Posts Tagged ‘Boisguilbert’
“The only thing that will redeem mankind is cooperation”*…
Industrial policy is on the rise around the world, as nations (and sometimes regions) create laws and policies that prioritize domestic competitiveness and economic benefit over free trade, using tools like investment, regulation, and tariffs. Increasingly these policies are being animated not only by economic, but also security concerns. (See, e.g., here and here.)
The traditional worry about policies like these is that they create barriers (thus tensions) between countries… which, at a time when the world desperately needs collaborative responses to global challenges like climate change, could be deeply problematic. But Nathan Gardels argues that industrial policy might be precisely what we need to set the stage for meaningful cooperation…
The remarkable story future historians will tell about the late 20th and early 21st century is how inviting a Communist Party-state to enter a global economy built on the capitalist principles of free trade and markets ended up transforming the neoliberal West into a bastion of protectionism and state-directed industrial policy of the same kind now condemned as unfairly advantaging China’s rise.
They will also note the further irony that the logic of opening to China in the 1970s — and of China’s opening to the West — had a national security premise of checkmating the Soviet Union. Half a century on, the Middle Kingdom is more closely aligned with Russia than in the later stages of the Cold War, primarily as a way to do the opposite: checkmate America’s continuing dominance of the very world order that enabled its rapid ascent.
Adding more complexity to this reversal of history are the related global challenges that have arisen in both East and West: decarbonization of fossil-fuel dependency to mitigate climate change while coping with the disruptions of the digital revolution and the advent of artificial intelligence.
These threads of deglobalization, climate and technological revolution have all converged in the competitive assertion of “industrial strategies” in which nation-building is integrally bound up with international security concerns. China is driven by the fear of not catching up, the United States by alarm at losing the upper hand and Europe by the angst of falling behind both and losing its strategic autonomy.
China’s industrial strategy is called “dual circulation,” essentially a policy of self-reliance and resilience in the face of newfound Western hostility. It is aimed at bolstering domestic consumption and production, including conquering the latest AI technologies with its own resources, while off-loading manufacturing overproduction abroad and expanding trading ties in the global South.
The U.S. strategy, as crafted by President Joe Biden, encompasses a broad array of protective tariffs and subsidies. The CHIPs Act and related policies seek to foster homegrown microchip production while denying frontier technologies to China and restructuring supply chains to friendly nations. The Inflation Reduction Act promotes extensive new investment in the green energy transition. Incongruously, at the same time, a tariff of 100% has been imposed on the import of Chinese electric vehicles. Further tariffs on component inputs, such as batteries sourced in China, are already on track.
Following the U.S, the European Union is also set to raise its own stiff tariff hikes on Chinese EVs as it pursues a European Green Deal to transition to renewables on its own terms. Europe also seeks to blunt the impact of the “buy American” restrictions of the IRA so that fleeing capital looking to exploit the subsidized U.S. market does not hollow out its own green industries before they can be firmly established.
Earlier this month, the former European central banker and one-time Italian prime minister, Mario Draghi, has gone the next step and plotted out a detailed, long-term “industrial strategy” to close the gap with the U.S. and China, which he calls “an existential challenge” to the European way of life.
“If Europe cannot become more productive,” Draghi writes in his report, “we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions.”…
[Gardels unpacks both European and Australian industrial policy..]
… For all these divergent industrial strategies to succeed in the end depends largely on whether sustained nation-building investment outstrips the duration of protective measures that ought to be only a temporary respite from asymmetrical conditions while they are rebalanced.
To the extent these decoupled initiatives do succeed, they will, paradoxically, come to be regarded not as the antithesis of global cooperation, but as the precondition for it. Only when the power centers of China, the U.S. and Europe are assuredly in control of their own destiny will they be secure enough to open up and cooperate on the global issues that impact them all equally…
The case that divergent “industrial strategies” in the U.S., China, and Europe can create the security to open up: “The Precondition for Global Cooperation,” from @NoemaMag.
* Bertrand Russell
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As we reconfigure, we might spare a thought for a man who provided an important part the foundation on which opponents of industrial policy base their arguments: Pierre Le Pesant, sieur de Boisguilbert (or as he is more commonly known, simply Boisguilbert); he died on this date in 1714. A French Enlightenment law-maker and economist, he was the first of the great continental liberals– a proponent of laissez-faire and minimalist government and an early opponent of mercantilist “Colbertisme.” He is considered one of the fathers of the notion of an economic market.
“An imbalance between rich and poor is the oldest and most fatal ailment of all republics”*…
In a stark sign of the economic inequality that has marked the pandemic recession and recovery, Americans as a whole are now earning the same amount in wages and salaries that they did before the virus struck — even with nearly 9 million fewer people working.
The turnaround in total wages underscores how disproportionately America’s job losses have afflicted workers in lower-income occupations rather than in higher-paying industries, where employees have actually gained jobs as well as income since early last year.
In February 2020, Americans earned $9.66 trillion in wages and salaries, at a seasonally adjusted annual rate, according to the Commerce Department data. By April, after the virus had flattened the U.S. economy, that figure had shrunk by 10%. It then gradually recovered before reaching $9.67 trillion in December, the latest period for which data is available.
Those dollar figures include only wages and salaries that people earned from jobs. They don’t include money that tens of millions of Americans have received from unemployment benefits or the Social Security and other aid that goes to many other households. The figures also don’t include investment income…
The figures document that the vanished earnings from 8.9 million Americans who have lost jobs to the pandemic remain less than the combined salaries of new hires and the pay raises that the 150 million Americans who have kept their jobs have received.
The job cuts resulting from the pandemic recession have fallen heavily on lower-income workers across the service sector— from restaurants and hotels to retail stores and entertainment venues. By contrast, tens of millions of higher-income Americans, especially those able to work from home, have managed to keep or acquire jobs and continue to receive pay increases.
“We’ve never seen anything like that before,” said Richard Deitz, a senior economist at the Federal Reserve Bank of New York, referring to the concentration of job losses. “It’s a totally different kind of downturn than we’ve experienced in modern times.”
The figures also underscore the unusually accelerated nature of this recession. As a whole, both the job losses that struck early last spring and the initial rebound in hiring that followed have happened much faster than they did in previous recessions and recoveries. After the Great Recession, for example, it took nearly 2 1/2 years for wages and salaries to regain their pre-recession levels…
One reason why the job losses have had relatively little impact on the nation’s total pay is that so many of the affected employees worked part time. The average work week in the industry that includes hotels, restaurants and bars is just below 26 hours. That’s the shortest such figure among 13 major industries tracked by the government. The next shortest is retail, at about 31 hours. The average for all industries is nearly 35 hours.
The recovery in wages and salaries helps explain why some states haven’t suffered as sharp a drop in tax revenue as many had feared. That is especially true for states that rely on progressive taxes that fall more heavily on the rich. California, for example, said last month that it has a $15 billion budget surplus. Yet many cities are still struggling, and local transit agencies, such as New York City’s subway, have been hammered by the pandemic.
The wage and salary data also helps explain the steady gains in the stock market, which have been led by high-tech companies whose products are being heavily purchased and used by higher-income Americans, such as Apple iPads, Peloton bikes, or Amazon’s online shopping.
This week, the New York Fed released research that underscored how focused the job losses have been. For people making less than $30,000 a year, employment has fallen 14% as of December. For those earning more than $85,000, it has actually risen slightly. For those in-between, employment has fallen 4%…
Some companies have cut wages in this recession, but on the whole the many millions of Americans fortunate enough to keep their jobs have generally received pay raises at largely pre-recession rates. Some of those income gains likely reflect cost-of-living raises; the Commerce Department’s wage and salary data isn’t adjusted for inflation…
Truman Bewley, a retired Yale University economist who wrote a book about the concept of sticky wages, said that most companies have a key core of workers they rely on through hard times and are reluctant to cut pay for them.
And there’s another reason, Bewley said, why many companies cut jobs instead of pay. While researching his book, he said a factory manager told him why his company did so: “It gets the misery out the door.”
More at: “Sign of inequality: US salaries recover even as jobs haven’t.”
See also “More Than 33 Million Americans Have Filed for Unemployment During Coronavirus Pandemic.” source of the image above.
And to compare the U.S. to other countries, try this nifty interactive visualization.
* Plutarch
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As we examine equity, we might send foundational birthday greetings to Pierre le Pesant, sieur de Boisguilbert; he was born on this date in 1646. A French lawmaker and a Jansenist, he is best remembered as one of the inventors of the notion of an economic market– he championed free trade in opposition to Colbert‘s mercantilist views (which generated government revenues through duties and tariffs).
But he is also noteworthy as the champion of a single tax on each citizen (in lieu of all tariffs, customs, and other trade-related fees) that in some ways presaged Henry George‘s proposals.
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