The “Short” vs. the “Long” Twentieth Century…

Ah. I see that Branko Milanovic has found the first draft of my opening lecture for Econ 115 next semester…

I think whether it is more useful to do the tell of 20th century economic history as the “short” 1914-1989 (as Hobsbswm does) or the “long” 1870-2012 (as I want to) rests on two analytical judgments:

The first judgment that leads you to the “short” century is the judgment that Kuznetsian modern economic growth was implicit in the steam engine, the spinning Jenny, and the iron horse. The belief is that, after that breakthrough, more than two centuries of 1.5%/year frontier-economy TFP growth plus the full demographic transition were largely baked in the cake.

By contrast, the judgment that leads to the “long” century is the judgment that there were three big game-changers. The first was the British Industrial Revolution jump from 0.07%/year to 0.35%/year global TFP growth. The second was the subsequent jump to 1.7%/year. The third was that the world became rich enough and literate enough and feminist enough for the demographic transition to take hold. A world with TFP growth ebbing or even continuing at 0.35%/year is still a semi-Malthusian world. It is a world in which the demographic transition would have had a hard time taking hold. And that world would be a very different world than ours.

That world is very close to ours in some multiverse-timelines sense. As of 1870 and even as of 1919 the Malthusian Devil was still very visible in the mind’s eye. Recall J.S. Mill writing in 1871 in his Principles of Political Economy about the British Industrial Revolution:

Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being. They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and others to make fortunes. They have increased the comforts of the middle classes. But they have not yet begun to effect those great changes in human destiny, which it is in their nature and in their futurity to accomplish. Only when, in addition to just institutions, the increase of mankind shall be under the deliberate guidance of judicious foresight, can the conquests made from the powers of nature by the intellect and energy of scientific discoverers become the common property of the species, and the means of improving and elevating the universal lot…

You can say that Mill wrote that in 1848 and–carelessly–did not revise it for even the 7th edition of 1870. But he did not revise it. And Mill’s Principles of Political Economy was still the Oxford textbook in 1919.

Recall John Maynard Keynes writing in 1919 in The Economic Consequences of the Peace:

After 1870 there was developed on a large scale an unprecedented situation, and the economic condition of Europe became during the next fifty years unstable and peculiar…. In this economic Eldorado, in this economic Utopia, as the earlier economists would have deemed it, most of us were brought up. That happy age [had] lost sight of a view of the world which filled with deep-seated melancholy the founders of our Political Economy. Before the eighteenth century mankind entertained no false hopes. To lay the illusions which grew popular at that age’s latter end, Malthus disclosed a Devil. For half a century all serious economical writings held that Devil in clear prospect. For the next half century he was chained up and out of sight. Now perhaps we have loosed him again…

The second judgment that leads you to the short century is the judgment that the big story is that of Leninism as the century’s tragic hero: confidently dreaming of utopia, confidently albeit brutally attempting to build utopia, exhausting itself saving the world from the monstrous dystopia of the Nazi abattoir, and then expiring in “a vast bureaucratic incompetence”. I agree that if you are going to do that tell, 1914-1989 is the 20th century that tells it. (And if you know ex ante that 1914-1989 is the 20th century, then that is the natural story that suggests itself.) But I believe that if you start thinking that the 20th century is 1900-2000, the natural story–the important story–is the more complex one that I want to tell. Then the natural thing to do is not to shorten the century but to extend it, and to extend it to 1870-2012.

Why did Hobsbawm write about the short century in his Age of Extremes? Three reasons:

  1. He was writing in the early 1990s.
  2. He had already written Age of Empire 1870-1914.
  3. There was no way in Heaven, in Hell, or here on God’s Green Earth that Eric Hobsbawm was going to write a triumphalist Fukuyamaesque “end of history” book about the triumph of liberal capitalist democracy. He has chosen his side in Germany in the 1920s. And a British gentleman did not turn his coat and change his side under any circumstances–even if it meant one had to spend a lifetime in bed with and making excuses for Josef Vissarionovich…


Eric Hobsbawm (1987): The Age of Empire
Eric Hobsbawm (1995): The Age of Extremes
John Maynard Keynes (1919): The Economic Consequences of the Peace
John Stuart Mill (1871): Principles of Political Economy

Missing the Economic Big Picture

Project Syndicate: Missing the Economic Big Picture: BERKELEY – I recently heard former World Trade Organization Director-General Pascal Lamy paraphrasing a classic Buddhist proverb, wherein China’s Sixth Buddhist Patriarch Huineng tells the nun Wu Jincang: “When the philosopher points at the moon, the fool looks at the finger.” Lamy added that, “Market capitalism is the moon. Globalization is the finger.” With anti-globalization sentiment now on the rise throughout the West, this has been quite a year for finger-watching… **Read MOAR at Project Syndicate

Trumpism on Trade as a Wild Goose Chase

In the United States 24% of nonfarm workers were manufacturing workers in 1971.

It’s 8.6% today.

Maybe it would be 9% if NAFTA has not been negotiated and if China had not joined the WTO, but maybe it would still be 8.6%–analysts disagree on trade expansion vs. trade diversion here.

Datawrapper bzG79 Visualize

Maybe it would be 12% if the United States had followed Japan’s and Germany’s roads of being high-savings low-currency value countries focused on nurturing their communities of engineering excellence, rather than running the Reagan and Bush 43 deficits and combining that with a focus on financialization and a strong-dollar policy. I certainly think that would have been a better policy road for the United States. But it gets you only to 12% at most–not back to 24%.

The fall from 24% to 12% is the technological tide: increasing labor productivity in manufacturing, large but not infinitely elastic demand for manufactured goods.

Looking forward we can say that by 2060 manufacturing in the United States is likely to be 6% of production workers, in which case whatever you think of what the most important parts of the value chain are, tuning the location of manufacturing labor–the people watching the robots and swapping them out when they go bad and break–is unlikely to be an important part. The thing that had been a major driver of growth in employment worldwide for two centuries–since the cotton masters of Lancashire realized the first automatic spinning machines needed a lot of labor to watch and maintain them because they were fragile–will no longer be salient in our economies. Gone with it for EMs will be the road to development that used labor cost advantage to find a niche making basic manufactures and a national champion firm that could export into that niche, and then relying on learning by doing and osmotic technology transfer to carry you forward. For today’s EMs that are not already well along the road: Strait is the gait. Narrow is the way. Many are called, but few are chosen.

As Pascal Lamy said last week: “There is supposed to be an old Chinese proverb: ‘When the wise man points at the moon, the fool looks at the finger’. Market capitalism is the moon. Globalization is the finger.”

The problems of market capitalism are broad and deep. They are not solved–they are not event addressed–by trade wars, by “renegotiating” NAFTA, by (falsely today) labeling China as a currency manipulator.

And Trump’s core supporters will not be happy if his trade policies sharply raise the prices of the goods they buy at Walmart.

The Long-Run Economic Trend Is Our Friend: No Longer so Fresh at Project Syndicate

Over at Project Syndicate: The Long-Run Economic Trend is Our Friend

These are days of grave disappointment at the state of the world. Sinister forces of fanatic religion-linked murder that we thought had been largely scotched by 1750 are back. They have been joined by and are reinforcing forces of nationalism, bigotry, and racism that we thought had been largely scotched in the ruins of Berlin in 1945. (There is a bright spot: the other principal fanaticism of the twentieth century, that of ideology, is comatose if not dead.) In addition, the state of economic growth since 2008 has been profoundly disappointing. There is no reasoned case for optimistically expecting a turn for the better in the next five years or so. And the failure of the globe’s institutions to deliver ever-increasing prosperity has undermined the trust and confidence which in better times would be strong factors suppressing the murderous demons of our age. Read MOAR Over at Project Syndicate

In these days of pronounced pessimism, it is past time to engage in enthusiastic and positive contrarianism with respect to the state of global economic growth not over the next five but over the next 30 years, and beyond at least to the next 60.

The reason that the 25 to 50-year economic growth future looks very bright is that the biggest of the macro trends that have been operating since the end of World War II are still, under the surface, at work. Technology continues to diffuse. World trade continues to grow. The population explosion continues to ebb. The innovative heart of the world economy in the global north continues to beat–albeit perhaps more sluggishly than it has since the 1880s (maybe). War and terror continue to destroy, terrorize, shock, and horrify, but on a scale much less than the holocausts and megadeaths of 1914-1978.

And these trends are likely to continue.

Our best source of summary information on global economic growth remains the Penn World Table research project started two generations ago by Alan Heston and Robert Summers. Take the geometric mean of individual country estimates of real GDP per capita as our first summary statistic of the state of the global economy. The Penn World Table then tells us that the world in 1980 was some 80% better off than it had been in 1950, and the world in 2010 was another 80% better off in measured material-well being terms that it had been in 1980. That places us today more than three times as well off as our predecessors in the 1950s were.

Moreover, this more than tripling of world material well-being is an underestimate. First, our real GDP measure was designed to be something Simon Kuznets could estimate quickly from data that was easily available. It does not not take proper account of use-value surplus accruing to users but only of market-value revenue captured by sellers. Over time the commodities we are producing are shifting in a direction that makes user surplus a greater and market value realized a smaller proportion of their total contribution to societal well being. And I find attempts to claim either that it has always been thus profoundly unconvincing given how much of our leisure and even our work time is spent interacting with information systems where the revenue flow is not of the essence but is only a small dribble tied to ancillary advertising.

Second, there is the case of China–and, more recently, of India. According to the PWT, China’s real GDP per capita in 1980 was more than 60% below of that of the country at the then-geometric mean of the world distribution. Today China is 25% above that moving benchmark. India in 1980 was more than 70% that benchmark, but since 1980 it has closed half the gap vis-a-vis the contemporaneous geometric mean. In the scatter of country experiences, India and China are only two counties. But they are 30% of humanity.

Now do not push optimism too far. There has been no sign of the world’s countries drawing together in their levels of prosperity. In 1950 two-thirds of countries had GDP per capita levels between 45% and 225% of the geometric mean of the world’s nations. By 1980 you had to widen that spread to 33% to 300%. And today it is 28% to 360%. That on the level of individuals the world economy is a more equal place than it was in 1980 is due to rulership that has been on the whole much better than average in China and India since the accessions of Deng Xiaoping and Rajiv Gandhi. But there are no more countries of the size of China or India to stand up. And few observers have anything like the confidence in and hopes for Xi Jinping and Narendra Modi that they had in their predecessors. It may be harder to find an export niche in the world economy to accelerate technology transfer in the future than it has been since the end of World War II. It may well be that the engine of innovation at the world’s leading technological edge will beat more slowly. But it will continue to beat. And technology will continue to diffuse. And the world will continue to grow.

Expect–terror that somehow triggers global nuclear armageddon aside–my successors in 2075 or so to be writing about how their world is, once again, three times as well off in material terms as we are today.

And beyond that? It is harder to project. We are already letting global warming, a potentially very large demon for the post-2080 world, out of the Pandora’s Box we hold. Our children’s children’s children will not thank us for that.

Thinking About “Premature Deindustrialization”: An Intellectual Toolkit I

End of export led growth would not be good for post crisis Asia Asia Pathways

OK. Popping the distraction stack again. The very sharp Matthew Yglesias writes about:

Matthew Yglesias: Premature Deindustrialization: The New Threat to Global Economic Development:

In the popular imagination, the old industrial landscape has moved abroad to Mexico or to China, perhaps due to bad trade policies or simply the vicissitudes of changing circumstance… [and] the migration of factory work to much poorer countries has been a boon to those countries’ economic development…. [But] ‘premature deindustrialization,’ in which countries start to lose their manufacturing jobs without getting rich first…. [Dani Rodrik:] “Developing countries… have experienced falling manufacturing shares in both employment and real value added, especially since the 1980s.’…

Jana Remes… economy-wide productivity growth in Mexico has been dismal… [because] Mexican manufacturing sector has… remained quite small…. The dynamic manufacturing sector, in other words, simply isn’t big enough to employ many people. And it’s not really growing much…. [Future] manufacturing enterprises will increasingly look more like software companies–where designing, programming, maintaining, and debugging the machines will be more important than staffing them. A country like the United States with a very robust high-tech sector will be a strong contender for those technologically intensive manufacturing jobs, even if there aren’t very many of them. Countries that haven’t yet industrialized, meanwhile, may be left out in the cold…


Let me back up and quickly sketch the argument that manufacturing matters, and manufacturing exports matter a lot for industrialization and economic development in the Global South. And let me make the argument in what I regard as the proper way–that is, dropping far back in time and running through the economic history…

I do not, all thing considered, think that, absent the luck and randomness that gave us the British Industrial Revolution, a permanent or semi-permanent “Gunpowder Empires” scenario was the third-millennium likely historical destiny of the Sociable Language-Using Tool-Making Big-Brained East African Plains Ape.

However, this does not mean that the historical destiny looking forward from 1750 or so in the Global South was bright. World population had quintupled in the 2000 years to 1750, carrying with it a notional five-fold shrinkage in average farm sizes, or at least in the amount of land supporting the typical family. The slow pace of technological progress from -250 to 1750 had made up for–indeed, had caused–this rise in population. And the biotechnologies of agriculture were indeed mighty: to 1750 we have the creation and diffusion of maize, of double-crop wet rice, of the combination of the iron axe and the moldboard plow that could turn northern temperate forests into farms, of domesticated cotton, of the merino sheep, and of the potato.

But a human population growing at 10% per generation required more such innovations, lest living standards fall in order to curb population growth via children so malnourished to have compromised immune systems, women who were too thin to ovulate, or increased female infanticide. People in 1750 were as well fed and clothed as they had been in -250. But what would have been the next agricultural miracles? You would have needed a number of them to attain continued total factor productivity growth at 0.02%/year to compensate for the further quartering of farm sizes that would have been inevitable for population growth to continue and human numbers topped 3 billion by 2050. And draft animals are not that much help in a densely populated near-subsistence society: they have large appetites, and the land their foodstuffs grow on is subtracted from that available for people. Only a relatively rich society can afford to replace human backs and thighs with those of horses and oxen.

However, these problems in the economic growth of the Global South ought to have been solved by Britain’s Augustan Age industrial breakthrough. Let’s rehearse the story briefly:

(1) The Protestant Wind that blew in 1688 and a century before in 1588 created in Great Britain an ideologically mobilized ruling class willing to commit previously unheard-of resources to first defensive and then imperialist war. (2) The resulting fiscal-military state coupled with the fact that Great Britain is an island created the first British Empire and funneled the maritime trade profits of the world into the island. (3) The resulting high wages coupled with the extremely low price of coal made the R&D to invent and deploy the first generation of technologies of the coal-steam-iron-cotton-machinery complex profitable. (4) The first generation of this complex of technologies are barely profitable even in the most favorable regions of Britain. (5) But the third-generation technologies are wildly profitable in Britain and profitable in selected other regions like New England and the lower Rhine valley. (6) And by the fifth generation–1850 or so–British-style industrial technologies would have been profitable anywhere in the world the resources could have been brought together, as long as there was large enough market demand to serve.

Thus as of 1850 the problem of finding the agricultural and industrial technologies needed to move the Global South to wealth and prosperity appeared solved. The technologies existed–in Britain. They could be easily transported–they were embodied in the capital goods made in the machine shops of Lancashire. Writing around 1850, Karl Marx saw 50 years as the time span for his bourgeois economic and political revolutions to spread as far as India–and thus set the stage for global socialist utopia.

Writing around 1850 and still writing so in the 1870s, John Stuart Mill saw the big economic problems as not ones of innovation and technological diffusion but rather of the demographic transition: The conscious human management of fertility was essential if technology was going to win its Malthusian race against population even in the Global North, and that required widespread cheap artificial birth control coupled with the dropping of the Victorian modesty that prevented public discussion of such “things”.

But Marx and Mill were wrong. The problems of the demographic transition turned out, in the long sweep of things, to be easy presuming successful development and income growth: They solved themselves within two generations after girls attained the leisure to learn how to read.

It was, rather, the problems of technological and institutional development and transfer that turned out to be the nastiest and most stubborn ones for the Global South. The U.S. was about twice as rich as China and India in 1800. It was 30 times as rich as they were at purchasing power parities come 1975. And, at least according to Hans Rosling and company, China and India were no richer in 1975 than they had been in 1800.

Why should this be the case in a world in which the technology was embodied in large hunks of metal shaped in the machine shops of Lancashire–hunks of metal that could be cheaply transported all over the world? Why did the 20th century see a world sharply divided between a Global North and a Global South, with productivity in the Global North growing at 2% per year while the Global South fell further and further behind?

What I believe to be the correct answer was given by W. Arthur Lewis (1977): The Evolution of the International Economic Order:

Lewis’s first step first step is to note nineteenth-century labor mobility. Between 1850 and 1914 more than 50 million people left Europe to settle elsewhere, and more than 50 million people left China and India to settle elsewhere. Racism and imperialism exclude Chinese and Indian migrants from settling in the temperate zone colonies and ex-colonies with agricultural profiles familiar to the relatively rich Europeans. Thus the need to pay wages high enough to attract migrants from Europe kept living standards in what Lewis calls the temperate zones of European settlement high, and kept the prices of the temperate-zone commodities that they alone could produce high as well.

Migrants from China and India went to the tropics. China and India were both then in the down-phase of the Malthusian cycle, with emigrants thus being willing to accept barely more than raw biological subsistence wages to move to the world’s Malaysias and East Africas. Their pressure pushed wages in tropical migrant-recipient economies down, and pushed the world market prices of the tropical-zone commodities that they made and sold down. That meant that even tropical economies that did not receive immigrants from China and India found their relative wage levels collapsing as well. Manaus, the capital of Amazonas in Brazil, looked to be getting rich providing services for the prosperous rubber tappers of the Amazon basin–until the British Empire brought Brazilian biologics and Chinese workers to the Malay Peninsula, and the world price of rubber collapsed.

Thus when Modern Economic Growth began in the last third of the nineteenth century, the world was then being rapidly divided by migration and the world labor market into a Global North producing high-price temperate and a Global South producing low-price tropical agricultural products. And it was in this world that first the fifth-generation technologies of the coal-steam-iron-cotton-machinery complex and then the knock-on Second Industrial Revolution technologies of modern metallurgy, internal combustion, electricity, and organic chemistry diffused.

And here something peculiar happened.

The overwhelming bulk of the labor required for Industrial Age factory-floor work is not high: “semi skilled” is the buzzword–which means a degree of familiarity with machine technology and the operations of the particular system, plus a willingness to accommodate your motions to those enforced by the system as a whole. It is the kind of thing but almost anyone can pick up any few months at most. No deep knowledge or understanding of the underlying processes and engineering mechanisms is required to be a productive assembly line worker. The high technology is embodied in the machines. And the machines can be cheaply shipped anywhere on earth. Yes, you do need a few engineers who understand the machines at a profound and comprehensive level. But, ever since the day in 1789 that the 21-year old [Samuel Slater][] sailed for America, finding qualified engineers willing to work as expatriates has not been an insurmountable problem.

You would imagine, therefore, that once the iron-hulled ocean-going screw-propellered steamship and the submarine telegraph cable had made their appearance, factory work worldwide would have rapidly gone to where labor was cheap. Yet from 1850-1980 that was not the case. Factory work by and large stayed where labor was expensive. And those economies that did manage to figure out how to utilize British Industrial Revolution and Second Industrial Revolution technologies at near-frontier levels of efficiency rapidly joined the club of rich economies that was the Global North.

In fact, up until the 1980s, with the important exception of the move of the textile industry from New England and Old England to the U.S. South and the European Mediterranean, outsourcing and offshoring were simply not things putting downward pressure in aggregate on the wages and prosperity levels of old industrial districts. For every job that left for, say, low-wage Korea or Taiwan putting downward pressure on wages, there was another job where rapidly rising wage levels in Japan or Italy putting upward pressure on Global Manufacturing wages. Before the 1980s it was rapidly increasing productivity in manufacturing coupled with a less than unit price elasticity of demand for staple manufactures that hollowed out the Global North’s old industrial disticts–not globalization.

So why was it that manufacturing stayed in the Global North for so long, given that the machines could be shipped anywhere, the skill required of the workers was not so high, and expatriate engineers (and managers) were cheap relative to the scale of operations?

Lewis (1977) provides his explanation:

In a closed economy, the size of the industrial sector is a function of agricultural productivity. Agriculture has to be capable of producing the surplus food and raw materials consumed in the industrial sector, and it is the affluent state of the farmers that enables them to be a market for industrial products…. If the smallness of the market was one constraint on industrialization, because of low agricultural productivity, the absence of an investment climate was another. Western Europe had been creating a capitalist environment for at least a century; thus a whole new set of people, ideas and institutions was established that did not exist in Asia or Africa, or even for the most part in Latin America, despite the closer cultural heritage. Power in these countries—as also in Central and Southern Europe—was still concentrated in the hands of landed classes, who benefited from cheap imports and saw no reason to support the emergence of a new industrial class. There was no industrial entrepreneurship.

Of course the agricultural countries were just as capable of sprouting an industrial complex of skills, institutions, and ideas, but this would take time. In the meantime it was relatively easy for them to respond to the other opportunity the industrial revolution now opened up, namely to export agricultural products, especially as transport costs came down…. And so the world divided…. It came to be an article of faith in Western Europe that the tropical countries had a comparative advantage in agriculture. In fact, as Indian textile production soon began to show, between the tropical and temperate countries, the differences in food production per head were much greater than in modern industrial production per head….

Trade offered the temperate settlements high income per head, from which would immediately ensue a large demand for manufactures, opportunities for import substitution, and rapid urbanization…. The factorial terms [of trade] available to them offered them the opportunity for full development in every sense of the word.

The factorial terms available to the tropics, on the other hand, offered the opportunity to stay poor-at any rate until such time as the labor reservoirs of India and China might be exhausted…

The key is that the technologies of the first British and the Second Industrial Revolution, as they developed, rapidly grew in productivity, scale, and capital intensity. You needed a large market in order to support an industrial complex at a scale capable of near-efficient production. And a poor economy with a poor middle class could not do the job from demand at home.

To recapitulate: If you were a rich, temperate zone economy with a high wage level, the market for your nascent manufacturing sector was all around you. As long as you could keep Britain (or later the United States) from sucking up all of the oxygen, your manufacturing sector could grow organically. And so you can gain the learning-by-doing expertise needed for successful industrialization, growth, and development to carry you to the world’s productivity and living standard frontier.

But if you were a poor, low-wage, tropical country, you could not. Your own citizens were too poor for your middle-class to be a source of mass demand for manufacturers. Thus successful economic development would require much more than import substitution.

It would require export promotion, and successful export promotion at that. You could not industrialize and develop by relying on your own home market. You had to borrow someone else’s. And as the twentieth century proceeded that turned out to be a tricky and a delicate task indeed.


[Samuel Slater]: (Wikipedia: Samuel Slater

Must-Read: Dani Rodrik: The Abdication of the Left

Must-Read: Dani Rodrik is very sharp indeed. But I think that this is mostly wrong. However, it remains a must-read:

Dani Rodrik: The Abdication of the Left: “This backlash was predictable…

…Hyper-globalization in trade and finance, intended to create seamlessly integrated world markets, tore domestic societies apart. The bigger surprise is the decidedly right-wing tilt the political reaction has taken. In Europe, it is predominantly nationalists and nativist populists that have risen to prominence…. As an emerging new establishment consensus grudgingly concedes, globalization accentuates class divisions between those who have the skills and resources to take advantage of global markets and those who don’t. Income and class cleavages, in contrast to identity cleavages based on race, ethnicity, or religion, have traditionally strengthened the political left. So why has the left been unable to mount a significant political challenge to globalization?

One answer is that immigration has overshadowed other globalization ‘shocks.’… Latin American democracies provide a telling contrast. These countries experienced globalization mostly as a trade and foreign-investment shock, rather than as an immigration shock. Globalization became synonymous with so-called Washington Consensus policies and financial opening…. So the populist backlash in Latin America – in Brazil, Bolivia, Ecuador, and, most disastrously, Venezuela – took a left-wing form….

The enthroning of free capital mobility – especially of the short-term kind – as a policy norm by the European Union, the Organization for Economic Cooperation and Development, and the IMF was arguably the most fateful decision for the global economy in recent decades. As Harvard Business School professor Rawi Abdelal has shown, this effort was spearheaded in the late 1980s and early 1990s not by free-market ideologues, but by French technocrats such as Jacques Delors (at the European Commission) and Henri Chavranski (at the OECD), who were closely associated with the Socialist Party in France. Similarly, in the US, it was technocrats associated with the more Keynesian Democratic Party, such as Lawrence Summers, who led the charge for financial deregulation….

A crucial difference between the right and the left is that the right thrives on deepening divisions in society – ‘us’ versus ‘them’ – while the left, when successful, overcomes these cleavages through reforms that bridge them. Hence the paradox that earlier waves of reforms from the left – Keynesianism, social democracy, the welfare state – both saved capitalism from itself and effectively rendered themselves superfluous. Absent such a response again, the field will be left wide open for populists and far-right groups, who will lead the world – as they always have – to deeper division and more frequent conflict.

Must-Read: Kevin O’Rourke: Markets and States are Complements

Must-Read: Kevin O’Rourke: Markets and States are Complements: “Globalisation produces both winners and losers… can lead to an anti-globalisation backlash… [in the] late 19th… the late 20th… [and] the early 21st century…

…What, if anything, [can] governments… do[?]… Dani Rodrik’s finding that more open states had bigger governments in the late 20th century comes in…. Markets expose workers to risk, and that government expenditure of various sorts can help protect them…. Michael Huberman showed that this correlation between states and markets was present before 1914 as well: countries with more liberal trade policies tended to have more advanced social protections of various sorts, and this helped maintain political support for openness…. If the Tories had really wanted to maintain support for the EU, investment in public services and public housing would have been the way to do it…. It wouldn’t have satisfied the xenophobes, but not all anti-immigrant voters are xenophobes…. If the English want continued Single Market access, they will have to swallow continued labor mobility. There are complementary domestic policies that could help in making that politically feasible. We will have to wait and see what the English decide. But there are also lessons for the 27 remaining EU states…

Must-read: Kevin O’Rourke: “The Davos Lie”

Must-Read: From last winter…

Kevin O’Rourke: The Davos Lie: “As I write these words, the great, the good and the self-important are trudging around in the Alpine slush…

…sporting their best parkas and a variety of silly hats, and opining about the state of the world…. If there’s one thing that people agree about in Davos, it’s that globalisation is a Good Thing. And indeed, so it is, if the alternative is the autarky of the inter-war period…. If you are even slightly cosmopolitan in your ethical outlook, you should want this to continue. But it always makes sense to ask whether you can have too much of a good thing…. Who are the winners from globalisation, and who are the losers?… Developing economies with lots of cheap unskilled labour should export textiles and other labour-intensive manufactured goods to rich economies where wages are high. A second implication is that labour-intensive industries should go into decline in rich countries. A third implication is that this should lower the demand for unskilled workers, hence lowering unskilled wages and increasing inequality…. The debate has swung back towards the view that trade is important in explaining rising inequality, not only in rich countries, but potentially in developing economies such as Mexico as well….

I happen to think that inequality matters for its own sake, but even if you don’t agree with that value judgement you should still care about inequality, since it matters politically as well…. Unfortunately for Davos, globalisation’s losers are becoming increasingly hostile to trade (and immigration)…. Such attitudes are now beginning to influence politics in several rich countries…. Economists can tut-tut all they want about working-class people refusing to buy into the benefits of globalisation, but as social scientists we surely need to think about the predictable political consequences of economic policies. Too much globalisation, without domestic safety nets and other policies that can adequately protect globalisation’s losers, will inevitably invite a political backlash. Indeed, it is already upon us.

Must-read: Daniel Gros: “Is Globalization Really Fueling Populism?”

Must-Read: Daniel Gros: Is Globalization Really Fueling Populism?: “Amid relative economic stability, rising real wages, and low unemployment rates [in northern Europe]…

…grievances about the economic impacts of economic globalization are simply not that powerful. Instead, right-wing populist parties like the FPÖ, Finland’s True Finns, and Germany’s Alternative für Deutschland are embracing identity politics, playing on popular fears and frustrations – from ‘dangerous’ immigration to the ‘loss of sovereignty’ to the European Union – to fuel nationalist sentiment.

In the southern European countries, however, the enduring impact of the euro crisis makes populist economic arguments far more powerful. That is why it is left-wing populist parties that are winning the most support there, with promises of, say, tax credits for low-paid workers. The most extreme case is Greece’s leftist Syriza party, which rode to victory in last year’s elections on pledges to end austerity. (Once in power, of course, Syriza had to change its tune and bring its plans in line with reality.)

Calling the rise of populism in Europe a revolt by the losers of globalization is not just simplistic; it is misleading. If we are to stem the rise of potentially dangerous political forces in Europe, we need to understand what is really driving it – even if the explanation is more complex than we would like.