Understanding development in a Global Value Chain World: Comparative Advantage or Monopoly Capital Theory?

By Benjamin Selwyn and Dara Leyden

The recent period of globalisation – following the collapse of the Eastern bloc and the integration of China into the world economy – is in essence the period of global value chains (GVCs). From low to high-tech, basic consumer goods to heavy capital equipment, food to services, goods are now produced across many countries, integrated through GVCs.

The big question in development studies is whether this globalised reconfiguration of production is contributing to, or detracting from, real human development? Is it establishing a more equal, less exploitative, less poverty-ridden world? To understand these complex dynamics, scholars rely on economic theories. These theories must be relevant to the GVC-world and equipped to tackle these pertinent questions.

In 2020 the World Bank published its World Development Report Trading for Development in the Age of Global Value Chains (WDR2020, or ‘the Report’) to address these questions. It confidently proclaimed that ‘GVCs boost incomes, create better jobs and reduce poverty’ (WDR2020: 3). Given the World Bank’s promotion of neoliberal globalisation, this conclusion is unsurprising.

However, before accepting the Report’s claims at face value, we should reflect on the findings of Robert Wade (2002: 220). These annual World Bank reports serve as “both a research-based document and a political document…. the Bank’s flagship message must reflect back the ideological preference of key constituencies and not offend them too much, but the message must also be backed by empirical evidence and made to look technical”.

When globalisation is booming it may be possible for the report’s liberal bias to appear to complement its data. However, the GVC world has generated such inequalities that the dissonance between the report’s liberal bias and its own data is stretched to breaking point.

Drawing on our recently published article, this blog post uses the Report’s own data to undermine its core claims. It shows that the GVC world enhances the dominance of transnational corporations (TNCs), concentrates wealth, represses the incomes of supplier firms in developing countries, and creates many bad jobs – with deleterious outcomes for workers.

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A new Washington Consensus on the role of the state?

By Ilias Alami, Adam Dixon and Emma Mawdsley

In a recent op-ed, Martin Sandbu of the Financial Times argues that “the conversion by the IMF and World Bank to support the activist state would put Saul of Tarsus to shame.” According to him, we may be witnessing the rise of a new Washington Consensus, which embraces deficit spending (by rich countries), “temporary solidarity surtaxes” on the rich and businesses, green public investment, and other forms of government intervention. This is not only to address the short-term effects of the pandemic, but also to stimulate demand across the world economy. Sandbu finds evidence of this new consensus in the benign view that the IMF has taken on Biden’s “rescue package”, and claims that “the new Washington consensus could prove as politically powerful as the old one.” In another op-ed in October 2020,

Sandbu characterised this new consensus as follows:

“After 1945, the guiding assumption was, first, that the state knew best, then that the private sector was best. We are about to transcend both, in favour of an economic worldview based on finding ways in which government intervention can guide the private sector to perform better. In that sense, economic planning and the activist state are back.”

It is indeed striking that the IMF, the World Bank, the OECD, the G20, and other multilaterals, have adapted their discourse on the role and place of the state in development. This predates the COVID-19 pandemic. In an open access paper recently published in Antipode, we document the emergence of this new vision of the state in development and outline its key features. Since the early 2010s, these institutions have produced a remarkable wealth of material explicitly concerned with old and new forms of state ownership and intervention. Witness, for instance, this November 2020 EBRD Transition report titled The State Strikes Back, or this chapter dedicated to state-owned enterprises in the IMF 2020 Fiscal Monitor. Our analysis of such policy documents and others suggests that we are witnessing a gradual yet fundamental reorientation of official agendas and discourses about the state. This emerging vision embraces a fuller role of the state in development (than the post-Washington Consensus), including as promoter, supervisor, and owner of capital. Our analysis expounds the material context in which this vision is emerging. Two interrelated transformations are particularly important.

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The Washington Counterfactual: don’t believe the Washington Consensus resurrection

By Carolina Alves, Daniela Gabor and Ingrid Harvold Kvangraven

Decades of research have documented the devastating impacts of the Washington Consensus in the developing world. Yet revisionist accounts of this story have emerged in recent years. Remarkable amongst these, a recent blog post by the Peterson Institute for International Economics –  “Washington Consensus stands the test of time better than populist policies” – draws on research that is jaw-droppingly ideological and flawed. 

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The pathology of economics

COVID-19 exposes the deadly dominance of neoclassical economics in Africa.

On February 24, 2021 Ghana received a vaccine shipment (600,000 doses), the first to sub-Saharan Africa under the COVAX facility. It amounted to a tiny fraction of the hundreds of millions needed on a continent increasingly ravaged by the pandemic. Contrast this to the tens of millions already vaccinated in the UK and US. The optimism that Africa would be spared by “early lockdown”, “less dense population, “the effect of ultraviolet”, “a climate that meant people spent more time outside” and “Africa’s youthful population” has rapidly faded. Officially there are now more than 100,000 deaths on the continent, but the real numbers are much higher due to the paucity of testing and the lack of capacity to accurately track and evaluate causes of mortality.

The shortage of tests and vaccines are exacerbated by the West’s hyper-nationalism restricting the import of these two vital tools to combat the pandemic. The same forces have also generated a scarcity of personal protective equipment (PPE), the lack of monoclonal antibody and other treatments, and terrible shortages of medical oxygen so vital to keeping people alive. How is it possible, 60 years after independence, for African countries to be so highly dependent on the goodwill of the outside world for basic health goods? A good deal of the answer lies in the pathology of economics and related policies, which have spread like a pandemic globally and have come to dominate both the West and the continent of Africa. How did this come about? How does it relate to the strategies that have undermined African capacities to mitigate the effects of the pandemic on the health and welfare of its people? And what should be done?

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Multilateral Development Banks: A system of Debt or Development?

By Susan Engel and Adrian Bazbauers

Most people interested in development know about the World Bank and probably some of the bigger regional development banks, like the Asian Development Bank. But few people realise there is a system of 30 functioning multilateral development banks (MDBs). Indeed, we did not initially realise there were quite so many because there was no comprehensive tally or an academic study analysing them all. We set out to explore whether the MDBs work as a system and what role they play in promoting both debt and development so here is a short summary of some of our key finding on these three issues.

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Sub-Saharan countries are taking on more debt, and women will bear the brunt of repaying it

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By Matthew BarlowJean Grugel and Jessica Omukuti

By May 2020, every African nation had registered cases of COVID-19. By late July, cases had exceeded 844,000. A key factor in Africa’s struggle to mount a response to the pandemic (although not the only one) is that years of debt servicing have eroded states’ capacities to build strong health systems.

Research on crisis and pandemics in different parts of the world, particularly in sub-Saharan Africa (SSA), shows that countries will respond to COVID-19 in two phases – the fiscal expansion phase, which involves a series of stimulus packages, and the fiscal contraction phase, which is characterised by austerity. In the case of COVID-19, these phases will require significant levels of financing. In a region with predominantly low and narrow tax bases, debt and donor aid have become an alternative way for governments to finance state obligations. Currently average African debt-to-GDP is below the 60% (danger) threshold, which is way below the crisis levels of the 1980s and 1990s.

However, the cost of debt has exponentially increased due to low credit ratings translating into poor interest rates. By 2018, 18 SSA countries were at high risk of debt distress and governments made austerity cuts to public services to service their debt obligations. In 2018, 46 low-income countries — most of which are in SSA— were spending more on debt servicing than on healthcare. Annually, SSA countries were spending an average of $70 per capita on healthcare (supplemented with $10 external assistance), in contrast to $442 in China and an average of $3,040 in the EU.Read More »

Green Structural Adjustment in The World Bank’s Resilient Cities

 

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Jakarta, Indonesia

By Patrick Bigger and Sophie Webber

Cities across the world are facing a double-barreled existential problem: how to adapt to climate change and how to pay for it. Over the next thirty years, more than 570 coastal cities are poised to face frequent catastrophic flooding owing to sea level rise and more intense storms, while as many as 3.2 billion urban residents may run out of water by 2050. Other looming crises include soaring urban temperatures, the urgent need to transition away from fossil-fueled energy and transport systems, and plummeting rates of local biodiversity.

Responding to these problems will, international bodies project, require a virtually unprecedented buildout of infrastructure, from hardened municipal water and sewage systems, to urban afforestation, to renewable energy systems. This massive infrastructural program coincides with global economic conditions marked by the lingering ideological stranglehold of austerity, unprecedented levels of capital concentration, and now, myriad uncertainties produced by COVID-19. Cities across the world are facing a double-barreled existential problem: how to adapt to climate change and how to pay for it. Over the next thirty years, more than 570 coastal cities are poised to face frequent catastrophic flooding owing to sea level rise and more intense storms, while as many as 3.2 billion urban residents may run out of water by 2050. Other looming crises include soaring urban temperatures, the urgent need to transition away from fossil-fueled energy and transport systems, and plummeting rates of local biodiversity.

In response to the twin problems of resilient infrastructure needs and public fiscal constraints, the World Bank and an array of partner institutions from the Rockefeller Foundation to USAID have been ramping up programs to facilitate private investment in urban resilience. From a baseline of $10 billion across 77 cities in 2016, the World Bank aims to ‘catalyze’ investment of more than $500 billion into urban resilience projects across 500 cities by 2025. Read More »

Abolish Africa’s Sovereign Debtors’ Prisons Now

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By Ndongo Samba Sylla and Peter Doyle

This piece was written before the Coronavirus outbreak. It is a timely proposal of action. Given the high exposure of the developing world to the virus in contexts of medical and other logistical shortcomings, the damage to their productive capacity is likely to be much more severe than for the advanced world.  This fact is already reflected in particularly sharp virus-stirred capital outflows from these countries.  All this greatly increases their exposure to the present global structures for sovereign insolvency, and the urgent need for those structures to be radically reformed—as the authors propose with the Pre-Emptive Sovereign Insolvency Regime (PSIR).

In a radical call for reform of the IMF’s pro-creditor and anti-growth approach to indebted countries in Africa, Ndongo Sylla and Peter Doyle argue that the continent has a choice to make. Creditors, using the IMF, must be stopped from forcing devastating output losses by imposing high primary surpluses.

Within a decade, just to keep up with the flow of new entrants into its labour markets, sub-Saharan Africa needs to create 20 million new jobs every year. This is a huge challenge. But it is also a thrilling opportunity—to harness the energy and creativity of all of Africa’s young.

However, after it reviews these issues in Africa, the IMF’s immediate message—literally in the same sentence—is to pivot to ‘budget cuts to secure debt sustainability!’

That is plain wrong. For Africa to meet its development objectives, the IMF must radically change its pro-creditor anti-growth approach to highly indebted/insolvent countries.Read More »