Should the African lion learn from the Asian tigers? A comparison of FDI-oriented industrial policy in Ethiopia, South Korea and Taiwan

19095762104_2c72b2e569_o.jpg
The Huajian shoe factory in the Eastern Industrial Zone in Ethiopia. Photo: UNIDO.

Ethiopia is being hailed as one of the most successful growth stories in Africa. Because of the country’s rapid economic growth, the high degree of state intervention in the economy, and the state’s focus on industrialization, people have started to compare Ethiopia to the Asian ‘tigers’ (Aglionby, 2017; Clapham, 2018; De Waal, 2013, Hauge and Chang, 2019; Oqubay, 2015) four countries in East Asia (Hong Kong, Singapore, South Korea and Taiwan) that underwent rapid industrialization and maintained exceptionally high growth rates in the post-WWII era.

However, this emerging literature on Ethiopia-Asia comparisons has not yet sufficiently addressed one of the most important aspects of Ethiopia’s industrialization strategy — the attraction of foreign direct investments (FDI) into the manufacturing sector.

The rationale of my recently published article was this gap in the literature. In it, I ask the question: Should the African lion learn from the Asian tigers with respect to FDI-oriented industrial policy? 

In short, my answer is yes. While Ethiopia’s policies are bringing about short-term economic success and showing promise for further industrialization, the state could arguably bargain harder with foreign investors, like it did in South Korea and Taiwan.Read More »

Smithian or mercantilist nations? Two opposite models of development

1024px-The_Battle_of_Cape_Passaro.jpgWhile classical political economy has been considered outdated by many social scientists, I argue here that it can provide insights about the world today and the challenges we face.[1] One of these insights has to do with the early disagreement that existed between Adam Smith and the mercantilists of his era with regards to the wealth of nations, a topic sometimes captured under the label “development”. Based on this disagreement, this blog post develops a typology of Smithian and Mercantilist nations as different models of capitalist development that may be considered alternatives for developing countries today.Read More »

Property rights and transaction costs in developing countries: A political settlement perspective

2459609754_9c96e07553_b
Photo by Dennis Jarvis. Louisbourg Lighthouse.

Transaction costs due to distributional conflicts, political settlements, and weak enforcement capacity have important implications for the implementation of property rights in developing countries. While critical analysis of these factors is missing in the mainstream economics approach to property rights, it is obvious that incorporating such analysis will be crucial in designing policies to minimize transaction costs that hinder an efficient functioning of property rights. Specifically, there is a need for an alignment of interests among powerful political and economic interests if property rights are to be more efficient at reducing transaction costs. 

A fundamental limitation of contemporary property rights theory is its inability to incorporate factors that might reduce property rights from solving transaction costs, particularly in developing countries. This piece reviews the mainstream explanation of the relationship between property rights and transaction costs and then evaluates factors that can inhibit property rights from reducing relevant transaction costs, which include distributional conflicts, costly enforcement capacity, political settlement, and measurement problems. Major emphasis is placed on social conflicts and organization of power which are missing from the conventional analysis of property rights.

In this respect, the political settlements framework developed by SOAS economist Mushtaq Khan can enrich our understanding of the operations of property rights in developing countries. Khan (2018) defines political settlements as “social orders characterised by distributions of organizational power that together with specific formal and informal institutions effectively achieve at least the minimum requirements of political and economic sustainability for that society”. In short, political settlement means the distribution of power among different groups.Read More »

Misunderstanding the average impact of microcredit?

6886186408_5de7def831_o.jpg
Photo: Peter Haden. Microfinance center leaders tally the week’s loan payments in India.

By Milford Bateman and Maren Duvendack

A recent article on the “average impact of microcredit” by Dr. Rachel Meager (LSE) has received much praise over the past few weeks. Meager deploys Bayesian hierarchical modelling to provide a new take on the argument in favour of a reformed system of microcredit. Her work builds on the data provided by six randomized control trials (RCTs) conducted by Abhijit Banerjee and colleagues (see Banerjee, Karlan and Zinman, 2015). Meager makes an attempt to exculpate the microcredit model from the awkward fact that its impact on the poor has been very much less than originally envisaged. She also claims to show that the critics have overstated the negative impact of microcredit. Microcredit should therefore continue to be a policy intervention, she goes on to say, but there need to be changes in the operating methodology for a more meaningful development impact to be possible in the future.

While seemingly a well-meaning attempt to explore the impact of microcredit, we were struck by the way that her overall argument appears to seriously misunderstand, and it definitely misrepresents, the existing research on microcredit as a development instrument. Read More »

Mind the Gap: Addressing the Class Dimension in Higher Education

7038952701_bb67cdb2d7_oThe debate in Higher Education (HE) in the UK is slowly starting to recognise that inequality in education is both the cause and consequence of societal elitism. As a result, there is an increasing debate about widening access to academia, and more and more newspaper articles are devoting attention to the few who made it through the Oxbridge close-circle system. 

On the 17th of May 2019 the Reteaching Economics and IIPPE Teaching Political Economy working group organised a workshop on economic pluralism, teaching and research. I was chairing the panel on “Challenges and Opportunities for the Economics Curriculum Around Decolonisation, Gender and Diversity” which included brilliant contributions from Dr Meera Sabaratnam (SOAS), Dr Lucia Pradella (King’s College), Dr Ingrid Kvangraven (University of York) and Ali Al-Jamri (Rethinking Economics, Diversity Campaign Manager). They addressed various political, historical and cultural  issues around neocolonialism, imperialism, racism, sexism and gender segregation in HE at large and in the economic discipline in particular. Considering the potential great complementarity of the topics, I thought it was relevant to bring in the class dimension in the discussion. I noticed that while the marginalization of women and people of color is rightly getting increasing attention, the class dimension is sometimes forgotten. Indeed, although class remains a crucial lens to untangle injustice and exclusion in the HE industry, it isn’t dealt with with as much urgency. Maybe also because it’s a bit less visible. Indeed, last week I was discussing this issue with another ‘academic migrant’ from Southern Europe, and he suggested: “Panels should ask “what do your parents do/did for a living?” during job interviews.

To prepare my presentation, I approached a couple of ‘data intelligence’ offices in UK universities asking for facts about the class dimension of access to higher education in the UK. I was pointed to the Office for Students, which is a new resource that enables us educators, but also students, to look at various key bits of data on the university sector as a whole, and on individual universities. A very useful resource indeed! 

So here is what I found, and the results are pretty discouraging. Read More »

An Alternative Economics Summer Reading List, 2019

pasted image 0.pngThis summer, we take stock of the most interesting economics-related books that have been released over the past year. Every year, Martin Wolf of the Financial Times makes a similar list. However, by his own admission, he only reads within the tradition of his own training in mainstream economics. While his 2019 summer list includes several excellent books, such as The Case for People’s Quantitative Easing by Frances Coppola and The Sex Factor by Victoria Bateman, we are still struck by the strong white-male-mainstream-Western bias in Wolf’s list, with the books almost all written by white (20/21) men (18/21) about topics mostly focused on the US and Europe. 

To complement Wolf’s list, we have put together an Alternative Economics Summer Reading list with authors from across the world, with more varied backgrounds – and writing about more wide-ranging topics, and from a wider variety of critical perspectives. Our alternative list also reflects our belief that issues such as structural racism, imperialism, ideology and the philosophy of science are central to understanding economics. 

It is not that we think that Martin Wolf is in particular responsible for the lack of diversity and monism in our reading decisions: other curators such as the Economist (for example, here) also perpetuate the myth that the books worth reading about economics are mostly those written about the US and Europe, by white men trained trained in mainstream economics. Read More »

Philanthrocapitalism: How to Legitimize the Hegemony of the Rich with a “Good Vibes” Discourse

5093646448_9cea7df323_o.jpg
Melinda Gates speaking at DFID. Photo: DFID.

Is philanthrocapitalism a vehicle for so-called “development”? In an article recently released in Globalizations (here), Juanjo Mediavilla (University of Valladolid, Spain) and I analysed the phenomenon of philanthrocapitalism as a financing for development (FfD) instrument from the perspective of Critical Development Studies and Discourse Theory. We argue that we are witnessing the deepening of a neoliberal development agenda, where philanthrocapitalism and the elites play a key role. Read More »

Hirschman’s Linkages: Passé in the Age of Global Production Sharing?

ivan-bandura-739702-unsplash.jpg

How does economic development happen? After World War II, many development economists rose to prominence, such as Paul Rosenstein-Rodan (the big push), Arthur Lewis (the dual-sector model), Walter Rostow (the linear stages of growth) and Albert Hirschman (unbalanced growth and linkages). Given the continued importance of industrial policy, it is particularly worthwhile to revisit the idea of forward and backward linkages — one of the central tenets of development thinking pioneered by Hirschman.Read More »