To me, these rules were universal, yes, but they benefited the developed countries. If you take just one metric, фондовооруженность, manufacturing capital stock per capita, it will become apparent that the rules broke down as soon as developing countries, foremost China, caught up to the incumbents. Easy to explain as well - the higher the capital stock, the higher added value products you manufacture, and the richer you get for the same amount of labour rendered. That’s why the relative advantage trade theory doesn’t work I. The national state framework- nobody wants to focus on producing just wine, because it just doesn’t pay so well as cloth manufacturing, per capita.
Or, framing it differently, as soon as China started to compete with the west in “their” market, all free trade Washington consensus framework went out of the window. Because it has never been about fairness and evenhandedness
This is very rational model, and plausible - based on evidence of recent trade wars and protectionism. Given the model's underlying context of competition between national-states the model should be extended to aspects beyond economy - warfare, espionage, soft-power, system-wars, propaganda etc. ...then include internal effects of migrations, inequality, culture-wars, etc - and then the friction of inherited territorial conflicts from the age of imperialism, that theoretically should not have survived under the neoliberal order (even when opportunely re-labeled as conflicts between progress and backwardness.)
On the other side - if Russia and China (or Saudi Arabia) prevail in this contest with the West (which I am not sure is real and straightforward) they will celebrate their victory as profoundly americanised societies. The benefits and the cost of conflicts are much clearer in the aftermath and the entropy of the world is almost always underestimated.
“…the higher the capital stock, the higher added value products you manufacture, and the richer you get for the same amount of labour rendered”
I suggest you do some homework and go read up on Ricardo and comparative advantage. According to you everyone should produce high-value luxury goods, because you can do that at the same labor cost as producing a cheap mass product. And the ‘amount of labor’ is not a valid category, productivity is what counts. Your post is a gross falsification and fundamentylly wrong.
According to you everyone should produce high-value luxury goods, because you can do that at the same labor cost as producing a cheap mass product.
According to me everyone WILL TRY to produce high value luxury goods. I just laid out why it is an absolutely rational choice and why Portugal will never settle at the equilibrium where it maximizes wine production vs English cloth’s production. And vice versa, the current producer of high value goods will do everything to prevent this from happening. And I am not even going into monopolistic competition here.
As for amount of labour. Excuse me, value produced divided by amount of labour, or labour input, if you want to be fastidious, equals productivity. What’s wrong with that?
The drive to produce higher valued goods is not so much an economic principle but inherent to capitalism’s destructive power of competition. It has been made sort of an axiom by the neoliberal, globalized economy. It leads to globalization and deindustrialization domestically, as the US example clearly shows.
Productivity - as correctly specified in your reply - is the significant category which yet also would include technological improvents in fixed capital and not just amount of labor in the context of higher valued output. Yet, when producing higher valued goods, there is usually more skilled labor and thus higher wages. With more expensive labor - and even assuming increased productivity - there is no guarantee of ‘getting richer’ with the same ‘amout of labor’,
because pigher productivity is not tantamiunt to higher profits. Profits in turn depend on the rate of profit, but it is not to be confused with the mass of profit of individual capitals. It stands that your post is gross simplification and misleading ….
If you reread my initial post, I introduced a single variable, for simplicity, capital stock per worker. All else being equal, eapecially labour qualification, this will determine the amount of the added value in the good produced. In ricardoes example, agri workers in Portugal are hardly less qualified than weavers in Lancashire, who were essentially robots. Which makes it such a good example. England ends up with higher value added product just by virtue of its starting position with more capital, nothing else. Why would Portugal stay happy with that? It’s not some objective natural phenomenon.
Again: Producing a higher added value product does not necessarily mean higher profits. It just means a higher stage of economic development, which most often leads to shaping up imperialist and monopolist tendencies. Besides the stock is more capital intensive. Yet Portugal might benefit from comparative advantage, just like England does as trade might yield a trade surplus and thus is contributing to domestic consumption and development. The downside with comparative advantage is though, as I stated, it locks you in certain economic sectors, which might prevent development if you are no able to limit imports from economically developed countries.
«Producing a higher added value product does not necessarily mean higher profits»
Profits are not relevant in this discussion. Higher value added is simply desirable, as long as there is demand for the higher value added commodities, because it means better living standards. Whether the higher value added goes mostly to wages or profits it still is desirable.
"the higher added value products you manufacture, and the richer you get for the same amount of labour rendered"
«a gross falsification and fundamentylly wrong»
That is indeed the correct goal as long *as long as demand exists*, because a motorbike is usually a lot more useful than a skateboard, at least for transportation (and sometimes for entertainment). It is indeed a fundamental principle of both domestic and political economy that labour and capital should be expended towards the highest value added production, as long as there is demand for that. This applies whether the production is traded domestically or internationally.
"the higher added value products you manufacture, and the richer you get for the same amount of labour rendered."
«the ‘amount of labor’ is not a valid category, productivity is what counts»
That seems to me a comical misrepresentation of the argument as the ratio between "higher added value" (if measured in physical terms) and "the same amount of labour" is the very definition of (labor) productivity.
Wrong again. The degree of use-value depends among other variables on prevailing conditions - the water and diamond paradox comes to mind. Measurement of useability can not applied in general in the abstract. That is neoclassical nonsense of vulgar mainstream economists based on useless and detrimental theories of marginal utility, rational agents, perfect markets and equilibrium conditions. Just look how capitalism has turned out. You also do not necessarily get richer if you are producing higher value goods, even with the same productivity as that of lower valued goods since the rate of profit depends not just on labor productivity.
«The degree of use-value depends among other variables on prevailing conditions [...] You also do not necessarily get richer if you are producing higher value goods»
That seems to ignorantly confused higher *value-added* with higher *use-value* commodities. A commodity can have a high value but a low value-added and vice-versa.
«since the rate of profit depends not just on labor productivity»
But one can become richer also with higher wages, not just higher profits. I suspect that you simply do not know what value-added (also called "plusvalue") means and how it differs from both "value" and "profit" and that it splits between wages and profits (also called "sur-plusvalue", the slice of "plusvalue" that goes to the employer). Consider the following examples.
Making a fashion dress costs $100 in materials and overhead, and it sells for $1,000 the worker who made the dress is paid $400 and the employer gets a profit of $500 (with some imprecise terminology):
* price ("exchange value): $1,000.
* value-added ("plusvalue"): $900.
* wage ("socially necessary labour value)": $400.
* profit ("sur-plusvalue"): $500.
Now imagine instead a bicycle that costs $1,500 in materials and overhead, sells for $2,000, takes $200 of wage to assemble and the employer gets a profit of $300:
* price ("exchange value): $2,000.
* value-added ("plusvalue"): $500.
* wage ("socially necessary labour value)": $200.
* profit ("sur-plusvalue"): $300.
Note that the bicycle has a higher "value" of $2,000 than the $1,000 dress, but it has a lower "value-added" of $500 instead of $900.
«That’s why the relative advantage trade theory doesn’t work I.»
That would be comparative advantage, and it does not work in theory except under absurd conditions, but in works in practice, but that does not matter because:
«The national state framework- nobody wants to focus on producing just wine, because it just doesn’t pay so well as cloth manufacturing, per capita.”
Another quote from Landes "The wealth and poverty of nations":
«Today’s comparative advantage, we have seen, may not be tomorrow’s. [...] The gains from trade are unequal. As history has shown, some countries will do much better than others. The primary reason is that comparative advantage is not the same for all, and that some activities are more lucrative and productive than others. (A dollar is not a dollar is not a dollar.) They require and yield greater gains in knowledge and know-how, within and without. [...] Comparative advantage is not fixed, and it can move for or against.»
The theory of comparative advantage, that countries can benefit from trade even if they do not have an absolute advantage in producing any goods, so long as they specialize in goods in which they have relatively higher productivity. If countries pursue this comparative advantage, then trade generates win-win outcomes whereby every country maximizes its income and enjoys cheaper products. Comparative advantage trade theory is a foundational pillar of mainstream development thinking and policy because it promises mutual gains. Ricardo assumed the existence of a fully globalized world economy in order to make his assumptions about the gains from free trade. What is almost never mentioned is that Ricardo’s model assumes both capital and labor are relatively immobile. Ricardo’s law does not work in highly financialized, neoliberal global markets.
Almost every country which has successfully transitioned to developed status has done so by using tarriffs and trade walls judiciously. The catch with international trade is that comparative advantage locks countries into economic sectors. If your comparative advantage is in raw minerals or agricultural products, its almost impossible to transition to higher value products, unless you prevent imports from more developed countries. Trade between countries at different stages of development almost always benefits the ‘developed’ countries more, even if the less developed country gets a relative improvement.
«The theory of comparative advantage, that countries can benefit from trade even if they do not have an absolute advantage in producing any goods, so long as they specialize in goods in which they have relatively higher productivity.»
That is the wrong summary, because it ignores the absurd conditions, among which there are these two indeed which should be mentioned first as premises:
«model assumes both capital and labor are relatively immobile»
Those are only two of the absurd conditions, the main one is that there must be perfect competition (and therefore mobility) between the two countries (except for capital and labour as stated). There is also a non-absurd condition that labor productivity must be different.
So the above summary is the wrong description of the theory of comparative advantage. The theory of comparative advantage is worthless because of those absurd conditions (and the theorem of second best probably applies too). Wikipedia has the correct description even if could be worded better:
“if two countries capable of producing two commodities engage in the *free market* (albeit with the assumption that the capital and labour do not move internationally), then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that *there exist differences in labor productivity between both countries*.”
"I suggest you do some homework and go read up on Ricardo and comparative advantage" :-).
What I said is exactly what you are referring to in your post and with the Wikipedia link. I also stated the necessary conditions of capital and labor immobility and that of different productivity levels - what you are calling one of the ‘absurd‘ conditions while alleging i would have ignored them. You are simply repeating what I stated. The Wikipedia definition you are quoting is in no way different from what I outlined. I nowhere said that the theory of comparative advantage works, quite the contrary. I suggest you hone your reading skills before you read up on Ricardo. Your Wikipedia knowledge is not good enough.
You claim still lacks the crucial and absurd condition of perfect competition, without which comparative advantage cannot exist. A bit of Wikipedia reading would have helped making a correct description.
As to the claim that “so long as they specialize in goods in which they have relatively higher productivity” followed several lines later by only 2 out of 3 absurd qualifications, it is a bit like claiming that "2+2 = 6" followed several later by "(so long as 2 = 1+1+1)". It is a standard trick of propaganda Economists to make grand statements that are only valid under absurd conditions.
In pub-discussions I have often warned my overly critical left-leaning friends, they will start to appreciate the US hegemony as well - as soon as it is replaced by something else. In this text the usual suspect "neoliberalism" seems already experiencing a similar post-mortem appreciation.
But neoliberal order might not be dead yet. The trade-tariffs might be only a one-off reaction to the Sputnik-moment: arrival of the well coordinated Chinese merchant fleet, loaded with very cheap and also very good EVs. Seen from Wolfsburg, Germany, that sight was more scary than looking at a fleet of gloomy aircraft carriers. Their reaction might be exaggerated, but is understandable and very human.
There is only one thing that scares Germans more than Chinese cars flooding German market - is Chinese closing their market. To protect their workers, politics is usually hurting their consumers. The obvious catch - the worker and the consumer live in the same body.
The dilemma of Neoliberalism seems not to be in too-liberal or not-enough-liberal - it is in the opportunistic breach of liberal rules for one-time profit. The classical tragedy of the commons. This violation of fairness is present in internal markets even more often than the international, so it is unlikely to be resolved by nationalistic protectionism.
«arrival of the well coordinated Chinese merchant fleet, loaded with very cheap and also very good EVs. Seen from Wolfsburg, Germany, that sight was more scary than looking at a fleet of gloomy aircraft carriers.»
A quote from Landes "The wealth and poverty of nations" with this excellent story:
«"Of all things Western, what do you dread most?" asked the Satsuma daimyo Shimazu Nariakira of his councillors. European guns and ships, came the answer. "No," said the daimyo. "It is cotton cloth. Unless we begin preparing now, we shall soon be dependent on Westerners for our clothing." In an effort to prepare, the han began to distribute better cotton seeds, purchased better spindles and looms (not yet powered), built a manufactory near Kagoshima, and set unemployed samurai to work there. The result: cotton goods costing half as much as before. [...] In 1867, it opened a mechanized cotton mill.»
USA hegemony is very popular with the upper and middle classes in many countries: the deal offered (or imposed) by the USA is that the USA government will control security, military and foreign matters ("suzerainty") and USA corporates will get a hunk of the markets, but in exchange the USA military and political police will ensure that the upper and middle classes of vassal states will do well and will stay in power, securing their position against both domestic revolution and foreign conquest.
I can confirm this as a member of West-European middle class. Important to add: the popularity of US hegemony is not genuine here - it grows from the fear of the alternatives.
The alternative World orders, such as sketched by Zhao Tingyang, or currently improvised by Russian government, also intend in the end "only to wear the crown". All those that are now delighted with Schadenfreude should think again. While the benefits of the US hegemony were not uniformly spread over the World, and produced some obvious losers (Latin America, Iran, Africa...), some unlikely losers (Europe) and one obvious winner (China), the next Hegemon will be as well indifferent of global equality and inevitably wear a sword - and use it selectively, depending on own nationalism/religion/ideology. (In defence of the US-World-order one should add that the most of the global collateral-damage is a direct consequence of European imperialisms of the 19th century and two European WWs.)
Hopefully some of the neoliberal, human-rights common sense will survive the transition ans spare at least us West-Europeans from another re-education and collectivisation. For the rest of the World - good luck!
«confirm this as a member of West-European middle class. Important to add: the popularity of US hegemony is not genuine here - it grows from the fear of the alternatives»
I would make a distinction there: that applies to the countries where some of the middle (and even upper) class still have delusions of being important, like England or France, which resent having to accept being USA vassals.
In smaller and more realistic countries like Italy or Poland the upper and middle classes know that they they can only ever be vassals of a greater power and reckon that the USA oligarchs offer them a good deal (paid for by their lower classes).
«most of the global collateral-damage is a direct consequence of European imperialisms of the 19th century and two European WWs»
They have not been worse or better than most other empires through history which have been often pretty awful (piles-of-skulls style). Also consider how countries like Korea or Germany or Vietnam devastated by terrible wars or vicious colonialism have done so much better than others.
There is a famous series of studies of various post-WW2 countries by Gunnar Myrdhal ("Asian Drama: An Inquiry into the Poverty of Nations, published") where he reckoned that lucky countries like Kenya or Zambia or Ghana, abundant in resources, vast and underpopulated and largely untouched by WW2, would quickly become developed and rich, while he despaired about countries like Korea or Taiwan or Vietnam or Malaysia, with limited resources, small, overpopulated and devastated by WW2, would be forever poor.
"in smaller and more realistic countries like Italy or Poland the upper and middle classes know that they they can only ever be vassals of a greater power"
There is always an opportunism in the role of servant. A hidden profit behind the misery. But - according to Hegel - in the long run, the servant is indeed better off (in terms of quality of life, so to say) than the master or someone who believes in his own greatness and has to act accordingly.
The model of vassals states and their master states is for me oversimplified - any country can damage itself into misery, without aggression from outside. Your examples of (vassals) Korea, Germany and Vietnam rising from the ruins - have their many opposite examples of self-inflicted descent into ruins.
Your cynical liberal-fascist attitude - this arrogant 'west is best' white supremacy stance - is exactly what has been impoverishing and exploiting the majority of the nations of this world by way of US-Imperialism.
Well, - I am not 100% white in the usual, ideological sense. And no fascist at all - in that case I would use aggressive language assembled of simple slogans, that I concern a poor style. But sure, everyone has collected its own experience and builds on it his own truths, so do I. Cheers.
Is neoliberalism dead or is it now more flexible and adaptive? Critics of neoliberalism need it to be rigidly enforced so they can argue that it is dead, when in fact it is now flexible and adaptive.
«the current approach calls for the creation of trade blocs among the political allies. This is in contravention both of the first and the second framing of the international economic system that sought to differentiate trade from political relations</i>»
I think that our blogger misremembers the first framing, where there was essentially no trade between the "first" (USA sphere of influence) and the "second" (USSR sphere of influence) worlds; as one example Cuba was and still is subject to pretty much total sanctions, which has been maintained during both the first and second framing.
Most of the institutions of the post-WW2 settlement were basically only targeted at the USA sphere of influence, and were transmission belts of USA policy, especially to penetrate and influence "third world" (non-aligned) states. The second framing was simply the extension of those USA transmission belts to rule also over the "second world".
What USA policy seems currently to be aiming is to re-establish the first framing situation, as the huge size of the chinese economy means that if a single worldwide system continues it will centered on China and no longer on the USA.
So the sooner China, Russia and their few allies are isolated from the rest of the world economy the more the USA can continue to dominate the rest of the world as its largest economy. The policy of China with the BRI is instead to create a whole new set of international institutions no longer dominated by the USA to replace the USA dominated ones to avoid the isolation.
he wrote that is was based on "fixed exchange rates, moderate tariff protection, ability to borrow in order to solve temporary balance of payments problems, de fixed exchange rates, moderate tariff protection, ability to borrow in order to solve temporary balance of payments problems, depoliticization of economic decision-making", but he fails to mention that on of its central planks was also capital controls, which didn't go away until the later 1970s (japan kept them until the late 80s), also, it didnt seek the "depoliticization of economic decision making", a giant motivators behind some of its design was to enable democratic politics to effect economic decision making! Also, I commonly see people make the argument that the tariffs deepened and worsened the Great Depression, but that didnt withstand scrutiny, would someone defend that claim here?
Thank you very much for these interesting reflections. It may be that the beginning of the story, a story of greed and abject human paranoia, is the concentration of wealth started with Reagan /Tatcher. Then, chapter 2, is the USA search for hegemony and the expansion of the military industrial complex and wars of choice. Chapter 3 is the reorganization of world alliances in the face of the US attempts to isolate China, nato expansion, etc. “War games” are conducted in the US Congress not by the war college or academics, but by Raytheon and Lockheed etc. Chapter 4 is the segments of the population disillusioned with the evolution of their place in society. Chapter 5 is their alliance with nationalists (but what is a Nation as Renan would ask?) and the re-emergence of hate towards others, other nations or migrants. Chapter 6 is the war we are heading towards.
Equating China’s trade policies and its development oriented credit policy with the murderous sanctions of the most belligerent country in the world - the US - is an insult to reason tbh. Glossing over the rules of the Washington consensus as ‘simple, clear and universal’ falls into the same category - simply ignoring the the US drive for post WWII hegemony manifested itself in the establishment of US-dominated institutions like the IMF and the Worldbank, serving the ultimate purpose to support exploitation and neo-Imperialism on all possible fronts. The world long since is run by the capitalist law of the jungle and not just drifting into it now. Above all the point that there might be a way to differentiate trade from political relations is totally meaningless, because as long as state superstructures and nations exist there is a political framework undergirding trade. Statements like this always have been empty bourgeois blather.
The 1971 abandonment of the gold standard can also termed default, or "bankruptcy" for the less versed in the English language. After this, the US saved its bacon with the Petrodollar protection racket, commencing this dynamically with multiplying the price of oil, the well remembered "oil shock". Even for Saudi King Fahd the price was to high, but he relented to US wishes to ensure sufficient money is washed into the purchase of US bonds. This system has led to the US never ever again having a trade surplus and deindustrialisation. On the other hand it allowed the US to buy up a lot of international companies.
Apparently this system does not yield enough money for the US anymore, especially evident in a year, when 10% of GDP additional debt at very best helps increase the GDP by 3%. Nevertheless, Sahm Rule and Schannep Indicator are telling us that the US is about to enter in a recession. A moderate investment in warmongering yields good revenues in additional defence sales, leading to record exports there. Australia, a place where people a few decades ago emigrated to to be out of harms way now has a defence budget of about 3.3%, tendency rising.
And nationalism isn't a big danger in the Western realm. The US is in control of governments and media there. Eg., Germany's far right party AfD enjoys the de-facto support of Germany's biggest publisher, Springer (Bild, Welt), which is hyper pro America and as hyper pro Israel.
BRICS is a talking shop among countries with very different interests, even less important than OAS or G20. BRI is very different because it is organized and funded and pushed by the PRC which has the means and skills and interest to keep that going.
To me, these rules were universal, yes, but they benefited the developed countries. If you take just one metric, фондовооруженность, manufacturing capital stock per capita, it will become apparent that the rules broke down as soon as developing countries, foremost China, caught up to the incumbents. Easy to explain as well - the higher the capital stock, the higher added value products you manufacture, and the richer you get for the same amount of labour rendered. That’s why the relative advantage trade theory doesn’t work I. The national state framework- nobody wants to focus on producing just wine, because it just doesn’t pay so well as cloth manufacturing, per capita.
Or, framing it differently, as soon as China started to compete with the west in “their” market, all free trade Washington consensus framework went out of the window. Because it has never been about fairness and evenhandedness
This is very rational model, and plausible - based on evidence of recent trade wars and protectionism. Given the model's underlying context of competition between national-states the model should be extended to aspects beyond economy - warfare, espionage, soft-power, system-wars, propaganda etc. ...then include internal effects of migrations, inequality, culture-wars, etc - and then the friction of inherited territorial conflicts from the age of imperialism, that theoretically should not have survived under the neoliberal order (even when opportunely re-labeled as conflicts between progress and backwardness.)
On the other side - if Russia and China (or Saudi Arabia) prevail in this contest with the West (which I am not sure is real and straightforward) they will celebrate their victory as profoundly americanised societies. The benefits and the cost of conflicts are much clearer in the aftermath and the entropy of the world is almost always underestimated.
“…the higher the capital stock, the higher added value products you manufacture, and the richer you get for the same amount of labour rendered”
I suggest you do some homework and go read up on Ricardo and comparative advantage. According to you everyone should produce high-value luxury goods, because you can do that at the same labor cost as producing a cheap mass product. And the ‘amount of labor’ is not a valid category, productivity is what counts. Your post is a gross falsification and fundamentylly wrong.
According to you everyone should produce high-value luxury goods, because you can do that at the same labor cost as producing a cheap mass product.
According to me everyone WILL TRY to produce high value luxury goods. I just laid out why it is an absolutely rational choice and why Portugal will never settle at the equilibrium where it maximizes wine production vs English cloth’s production. And vice versa, the current producer of high value goods will do everything to prevent this from happening. And I am not even going into monopolistic competition here.
As for amount of labour. Excuse me, value produced divided by amount of labour, or labour input, if you want to be fastidious, equals productivity. What’s wrong with that?
The drive to produce higher valued goods is not so much an economic principle but inherent to capitalism’s destructive power of competition. It has been made sort of an axiom by the neoliberal, globalized economy. It leads to globalization and deindustrialization domestically, as the US example clearly shows.
Productivity - as correctly specified in your reply - is the significant category which yet also would include technological improvents in fixed capital and not just amount of labor in the context of higher valued output. Yet, when producing higher valued goods, there is usually more skilled labor and thus higher wages. With more expensive labor - and even assuming increased productivity - there is no guarantee of ‘getting richer’ with the same ‘amout of labor’,
because pigher productivity is not tantamiunt to higher profits. Profits in turn depend on the rate of profit, but it is not to be confused with the mass of profit of individual capitals. It stands that your post is gross simplification and misleading ….
If you reread my initial post, I introduced a single variable, for simplicity, capital stock per worker. All else being equal, eapecially labour qualification, this will determine the amount of the added value in the good produced. In ricardoes example, agri workers in Portugal are hardly less qualified than weavers in Lancashire, who were essentially robots. Which makes it such a good example. England ends up with higher value added product just by virtue of its starting position with more capital, nothing else. Why would Portugal stay happy with that? It’s not some objective natural phenomenon.
Again: Producing a higher added value product does not necessarily mean higher profits. It just means a higher stage of economic development, which most often leads to shaping up imperialist and monopolist tendencies. Besides the stock is more capital intensive. Yet Portugal might benefit from comparative advantage, just like England does as trade might yield a trade surplus and thus is contributing to domestic consumption and development. The downside with comparative advantage is though, as I stated, it locks you in certain economic sectors, which might prevent development if you are no able to limit imports from economically developed countries.
Producing a higher added value product does not necessarily mean higher profits.
Wait what? This is literally what it means! Arithmetically.
«Producing a higher added value product does not necessarily mean higher profits»
Profits are not relevant in this discussion. Higher value added is simply desirable, as long as there is demand for the higher value added commodities, because it means better living standards. Whether the higher value added goes mostly to wages or profits it still is desirable.
"the higher added value products you manufacture, and the richer you get for the same amount of labour rendered"
«a gross falsification and fundamentylly wrong»
That is indeed the correct goal as long *as long as demand exists*, because a motorbike is usually a lot more useful than a skateboard, at least for transportation (and sometimes for entertainment). It is indeed a fundamental principle of both domestic and political economy that labour and capital should be expended towards the highest value added production, as long as there is demand for that. This applies whether the production is traded domestically or internationally.
"the higher added value products you manufacture, and the richer you get for the same amount of labour rendered."
«the ‘amount of labor’ is not a valid category, productivity is what counts»
That seems to me a comical misrepresentation of the argument as the ratio between "higher added value" (if measured in physical terms) and "the same amount of labour" is the very definition of (labor) productivity.
Wrong again. The degree of use-value depends among other variables on prevailing conditions - the water and diamond paradox comes to mind. Measurement of useability can not applied in general in the abstract. That is neoclassical nonsense of vulgar mainstream economists based on useless and detrimental theories of marginal utility, rational agents, perfect markets and equilibrium conditions. Just look how capitalism has turned out. You also do not necessarily get richer if you are producing higher value goods, even with the same productivity as that of lower valued goods since the rate of profit depends not just on labor productivity.
«The degree of use-value depends among other variables on prevailing conditions [...] You also do not necessarily get richer if you are producing higher value goods»
That seems to ignorantly confused higher *value-added* with higher *use-value* commodities. A commodity can have a high value but a low value-added and vice-versa.
«since the rate of profit depends not just on labor productivity»
But one can become richer also with higher wages, not just higher profits. I suspect that you simply do not know what value-added (also called "plusvalue") means and how it differs from both "value" and "profit" and that it splits between wages and profits (also called "sur-plusvalue", the slice of "plusvalue" that goes to the employer). Consider the following examples.
Making a fashion dress costs $100 in materials and overhead, and it sells for $1,000 the worker who made the dress is paid $400 and the employer gets a profit of $500 (with some imprecise terminology):
* price ("exchange value): $1,000.
* value-added ("plusvalue"): $900.
* wage ("socially necessary labour value)": $400.
* profit ("sur-plusvalue"): $500.
Now imagine instead a bicycle that costs $1,500 in materials and overhead, sells for $2,000, takes $200 of wage to assemble and the employer gets a profit of $300:
* price ("exchange value): $2,000.
* value-added ("plusvalue"): $500.
* wage ("socially necessary labour value)": $200.
* profit ("sur-plusvalue"): $300.
Note that the bicycle has a higher "value" of $2,000 than the $1,000 dress, but it has a lower "value-added" of $500 instead of $900.
«That’s why the relative advantage trade theory doesn’t work I.»
That would be comparative advantage, and it does not work in theory except under absurd conditions, but in works in practice, but that does not matter because:
«The national state framework- nobody wants to focus on producing just wine, because it just doesn’t pay so well as cloth manufacturing, per capita.”
Another quote from Landes "The wealth and poverty of nations":
«Today’s comparative advantage, we have seen, may not be tomorrow’s. [...] The gains from trade are unequal. As history has shown, some countries will do much better than others. The primary reason is that comparative advantage is not the same for all, and that some activities are more lucrative and productive than others. (A dollar is not a dollar is not a dollar.) They require and yield greater gains in knowledge and know-how, within and without. [...] Comparative advantage is not fixed, and it can move for or against.»
The theory of comparative advantage, that countries can benefit from trade even if they do not have an absolute advantage in producing any goods, so long as they specialize in goods in which they have relatively higher productivity. If countries pursue this comparative advantage, then trade generates win-win outcomes whereby every country maximizes its income and enjoys cheaper products. Comparative advantage trade theory is a foundational pillar of mainstream development thinking and policy because it promises mutual gains. Ricardo assumed the existence of a fully globalized world economy in order to make his assumptions about the gains from free trade. What is almost never mentioned is that Ricardo’s model assumes both capital and labor are relatively immobile. Ricardo’s law does not work in highly financialized, neoliberal global markets.
Almost every country which has successfully transitioned to developed status has done so by using tarriffs and trade walls judiciously. The catch with international trade is that comparative advantage locks countries into economic sectors. If your comparative advantage is in raw minerals or agricultural products, its almost impossible to transition to higher value products, unless you prevent imports from more developed countries. Trade between countries at different stages of development almost always benefits the ‘developed’ countries more, even if the less developed country gets a relative improvement.
«The theory of comparative advantage, that countries can benefit from trade even if they do not have an absolute advantage in producing any goods, so long as they specialize in goods in which they have relatively higher productivity.»
That is the wrong summary, because it ignores the absurd conditions, among which there are these two indeed which should be mentioned first as premises:
«model assumes both capital and labor are relatively immobile»
Those are only two of the absurd conditions, the main one is that there must be perfect competition (and therefore mobility) between the two countries (except for capital and labour as stated). There is also a non-absurd condition that labor productivity must be different.
So the above summary is the wrong description of the theory of comparative advantage. The theory of comparative advantage is worthless because of those absurd conditions (and the theorem of second best probably applies too). Wikipedia has the correct description even if could be worded better:
https://en.wikipedia.org/wiki/Comparative_advantage
“if two countries capable of producing two commodities engage in the *free market* (albeit with the assumption that the capital and labour do not move internationally), then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that *there exist differences in labor productivity between both countries*.”
"I suggest you do some homework and go read up on Ricardo and comparative advantage" :-).
What I said is exactly what you are referring to in your post and with the Wikipedia link. I also stated the necessary conditions of capital and labor immobility and that of different productivity levels - what you are calling one of the ‘absurd‘ conditions while alleging i would have ignored them. You are simply repeating what I stated. The Wikipedia definition you are quoting is in no way different from what I outlined. I nowhere said that the theory of comparative advantage works, quite the contrary. I suggest you hone your reading skills before you read up on Ricardo. Your Wikipedia knowledge is not good enough.
You claim still lacks the crucial and absurd condition of perfect competition, without which comparative advantage cannot exist. A bit of Wikipedia reading would have helped making a correct description.
As to the claim that “so long as they specialize in goods in which they have relatively higher productivity” followed several lines later by only 2 out of 3 absurd qualifications, it is a bit like claiming that "2+2 = 6" followed several later by "(so long as 2 = 1+1+1)". It is a standard trick of propaganda Economists to make grand statements that are only valid under absurd conditions.
In pub-discussions I have often warned my overly critical left-leaning friends, they will start to appreciate the US hegemony as well - as soon as it is replaced by something else. In this text the usual suspect "neoliberalism" seems already experiencing a similar post-mortem appreciation.
But neoliberal order might not be dead yet. The trade-tariffs might be only a one-off reaction to the Sputnik-moment: arrival of the well coordinated Chinese merchant fleet, loaded with very cheap and also very good EVs. Seen from Wolfsburg, Germany, that sight was more scary than looking at a fleet of gloomy aircraft carriers. Their reaction might be exaggerated, but is understandable and very human.
There is only one thing that scares Germans more than Chinese cars flooding German market - is Chinese closing their market. To protect their workers, politics is usually hurting their consumers. The obvious catch - the worker and the consumer live in the same body.
The dilemma of Neoliberalism seems not to be in too-liberal or not-enough-liberal - it is in the opportunistic breach of liberal rules for one-time profit. The classical tragedy of the commons. This violation of fairness is present in internal markets even more often than the international, so it is unlikely to be resolved by nationalistic protectionism.
«arrival of the well coordinated Chinese merchant fleet, loaded with very cheap and also very good EVs. Seen from Wolfsburg, Germany, that sight was more scary than looking at a fleet of gloomy aircraft carriers.»
A quote from Landes "The wealth and poverty of nations" with this excellent story:
«"Of all things Western, what do you dread most?" asked the Satsuma daimyo Shimazu Nariakira of his councillors. European guns and ships, came the answer. "No," said the daimyo. "It is cotton cloth. Unless we begin preparing now, we shall soon be dependent on Westerners for our clothing." In an effort to prepare, the han began to distribute better cotton seeds, purchased better spindles and looms (not yet powered), built a manufactory near Kagoshima, and set unemployed samurai to work there. The result: cotton goods costing half as much as before. [...] In 1867, it opened a mechanized cotton mill.»
nobody wants US hegemony. Also It isn't a one off.
«nobody wants US hegemony»
USA hegemony is very popular with the upper and middle classes in many countries: the deal offered (or imposed) by the USA is that the USA government will control security, military and foreign matters ("suzerainty") and USA corporates will get a hunk of the markets, but in exchange the USA military and political police will ensure that the upper and middle classes of vassal states will do well and will stay in power, securing their position against both domestic revolution and foreign conquest.
I can confirm this as a member of West-European middle class. Important to add: the popularity of US hegemony is not genuine here - it grows from the fear of the alternatives.
The alternative World orders, such as sketched by Zhao Tingyang, or currently improvised by Russian government, also intend in the end "only to wear the crown". All those that are now delighted with Schadenfreude should think again. While the benefits of the US hegemony were not uniformly spread over the World, and produced some obvious losers (Latin America, Iran, Africa...), some unlikely losers (Europe) and one obvious winner (China), the next Hegemon will be as well indifferent of global equality and inevitably wear a sword - and use it selectively, depending on own nationalism/religion/ideology. (In defence of the US-World-order one should add that the most of the global collateral-damage is a direct consequence of European imperialisms of the 19th century and two European WWs.)
Hopefully some of the neoliberal, human-rights common sense will survive the transition ans spare at least us West-Europeans from another re-education and collectivisation. For the rest of the World - good luck!
«confirm this as a member of West-European middle class. Important to add: the popularity of US hegemony is not genuine here - it grows from the fear of the alternatives»
I would make a distinction there: that applies to the countries where some of the middle (and even upper) class still have delusions of being important, like England or France, which resent having to accept being USA vassals.
In smaller and more realistic countries like Italy or Poland the upper and middle classes know that they they can only ever be vassals of a greater power and reckon that the USA oligarchs offer them a good deal (paid for by their lower classes).
«most of the global collateral-damage is a direct consequence of European imperialisms of the 19th century and two European WWs»
They have not been worse or better than most other empires through history which have been often pretty awful (piles-of-skulls style). Also consider how countries like Korea or Germany or Vietnam devastated by terrible wars or vicious colonialism have done so much better than others.
There is a famous series of studies of various post-WW2 countries by Gunnar Myrdhal ("Asian Drama: An Inquiry into the Poverty of Nations, published") where he reckoned that lucky countries like Kenya or Zambia or Ghana, abundant in resources, vast and underpopulated and largely untouched by WW2, would quickly become developed and rich, while he despaired about countries like Korea or Taiwan or Vietnam or Malaysia, with limited resources, small, overpopulated and devastated by WW2, would be forever poor.
"in smaller and more realistic countries like Italy or Poland the upper and middle classes know that they they can only ever be vassals of a greater power"
There is always an opportunism in the role of servant. A hidden profit behind the misery. But - according to Hegel - in the long run, the servant is indeed better off (in terms of quality of life, so to say) than the master or someone who believes in his own greatness and has to act accordingly.
The model of vassals states and their master states is for me oversimplified - any country can damage itself into misery, without aggression from outside. Your examples of (vassals) Korea, Germany and Vietnam rising from the ruins - have their many opposite examples of self-inflicted descent into ruins.
Your cynical liberal-fascist attitude - this arrogant 'west is best' white supremacy stance - is exactly what has been impoverishing and exploiting the majority of the nations of this world by way of US-Imperialism.
Well, - I am not 100% white in the usual, ideological sense. And no fascist at all - in that case I would use aggressive language assembled of simple slogans, that I concern a poor style. But sure, everyone has collected its own experience and builds on it his own truths, so do I. Cheers.
Is neoliberalism dead or is it now more flexible and adaptive? Critics of neoliberalism need it to be rigidly enforced so they can argue that it is dead, when in fact it is now flexible and adaptive.
«the current approach calls for the creation of trade blocs among the political allies. This is in contravention both of the first and the second framing of the international economic system that sought to differentiate trade from political relations</i>»
I think that our blogger misremembers the first framing, where there was essentially no trade between the "first" (USA sphere of influence) and the "second" (USSR sphere of influence) worlds; as one example Cuba was and still is subject to pretty much total sanctions, which has been maintained during both the first and second framing.
Most of the institutions of the post-WW2 settlement were basically only targeted at the USA sphere of influence, and were transmission belts of USA policy, especially to penetrate and influence "third world" (non-aligned) states. The second framing was simply the extension of those USA transmission belts to rule also over the "second world".
What USA policy seems currently to be aiming is to re-establish the first framing situation, as the huge size of the chinese economy means that if a single worldwide system continues it will centered on China and no longer on the USA.
So the sooner China, Russia and their few allies are isolated from the rest of the world economy the more the USA can continue to dominate the rest of the world as its largest economy. The policy of China with the BRI is instead to create a whole new set of international institutions no longer dominated by the USA to replace the USA dominated ones to avoid the isolation.
Spot on!
he wrote that is was based on "fixed exchange rates, moderate tariff protection, ability to borrow in order to solve temporary balance of payments problems, de fixed exchange rates, moderate tariff protection, ability to borrow in order to solve temporary balance of payments problems, depoliticization of economic decision-making", but he fails to mention that on of its central planks was also capital controls, which didn't go away until the later 1970s (japan kept them until the late 80s), also, it didnt seek the "depoliticization of economic decision making", a giant motivators behind some of its design was to enable democratic politics to effect economic decision making! Also, I commonly see people make the argument that the tariffs deepened and worsened the Great Depression, but that didnt withstand scrutiny, would someone defend that claim here?
Thank you very much for these interesting reflections. It may be that the beginning of the story, a story of greed and abject human paranoia, is the concentration of wealth started with Reagan /Tatcher. Then, chapter 2, is the USA search for hegemony and the expansion of the military industrial complex and wars of choice. Chapter 3 is the reorganization of world alliances in the face of the US attempts to isolate China, nato expansion, etc. “War games” are conducted in the US Congress not by the war college or academics, but by Raytheon and Lockheed etc. Chapter 4 is the segments of the population disillusioned with the evolution of their place in society. Chapter 5 is their alliance with nationalists (but what is a Nation as Renan would ask?) and the re-emergence of hate towards others, other nations or migrants. Chapter 6 is the war we are heading towards.
Equating China’s trade policies and its development oriented credit policy with the murderous sanctions of the most belligerent country in the world - the US - is an insult to reason tbh. Glossing over the rules of the Washington consensus as ‘simple, clear and universal’ falls into the same category - simply ignoring the the US drive for post WWII hegemony manifested itself in the establishment of US-dominated institutions like the IMF and the Worldbank, serving the ultimate purpose to support exploitation and neo-Imperialism on all possible fronts. The world long since is run by the capitalist law of the jungle and not just drifting into it now. Above all the point that there might be a way to differentiate trade from political relations is totally meaningless, because as long as state superstructures and nations exist there is a political framework undergirding trade. Statements like this always have been empty bourgeois blather.
The 1971 abandonment of the gold standard can also termed default, or "bankruptcy" for the less versed in the English language. After this, the US saved its bacon with the Petrodollar protection racket, commencing this dynamically with multiplying the price of oil, the well remembered "oil shock". Even for Saudi King Fahd the price was to high, but he relented to US wishes to ensure sufficient money is washed into the purchase of US bonds. This system has led to the US never ever again having a trade surplus and deindustrialisation. On the other hand it allowed the US to buy up a lot of international companies.
Apparently this system does not yield enough money for the US anymore, especially evident in a year, when 10% of GDP additional debt at very best helps increase the GDP by 3%. Nevertheless, Sahm Rule and Schannep Indicator are telling us that the US is about to enter in a recession. A moderate investment in warmongering yields good revenues in additional defence sales, leading to record exports there. Australia, a place where people a few decades ago emigrated to to be out of harms way now has a defence budget of about 3.3%, tendency rising.
And nationalism isn't a big danger in the Western realm. The US is in control of governments and media there. Eg., Germany's far right party AfD enjoys the de-facto support of Germany's biggest publisher, Springer (Bild, Welt), which is hyper pro America and as hyper pro Israel.
There seems to be an emerging order around BRICS. See: https://open.substack.com/pub/eastisread/p/chinas-changing-role-in-multilateral?r=ewjlq&utm_medium=ios
«an emerging order around BRICS»
BRICS is a talking shop among countries with very different interests, even less important than OAS or G20. BRI is very different because it is organized and funded and pushed by the PRC which has the means and skills and interest to keep that going.