The Socialist Market Economy in China, Vietnam and Laos: A development model to embrace?

January 11, 2021January 8, 2021 Arve Hansen2 Comments

By Jo Inge Bekkevold, Arve Hansen and Kristen Nordhaug

China, Vietnam and Laos have for three decades been among the fastest growing economies in the world. In other words, three of the best growth performers in global capitalism are authoritarian states led by communist parties with socialism as the official development goal. This fact has received surprisingly little attention, especially when considering their strong performance on a wide range of development indicators. Many claim China and Vietnam indeed represent some of the most impressive “development success stories” the world has seen in recent decades. The three countries claim to have found their own model of development combining a market economy with socialism – ‘the socialist market economy’. According to official definitions, this is not capitalism, but a more sustainable and socially just way of making a market economy work for national development and the improvement of living standards. In “The Socialist Market Economy in Asia: Development in China, Vietnam and Laos”, an edited volume newly published by Palgrave Macmillan, we engage with the coherence, achievements and failures of this particular development model.

The New “Passive” Wall Street Counterparts for States in the Global South

January 5, 2021January 3, 2021 jpetry13 Comments

By Jan Fichtner and Johannes Petry

In the past, during the time of the “Washington Consensus” developing countries from the Global South faced the IMF and the World Bank as their main counterparts in important matters of global finance. Based on our recently published research paper “Steering Capital” we argue that due to an ongoing paradigm shift in financial markets this constellation is changing profoundly. A new breed of Wall Street firms is emerging that occupies a pivotal position in the relationship between (developing) countries and financial markets – index providers.

This rise of index providers is grounded in the global shift towards passive investment. Formerly, investors gave their money to funds where a well-paid fund manager was picking stocks (or bonds) with the aim to produce above average returns – to “beat” the market in finance parlance. But now more and more investors invest in cheap passive funds (which comprise both exchange traded funds and index mutual funds) that merely track financial indices. Unlike actively managed funds, however, the passive index funds industry is characterised by enormous economies of scale – in terms of technology it is not a big difference if a passive fund has ten million or ten billion US$ assets under management. In addition, there is a strong first mover advantage. As a result, BlackRock, Vanguard and State Street dominate passive funds as the “Big Three”. Excellent recent work has since focused on how this “new money trust” is shaping the emergent ”American Asset Manager Capitalism”.

Sino State Capital and the Strengthening of Serbian Stabilitocracy

December 21, 2020December 31, 2020 imogenliu2 Comments

Chinese labour workers and their team manager laying the tracks on the Belgrade-Stara Pazova section of the Belgrade-Budapest railway. Source: author’s own.

The Belgrade-Budapest Railway has been lauded as the flagship Belt and Road project of the wider Central and Eastern European (CEE) region, and as such is promoted by Beijing as a successful template for Sino-CEE cooperation concluded via the 17+1 initiative, established in 2012 to foster relations between China and 17 CEE countries. In its host context of Hungary and Serbia, the investment has been politicised from the get-go, wherein criticism has largely focused on the project’s violation of EU public procurement rules, which require competitive dialogue and open-tender processes for projects of substantial size.

We would expect the Belgrade-Budapest Railway to be subject to greater scrutiny in both Hungary, as an EU member state, and Serbia, where external legitimacy of the EU is an important cornerstone of regime legitimacy, stemming from broad-based support for EU integration and cooperation. While this has played out in Hungary where there have been protests and where the EU launched infringement proceedings against the construction for non-compliance, the Serbian section has proceeded relatively unhindered.

Ecological breakdown: What are externalities external to?

December 17, 2020April 9, 2023 Güney Işıkara1 Comment

The 2018 Bank of Sweden Prize (falsely known as the Economics Nobel Prize) winner William Nordhaus opens the revised version of his Prize lecture as follows: “I begin with the fundamental problem posed by climate change – that is a public good or externality. Such activities are ones whose costs or benefits will spill outside the market and are not captured in market prices.”

The concept of externalities is a catch-all term, or, an empty box to capture the so-called spillover effects. Under the presumption that the market mechanism brings about the efficient allocation of resources, mainstream economic theory as well as many of its heterodox critiques argue for internalizing these spillovers by determining their costs (or benefits) and including it in the price of the commodity. In other words, the spillover effect itself must be turned into a commodity so that the market can efficiently handle it through the price mechanism.

Insofar as human-induced global warming has not been priced, so the story goes, it is an externality. In fact, it is today “the most significant of all environmental externalities” even in Nordhaus’ wisdom. Make no mistake – Nordhaus fiercely advocated inaction for over three decades, and portrayed projected levels of global warming, which are defined as devastating, or even catastrophic by scientists, as optimal.

How pension funds shape financialisation in emerging economies in Colombia and Peru

December 13, 2020November 13, 2020 bbonizziLeave a comment

By Bruno Bonizzi, Jennifer Churchill and Diego Guevara

In early spring 2020 emerging economies (EEs) were hit by the largest ever episode of portfolio outflows. Stock and bonds were sold as investors flight to safer investments in Europe and the United States, showing once again the fragile nature of EEs’ financial integration. To overcome this problem, one suggested solution is to allow for a larger base of domestic institutional investors, such as pension funds, which can stabilise financial markets. While having a large institutional investor base can be a source of demand for domestic financial securities, it is important to review the evidence from the experience of those EEs where pension funds have existed for more than two decades.

As we show in our forthcoming article, the experience of Colombia and Peru can be instructive. Their pension system, while maintaining a significant parallel public Pay-As-You-Go structure, has a sizeable funded private component with assets that have grown to over 20% of GDP. These were established as part of the Washington Consensus reforms in the 1990s, following the prior example of Chile.

Debating ‘State Capitalism’ in Turkey: Beyond False Dichotomies

December 10, 2020December 12, 2020 mehmetermanerol3 Comments

Following the 2016 failed coup attempt, and in the context of increasing mistrust towards the West, Turkey’s president Erdogan reflected his discontent with the EU and argued that Turkey should instead join the Shanghai Five, namely the Shanghai Cooperation Organisation (SCO) led primarily by China and Russia. Soon after, despite being a NATO member, Turkey signed a deal with Russia to buy the S-400 air defence missile system. Taken together with Turkey’s other ‘adventures’ in its region, these developments were perceived as manifestations of a changing political economy of Turkey, and were deeply disturbing to Western powers. After all, since the end of the Second World War, Turkey had been a close ally of the US-led Western capitalist bloc, it continued to be one during the Cold War; and had remained very close to US and EU interests following the end of the Cold War in 1991.

For some accounts[i], these developments are related to the changing world order and global power shifts following the 2008 crisis, as the decline of the ‘liberal international order’ and the rise of BRICS (Brazil, Russia, India, China and South Africa) marked transformations of the global political economy. Hence, there is a tendency to explain Turkey’s late political economy in this context. It is argued that, in this ‘post-liberal international order’ where two competing political economies come to the fore, Turkey is moving towards the ‘East’ or ‘non-West’ – mainly China and Russia. As such, Turkey’s engagement with non-Western ‘great powers’ (which are generally characterised by ‘authoritarian state capitalism’ as opposed to the ‘neoliberal political economy’/liberal democracy/’democratic capitalism’ of the West), shapes Turkey’s political economy and paves the way for ‘authoritarianism’, ‘illiberal democracy’ and ‘state capitalism’. Put differently, as the legitimacy crisis of ‘Western neoliberalism’ makes it less desirable for countries like Turkey, Turkey is regarded to have deviated from neoliberalism and liberal democracy and moved to state capitalism and authoritarianism.

“Under pressure”: negotiating competing demands and desires in a time of precarious earnings

December 7, 2020December 20, 2020 HjD1 Comment

A few years ago, during a year of ethnographic fieldwork with young un(der)employed men in a poor shack settlement on the outskirts of Johannesburg, I found myself sitting in Senzo’s one-room shack on a foldout camping chair. It was a hot Wednesday afternoon. Popular R&B music was blaring into the air from the nearby tavern. Senzo sat on his double bed. Soon after I arrived, Senzo handed me an ornate invitation with gold foil on the sides and his name on it. It was an invitation to the wedding of his cousin that was set to take place the following weekend. I asked Senzo if he planned to go. “I’m not going”, he told me, explaining that he had declined the invitation because, as he put it, “I don’t want to put more pressure on myself” describing the difficulties he already had paying rent, keeping up with outstanding debts, and supporting his girlfriend and children. Going to the wedding would require him to buy a fancy suit and a gift for the couple. This required money he didn’t have. The “pressure” Senzo described was not just the monetary cost of attending the wedding. It was also the feeling (what Senzo called “stress”) of being overburdened by competing demands on his money including buying consumer items, sending his children to good schools, and supporting family members. To understand the continuous “pressure” young men like Senzo face requires we give attention to the changing nature of work and the changing world of families in contemporary South Africa. As I show below the pressures young black un(der)employed men experience are at once economic and social given the pressure they face to not only “provide” for themselves and their families exists alongside a pressure to improve or “upgrade” their lives. As such, I show how the “income-demands gap” (a key catalyst of “pressure”) in young men’s lives is produced in and through specific (increasingly temporary rather than enduring) social relations and ties.

Developing Economics

A Critical Perspective On Development Economics