Two questions.

James Devine jdevine at
Sun Sep 6 09:57:51 PDT 1998

On the issue of why the US didn't end up economically dominated by the UK, I sent Mike Cohen the following message off-list (in order to avoid Doug's Draconian Limit on postings). I repond to it now because I'm under quota. I hope that Mike doesn't mind that I make our discussion public. It's not private stuff at all.

> maggie's right. It was protectionism -- "natural" protection due to
transportation costs, inadvertent protection due to war, and explicit protection, especially after 1860 -- that keep British Industry from swamping US industry.

> But there are other reasons: the technological gap between the US and the
UK wasn't very large (the US wasn't very far behind). Also, the US had a very large domestic market [due to realatively high incomes of white farmers and workers, the theft of land from the Indians, etc.], so that there was a lot of room for competition behind the tariff barriers, preventing the rise of fat-and-spoiled monopoly industries. < The latter developed as a result of many Latin American import substitution efforts. I should stress that the successful protectionist era stretched from 1861 or so (when the South left Congress) until the early 1930s (when there was reaction to Smoot-Hawley).

Mike adds: > It seems to me that the underdeveloped countries and Russia have ample methods to deal with debt and currency crises. In particular they have modern versions of some of the advantages you attribute to US development.<

I don't think so. I think that the successful import-substituting industrialization era has passed. Russia has a big technical gap unless it figures out how to suddenly mobilize its scientific labor-power. A lot of its capital equipment is worthless. Anyway, these days, unlike the 19th century, catching up involves massive investment. Currently its internal market is very limited. It sure seems that some kind of statist economy is needed -- at least to allow survival. We can hope that there is some kind of democratic control over that state so we don't see the downsides of Stalinism (statist socialism) or fascism (statist capitalism).

>In the worst case they default or threaten defaults. The can control the
flow of currency via exchange boards. <

currency boards simply force a fixed exchange rate (fixing the value of the currency relative to the dollar). I don't think that they solve fundamental problems. Whether a foreign exchange regime works well for a country or not depends more on the fundamental health of the economy than on the type of foreign-exchange regime, IMHO.

I think you're thinking about capital controls, which prevent to international flow of hot money. That seems a good idea -- as long as large numbers of countries do it.

>They can even play Western Countries off of each other granting most
favorite nation status etc. While this will not endear themselves to investors and distort market mechanisms there will always be capitalist countries in general which are competing and from which they can buy Capital goods. I think a total boycott is unlikely. All of this should be used as a threat.<

I think that this is unlikely; the era of playing the big boys off against each other (as India used to do with the US and USSR) has passed, with the USSR. Maybe the EU could sub for the SU in this game, but that's in the future.

>I wonder if the US has threatened force in defense of its debts. If not
the only stick a creditor country has over a debtor one is a kind of boycott. If this is what is happening or worse in these countries then you would think these options are bocoming more attractive as time goes on.<

I think it has, especially in Latin America. In fact, I believe the US invaded countries in the Caribbean several times over this issue.

Jim Devine jdevine at &

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