I took a look at the table Easterly & Kraay provided in the paper that you cited (here is an ungated pdf; it’s on pg 22) and all of the rich small states save for The Bahamas (which is 50 miles away from Florida) enjoy military protection from larger polities.
Bahrain and Qatar have the US Navy looking after them, Iceland is in NATO, Bermuda is a Crown Colony, and Luxembourg is nestled comfortably in between France and Germany (and people say the EU is worthless!). If you throw Macau and Hong Kong into the mix you’re looking at a well-protected group of microstates.
It’d be very interesting to see how empirically robust this observation is, but I suspect it won’t be done because most people who focus on microstates tend to have a soft spot for them. To acknowledge the deep intertwinement that successful microstates have with larger polities is to acknowledge the prominence that incoherence and messiness enjoy when it comes to existence of states and the issue of sovereignty.
Ethiopian Prime Minister Abiy Ahmed was awarded the 2019 Nobel Peace Prize. He is the 12th winner from Africa. The Nobel Committee stated that Abiy had been awarded the Nobel for his efforts towards resolving the border conflict with Eritrea (in September 2018, Abiy and Eritrean President Isaias Afwerki signed a peace deal in Jeddah).
A border war in the years between 1998 and 2000 had resulted in the deaths of 100,000 people, and was responsible for the displacement of over one million people and the splintering of many families. The agreement has helped in reducing tensions between both countries and has led to a number of other important steps; it has paved the way for air connectivity (Ethiopian Airlines resumed its flight from Addis Abbaba to Asmara, the capital of Eritrea after two decades), resumption of communications between both countries (telephone lines had been disconnected in 1998), reduction of military hostilities, and most importantly reuniting of families.
While reacting to the Nobel Committee’s decision, the Ethiopian Prime Minister said that this reward was not merely for Ethiopia, but the whole of Africa, and hoped that leaders in the region would work towards peace-building.
Said the Ethiopian PM:
…It is a prize given to Africa, given to Ethiopia, and I can imagine how the rest of Africa’s leaders will take it positively to work on the peace-building process in our continent.
It would be pertinent to point out that, in recent years, the outside world has begun to take note of Ethiopia for its economic progress – in spite of numerous political challenges.
In recent years — almost a decade — the country’s economic growth has been a whopping 10% according to International Monetary Fund (IMF) estimates. In 2018, Ethiopia’s growth was estimated at well over 8% (8.5), and was the fastest growing economy in Africa. One of the key factors for Ethiopia’s impressive economic performance has been the shift from the agricultural sector to the industry & service sector and favourable demographics.
Reforms introduced by Abiy Ahmed: Political Sphere
Abiy’s election has generated immense hope, as he has seemed genuine in his commitment to political and economic reforms. During his tenure, a number of political prisoners have been released. There is also a reasonable amount of press freedom. There have been no arrests of journalists ever since he has taken over (2018 was the first year since 2004 when not a single journalist was arrested).
Abiy’s reforms – both political and economic – are significant because in many countries which have made economic progress, leaders have exhibited authoritarian tendencies. In many countries with economic promise, leaders have also failed to bite the bullet, as far as big bang economic reforms are concerned. Abiy, on the other hand, has reiterated his commitment to reforms.
Reforms introduced by Abiy Ahmed: Economic Sphere
In September 2019, Abiy unveiled his vision for economic reform titled ‘Home-Grown Economic Reform,’ which focuses on drawing greater public sector participation, reducing debts, and enhancing foreign exchange reserves. While speaking on the occasion of the launch of the roll out of his government’s agenda, Abiy emphasized on the fact that this approach is holistic: pro-job, pro-growth, and pro-inclusivity.
Privatization of a number of state run enterprises, such as Ethiopian Airlines, Ethiopian Electric Power Corporation, and the sole telecom provider, EthioTelecom, has also been high on the agenda of Abiy ever since he has taken over.
This is not to say that all is well in Ethiopia. In June 2019, Ethiopia faced two attacks, one in the Amhara regional capital of Bahir Dar and the other in the federal capital of Addis Ababa. While Abiy has made efforts towards reducing acrimony in the country’s polity, there are still numerous ethnic divisions, and a large number of political players are seeking to cash in on these schisms.
Expectations from Abiy are sky high, and the country faces numerous debts. While his agenda for reforms is well-intentioned, and does represent a significant break from the past, it is rather ambitious and it remains to be seen whether stakeholders involved in the implementation will be in sync with the PM.
Africa no longer the Dark Continent
For very long, many Western commentators have consistently adopted a patronizing approach towards Africa. The Nobel Award to the Ethiopian PM comes at an interesting time. At a time when the whole world is becoming insular, 54 African countries have signed the AfCTA (African Continental Free Trade Area) agreement. AfCTA. This is the world’s largest free trade agreement since the World Trade Organisation).
AfCTA is a crucial step towards strengthening intra-regional trade linkages and overall connectivity. AfCTA has the potential of connecting over 1 billion people, creating a bloc worth over an estimated $3 billion and pushing intra-Africa trade by up to 15-25% by 2040 (as of 2018, intra-regional trade was less than 20%).
It would be pertinent to point out that the Ethiopian PM has on repeated occasions reiterated his commitment to Pan-Africanism, and has been one of the most fervent backers of AfCTA.
Africa is also being viewed as the world’s next manufacturing hub (China has already moved in a big way, though of course many countries are looking to other alternatives). Political stability and investor-friendly policies of course are imperative.
One hopes that other leaders in Africa follow Abiy’s footsteps in focusing on economic and political changes which could pave the way for sustainable growth and prosperity.
For long the world’s attention has been driven by a Western narrative, but in recent years Africa along with Asia has begun to draw attention due to high economic growth rates. If Africa can get its act together, and growth in countries like Bangladesh and Vietnam is sustained, we could witness the rise of new Non-Western groupings (consisting of developing countries from different regions). Such groupings will not be driven by geopolitical compulsions, geographic proximity, or sheer size, but by economic consideration and could play a pivotal role in shaping a new narrative, while promoting globalization, connectivity and free trade.
- Jack Schwartz on the weaknesses of the Mathematical Mind David Glasner, Uneasy Money
- Did the Thirty Glorious Years actually exist? Vincent Geloso, NOL
- A hidden cost of the War on Drugs Vincent Geloso, NOL
- Star Trek did more for the cultural advancement of women than government policies Vincent Geloso, NOL
Countries can change their course, they can turn from stagnation towards growth, as it is the case of South Korea in the last fifty years. They can also decline after a boom period. Together with other examples of successes and failures, these are indications that economic performance does not depend on geography, culture, or the education of ruling elites. Following the line expressed by other authors such as Douglass C. North (Institutions, Institutional Change and Economic Performance, 1990), William Easterly (The Elusive Quest for Growth, 2001) and Daron Acemoglu and James A. Robinson (Why Nations Fail, 2012), it is appropriate to maintain that the economic performance of nations, expressed in their growth, depends on the incentives provided to individuals by institutional frameworks. The incentive systems -that is, the institutions- evolve, and with them the fate of the countries. But to achieve such evolution, there must first be a change in the level of commonly accepted notions about what is right and what is wrong for governments to put into practice. That is, what are the principles that should inform the legislative policy that puts into effect such institutional frameworks to order the expectations of society.
[Editor’s note: This is the first part of a new series. You can find the full essay here.]
Bryan Caplan is an optimist. He thinks that economists do many errors in estimating GDP (overall well-being). He is right in the sense that we are missing many dimensions of welfare improvements in the last half-century (see here, here and here). These errors in measurements lead us to hold incorrectly pessimistic views (such as those of Robert Gordon). However, Prof. Caplan seems to argue (I may be wrong) that all measurements problems and errors are greater than zero. In other words, they all cut in favor of omitting things. There are no reasons to believe this. Many measurement problems with GDP data cut the other way – in favor of adding too much (so that the true figures are lower than the reported ones).
Here are two errors of importance (which are in no way exhaustive): household output and adjustments for household size.
From the 1910s to the 1940s, married women began to enter moderately the workforce. This trickle became a deluge thereafter. National GDP statistics are really good at capturing the extra output they were hired to produce. However, national GDP statistics cannot net out the production that was foregone: household output.
A married woman in 1940 did produce something: child-rearing, house chores, cooking, allowing the husband to specialize in his work. That output had a value. Once offered the chance to work, married women thought the utility generated from producing “home outputs” was inferior to the utility generated from “market work”. However, the output that is measured is only related to market work. Women entered the labor force and everything they produced was considered a net addition to GDP. In reality, any economist worth his salt is aware that the true improvement in well-being is equal to the increased market output minus the forsaken house output. Thus, in a transition from a “male-labor force” to a “mixed labor force”, you are bound to overestimate output increases.
How big of an issue is this? Well, consider this paper from 1996 in Feminist Economics. In that paper, Barnet Wagman and Nancy Folbre calculate output in both the “household” and “market” sectors. They find that even very small changes in the relative size of these sectors alter growth rates by substantial margins. Another example, which I discussed in this blog post based on articles in the Review of Income and Wealth, is that when you make the adjustment over four decades of available Canadian data, you can find that one quarter of the increase in living standards is eliminated by the proper netting out of the value of non-market output. These are sizable measurement errors that cut in the opposite direction as the one hypothesized by prof. Caplan (and in favor of people like prof. Gordon).
Changes in household sizes also create overestimation problems. Larger households have more economies of scale to exploit than smaller households so that an income of $10,000 per capita in a household of six members is superior in purchasing power than an income of $10,000 per capita in a single-person household. If, over time, you move from large households to small households, you will overestimate economic growth. In an article in the Scottish Journal of Political Economy, I showed that making adjustments for household sizes over time yields important changes in growth rates between 1890 and 2000. Notice, in the table below, that GDP per adult equivalent (i.e. GDP per capita adjusted for household size) is massively different than GDP per capita. Indeed, the adjusted growth rates are reduced by close to two-fifths of their original values over the 1945-2000 period and by a third over the 1890 to 2000 period. This is a massive overestimation of actual improvements in well-being.
A large overestimation
If you assemble these two factors together, I hazard a guess that growth rates would be roughly halved (there is some overlap between the two so that we cannot simply sum them up as errors to correct for – hence my “guess”). This is not negligible. True, there are things that we are not counting as Prof. Caplan notes. We ought to find a way to account for them. However, if they simply wash out the overestimation, the sum of errors may equal zero. If so, those who are pessimistic about the future (and recent past) of economic growth have a pretty sound case. Thus, I find myself unable to share Prof. Caplan’s optimism.
‘Motivated Reasoning, Public Opinion, and Presidential Approval‘, an interesting new paper forthcoming in the journal Political Behavior (summarized here), by Kathleen M. Donovan, Paul M. Kellstedt, Ellen M. Key, Matthew J. Lebo finds that support for sitting presidents has become increasingly misaligned with national economic expectations. Rather than being a sign of voters realizing that presidents play little role determining economic performance, they attribute this to increased partisan polarization.
I think this is a compelling account. All I would add is a potential causal mechanism. My current favorite dimensions for analyzing democratic trends in the developed world is demography. Voters are ageing. When retired, they tend to have much less direct involvement with the productive economy than when they were working. On average, the elderly are quite rich and living off entitlements they have acquired during their working lives. So they are both less reliant on current economic opportunities and less knowledgeable of them. This means their personal costs of partisanship, relative to good policy, is lower than it used to be. And this is what lets all the culture-war nonsense creep into people’s decision functions.
While addressing a joint press conference in Hanoi, after his summit with North Korean Leader Kim Jong Un, US President Donald Trump spoke not just about the Summit, but also the current state of US-China relations. Trump criticised his predecessors for not doing enough to address the trade imbalance with China, while also making the point that he was all for China’s economic progress and growth, but not at the cost of the US.
If one were to look beyond the Summit in terms of the US-Vietnam economic relations, top US companies – Boeing and General Electric – sealed some important deals.
Given the focus of Trump’s visit (which was the Summit with Kim), perhaps these deals did not draw the attention they ought to have. The fact is that the US has begun to recognise Vietnam’s economic potential, as well as its geopolitical significance in Asia. This long note will give a backgrounder to Vietnam’s economic growth story in recent years, highlight some of it’s key strategic relationships, and then examine the nature of the China-US-Vietnam economic triangle.
Vietnam’s growth story: The key reasons Continue reading
Nick Crafts can be viewed as the doyen of British economic history. His major publications date back to the 1970s – a favorite of mine is this piece from 1977 on the role played by chance in determining whether the Industrial Revolution would occur in England or France. He is also the joint author of the Crafts-Harley interpretation of the Industrial Revolution. But, perhaps because the majority of his research focuses on British economic history, he remains highly underrated outside of the UK. His new book Forging ahead, falling behind and fighting back: British economic growth from the industrial revolution to the financial crisis summarizes much of his research.
I’ve reviewed it for the Economic History Review. But given the whims of academic publishing, it may be a long time until my review appears in print so I’ve decided to post a preview of my draft below.
Why was Britain the first industrial nation and the workshop of the world? Why was it eventually caught up and overtaken? Why once it had fallen behind the United States, did it fall further behind its European rivals in the Post-War period? And how did it recover its relative position in the 1980s and 1990s? All these questions are addressed in Nicholas Crafts’s slim new book.
In Forging ahead, falling behind and fighting back, Crafts provides a macroeconomic perspective on the British economy from 1750 to today. The word macro is advisory. Crafts surveys the British economy from 1000 feet, through the lens of growth theory and growth accounting. The upside of this approach is that he delivers a lot of insight in a small number of pages. Readers looking for discussions of individual inventors, innovations, politicians, or discussion of specific policy decisions can look elsewhere.
The first part of the book provides an overview of the Crafts-Harley view of the British Industrial Revolution. This view emphasizes the limited scope of economic change in the early 19th century. On the eve of the Industrial Revolution, the British economy already had a comparatively modern structure, with many individuals working outside agriculture. Growth between 1770 and 1850 was highly reliant on a few key sectors and TFP growth was modest (0.4% a year). Most workers remained employed in traditional sectors of the economy. It took until the second half of the 19th century for the benefits of steam, the general purpose technology of the age, to fully diffuse through the economy. Nonetheless, from a long-run perspective, the achievements of this period, a small but sustained increases in per capita GDP despite rapid population growth, were indeed revolutionary.
An important theme of the book is institutional path dependency. Characteristics of Britain’s early position as an industrial leader continued to shape its political economy down to the end of the 20th century. Crafts mentions two interesting instances of this. First, Britain’s precocious reliance on food imports from the early 19th century onwards left a legacy that was favorable of free trade. Elsewhere in the world democratization in the late 19th century often led to protectionism, but in Britain, it solidified support for free trade because, after the expansion of the franchise, the median voter was an urban worker dependent on cheap imported bread. Second, industrial relationships were shaped the nature of the economy in the 19th century. Britain thus inherited a strong tradition of craft unions that would have consequences in conflicts between labor and capital in the 20th century.
The second part of the book considers the late Victorian, Edwardian, and inter-war periods. It was in the late 19th century that the United States overtook Britain. A venerable scholarship has identified this period as one of economic failure. Crafts, however, largely follows McCloskey in exonerating Edwardian Britain from the charge of economic failure. The presence of fierce competition limited managerial inefficiencies in most areas of the economy; though there were notable failures in sectors where competition was limited such as the railways. The main policies errors in this area were thus ones of omission rather than commission: more could have been done to invest in R&D and support basic science – an area where the US certainly invested in more than the UK.
The seeds of failure, for Crafts, were sown in the interwar period. Traditionally these years have been viewed relatively favorably by economic historians, as the 1930s saw a shift away from Industrial Revolution patterns of economic activity and investment in new sectors. However, in a comparative light, TFP growth in the interwar period was significantly slower than in the US. The new industries did not establish a strong export position. This period also saw the establishment of a managed economy, in which policymakers acceded to a marked decline in market competition. Protectionism and cartelization kept profits high but at a cost of long-run productivity growth that would only be fully revealed in the post-war period.
Most economic historians view the postwar period through the lens of Les Trente Glorieuses. But in Britain, it has long been recognized that this was an era of missed opportunities. Simple growth accounting suggests that Britain underperformed relative to its European peers. Thus though the British economy grew faster in these years than in any other period; it is in this period that Britain’s relative failure should be located.
Crafts examines this failure using insights from the literature on “varieties of capitalism” which contrasts coordinated market economies like West Germany with liberal market economies like the United States or Britain. In the favorable conditions of postwar recovery and growth, coordinated market economies saw labor cooperate with capital enabling both high investment and wage restraint. Britain, however, lacked the corporatist trade unions of France or West Germany. As a legacy of the Industrial Revolution, it inherited a diverse set of overlapping craft unions which could not internalize the benefits of wage restraint and often opposed new technologies or managerial techniques. Britain functioned as a dysfunctional liberal market economy, one that became increasingly sclerotic as the 1960s passed into the 1970s.
An important insight I got from this book is that government failure and market failure are not independent. Examples of government failure from the postwar period are plentiful. Industrial policy was meant to “pick winners.” But “it was losers like Ross Royce, British Leyland ad Alfred Herbert who picked Minsters” (p. 91). Market power became increasingly concentrated. Approximately 1/3 of the British economy in the 1950s was cartelized and 3/4 saw some level of price fixing. Britain’s exclusion from the EEC until the 1970s meant that protective barriers were high, enabling inefficient firms and managerial practices to survive. High marginal rates of taxation and weak corporate governance encouraged managers to take their salary in the form of in-kind benefits, and deterred innovation. Labor relations became increasingly hostile as the external economic environment worsened following the end of Bretton Woods.
Britain recovered its relative economic position after 1979 through radical economic reforms and a dramatic shift in policy objectives. Though of course, the Thatcher period saw numerous missteps and policy blunders, what Crafts argues was most important was that there was an increase in product market competition, a reduction in market distortions, and a reduction of trade union power, factors provided the space that enabled the British economy to benefit from the ICT revolution in the 1990s.
Rarely does one wish a book to be longer. But this is the case with Forging Ahead, Falling Behind, and Fighting Back. In particular, while a short and sharp overview of the Industrial Revolution is entirely appropriate, given the number of pages written on this topic in recent years, the last part of the book does need extra pages; the argument here is too brief and requires more evidence and substantive argumentation. One wishes, for instance, that the theme of institutional path dependency was developed in more detail. Despite this, Forging Ahead, Falling Behind, and Fighting Back is a notable achievement. It provides a masterly survey of British economy history tied together by insights from economic theory.
Phew, that’s a lot of acronyms. But this is a great map:
Orange and yellow is bad, green and blue is good. HDI stands for “Human Development Index,” which is a measurement that’s not nearly as good, in my opinion, for understanding how wealthy and happy a population is. Nevertheless, HDI is still one of the better measurements (Top 5, again in my opinion) out there. Here’s the wiki on HDI.
The maps are colored according to “subunits,” or provinces (which are like American states, such as Nebraska).
Brazil, India, and South Africa are multi-party democracies, while the other two are not. So what do all five have in common?
This is the right place for a painful digression. It’s painful because it’s about a program related to immigration that is both confusing and calculated, as if by design, to become controversial. Yet, as I argue below, toward the end of this essay, it’s a program with promise.
Many middle-class foreigners with college degrees are in the US on temporary working visas. By numbers, the main category of working visas is the H-1B visa. (This is confusing, but there is currently no such thing as an H-1A visa.) Holders of the H-1B visa must meet specific educational qualifications. They are sponsored by American employers – but also by employers who look much like labor contractors based abroad. They may stay in the US for a period of three years, renewable for an additional three years. That’s except if they work for a university or for a research institute, in which case their visa is pretty much eternal. Although the number of visas allotted each year is capped, by accumulation, the program involves significant numbers of people, about 350,000 in 2016. Some or most H-1B visas are allocated by lottery on an annual basis. (It’s completely separate from the diversity lottery described above [in Part 1], as I said.)
The rationale behind the H-1B visa is to supply workers in specialties that industrial and other organizations cannot find domestically. The program is controversial for two reasons. Continue reading
In a recent article at Reason.com, Christian Britschgi argues that “Government-mandated price hikes do a lot of things. Spurring technological innovation is not one of them”. This is in response to the self-serve kiosks in fast-food restaurants that seem to have appeared everywhere following increases in the minimum wage.
In essence, his argument is that minimum wages do not induce technological innovation. That is an empirical question. I am willing to consider that this is not the most significant of adjustment margins to large changes in the minimum wage. The work of Andrew Seltzer on the minimum wage during the Great Depression in the United States suggests that at the very least it ought not be discarded. Britschgi does not provide such evidence, he merely cites anecdotal pieces of support. Not that anecdotes are bad, but those that are cited come from the kiosk industry – hardly a neutral source.
That being said, this is not what makes me contentious towards the article. It is the implicit presupposition contained within: that technological innovation is good.
No, technological innovation is not necessarily good. Firms can use two inputs (capital and labor) and, given prices and return rates, there is an optimal allocation of both. If you change the relative prices of each, you change the optimal allocation. However, absent the regulated price change, the production decisions are optimal. With the regulated price change, the production decisions are the best available under the constraint of working within a suboptimal framework. Thus, you are inducing a rate of technological innovation which is too fast relative to the optimal rate.
You may think that this is a little luddite of me to say, but it is not. It is a complement to the idea that there are “skill-biased” technological change (See notably this article of Daron Acemoglu and this one by Bekman et al.). If the regulated wage change affects a particular segment of the labor (say the unskilled portions – e.g. those working in fast food restaurants), it changes the optimal quantity of that labor to hire. Sure, it bumps up demand for certain types of workers (e.g. machine designers and repairmen) but it is still suboptimal. One should not presuppose that ipso facto, technological change is good. What matters is the “optimal” rate of change. In this case, one can argue that the minimum wage (if pushed up too high) induces a rate of technological change that is too fast and will act in disfavor of unskilled workers.
As such, yes, the artificial spurring of technological change should not be deemed desirable!
Some years ago, I read The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet by Indur Goklany. It was my first exposition to the claim that, globally, there has been a long-trend in the equality of well-being. The observation made by Goklany which had a dramatic effect on me was that many countries who were, at the time of his writing, as rich (incomes per capita) as Britain in 1850 had life expectancy and infant mortality levels well superior to 1850 Britain. Ever since, I accumulated the statistics on that regard and I often tell my students that when comes the time to “dispell” myths regarding the improvement in living standards since circa 1800 (note: people are generally unable to properly grasp the actual improvement in living standards).
Some years after, I discovered the work of Leandro Prados de la Escosura who is a cliometrician who (I think I told him that when I met him) influenced me deeply in my work regarding the measurement of living standards and who wrote this paper which I will discuss here. His paper, and his work in general, shows that globally the inequality in incomes has faltered since the 1970s. That is largely the result of the economic rise of India and China (the world’s two largest antipoverty programs).
However, when extending his measurements to include life expectancy and schooling in order to capture “human development” (the idea that development is not only about incomes but the ability to exercise agency – i.e. the acquisition of positive liberty), the collapse in “human development” inequality (i.e. well-being) precedes by many decades the reduction in global income inequality. Indeed, the collapse started around 1900, not 1970!
In reading Leandro’s paper, I remembered the work of Goklany which had sowed the seeds of this idea in my idea. Nearly a decade after reading Goklany’s work well after I fully accepted this fact as valid, I remain stunned by its implications. You should too.
Here is a list of things I love about capitalism. Before presenting the list, it is important to say what I mean about capitalism. By capitalism, I mean free market capitalism. I don’t mean oligarchic capitalism (as it is very common in Latin America), state capitalism (communist countries) or Crony capitalism (sadly, more and more prevalent in the US). What I mean by capitalism is a system consistent with personal choice, private property, and voluntary exchange. The system Adam Smith described in Wealth of Nations. With that in mind, here is the list:
capitalism is true to human nature;
capitalism (slowly but surely) produces (immense amounts of) wealth;
capitalism is (more or less) stable;
capitalism helps the ones who need the most;
capitalism allows us to help others in need;
capitalism reduces violence;
capitalism reduces the incidence of wars;
capitalism breeds cosmopolitanism;
capitalism makes a better use of natural resources;
capitalism produces more beautiful cities;
capitalism is consistent with the Bible.