Sunday, November 18, 2018

Xi and Pence Stake Out Trade Positions in Dueling Speeches at Pacific Rim Forum [feedly]

Given the choice, I would vote for Xi over Pence.


Xi and Pence Stake Out Trade Positions in Dueling Speeches at Pacific Rim Forum
https://www.nytimes.com/2018/11/17/world/australia/apec-china-trade-xi-jinping-mike-pence.html



SYDNEY, Australia — President Xi Jinping of China and Vice President Mike Pence pushed back against criticism of each of their countries' trade practices in speeches on Saturday at an Asia-Pacific trade summit meeting in Papua New Guinea, while seeking to assure allies of their commitment to the region.

Mr. Xi and Mr. Pence spoke ahead of what is likely to be a tense meeting between President Trump and the Chinese leader at the Group of 20 conference in Argentina later this month, where they will attempt to defuse a trade war.

Mr. Xi may also be looking to shore up ties with an important trading partner, North Korea. He told President Moon Jae-in of South Korea on the sidelines of the trade forum that he was considering visiting the North after its leader, Kim Jong-un, extended an invitation, according to a spokesman for Mr. Moon.

The Trump administration has accused China of unfair trade practices, including restricting market access, pushing American companies to hand over valuable technology and engaging in cyberespionage and intellectual property theft. It has put tariffs on hundreds of billions of dollars worth of Chinese goods; China has retaliated with tariffs of its own.

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Mr. Pence, echoing warnings from Mr. Trump, said the United States could "more than double" the tariffs it had placed on $250 billion in Chinese goods.

"The United States, though, will not change course until China changes its ways," Mr. Pence said.

China has offered a list of concessions in recent days, which Mr. Trump has called "not acceptable."

Mr. Pence and Mr. Xi spoke at the annual Asia-Pacific Economic Cooperation summit meeting in Port Moresby, the capital of Papua New Guinea. The 21 Pacific Rim countries and territories participating in the APEC forum account for 60 percent of the global economy.

Mr. Pence, appearing in Mr. Trump's placereiterated recent criticism of China's geopolitical strategies and attacked the country's "belt and road" initiative, an enormous infrastructure plan financed by China that spans some 70 countries.

He urged Asian nations to avoid investment offers from China and to choose instead a "better option" — working with the United States — which, he said, would not saddle them with debt, a quandary some countries are facing as a result of their partnerships with Beijing.


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"Let me say to all the nations across this wider region, and the world: Do not accept foreign debt that could compromise your sovereignty," Mr. Pence said.

President Xi Jinping of China at the APEC meeting on Saturday.CreditFazry Ismail/Agence France-Presse — Getty Images
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President Xi Jinping of China at the APEC meeting on Saturday.CreditFazry Ismail/Agence France-Presse — Getty Images

"We don't drown our partners in a sea of debt," he added. "We don't coerce or compromise your independence. We do not offer a constricting belt or a one-way road. When you partner with us, we partner with you, and we all prosper."

Mr. Xi, perhaps anticipating the criticism, spoke before Mr. Pence and disputed the notion that accepting Chinese investment as part of the initiative called "One Belt, One Road" would compromise a nation's sovereignty.

The initiative "is not for geopolitical purposes; it will exclude no one; it will not close a door and create a small circle," Mr. Xi said. "It is not the so-called trap, as some people say. It is the sunshine avenue where China shares opportunities with the world to seek common development."

Mr. Xi sought to paint China as continually opening its markets to the world.

"China will continue to significantly relax market access, strengthen intellectual property protection and actively expand imports," he said. Since the beginning of this year, Mr. Xi said, China has "significantly" reduced import tariffs on 1,449 consumer goods, 1,585 industrial products and vehicles and components.

He described the trade dispute as a choice between "win-win progress or a zero sum game."

"Mankind has once again reached a crossroads," Mr. Xi said. "Which direction should we choose? Cooperation or confrontation? Openness or closing doors?"


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Mr. Pence and Mr. Xi may have been sending mixed messages with their speeches, said Brendan Taylor, an associate professor of strategic studies at the Australian National University.

"The extent to which Mr. Xi tried to reassure the region that he didn't have any geopolitical ambitions — I don't think that's particularly convincing," Mr. Taylor said.

He described Mr. Pence's speech as having a "very strong 'America First' tone," adding, "There's quite a big gap between his rhetoric and what's actually happening in the region."

Other nations in the region were hedging their bets, he said. "The moves those countries are making relate to their uncertainties about the U.S. and the Trump strategy or lack thereof," Mr. Taylor said.

On Friday, the Japanese prime minister, Shinzo Abe, met with Prime Minister Scott Morrison of Australia in the northern Australian port city of Darwin, the first time a Japanese leader has visited the city, which was pummeled by Japanese air raids in World War II.

The two leaders discussed economic cooperation and the possibility of the Japanese military participating in training exercises in Darwin, where about 2,000 American Marines rotate through each year.

Prime Minister Shinzo Abe of Japan and Prime Minister Scott Morrison of Australia laid wreaths at the Cenotaph war memorial in Darwin, Australia, on Friday. The city was a target of Japanese air raids in World War II.CreditPool photo by Rick Rycroft
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Prime Minister Shinzo Abe of Japan and Prime Minister Scott Morrison of Australia laid wreaths at the Cenotaph war memorial in Darwin, Australia, on Friday. The city was a target of Japanese air raids in World War II.CreditPool photo by Rick Rycroft

In his speech on Saturday, Mr. Pence lauded the economic and military cooperation between the United States and its Asia-Pacific allies, and he warned China that American ships and jets would sail and fly anywhere allowed by international law.


Chinese military forces have confronted American and other foreign navies and aircraft that have entered waters in the South China Sea that China claims as its own.

"The United States of America will continue to uphold the freedom of the seas and the skies, which are so essential to our prosperity," Mr. Pence said.

He said the United States would support efforts "to adopt a meaningful and binding code of conduct that respects the rights of all nations, including the freedom of navigation, in the South China Sea."

He also announced that the United States would participate in an Australian-Papua New Guinea initiative to develop a naval base on Manus Island in the Bismarck Sea, in northern Papua New Guinea.

Australia and Papua New Guinea announced last month that they would upgrade a base in Lombrum, a port on Manus Island that has a strategically vital position overlooking key trade routes.

The spokesman for Mr. Moon, Kim Eui-kyeom, said Mr. Xi was considering making his first state visit to Pyongyang next year.

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China is North Korea's largest trading partner, accounting for more than 90 percent of the North's external trade. But Mr. Xi has never visited North Korea as Chinese leader, and a trip to Pyongyang would be an important nod to Kim Jong-un's leadership from North Korea's most important ally.

Ties between the two countries had frayed recently as North Korea pressed ahead of with its nuclear weapons and missile tests, and Beijing joined American-led efforts to impose sanctions on the North. This year, however, Mr. Kim has sought to mend the relationship, meeting with Mr. Xi three times. For each of those meetings, Mr. Kim traveled to China.

Washington has begun to worry that China may be less willing to enforce sanctions against the North, undermining the effort to economically isolate the country until it gives up its nuclear weapons. Mr. Pence said on Thursday that Mr. Trump had planned to bring up the issue of sanctions against North Korea when he talked with Mr. Xi at the G-20 conference in Argentina.

Mr. Kim, the South Korean spokesman, said Mr. Xi and Mr. Moon had agreed at the APEC forum that if the North's leader and Mr. Trump held a second summit meeting, as they have agreed to, it would be a "watershed" moment in international efforts to end Pyongyang's nuclear weapons program and establish peace on the Korean Peninsula.

Jamie Tarabay reported from Sydney, Australia, and Choe Sang-Hun from Seoul, South Korea. Luz Ding contributed reporting from Beijing.

A version of this article appears in print on Nov. 18, 2018, on Page A13 of the New York edition with the headline: Pence and China's Leader Stake Out Dueling Positions at Trade MeetingOrder Reprints | Today's Paper | Subscribe

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Rafael Behr : The Brexit wreckers Are Slinking Away from the Rancid Mess They’ve Made : "Dominic Raab and Esther McVey ... [feedly]

the wreckers give their comeuppances to the people they misled

Rafael Behr : The Brexit wreckers Are Slinking Away from the Rancid Mess They've Made : "Dominic Raab and Esther McVey ...
https://www.bradford-delong.com/2018/11/rafael-behr-_the-brexit-wreckers-are-slinking-away-from-the-rancid-mess-theyve-madehttpswwwtheguardiancomcom.html

Rafael BehrThe Brexit wreckers Are Slinking Away from the Rancid Mess They've Made: "Dominic Raab and Esther McVey have resigned because they know Brexit is intrinsically dysfunctional.... There is now no Brexit true believer prepared to take an author's credit on the deal that is about to come before parliament.... These resignations confirm a fundamental structural problem with the whole leave prospectus: it was a fantasy, and as such incompatible with the mundane fulfilment of ministerial responsibility. Raab has come to the same conclusion that David Davis and Boris Johnson reached earlier in the year: it is easier to be on the team that accuses the prime minister of failing to deliver majestic herds of unicorns than it is to be stuck with a portfolio that requires expertise in unicorn-breeding...



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Saturday, November 17, 2018

IMF: Women, Technology, and the Future of Work [feedly]

Women, Technology, and the Future of Work
https://blogs.imf.org/2018/11/16/women-technology-and-the-future-of-work/

By Era Dabla-Norris and Kalpana Kochhar

November 16, 2018

Women are currently underrepresented in fields experiencing job growth, such as engineering and information and communication technology (photo: Vgajic/iStock by Getty Images)

The way we work is changing at an unprecedented rate. Digitalization, artificial intelligence, and machine learning are eliminating many jobs involving low and middle-skill routine tasks through automation.

Our new research finds the trend toward greater automation will be especially challenging for women.

More than ever, women will need to break the glass ceiling.

On average, women face an 11 percent risk of losing their jobs due to automation, compared to 9 percent of their male counterparts. So while many men are losing their jobs to automation, we estimate that 26 million women's jobs in 30 countries are at high risk of being displaced by technology within the next 20 years. We find that women's jobs have a 70 percent or higher probability of automation. This translates globally to 180 million women's jobs.

We must understand the impact of these trends on women's lives if we are to gain gender equity in the work place.

What policies can countries implement now to ensure that women contribute to the economy, while moving toward greater automation?

Women at higher risk

Hard-won gains from policies to increase the number of women in the paid workforce and to increase women's pay to equal men's may be quickly eroded if women work predominantly in sectors and occupations that are at high risk of being automated.

  • Women who are 40 and older, and those in clerical, service, and sales positions are disproportionately at risk.
  • Nearly 50 percent of women with a high school education, or less, are at high risk of their jobs being automated, compared to 40 percent of men. The risk for women with a bachelor's degree or higher is 1 percent.

The chart below shows how the automation of jobs effects people in different countries. Men and women in the United Kingdom and the United States face about the same amount of risk for job automation. In Japan and Israel, women's jobs are more vulnerable to automation than men's. Women's jobs in Finland are less vulnerable to automation than men's.

Opportunities and challenges

Women are currently underrepresented in fields experiencing job growth, such as engineering and information and communications technology. In tech, women are 15 percent less likely than men to be managers and professionals, and 19 percent are more likely to be clerks and service workers performing more routine tasks, which leaves women at a high risk of displacement by technology.

More than ever, women will need to break the glass ceiling. Our analysis shows that differences in routineness of job tasks exacerbate gender inequality in returns to labor. Even after taking into account such factors as differences in skill, experience and choice of occupation, nearly 5 percent of the wage gap between women and men is because women perform more routine job tasks. In the US this means women forfeit $26,000 in income over the course of their working life.

There are some bright spots. In advanced and emerging economies, which are experiencing rapid aging, jobs are likely to grow in traditionally female-dominated sectors such as health, and social services―jobs requiring cognitive and interpersonal skills and thus less prone to automation. Coping with aging populations will require both more human workers and greater use of artificial intelligence, robotics, and other advanced technologies to complement and boost productivity of workers in healthcare services.

Policies that work

Governments need to enact policies that foster gender equality and empowerment in the changing landscape of work:

  • Provide women with the right skills. Early investment in women in STEM fields, like the program Girls Who Code in the US, along with peer mentoring, can help break down gender stereotypes and increase women in scientific fields. Tax deductions for training those already in the workforce, like in the Netherlands, and portable individual learning accounts, like in France, could help remove barriers to lifelong learning.
  • Close gender gaps in leadership positions. Providing affordable childcare and replacing family taxation with individual taxation, like in Canada and Italy, can play an important role in boosting women's career progression. Countries can set relevant recruitment and retention targets for organizations, as well as promotion quotas, like in Norway, and establish mentorship and training programs to promote women into managerial positions.
  • Bridge the digital gender divide. Governments have a role to play through public investment in capital infrastructure and ensuring equal access to finance and connectivity, like in Finland.
  • Ease transitions for workers. Countries can support workers as they change jobs because of automation with training and benefits that are linked to individuals rather than jobs, like the individual training accounts in France and Singapore. Social protection systems will need to adapt to the new forms of work. To address deteriorating income security associated with rapid technological change, some countries may consider expansion of non-contributory pensions and adoption of basic income guarantees may be warranted.

Automation has made it even more urgent to step up efforts to level the playing field between men and women, so that all have equal opportunities to contribute to, and benefit from, the new more technology-enabled world.

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Our November/December Issue Is Out! [feedly]

Our November/December Issue Is Out!
http://dollarsandsense.org/blog/2018/11/our-novemberdecember-issue-is-out.html

Our November/December issue has been sent to e-subscribers and should be in the mail to print subscribers. The cover story, "Trying Again for Full Employment," by Gertrude Schaffner Goldberg, is now posted, here; find the table of contents here.

Here is the p. 2 editors' note:

Jobs for All

The outcome of the midterm elections, with the Democrats capturing the House but not the Senate, means that any promising legislation the Democrats come up with will be largely symbolic. But symbolism is important, especially in the run-up to the 2020 elections, given that many people have been wondering what the Democratic Party stands for these days besides being against Trump. Forcing Republicans to vote against bold and appealing initiatives that meet people's needs would be good preparation for the next election season. There are lots of issues that could engage voters (and, importantly, non-voters): a federal $15/hour minimum wage, Medicare for All, bold action on climate change.
With this issue, Dollars & Sense begins an article series on one promising legislative initiative that could be a centerpiece of a bold social-democratic agenda: a federal job guarantee. In this issue's cover story, Gertrude Schaffner Goldberg looks at two previous attempts at full-employment legislation, in the 1940s and the 1970s, which initially included an enforceable job guarantee, but dropped it by the time the laws passed. The Democrats should learn the lessons of those earlier efforts and get it right this time.
With the talk in the business press about the strength of the Trump economy, you might think that this is the wrong time to talk about full-employment efforts. But as John Miller shows in his column, praise for the Trump economy—whether on employment, wage rates, GDP growth—"is built on half-truths, statistical misdirection, and outright falsehoods." Millions of people are still out of work even as the unemployment rate has declined. And as Goldberg points out, we should think of a job guarantee the way we think of unemployment insurance: "protection that is always needed but for which the level of need varies" with the business cycle. Come 2020, protection from unemployment may be a much bigger selling point than it is now.
Also in this issue: the third and final part of economist Marie Duggan's series, "Deindustrialization in the Granite State," draws lessons from a story of reindustrialization with the development of the Diamond Turning Machine; Gerald Friedman gives us a retrospective on the global economy ten years since the financial crisis; plus reviews of books on on radical textile workers and on Basic Income Guarantee (a main alternative to a job guarantee); and more!

VISIT WEBSITE
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Friday, November 16, 2018

Chris Dillow: Why the left needs "bottom" [feedly]

Chris Dillow (of stumbling and mumbling blog) is a left wing UK financial advisor -- with a sharp tongue and a knowledge of both the
"economics" and  'left' landscapes too.

Why the left needs "bottom"
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2018/11/why-the-left-needs-bottom-1.html

Conservative men of a certain age used to speak approvingly of some men (it was always men) as having "bottom". By this they meant a combination of a moral code and loyalties that gave them a solid reliability.

I was reminded of this by these words of John McDonnell:

We've got to convert ordinary members and supporters into real cadres who understand and analyse society and who are continually building the ideas.

This is absolutely bang right.

Underlying his words is a fear – that the massive current popularity of Corbynism might just be a fad.

There's ample precedent here. The revolutionary ideals of the 68ers faded as they acquired careers and (cheap) property. The Greens won 15% of the vote in 1989, but that soon vanished. And of course there are countless people who, in Christopher Hitchens' words, made the stagger from left to right – and who rarely became less employable as a result. Personally, I wouldn't stake my wealth upon Aaron Bastani or Laurie Penny being vocal leftists in 30 years' time.

The vogue for Corbynism could go the same way. Although McDonnell is giving the programme real and often inspiring economic content, there's danger that Corbynistas themselves are motivated by what James Bloodworth calls "a vague and muddled ideal", a backlash against "neoliberalism." If your leftism consists only of an emotional spasm, a belief that Tories are "evil", it will not long survive contact with real human beings.

Nick Cohen has long complained that leftists have lost touch with their better values and adopted a "my enemy's enemy is my friend" mentality that has seem them "excuseantisemitsm, misogyny, tyranny, and obscurantism, as long as the antisemitic, misogynistic, tyrannical obscurantists are anti-Western." I know many of you reject this account. But in a sense it speaks to what McDonnell fears – that a leftism which is just childish rebellion cannot last long or grow large.

It's in this context that the left needs "bottom" – ballast that stops it drifting with the tides of fashion and instead becomes a genuine solid force for change.

Classical Marxists understated the problem here. They thought workers would be so desperately poor and exploited that they'd have nothing to lose but their chains and so would become radicalized. They were wrong. Yes, one factor behind Corbynism is that erstwhile "middle-class" jobs have become proletarianized; professionals have both lost some autonomy at work and become unable to afford a house.  Resentment alone, however, is not a strong enough base for lasting leftism. It might not survive career progression and more affordable housing.

It's in this context that McDonnell is right to say the left needs an understanding of society. Of course, it would take far too long to spell out exactly what this would consist of. For me, a key principle here is that of complexity. Inequality – of power as well as wealth - does not exist and persist because the rich are evil. It also happens, as Marx recognised. because of impersonal forces which operate with only a little input from people's intentions. Capitalists' influence over the state, for example, happens because politicians want to create jobs and so need to maintain business confidence; support for inequality exists not just because our media is biased but because ideology is endogenous; exploitation occurs not (just) because capitalists are greedy but because competition forces wages and working conditions down.

Equally, the capitalist crisis is the result not just of "greedy bankers" – everyone would like a few quid more – but of impersonal factors causing a lack of capital spending and hence stagnation in productivity and real wages.

A lasting, well-rooted leftism requires an understanding of forces such as these – of why capitalism does not work as we would wish it to. Moralizing is nowhere near enough. The problem is that there are pitifully few institutions that enhance understanding and severalpowerful ones that actively militate against it.


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Krugman: Why Was Trump’s Tax Cut a Fizzle? [feedly]

Why Was Trump's Tax Cut a Fizzle?

Paul Krugman


Last week's blue wave means that Donald Trump will go into the 2020 election with only one major legislative achievement: a big tax cut for corporations and the wealthy. Still, that tax cut was supposed to accomplish big things. Republicans thought it would give them a big electoral boost, and they predicted dramatic economic gains. What they got instead, however, was a big fizzle.

The political payoff, of course, never arrived. And the economic results have been disappointing. True, we've had two quarters of fairly fast economic growth, but such growth spurts are fairly common — there was a substantially bigger spurt in 2014, and hardly anyone noticed. And this growth was driven largely by consumer spending and, surprise, government spending, which wasn't what the tax cutters promised.

Meanwhile, there's no sign of the vast investment boom the law's backers promised. Corporations have used the tax cut's proceeds largely to buy back their own stock rather than to add jobs and expand capacity.

But why have the tax cut's impacts been so minimal? Leave aside the glitch-filled changes in individual taxes, which will keep accountants busy for years; the core of the bill was a huge cut in corporate taxes. Why hasn't this done more to increase investment?



The answer, I'd argue, is that business decisions are a lot less sensitive to financial incentives — including tax rates — than conservatives claim. And appreciating that reality doesn't just undermine the case for the Trump tax cut. It undermines Republican economic doctrine as a whole.

About business decisions: It's a dirty little secret of monetary analysis that changes in interest rates affect the economy mainly through their effect on the housing market and the international value of the dollar (which in turn affects the competitiveness of U.S. goods on world markets). Any direct effect on business investment is so small that it's hard even to see it in the data. What drives such investment is, instead, perceptions about market demand.

Why is this the case? One main reason is that business investments have relatively short working lives. If you're considering whether to take out a mortgage to buy a house that will stand for many decades, the interest rate matters a lot. But if you're thinking about taking out a loan to buy, say, a work computer that will either break down or become obsolescent in a few years, the interest rate on the loan will be a minor consideration in deciding whether to make the purchase.

And the same logic applies to tax rates: There aren't many potential business investments that will be worth doing with a 21 percent profits tax, the current rate, but weren't worth doing at 35 percent, the rate before the Trump tax cut.

Also, a substantial fraction of corporate profits really represents rewards to monopoly power, not returns on investment — and cutting taxes on monopoly profits is a pure giveaway, offering no reason to invest or hire.


Now, proponents of the tax cut, including Trump's own economists, made a big deal about how we now have a global capital market, in which money flows to wherever it gets the highest after-tax return. And they pointed to countries with low corporate taxes, like Ireland, which appear to attract lots of foreign investment.

The key word here is, however, "appear." Corporations do have a strong incentive to cook their books — I'm sorry, manage their internal pricing — in such a way that reported profits pop up in low-tax jurisdictions, and this in turn leads on paper to large overseas investments.

But there's much less to these investments than meets the eye. For example, the vast sums corporations have supposedly invested in Ireland have yielded remarkably few jobs and remarkably little income for the Irish themselves — because most of that huge investment in Ireland is nothing more than an accounting fiction.

Now you know why the money U.S. companies reported moving home after taxes were cut hasn't shown up in jobs, wages and investment: Nothing really moved. Overseas subsidiaries transferred some assets back to their parent companies, but this was just an accounting maneuver, with almost no impact on anything real.

So the basic result of lower taxes on corporations is that corporations pay less in taxes — full stop. Which brings me to the problem with conservative economic doctrine.

That doctrine is all about the supposed need to give the already privileged incentives to do nice things for the rest of us. We must, the right says, cut taxes on the wealthy to induce them to work hard, and cut taxes on corporations to induce them to invest in America.

But this doctrine keeps failing in practice. President George W. Bush's tax cuts didn't produce a boom; President Barack Obama's tax hike didn't cause a depression. Tax cuts in Kansas didn't jump-start the state's economy; tax hikes in California didn't slow growth.

And with the Trump tax cut, the doctrine has failed again. Unfortunately, it's difficult to get politicians to understand something when their campaign contributions depend on their not understanding it.



Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman

A version of this article appears in print on Nov. 16, 2018, on Page A25 of the New York edition with the headline: Why Was Trump's Tax Cut a Fizzle?. Order Reprints | Today's Paper | Subscribe
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Rodrik: Will New Technologies Help or Harm Developing Countries? [feedly]

Will New Technologies Help or Harm Developing Countries?
https://www.globalpolicyjournal.com/blog/16/11/2018/will-new-technologies-help-or-harm-developing-countries

Trade and technology present an opportunity when they are able to leverage existing capabilities, and thereby provide a more direct and reliable path to development. When they demand complementary and costly investments, they are no longer a shortcut around traditional manufacturing-led development.

New technologies reduce the prices of goods and services to which they are applied. They also lead to the creation of new products. Consumers benefit from these improvements, regardless of whether they live in rich or poor countries.

Mobile phones are a clear example of the deep impact of some new technologies. In a clear case of technological leapfrogging, they have given poor people in developing countries access to long-distance communications without the need for costly investments in landlines and other infrastructure. Likewise, mobile banking provided through cell phones has enabled access to financial services in remote areas without bank branches.

These are instances of technology improving the lives of poor people. But for technology to make a real and sustained contribution to development, it must not only provide better and cheaper products; it must also lead to more higher-paying jobs. In other words, it must help poor people in their role as producers as well as consumers. A model of growth that the economist Tyler Cowen has called "cell phones instead of automobile factories" raises the obvious question: How do people in the developing world afford to purchase cell phones in the first place?

Consider again the examples of mobile telephony and banking. Because communications and finance are inputs into production, they are to some extent producer services as well as consumer services.

For example, a well-known study has documented how the spread of mobile phones in the Indian state of Kerala enabled fishermen to arbitrage price differences across local markets, increasing their profits by 8% on average as a result. Kenya's ubiquitous mobile banking service M-Pesa appears to have enabled poor women to move out of subsistence agriculture into non-farm businesses, providing a significant bump up the income ladder at the very bottom.

New digital technologies have been playing an important role in transforming large-scale farming in Latin America and elsewhere. Big data, GPS, drones, and high-speed communication have enabled improved extension services; optimized irrigation and pesticide and fertilizer use; provided early-warning systems; and enabled better quality control and more efficient logistics and supply-chain management. These improvements raise farm productivity and facilitate diversification into non-traditional crops with higher returns.

The introduction of these new technologies in production in developing countries often takes place through global value chains (GVCs). In principle, GVCs benefit these economies by easing entry into global markets.

Yet big questions surround the possibilities created by these new technologies. Are the productivity gains large enough? Can they diffuse sufficiently quickly throughout the rest of the economy?

Any optimism about the scale of GVCs' contribution must be tempered by three sobering facts. First, the expansion of GVCs seems to have ground to a halt in recent years. Second, developing-country participation in GVCs – and indeed in world trade in general – has remained quite limited, with the notable exception of certain Asian countries. Third, and perhaps most worrisome, the domestic employment consequences of recent trade and technological trends have been disappointing.

Upon closer inspection, GVCs and new technologies exhibit features that limit the upside to – and may even undermine – developing countries' economic performance. One such feature is an overall bias in favor of skills and other capabilities. This bias reduces developing countries' comparative advantage in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade.

Second, GVCs make it harder for low-income countries to use their labor-cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. These two features reinforce and compound each other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.

The usual response to these concerns is to stress the importance of building up complementary skills and capabilities. Developing countries must upgrade their educational systems and technical training, improve their business environment, and enhance their logistics and transport networks in order to make fuller use of new technologies, goes the oft-heard refrain.

But pointing out that developing countries need to advance on all those dimensions is neither news nor helpful development advice. It is akin to saying that development requires development. Trade and technology present an opportunity when they are able to leverage existing capabilities, and thereby provide a more direct and reliable path to development. When they demand complementary and costly investments, they are no longer a shortcut around manufacturing-led development.

Compare the new technologies with the traditional model of industrialization, which has been a powerful engine of economic growth in developing countries. First, manufacturing is tradable, which means domestic output is not constrained by demand (and incomes) at home. Second, manufacturing know-how was relatively easy to transfer across countries and, in particular, from rich to poor economies. Third, manufacturing did not make large demands on skills.

These three characteristics collectively made manufacturing a fantastic escalator to higher incomes for developing countries. New technologies present a very different picture in terms of the ease of transferring know-how and the skill requirements they imply. As a result, their net impact on low-income countries looks considerably more uncertain.

 

 

Dani Rodrik is Global Policy's General Editor and Professor of International Political Economy at Harvard University's John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World EconomyEconomics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

This post first appeared on Project Syndicate and was reposted with permission.

Image credit: Jay Hariani via Flickr (CC BY-SA 2.0)


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