Everything That Rises Must Converge: Michelle Baddeley and Testing our Models

In “Convergence or Divergence? The Impacts of Globalisation on Growth and Inequality in Less Developed Countries,” Michelle Baddeley explores the impacts of globalization on growth and development. Some of the key parts of theoretical section include effects of trade and capital flows as well as computerization. The empirical evidence presented indicates that globalization has been associated with increasing trade and financial flows to less developed countries. She also notes globalization has also “coincided with increasing penetration of the Internet suggesting that increases in informational flows have complemented economic and financial linkages, but the empirical evidence also shows that the current era of globalization has not been associated with convergence in economic outcomes” (392). She finds that “less‐developed countries have suffered from increases in international income inequality.” (392).                 

In Cypher's "The Process of Economic Development," he writes about the development of ideas of development and looking at the contemporary ones that are influential in development, we find the Solow growth model where total output is a function of technology, capital, and labor, with diminishing returns to capital and labor. In the model, technology comes from outside, and “it is this exogeneous technology which is basic to higher levels of income per capita over time” (150). The model predicts two important things. The first is that there is a steady state equilibrium that can be attained, and that there is a convergence between similar countries. Where there is a ceiling on levels of income per the rate of savings (151), so the model intuits that the way to growth is the increase the savings rate of the nation to raise that ceiling. Or we see the Harrod-Domar growth model. Unlike the Solow model which looked at the savings rate, the Harrod-Domar model sees the rate of growth as a function of both the savings ratio as well as the capital / output ratio (152). Cypher notes that all the theories lead to the same basic idea: “an expansion of total physical capital goods as a share of total output, that is higher levels of investment, that create higher income levels” (153).  One thing about this model is that instead of a steady state, there’s a real chance in the model for instability.

Ultimately, what we want to see is what these models look like when we take them from paper to the real world. Models are necessarily simplifications that exist to concentrate our thought, but what I could not stop thinking when I was reading about the more contemporary models was that the frameworks that are put down are not just simplifications, but something that we could look at and decide if they were true or not. The Solow model is the most attractive because it assumes that if the model is correct, then there are not that many levers we need to be able to pull to make less developed countries meet their peers so that the people in these countries have better lives.

Baddeley’s examination sheds some doubt on the validity of the Solow model. What she finds is that the data does not fully bear out Solow and suggest that something closer to Harrod-Domar is right – the targets are not as easy to hit as suggested, and if you miss them, there are negative consequences: “there has been limited convergence and limited equalization in the distribution of international income and / or that population growth has been too high” (396). The world has become more open, and globalization has allowed technology to be exogenous to other countries in that they have access to technology in unprecedented ways, but there is still a lack of convergence (406-7). Considering findings that trade, and globalization heighten volatility and do not lead to convergence, what do we do? Baddeley suggest that the answer is if we “more carefully regulated and monitored” the financial system as to “moderate the impacts of adverse selection and moral hazard on effective financial decision making” (407). There is a lot of heaving lifting built into that line, as it would include boarder global coordination, an outcome that feels much less likely now than when she was writing.           

For me, if the models are not working, we perhaps need to build new modes of thinking, or to find ones that were once ascendant, but were somehow eclipsed. These neoclassical models are still in people’s heads as their guiding background of how the world is structured and how it works. Since I’ve been in this class, the things I read have taken on development angle, so when I see David Malpass, the current US nominee to lead the World Bank say, “Finally, the bank should also facilitate the adoption of best practices for encouraging broadly shared growth and prosperity. Developing nations can benefit from lessons learnt all over the world. Nations that foster innovation and freer markets, and that have lower taxes, fewer regulatory burdens, and stable currencies, tend to alleviate poverty faster than others. If more countries adopt pro-growth economic environments, the global economy will be stronger” (“What I would do as the next president of the World Bank”), it makes me worry for the future of development strategies as empirical work like Baddeley’s shows we need different strategies because global catchup is happening, and we keep doing the same thing based on outdated frameworks.

Works Cited

Cypher, J. M. (2014). The process of economic development. London: Routledge, Taylor & Francis Group.

Malpass, David. “What I Would Do as the next President of the World Bank.” Financial Times, Financial Times, 7 Feb. 2019, www.ft.com/content/ec9a6924-2acb-11e9-9222-7024d72222bc.

Michelle Baddeley (2006) Convergence or Divergence? The Impacts of Globalisation on Growth and Inequality in Less Developed Countries, International Review of Applied Economics, 20:3, 391-410, DOI: 10.1080/02692170600736250

Smith and Marx on Development

If you talk about Adam Smith and the Wealth of Nations, there are two things you must talk about. The first is the concept of the “invisible hand,” where spontaneous order seems to come out of nowhere. Now we talk about equilibrium and clearing of markets as there is an equal amount of supply and demand at that equilibrium point. On a rough gloss, this has been taken to be an open and free advocation for these market effects. No matter that it is used as a metaphor only once in the book that is the Smithian legacy (Cypher 125). Image for a minute Smith coming back and seeing institutes in his name, forgetting that there was this other, first book that he worked on perfecting throughout his life as well.  We will not think about that too much because we have to cite that phrase early on in book one of the Wealth of Nations, where “it is not from the benevolence of the butcher, the brewer, or the baker that we expect or dinner, but from their regard to their own self-interest” (Smith Quoted in Cypher 126). What we often do not hear about is the more complex Smith, warning “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” (Smith). That is just to say that Smith was not the free-market absolutist he is painted to be, “Laissez-faire” a term available to him from the physiocrats, but not showing up in my index.

                On the flip side, Marx recognized the great creative power of capitalism. He was not the full-throated hater of the system, recognizing “[capitalism] has been the first to show what man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former Exoduses of nations and crusades” (Marx 16).  What is important to remember is that both authors are working in the same tradition but have different evidence available to them and divergent frameworks of the social and economic system.

                For Adam Smith, the two key pieces of development are the division of labor and the law of capital accumulation as what determines “The wealth of nation” (Cypher 127). What Smith was able to see was that the rise of the factory system in England was concurrent with peasants being forced out of their home fields and pushed into the cities with the rise of the enclosure acts which denied people access to the commons. Instead of working from a home through all the processes of production, the worker was responsible for one part of the productive process (Cypher 127). This is highlighted in a famous passage in the Wealth of Nations where Smith describes a pin factory and the increased output that results from the division of labor. Productivity increases meant that raw materials were turned into finished goods at a much greater rate and were thus available for trade on the world market – a world market that the English crown helped grow through colonialism and the power of its navy.  For Smith, specialization had a snowball effect, and more specialization led to more specialization, and thus this should be the most productive state for world affairs, as all nations specialized and were opened to trade of all nations (Cypher 127-8). This created incentive for constant improvement of industrial processes, as profit-making opportunities were opened for individual entrepreneurs. For Cypher, Smith’s emphasis on expanding markets and the division of labor make him one of the most “optimistic of all the classical economists” (129), thinking that this was all that was needed to spread worldwide prosperity.  

                The Marxian world-view was a little less optimistic about the ultimate redeeming power of capitalism in the Smithian vein, as there were a couple of generations between the time of Smith’s writing. These were generations where industrial capitalism rose, and the great cities Engels described grew into slums – people from the countryside continued to seed subsistence wages in the cities as well as people from the near abroad as their own nations were ravaged by colonialism and famine. As Cypher notes, the role of technology was downplayed in the Smithian paradigm (128), but the great factories had a huge influence on how Marx saw the economic system. For Marx, wealth of nations was based more on the creation and circulation commodities, goods meant to be sold in the market. The rise of capitalism came on top of the circuits of money being exchange and lent at interest in a monetary loop, as well as a circuit of goods being bought and sold elsewhere at a profit, in a commodity circuit. What Marx saw was this creation of commodities in a production process, one that needed raw materials, often from the colonies, and the machines with labor aid converted these into higher-value products (Cypher 147). This process centered capital and technology so that the capitalist needed to keep growing and improving their processes through the nightmare logic of the system where all are slaves to it, even those who have the greatest absolute benefits from the system. This also cements the roles of other nations. If they are not at the center, they can easily be stuck down on the ladder of value unless they can import the know-how and thus grow their own markets (Cypher 148).

                Overall, both Smith and Marx were able to see the dynamic system that capitalism is and remains to be. Aside from the centrality of technology in Marx and the ignorance in it of Smith, the real difference is that they are not diametrically opposed, but Smith is much more optimistic about how the productive system will play out. Marx can look at the great productive aspect of Capitalism, but through his method of interrogating the world, Marx sees both the positive and the dark side. It is in recognition of this dark side, and the ultimate negative effects of the productive process upon these people at the face of the machine, that lends Marx the mantle of the adversary of capitalism.

               

Works Cited

Cypher, J. M. (2014). The process of economic development. London: Routledge, Taylor & Francis Group.

Marx, Karl, and Friedrich Engels. Manifesto of the Communist Party. Marx/Engels Selected Works, Vol. One, Progress Publishers, Moscow, 1969

Smith, Adam. Wealth of Nations, www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book01/ch10b.htm.

This Blood: Reflecting on The Open Veins of Latin America

In The Open Veins of Latin America, Eduardo Galeano details the centuries of extraction that that colonizing European powers exercised over the land and the peoples of Latin America. In the chapter “Lust for Gold, Lust for Silver,” Galeano highlights the purely extractive nature of this colonization. In reading, I learned several things that I did not know. The first being that often the colonization was often not a state endeavor, but one in which adventurers set out to make their names and their riches, but they need capital for boats and men to cross over with (14). The other thing was just how small the initial crews were who were so accomplished in being able to lay waste to the indigenous populations because of their more advanced weaponry, horses, and germs they carried with them, on purpose or not: “Cortez landed at Veracruz with nor more than 100 sailors and 508 soldiers; he had 16 horses 32 crossbows, 10 bronze cannon, a few harquebuses, muskets, and pistols” (16).

                What is striking about reading Galeano is that despite reading alternative texts like Zinn’s People’s History or Loewen’s Lies My Teacher Told Me is that the narrative I grew up with was based on North America, but it was more than that, it was a triumphal history of conquest. In America, we tell the stories of the Jamestown settlers or the Pilgrims outside of Boston and how they interacted with the natives. In one narrative, Squanto, who is famous for helping the Pilgrims is someone to be celebrated. But Squanto from another light is a race-traitor, allowing the white people to come in and take over the villages that had been abandoned because a plague wiped out all the native people. We do not know the stories of the native people because in part they had no writing. They had no one to tell their story of a plague that was on par or worse than the fourteenth century European Black Death. But they had no one to tell their story because they were the losers in the tale. We do not hear about them on the other hand because to think of them, or the victims of our four centuries of “Indian Removal” make the narrative less triumphalist.

                Galeano’s book is hard to read because of its detail. The problem is the detail is just one horrible thing after another about how the native peoples were treated. They died from contact, they died from war, they were enslaved in horrible conditions – and why? The goal was to pull a shiny metal from the earth. They took the treasures of the Incas and the Aztecs and “reduced it and made it bars” (19). Details like that make the contemporary reader shake their head in wonder at all that was lost culturally to go on top of lamenting the horrible conditions. You read of “Many natives of Haiti [who] anticipated the fate imposed by their white oppressors: they killed their children and committed mass suicide” (15). Reading those details makes me ask what we would do as a culture with a similar narrative. What would humans do if they met a similarly malevolent alien species, intent on using us as slaves? The stories we tell ourselves continue that triumphalism. In our movies, we fight back and defeat the aliens though unique human creativity or moxie. But the reality is that with novel pathogens and weapons, it would be hard to fight back. The ones who ended their lives may be more heroic than we know. Unfortunately, we westerners inherited the taboo against suicide, so that may be a harder act to undertake. Here is to hope that no aliens with bad intentions invade in my lifetime. That is a choice I do not want to have to make.

Works Cited

Cypher, J. M. (2014). The process of economic development. London: Routledge, Taylor & Francis Group.

Belfrage, C., & Galeano, E. H. (1997). Open Veins of Latin America: Five Centuries of the Pillage of a Continent. Monthly Review Foundation Incorporated.

Colonialism and Decolonialization

For much of human history, there was not much difference in the development rates among peoples in different geographies. The Neolithic Revolution came to the Americas and Africa and Middle East and the Yellow River Delta, and people farmed their plot of land for their three score and ten and died without much contact from people who did not look like them unless you lived in a city on a trade route or a port, and even then this was limited compared to what came later. What then happened, was that some people got a hold of gunpowder and some boats and the idea that whatever they saw was by rights theirs because they were graced by God with the divine right to expand wherever their boats led them. These were mostly short white men without any special talent other than that gunpowders and those boats — except some novel pathogens that wreaked havoc on the newly-rediscovered-by-Europeans “New World” starting around 1493. There was also a transfer to a commodity form of production highlighted by mechanization and division of labor with wage workers that we know as “Capitalism” which gave those men in boats the resources to go to those countries and plant a flag (Cypher 83–4).

This adventuring overseas was good for a lot of people. Especially it was good for a lot of the white men with European Tongues who were able to claim the spoils of the adventuring. The negative effects were found on both sides of the ocean. If you open any page of a history like Galeano’s Open Veins of Latin America, you can find any number of horror stories like how “more than half the population of America, Australia, and Oceania died from the contamination of the first contact with white men” (18), or how conquistadors “killed so many Indians that it made a river of blood which is called the Olimtepeque” (19). On the other side of the Atlantic, observers like Engels in his The Conditions of the Working Class in England could see cities built with “cattle sheds for human beings” (63) where “it often happens that a whole Irish family is crowded into one bed” (77).

Colonialism is not just a problem during the time that western countries were in formal administration of nations that they held under its sway. Colonialism became a problem as these western nations wiped their hands clean of these nations. In fact, one of the common threads of today’s less developed countries today is that in the past they were under sway of colonial powers. This means that there is a lasting negative legacy as Cypher notes, “The good of the native peoples of the colonies was of little concern to the colonizers, except in so far as they might best serve to the advantage of the colonizer” (85). The structure on how the colonizing nations shaped the institutions and the physical infrastructure were such that they could maximize the extractive forces over the nations that they had control over and neglected long term regional cooperation amongst neighbor nations.

One example of the long-term problems was the lack of development of industry. As we saw above, part of the reason the Spanish went to Spain was to draw out the riches from the mountains of the New World. Part of the reason the British went to India was to gain their raw materials. In the Spanish case, there were no incentives to develop manufacturing as the Spanish were wholly extractive. Not just in the minerals from the mountains, but also in taking up the people who lived in the areas and putting them to work — making the workers abandon even agriculture so that they could go into the mines and pull silver or poison themselves with mercury as they reduced the ore to its pure state. In the British case, there was an existent Indian industrial base that was in existence, but they took tax and industrial policy and made the Indian peoples convert to raw material producers. By either discouraging or destroying the manufacturing base, the colonial powers made sure that these countries were low on the value chain and made it harder for them to move up. This is an example of path dependence, where “Once institutions have been formed, they tend to lock in a certain evolutionary path for the nation” (Cypher 87). The path dependency is part of why it makes it so much harder to evolve, because there is also a path dependency higher up the value chain, blocking a move for many of these countries.

It is not just the broader priorities that mattered how the colonial regimes shaped the current less developed nations. The legacy of colonialism strikes in how the physical world is built. The geographies are such that often the colonies are built for extraction. Here the example would be cities like Lagos or Kinshasa, built on the coast or a river where the transportation in and out is easy for the colonial powers. But this is not just a colonial issue. London on the Thames or Lisbon on the Tagus have the same general structure of the biggest city in the area being easy to get to. In a lot of ways geography is destiny. What was different with colonial build out was focused on making roads and railroads that could “convert resources into plantation lands and mines” (Cypher 101), bringing resources of a nation into the tradeable economy. And of course, these roads were not just built. Every mile of railroad was paved in bones and blood of the native people, with mortality rates of 25% a year on the work gangs (101). Finally, after all this building, there was only real one-way transportation. It was not about building trade within continents, but from the colony to metropole. This again created path dependence and evolution issues since the colonized world was split between a dozen powers, none of whom had the incentive to work on cross-colony trade and developing those links.

Finally, there were some factors holding down development in the post-colonial world that is not directly applicable to mendacious colonizers. The first would be the relative price of goods from the developing world compared to manufactured products. As the developed world improved their manufacturing productivity in relation to the lower productivity of the agricultural sectors, the relative value of the goods went up for the developing world and down for the developed world. This meant that there was less incentive to try to create a manufacturing base as the goods were importable. The incentive was to try to commit more land to agriculture or find more mines for raw materials (Cypher 102–3). This narrowed the focus of the countries until their economies were dominated one good. Having a strong mono-focused economy is fine just up until the point it is not anymore, if your good goes out of style or there is a less expensive source for it, or there are larger geopolitical issues and the United States decides it wants your oil. Looking at this monoculture though, it is easy to forget that there was only spotty coverage of the European occupation, stuck close to the shores and where they could control. There were a lot of places where there was still untouched subsistence agriculture, in a bifurcation of the economy called “economic dualism” which is the “clashing of an imported social system with an indigenous social system of another style. Most frequently, the imported social system is high capitalism” (Boeke qtd in Cypher 112). This dualism has been a barrier to integration of both the economic and political systems in a post-colonial age.

What we have seen in this essay is the move from colonialism to the challenges that colonialism created while it was in effect for the post-colonial world. In many ways, these were the result of structures put in place by the colonial powers, but others were the structure of market forces not in direct control of the colonizers. Either way, the structures and institutions put in place during colonialism set the countries on a harder path than they would have faced had they been allowed to develop by their selves. A broader question, not answered, is if capitalism could have been able to develop without imperialism.

Works Cited

Cypher, J. M. (2014). The process of economic development. London: Routledge, Taylor & Francis Group.

Belfrage, C., & Galeano, E. H. (1997). Open Veins of Latin America: Five Centuries of the Pillage of a Continent. Monthly Review Foundation Incorporated.

Engels, F., & McLellan, D. (2009). The condition of the working class in England. Oxford: Oxford University Press.