For me, a lot of the reading in this class reinforces my own priors that a lot of economic activity is driven by power relationships, and power is often financial power. I don’t know if you had the chance to see it, but there was a panel discussion recently with Larry Summers, Greg Mankiw, and Emmanuel Saez. They’re discussing the big new inequality book that was released and Summers is talking down to Saez who was claiming that wealth begat political power. Summers was asking for one example of where a wealth tax would limit that political power and Saez, to his discredit could not find one example off the top of his head – and there I was watching like I was watching a football match and someone missed an easy goal, in disbelief. To me it is self-evident that wealth and political power go hand in hand. In the American context there is a study recently by a pair from Princeton and Northwestern who examine stated political preferences at income levels and how the people in congress vote and you see that if congress votes for the preferences of the middle class, it is almost wholly incidental, and the wealthy’s preferences are almost an exact map over the actual votes. The crazy thing to me was that this was Larry Summers, a person who in his public service career helped shut down the CFTC from regulating derivatives around the turn of the century and then after the crisis hit that was formed in part from his decision not to regulate derivatives spent a good bit of the administration’s political capital in bailing out the banks. Now you tell me, Larry Summers, how wealth influences political power. I suppose it is like that saying that fish don’t think about water because that is the surroundings.
But this is important because it telescopes from the state level to the level of international relations. As I wrote in the answer to the second question, there is a power structure in place because of the time element. The economic ground is not played on by equally matched competitors (and that’s using a zero-sum framework), but there are teams that through training or history have more skills. Even worse, the teams that are better and have the more skills also are the ones that pick the game and employ the referees. If we were inventing the rules of the game today and everyone was starting from the same place, maybe a world of free trade might be the best way to start. But that ignores the very strong issue of path dependency. It is not just that the drawing of borders creates their own issues, as we have seen with a century of decolonization and the turmoil that has caused. But there is also the built infrastructure. I think this was in the development class, but there was an example of how linkages in terms of railroads and even the placement of cities were made such that they were built for the best use of the colonizers (I think Lenin hits on this a bit too), so that for example, the Democratic Republic of the Congo, which is the 11th largest country in the world in terms of land area is ruled from a city that is relatively geographically distant from the bulk of the land area, Kinshasa being the capitol and largest city, on a river near the western Atlantic coast. The country was developed to make all goods able to flow that way towards the city and thus onto the European nation that ruled them from even further abroad. The DRC could have been a linchpin in the development of continent, but instead was used as just another place where resources were extracted. Looking at that path of development, it gives credence to ideas of dependency and unequal exchange, where developing country economists looked at the path of development and noticed the same things I’m writing about here, with Raul Prebisch noting: “Given the existing international division of labor, in which the developed center countries produced manufactured goods for export to the periphery and the less-developed peripheral countries produced primary products for export to the center, all benefits of trade would accrue to the center and none to the periphery”. They saw the relationship as purely extractive, and even worse in that by opening their goods to the world market, we saw what they described as declining terms of trade. This is when because of the relative abundance of goods that are on the market, they decrease in price. When developing country goods decrease in price then the country just has to export more and more so that they can get that useful foreign currency so that they can buy capital goods and create an industry of their own, and this is problematic because as writers like Prebisch saw, the things that were produced were lower value commodities that could be replicated by other nations – an example here is RAM memory. It started out as a good thing to manufacture because there were high returns on it but as more countries tried to specialize in making computer memory chips, the same sort of problem returned such that more and more things had to be produced to make the same amount of foreign capital in return.
What we see is some sort of conveyor belt – or is it a treadmill? The idea is that capitalism spread itself out, and by its existence it created this new form of circulation but whole countries exist now in this subordinated class position through accidents of history, living at an equilibrium where there are a lot of underutilized assets, there is not much internal savings, and there is a class of people who are relatively well-off but the structure of society is not incentivizing moving the whole country up the value ladder, as Baran describes this dependency. Between then and now, there have been some examples of countries that have moved up the ladder. Korea and Japan and now China worked their way up through manufacturing and heavy state control of various forms. This seems to be the key for development through trade: don’t open your borders to free trade until you are ready for it. Some protection is good, and we don’t do enough. We can see pitfalls in that by protecting too long you create industries that are hothouse flowers that cannot compete on their own in the world market, where with the example of the Indonesian Aircraft Industry, you can misallocate resources. So, it is being smart and being lucky. This comes back around to the idea that the rules of the game are tilted against developing countries. We talk about the amazing Chinese story, but they have also been strongly controlled by the one-party state, a party that subverted many of the WTO recommendations right up to and even after being granted most favored nation status. One way to develop is to break the rules.
The question still lingers in if we can count these countries that have achieved growth as developed countries. I forget which of our authors made this point, but what happens once we start making all sorts of ad hoc taxonomies is that the demarcation points start to lose all meaning. Do we create a middle category and put them there? How much do we learn about the process of development by creating a certain set of criteria and then looking to see if a country fits the criteria or not? The problem with economics at a global scale is that there are only 200 countries and that’s really a small enough n it is hard to find patterns to generalize from. Each case goes through history as a special case with their own histories and contexts it’s easy to throw up your hands and say you have to talk about general cases, or even worse like the unbridled free trade enthusiast you just take one set of rules and say it applies everywhere and always at all time no matter what.
The ultimate question is how you make sure the world system exists and operates in an equitable and just manner, and here is where I must throw up my hands again. I’ll tie this together by looking at product cycle theory that Gerber introduces. The idea starts close to the source of economic power and once it is established as a thing then it can move away and then there is heavy production until a new idea comes along and then it is disseminated in the same way (Gerber 76). I see this as a flow here to there but as it is generalized there is no one place that is the center and there is no one place that is the periphery. It makes me go back to David Harvey on the crises of capitalism, where there are multiple points of contradiction. The thing is that the contradiction is never resolved for Harvey. Instead it is moved around. So as long as there is capitalism there will still be this flow from the center to the outside and then back around again. I think we will just see it move geographically as China or Korea becomes the center, then we can see Ethiopia be the workshop to the world. What we will continue to see even if there is absolute development so that all countries reach a level of development that is comparable to the western level of development today, there will still be relatively large gulfs between the most developed countries and those who worked on catching up. And all of this is dependent on not hitting ceilings on resource constraints or some sort of ecological catastrophe before that point is reached. As a natural pessimist, I am waiting for the end of the world in my lifetime before we will ever see the end of capitalism. In the short term though, I see Rodrik’s trilemma as being incredibly powerful as an explanatory device for the limits on the reach of the integrated world system – and these limits come back to the uneven development and perceived inequity in the capitalist relations. No one wants to share, and everyone believes their endowments come by some sort of divine right.
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