In the classic development economics story, the developing country is supposed to try to make strategic choices about at which places in which industries it should try to import-substitute.
But in this story, mean foreigners who want to hurt you are making the choices about where you have to substitute. If even in this case you may actually be better off, why should any country trade away any sovereignty for the "benefit" of such chains?
A standard IMF-WTO-type riposte to the devecon narrative is that such developing country governments are inherently corrupt, self-dealing to cronies, can't be trusted to make such decisions. But maybe it doesn't matter that much how corrupt the local government is. Maybe the import substitution benefits are trumping over whether the import substitution industry is run by local cronies.
Is the example of imported cheese on Papa John's pizza representative? If so, that is very damning to the IMF-WTO "free trade" dogma. It would validate the suspicion of many that many decisions to choose foreign over domestic production have not really been made in a free market with perfect information. I can see wanting to have the imported cheese to put out for your guests next to the imported wine at your fancy dinner party. Sure, me too! But on top of your Papa John's pizza? Really? Who cares? Use the goddamn local cheese.
Maybe every country should be looking around for some territory to invade, so it can be "punished" by being forced to ramp up its own domestic production for its own consumer market. Don't throw me in that briar patch!
Note that in the comparison made here to Iran, lots of people in Iran thought the sanctions might be benefiting Iran's economy overall until the latest round - until Iran's access to the international banking and payments system was cut off. The interesting question here is not one of "autarky." It's not whether a country is better off engaging in no trade versus having no restrictions. The question is: if you have some trade and some restrictions, are you automatically better off having fewer restrictions, or might you be better off having more restrictions?
On Mon, Nov 3, 2014 at 7:07 AM, Charles Brown <cb31450 at gmail.com> wrote:
>
> http://www.nakedcapitalism.com/2014/11/michael-hudson-europe-to-pay-for-the-whole-mess-in-ukraine.html
>
> Michael Hudson: Europe to Pay for the Whole Mess in Ukraine
>
> Posted on November 1, 2014 by Yves Smith
>
> Yves here. This discussion with Michael Hudson on RT focuses on the
> real meaning of the Ukraine-Russia gas deal. One point that Hudson
> makes that readers might doubt is that Russia loves the US sanctions.
> I’m not sure “love” is the right word, but there is reason to think
> they aren’t working out as the US had hoped. First, they’ve greatly
> increased Putin’s popularity. Even the intelligentsia in Moscow, who
> were hostile to him, have largely rallied to his side in the face of
> foreign bullying. Second, the Western press may be overstating the
> amount of damage done to the economy by the sanctions. Arguably the
> biggest negative is the fall in the price of oil, which came about
> growth in Europe and China slowing, and the Saudis announcing that
> they’d allow the price to reset at a much lower level than most
> analysts anticipated. But the ruble has been falling, which blunts
> that effect, but increases the drain on FX reserves as Russia tries to
> keep it falling too far and will increase inflation. Third, the
> sanctions have allowed Russia to engage in protection of domestic
> industries as a retaliatory measure, for instance, blocking many food
> imports from Europe.
>
> Now all good well-indoctrinated neoliberals will say, “Trade
> protectionism merely allows domestic producers to become inefficient
> and uncompetitive.” It’s not so simple. Development economists are
> increasingly of the view that trade restrictions can help smaller
> economies develop domestic businesses to the point where they can
> compete in international markets, while if they foreign firms in,
> they’ll find it nearly impossible to build any local champions.
>
> A colleague who does business in Russia but has no deep loyalties
> there, says he sees no signs of negative impact of the sanctions in
> Moscow (he describes it as now looking like any post World War II
> European capital). This is confirmed by recent surveys in Russia, so
> the lack of meaningful impact on Russian citizens isn’t an artifact of
> his seeing only the better parts of Moscow. Note that the latest EU
> forecasts anticipate very weak growth this year and next, as opposed
> to outright recession.
>
> This visitor describes how the sanctions are helping Russian
> businesses. One of his friends has the Papa Johns franchise. They used
> to get their cheese from the Netherlands, but those supplies were cut
> off by the Russian sanctions against Europe. So they had to buy cheese
> domestically. It was cheaper but not as good. So he is working with
> the local farmers and cheese-makers to bring the cheese up to the
> standard of the cheese he used to import. So he expects to eventually
> have cheese that is lower cost than what he brought in and of
> comparable quality. And if he succeeded, the cheesemakers will be more
> competitive in Europe when the sanctions are relaxed.
>
> The shorter version of this story is that Russia has a large enough
> domestic market and enough resources that unlike Iran, it may be
> closer to being able to function as an autarky when its imports and
> exports are restricted. The open question is whether it can go through
> the pain of a reset, with some serious and painful short-term
> dislocations, and escape the slow strangulation that the US claims it
> has imposed.
>
> Now to the RT interview, with the transcript below.
>
> The gas deal between Ukraine and Russia became possible because Europe
> realized that it wouldn’t get the gas if it didn’t get behind Ukraine,
> Wall Street analyst Michael Hudson told RT.
>
> RT: How important is this gas deal for Ukraine and for Europe?
>
> Michael Hudson: It’s apparently most important for Europe because it
> was Europe that gave in on the deal. The problem was never about the
> price of the Russian gas. The problem was whether Ukraine was doing to
> keep up trying just to run up a larger and larger gas bill every month
> and every year and finally default. In the US Treasury, strategists
> have already discussed in public how Ukraine can simply avoid paying
> Russia the money that it owed by going to court and stalling it. So
> Russia understandably said, “We need credit in advance.” Mr. Oettinger
> of the European Commission said “Wait a minute, Russia, why don’t you
> just lend them the money. They will repay you.” And Mr. Putin at the
> Valdai Club speech in Sochi last week made it very clear. Look,
> [Russia] has already lent them 11 billion dollars, much more than
> anyone else has lent to Ukraine. Ukraine is bankrupt, it’s torn itself
> apart. Why didn’t perhaps a European Bank underwrite the loan?
> Finally, Mr. Oettinger gave in. Europe said “OK, the IMF is going to
> lend Ukraine the money to pay Russia for the gas for the balance of
> the year.” So that Ukraine would end up owing the IMF money and the
> European Commission money, not Russia. So Russia will not be exposed
> to having to lend any more money to a dead-beat economy.
>
> RT: You think that it was the EU who gave in on that deal and not
> Ukraine or Russia. Why?
>
> MH: Ukraine has passed. Ukraine said “We are broken, we don’t have any
> money, we have spent all our money on war. Our export industry is
> collapsing. If we need gas, we’ll simply steal the gas that Russia is
> sending to Europe. We are not going to starve – we’ll just take your
> gas.” And Putin said, “Well, if they try to steal gas like they did a
> few years ago, we’ll just turn off the gas and Europe won’t get gas”.
> So Europe realized that it wouldn’t get the gas if it didn’t step
> behind Ukraine and all of a sudden Europe is having to pay for
> Ukraine’s war against Russia. Europe is having to pay for the whole
> mess in Ukraine so that it can get gas, and this is not how they
> expected it to turn out.
>
> RT: Do you think this deal will improve relations between Europe and
> Russia?
>
> MH: Europe is very uncomfortable with being pressured by the US that
> essentially said “Let’s you and Russia fight.” Europe is already
> suffering. Germany has always been turning towards Russia, all the
> way. 50 years ago, I remember Konrad Adenauer in Germany always spoke
> very pro-Western and pro-American, but always turned economically
> towards Russia. So of course Europe, and Germany especially, has
> wanted to maintain its ties with Russia. The problem is the US [wants]
> to start a new Cold War. It created a lot of resentment in Europe, and
> Europe is finally capitulating. This means that the US pressure to set
> Europe against Russia has failed.
>
> RT: Could we expect now easing of sanctions on Russia?
>
> MH: No, Europe is still being pressured, the sanctions are pressured
> by NATO, and NATO is pressing for a military confrontation with
> Russia. The sanctions are going to continue unless Russia gives back
> Crimea, which of course it won’t. The sanctions are hurting Europe,
> they are turning out to be a great benefit for Russia because finally
> Russia is realizing: “We can’t depend on other countries to supply our
> basic imports, we have to rebuild our industry.” And the sanctions are
> enabling Russia to give subsidies to its industry and agriculture that
> it couldn’t otherwise do. So Russia loves the sanctions, Europe is
> suffering and the Americans are finding that the Europeans are
> suddenly more angry at it than they are at Russia.
> _______________________________________________
> pen-l mailing list
> pen-l at lists.csuchico.edu
> https://lists.csuchico.edu/mailman/listinfo/pen-l
>