Dani Rodrik, Laura Tyson, Thomas Fricke, et al Laurates -- on the "Berlin Declaration"

 via Project Syndicate.

TEXT ONLY

From the Washington Consensus to the Berlin Declaration

Jun 27, 2024DANI RODRIK, LAURA TYSON, and THOMAS FRICKE


Dozens of leading economists and practitioners convened in Berlin at the end of May for a summit organized by the Forum for a New Economy. Remarkably, the summit led to something resembling a new understanding that may replace the decades-long reign of neoliberal orthodoxy.


CAMBRIDGE/BERKELEY/BERLIN – Paradigm shifts in mainstream economic thinking usually accompany crises demanding new answers, as occurred after stagflation – low growth and high inflation – gripped advanced economies in the 1970s. And it may be happening again, as liberal democracies confronted a wave of popular distrust in their ability to serve their citizens and address the multiple crises – ranging from climate change to unbearable inequalities and major global conflicts – that threaten our future.

The consequences can now be seen in the United States, where former President Donald Trump has a good chance of winning the presidential election in November. Similarly, a far-right government could take power in France after the coming snap election. To prevent dangerous populist policies that exploit voters’ anger, and to avert major damage to humanity and the planet, we must urgently address the root causes of people’s resentment.

With this imperative in mind, many leading economists and practitioners convened in Berlin at the end of May for a summit organized by the Forum New Economy. The “Winning Back the People” summit led to something resembling a new understanding that may replace the market-liberal “Washington Consensus,” which for four decades emphasized the primacy of free trade and capital flows, deregulation, privatization, and other pro-market shibboleths.

The Berlin Declaration published at the end of the gathering has since been signed by dozens of leading scholars, including Nobel laureate Angus Deaton, Mariana Mazzucato, and Olivier Blanchard, as well as by Thomas Piketty, Isabella Weber, Branko Milanovic, and many others.



The Washington Consensus has been wobbly for some time, challenged by abundant research documenting rising income and wealth inequality and its causes, as well as reassessments of the role of industrial policy and strategies to combat climate change. Recent crises, not to mention the danger of losing the fight for liberal democracy itself, have catalyzed an effort to translate all this research into a new common framework of policies to win back citizens.

The Berlin Declaration highlights widespread evidence that people’s distrust is to a large extent driven by the shared experience of a real or perceived loss of control over one’s own livelihood and the trajectory of societal changes. This sense of powerlessness has been triggered by shocks stemming from globalization and technological shifts, amplified by climate change, artificial intelligence, the recent inflation shock, and austerity.


This diagnosis logically leads to an equally clear conclusion. To win back people’s trust requires policies that restore confidence in their – and their governments’ – ability to respond effectively to the real problems they face. This means focusing policies on the creation of shared prosperity and good jobs, including policies that proactively address imminent regional disruptions by supporting new industries and directing innovation toward wealth creation for the many.

There is equally strong support for designing a healthier form of globalization, for coordinating climate policies, and for allowing national control over crucial strategic interests. Underlying these priorities is broad agreement that income and wealth inequalities must be narrowed.

As part of a new consensus, climate policies will need to combine reasonable carbon pricing with strong positive incentives and ambitious infrastructure investment. And there is widespread acceptance of the need for developing countries to get the financial and technological resources they need to embark on the climate transition. In sum, there is a new shared common sense that a new balance between markets and collective action needs to be established.

To agree on all of this would probably not have been possible five years ago. The large number of signatories, and the diversity of perspectives they represent, reflect how much the discussion has changed with the accumulation of more and more empirical evidence.

The signatories of the Berlin Declaration do not pretend to have all the answers; far from it. Rather, the Declaration’s purpose is to offer a statement of principles that obviously differ from the previous orthodoxy and to create a mandate to refine political concepts for practice. How to get industrial policy right must be defined in a national context, as well as in a cooperative international effort; the same is true of how governments can best incentivize climate-friendly behavior. How to re-frame globalization or most effectively reduce economic inequality also remain open questions.

Nevertheless, achieving a consensus on the principles that should guide policymakers is hugely important. Recognizing that markets on their own will neither stop climate change nor lead to a less unequal distribution of wealth is only one step toward devising optimal strategies that can effectively address the real challenges that confront us. A lot of progress has already been made on this front.

We now face a choice between a protectionist populist backlash, with all the conflict that this implies, and a new suite of policies that are responsive to people’s concerns. To preempt the populists, we need a new political consensus that focuses on the causes of citizens’ distrust, rather than on the symptoms.

A concerted effort to put citizens and their governments back in the driver’s seat and promote well-being for the many is needed to restore trust in our societies’ ability to overcome crises and secure a better future. To win back the people requires nothing more – and nothing less – than an agenda for the people.

The Berlin Declaration has also been signed by Adam Tooze, Gabriel Zucman, Jens Südekum, Mark Blyth, Catherine Fieschi, Xavier Ragot, Daniela Schwarzer, Robert Johnson, Dalia Marin, Jean Pisani-Ferry, Barry Eichengreen, Laurence Tubiana, Pascal Lamy, Ann Pettifor, Maja Göpel, Stormy-Annika Mildner, Francesca Bria, Katharina Pistor, and some 50 other researchers and practitioners.

Bloomberg: Text Only: AI === Power

AI IS ALREADY WREAKING HAVOC ON GLOBAL POWER SYSTEMS

The Big TakeJune 21, 2024



Like much of Northern Virginia, Loudoun County was once known for its horse farms and Civil War battle sites.
But over the past 15 years, many of this community’s fields and forests have been cleared away to build the data centers that form the backbone of our digital lives.
The rise of artificial intelligence is now turbocharging demand for bigger data centers, transforming the landscape even more and taxing the region’s energy grids.
On a crisp afternoon this spring, the newest facility was nearing completion. When it’s done, this 200,000-square-foot building could use as much energy as 30,000 homes in the US.

But first, it needs to get enough power...

The energy supply can’t come soon enough for DataBank, the data center provider that owns the Virginia facility. An unnamed "big tech" client leased the entire facility and was so eager to tap into the complex to access computing resources for AI applications that it had servers ready in the building before DataBank was scheduled to have electricity for them.

“That’s the thing with AI. They need a lot of power and as soon as you have it, they want it right away,” said James Mathes, who manages some DataBank facilities. “Right now, it’s like a blank check for AI."

The almost overnight surge in electricity demand from data centers is now outstripping the available power supply in many parts of the world, according to interviews with data center operators, energy providers and tech executives. That dynamic is leading to years-long waits for businesses to access the grid as well as growing concerns of outages and price increases for those living in the densest data center markets.

The dramatic increase in power demands from Silicon Valley’s growth-at-all-costs approach to AI also threatens to upend the energy transition plans of entire nations and the clean energy goals of trillion-dollar tech companies. In some countries, including Saudi Arabia, Ireland and Malaysia, the energy required to run all the data centers they plan to build at full capacity exceeds the available supply of renewable energy, according to a Bloomberg analysis of the latest available data.

By one official estimate, Sweden could see power demand from data centers roughly double over the course of this decade — and then double again by 2040. In the UK, AI is expected to suck up 500% more energy over the next decade. And in the US, data centers are projected to use 8% of total power by 2030, up from 3% in 2022, according to Goldman Sachs, which described it as “the kind of electricity growth that hasn’t been seen in a generation.”
Globally, there are more than 7,000 data centers built or in various stages of development, up from 3,600 in 2015.
These data centers have the capacity to consume a combined 508 terawatt hours of electricity per year if they were to run constantly. That’s greater than the total annual electricity production for Italy or Australia.
By 2034, global energy consumption by data centers is expected to top 1,580 TWh, about as much as is used by all of India.


These are only estimates and there remains a high degree of uncertainty about how the current AI frenzy will play out. There’s also a difference between the projections for how much electricity data center developers want and how much generation actually gets built.

While tech companies are quick to point out that data centers account for less than 2% of global energy use even with all the expansion, an April report from Goldman Sachs estimates that figure could rise to 4% by the end of the decade. Any percentage point increase is monumental, given overall electricity demand has remained almost flat for years — if not declining in some regions.


In the US, power demand is expected to grow by 40% over the next two decades, compared with just 9% growth over the past 20 years, according to John Ketchum, chief executive officer at NextEra Energy Inc., the world’s biggest builder of wind and solar energy that isn’t backed by a government. Data centers are the biggest reason for that demand boom, Ketchum said, citing electrification and manufacturing as other factors. Asked why data centers were suddenly sucking up so much power, his answer was blunt: “It’s AI,” he said, citing the energy needs for training models and also the inference process by which AI draws conclusions from data it hasn’t seen before. “It’s 10 to 15 times the amount of electricity.”

Altogether, data centers use more electricity than most countries
Only 16 nations, including the US and China, consume more.



The biggest cloud services providers, Amazon.com Inc., Microsoft Corp. and Alphabet Inc.’s Google, have announced goals to run their data centers entirely on green energy — Amazon by next year, Google and Microsoft by 2030. All three say they are working on technological methods to use less power or balance the demand on the grid more efficiently. That can include wringing more efficiency from chips and servers, laying out equipment in ways that require less cooling and shifting loads to different areas based on where energy — particularly green energy — is available.

But some tech leaders like OpenAI CEO Sam Altman have said an energy breakthrough — likely from nuclear power — is needed to adapt to this new picture. Microsoft and Amazon are also betting on nuclear energy, with Amazon recently buying a nuclear-powered data center in Pennsylvania and indicating it’s open to more. For now, the path forward remains unclear. Microsoft recently admitted that its AI push is jeopardizing its long-held goal to be carbon negative by 2030.

“We need terawatts and terawatts more of traditional green energy, whether it’s wind or solar, and that’s across the globe,” said Amanda Peterson Corio, Google’s global head of data center energy, speaking broadly rather than solely about AI demands. For context, a single terawatt is equivalent to the output of about 1,000 nuclear power plants. “Of course we want to decarbonize ourselves, but if we’re just decarbonizing ourselves and not the whole grid, what’s the point?”

Global renewable energy supplies under pressure

As new data centers are built, their energy usage could equal or exceed some countries’ renewable energy supply
Ireland’s data centerenergy usage wasequal to53%of its renewableenergy supplyin 2022
Planned Consumption (2034)Live Consumption (2022)Renewable Energy Supply (2022)
Saudi Arabia
Ireland
Malaysia
UAE
Australia
South Korea
US
Israel
Netherlands
Denmark
Philippines
South Africa
Indonesia
Thailand
Portugal
Japan
France
India
Belgium
Taiwan

Sources: Bloomberg analysis of BloombergNEF and DC Byte data

Note: These 20 countries have the highest energy consumption from data centers relative to their renewable energy supply. The latest available data for renewable electricity supply is for 2022.

In today’s data centers, you might find thousands of Nvidia Corp.’s coveted H100 chips — the engine of the generative AI boom — each of which draws as much as 700 watts, or nearly eight times the power used by a typical 60-inch flat screen TV. Data centers built for training AI models require even more. Microsoft, for example, strung together tens of thousands of Nvidia processors inside a facility used to develop OpenAI’s technology. These are fed by networking and other types of chips which, combined with machinery in data centers used to prevent the gear from overheating, saps up even more power.

And the conventional wisdom in Silicon Valley is that the amount of energy needed will only go up. Nvidia’s newest chip, the B100, can consume nearly twice as much power as the H100. Nvidia contends companies will be able to do more with fewer chips, but Ian Buck, the company’s head of accelerated computing, admits it’s likely AI deployments will increase. “People like to fill their data centers,” he said.

AI development is evolving fast, too, with a feverish push toward developing ever larger artificial intelligence models. The Microsoft supercomputer built in 2020 that trained OpenAI’s GPT-3 system used 10,000 of what was then the latest AI chip. A November 2023 Microsoft supercomputer relied on 14,400 of the top of the line Nvidia H100 chips and the next one, which is already being designed, will be 30 times more powerful, according to a May slide presentation by Microsoft Azure Chief Technology Officer Mark Russinovich.

Meanwhile, Nvidia CEO Jensen Huang said many nations will push to build their own “sovereign” AI systems to stay competitive and process data locally. The global battle for AI supremacy may well depend on which countries have enough data centers and power to support the technology. If so, Loudoun County is a vision of what’s to come for the rest of the world — and the challenges other countries will face keeping up.

The data center capitals of the world

Over the past five years, Dominion Energy Inc., the power company that services Loudoun County, also known as “data center alley,” has connected 94 data centers that consume about four gigawatts of electricity, combined. Now it’s fielding requests for data centers campuses that would consume multiple gigawatts — enough to power hundreds of thousands of homes — two or three of which could use as much electricity combined as all the facilities hooked up since 2019.

The surge in demand is causing a backlog. Data center developers now have to wait longer to hook their projects up to the electric grid. “It could be as quick as two years, it could be four years depending on what needs to be built,” Dominion Energy Virginia president Edward Baine said in an interview.

Dominion is trying to build out the infrastructure to support it. New power lines hang from massive metal towers and run along roads and over creeks to feed electricity to these towering, windowless data centers. The company is building a large new wind farm off the coast and a lot of solar farms, but coal and gas powered plants could also stay online longer.

In late 2022, Dominion filed a previously unreported letter to its regulators asking for permission to build new substations and power lines to serve “unprecedented” load growth. In the letter, Dominion said it experienced 18 load relief warnings in the spring of that year. These warnings occur when the grid operator tells the company that it might need to shed load, the technical term for the controlled interruption of power to customers, which could include rotating outages.

“This is far outside of the normal, safe operating protocol,” Dominion told regulators.


A DataBank location in Ashburn, Va. Photographer: Moriah Ratner/Bloomberg

Virginia is not alone in struggling to keep pace with demand. In West London, historically considered a hub for data centers, new facilities have to wait until 2030 to connect to the grid, according to David Bloom, chairman of UK-based data center operator Kao Data. “We are now being pushed into new locations,” he said. Likewise, in the south of Sweden, a strong market for renewables, there is so much demand to get connected that businesses may have to wait years. “We have one queue, and you need to get your ticket,” said Peter Hjalmar, German utility E.ON SE’s regional manager for southern Sweden. And across the US, many new AI data centers are expected to consume 100 megawatts each, according to a recent Morgan Stanley analysis, prompting the analysts to wonder “how all of the proposed data center projects will be powered in a timely manner.” Demand is so high that large tech companies are having bidding wars over data center sites with ready access to power, according to NextEra.


Data center growth, as it’s being forecast, may also run up against the limits of how much power can be carried through transmission lines, said Ali Farhadi, CEO of the Allen Institute for AI. “I don’t think we can move that much electricity around the globe, forget about generating it,” he said.

Data centers will get more efficient over time, energy analysts say, but they’re also getting significantly bigger. The average size of data center facilities worldwide is now 412,000 square feet, an almost fivefold increase from what it was in 2010, according to data from DC Byte, a market intelligence firm.
More powerful data centers require more land
Includes building area in development stages
1

The surge in data center demand, combined with heavy investments from power companies like Dominion on new substations, transmission lines and other infrastructure to support it, are also increasing the likelihood customers will see their energy prices go up, experts say. The cost of some upgrades are typically allocated among electricity customers in an entire region, showing up as a line item on everyone’s monthly utility bill.

Goldman Sachs estimates that US utility companies will have to invest roughly $50 billion in new power generation capacity to support data centers. “That’s going to raise energy prices for both wholesale energy and retail rates,” said power market analyst Patrick Finn of energy consultancy Wood Mackenzie.

Costs including grid improvements are divided among each customer class, from residential to industrial, based on how much it actually costs to serve each, according to a Dominion representative. As a result, residential customers have seen their share of transmission costs drop in recent years while data centers have seen their portion rise, the representative said.


In Ireland, another heavily saturated market, there are some early signs of rate increases. Blessed with a moderate climate, Ireland has attracted so many data centers from Microsoft, Amazon and others that these facilities are forecast to consume a third of the country’s energy by 2026, up from 18% in 2022.

Wholesale power prices in Ireland have been a third higher on average this year than the rest of Europe. Other factors, including the country’s geography, play a role, but Sarah Nolan, senior modeler at Cornwall Insight, said growing data center demand can contribute — and that’s in a country that took strong steps to limit buildout just before the AI craze kicked off.

To manage energy constraints, Ireland’s state-owned electricity operator imposed a moratorium in Dublin in early 2022 and set out conditions to connect new data centers to the grid, including a preference for those generating their own electricity. The operator has “comprehensive” plans to build out the grid, said Donal Travers, the head of technology, consumer and business services for IDA Ireland, the state agency tasked with attracting foreign direct investment. But he said restrictions on large new connections are expected to continue “probably until 2028 or thereabouts.”

In the meantime, other regions are all too eager to open their doors.


A new data center under construction in Gainesville, Va. on March 20, 2024. Photographer: Moriah Ratner/Bloomberg
The next Virginia

When Rangu Salgame looks at Malaysia, he sees the next Virginia “in the making.” Johor, the southernmost state in peninsular Malaysia, has a policy to speed up clearances for data centers. Crucially, it’s also a short drive to Singapore, a longtime data center hub that imposed a moratorium for several years on new facilities to manage energy growth on the tiny island.

Once a sleepy fishing village, the suburbs of the city of Johor Bahru are now marked by vast construction sites. Microsoft and Amazon are investing in the region, as is Salgame’s company, Princeton Digital Group (PDG). At Sedenak Tech Park, a sprawling complex about 40 miles south of Johor Bahru’s city center, towering cranes dot the sky. PDG’s new 150 megawatt data center occupies one corner of the park, across from similar facilities from other providers.


“We have gone from shovel to production in 12 months,” said Salgame, who expects to have 300 megawatts of capacity in Johor within two years. “Not all parts of the world can execute at this speed and scale.”

But even markets eager to streamline data center buildout face constraints. What’s missing in Johor, especially for an industry like tech that is known for its climate pledges, is renewable energy. The power supply at Sedenak comes from Tenaga Nasional Berhad, which uses coal or gas-fired plants. While Malaysia has ambitious goals to bolster renewables, including plans to build a 500-megawatt solar farm in Johor, today it relies on coal for more than a third of its generation. Most of Malaysia’s data center capacity is not in use yet, but factoring in everything under construction, the amount of electricity used just by data centers would exceed the country’s total renewable output in 2022, the latest year for which data is available, a Bloomberg analysis found.
A data rush in Southeast Asia
Driven by Malaysia, the region has 153 new data centers that could potentially be built in the near future, adding a potential 5,419 MW of capacity


Like Malaysia, Texas has emerged as one of the fastest growing data center markets in the US, thanks in part to the promise of shorter wait times on its independent and deregulated grid. Texas sites can get on the grid in the one to two years it takes to build data centers, said Bobby Hollis, the vice president of energy at Microsoft, which is the largest player in Texas by megawatt, according to DC Byte.

Texas offers plentiful solar power and, in the state’s panhandle, some of the best access to wind power in the world, Hollis said. But a hotter climate and strained water supplies are pushing Microsoft and Google to try weaning their data center cooling gear off water. Alternate approaches, however, require more energy — about 5% more on average, according to Microsoft.

While power in Texas looks plentiful, there are limits. Solar panels and other gear needed for clean power are starting to see some supply constraints, Hollis said. The Electric Reliability Council of Texas also recently cautioned that it has underestimated demand in the San Antonio area, where Microsoft’s big data center campus is located, potentially causing cascading outages statewide in the future.

Back in Virginia, opposition to data centers is growing. At a March supervisors meeting in Prince William County, frustrated residents spoke out against a zoning change that would allow data centers on a specific plot of land to be built about twice as tall. One woman told officials that data centers were turning her quiet neighborhood into a “dystopian nightmare.”

A 48-year-old homemaker named Rachel Ellis spoke remotely to say the change would mean more demand on a grid that’s already strained. “It’s reckless governing to continue to approve data centers without knowing the full impacts of where this electricity will come from,” she said.

After hearing a dozen people speak against the zoning change, the supervisors voted. The bigger data centers were approved.

Calculations
Bloomberg converted data center capacity values to energy consumption estimates using the following formula: MWh = (capacity) * (hours in a year) * (utilization rate) * (Power Usage Effectiveness) where capacity is the installed IT capacity, utilization rate is 70% and Power Usage Effectiveness (PUE) is equal to an average of 1.5. This calculation assumes that data centers are running 70% of the time and that their PUE -- a ratio to determine a data center's efficiency -- is 1.5 on average. These numbers can vary from facility to facility, but Bloomberg had energy experts review these calculations.

Renewables
Bloomberg calculated the ratio of available renewable electricity (as of 2022, per latest data) to data center electricity consumption (estimate) for each country. In some countries, the data center electricity consumption estimate is nearly equal to, or greater than, the supply of renewable electricity.

Danny Rodrik: The Way Forward for Services-Led Economic Development

 

LINK

Jun 10, 2024 DANI RODRIK and ROHAN SANDHU


Today’s developing economies are in a bind, because innovation in manufacturing has taken a predominantly skill-biased form, reducing demand for workers with relatively low levels of education. This means that labor-absorbing services must become productive enough to support income growth.


BERLIN – The future of developing countries is in services. This may sound odd in view of the fact that industrialization has been the traditional road to growth and eventual prosperity, one traveled by all of today’s rich economies and by more recent successes such as South Korea, Taiwan, and China. Manufacturing seems even more essential given that industrial policies to revive it are back in fashion in the US and Europe.
2


But today’s manufacturing is different. Innovation in manufacturing has taken a predominantly skill-biased form, reducing demand for workers with relatively low levels of education. New technologies such as automation, robots, and 3D printing directly substitute physical capital for labor. While firms in developing countries have an incentive to use more labor-intensive techniques, competing in the global marketplace requires employing production techniques that cannot differ significantly from those used in the frontier economies, because the productivity penalty otherwise would be too high. The need to produce according to the exacting quality standards set by global value chains restricts how much unskilled labor can substitute for physical capital and skilled labor.

Thus, the rising skill- and capital-intensity of manufacturing in turn means that globally competitive, formal segments of manufacturing in developing countries have lost the ability to absorb significant amounts of labor. They have effectively become “enclave” sectors, not too different from mining, with limited growth potential and few positive effects on the supply side of the rest of the economy.

This means that enhancing productivity in labor-absorbing services has become an essential priority, for reasons of both growth and equity. Since the bulk of jobs will be in services, these jobs need to be productive enough to support income growth. The conundrum is that we do not know much about how to raise productivity in labor-absorbing services.

While some services, such as banking, IT, and business-process outsourcing (BPO) are both productively dynamic and tradable, they will not be labor-absorbing for the same reason that manufacturing is not. Even under the best circumstances, these relatively skill-intensive services will not provide the answer to the challenge of productive job creation. The challenge is to increase productivity in labor-absorbing services such as retail, care, and personal and public services, where we have had limited success, in part because such services have never been an explicit target of productive development policies.

In a new paper, we describe four strategies for expanding productive employment in services that create the most jobs in developing countries. The first focuses on established, large, and relatively productive incumbent firms, and entails incentivizing them to expand their employment, either directly or through their local supply chains. These firms could be large retailers, platforms such as ride-sharing services, or even manufacturing exporters (with potential to generate upstream linkages with service providers).

The second strategy focuses on small enterprises (which constitute the bulk of firms in developing countries) and aims to enhance their productive capabilities through the provision of specific public inputs. These inputs could be management training, loans or grants, customized worker skills, specific infrastructure, or technology assistance.

Given the heterogeneity of such firms, ranging from micro-enterprises and self-proprietorships to mid-size companies, policies in this domain require a differentiated approach that respond to their distinct needs. Moreover, given the numbers involved, policies often also require a mechanism for selecting among the most promising firms, since most are unlikely to become dynamic and successful.

The third strategy focuses on the provision, to workers directly or to firms, of digital tools or other forms of new technologies that explicitly complement low-skill labor. The objective here is to enable less educated workers to do (some of) the jobs traditionally reserved for more skilled professionals and to increase the range of tasks they can perform.

The fourth strategy also focuses on less-educated workers and combines vocational training with “wrap-around” services, a range of additional assistance programs for job seekers to enhance their employability, retention, and eventual promotion. Modeled after Project Quest, a US-based initiative, and other similar sectoral workforce development schemes, these training programs typically work closely with employers, both to understand their needs and to reshape their human-resource practices to maximize employment potential.

There are examples of these kinds of initiatives around the world, many of which have been rigorously evaluated and which we summarize in our paper. There is already a foundation of practice on what might be called “industrial policies for services” on which future efforts can build.

Regardless of the success of individual programs, it is important to bear in mind the scale of the challenge a services-oriented development strategy faces. A randomized policy intervention that increased earnings of low-income workers by, say, 20% would normally be judged a great success (assuming reasonable program costs). But even if it were successfully scaled up to the economy at large, this gain would not make up even 1% of the income gap that currently exists between a country like Ethiopia and the US. Real success will require greater ambition, continuous experimentation, and implementation of a very wide range of programs.

This commentary draws on the authors’ recent paper “Servicing Development Productive Upgrading of Labor-Absorbing Services in Developing Countries.”

Victor Grossman: HUMBOLDT AND GAZA

HUMBOLDT AND GAZA

Berlin Bulletin No. 222   May 4 2024

Victor Grossman, Berlin                              wechsler_grossman@yahoo.de

 

No books were burned this time in early May. But there were ironic parallels, some all too alarming!

It was May 10^th in Germany's terrible year 1933, Hitler had been in power for hardly three months, when students and staff emptied the university libraries of forbidden books and threw them, an estimated 20,000 books by over a hundred authors, into the flames of a giant bonfire. Most authors were German - Jewish, atheist, liberal, leftist, Bertolt Brecht, Anna Seghers, Sigmund Freud and  Magnus Hirschfeld, but also some foreign works were thrown into the flames – Maxim Gorki, Hemingway, Jack London, Dos Passos.

Ninety-one years later, this May 3rd, just across Berlin's famous Unter den Linden boulevard and in the same university courtyard where those books had once been dragged from, some of today's students – courageous, determined, the total opposite of the Nazis of 1933 - were forcibly hauled away to waiting police vans. The students of 1933 were advocating murder, preparing for the genocide which was to follow. These students of 2024 are protesting against murder and genocide.

The mayor, the authorities claimed that forbidden Hamas slogans were called out, justifying their brutal cuffing and arrests. It is possible that some Arab participants, emotionally moved by news and the pictures from Gaza, may have generalized these feelings. Who knows? And does it matter? This group was not anti-Semitic; it also included Jewish students, a few of them Israeli exiles. The spirit of these first three hundred demonstrators, as in similar scenes at other colleges and universities in Germany and other countries – and so very courageously all over the U.S.A. - was directed against destruction worse than any since 1945, of homes, mosques, churches, libraries, schools and universities in Gaza and against the killing of over 35,000 human beings, a majority of them women and children, and the physical and psychical maiming of so many more.

But these demonstrations, now growing rapidly in number, were more than that. For many they also expressed protest at the entire scene now engulfing Germany, and not only Germany. Hatred is in the air, with century-old feelings of superiority over "inferior" people, growing pressure to build ever more destructive weapons and prepare to use them – always, of course "in justified self-defense," whether in Gaza, in Lithuania, Estonia or for blockades against human beings at frontiers in Texas, Arizona or along Mediterranean seashores. And with this hatred there were mounting pressures for conformity. Don't rock the boat – or else! Such trends are gaining strength, aiming at the accession of total power, and not only with the obviously far-right groups! For so many of the proper, accepted leaders have ties with the billionaire profiteers thrilling at new conflicts and more mansions, jets, yachts.

It is the new spirit of protest against these trends, the hunt for new answers, which has dominant circles worried, even fearsome. That is why they send police into Hind's Hall or the courtyard of Humboldt University. Sometimes they prevail and can break resistance, sometimes local victories can be won. But it is the long-awaited movement which counts, and its match-up with equally courageous workers at auto plants, at Walmart or Starbuck shops or in Central Africa and Central America.

There is an added irony; the site of Friday's protest was the courtyard of Humboldt University in East Berlin, given that name soon after the defeat of the Nazis and the liberation of Berlin by the Red Army on May 8^th 1945. Looking down upon today's fighters is the statue of  Alexander von Humboldt, a great scientist and explorer, who ardently opposed the slavery he saw in Latin America and the U.S.A. in the 1820s - and oppression everywhere. A worthy patron. And inside the handsome building (where Albert Einstein once taught) and despite many changes in the university's character over the years, one sentence has been saved, in golden letters above a wide central staircase. It was written by another famous man, who once studied here, and it might also be considered as very relevant. The author was none other than Karl Marx. The words were: "Philosophers have hitherto only interpreted the world in various ways; the point, however, is to change it." Perhaps it is fear of the revival of such a spirit which has caused the mayor and many politicians to become so angry and worried and to send in the police.  Let us hope the better analogies are models, not the frightening ones!

Dean Baker: Profits Are Still Rising, Why Is the Fed Worried About Wage Growth? April 3

Dean Baker:  Profits Are Still Rising, Why Is the Fed Worried About Wage Growth?

I was more than a bit surprised to see the profit data this morning. I really did believe that the profit surge during the pandemic was a one-off, associated with supply-chain issues.

We can argue about how much of this increase was a predictable story, where profits rise due to shortages, and how much was about companies exploiting market power to jack up prices, but the fact that profit shares increased is not disputable. In any case, it was reasonable to expect that profits would return to their pre-pandemic shares after supply chains returned to normal.

That doesn’t look like what is happening, as shown below.

Source: BEA and author’s calculations, see text.

The profit share of corporate income rose to 26.8 percent in the fourth quarter from 26.3 percent in the third quarter. That is down only 0.5 percentage points from its pandemic peak of 27.3 percent in the second quarter of 2021 and well above the 24.3 percent average for 2019.[1]

This rise in profit shares really should have the Fed rethinking its inflation-fighting strategy. It is certainly true that the 6.0 percent rate of wage growth at the end of 2021 and start of 2022 was inconsistent with the Fed’s 2.0 percent inflation target. However, the current rate of roughly 4.0 percent is obviously consistent with the Fed’s target, if it is allowing companies to increase their profit share. This implies that we should actually want to see a somewhat more rapid pace of wage growth, unless we think profit shares need to be increasing indefinitely.

There are a couple of important qualifications here. First, we saw extraordinary productivity growth in 2023. Clearly corporations were the main beneficiaries of this growth. If this uptick was an aberration and we revert to something closer to the pre-pandemic growth rate, then profit shares may not continue to rise with a 4.0 percent pace of wage growth and could even edge back somewhat.

The other big qualification is that there is a large and unusual discrepancy between GDP measured on the income side and GDP measured on the output side. In principle these sums should be identical, but in a $28 trillion economy, they never come out exactly the same.

In recent decades, the income side has generally been about 0.5 percentage points higher than the output side. In the fourth quarter, the income side was 2.0 percentage points lower. We usually assume that the true figure lies somewhere between the two measures.

This would imply that the true sum of wages and profits is 1.0 to 2.0 percentage points higher than what is now reported. If that gap ends up being disproportionately wages or profits it could change the picture somewhat, but even if the full 2.0 percentage points all ended up being wage income it would not change the fact that the profit share is still far above its pre-pandemic level.  

The upshot is that it really is time for the Fed to declare “Mission Accomplished” and take its foot off the brake. If profit shares are rising, there is no reason for it to be trying to slow wage growth.   

[1] These figures take Line 8 (net operating surplus) from NIPA Table 1.14, minus Line 11 (Federal Reserve Bank profits) from Table 6.16D divided by Line 8 plus Line 4 (labor compensation) from Table 1.14.

1w

Corporations can't be beat for their ability to take advantage of our "democratic" system, where political contributions snowballs to more regulation relaxing that helps them make more and make larger contribution. A nice vicious cycle against the little guy. Average citizens, with hand-to-mouth incomes don't stand a chance to be heard . It is rigged, or should we say, it was born rigged and will remain so until it dies from bloat. Now that our justice system is acting a lot more like the political system and let each other off the hook for bribery, the bloat is accelerating. Good or bad, history's beat goes on.

Kissinger is gone.

 

Henry Kissinger is gone, at 100 years. Some will mourn him, while others, including myself, preferred he face  judgement for crimes against humanity in Vietnam, Chile, and beyond, long ago.

Judgement is a cultured expression for less dignified revenge. As Eastwood's "Unforgiven" hitman's revenge tale concludes: "We all got it comin'". But that may also be an evasion from deeper truths.

Kissinger's rise to intellectual prominence, and eventually to power via the Rockefellers, among other energy interests, rested on a hash analysis of 19th Century "Great Power" conflicts.  I say hash, because it contained very little original thought, and furthermore, Kissinger was keenly aware that the intellectual framework's sole value was as a fungible  fraud to cover the real purpose of post war IS foreign policy -- namely, the removal or compromise of ALL obstacles to US Big Business --- aka "monopoly capitalism" --- expansion and dominion over markets, supply chains, and Security throughout the world. Contrary to the intuition of most Americans, I submit the historical evidence, and actual NSA documentation reported on extensively by Seymour Hersh,  demonstrates that the expansion of capitalism is the ONLY thing meant by the worldwide "defense of democracy".

Socialist countries, and socialist or communist led patriotic liberation movements in former colonies, were the chief adversaries of the 'Kiss' strategies. The Kiss strategy ran into disaster in Vietnam, where a far superior military force, was defeated by a patriotic movement with mass support. 2 million Vietnamese perished.  In their country they are heroes. 50,000 Americans perished, including two of my childhood friends. What did the 50, 000 Americans die for? To keep communists from winning both the elections and civil war against colonialism in Vietnam? Of all the things impinging on the working and living standards and security of working class families in the US, how many are caused by communism, or socialism?

Despite this monumental failure, the Kiss strategy persists, respected in both parties. But we lost more than the 50,000 souls sacrificed in Vietnam. In the resistance to the war, and the massive struggle for civil rights, and their suppression by assassinations, terror, and further corporate consolidation of political and economic power -- the many frauds could not conceal the fact that we, as a nation, had become infected with a cancer, whose cure is not in sight. And it is killing us.

Vietnam was followed by Iraq, endless intrigues and assassinations fostered by the CIA to similar effects, and now Russia and Palestinians. Argentina prolly next.

"We all got it comin'"!

That's the existential view, not the Marxist, or Communist view, or even the Quaker view. As individuals, yes, we come and then go. RIP Henry Kissinger. I do not believe in either heaven or hell, despite their value in storytelling. 

It's not necessarily "comin' for ALL of US.

As peoples, as vast, potentially global family, social and political formations, we can both survive, and progress, and remake the world within the measure of human and material conditions handed down to us.

Or not. 

I think the most  scientific approach is generally the most optimistic. But as AI practice and research is demonstrating, the most scientific approach tends to be the one encompassing the broadest and richest data. It is in that sense, I believe that democracy has its most profound contribution. Far more profound than the current frauds reflected in contests between two "for sale" political parties.

That "for sale" expression is not intended to make Trump, a fascist creep, equivalent to Biden, a decent human being if nonetheless hostage to the same fundamental Kissingerism.

The best eulogy for the Kiss: Lets Move On!

The Marxist Summaries - Nov 18, 2023

ChatGPT-assisted summaries of recent blog posts by Michael Roberts, a UK Marxist economist.

November 18, 2023

About

Lenin In Disguise: He is Making a Comeback.

From A Sahm Recession To Global Downturn

Michael Roberts

This article was originally published: November 12, 2023

The selected text discusses the current state of the US and global economies, highlighting potential risks and challenges they may face. It mentions differing opinions on whether the US will avoid a recession in the next 12 months, with William Dudley, former New York Fed chief, believing that the chances of a recession increase dramatically once the unemployment rate rises by a certain amount. Claudia Sahm, a former Fed economist, has developed the Sahm rule, which accurately predicted recessions since the 1970s, and notes that the reading on the Sahm Rule in October was 0, indicating a potential recession. The text also mentions that even if the US avoids a contraction in real GDP, it is likely to experience a significant slowdown next year, with inflation remaining above the pre-pandemic average and the Fed's target of 2%. It highlights that major economies worldwide face the risk of recession, as global business activity stalled in October and the global PMI fell below 50, indicating contraction. The Eurozone, Sweden, Canada, and the UK are already experiencing economic contractions, with the UK potentially heading into a technical recession. The IMF projects a global growth slowdown in 2024, particularly in the European Union, China, and India. Many emerging market economies are facing a debt crisis, with rising debt servicing costs and vulnerability to currency crashes. The World Food Program estimates that food insecurity will affect around 345 million people in 2023, driven by high energy prices and reliance on higher-emission fuels. The underlying cause of the slowdown in productivity and world trade, as well as the increased geopolitical rivalry, is attributed to the slowing of productive investment growth in the major economies. The text suggests that unproductive investment in finance, real estate, and military spending has been keeping growth up, while investment in technology, education, and manufacturing has dropped away. The global profitability of productive capital has been stagnating or even declining in the 21st century. The IMF calls for structural reforms, including labor market flexibility, fiscal consolidation, clean energy investment, and increased multilateral cooperation to address global challenges and prevent further fragmentation. However, the text argues that these proposals may be unrealistic given the increased spending on fossil fuel production and rising global temperatures. The IMF's support for financial globalization is also criticized, as it exposes countries to certain risks and can be used as blackmail to stop national governments from implementing measures to stop financial globalization. In summary, the selected text highlights concerns about the possibility of a recession in the US and major economies, as well as the challenges posed by inflation, debt crises, and food insecurity. It emphasizes the potential slowdown in global growth and the need for sustainable and resilient economic policies.

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Visions Of Inequality

Michael Roberts

This article was originally published: November 9, 2023

The selected text is a review of Branco Milanovic's book "Visions of Inequality" by an economics website. The book explores the evolution of thinking about economic inequality over the past two centuries, focusing on the works of influential economists. Milanovic's analysis of Karl Marx's views on inequality is highlighted in the review. Milanovic argues that Marx's theory of value can be separated from his discussion of forces that affect income distribution between classes. However, the reviewer questions this observation, suggesting that Marx did address inequality in his writings. According to Milanovic, Marx believed that attempts to reduce inequality within the capitalist system would only lead to reformism and trade unionism, and that the institutions of capitalism needed to be abolished. The reviewer acknowledges that descriptions of poverty and inequality are present in Marx's work, but argues that they are meant to illustrate the reality of capitalist society and the need to end the wage-labor system, rather than advocate for reducing inequality within the existing system. Milanovic suggests that Marx's view of capitalism and inequality was unfinished, with some important parts of his work remaining incomplete. The text also mentions other economists discussed in Milanovic's book, such as François Quesnay, Vilfredo Pareto, and Thomas Piketty. It highlights the debate surrounding Marx's interest in inequality and his belief that addressing it requires the abolition of capitalist institutions. The text provides historical data on wealth and income inequality in the UK and the US during the 18th and 19th centuries. It notes that wealth inequality in the UK was exceptionally high during Marx's time, with the top 1% of wealth-holders owning around 60% of the country's wealth. Income inequality was also high, with capitalists and landlords earning significantly more than workers. Marx's theory of exploitation is discussed, which is based on the idea that workers produce value greater than the value of their labor-power, leading to profit for capitalists. The text also mentions Marx's theory of classes in capitalist society, which is derived from his theory of value. The text concludes by mentioning the debate about whether the exploitation of the Global South by the rich imperialist bloc is mainly due to low wages or the productive power of the imperialist bloc. Marx's observation that the value of labor-power differs according to historical and social needs is highlighted in this debate. Overall, the selected text provides an overview of Milanovic's book and focuses on his analysis of Marx's views on inequality. It highlights the debate surrounding Marx's interest in inequality and his belief that addressing it requires the abolition of capitalist institutions. The text also provides historical data on wealth and income inequality and discusses Marx's theories of exploitation and classes in capitalist society.

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Sri Lanka’s Debt Trap

Michael Roberts

This article was originally published: November 6, 2023

The selected text discusses the debt crisis faced by Sri Lanka and the role of China in this situation. It highlights the recent court decision to grant Sri Lanka a six-month pause on a creditor lawsuit filed by Hamilton Reserve Bank, which holds a significant portion of Sri Lanka's defaulted bonds. The court's decision allows Sri Lanka to negotiate with other private sector creditors, bilateral lenders, and the International Monetary Fund (IMF) to arrange a deal and obtain new funds. The text argues that China is not a major lender to Sri Lanka compared to Western creditors and multinational agencies. Japan and the World Bank remain significant lenders, while China's share is equal to theirs. Commercial lenders now account for nearly 50% of Sri Lanka's debt. The rise in Sri Lanka's debt burden is attributed to the corrupt and autocratic Sri Lankan government's mismanagement rather than China's alleged debt trap. The Sri Lankan government turned to international sovereign bonds to finance its spending after the 2008 Global Financial Crisis. However, the COVID-19 pandemic further worsened the country's economic situation, with the tourism sector being severely affected. Increased spending and imports, coupled with a decline in foreign currency reserves, led the government to print money to cover deficits, resulting in high inflation. The text emphasizes that Sri Lanka's debt crisis was primarily caused by domestic policy decisions and facilitated by Western lending and monetary policies. The government's sustained budget deficit was financed by foreign borrowing, with a significant portion owed to private financial institutions. Despite warnings about the Sri Lankan economy, foreign creditors continued lending, and the government refused to change course for political reasons. The text also addresses the issue of the Sri Lankan port project, often cited as an example of China's debt trap. It argues that China did not propose the port project, and it was driven by the Sri Lankan government's aim to reduce trade costs. The debt trap was a result of domestic policy decisions and facilitated by lax governance and inadequate risk management on both sides. The article concludes by mentioning the political instability in Sri Lanka, with former President Rajapaksa being forced out of office and replaced by his close supporter, Ranil Wickremesinghe. Despite agreeing to fiscal measures with the IMF, Wickremesinghe has been unable to secure approval for fund release, and the debt rescheduling agreement remains unachieved. Hamilton Reserve Bank is opposing any agreement and demanding full repayment on its Sri Lankan bond holdings. In summary, the selected text highlights the complexities of Sri Lanka's debt crisis, challenges the notion of China's debt trap, and emphasizes the role of domestic policy decisions and Western lending in exacerbating the situation.

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50 Years Of Dependency Theory

Michael Roberts

This article was originally published: November 4, 2023

The selected text discusses dependency theory, a critique of modernization theory that emerged in the 1960s and 1970s. Dependency theorists argue that poor countries are systematically exploited by wealthy countries and that economic development does not apply to economies in South America, the Middle East, or Africa. The theory identifies two main groups of countries in the global economic system: the core and the periphery. The core countries are wealthy and control the global economy, while the periphery countries are poor and dependent on the core countries for trade, investment, and technology. The text also references Marx's belief that the more industrially developed countries show the less developed countries an image of their own future. However, only a small group of industrial and commercial capitalist economies achieved Marx's prediction, and these dominant imperialist economies continue to control the world's technology, finance, and resources. The author, Claudio Katz, focuses on the Marxist variant of dependency theory, which argues that countries remain "dependent" due to the extraction of value from labor in their economies to the imperialist bloc through trade, finance, and technology. The theory of "unequal exchange" in international trade is a fundamental component of Marx's theory of value. Differences arise within dependency theory regarding the nature of unequal exchange. Some argue it is due to wage differences, while others attribute it to technologically driven productivity differences. The author agrees with the latter perspective, emphasizing that value transfer from the periphery to the core economies is mainly due to productivity differences and technological superiority. The concept of "super-exploitation," where wages in the periphery fall below the value of labor power or below the average international wage, is also discussed. However, the author argues that super-exploitation cannot be the main determinant of value transfer between rich and poor countries. The text also touches on the role of monopoly power in the dominance of imperialist companies. While some dependency theorists claim it is the main cause, the author argues that it was not the case according to Marini, a prominent Latin American Marxist dependency theorist. Overall, the text provides a comprehensive overview of dependency theory, its Marxist variant, and the key debates within the theory. It emphasizes the exploitation of poor countries by wealthy countries and challenges mainstream development economics. The author also discusses the concept of "sub-imperialism" and its relevance in understanding contemporary capitalism, but expresses skepticism about its usefulness. The text concludes by highlighting the importance of integrating the theory of value into the explanation of dependency and understanding the logic of underdevelopment in present-day capitalism.

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Debt Distress

Michael Roberts

This article was originally published: October 31, 2023

The selected text discusses the increasing rate of debt distress in both poorer countries and the Global North. It highlights how poorer countries struggle to prosper due to international forces setting commodity prices for their exports. Debt owed by poor countries to richer ones in the Global South has been rising rapidly, and debt servicing costs have mounted despite relatively low interest rates. The recent global inflationary spike has led to a sharp rise in interest rates on debt, further increasing the burden of servicing that debt. The contraction of world trade growth, particularly in resource commodities, has also contributed to the debt distress. In the Global North, rising debt levels and costs are affecting both the capitalist sector and governments. US companies are already facing high interest rates, with borrowing costs for some firms doubling or nearly tripling in 2023 compared to previous years. This has led to an increase in bankruptcy filings and the rise of "zombie" companies that survive by borrowing more because they do not generate enough profit to service their existing debt. The increasing number of corporate defaults and the pressure on creditors, particularly banks, is highlighted as a potential consequence of rising debt distress. The public sector is also facing debt servicing pressure. The US government, for example, has seen a significant increase in the cost of borrowing due to rate hikes by the Federal Reserve, resulting in substantial spending on interest payments. Overall, the selected text emphasizes the growing debt distress in both poorer countries and the Global North, highlighting the challenges faced by governments, companies, and the public sector in servicing their debts. The text suggests that debt must be reduced, central banks must keep interest rates up, and governments must reduce deficits through fiscal austerity. The US stock market has already fallen over 10% in the last few months as the cost of borrowing has risen. The text also mentions the need for entitlement reforms, such as raising retirement pension contributions and the age threshold, and cutting public services. It suggests that many emerging market and developing economies need to reduce the footprint of state-owned enterprises through privatization. The text argues that putting "fiscal houses in order" is essential to ensure governments can deliver for their people, but questions whether this approach is the right way round. It suggests that planned investment in productive sectors and government services globally could lead to economic growth, which would then put fiscal houses in order and alleviate debt distress.

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