The Double Standard of America’s China Trade Policy [feedly]

The Double Standard of America's China Trade Policy

Dani Rodrik

https://www.project-syndicate.org/commentary/american-trade-policy-double-standard-by-dani-rodrik-2018-05

Many liberal commentators in the US think that Donald Trump is right to confront China over its trade tactics, and object only to his methods. Yet Trump's trade agenda is driven by a narrow mercantilism that privileges the interests of US corporations above those of all others.

CAMBRIDGE – A high-profile United States trade delegation appears to have returned empty-handed from its mission in China. The result is hardly a surprise, given the scale and one-sided nature of the US demands. The Americans pushed for a wholesale remaking of China's industrial policies and intellectual property rules, while asking China's government to refrain from any action against Trump's proposed unilateral tariffs against Chinese exports.


This is not the first trade spat with China, and it will not be the last. The global trading order of the last generation – since the creation of the World Trade Organization in 1995 – has been predicated on the assumption that regulatory regimes around the world would converge. China, in particular, would become more "Western" in the way that it manages its economy. Instead, the continued divergence of economic systems has been a fertile source of trade friction.

There are good reasons for China – and other economies – to resist the pressure to conform to a mold imposed on them by US export lobbies. After all, China's phenomenal globalization success is due as much to the regime's unorthodox and creative industrial policies as it is to economic liberalization. Selective protection, credit subsidies, state-owned enterprises, domestic-content rules, and technology-transfer requirements have all played a role in making China the manufacturing powerhouse that it is. China's current strategy, the "Made in China 2025" initiative, aims to build on these achievements to catapult the country to advanced-economy status.

The fact that many of China's policies violate WTO rules is plain enough. But those who derisively call China a "trade cheat" should ponder whether China would have been able to diversify its economy and grow as rapidly if it had become a member of the WTO before 2001, or if it had slavishly applied WTO rules since then. The irony is that many of these same commentators do not hesitate to point to China as the poster boy of globalization's upside – conveniently forgetting on those occasions the degree to which China has flouted the global economy's contemporary rules.

China plays the globalization game by what we might call Bretton Woods rules, after the much more permissive regime that governed the world economy in the early postwar period. As a Chinese official once explained to me, the strategy is to open the window but place a screen on it. They get the fresh air (foreign investment and technology) while keeping out the harmful elements (volatile capital flows and disruptive imports).

In fact, China's practices are not much different from what all advanced countries have done historically when they were catching up with others. One of the main US complaints against China is that the Chinese systematically violate intellectual property rights in order to steal technological secrets. But in the nineteenth century, the US was in the same position in relation to the technological leader of the time, Britain, as China is today vis-à-vis the US. And the US had as much regard for British industrialists' trade secrets as China has today for American intellectual property rights.


The fledgling textile mills of New England were desperate for technology and did their best to steal British designs and smuggle in skilled British craftsmen. The US did have patent laws, but they protected only US citizens. As one historian of US business has put it, the Americans "were pirates, too."

Any sensible international trade regime must start from the recognition that it is neither feasible nor desirable to restrict the policy space countries have to design their own economic and social models. Levels of development, values, and historical trajectories differ too much for countries to be shoehorned into a specific model of capitalism. Sometimes domestic policies will backfire and keep foreign investors out and the domestic economy impoverished. At other times, they will propel economic transformation and poverty reduction, as they have done on a massive scale in China, generating gains not just for the home economy but also for consumers worldwide.

International trade rules, which are the result of painstaking negotiations among diverse interests – including, most notably, corporations and their lobbies, cannot be expected to discriminate reliably between these two sets of circumstances. Countries pursuing harmful policies that blunt their development prospects are doing the greatest damage to themselves. When domestic strategies go wrong, other countries may be hurt; but it is the home economy that pays the steepest price – which is incentive enough for governments not to pursue the wrong kind of policies. Governments that worry about the transfer of critical technological know-how to foreigners are, in turn, free to enact rules prohibiting their firms from investing abroad or restricting foreign takeovers at home.

Many liberal commentators in the US think Trump is right to go after China. Their objection is to his aggressive, unilateralist methods. Yet the fact is that Trump's trade agenda is driven by a narrow mercantilism that privileges the interests of US corporations over other stakeholders. It shows little interest in policies that would improve global trade for all. Such policies should start from the trade regime's Golden Rule: do not impose on other countries constraints that you would not accept if faced with their circumstances.

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The Forgotten Vision of Market Socialism [feedly]

The Forgotten Vision of Market Socialism
https://www.nakedcapitalism.com/2018/05/forgotten-vision-market-socialism.html

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The Forgotten Vision of Market Socialism

Posted on May 11, 2018 by Yves Smith

By Seth Ackerman, who is on the editorial board of Jacobin Magazine and a doctoral candidate in history at Cornell. Originally published at the Institute for New Economic Thinking website

A century ago this February the British Labour Party proclaimed its conversion to socialism. By committing itself in Clause IV of its 1918 constitution to the "common ownership of the means of production, distribution and exchange," Labour, in the eyes of most observers, had announced its birth as a truly socialist party. But what exactly did the party hope to do with the means of production once it had socialized them? On this point answers were scarcer. The author of Clause IV, the Fabian leader Sidney Webb, spoke of a comprehensively planned economy in which the role of markets would be strictly minimized. Other party intellectuals, such as John Hobson and Barbara Wootten, advocated a more "liberal" socialism, with a mixture of plan and market.

But a strange lacuna loomed over the whole discussion, for as a historian of the party's economic debates points out, "despite the near universal dedication to the rhetoric of 'conscious and deliberate direction' [of the economy, through planning] few had any specific ideas as to what exactly this implied for actual economic policy." The prevailing view seems to have been that the precise content of a "planned economy," though admittedly hazy at the moment, would come into focus gradually and through trial and error, in the course of constructing one. That is why even Western socialists distrustful of Bolshevik methods, like the Fabians, looked hopefully to the newly birthed Soviet experiment — expecting, if nothing else, a wealth of practical lessons.

Seventy years later, on the eve of the Soviet collapse, two Polish economists who had spent a lifetime studying that experiment compiled the lessons they drew from it and published them in a book titled From Marx to the Market. Włodzimierz Brus and Kazimierz Łaski had been leading figures in the fleeting golden age of postwar Polish economics, which thrived under the reform-minded Communist government from 1956 to 1968. After that year, when the regime swung to a posture of repressive conservatism and open antisemitism, the two academics, both Jewish, left the country and settled in the West. In the intervening period, they had stood at the center of reform debates, serving as senior policy advisers, publishing widely translated works on the economics of planning, and working closely with the Marxist-Keynesian economist Michal Kalecki, whose 1955 return to Poland they sponsored.

Few were better placed to offer a mature judgment on the seven decades of the Communist economic experiment. But they offered something else as well: a promising vision of a feasible socialism.

Under the classical command system inherited from the Stalin era, a single overriding objective was imposed on individual enterprises in the Eastern Bloc: "plan fulfillment." What resulted from that objective was a series of symptomatic behaviors by firm managers that, while individually rational, yielded dysfunctional economic performance in the aggregate. For example, there was the so-called "minimax" strategy. Since shortfalls of input deliveries were by far the most common reason for firms' failure to meet their output targets, enterprise managers during the ex ante bargaining that led to the formulation of the plan sought assiduously to minimize the output targets they were expected to deliver while maximizing the input allocations they claimed to need. More broadly, firms hoarded inputs to guard against the danger that they would run out and find themselves unable to hit their output targets. But while individually rational for managers, "minimax" behavior was collectively irrational for the system as a whole: since one firm's output shipments were another firm's input deliveries, pervasive input hoarding led to chronic output shortfalls that cascaded through the economy, manifesting in shortages and bottlenecks.

Then there was "priority adjustment," which involved managers choosing, among the plan's conflicting objectives (quantity, quality, variety, etc.), whichever ones could be most readily fulfilled. In practice, the favored priority was usually the output target — a pattern satirized in the old Soviet joke about the factory that was assigned to produce 10 tons of sewing needles and ended up delivering one gigantic needle. Product quality and variety in the planned economies were generally kept to minimum acceptable levels.

Finally, managers in the planned economies exhibited a marked aversion to change. Anything that heightened the uncertainty of input supply was unwelcome, and this is always the case with any sort of new product or process innovation. As the American economist Joseph Berliner found in his landmark study of Soviet innovation, new products and processes tend to require new and unfamiliar inputs, as well as larger volumes of them to accommodate the necessary tinkering and experimentation. Input suppliers often must be asked to make custom modifications to their products, a nuisance that can impede the suppliers' ability to meet their own output targets. And new products often turn out to be uneconomical in their intended uses yet highly effective in other, unexpected uses; yet to allow this sort of serendipity to play out freely would completely unravel the coherence of the plan. All of this made systematic innovation impossible.

After Stalin's death and the loosening of ideological controls, economics experienced a rebirth in the socialist countries — especially in Poland. The result was emergence of a cohort of reform-minded economists who bemoaned the command system's overcentralization and urged a wider scope for the use of prices, profits, and other "market-like" metrics while preserving the principle of "socialist ownership" — that is, collective ownership of the means of production. Brus's 1961 book, later published in English as The Market In A Socialist Economy, served as a sort of economic manifesto for the movement.

In the 1960s and 1970s, halting experiments in this direction were half-heartedly undertaken in a number of socialist economies, including the Soviet Union itself. But Hungary pushed this line of reform further than all the others. Under the New Economic Mechanism (NEM) inaugurated in 1968, Hungarian firms were still owned by the state but were no longer subject to formal output quotas or input allocations. In fact, there was no longer any national "plan" specifying physical production targets at all. Each firm was still attached to a state ministry, which had sole power to dissolve, merge, or reorganize it, and the ministry still determined the firm's permitted "sphere of activity" (i.e. industrial sector or sub-sector). Ministries also wielded hiring, firing, and pay-setting power over firms' top managers. But enterprises now had to acquire their inputs and sell their outputs on the open market, with the state, in principle, guiding the economy and capital accumulation solely through macroeconomic means — that is, through control of taxes, interest rates, subsidies, and the like. The command economy of the Stalin era was a thing of the past.

The results were a disappointment. But, not a complete disappointment: any foreign visitor to Hungary in the 1970s could see a marked improvement in the quality, and variety of consumer goods now that firms had to pay attention to cost and demand. Yet innovative activity was still nonexistent and shortages persisted. Hungarian economists were nearly unanimous in finding no qualitative change in the overall operation of the economy. What had happened instead was a shift from "direct" to "indirect" bureaucratic control, a situation in which "the firm's manager watches the customer and the supplier with one eye and his superiors in the bureaucracy with the other eye," as the eminent Hungarian economist Janos Kornai put it. Under the new dispensation, a sort of "financial tutelage" replaced physical planning, in the terms of economist David Granick. Enforced through special taxes and subsidies imposed on individual firms on a discretionary basis, along with informal quotas, licenses, price controls, and so on, this financial tutelage largely negated whatever autonomy firms were supposed to wield under the New Economic Mechanism.

By the time Brus and Łaski wrote their 1989 book, a consensus had formed among Hungarian economists that the root cause of this puzzling persistence of bureaucratic control was the absence of a capital market. The NEM had envisioned the use of market mechanisms to govern decisions about the use of existing production capacity in product markets. But decisions about quantitative or qualitative changes in production capacity, requiring the mobilization of factors of production, were still supposed to be a matter for national planning authorities to decide.

Yet it soon became clear that these two features of the system were in contradiction with each other: in the absence of a capital market, even decisions about the use of existing capacity in product markets could not sustainably be left to autonomous firms. As Brus and Łaski observed:

If a currently unsuccessful enterprise is prevented from attempting to raise capital in the market in order to restructure its operations, including branching out into other more promising fields, or cannot be taken over by a more dynamic firm which sees latent opportunities, strict application of the market rules of the game would actually lead to gross inefficiencies: not only would those enterprises unable to recover go out of business, but also those with good prospects although in temporary difficulties.

In effect, the state was forced to intervene. Non-intervention "would push an unduly large number of enterprises into bankruptcy," the Hungarian economist Marion Tardos wrote at the time; and without a capital market, there would be no one to buy their assets once they had been liquidated.

Here is where Brus and Łaski made their most original contribution. At a time when the winds of history in Eastern Europe were blowing at gale force toward a full embrace of free-market capitalism, the two economists proposed an effort to place market socialism on firmer foundations, through the establishment of a socialist capital market mechanism. But how could Sidney Webb's hallowed "common ownership" be reconciled with fragmentation of that ownership — a logical precondition for the buying and selling of financial and control rights over productive enterprises?

As Brus and Łaski put it, what was needed was "a firm separation between a number of roles hitherto performed by the socialist state in such close interconnection that they have come to be regarded as indivisible." The role of the "owner state" must be clearly separated from the state's role in levying taxes; in "setting business, health, safety and other standards"; in serving "as the center of macroeconomic policy"; and in dealing with all those societal problems "which cannot be defined in profit-and-loss terms (public goods, externalities)." All these roles were vital, Brus and Łaski believed; unlike many of their Eastern European colleagues in the 1980s they were no laissez-faire enthusiasts, and Łaski soon became a vehement critic of the IMF's structural adjustment policies in Poland. But the legal basis of the state's economic planning must be grounded in the state's role as the democratic guarantor of the public will — not in its proprietorial interest in the productive infrastructure.

Although Brus and Łaski advanced these ideas as a path for reforming existing socialist economies, it is possible to imagine a transformation to such a system from the starting point of a modern capitalist economy. Suppose that a democratically constituted Common Fund were to carry out the compulsory purchase of all financial assets owned by households: stocks and bonds, but also mutual funds and other wealth instruments. Payment for the assets would be deposited in households' bank accounts — with ownership of those banks now in the hands of the Common Fund itself. At the end of this process, all household financial wealth balances would represent the liabilities not of mutual fund companies or other private securities issuers, but of the Common Fund. Meanwhile, the firms that make up society's means of production would now constitute the Fund's assets, and could be allocated among newly constituted socialized investment funds. These funds would manage their portfolios on the Fund's account, rather than the account of private owners. And newly formed private businesses could, in time, be sold into this socialized capital market (nudged along by incentives favoring such sales) to ensure that it remained the predominant owner in the economy.

Such a system would make it possible, as Sidney Webb wrote in Clause IV of the Labour Party constitution, "to secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof" as well as "the best obtainable system of popular administration and control of each industry or service." Workers, in other words, would be able to obtain a far greater degree of managerial control over the firms they work for.

And more than that would be possible. For example, a number of advantages would arise in the area of macroeconomic management. Household financial wealth would no longer fluctuate chaotically with financial markets; instead it would be a matter determined by macroeconomic policy, just as one component of it—the size of the monetary base—already is today. Under such a system of socialized finance, bank runs and their counterparts in the shadow banking system would no longer pose a threat, since subjective expectations of future returns would no longer automatically determine the exchangeable value of individually owned financial assets—that, again, would be a matter for public policy to decide. Meanwhile, any public guarantees extended to financial institutions in times of crisis would no longer pose moral hazard concerns, since those financial institutions would already be public institutions, their managers could be removed at will, and no private actors would have profited "on the way up."

Above all, the commanding heights of the economy would no longer constitute an archipelago of private empires ruled by Bezoses, Zuckerbergs, Kochs, or Trumps. They would instead be, to coin a phrase, "Ours, not to slave in, but to master and to own."

interesting thoughts from Delong, Ken Rogoff on china tech

Some very interesting thoughts from Ken Rogoff. But he does not seem to recognize that Shenzhen is now at least as much...
http://www.bradford-delong.com/2018/05/should-read-some-very-interesting-thoughts-from-ken-rogoff-ken-rogoff-will-china-really-supplant-us-economic-hege.html

Some very interesting thoughts from Ken Rogoff. But he does not seem to recognize that Shenzhen is now at least as much a global hub of hardware and manufacturing process innovation in small-scale high-tech devices as anywhere else in the world. World class communities of engineering practice are hard to build. But China looks to be building one. I would dearly love somebody to take a deep close look at Shenzhen and tell me to what extent it is already more than just "the great assembler": Ken Rogoff: Will China Really Supplant US Economic Hegemony?: "Over the next 100 years, who takes over, Chinese workers or the robots?...

...If robots and AI are the dominant drivers of production in the coming century, perhaps having too large a population to care for–especially one that needs to be controlled through limits on Internet and information access–will turn out to be more of a hindrance for China. The rapid aging of China's population exacerbates the challenge. As the rising importance of robotics and AI blunts China's manufacturing edge, the ability to lead in technology will become more important. Here, the current trend toward higher concentration of power and control in the central government, as opposed to the private sector, could hamstring China as the global economy reaches higher stages of development.... The US needs to struggle with the problem of how to redistribute income internally, especially given highly concentrated ownership of new ideas and technology. But for China, there is the additional problem of how to extend its franchise as export superpower into the machine age....

The US has the potential to expand the size of its manufacturing base... in terms of output if not jobs. After all, today's high-tech factory floors produce far more with far fewer workers. And the robots and AI are coming not just in manufacturing and driverless cars. Robo-doctors, robo-financial advisors, and robo-lawyers are just the tip of the iceberg.... China's rapid growth has been driven mostly by technology catch-up and investment.... While China, unlike the Soviet Union, has shown vastly more competence in homegrown innovation... China's gains still come largely from adoption of Western technology, and in some cases, appropriation of intellectual property....

In the economy of the twenty-first century, other factors, including rule of law, as well as access to energy, arable land, and clean water may also become increasingly important. China is following its own path and may yet prove that centralized systems can push development further and faster than anyone had imagined, far beyond simply being a growing middle-income country. But China's global dominance is hardly the predetermined certainty that so many experts seem to assume.... The coming machine age could be a game changer in the battle for hegemony...

#shouldread

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Rethinking International Environmental Agreements [feedly]

Rethinking International Environmental Agreements
http://triplecrisis.com/rethinking-international-environmental-agreements/

By Edward B. Barbier

In recent article in Science, "How to pay for saving biodiversity", my co-authors and I argue that it is time to rethink the global approach to saving the world's remaining biodiversity and habitats.

Twenty-five years after establishing the Convention on Biological Diversity, the world is facing "biological annihilation", according to a scientific study published in the Proceedings of the National Academy of Sciences last year.  The problem is mainly due to lack of funding.  Governments and international organizations alone cannot fund the investments needed to reverse the decline in biological populations and habitats on land and in oceans.  For example, it will take around $100 billion a year to protect the earth's broad range of animal and plant species, and current funding fluctuates around $4-10 billion annually.

In our article, we follow others' lead and propose creating a new Global Agreement on Biodiversity (GAB) modeled after the 2015 Paris Climate Change Accord.  But instead of focusing on just governments as parties to the agreement, we argue that the corporations in industries that benefit from biodiversity should also formally join the GAB and contribute financially to it.

As parties to the GAB, governments would set over-arching conservation goals with countries pledging specific targets, policies and timelines.  In addition, wealthier countries should assist conservation in poorer nations.  However, major companies in key sectors, such as seafood, forestry, agriculture and insurance, also have a financial stake in averting the global biodiversity crisis.  These sectors should agree on targets for increasing marine stocks, protecting forests, preserving habitats of wild pollinators and conserving coastal wetlands.  Individual companies should pledge to meet these goals as well as provide financial and technological assistance for conservation in developing countries.

We calculate that the resulting increase in industry revenues and profits could provide $25-50 billion annually for global conservation.  For example, the seafood industry stands to gain $53 billion annually from a $5 billion to $10 billion investment each year in a global agreement on biodiversity, while the insurance industry could see an additional $52 billion with a similar investment. By spending $15 to $30 billion annually, the forest products industry would attain its sustainable forest management goals.  Agriculture also has an incentive to pro­tect habitats of wild pollinators, who along with managed populations enhance global crop production by $235 billion to $577 bil­lion annually.

Such a GAB would represent a "new wave" of international agreements that would engage government and industry, and hope­fully other non-state actors, in a manner un­paralleled in the history of global environmental conservation. For example, a recent proposal by Dan Esty and Peter Boyd in Yale Environment 360 ad­vocates that the Paris Climate Change Agree­ment should add a mechanism to allow corporations, cities, and other non-state actors to formally join the accord. Already some corporations, local governments and other non-state entities have announced voluntary pledges and low-carbon strategies to comply with the Paris Agreement, but the pri­vate sector is not a formal participant nor do corporations contribute to the accord's climate financing.

It is time we rethink international environmental agreements, to ensure that all stakeholders have a role to play, and that those private actors that benefit financially from conservation join in efforts to pay for protection of the global environment.

Edward B. Barbier is a professor in the Department of Economics and a senior scholar at the School of Global Environmental Sustainability at Colorado State University.

 

Triple Crisis welcomes your comments. Please share your thoughts below.

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Is China moving back toward Marx? [feedly]

a weird post from one of the few remaining r economists.....

Is China moving back toward Marx?
http://marginalrevolution.com/marginalrevolution/2018/05/china-moving-back-toward-marx.html

And should we celebrate along with Xi Jinping?  That is the topic of my latest Bloomberg column, with plenty on the debates within socialist thought, here is the close:

Do I expect those future political reforms to take a Marxian path of the dictatorship of the proletariat? Probably not. But when it comes to China, Marx is the one theorist who has not yet been refuted. It's the Western liberals and the Maoists who both have egg on their faces.

If you think of Western liberalism as the relevant alternative, you might feel discomfort at the Chinese revival of Marx. But if you think a bit longer on Maoism, its role in Chinese history and its strong nativist roots, you too might join in the Marx celebrations.

Do read the whole thing.

The post Is China moving back toward Marx? appeared first on Marginal REVOLUTION.

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piketty:May 1968 and inequality

May 1968 and inequality

Thomas Piketty

Should we burn May '68? Critics claim that the spirit of May '68 has contributed to the rise of individualism, even to ultra-liberalism. In truth, these assertions do not stand up to close scrutiny. On the contrary, the May '68 Movement was the start of a historical period of considerable reduction in social inequalities in France which ran out of steam later for quite different reasons.

Let's go back for a moment. In France the years 1945-1967 are marked by high rates of growth, but also by a movement of reconstitution of inequalities, with, at one and the same time, a steep rise in the share of profits in national income and the reconstitution of highly ranked salary scales. The share of the 10% highest incomes which was barely 31% of total income in 1945 gradually rose to 38% in 1967. The whole country was focused on reconstruction and the reduction of inequalities was not a priority, particularly as everyone was well aware that they had been considerably reduced after the war (destruction, inflation) and the political upheavals of the Liberation (Social Security, nationalisations and tighter pay structures).

In this new context, the salaries of executives and engineers rose structurally faster than the low and medium-range salaries in the 1950s-1960s and at first, nobody seemed to be worried. A minimum wage had been created in 1950, but it was almost never re-valued thereafter, with the result that there was a wide gap in comparison with the evolution of the average wage. Society had never been so patriarchal; in the 1980s, 80% of the total payroll was paid to men. Women were entrusted with numerous tasks (in particular childcare and the provision of tender loving care in the industrial era) but the control of the wallet was clearly not one their domain. Society was also massively geared towards production; the 40-hour week, promised in 1936, still did not apply because the trade unions had accepted to work a maximum number of hours overtime to accelerate for the country's economic recovery.

The break came in 1968. As a way out of the crisis, General de Gaulle's government signed the Grenelle Agreements which included, in particular, a rise of 20% in the minimum wage. The minimum wage was officially indexed on average wage gains in 1970 and, most importantly, all the successive governments from 1968 to 1983 felt obliged to grant very high 'special hikes' almost every year in a social and political climate far from stable. The result was that the purchasing power of the minimum wage rose in all by over 130% between 1968 and 1983, whereas at the same time the average salary only rose by about 50%, whence a very strong compression of pay inequalities. The break with the previous period was clean and wide-ranging; the purchasing power of the minimum wage had risen by barely 25% between 1950 and 1968, whereas the average salary had more than doubled. Driven by the strong rise in low salaries, throughout the years 1968-1983, the total payroll rose significantly faster than did production; as a result there was a considerable fall in the share of capital in the national income. All this took place at the same time as a reduction in the number of hours worked and an increase in paid holidays.

The movement reversed again in 1982-1983. The new socialist government, originating in the May 1981 elections, would doubtless have liked to continue in this direction indefinitely. Unfortunately for them, social movements had already imposed the major catch-up of low wages on right-wing governments thus beating electoral democracy to the post. To prolong the movement of reduction in inequalities, it would have been necessary to invent other tools. Real powers for employees in firms, wide-ranging investment and equality in education, the implementation of a universal system of health insurance and retirement, the development of a social and fiscal Europe. Instead, the government used Europe as a scapegoat when it resorted to austerity in 1983, although Europe was in no way responsible for blocking wage rises: the minimum wage cannot go on rising three times more than production for ever, whether the economy be open or closed.

Worse still: as from 1988, French governments have contributed considerably to the movement at European level of fiscal dumping of corporate tax then, with the Maastricht Treaty in 1992, to setting up a fully-fledged monetary and commercial union with no joint budget or tax system and no political governance. A currency without a State, democracy or sovereignty: a model whose fragility we witnessed after the crisis in 2008 and which contributed to the 10 year recession from which we are only just emerging.

Today throughout Europe social democracy is in crisis. This is primarily the consequence of an incomplete internationalism. During the 20^th century and particularly from the 1950s to the 1980s, the implementation of a new capital-labour compromise was re-thought and implemented within the Nation States. This was an undeniable success, but at the same time this process involved considerable weaknesses, because national policies were caught in the increasing competition between countries. The answer is not to turn our backs on the spirit of May 1968 and social movements. On the contrary we must turn to them to develop a new internationalist programme to reduce inequalities.

--

John Case
Harpers Ferry, WV

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Minnesota and Wisconsin had similar job growth trajectories leading up to the Great Recession, but not after it [feedly]

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Minnesota and Wisconsin had similar job growth trajectories leading up to the Great Recession, but not after it
// Blog | Economic Policy Institute

Earlier this week, EPI released an analysis of economic performance in Wisconsin and Minnesota since 2010, which showed that by virtually every available measure, Minnesota has outperformed Wisconsin. This is notable because lawmakers in the two states adopted vastly different policy agendas coming out of the recession. Wisconsin adopted a highly conservative agenda of cutting taxes, shrinking government, and weakening unions. Minnesota, in contrast, enacted many key progressive priorities: raising the minimum wage, strengthening safety net programs and labor standards, and boosting public investment in infrastructure and education, financed by raising taxes, primarily on the wealthy.

Skeptical readers might argue that as much as the two states are similar, they are sufficiently different such that the diverging economic outcomes observed in our report are the result of fundamental differences in the two states’ economies and that state policy decisions were largely irrelevant. I think there’s ample evidence to indicate that such readers are wrong. In the paper, I discuss some of the policy decisions—such as those around Medicaid expansion, investment in infrastructure, and worker organizing—where one can draw a fairly straight line from the policy decision to the observed economic result. I also note that wage growth was actually stronger in Wisconsin than Minnesota in the seven years prior to Great Recession.

It’s also instructive to compare job growth in the two states in the economic expansion prior to the Great Recession. The data suggest that whatever their differences, prior to the recession, Wisconsin and Minnesota followed a very similar trajectory for employment growth.

Figure A

Figure A shows the number of jobs in Wisconsin, Minnesota, and the United States from November 2001 to December 2017, relative to the number of jobs in each geography in January 2011, the month that Governors Walker and Dayton took office. As you can see from the figure, changes in the level of jobs throughout the business cycle leading up to the Great Recession were remarkably similar between the two states. Both Minnesota and Wisconsin had modest job losses in the beginning of the period in the wake of the early 2000s recession, followed by modest job growth that tracked the U.S. average for a while and then flattened out for roughly the last two years prior to the onset of the Great Recession. In that earlier business cycle from November 2001 to December 2007, cumulative job growth was 3.7 percent in Minnesota and 3.3 percent in Wisconsin. Subsequently, the two states suffered losses in the recession that were similar, albeit slightly more severe in Wisconsin—with losses of 4.3 percent and 4.9 percent in Minnesota and Wisconsin, respectively, from December 2007 to December 2010.

The period from January 2011 to December 2017, after Governors Walker and Dayton assumed office, shows a starkly different picture. From early on in the recovery, Minnesota’s job growth accelerated noticeably more quickly than Wisconsin’s and the gap between the two states has increased fairly steadily ever since.

As I note in the paper, it would take a much more complicated and sophisticated analysis than I have done to pinpoint the precise jobs impact of particular policymakers’ decisions in each state. Nevertheless, I would be willing to bet that Minnesota’s decision to make large public investments in infrastructure, education, and healthcare—including the Affordable Care Act (ACA) Medicaid expansion—early in the latter period likely provided some extra fuel for the state’s economy. Conversely, Wisconsin lawmakers’ decisions to reject federal funding for the Milwaukee-Madison high-speed rail, to reject the ACA Medicaid expansion, and to take an ax to their public sector very likely stifled potential job growth.

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