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Feb 27, 2019 Raghuram G. Rajan

شيكاغو ــ لم يكن النجاح الاقتصادي الذي أحرزته الديمقراطيات الليبرالية في فترة ما بعد الحرب راجعا ببساطة إلى السماح للأسواق بالازدهار. فقد عملت الولايات المتحدة والدول الأوروبية أيضا على دمج الأسواق في بنية سمحت للناس بالاستفادة القصوى منها. والآن توشك هذه البينة على الانهيار، وهو ما من شأنه يمنح القادة الشعبويين من اليسار واليمين المزيد من القوة والنشاط. فرغم أنهم يطرحون الأسئلة الصحيحة، فإنهم نادرا ما يملكون الإجابات الصحيحة. وربما ينبغي لهم بدلا من ذلك أن يسهلوا على الناس وضع حلولهم بأنفسهم.

ولكن لماذا تنهار بنية ما بعد الحرب؟ في حقبة ما بعد الحرب مباشرة، كان نظام مهول للتعليم الثانوي في الولايات المتحدة يعمل على إعداد الطلاب للعمل أو مواصلة الدراسة في أفضل الجامعات على مستوى العالَم. وكان الطلاب ينضمون إلى قوة العمل وهم يحملون المهارات اللازمة للحصول على فرص عمل جيدة. وساعد النمو الاقتصادي السريع والضوابط التنظيمية الخفيفة نسبيا على تشجيع كثيرين على بدء مشاريع خاصة. كما سمحت سياسات سوق العمل المرنة للعمال المستغنى عنهم بالعثور على وظيفة بسرعة في مكان آخر. وكانت نوبات الركود، عندما تأتي، ضحلة وموجزة.

وقد سمح الإعداد المتفوق للأميركيين "قبل الدخول إلى السوق"، بفضل نظام التعليم والفرص الاقتصادية العديدة المتاحة لهم، للولايات المتحدة بالعمل في ظل سبل حماية اجتماعية محدودة نسبيا في مواجهة تقلبات السوق. فكان التأمين ضد البطالة متواضعا، في حين كان العديد من الناس محرومين من تغطية الرعاية الصحية ــ حتى بعد إدخال خطط التأمين المدعومة من الحكومة الفيدرالية لصالح المسنين والفقراء في ستينيات القرن العشرين.

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0 Comments on this paragraph, 15 in all 15 Comments on this article

Robert Subbaraman Mar 10, 2019

A thought-provoking article. I wonder though that if policy decision making is decentralised to such an extent that it will work at cross purposes and it could turn out to be a worse outcome at the macro level.
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William Allan Mar 9, 2019

A curious article. Raghuram Rajan explains key elements of the evolution of the world economy following the second world war, and then offers a solution to our current populist quandary by putting trust in local communities without giving any detail on how it can be done. This prescription, he claims, is equally applicable to both sides of politics. The historical treatment, as one would expect, is broadly fine, but with respect to post-1970 developments says too little about the continuing impact of neoliberal policies established in the US, UK and many liberal democracies in the period from the mid-80’s through to the 2008 Global Financial Crisis. Populist politics has acquired momentum in large part because of the way in which the internet, social media, and political campaigns can identify and target social groups and their concerns. These complex issues require urgent local, national, and global attention. But simply decentralizing these problems to local communities, with vaguely defined support from “national governments with funding and light oversight where necessary,” is wholly unconvincing.
The term ‘populism,’ as Joseph Nye recently observed in PS, is itself ambiguous. It is a long-standing phenomenon, and its prominence in modern times is a result of the growing sense of cultural or economic disadvantage among a range of subgroups of the population. Professor Rajan argues that left-wing politicians will cater to their constituency by calling for government provision of collective goods, right-wing politicians will attempt to blame, immigrants, other minorities, and trade. Personally, I feel quite comfortable with the ‘left-wing’ option, which is after-all the old-fashioned view of what governments do. I agree that higher-level governments should encourage local governance vigorously.
In the ‘80s, many economists, including me, broadly accepted the proposal that many government activities could be carried out more efficiently by the private sector. That neoliberal dream has proved illusory; the market is driven by commercial profit not by delivery of worthy or necessary social objectives. Addressing the real disadvantages being experienced by a wide variety of social groups will require major governmental efforts to identify and measure the nature of disadvantage, and then to design appropriate steps to overcome these. Of course, it will require active pressure and participation by local groups, but too many lack the organization and resources to drive the process for their own communities. Such an objective is only likely to be achieved as part of a general national and global effort.
Populism in any of its current forms (or in Rajan’s fledgling proposal) leads us nowhere. Authoritarian regimes (of various shades of governance competence) are equally doomed to fail their people. The challenge that all nations must eventually face is to rebuild the capacities of all levels of government to understand and support the multiple needs and aspirations of the people that they represent. All should initiate programs to engage both public and market entities in integrated and accountable reporting on their use of all forms of capital— commercial, environmental, human, and social. Our human future depends on active recognition of our responsibilities both to the fragile environment and to each other. ‘Grand centralized policies’ certainly must be critically examined, but the task of moving beyond such policies depends on much more than putting trust in local communities.

On Nye and populism see https://www.project-syndicate.org/commentary/populist-wave-in-retreat-by-joseph-s--nye-2019-02
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Janos Nagy Mar 5, 2019

It is not protectionist policies but the tax favoritism of the imports are the real problem.
Any proof just looked at the debt level increase in the USA or Canada.
You can't have products (imports)without tax components and expect to generate tax revenues sufficient for the population wage levels.
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Jimm Roberts Mar 4, 2019

I had to read a long, erudite epistle before I found a few sentences explaining how communities can resuscitate their sagging economies. All in all, not much there there. However, I did enjoy the malarky implying a student's achievements in life are predetermined by their family's wealth rather than by their famiy's values.
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Procyon Mukherjee Mar 3, 2019

Rise of the first two pillars, the political and the financial, happened through collaboration, the third pillar got left behind. The communities thrive far better in countries where the first two are held in check, rightfully. Think of Switzerland, very few would even know the names of their ministers or President, but the cantons would be far more powerful to act.

In some countries you see such powerful politicians but so weak populace, with almost no voice, the conditions of the really lowest rung leaves a sobering thought that almost nothing changed for them in the last century. These communities are truly left out, those living on agriculture, forestry, they live marginal lives with no security. To take them out of poverty would need more than all of this we are debating.
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Hans Van Oosterhout Mar 3, 2019

Interesting analysis of what is wrong. But it stops short of proposing viable solutions. Just shifting everything to local communties is way too general and is no magic bullit without explaining how local communities could matter in this regard. It is the dearth of viable solutions to the dark side of globalization for the working class majorities of Western societies that fuels populism and it will continue to do so until credible and feasible solutions are developed and explained. To be frank, I expected something more substantial from such an eminent economist....
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Robert Bruce Mar 3, 2019

Mr Rajan is right to highlight the decline of marginal communities, but his two solutions of investment in education and light regulation will not bring the results needed on their own. Declining communities face a double hit : Global arbitration of labour rates, combined with technology and automation, which eliminate the need for local employment in Global supply chains. Indeed within the next decade it is likely that major corporations will be able to run their operations with almost no local employment at all. ( Take the example of Tesla moving to on-line sales only. This should be a canary in the mine as more Americans are employed in local car dealerships, than in car manufacture. But their role is now becoming a non-value added cost in the new age of online automated sales ).

The real solution is to develop new models for a local "circular economy" which is no longer focused on maximum labour productivity, but on optomising local production and use of energy and materials. Basic Income is a fundamental step on this path as it is the only way to make community based enterprise competitive with the scale of economy in linear Global supply chains. In the long run basic income, funded by taxes on pollution and material waste, becomes the key shift in economic costs from labour (which is now in surplus almost everywhere in the World) to non-renewable resources, which are the true constraint on Global output in the 21st century.

These changes can and should be encouraged by community wealth programs including new recycling start-ups, local cooperative community farms, local generation of renewable energy to replace imports of gas/petrol/diesel, and other programs that keep a higher proportion of money circulating within the local economy. But for this to work there has to be a flow of money into the community to start with. Without basic income, disadvantaged local communities will simply fall further behind in The Global Race.
- Y. K. Mar 4, 2019
  
  Your intended 'solution' is to tax the actual Global Supply chain in order to fund a local competitor, however your methods are incredibly inefficient:
  
  First, there's no reason for Global production to be that much more polluting than a local one. Switching to electric and solar/wind would take out most relative pollution problems and than the local production would be taxed almost as much as the global production - but the global chain can easily recoup the difference via scale savings. Ultimately, if you want to apply protectionism, you might as well apply it directly since the indirect environmental method won't work.
  
  Second, Basic Income cannot fund the local production chain due to obvious coordination issues: the Basic Income is given to many individuals who are not likely to pool their funds or to choose wisely where and when to do so, while the Global chains have centralized managements.
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John Merryman Mar 3, 2019

The primary economic fallacy is that money is the social contract, enabling mass communities to function, but we treat it as a commodity to mine from society.
As a contract, with one side an asset and the other a debt, it is an effective medium, for the efficient flow of value. Though we experience it as quantified hope and try to save and store it, but it is a lousy store, as every asset requires a debt.
Medium and store are distinct functions. In the body, blood is the medium and fat is the store, or for cars, roads are the medium and parking lots are the store. Mix them up and the system ceases to function.
We store much of this excess money as government debt. When Roosevelt started the New Deal, he was not only putting unemployed labor to work, but unemployed capital, as well. Then WW2 required much of this borrowing to flow to the military and Reaganomics accelerated this flow. The reason we start wars and never finish them is because the actual function of the military is to spend this excess wealth. Ha Ha. Where would that 20 trillion go otherwise? Derivatives? Apple stock?
We will shortly discover spending money on investments with little return, only to put responsibility for storing private wealth on the public, is not sustainable. The likely conclusion of this process with be disaster capitalism/predatory lending coming home to roost, as those with large piles of treasuries trade them for public assets, such as highways, water and mineral rights, parks, etc. Then we will have a true oligarchy.
We all save for the same basic reasons, raising children, housing, healthcare, retirement, etc. If we learned to store value in these, as community assets, with money as the surface voucher system it best functions as, then we wouldn't have such atomized cultures, with our bank accounts as our economic umbilical cord.
As the executive and regulatory function of society, government is its central nervous system. As the value circulation system, banking and finance are the heart and arteries.
As government evolved from chieftains and elders, to kings and nobles, it functioned as private property, but it evolved into a public utility when monarchs lost sight of the fact they served a function to society, not just served by it. It is a two way street.
Finance is currently having its Marie Antionette moment. It is as if the heart is telling the rest of the body to go suck dirt, the money belongs to the banks.
Not that control over the money should be under the control of government, as politicians live and die on the hope they provide, so printing more money is a cheap high. Look at the pressure Trump is putting on the Fed. Like the head and heart, they are separate functions, with separate purposes.
We own money like we own the section of road we are using, as its functionality is in its fungibility. What if the government were to tax what it currently borrows? People would freak, but they would learn not to try storing value as abstractions.
We are linear, goal oriented creatures, but nature is cyclical and reciprocal tension and balance between opposites. More thermodynamics, than time.
I suspect new thinking will only start to happen when the current system truly breaks down.
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Mauricio Duran-Loriga Mar 3, 2019

When growth stalled in the late 1970's for Europe and the US, China started its epic economic rise. Based on better education? No. Based on global arbitrage of labor costs, exclusively. Even assuming the transition costs and the learning curve costs, China was dirt cheap. Still cheap today. Be wary when China exports inflation...

The West (US and Europe) have shifted manufacturing jobs to Asia. Yet the West complains its youth is unemployed and totally hopeless. You can't have your cake and it eat it (too).

Politicians take the protectionist lane once all other policies have failed. It buys them personally some extra time in power. Nothing else.
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Derrick Baragwanath Mar 3, 2019

Anyone versed in the basic economic principles of absolute and comparative advantage must agree that global trade expands economic growth. That point cannot be in dispute. But if that growth is not more evenly shared then the economic argument for global trade, where only a few benefit, is hollow. Political leaders committed to global trade must work for a more equitable distribution for all, or expect their model to be rejected.
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vivek iyer Feb 28, 2019

When Ronald Reagan was elected, intellectuals denounced him as a cowboy who was likely to trigger World War III because he believed in 'the Rapture'. George Bush spoke of Reagan's program as 'Voodoo economics'.
In the U.K, Mrs Thatcher was denounced as a Right Wing lunatic determined to provoke a Class War. She was also accused of destroying the autonomy of the Universities which is why her alma mater denied her an Honorary Doctorate. Her 'populism' took the crazy form of 'Privatization'- selling the family silver, as Harold McMillan put it.

Reagan and Thatcher are now regarded as visionary statesmen. Their opponents are forgotten.

A similar amnesia has taken hold with respect to the deeply racist and misogynistic social structures in which markets were embedded in the two post war decades.
The fact is 'Great Compression' of Income and Wealth differentials came to an end at approximately the same time that Racial discrimination against darker skinned folk- like me ceased to receive legal sanction. It was in the Forties that, because of a tightening labour market, wage differentials between African American and White workers fell most. Progress made in the Fifties and Sixties was much slower and may actually have been reversed subsequently. This was in large part because of 'embedded structures'.

It was not till '65 onward that 'colored' or 'immigrant' populations were freed from legalized racism. However, this itself meant that the Western working class- mainly White- would be less invested in a 'Social minimum' from which they feared darker skinned people might disproportionately benefit. Even Krugman has now come round to the view that White working class voters turned against the Democratic party, not just in the South, because of a perception that minorities would disproportionately benefit.

A separate problem had to do with the upper working class's desire to protect wage differentials and (in the US) employer provided Health Care. It is noteworthy that in Scandinavia, the notion of a 'solidarity wage'- i.e. skilled workers voluntarily taking lower pay increases- collapsed. This meant Keynesian prices & incomes policy was off the table. Trump is a Wharton graduate of the class of '68. He knows very well that the only Keynesian instrument left, once Taxes on the Rich had been cut to the bone, has to do with Trade based leakages.

It is foolish for Liberals to go on repeating a fable about some wonderful 'Butskellite' caring/sharing 'Social Democracy' which obtained till Bretton Woods broke down. The truth is there was rampant wage and service provision discrimination against women and colored people as well as severe colonial resource extraction.

McCarthyism and Jim Crow were not good things which 'embedded markets in a structure that allowed people to take the fullest advantage of them'. Eisenhower's 'Operation Wetback' which claimed to have deported 1.3 million Mexicans- many of them US citizens. (https://www.history.com/news/operation-wetback-eisenhower-1954-deportation)- was illegal and cynical in the manner in which it served the interests of the rich.

Subsidiarity is all very well and good. However, 'local people' may choose to worsen conditions for minorities to yield rents for a corrupt coterie. It is the Rule of Law and equitable fiscal transfers to deprived Regions which permit Social Democracy to function, if not flourish. As Rajan points out, Economic dynamism too is required and, without question, that must be on the basis of choices made at the local level so as to promote external economies of scope and scale.
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Mike Robinson Feb 28, 2019

I respectfully dissent with the author's premise that "trade protectionism" will "make the world(!) poorer."

Consider this: "If, anywhere else on Planet Earth, there exists any person 'who considers price alone' (to, of course, quote John Ruskin)," am I condemned to stand helpless against that person, with no -government- to fight on my behalf? And, am I truly "alone?"

Historically, the answer was "no." Workers were recognized to be "workers among many thousands," and the industries in which they worked were recognized to be important among the "sovereign nations" which they populated. These nations, in turn, protected(!) their nations' industries, and in so doing also protected their workers.

Were these "protective instincts," somehow, "inherently 'bad,'" such that they were somehow so utterly misguided that they made 'the world(!)' ... poorer?

I feel obliged to challenge and to reject these notions, and to insist that they now be re-examined. Generations of our ancestors surely could not have been wrong. Instead, I would argue, "they were prescient." Let us now take a closer and more-sober look at the principles which they advanced.
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vivek iyer Feb 27, 2019

Subsidiarity implies 'Tiebout models'- local areas choosing a mix of taxes and services which to attract a particular mix of population and businesses. There will still be 'Manorial' rents of a repugnant type- so this is not a panacea. However, Rajan's elitist view is wrong. The Market will itself prepare bright kids from poor families whose opportunity cost for study is lower. Some 'White Flight' suburbs end up doing worse educationally than Inner City schools which can more easily gain support from a University.

Why mention Amazon's being shut out of Queen's by greedy and stupid Unions and Politicians? Doing so merely confirms the 'populist' view that all these virtue signalling cretins manufacture nothing but 'fake news'. 'Progressive Democratic politicians' is scarcely the mot juste here- unless you have just invested in a MAGA cap.
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vivek iyer Feb 27, 2019

Improved Educational, Health, Housing and Infrastructure outcomes had to do with the managed release of human and capital resources from the Defense sector to the Social Sector. Corporations built upon previous relationships with Government Agencies which had been built up during the War.

In a highly dual economy, like Japan, military organisational methods changed the ethos of Business Corporations and the Ministry which coordinated their efforts. In America and Europe there was a return to the Corporatism of the Thirties.

The G.I Bill had a dramatic effect on the US. In Europe, Army Educational Corps had built up expertise which reached into Schools as part of the 'demobbing' process. In Britain, this enabled state funded Grammar Schools to leap-frog over the third rate Private Schools which were put out of business. However, the 'low hanging fruit' were quickly plucked. Diminishing returns set in quite quickly. The Baby Boomers quickly ceased to be homogeneous. The end of conscription meant inequality would rapidly increase as that cohort aged. Some would come up Trumps. Others would overdose in dumps.

Why tell silly 'just so' stories about some supposed Golden Age which was hugely discriminatory against women, homosexuals, coloured people and so forth? Why not pretend instead that Plantation Slavery was a great idea or that America never had it so good as in the days of Mad King George?
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vivek iyer Feb 27, 2019

This comment was removed by a moderator. Replies to this comment may also be deleted. Please note that we moderate comments to ensure the conversation remains topically relevant. We appreciate well-informed comments and welcome your criticism and insight. Please be civil and avoid name-calling and ad hominem remarks.
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