Transcript Dynamic Comparative Advantage and Long

Dynamic Comparative Advantage and
Long-run Roots of the Crisis
• Institutional Marxian political economy: a basic
theory of capitalism, intermediate theories of
capitalist world systems, and empirical analyses
• 1. Dynamic theory of comparative advantage:
dynamic industries and value added per unit of
labour (VAL for short)
• 2. Evolution of capitalist world system
• 3. The Rise and Fall of Bureaucratic Capitalism:
cyclical crises in the golden age; the structural
crisis that changed the accumulation regime in the
1970s;
• 4. Is the subprime loan crisis a systemic crisis?
1. Dynamic Comparative Advantage
(1) Dynamic industries, value added per unit of labour (VAL),
Figure 1. Dynamic Industries and VAL
Value added per unit of labour
Machinery
IT
Heavy Chemical
Cotton
Wages
Wool
1
1700
1800
1850
1900
1950
2000
(2) Cyclical crises and structural Crises
• (1) Cyclical crises solve the conflict between
capital and labour over the distribution of VAL.
• (2) Baumol’s cost disease: when capital
accumulation eventually absorbes the available
labour of the industrial reserve army , large wage
increases in the dynamic sectors spill over into
lagging sectors, and are mostly passed on to
consumers in the form of higher prices.
• (3) When wages surpass VAL, a serious structural
crises is caused which destroy the existing capital
accumulation regimes.
(3) Structural crisis and liner and nonliner development
• (1) First strategy and liner development:
shifting leading industries to new dynamic
industries.
• (2) Second strategy: extending the
comparative advantage by forcing free
trade and market policies to other
countries so that they cannot catch up
(kicking away the ladder).
• (3) Uneven and non-liner development
2. Evolution of Capitalist World Systems
Periodization of capitalist world systems
Formation
Market
Capitalism
Establishment Diversification Systemic
(Golden age)
(Globalization) Crisis
Mercantilism Liberalism
(1750s-1810s) (1820s-1870s)
Bureaucratic Interregnum Welfare State
Capitalism
(1920s-1940s) (1950s-1970s)
Imperialism
(1870s-1910s)
Interregnum
(1920s-1940s)
Neo-Liberalism 2000(1980s-1990s)
(2) Liberalism: British variety of capitalism created complementary
institutions, Liberalism as accumulation regime, cotton and railway
industries as the dynamic industries, and foreign demand as the engine
of demand growth.
(3) Imperialism: after the structural crisis, dynamic industries shifted to
heavy and chemical industries and centres of economic growth shifted
from the UK to the USA and Germany.
(4) Market capitalism was finally collapsed by the systemic crisis, the
great depression, in the 1930s
3. The Rise and Fall of Bureaucratic Capitalism
(1) The rise of the golden age: Welfare State
(1) Dynamic Industries: the U.S. mass production
system in the machinery and electronics industries.
(2) The Welfare State (accumulation regime): the
requirements of oligopolistic firms and states
established the welfare state.
Fiscal, monetary, and ITT policies.
(3) International Trade
The Bretton Woods system was designed to
decrease the external constraints.
The USA changed its trade policy from protectionism
to liberalism.
The USA also controlled supplies and prices of raw
materials and fuel.
(2) Cyclical Crises in Bureaucratic
Capitalism
1) Prosperity started mainly with the increase of investment and
consumption. A profit-led accumulation mechanism worked.
2) Boom: both borrowers and lenders’ expectation became
progressively more optimistic.
3) Recession: monetary authorities tightened credit before crisis
actually erupted. It reduced investment, and recession started.
4) Depression: a wage-led accumulation mechanism worked. Increase
of real wages together with automatic stabilisers increase aggregate
demand. Then the prosperity starts again.
Cyclical Crises reinforced the self regulating nature of capitalist
economy.
(3) The Structural Crisis of Bureaucratic
Capitalism and the Fall of the Golden age
(1)Uneven development and disorganizing influence on the
international relations
1) It decreased the relative strength of US trade.
2) It undermined confidence in the US dollar.
3) It split fixed exchange system.
4) It raised the cost of raw materials, food and energy.
(2) Productivity growth slowdown and its disorganizing influence on
domestic economic relations
1) It reduced value added per labour hour (VAL).
2) It reduced dynamic comparative advantage.
3) It changed coordinated capital and labour relation into conflictual
one.
4) It paralysed Keynesian policy.
(3) Structural crisis (1974) , Depression (1975-78) , and Structural
crisis (1979-81)
(4) The rise of neo-liberal accumulation regime
and business cycles after the structural crisis
(1)The Anglo-America neo-liberal accumulation
regime solved supply constraints and reshaped
capitalist world system after the structural crisis.
(2) Neo-liberal financial relaxation (regulatory
capture, regulatory relaxation, and regulatory
escape ) solved demand constraints.
(3) The second globalization: the US model of
globalization encouraged investment in, and the
transfer of manufacturing know-how to
developing countries
(4) Boom-bust cycles after the structural crises
(5) The Fall of Neo-Liberal Capital Accumulation
Regime
• (1) The effect of neo-liberal financial relaxation is
losing momentum to reduce demand constrains.
• Further increase of household debt is difficult.
• Further liberalization undermines the safety of
financial structure.
• Neo-liberal monetary policy has reached its limit at
zero interest rate.
• (2) Supply side constraints
• China and East Asia’s industrializations increased
demand for raw materials, energy, and food.
• (3) US foreign debt-led growth: The engine of
demand growth changed from neo-liberal financial
relaxation to US foreign debt after 1997.
Is the Sub-Prime Loan Crisis a Systemic
Crisis?
• (1) Minskian’s view is that it is cyclical crisis.
• financial excess is the only problem, and normal
growth with cyclical crises will return once that
problem is removed.
• (2) Structural Keynesians’ view is that it is a structural
crisis in the accumulation regime. To restore the link
between wages and productivity growth is needed to
solve the problem.
• (3) Marxian view is that it is a beginning of a systemic
crisis that destroy Bureaucratic Capitalism.
Industrialisation of China and India may develop a new
type of economic system, which is more egalitarian
and less depended on markets.