Celso Furtado and the Myth of Economic Development: Rethinking Development from Exile

ABSTRACT

This article introduces two previously unpublished working papers by the Brazilian economist Celso Furtado (1920–2004). Following a brief outline of his life and ideas, the arguments in the two papers are examined, taking into account their context and place in Furtado’s evolving body of work. These two papers represent a crucial turning point in Furtado’s thinking, highlighting his critical perspective on (under)development and laying the basis for four books that he would publish in rapid sequence. We stress Furtado’s growing scepticism with the prospects for international development and global convergence, and his attempt to reimagine the meaning of development and the potential paths to development by peripheral countries. Furtado’s approach to global capitalism in these two papers shed an even more critical light on its structure and evolution than his better-known works from the 1950s. Finally, the contemporary relevance of his ideas is illustrated by reference to their relationship with the current heterodox literature.     

Celso Furtado: Culture and Creativity Matter

This article deals with the relationship between development, creativity, and culture. It is based on the works of Celso Furtado — a Brazilian economist, a member of ECLAC’s first generation of scholars (along with Raul Prebisch), and a notable intellectual of sub-development and development in Brazil and Latin America. For Furtado, economic development is an endogenous social process that leads to human ingenuity and creativity. However, Furtado argued that creativity does not occur haphazardly. It is conditioned by cultural structures that can take two forms: material (means) or immaterial (ends). The former steers creativity toward serving material accumulation and consumption, while the latter guides it toward individuals’ existential way of life. Furtado’s central claim is that, in the “industrial civilization,” such values as rationality and efficiency bring human creativity into the production process.     

Bank loan versus financial lease: how do traditional and innovative approaches within the banking sector influence economic growth? A comparative analysis between the US and China

ABSTRACT

The argument over the effects of financial structures on economic growth remains unsettled. This study, therefore, compares the dynamic correlation and lead–lag relationship between the different financial approaches within the banking sector (that is, traditional bank loans versus innovative financial leasing) and economic growth. We employ a continuous wavelet analysis using time-series data from 1982–2017 from the US (the world’s largest developed country) and China (the world’s largest developing country). The empirical results show that (1) episodes of significant correlation usually emerge during periods of reform, crisis or policy implementation; and (2) in China, traditional banking promotes economic growth in the long term, while the real economy only imputes the evolution of banks during critical economic reforms in the short term. Meanwhile, financial leasing could only promote the development of the real economy under suitable regulation; and (3) in the US, before the crises, the irrational growth of the real economy could increase bank assets, while during the crises, the traditional banking approach harms economic growth, and after the crises, financial leases play an important role in recovery. Therefore, we suggest that policymakers should establish adequate policies and regulations to solve the situation.     

Finance,power, and the British balance of payments

ABSTRACT

The Brexit referendum marks a critical juncture in Britain’s political economy. Benjamin Cohen argues that a nation’s monetary sovereignty lies in its balance of payments (BoP) flexibility (2008, 2015). I argue that a country’s position in the global financial régime must also be accounted for when explaining its BoP dynamics. This allows us to understand why, while sterling has long lost its ‘world currency’ status, Britain’s BoP exhibits some of the same features associated with American ‘exorbitant privilege’. To appreciate the UK’s own BoP flexibilities as well as to flesh out the Anglo-American axis in the international financial order, I compare the UK’s external balance sheets with those of the US. Given the complexities and uncertainties inherent in BoP analyses, I advise against micro-analyses of the BoP in favour of a broader approach that takes into account macro-dynamics as well as the International Political Economy (IPE) concerns outlined above. Elaborating such an analysis for the UK BoP, I explore the potential implications of Brexit for Britain’s external balance sheets and its political-economic future. While Britain’s financial power has helped insulate its balance sheets from external shocks, Britain’s impending departure from the European Union heralds a period of considerable uncertainty.     

Multinational firms,peripheral industrialisation and the recovery of national decision centres: the contribution of Celso Furtado

Abstract

This essay examines the contribution of Furtado to the understanding of the peripheral industrialisation process. His analysis of the role of industrialisation in the development policy of peripheral countries is based on criticism of the international division of labour that has been presented by CEPAL (Comisión Económica para América Latina). Furtado's study of the new dependence situations of the periphery is based mainly on the expansion of multinational firms, the vehicle of the global diffusion of the industrial civilisation. In order to escape industrialised underdevelopment, Furtado advocates recovering the national decision centres in order to better direct technology within the periphery.     

‘We All Have a Responsibility to Each Other’: Valuing Racialised Bodies in the Neoliberal Bioeconomy

ABSTRACT

In neoliberalism, human tissue has been targeted as a source for extracting surplus value. Commercial attention on ethnic and racial minorities has resulted in products and services specifically developed for them. Here, we focus on this by exploring two empirical examples: US pharmaceutical clinical trials and UK stem cell transplantation. Both use racial taxonomies to discern biological difference and draw conclusions about the economic potential of people’s genetic constitutions. They do so by appealing to racialised minorities’ sense of responsibility towards ‘their’ communities, both buttressing the conflation of social and biological registers of human variation and demonstrating neoliberalism’s mobilisation of discourses of community. However, while the inclusion of racialised minorities is hoped to bring economic benefits, it also aims to address healthcare inequalities. Drawing on Science and Technology Studies, we argue that in our examples, economic, social and cultural values cannot be disentangled. This compels us to complement narratives of the commodification of racialised difference in neoliberal (consumer) culture, and focus on the intersections between different economic and ethical values. Ultimately we find that whilst work is being done to ameliorate racial inequities, broader socio-economic and political inequalities minority communities face go unaddressed, likely precluding the realisation of health equality.     

The Origins and Development of the Latin American Structuralist Approach to the Balance of Payments, 1944–1964

The paper offers an historical account of the origins and development of the Latin American structuralist approach to the balance of payments between 1944 and 1964. We focus on the contributions by Raul Prebisch, Celso Furtado and Juan Noyola, all of them members of the United Nations Economic Commission for Latin America (CEPAL) during the 1950s. Prebisch used the foreign trade multiplier concept to distinguish the business cycle mechanisms at the ‘centre’ and at the ‘periphery’. Noyola introduced the notion of external disequilibrium as a feature of the industrialization process. This was further elaborated by Prebisch's formula connecting the relative rates of growth to the ratio of income-elasticities of import. Furtado examined the implications of the external demand constraint for economic growth, an important element of the two-gap models of the 1960s. The main piece of empirical structuralist research was the CEPAL 1957 report about Mexican external disequilibrium elaborated by Furtado and Noyola, not published at the time; we discuss that report in the context of the Mexican devaluation of 1954.     

Capabilities and (Missed) Opportunity for Women’s Entrepreneurship in Kuwait

Abstract

Kuwait offers a powerful context for investigating the entrepreneurial cultures developing in Gulf countries in response to the concurrent trends of pursuing economic diversification and efficiency, and the constraints posed by cultural narratives that maintain inequality between the sexes. Bringing a capabilities lens to the analysis of entrepreneurship promotion programs means shifting from a focus on meeting basic human needs to ensuring capabilities development. To begin, we discuss the capabilities approach to entrepreneurship with a focus on the necessity/opportunity classification. Next, we review the entrepreneurship ecosystem in Kuwait, including its focus on opportunity entrepreneurs and the legal, economic, and sociocultural framework in which they operate. After considering the impact of Kuwait’s gender-blind approach on women’s entrepreneurship, we conclude with some suggestions for strengthening Kuwait’s potential for capability expansion through entrepreneurship.     

The ‘West’ against the ‘Rest’: Geopolitics after the end of the cold war

With the end of the Cold War, it seemed that we had reached the ‘end of geopolitics’. Since the mid‐1990s, however, the term ‘geopolitics’ has experienced a revival, and even regional groupings which have so far abstained from any kind of power politics, such as the European Union, have started to claim geopolitical interests for themselves. But it is not clear what constitutes this kind of power politics in the 1990s and what drives ‘the West’ to pursue geopolitics, directed against what Huntington has labelled so plainly and provocatively the ‘Rest’. The article addresses this question by analysing Western capital's need for access to markets in the South and the EU's and US’ growing dependence on oil imports. The article will argue that a Western geostrategy based on Huntington's civilisational model would be counterproductive in the long run, manoeuvring the Western states into a situation where these geopolitical goals would have to be enforced by military means instead of being pursued through a strategy of political and economic support.     

The 2018 US-China trade conflict after forty years of special protection

ABSTRACT

In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately responded with tariff retaliation covering more than 70 percent of imports from the United States. This article assesses what happened in 2018 and attempts to explain why. It first constructs new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China’s state-owned enterprises (SOEs) and industrial subsidies, as well as China’s development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis – which may result in a severely weakened World Trade Organization (WTO) – was deliberate and out of frustration with the institution itself.     

Geo-Logics of Power: Disaster Capitalism,Himalayan Materialities,and the Geopolitical Economy of Reconstruction in Post-Earthquake Nepal

ABSTRACT

The 2015 earthquakes in Nepal killed more than 9,000 people, displaced millions of people and deeply affected the economy. The earthquakes and reconstructions processes also transformed Nepal into a complex terrain of geoeconomic accumulation and geopolitical manoeuvring, including major international capital flows, the promulgation of a new constitution, an economic blockade by India and the expansion of trade corridors with China. Building on critiques of ‘disaster capitalism’, we propose and mobilize the concept of ‘geo-logics of power’ to draw further attention to the materialities of geopolitical and geoeconomic processes shaping reconstruction in post-earthquake Nepal. Focusing on two trans-Himalayan corridors connecting Nepal and China, we argue that the Nepal experienced a particular form of disaster capitalism: one in which the geo-logics of power – including trans-Himalayan discourses, practices, and materialities – came to shape political and economic transformations of a country long portrayed as a ‘buffer’ state between Indian and China. More broadly, we suggest that geo-logics of power result from a combination of geopolitical and geoeconomic power dynamics informed by geological formations and associated socio-natural processes.     

Engines of Growth in China: The Limits of Informal Institutions

Abstract:

Since the 1978 reforms, China has experienced rapid economic and social development. GDP growth has been in the double digits on average yearly, creating the fastest sustained economic growth recorded by a major economy in history. Not only did this transform the economy and society at large, China reached important milestones in terms of reducing poverty and creating prosperity in a short period of time. This article uses the conceptual framework of new institutional economics to examine China’s economic growth and how growth has been achieved largely by ‘informal institutions’ that are grounded in culture, customs, and private interactions that emerge spontaneously. The trajectory by which these informal institutions left their imprint on China’s complex economic landscape and how they can constrain future economic growth are also of central importance. After examining decentralization and risk management practices, property rights, and the legal system, we emphasize the importance of creating formal institutions necessary for long-term growth, most importantly innovation. Preliminary evidence shows total factor productivity is tapering off which may reflect the constraints of China’s institutional environment. This ought to be reversed if China is to enjoy long-term sustained growth.     

Post-Crisis Experiments in Development Finance Architectures: A Hirschmanian Perspective On ‘Productive Incoherence’

Abstract

The Asian and especially the global crisis of 2008 have catalyzed decentralization of the developing world’s financial governance architecture. I understand this state of affairs via the concept of “productive incoherence” which is apparent in a denser, multilayered development financial architecture that is emerging as a consequence of heterogeneous practical adjustments to changing circumstances rather than as the embodiment of a coherent doctrine. Drawing on Albert Hirschman, I argue that the absence of an encompassing theoretical blueprint for a new economic system—i.e. a new “ism” to replace neoliberalism—is in fact a vitally important virtue. If we cannot live without a new “ism,” I propose “Hirschmanian Possibilism” as a new doctrine—one that rejects an overarching theoretical framework from which to deduce the singly appropriate institutional structure of the economy. Hirschmanian Possibilism asserts instead the value of productive incoherence as a framework for pursuing democratic, ethically viable development institutions.     

From world factory to world investor: the new way of China integrating into the world

ABSTRACT

This paper argues that outward direct investment (ODI) is replacing international trade as the new way China integrates into the world. Based on two complementary datasets, we document the pattern of Chinese ODI. We argue that the rapid growth of China’s ODI is the result of strong economic development, increasing domestic constraints, and supportive government policies. Compared with trade integration, investment integration involves China more deeply in global business. As a new global investor, China’s ODI in the future is full of opportunities, risks, and challenges. The Chinese government should improve bureaucracy coordination and participate more in designing and maintaining international rules to protect ODI interests.     

Why has US monetary policy become ineffective lately?

Some recent studies show that US monetary policy has lost its stimulative traction, especially since the early 1980s. They argue that the Fed’s forward guidance has enabled economic agents to anticipate the changes in interest rates more accurately. As a result, it is harder to find truly exogenous monetary policy shocks, which has made monetary policy ineffective. In this article, we find that anomalous economic behaviours of financial institutions might be the true reason for the ineffective monetary policy. Our structural vector autoregressive model shows that increases in the US money supply mostly flowed into the financial sector to increase its profits instead of stimulating the real sector of the economy through business investment.     

Austrian Economics,Socialism and Impure Forms of Economic Organisation

Modern supporters of the Austrian school of economics maintain that their critical stance towards impure forms of economic organisation - such as the mixed economy - grew out of the arguments of Mises and Hayek during the socialist calculation debate of the 1930s. The paper assesses the two theorists, contributions in the debate and argues that their ideas cannot provide the basis for a general rejection of impure forms of economic organisation. First of all, and contrary to most modern Austrians, who consider the contributions of Mises and Hayek as essentially consistent, it is argued that Hayek's critique of socialism is much more effective than Mises' as it rests on his concept of tacit knowldge and on an evolutionary account of the emergence of capitalist institutions. However, the paper goes on to argue that, if Hayek's critique of state intervention is to have any relevance for contemporary capitalist economies, it must be in a position to show the non-viability not only of a fully centrally planned economy of the Soviet type but also of the mixed economy. It is argued that it is precisely in this that Hayek's evolutionism fails, for his teleological approach is not persuasive in ruling out the possibility of impure forms of capitalism in a manner that is consistent with truly evolutionary - i.e. non-teleological - ideas.     

China Is Not yet Number One

Many claim that China will soon overtake the US. I argue that this claim is based on a misuse of statistics. The International Comparison Program (ICP) price data is necessary to compare living standards, since a dollar’s worth of yuan buys more in China than a dollar buys in the US. But the fact that rice and clothes are cheap in rural China does not make the Chinese economy larger. What matters for size in the world economy is how much a yuan can buy on world markets. Using the correct prices, the US remains the world’s largest economic power by a substantial margin.     

Labour Unrest in the Global Political Economy: The Case of China's 2010 Strike Wave

This paper argues that whilst the relationship between US consumerism and China's low-wage production has underpinned China's economic growth in recent years, policy-makers are increasingly cognisant of heightened internal and external vulnerabilities, namely increased domestic social unrest and downturns in US demand. Despite calls for increased domestic consumption, opinion remains divided as to the extent to which policy-makers will make a genuine departure with China's export-orientation. This paper argues, however, that the direction of the Chinese political economy will depend much on the transformative role of workers’ struggles. Placed in a broader north-east Asian comparative perspective, we argue that China appears to be on the verge of a transition towards a limited labour supply, as evidenced in increasing labour shortages, rising wages costs and new forms of labour unrest. An in-depth case study of the strike at Nanhai Honda in 2010 suggests that China's migrant workers are beginning to develop a class consciousness and move from reactive to proactive demands. Furthermore, the response of the Chinese state and employers has shifted from one of outright repression to one of accommodation. These trends are likely to be highly significant in terms of China's uneven integration into the global economy.     

Role of home and host country innovation systems in r&d internationalisation: a patent citation analysis

This paper has three novelties. First, we argue that any given R&D facility’s capacity to exploit and/or augment technological competences is a function not just of its own resources, but the efficiency with which it can utilise complementary resources associated with the relevant local innovation system. Just as asset-augmenting activities require proximity to the economic units (and thus the innovation system) from which they seek to learn, asset-exploiting activities draw from the parent’s technological resources as well as from the other assets of the home location’s innovation system. Furthermore, we argue that most firms tend to undertake both asset exploiting and augmenting activities simultaneously. Second, we use patent citation data from the European Patent Office to quantify the relative asset augmenting vs. exploiting character of foreign-located R&D. Third, we do so for European MNEs located in the US, as well as US MNEs located in Europe. Our results indicate that both EU (US) affiliates in the US (EU) rely extensively on home region knowledge sources, although they appear to exploit the host country knowledge base as well.     

Silvio Gesell: “A strange,unduly neglected” monetary theorist

Abstract

In recent years negative nominal interest rates came to the attention of a wider audience as one instrument to overcome the lower zero bound to conventional monetary policy. Modern proponents trace the origin of the proposal back to Silvio Gesell, a largely forgotten German autodidactic scholar of the interwar period, whose work provides valuable insight into heterodox late nineteenth- and twentieth-century economic thinking. Against this backdrop, the present article provides a comprehensive review of Gesell’s life and social economy, firmly linking him to German anarchism of the interwar period. It suggests that Gesell not only provided a monetary theory of interest, but put forward an independent monetary theory of economic crisis that is essential in understanding the historical origins of depreciative currency proposals. Moreover, the article maintains that Gesell’s monetary theory of interest can be seen as the missing link between heterodox economics, The General Theory, and anarchist economic theory.