverty, and globalization to date in this series. This segment is devoted to assessing what has and has not worked in terms of economic globalization efforts since 1980.
My Takeaways from the Excerpts:
There have been some big WINNERS: The success stories are primarily in Asia – South Korea, Vietnam, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, China, and India – all with real progress in growing their economies and breaking huge populations segments out of poverty (a half billion in China alone). More importantly, the history of their success provides some insight on what is necessary to break out of the poverty cycle.
From the success stories it is evident that economic growth and development is only attainable if there is an accumulation of capabilities over time. Some key aspects that have to be evident include: well established rules of law, stable institutions, education of the masses, technical education and skills, a strong government to move the economy from an agrarian base to an industrial base, and infrastructure particularly from a transportation standpoint to facilitate the movement of goods. A significant learning is that democracy is not a necessary component and implementing a free market without having most of the key aspects list above will result in failure.
China made huge economic advances while maintaining a communist regime who tightly controlled the country’s entry into the global market and did so very skillfully with a couple of innovations to maintain their political ideology. (Albeit the next segment predicts their growth will not be sustainable unless significant change transpires in their political system based on the economic history of Russia.)
India didn’t have the resources to fix and improve their infrastructure, so they concentrated on broadly advancing technology education throughout their country. When the internet came along, their expertise became in high demand and resulted in it being their primary global product, thus negating the immediate need for a massive infrastructure expenditure.
There have also been some big LOSERS: Other parts of the underdeveloped world have made little economic progress – most countries in Africa and Latin America remain stagnate, and countries in the Soviet bloc transitioning from Communism saw their countries decline. In much of Latin America and Africa democracy was introduces and implemented, but most of the countries in both regions lacked a strong rule of law, an educated populace, or leadership skills in self-governing. This resulted in chaos in many different forms.
After the Berlin Wall fell, Western advisers rushed into Eastern Europe and advised that “shock therapy” was needed – that transitioning to Western-style capitalism should take place overnight through rapid privatization and liberalization. The results were grim; poverty increased from 1987 to 2001 by a factor of ten as government revenue dropped, budgets were slashed, and spending on health and infrastructure collapsed.
FOREIGN AID: The concept of “throwing money” at the problem has also been ineffective. There is seemingly no correlation between foreign aid and the reduction of poverty.
In sum: three sacred cows of the West have been challenged: Democracy is an imperative, free market capitalism is all that is necessary, and we have to supply struggling nations with lots of money.
Next: The next segment will continue with the “Lessons of History.”
Happy Learning,
Harley
Dear Friends and Family,
We have learned a great deal about the world, its poverty, and globalization to date in this series. This segment is devoted to assessing what has and has not worked in terms of economic globalization efforts since 1980.
My Takeaways from the Excerpts:
There have been some big WINNERS: The success stories are primarily in Asia – South Korea, Vietnam, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, China, and India – all with real progress in growing their economies and breaking huge populations segments out of poverty (a half billion in China alone). More importantly, the history of their success provides some insight on what is necessary to break out of the poverty cycle.
From the success stories it is evident that economic growth and development is only attainable if there is an accumulation of capabilities over time. Some key aspects that have to be evident include: well established rules of law, stable institutions, education of the masses, technical education and skills, a strong government to move the economy from an agrarian base to an industrial base, and infrastructure particularly from a transportation standpoint to facilitate the movement of goods. A significant learning is that democracy is not a necessary component and implementing a free market without having most of the key aspects list above will result in failure.
China made huge economic advances while maintaining a communist regime who tightly controlled the country’s entry into the global market and did so very skillfully with a couple of innovations to maintain their political ideology. (Albeit the next segment predicts their growth will not be sustainable unless significant change transpires in their political system based on the economic history of Russia.)
India didn’t have the resources to fix and improve their infrastructure, so they concentrated on broadly advancing technology education throughout their country. When the internet came along, their expertise became in high demand and resulted in it being their primary global product, thus negating the immediate need for a massive infrastructure expenditure.
There have also been some big LOSERS: Other parts of the underdeveloped world have made little economic progress – most countries in Africa and Latin America remain stagnate, and countries in the Soviet bloc transitioning from Communism saw their countries decline. In much of Latin America and Africa democracy was introduces and implemented, but most of the countries in both regions lacked a strong rule of law, an educated populace, or leadership skills in self-governing. This resulted in chaos in many different forms.
After the Berlin Wall fell, Western advisers rushed into Eastern Europe and advised that “shock therapy” was needed – that transitioning to Western-style capitalism should take place overnight through rapid privatization and liberalization. The results were grim; poverty increased from 1987 to 2001 by a factor of ten as government revenue dropped, budgets were slashed, and spending on health and infrastructure collapsed.
FOREIGN AID: The concept of “throwing money” at the problem has also been ineffective. There is seemingly no correlation between foreign aid and the reduction of poverty.
In sum: three sacred cows of the West have been challenged: Democracy is an imperative, free market capitalism is all that is necessary, and we have to supply struggling nations with lots of money.
Next: The next segment will continue with the “Lessons of History.”
Happy Learning,
Harley
GLOBALIZATION – SEGMENT 4
GLOBALIZATION RESULTS -- EXCERPTS
OVERALL RESULTS: Since the late 1980s, globalization has created both big winners and -- at least in relative terms – substantial losers. Simply put, the big winners include those in China, India, Vietnam, and Indonesia who have seen sizable income gains from a relatively low base and those in the very highest income brackets in the industrialized world (not so much the top 1% but instead, the top 0.0001%), who have seen monumental gains. The relative losers – those who have experienced hardly anything in the form of income gains over almost three decades – are largely to be found in the bottom half of the income distribution in North America, Western Europe and Japan. By global standards, they are well-off, but within their own nations, they have had a miserable experience. Globalization might work, but it hasn't worked for everyone.
Source: Grave New World by Stephen D. King (2017)
A REGION-BY-REGION ANALYSIS:
East Asia: Globalization – In the form of export-led growth – helped pull the East Asian countries out of poverty. Globalization made this possible providing access to international markets as well as access to technology that enabled vast increases in productivity. But these countries managed globalization: it was their ability to take advantage of globalization, without being taken advantage of by globalization that accounts for much of their success. Importantly, these governments made sure that the benefits of growth did not go just to a few but were widely shared. The expanded primary education and higher education simultaneously, recognizing that success required both universal literacy and a cadre of highly skilled individuals capable of absorbing advanced technology. They invested heavily in infrastructure such as ports, roads, and bridges, all of which made it easier to transport goods and so drove down the cost of doing business and of shipping goods out of the country. Governments in East Asia played a large role in planning and in advancing technology, choosing which sectors their countries would develop rather than leaving it up to only the market to decide. The money to make their investments came from their own people, as the government encouraged saving; and so, these countries did not have to depend on volatile capital flows from abroad. Nearly all the countries of the region saved 25% or more of GDP.
Latin America: While East Asia saw enormous reductions in poverty, progress in Latin America was minimal.
Source: Making Globalization Work by Joseph E. Stiglitz (2007)
Japan and several other East and Southeast economies have grown very rapidly since the early 1960s – South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, and Indonesia. All of these countries benefited enormously from exports and hence from globalization. But none, with the exception of Hong Kong, came even close to being free market economies. The state played an important guiding and coordinating role in all of them.
Source: The Globalization Paradox by Dani Rodrik (2011)
Countries in Transition from Communism: Just as the successes of East Asia are far greater than even the impressive GDP statistics suggest, the failures of Russia and most of the other countries making the transition from communism to capitalism were far deeper than GDP statistics alone show. After the Berlin Wall fell, there was hope of democracy and economic prosperity throughout the former Soviet Union and its satellite states. Advisers from the West rushed to Eastern Europe to guide those countries through their transitions. Many believed, mistakenly, that "shock therapy" was needed – that the transition to Western-style capitalism should take place overnight through rapid privatization and liberalization. It is now widely agreed that the speed of the reforms in the former Soviet bloc countries was a mistake. The privatizations were done before sound regulations and strong tax laws were put into place. As government revenue dropped, spending on health and infrastructure collapsed. One of the legacies of Russia's past was a high-quality education system, but this quickly deteriorated as budgets were slashed. The results were grim: poverty in the former Soviet bloc countries increased from 1987 to 2001 by a factor of ten. The contrast between the claims of free market advocates who predicted an unleashing of forces that would bring record prosperity, and the unprecedented increases in poverty that actually occurred could not have been greater.
The Soviet bloc countries were not the only ones transitioning from communism. China and Vietnam, while retaining a Communist political regime, also began to move to a market economy, and the contrast was striking. As income in Russia plummeted – falling by a third from 1990 to 2000 – income in those countries soared, increasing by 135% in China and 75% in Vietnam. They rejected shock therapy in favor of a slower and more gentle transition to a market economy. Source: Making Globalization Work by Joseph E. Stiglitz (2007).
Africa: I was in East Africa during the early days of independence, in the late 1960s. There was a sense of euphoria, although the countries knew that colonialism had left them ill-prepared for development and democracy. They didn't have even a modicum of experience in self-government – there were few trained individuals and the countries lacked the institutional infrastructure necessary for growth. In was hardly surprising that by the 1980s many African countries had fallen on hard times. Each country has its own story: corrupt and often ruthless dictators in Uganda, Congo, Kenya, and Nigeria; well-intentioned and mostly honest, but highly flawed policies of "African socialism" in Tanzania; misguided macro-economic policies in Ivory Coast. Several countries made major strides in improving literacy and were it not for the AIDS epidemic there would have been great advances in health and life expectancy. While Africa's economies did not grow, its population did. Africa has been a continent with an abundance of land: land maintained its productivity by being left fallow for long periods of time. But with the new population pressures, this was no longer possible. Agricultural productivity declined, and poverty grew. Globalization bypassed Africa. Today, their agricultural productivity is a third that of Asia.
Source: Making Globalization Work by Joseph E. Stiglitz (2007)
India: For decades after independence, socialist doctrines prevailed in India and the economy stagnated. But even in this era, the government was sowing the seeds of future success. It created a number of institutes of technology and science, investments in education and research that were eventually to pay off in the new millennium. The advent of the Internet proved to be the most important turning point. New technology meant that at last India could reap the benefits of its long-term investments in education, and inadequacies in infrastructure were less of a hindrance.
Source: Making Globalization Work by Joseph E. Stiglitz (2007).
China: The feat that China's economy pulled off would have been difficult to imagine had it not happened in front of our eyes. Since 1978, income per capita in China has grown at an average rate of 8.3% per annum – a rate that implies a doubling of incomes every nine years. Thanks to this rapid economic growth, half a billion people were lifted out of extreme poverty. China's economy was predominantly rural in 1978. A key problem they faced early on was how to energize farmers in an environment where prices and quantities were still determined by central planning. The state fixed all the prices and demanded that peasants deliver mandated quantities of grains to the government in accordance with the plan. The Chinese solution to the conundrum was to graft a market system on top of the plan. Obligatory grain deliveries at controlled prices were kept in place: but once farmers had fulfilled their state quota, they were now free to sell their surplus at market-determined prices. This dual-track regime gave farmers market-based incentives and yet did not dispossess the state from its revenue or the urban worker from cheap food. Agricultural productivity rose sharply, setting off the first phase of China's post-1978 growth.
By the end of the 1990s, China's export portfolio resembled that of a country with an income-per-capita level at least three times higher than China's. This was the result not of natural market-led processes but of a determined push by the Chinese government. Low labor costs did help China's export drive, but they don't tell the whole story. In areas such as consumer electronics and auto parts, China made stupendous productivity gains, catching up with countries at much higher levels of income. Furthermore, China steadily moved away from being simply an assembler of components. Increasingly, production became integrated backwards and the supply chain moved from richer countries to China were the assembly was undertaken. The Chinese government used a number of policies to ensure that technology transfer would take place and strong domestic players would emerge. Many of the Chinese companies created through government efforts failed. But state-led efforts played an important role in training workers and managers. However, China was not yet ready to let the push and pull of global markets determine the fate of its industries. By intervening in currency markets and keeping short-term capital flows out, the government prevented its currency (the renminbi) from appreciating. The renminbi has been undervalued by around 25% in recent years, implying an effective subsidy to export-oriented industries of an equal magnitude. In sum, Chinese policy makers maintained their maneuvering space and they exploited it skillfully. They resisted international disciplines, submitting to them only once their economy had become sufficiently strong. They would have found it very difficult to diversify out of agriculture otherwise. Summary: Economic growth and development are possible only through the accumulations of capabilities over time, in areas ranging from skills and technologies to public institutions. Globalization on its own does not generate these capabilities; it simply allows nations to leverage better those that already exist.
Source: The Globalization Paradox by Dani Rodrik. (2011)
WELFARE STATES: Welfare states got in trouble in a period of intense economic globalization. The "social wage" is higher than a straight market wage would be. But this gives an advantage to competitors from places where wages are low. More competition from more such places puts pressure on the cushy wages in welfare states. Either they lower their welfare cost or they lose jobs.
Source: Globalization – The Making of World Society by Frank J. Lechner (2008)
THE WORLD BANK: The World Bank had helped to create an unchallenged international consensus that more foreign aid and lending to Third World countries is the key to reducing global poverty. It isn't. In fact, the nations that have managed to escape poverty are not the African countries the bank has showered with loans, but Asian states that have done so not by taking aid or loans but by attracting direct foreign investment and selling exports to the West, in particular to the United States. Aid and loans have done much to keep poor countries impoverished and allow a new colonialism to develop, run from deep in the headquarters of the World Bank.
Source: Screwed by Dick Morris and Eileen McGann (2012)
FOREIGN AID: Many studies estimate that only about 19% or at most 20% of aid ever reached its target. There are dozens of ongoing fraud investigations into charges of UN and local officials siphoning off aid money. But most of the waste resulting from foreign aid is not fraud, just incompetence or even worse: simply business as usual for aid organizations. Despite this unflattering track record of "Development" aid, foreign aid is one of the most popular policies that Western governments, international organizations such as the United Nations, and NGOs recommend as a way of combating poverty around the world. And of course, the cycle of the failure of foreign aid repeats itself over and over again.
Source: Why Nations Fail by Daron Acemoglu and James Robinson (2012).
The fact remains that there is no correlation between the massive outlays of foreign aid the US has been making for decades now and any reduction in global poverty. The countries that have made real progress in breaking out of poverty – China, India, Vietnam, Malaysia, South Korea, Taiwan, and Singapore – have done it by selling us goods and services, not by raking in our foreign aid. Those nations who have been getting massive infusions of aid all along like Kenya, South Africa, Haiti, Nigeria, and Ethiopia, have almost nothing to show for it in economic growth or in any decline in poverty. US foreign aid has not proven to be an effective way to reduce poverty.
Source: Screwed by Dick Morris and Eileen McGann (2012)
The unabbreviated version of the above can be found in the pdf document below.
GLOBALIZATION RESULTS -- EXCERPTS
OVERALL RESULTS: Since the late 1980s, globalization has created both big winners and -- at least in relative terms – substantial losers. Simply put, the big winners include those in China, India, Vietnam, and Indonesia who have seen sizable income gains from a relatively low base and those in the very highest income brackets in the industrialized world (not so much the top 1% but instead, the top 0.0001%), who have seen monumental gains. The relative losers – those who have experienced hardly anything in the form of income gains over almost three decades – are largely to be found in the bottom half of the income distribution in North America, Western Europe and Japan. By global standards, they are well-off, but within their own nations, they have had a miserable experience. Globalization might work, but it hasn't worked for everyone.
Source: Grave New World by Stephen D. King (2017)
A REGION-BY-REGION ANALYSIS:
East Asia: Globalization – In the form of export-led growth – helped pull the East Asian countries out of poverty. Globalization made this possible providing access to international markets as well as access to technology that enabled vast increases in productivity. But these countries managed globalization: it was their ability to take advantage of globalization, without being taken advantage of by globalization that accounts for much of their success. Importantly, these governments made sure that the benefits of growth did not go just to a few but were widely shared. The expanded primary education and higher education simultaneously, recognizing that success required both universal literacy and a cadre of highly skilled individuals capable of absorbing advanced technology. They invested heavily in infrastructure such as ports, roads, and bridges, all of which made it easier to transport goods and so drove down the cost of doing business and of shipping goods out of the country. Governments in East Asia played a large role in planning and in advancing technology, choosing which sectors their countries would develop rather than leaving it up to only the market to decide. The money to make their investments came from their own people, as the government encouraged saving; and so, these countries did not have to depend on volatile capital flows from abroad. Nearly all the countries of the region saved 25% or more of GDP.
Latin America: While East Asia saw enormous reductions in poverty, progress in Latin America was minimal.
Source: Making Globalization Work by Joseph E. Stiglitz (2007)
Japan and several other East and Southeast economies have grown very rapidly since the early 1960s – South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, and Indonesia. All of these countries benefited enormously from exports and hence from globalization. But none, with the exception of Hong Kong, came even close to being free market economies. The state played an important guiding and coordinating role in all of them.
Source: The Globalization Paradox by Dani Rodrik (2011)
Countries in Transition from Communism: Just as the successes of East Asia are far greater than even the impressive GDP statistics suggest, the failures of Russia and most of the other countries making the transition from communism to capitalism were far deeper than GDP statistics alone show. After the Berlin Wall fell, there was hope of democracy and economic prosperity throughout the former Soviet Union and its satellite states. Advisers from the West rushed to Eastern Europe to guide those countries through their transitions. Many believed, mistakenly, that "shock therapy" was needed – that the transition to Western-style capitalism should take place overnight through rapid privatization and liberalization. It is now widely agreed that the speed of the reforms in the former Soviet bloc countries was a mistake. The privatizations were done before sound regulations and strong tax laws were put into place. As government revenue dropped, spending on health and infrastructure collapsed. One of the legacies of Russia's past was a high-quality education system, but this quickly deteriorated as budgets were slashed. The results were grim: poverty in the former Soviet bloc countries increased from 1987 to 2001 by a factor of ten. The contrast between the claims of free market advocates who predicted an unleashing of forces that would bring record prosperity, and the unprecedented increases in poverty that actually occurred could not have been greater.
The Soviet bloc countries were not the only ones transitioning from communism. China and Vietnam, while retaining a Communist political regime, also began to move to a market economy, and the contrast was striking. As income in Russia plummeted – falling by a third from 1990 to 2000 – income in those countries soared, increasing by 135% in China and 75% in Vietnam. They rejected shock therapy in favor of a slower and more gentle transition to a market economy. Source: Making Globalization Work by Joseph E. Stiglitz (2007).
Africa: I was in East Africa during the early days of independence, in the late 1960s. There was a sense of euphoria, although the countries knew that colonialism had left them ill-prepared for development and democracy. They didn't have even a modicum of experience in self-government – there were few trained individuals and the countries lacked the institutional infrastructure necessary for growth. In was hardly surprising that by the 1980s many African countries had fallen on hard times. Each country has its own story: corrupt and often ruthless dictators in Uganda, Congo, Kenya, and Nigeria; well-intentioned and mostly honest, but highly flawed policies of "African socialism" in Tanzania; misguided macro-economic policies in Ivory Coast. Several countries made major strides in improving literacy and were it not for the AIDS epidemic there would have been great advances in health and life expectancy. While Africa's economies did not grow, its population did. Africa has been a continent with an abundance of land: land maintained its productivity by being left fallow for long periods of time. But with the new population pressures, this was no longer possible. Agricultural productivity declined, and poverty grew. Globalization bypassed Africa. Today, their agricultural productivity is a third that of Asia.
Source: Making Globalization Work by Joseph E. Stiglitz (2007)
India: For decades after independence, socialist doctrines prevailed in India and the economy stagnated. But even in this era, the government was sowing the seeds of future success. It created a number of institutes of technology and science, investments in education and research that were eventually to pay off in the new millennium. The advent of the Internet proved to be the most important turning point. New technology meant that at last India could reap the benefits of its long-term investments in education, and inadequacies in infrastructure were less of a hindrance.
Source: Making Globalization Work by Joseph E. Stiglitz (2007).
China: The feat that China's economy pulled off would have been difficult to imagine had it not happened in front of our eyes. Since 1978, income per capita in China has grown at an average rate of 8.3% per annum – a rate that implies a doubling of incomes every nine years. Thanks to this rapid economic growth, half a billion people were lifted out of extreme poverty. China's economy was predominantly rural in 1978. A key problem they faced early on was how to energize farmers in an environment where prices and quantities were still determined by central planning. The state fixed all the prices and demanded that peasants deliver mandated quantities of grains to the government in accordance with the plan. The Chinese solution to the conundrum was to graft a market system on top of the plan. Obligatory grain deliveries at controlled prices were kept in place: but once farmers had fulfilled their state quota, they were now free to sell their surplus at market-determined prices. This dual-track regime gave farmers market-based incentives and yet did not dispossess the state from its revenue or the urban worker from cheap food. Agricultural productivity rose sharply, setting off the first phase of China's post-1978 growth.
By the end of the 1990s, China's export portfolio resembled that of a country with an income-per-capita level at least three times higher than China's. This was the result not of natural market-led processes but of a determined push by the Chinese government. Low labor costs did help China's export drive, but they don't tell the whole story. In areas such as consumer electronics and auto parts, China made stupendous productivity gains, catching up with countries at much higher levels of income. Furthermore, China steadily moved away from being simply an assembler of components. Increasingly, production became integrated backwards and the supply chain moved from richer countries to China were the assembly was undertaken. The Chinese government used a number of policies to ensure that technology transfer would take place and strong domestic players would emerge. Many of the Chinese companies created through government efforts failed. But state-led efforts played an important role in training workers and managers. However, China was not yet ready to let the push and pull of global markets determine the fate of its industries. By intervening in currency markets and keeping short-term capital flows out, the government prevented its currency (the renminbi) from appreciating. The renminbi has been undervalued by around 25% in recent years, implying an effective subsidy to export-oriented industries of an equal magnitude. In sum, Chinese policy makers maintained their maneuvering space and they exploited it skillfully. They resisted international disciplines, submitting to them only once their economy had become sufficiently strong. They would have found it very difficult to diversify out of agriculture otherwise. Summary: Economic growth and development are possible only through the accumulations of capabilities over time, in areas ranging from skills and technologies to public institutions. Globalization on its own does not generate these capabilities; it simply allows nations to leverage better those that already exist.
Source: The Globalization Paradox by Dani Rodrik. (2011)
WELFARE STATES: Welfare states got in trouble in a period of intense economic globalization. The "social wage" is higher than a straight market wage would be. But this gives an advantage to competitors from places where wages are low. More competition from more such places puts pressure on the cushy wages in welfare states. Either they lower their welfare cost or they lose jobs.
Source: Globalization – The Making of World Society by Frank J. Lechner (2008)
THE WORLD BANK: The World Bank had helped to create an unchallenged international consensus that more foreign aid and lending to Third World countries is the key to reducing global poverty. It isn't. In fact, the nations that have managed to escape poverty are not the African countries the bank has showered with loans, but Asian states that have done so not by taking aid or loans but by attracting direct foreign investment and selling exports to the West, in particular to the United States. Aid and loans have done much to keep poor countries impoverished and allow a new colonialism to develop, run from deep in the headquarters of the World Bank.
Source: Screwed by Dick Morris and Eileen McGann (2012)
FOREIGN AID: Many studies estimate that only about 19% or at most 20% of aid ever reached its target. There are dozens of ongoing fraud investigations into charges of UN and local officials siphoning off aid money. But most of the waste resulting from foreign aid is not fraud, just incompetence or even worse: simply business as usual for aid organizations. Despite this unflattering track record of "Development" aid, foreign aid is one of the most popular policies that Western governments, international organizations such as the United Nations, and NGOs recommend as a way of combating poverty around the world. And of course, the cycle of the failure of foreign aid repeats itself over and over again.
Source: Why Nations Fail by Daron Acemoglu and James Robinson (2012).
The fact remains that there is no correlation between the massive outlays of foreign aid the US has been making for decades now and any reduction in global poverty. The countries that have made real progress in breaking out of poverty – China, India, Vietnam, Malaysia, South Korea, Taiwan, and Singapore – have done it by selling us goods and services, not by raking in our foreign aid. Those nations who have been getting massive infusions of aid all along like Kenya, South Africa, Haiti, Nigeria, and Ethiopia, have almost nothing to show for it in economic growth or in any decline in poverty. US foreign aid has not proven to be an effective way to reduce poverty.
Source: Screwed by Dick Morris and Eileen McGann (2012)
The unabbreviated version of the above can be found in the pdf document below.
| glo_4l_globalization_results_--_segment_4.pdf |