In Service of Neoliberalism – The Art and Science of Perpetuating the ‘State versus Market’ Dichotomy

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How should one assess a book on economic policy that takes a dim view of the state and redistribution in a country that is home to multiple and intersecting inequalities? Economic inequality and the role of the state in tackling inequality emerged as a major talking point in the last decade and it is likely that it will continue to animate academic and policy debates in the following decade too. Therefore, it would not be unreasonable to evaluate any book on economic policy based on the seriousness with which it engages with inequality and how it imagines state intervention in the economy. This review seeks to do precisely that by unpacking the conventional wisdom about the nature and role of the state presented in the book In Service of the Republic: The Art and Science of Economic Policy by Vijay Kelkar and Ajay Shah.Read More »

Indonesia’s State-Led Development: Custodian of the National Interest, or Boondoggle?

industry-4612432_1920Nobel Laureate Esther Duflo once likened the work of economists to that of plumbers – tinkering and adjusting as necessary as they engage with the details of economic policy-making. The implication in this comparison is that economists generally understand economic systems and behaviour how the pipes come together – and that the main work of the discipline is to fiddle with these components – adjusting the pressure, replacing valves – to see what works and what doesn’t.

A critique of this approach was compiled by Ingrid Harvold Kvangraven here. The primary criticism is that the basic premise is flawed – we do not, in fact, have a very complete understanding of how the pipes come together. Often, we don’t even know where they are. The institutional architecture that determines economic outcomes can vary widely from one country to the next. With so much variation at the systemic-level the utility of “tinkering” at the margins is questionable.

This blog series will interrogate some of the prevailing assumptions about the relationship between state and capital and look at why and in what ways some economies are deeply intertwined with the state. The structural conditions that actually exist in developing economies are often ignored in mainstream economic analyses – the prescription for countries with large state-owned sectors is usually some combination of more market liberalization, less protectionism, better enforcement of property rights. This ignores why the economy is structured that way in the first place, and therefore such prescriptions risk being disconnected from the reality on the ground, and thus ineffective.

Indonesia’s economic trajectory helps to illustrate this point. Despite a long history of sometimes violent anti-communist sentiment, massive portions of the economy are either partially or directly controlled by state-owned enterprises. According to Kyunghoon Kim in 2016 there were148 SOEs in Indonesia, and their total assets were equivalent to 56.9% of the country’s GDP.This includes the state-owned oil and gas company Pertamina, three of the four largest banks, the state-owned electric utility PLN which owns the entire national grid, airport operators Angkasa Pura I and II which operate every major commercial airport, the telecom giant PT Telekomunikasi Indonesia and the largest toll road operator Jasa Marga, to name just a few. Read More »

Lost in Technicalities: The Great Indian Slowdown

India’s Finance Minister Nirmala Sitharaman has said, while replying to a discussion on the economic slowdown in the Rajya Sabha, ‘growth may have come down, but it is not a recession yet and it won’t be a recession ever’. Drawing on data up until December 2019, I evaluate to what extent India’s economy is indeed slowing down.

Figure 1: Quarterly Rate of Growth of GDP in IndiaScreenshot 2020-01-21 at 09.42.32

No, it’s not a recession, defined strictly in technical terms, i.e. on the whole, the level of activity hasn’t fallen, even though certain crucial sectors, like automobiles, are seeing a fall. What we have instead is a slow down, a severe one at that, with falling rate of growth of GDP for five straight quarters (figure 1). The Indian government is hiding behind economic jargon to obfuscate the reality that is biting the economy. The writing is on the wall. The Indian economy is facing a severe crisis and the sooner we come to terms with it, the better. Based on a recent paper in Economic and Political Weekly, this blog discusses the changing growth levels in the Indian economy, the reasons for the recent slowdown, and some possible short and long term solutions.Read More »

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

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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 »

Islamic Finance and Financial Inclusion: Who Includes Whom, in What, and on Whose Terms?

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By Lena Rethel, University of Warwick.

With the rise of financial inclusion as the new buzzword in global development circles, it has replaced earlier items on the reform agenda such as financial modernisation or financial deepening. By their very nature financial inclusion projects are inherently political – their underlying rationale is to change who has access to what forms of credit and at what conditions. Financial inclusion is both a multi-scalar and multi-faceted phenomenon. Needless to say that its dynamics play out differently in different countries and regions. However, before uncritically embracing the financial inclusion agenda as a means to achieving a more equitable economic order, more attention should be paid to what constitutes a fundamental set of questions: who includes whom, in what and on whose terms? In this blog entry, I want to highlight some of the key issues that have emerged in relation to Islamic finance. Read More »

Make Microfinance Great Again: A Shift Towards Flexibility

6925521070_420f1882d6_o.jpgMicrofinance has been widely hailed as one of the most innovative tools for fighting against poverty. It has generated global attention over the last two decades, especially since the UN declared 2005 the ‘Year of Microcredit’ and the 2006 Nobel Peace Prize was awarded to microfinance pioneer Muhammad Yunus and the Grameen Bank. This led to a significant expansion of the sector in the last decade. According to the World Bank (2015), the microfinance industry is estimated to have $60-100 billion in loans outstanding, and several thousand microfinance organizations reach an estimated 200 million clients. 32.5 million of these clients are in India and 90 percent of them are women.Read More »

Demonetisation in India: From Financial Inclusion to Digital Financialisation

31530585646_0a0e070353_o.jpgOn 8th November, 2016, the Indian government announced that it was banning the use of 500 and 1000-rupees currency notes from midnight, effectively scrapping 86% of India’s currency notes by value. The Indian public would have to change the outlawed currency notes for new ones at bank counters by the end of the year.

In the following months and years, the move, which came to be known as demonetisation, caused immense suffering to the Indian public and damage to the Indian economy. So, why was it carried out? In an upcoming paper, Daniela Gabor and I seek to demystify demonetisation by locating it within wider changes in the Indian economy—changes that started in the financial inclusion space but are now reverberating across the entire financial sector. We refer to this process of change as digital financialisation.Read More »

Financial Education in Malaysia: A Driver of Nation-Building or Inequality?

Moonrise_over_kuala_lumpur.jpgA decade has passed since the Global Financial Crisis (GFC) which seems an apt time to begin talking about the event that has pushed the concept of financial education to the core of global policymaking debates. Despite its growing popularity today, financial education has existed in the premise of global policymaking for the past few decades. The benefits of financial education seem endless; poor national financial literacy levels have been blamed for adverse socioeconomic effects such as high national household debt and/or a general irrational exuberance in financial consumption behaviour (see e.g. here). Along the same lines, low national financial literacy rates have been seen as indicative of overall financial instability, the types that have been argued and blamed as causal mechanisms of the GFC. Thus, financial education is held as an empowering dogma, its dissemination seen as providing citizens with the knowledge that would empower them to access financial services in a sustainable and meaningful manner. Read More »