This may be of some interest...
Brad DeLong
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- "Now 'in the long run' this [way of summarizing the quantity theory of money] is probably true.... But this long run is a misleading guide to current affairs. **In the long run** we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."
--J.M. Keynes -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- J. Bradford De Long; Professor of Economics, U.C. Berkeley; Co-Editor, Journal of Economic Perspectives. Dept. of Economics, U.C. Berkeley, #3880 Berkeley, CA 94720-3880 (510) 643-4027; (925) 283-2709 phones (510) 642-6615; (925) 283-3897 faxes http://econ161.berkeley.edu/ <delong at econ.berkeley.edu> -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
>Date: Wed, 19 May 1999 04:18:45 -0700
>To: Brad De Long <delong at econ.berkeley.edu>
>From: globalizers-list at open.conspiracy.org
>Subject: Re: Neo-liberalism
>Cc:
>Bcc:
>X-Attachments:
>
>>Date: Thurs, 13 May 1999 12:47:54 +0200
>>To: globalizers-list at open.conspiracy.org
>>From: workingparty7 at oecd.org
>>Subject: Fwd: Principles of Neoliberalism
>>Cc:
>>Bcc:
>>X-Attachments:
>>
>>>Date: Wed, 5 May 1999 09:31:13 -0700
>>>To: workingparty7 at oecd.org
>>>From: webmaster at archive.neoliberals.org
>>>Subject: Fwd: Principles of Neoliberalism
>>>Cc:
>>>Bcc:
>>>X-Attachments:
>>>
>>>>Date: Wed, 28 Apr 1999 18:30:06 +0000
>>>>To: webmaster at archive.neoliberals.org
>>>>From: partisans_of at liberty.utopia.org
>>>>Subject: Fwd: Principles of Neoliberalism
>>>>Cc:
>>>>Bcc:
>>>>X-Attachments:
>>>>
>>>>>Date: Mon, 29 Mar 1999 12:06:42 -0400
>>>>>To: partisans_of at liberty.utopia.org
>>>>>From: rfc at open.conspiracy.org
>>>>>Subject: Principles of Neoliberalism
>>>>>Cc:
>>>>>Bcc:
>>>>>X-Attachments:
>>>>>
>>>>>REQUEST FOR COMMENTS, CONTRIBUTIONS, AND CRITICISMS
>>>>>
>>>>>Comments, contributions, criticisms, suggestions, and other reactions
>>>>>welcome and encouraged. Send them to the originator:
>>>>>rfc at open.conspiracy.org. This is a work-in-progress, and will in due
>>>>>course be replaced by later versions and eventually by superior
>>>>>political philosophies and policy programs.
>>>>>
>>>>>Please distribute this document as widely as possible...
>>>>>
>>>>>
>>>>>PRINCIPLES OF NEOLIBERALISM
>>>>>===========================
>>>>>
>>>>>Version 1.23
>>>>>
>>>>>
>>>>>Neoliberalism is many things. It is:
>>>>>
>>>>> --a counsel of despair with respect to the possibility
>>>>> of social democracy today (outside of the global
>>>>> economy's industrial core).
>>>>>
>>>>> --a counsel of hope with respect to the prospects for rapid
>>>>> market-generated economic development outside the
>>>>> global economy's industrial core--if governments adopt
>>>>> market-conforming policies.
>>>>>
>>>>> --a bet that improvements in transportation and communication--
>>>>> the shrinking world--"globalization"--gives us today
>>>>> an extraordinary opportunity to rapidly reduce
>>>>> global inequality by incorporating more and more
>>>>> people and more and more more regions into the
>>>>> global economy.
>>>>>
>>>>> --the only live utopian program in the world today.
>>>>>
>>>>>
>>>>>
>>>>>
>>>>>A counsel of despair...
>>>>>-----------------------
>>>>>
>>>>>After World War II in Latin America, and at the achievement of
>>>>>independence elsewhere outside the global economy's core, there were
>>>>>high hopes that social democracy (or something further to the left)
>>>>>could be successfully instituted. And there were high hopes that such
>>>>>social democratic or socialist regimes would enable peoples living
>>>>>outside the core to cut a generation or more off of what had been a
>>>>>lengthy, bloody, and cruel three- or four-generation process of
>>>>>industrialization and democratization in northwest Europe and its
>>>>>settler colonies.
>>>>>
>>>>>Social democratic or socialist governments would from the beginning
>>>>>establish strong redistributive social insurance states to severely
>>>>>reduce the income and wealth inequalities that had been characteristic
>>>>>of Bismarckian Germany or the Gilded Age United States. They would put
>>>>>into place the physical infrastructure to reduce infant mortality and
>>>>>disease that the aristocracies and bourgeoisies of northwest Europe
>>>>>had not thought profitable. They would spend money like water on
>>>>>education.
>>>>>
>>>>>Moreover, they would use Keynesian policies to make sure that growth
>>>>>was free of the recessions and depressions that characterized
>>>>>industrialization in the industrial core. They would carefully manage
>>>>>their connections with the global economy--choosing the level of the
>>>>>real exchange rate, controlling imports so that imported goods were
>>>>>those of high social utility, preventing artificial drives for export
>>>>>success from raising the prices of necessities to the people, and
>>>>>establishing national independence from imperial capital.
>>>>>
>>>>>They would nationalize at least the monopolistic commanding heights of
>>>>>the economy (if social democratic) or nationalize far more of the
>>>>>economy (if socialist) in order to take full advantage of the massive
>>>>>economies of scale in industry, and to make sure that investments in
>>>>>capacity and productivity that made sense from the social point of
>>>>>view were made--as they would not be if large-scale industry remained
>>>>>private, and if it proved difficult for the private monopolists to
>>>>>make a profit off of such investments. And all these economic
>>>>>decisions would be made by democratically-elected governments
>>>>>responsible to an electorate that had learned by exercising power what
>>>>>the trade-offs were and how to choose the best path forward that led
>>>>>by the quickest way to utopia.
>>>>>
>>>>>By the end of the 1970s, however, it was clear to all except blindered
>>>>>ideologues that something had gone very wrong with social democracy at
>>>>>the periphery. (And that even more had gone wrong with really-existing
>>>>>socialism at the periphery.)
>>>>>
>>>>>Stable political democracy proved far more to be the exception than
>>>>>the rule. Authoritarian rule by traditional elites, dictatorship by
>>>>>impatient army officers, and charismatic populist politicians ruling
>>>>>by virtue of carefully-prepared and carefully-staged plebiscites were
>>>>>much more common than were stable parliamentary or
>>>>>separation-of-powers democracies. Those aspects of social insurance
>>>>>that were installed seemed to do more to redistribute income from
>>>>>(poor) rural peasants to (richer) urban workers and (rich) urban civil
>>>>>servants than to moderate income and wealth inequalities. With some
>>>>>exceptions (many of them among really-existing-socialist countries)
>>>>>high government spending on education and on physical infrastructure
>>>>>seemed to produced less in the way of actual education or
>>>>>infrastructure--and more in the way of sweetheart contracts to the
>>>>>Minister of Regional Development's nephew's cement factory--than one
>>>>>would have hoped.
>>>>>
>>>>>The nationalized commanding heights of the economy turned out more
>>>>>often than not to become employment bureaus for the politically
>>>>>well-connected: under Juan Peron in Argentina the number of employees
>>>>>of the (newly nationalized) Argentinian railroad system close to
>>>>>tripled, while the number of trains and the volume of goods carried
>>>>>fell. It seemed that while the state was superior as an instrument of
>>>>>social evolution, it was not very good as a bank, or as a stock
>>>>>exchange, or as a nursery for inefficient enterprises.
>>>>>
>>>>>Too-great a reliance on Keynesian policies of demand stimulation
>>>>>turned out to generate high- and hyper-inflation, with the recessions
>>>>>that came with the crash of the monetary system proving arguably
>>>>>larger than the booms-and-busts Keynesian policies were supposed to
>>>>>avoid. Import restrictions turned out to limit imports not to those of
>>>>>social utility, but to those profitable to the import companies owned
>>>>>by the son-in-law of the Vice Minister of Finance--and to the Vice
>>>>>Minister himself. High real exchange rates turned out to do less to
>>>>>amplify the purchasing power of the country abroad than to
>>>>>artificially shrink exports, and to divert employment and investment
>>>>>away from sectors of comparative advantage.
>>>>>
>>>>>There were exceptions: places outside the core where the
>>>>>social-democratic program was a stunning success. India managed to
>>>>>hang on to political democracy (albeit with disappointing economic
>>>>>growth). East Asia managed to limit corruption and maximize investment
>>>>>in infrastructure and export capacity, achieving the fastest economic
>>>>>growth rates ever seen in world history (albeit with disappointingly
>>>>>slow progress toward political democracy, and civilian blood on the
>>>>>hands of the military in massacres ranging from the thousands (in
>>>>>South Korea) to the tens of thousands (in Taiwan) to the hundreds of
>>>>>thousands (in Indonesia). In Brazil rapid growth in measured GDP was
>>>>>associated with the most hideous income distribution ever seen.
>>>>>Southern Europe alone managed to "converge" to the industrial core of
>>>>>northwest Europe, its ex-settler colonies, and Japan.
>>>>>
>>>>>It seemed that the key was political democracy. With stable political
>>>>>democracy--in France, in Italy, even in Spain after the fall of
>>>>>Franco--social democracy could work and achieve great successes.
>>>>>Without political democracy it seemed that the chances of success were
>>>>>low (unless somehow the poorly-understood foundations of East Asia's
>>>>>low corruption could be duplicated). And it also seemed that the
>>>>>prospects for achieving stable political democracy on the periphery
>>>>>were rather low. After all, France experienced its first democratic
>>>>>revolution until 1789, yet depending on who you talk to it was not
>>>>>until 1871 or 1958 or 1981 that France truly achieved stable democracy.
>>>>>
>>>>>Hence neoliberalism as a counsel of despair. As Marx wrote, the
>>>>>executive branchy of the modern state is nothing but a committee for
>>>>>managing the affairs of the ruling class--meaning, among other things,
>>>>>that a democratically-elected legislative branch turns the state into
>>>>>something better. But the prospects for stable political democracy in
>>>>>the periphery are slim. And thus the government becomes the tool of
>>>>>the ruling class--a ruling class that may be made up of army officers,
>>>>>or landlords, or urban elites, or those who profit as middlemen from
>>>>>the traditional channels of trade and exchange--who are not terribly
>>>>>interested in the success of social democracy or in rapid broad-based
>>>>>economic growth.
>>>>>
>>>>>Hence the policy advice of neoliberalism as a counsel of despair: get
>>>>>the state's nose out of the economy as much as possible. When the
>>>>>state is neither an instrument of positive redistribution nor an
>>>>>instrument of growth-boosting investment, its interventions in the
>>>>>economy are likely to go strongly awry. And to the extent that a
>>>>>reduction in the economic role of an elite-controlled state can be
>>>>>required as a price for rapid incorporation of an area into the global
>>>>>economy, such a reduction *should* be required.
>>>>>
>>>>>
>>>>>
>>>>>
>>>>>A counsel of hope...
>>>>>--------------------
>>>>>
>>>>>Yet neoliberalism is not just a counsel of despair, it is a counsel of
>>>>>hope. The hope is that the prospects for rapid market-generated
>>>>>economic development outside the global economy's industrial core are
>>>>>very bright.
>>>>>
>>>>>The prospects for rapid market-generated economic development are very
>>>>>bright for three reasons. First, the productivity gap between the
>>>>>periphery and the industrial core has never been larger. Second,
>>>>>governments now have a large number of positive examples to copy (as
>>>>>well as negative examples to avoid) in planning market-conforming
>>>>>development strategies. Third, investors in the industrial core now
>>>>>have the confidence and the resources to materially assist in
>>>>>peripheral development.
>>>>>
>>>>>First, because the productivity gap between the periphery and the
>>>>>industrial core has never been larger, what Alexander Gerschenkron
>>>>>called the "advantages of backwardness" are now uniquely great. In
>>>>>1870 an Indian or a Chinese textile-making entrepreneur could perhaps
>>>>>quadruple labor productivity by importing the modern capital goods of
>>>>>the British industrial revolution. Today any entrepreneur on the
>>>>>periphery has the prospect of being able to amplify labor productivity
>>>>>tenfold or more by investing in latest-generation or
>>>>>latest-but-on-generation capital equipment and factory organization.
>>>>>The stunning multiplication of productivity in Mexican automobile
>>>>>manufacture gives a clue to how quickly productivity can be
>>>>>amplified--if the capital is there to do so.
>>>>>
>>>>>Second, all governments everywhere are now aware--from the examples of
>>>>>northern Europe, southern Europe, and East Asia--of those government
>>>>>interventions and policies that appear to be powerful boosters of
>>>>>growth. They are aware of the centrality of education (especially
>>>>>female secondary education) in accelerating the demographic
>>>>>transition. They are aware of the importance of making it easy for
>>>>>domestic producers to acquire industrial core technology (embodied in
>>>>>capital goods or not). They are aware of the importance of
>>>>>administrative simplicity and transparency. They are aware of the
>>>>>value of the transportation and communications infrastructure that
>>>>>only the government can provide. In those areas in which the
>>>>>government's nose should and must stay deeply embedded in the economy,
>>>>>even those states controlled by elites that have only a limited
>>>>>interest in growth and development now have many positive models to
>>>>>imitate.
>>>>>
>>>>>Third, improvements in communications and transportation have made
>>>>>investors in the industrial core more willing than ever before to
>>>>>consider placing their capital in the periphery. The pre-World War I
>>>>>wave of international investment was largely limited to regions in
>>>>>which there were lots of white guys--guys who could play polo (never
>>>>>mind that polo in its original form was a sport played by central
>>>>>Asian nomads using a goat carcass as a ball)--plus the French
>>>>>geostrategic commitment to Russia as an ally against the Second Reich.
>>>>>The U.S. benefited enormously from Britain's willingness to lend
>>>>>capital to industrializing America in the years before 1900. The
>>>>>inflow of capital cut a decade or two off of the time it took the U.S.
>>>>>to industrialize (and crony capitalists like Jay Gould, Colis
>>>>>Huntington, and Leland Stanford took British investors to the cleaners
>>>>>as well). Now that investors in the industrial core are willing to
>>>>>commit their money to regions in which there are not lots of white
>>>>>guys, an opportunity to speed industrialization that used to be
>>>>>limited to a relatively narrow part of the non-European world is now
>>>>>open to many more--if their governments undertake the steps needed to
>>>>>reassure industrial-core investors, and if those who make economic
>>>>>policy in the G-7 can limit the destructive effects of the financial
>>>>>crises generated by the manic-depressive swings of opinion in
>>>>>Manhattan, London, Frankfurt, and Tokyo.
>>>>>
>>>>>
>>>>>
>>>>>
>>>>>A bet on globalization...
>>>>>-------------------------
>>>>>
>>>>>And this is where the neoliberal view of the world is weakest: in its
>>>>>bet on globalization--its bet that a tightly-integrated global
>>>>>economy, with large flows of capital and goods (and, to the extent
>>>>>industrial core governments permit, of labor) is a richer and
>>>>>faster-growing global economy. John Maynard Keynes and Harry Dexter
>>>>>White would disagree with the proposition that large flows of capital
>>>>>are good: they would call them too dangerous to be risked.
>>>>>
>>>>>Nevertheless, neoliberals today are more impressed with the gains from
>>>>>capital flows than the risks. The quadrupling of real wages in
>>>>>Indonesia from 1965 to 1997 would have been significantly lower
>>>>>without capital inflows which carried technology and enabled higher
>>>>>domestic investment (even though real wages in Indonesia have fallen
>>>>>by at least a quarter since 1997). Lowered transportation and
>>>>>communications costs have amplified the gains from expanded
>>>>>international trade by an order of magnitude over the past generation.
>>>>>And it is next to impossible to have large international flows of
>>>>>goods while excluding the possibility of large international flows of
>>>>>capital as well. Small changes in the timing of payments and in the
>>>>>extension of trade credit add up to large swings in the capital
>>>>>account.
>>>>>
>>>>>Thus neoliberalism is not only a bet that increasing economic
>>>>>integration is a good thing--that an integrated global economy will
>>>>>see much more levelling-up than levelling-down--but that successful
>>>>>stabilization policy can be pursued by the G-7 on a global level. It
>>>>>is thus a claim about the economic environment (that the gains from
>>>>>globalization are large) and about the state capacity of the G-7 (that
>>>>>they can successfully carry out global-level stabilization policies).
>>>>>
>>>>>
>>>>>
>>>>>
>>>>>The only live utopian program...
>>>>>--------------------------------
>>>>>
>>>>>Perhaps not all of the principles of neoliberalism are correct.
>>>>>
>>>>>Successful development in East Asia suggests that the counsels of
>>>>>despair are perhaps somewhat overstated: East Asia is an example if
>>>>>not of successful social democracy at least of a successful
>>>>>developmental state. On the other hand, as Lant Pritchett has
>>>>>observed, there is nothing worse than state-led development led by an
>>>>>anti-developmental state. And pending a better understanding of what
>>>>>has gone right in East Asia or much greater success in
>>>>>institutionalizing political democracy, the risks of a government
>>>>>turning away from the neoliberal path and attempting to duplicate East
>>>>>Asian developmental states appear very high. The belief that the
>>>>>opportunities for market-conforming development are now uniquely great
>>>>>appears to be almost certainly correct. But the jury is still out on
>>>>>whether the free-capital-flow part of "globalization" is a good thing:
>>>>>the odds are 80% that the G-7 do have the state capacity to
>>>>>successfully manage a world economy with large-scale capital flows,
>>>>>but there is a 20% chance that they do not.
>>>>>
>>>>>Nevertheless, the neoliberal program is the only live utopian program
>>>>>in the world today.
>>>>>
>>>>>Opposition to neoliberalism on the left seems to call for a return to
>>>>>effective autarchy. But if there is one lesson from economic history
>>>>>over the past hundred years, it is that there has been one decade--the
>>>>>1930s--when economic autarchy was the road to relative prosperity,
>>>>>while there have been nine decades in which the more open to trade a
>>>>>country's economic policy, the faster has been economic growth.
>>>>>Opposition to neoliberalism on the left seems to call for a return to
>>>>>state control of the economy--to the pattern of Peronism or of the
>>>>>PRI--in the hope that this time the state will be not the tool of
>>>>>elites with little concern for development and growth but instead the
>>>>>faithful servant of the interests of the masses.
>>>>>
>>>>>That is not very likely. The state can be the servant of the people
>>>>>only if political democracy is well-established, and not always then.
>>>>>To place one's chips on the maximization of the power of a
>>>>>not-very-democratic and not-very-developmental state does not seem a
>>>>>promising path for either democratization or successful
>>>>>industrialization. It seems to embody a remarkable unwillingness to
>>>>>learn from world history since the end of World War I, and an
>>>>>ideological-blinded refusal to ever mark one's beliefs to market.
>>>>>
>>>>>Opposition to neoliberalism on the right seems based on a fear that
>>>>>neoliberalism will bring with it a breakdown of social order: peasants
>>>>>will no longer fear landlords, workers will no longer be the clients
>>>>>of bosses or of the leaders of government-sponsored puppet unions, and
>>>>>voters will no longer respect the views of notables.
>>>>>
>>>>>All the rest of us certainly hope that the right-wing opponents of
>>>>>neoliberalism are correct, and that neoliberalism this generation will
>>>>>begin structural transformations that will make social democracy on
>>>>>the periphery possible next generation.
>>>>>
>>>>>
>>>>
>>>>
>>>
>>>
>>
>>
>
>
>
>
>