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CFG: "Unsustainable Patterns of World Economic Growth" 1998

October 12, 2008 on 4:30 am | In Economics, Financial, Globalization, History, Research | No Comments

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CAMBRIDGE FORECAST GROUP

Unsustainable Patterns of World Economic Growth

http://www.geocities.com/lance_feiner/

GLOBALIZATION AND THE CURRENT CRISIS 1998

A Handbook for Progressive Policy Makers

(By the Green Policy Group of The Other Economic Summit)

More precisely, from 1985 to the present, the US has been imposing a series of unsustainable economic and financial bubbles on various regions of the world successively (first Japan and Europe, then Asia, then Latin America, then China, etc.) in order to satisfy its insatiable demand for exports. Countries and regions have been overwhelmed by floods of outside capital, which they had neither the social nor economic institutions to deal with. A more viable policy would be the promotion of economic growth in more areas of the world simultaneously, but at a slower and more sustainable pace. Africa and the Arab world should not be written off as “basket cases” to be left to the dictates of a fickle global financial market.

As of this writing, policy makers are urging Japan to become the “locomotive” for Asia. Poor people in Asia are being asked to reduce their consumption, even as rich people in Japan are being asked to increase theirs. It seems that we’re back to ”Western-led growth” again. However, the only real “locomotive” for global and American economic growth, the only “locomotive” that doesn’t turn out to be a “bubble” is the alleviation of Third World poverty and the promotion of Third World sustainable development.

CONTENTS:

Introduction

●         A Brief, Long-Term History of Globalization

●         Globalization Since 1945

●         Neoliberalism

●         The Third World

●         The American Economy, What Went Wrong Since 1965

●         The Role of The Transnational Corporations

●         Cuts in U.S. Social Entitlements And Globalization

●         Economic Growth And Sustainable Development

●         Anti-Third World Populism in The West

●         Circumventing Anti-Third World Populism, How Not To Do It

●         A Twenty Six Year History of Global “Quick Fixes”

●         Advice for Policy Makers

●         Conclusions

GLOBALIZATION AND SUSTAINABLE ECONOMIC GROWTH

Introduction

This handbook presents a brief geographical and historical overview of the various financial/ political crises, which have been taking place in the world lately. If you’ve been feeling confused by them, the following material might be helpful.

A Brief, Long-Term History of Globalization

“Globalization” is not an entirely new phenomenon. Defined broadly, globalization, for better or worse, is simply the recurrence (this time on a global scale) of a process of political /cultural/economic consolidation, that has occurred many times in the past, on a very large regional scale. (i.e. the sinification of the Chinese subcontinent, the Aryanization of the Indian subcontinent, and the Hellenization of the Near East and the Mediterranean world.) “Globalization” is simply the 500-year period of Europeanization (and later Americanization) of the rest of the world.

European civilization’s five hundred year period of technological progress and geographical expansion has often been called unique, unparalleled in human history, completely different from anything in pre-European or non-European societies. This is not quite true however. Chinese civilization did undergo a similar process some 2000 years earlier, during its so-called “period of warring states” (500-250 B.C.). Competition between the “warring states” led to rapid technological and economic advance. It also led to massive geographical expansion via colonization (because of an outflow of refugees from the wars). Europe’s period of state formation, on the other hand, occurred 2,000 years later than China’s. Europe was thus heir to an additional 2,000 years of global technological and social advance. Because of advances in naval technology, and because of global linkages created by Arab and Mongol conquests, Europe’s expansion took place on a global rather than on a regional scale. Thus, whereas China’s “late start” (its iron age began in 500 B.C.) enabled it to develop a particularly successful and durable form of the “tributary mode”, Europe’s “late start”, 2,000 years later, enabled it to transcend the “tributary mode” altogether, and progress to industrial capitalism.

In other words, “Globalization” is nothing more than the five hundred year period of “Europeanization” (and, more recently, ”Americanization”) that the world has been subject to.

The globalization process was accelerated dramatically during the industrial revolution. By the beginning of this century, it had evolved into a system of global capitalism, linking together armed, mutually hostile industrial states and moribund empires (which were themselves rapidly industrializing even as they disintegrated). The globalization process collapsed temporarily during the catastrophes of the 1914 – 1945 period. It resumed again in 1945, under American hegemony, and was again dramatically accelerated by the post-war “technological revolution” (computers, transistors, containerization, the “green revolution”, communications satellites and the integrated circuit).

Globalization Since 1945

Contemporary critics of globalization usually do not begin with a 500-year history of the West’s rise to global dominance. Wolfgang Sachs, for example, (The Dictionary of Sustainable Development, Zed Books, 1992) concentrates his attention on the consequences of the ideology of “developmentalism” promulgated by Truman in the 1940’s and adopted by the Third World elites. David C. Korten, on the other hand, (When Corporations Rule The World, Kumarian Publishers, 1995) discusses the derangements brought about by the last twenty years of globalization.

Neoliberalism

When most people use the term “globalization”, they really mean “neoliberalism”. Neoliberalism (or “globalization” if you will) has attracted widespread criticism in recent years from such diverse sources as Pope John Paul, Ralph Nader, and (believe it or not) financier George Soros. The thrust of this criticism is that neoliberalism puts all of global society and all of global ecology onto a roulette wheel known as the “global capital markets”, and spins this roulette wheel, with God knows what consequences to the human future.

However, the point here is not to criticize neoliberalism, whose failings by now should be apparent to everyone, but rather to describe what it is, how it came about, and how it is likely to change.

First of all, the “liberalism” in neoliberalism does not mean “New Deal/Great Society” liberalism. It means “19th century British liberalism”; the policy of laissez-faire economics within nations, and the free, unfettered flow of commodities and capital between nations. “Neo”-”liberalism”, thus, means the late 20th century version of 19th century British liberalism; the privatization of the economies within nations, and the free, unfettered flow of commodities and capital between nations. Neoliberalism is usually portrayed as an inevitable consequence of changes in communications technology, the inevitable yielding of governments to the unstoppable “global marketplace”. Neoliberalism, however, is actually a global political construct, whose purpose was to regulate the process of globalization to (short term) U.S. advantage. It has far more to do with the U.S. political process, than with some Svengali-like takeover of national governments by multinational corporations.

Here is how it came about. At the 1979 economic summit in Belgrade, an elaborate scheme of Western/OPEC financial coordination was worked out to end global inflation and refinance Third World debt, without at the same time, collapsing global economic demand. Although this scheme involved a certain loss of US financial hegemony, it was reluctantly accepted by the Carter administration in the summer of 1980. There was much discussion of this plan in the mainstream business press. For example, a New York Times article (June 23, 1980) discussed how European heads of state voiced support for Western/OPEC cooperation to address world economic problems and in light of that, also for a timely resolution of the Israeli-Palestinian crisis. By the end of 1980, however, this scheme was increasingly thrown into doubt by the outbreak of the Iraq/Iran war. In 1982, it was finished off entirely by Israel’s invasion of Lebanon.

After two years of blundering, the Reagan administration patched together an alternative to Western/OPEC financial coordination. Interest rates were kept very high, but were no longer increasing exponentially. A massive tax cut was accompanied by a massive increase in military spending, keeping U.S. consumer demand high. The American market was thrown open to all comers. In addition, foreign exporters were given a competitive advantage by the high dollar.

America, thus, became the world’s “lender and importer of last resort”. Third World debt continued to grow, but was increasingly being dwarfed by U.S. debt. In essence, Reagan “bribed” large parts of the American middle class and large parts of the Third World bourgeoisie, and did so “on tick” (by borrowing from countries with trade surpluses). In this way, he established a sort of “global consensus” for his policies.

The Reagan administration set to work on a long term approach to North/South economic relations, an approach that was later to become known as “neoliberalism”, or the “NAFTA/GATT” approach to North/South economic relations. Under neoliberalism, the rich countries agree to open their markets to labor intensive Third World manufactured exports, in return for which Third World countries agree to remove restrictions on private outside capital placements. Markets are also opened for high-tech products and services. (The winners the U.S., the losers potentially everyone else ).

Neoliberalism was conceived by the Reagan administration, pushed forward by the Bush administration, and brought to completion by the Clinton administration, by the passage of NAFTA and then the Uruguay Round of GATT. Neither Reagan nor Bush were terribly anxious to talk about neoliberalism while it was still a “work in progress”. Reagan relied heavily on theatrics and distractions (i.e. blowing out of proportion issues such as abortion and church-state relations). Bush, on the other hand, relied on secrecy (the stealth presidency) and later on military triumphalism (the Gulf War and the glorification of the U.S. army). It was left to Clinton, to openly and directly adopt neoliberalism as one the leading policies of his administration.

Was it the Reagan administration then that established the atmosphere of “free market fundamentalism”, that so pervades (and obstructs) discussion of global economic and social problems? The answer is “not entirely”. Part of this atmosphere was created by the collapse of the Communist block in the early 90’s. For example, in 1985, Grosvenor International Publishers, published a three volume set of books on North/South commercial relations called Third World Development “edited” by Ronald Reagan. In it, several members of the Reagan cabinet wrote articles stressing the importance of agrarian reform. In 1991, in contrast, the World Bank Development Report devoted one sentence to agrarian reform, saying that it might be helpful to economic development in some instances.

The Third World

The Third World today is a different universe from the Third World in 1950. Most of the increase in human population has occurred since 1950, and most of that in the Third World.

In addition:

“From 1950 to 1985, the overall GDP of the Third World has increased some six times and per capital GDP 2.5 times..It’s industrial output is now 11 times higher than in 1950…Annual real gross capital formation is now 15 times higher. …Enrollment in higher education has risen nearly 25 fold. …Infant mortality rates fell from 200 per thousand to between 30 and 70… Life expectancy rose from below 40 years to about 65…The share of agricultural output in GDP has fallen from about 1/3 to 1/6 and the share of industry has risen from about 1/6 to 1/3. …Annual rates of the growth in the Third World sustained from 1950…were 5.5. percent for GDP, 7.5 percent for industrial output, 8.4 percent for capital formation and 10 percent for third level education.” (From Technological Transformation in The Third World, by Surendra J. Patel, Avebury Press, 1991).

In fact, the Third World is where post-1950 world history was made, the de-colonization, the demographic explosion, the violent Western crusade against “Red revolution”, including death squads, napalm, cluster bombs, the mass deaths and upheavals, the military capitalist defeats and the overwhelming technological, economic and cultural capitalist triumphs (the green revolution, the spread of “neoliberal” democratization and privatizations)

What about the changes in the “first” world since 1950? Well, the advances in basic science, particularly in biology and astronomy have been spectacular, unimaginable even in the science fiction of 1950. And yet none of these advances has had the growth inducing impact of a steam engine, an internal combustion engine, electricity, etc. The really significant commercial technological advances in the post war era have been the digital computer (1944), the transistor (1948) and the integrated circuit (1971). In the financial and service sectors of the economy these technologies have indeed produced economic growth (just ask Newt Gingrich). However, their primary impact has been to facilitate the spread of industrialism from the first to the Third World by means of better communication and the use of robotization in the “de-skilling” of industrial production. They have been technologies of “globalization” rather than technologies of post-war “American dream” style economic growth.

So we are now in a position to state the basic problem afflicting the American economy. The problem, in short, is, despite the spectacular advances in basic science and digital technology, the growth inducing technologies that propelled America’s “Golden Age” post-war growth have played themselves out (and have, in many cases, been too environmentally destructive). This (and not some nefarious alliance between “first” world plutocrats and “Third World elites”) is the problem, a problem which began in 1965…..

America’s Economic Problems, What Went Wrong Since 1965

In his article, “Soviet Economic Growth: 1928 – 1985″, in The Journal of Economic Literature, (Vol XXV, 1987) the economist Gur Ofer made a very interesting series of observations. From 1945 to 1965, both the Western and Soviet economies grew rapidly. In fact, prior to 1965, the Soviet economy outperformed the Western countries (and was looked upon by many Third World countries as the model to follow). Clearly, 1965 was a pivotal year both for the West and the Soviet Union. It was the year in which both blocs began to experience a “crisis of stagnation”. Could it be, asked Prof. Ofer, that some common factor was operating both in the West and in the Soviet Union, something that had nothing to do with capitalism, nothing to do with socialism, and nothing to do with globalization? In his article “What We Can Learn From The Soviet Collapse”, in Finance and Development (IMF, November, 1995) , the economist Stanley Fischer offered a guess. He postulated that, by the mid-sixties, the growth inducing technologies that been developed prior to and during World War II (automobilization, capital intensive agriculture, petrochemicals, civilian air transport, etc.) had partially played themselves out both in the West and in the Soviet Union. Prior to 1965, the Soviet Union grew more rapidly than the West because it had a greater number of primitive areas in its economy to which it could apply the range of technologies mentioned above. After 1965, on the other hand, the West grew more rapidly,. because it had a greater range of growth inducing technologies (particularly in the areas of digitalization, computerization and communication), and also because it had more commercial links to the developing countries, which were beginning to reap the effects of the green revolution, containerization and robotization (which allowed “industrialization without infrastructure”). This growth, while environmentally destructive and detrimental to many of the world’s poor, nonetheless stimulated Western economic growth, and made the Western “crisis of stagnation” much less severe than it otherwise would have been. Thus, while the West went on to slower growth (very unevenly distributed across sectors), greater income inequality, and all the headaches of globalization, the Soviet Union went on to complete economic collapse.

To explain the above in more detail, let us examine the standard theory of economic growth devised by Robert Solow in 1954. (See Growth Theory, An Exposition, by Robert Solow, Oxford University Press, 1969). According to this theory of growth (barring a massive population increase in the developed world), there are two sources of economic growth: (1) The spread of investment capital to areas of the world which don’t have it (globalization), (2) Technological innovations which allow the same amount of capital and labor to produce more output and a rising standard of living (“the American Dream”). It is the second type of economic growth which burgeoned from 1945 to 1965, and the first type which has become more and more prevalent since then. However, and this is a very important point, (2) did not slow down because (1) speeded up. In fact, (2) slowed down less than it would have, had (1) not speeded up.

Looking toward the future, there is always the possibility, of course, that some radically new technology will materialize which could produce rapid economic growth and a rising standard of living in the West, even in the absence of a massive population growth in the West. Everybody could see, for example, how “cold fusion” in 1989 could have achieved such a result. (This is why so many Americans wanted to believe it, and why it was accepted by so many people on the flimsiest of evidence). Barring such a development, however, what is “on the agenda” for the world economy is the spread of industrialization from the developed world to the underdeveloped world. Such a spread is not the cause of America’s problems. It is, if properly managed, the only solution to them.

In other words, given that the world economy is shifting from a phase of Western-led growth to a phase of Third World-led growth, the solution to America’s economic problems is the promotion of environmentally friendly, sustainable growth in the Third World, which, in turn, will generate widespread, long-term growth and employment in the West, which, in turn, will provide the tax base to solve America’s budget and social problems. Make no mistake about it, the growth patterns which have taken place in the Third World recently, environmentally destructive, unsustainable, inequitable and misguided as they have been, have, nonetheless, produced seven years of non-inflationary growth in the U.S., a growth which benefitted the vast majority of Americans (however unequally) Conversely, looking toward the future, if the Third World economies were to go into a deep, protracted slump, they would inevitably drag down the U.S. economy with them.

The Third World economist, Samir Amin, in his 1989 book, Maldevelopment, A Study of A Global Failure, Zed Press, gives the solution to this dilemma.

“For more than 15 years the world economic system has been in an enduring structural crisis. This is a world crisis marked by the collapse of growth in productive investment, a notable fall in profitability (very unequally distributed in sectors and companies) and persistent disorder in international relations…. The current crisis is therefore most apparent in the field of world relations. North/South relations and the conflicts around them constitute the central axis of the current crisis…… In..circumstances (such as the 1930’s) the Keynesian policies of redistribution of income might have been a solution to the crisis. By contrast, (the present crisis) comes after a long period of full employment, the rule of the welfare state, etc. Today’s deficient demand is essentially deficient demand in the periphery ……. In other words, only a redistribution at the international level in favor of the South would permit a fresh start for the world. The obvious question is ‘under whose aegis’ will …this be carried out?”

The recent NAFTA and GATT agreements answer this question. Under the aegis of private capital and under the aegis of the United States and its “instruments”, the IMF and the World Bank. (Wrong answer!) The NAFTA/GATT approach to global development is known as “neoliberalism”.

To over simplify enormously, the rationale behind the neoliberal model of development is as follows: the scale of economic production has grown so large that it has transcended national boundaries, it has even transcended the boundaries of large countries such as the United States and Japan. To subject such an economy to national restrictions on the flow of commodities and capital is like trying to raise cattle in one’s living room. There’s not enough room. Therefore, countries should not restrict the flow of commodities and capital across their borders. Moreover, if nations agree to reduce interference with the flow of commodity and capital to a minimum, capital will flow from capital surplus countries to capital deficient countries in the same way that water flows from a higher level to a lower level, and economic development will spread across the globe. Samir Amin has called this approach to global development “reactionary utopianism”.

This “reactionary utopianism” came into being partly as a result of the last 25 years of deliberate U.S. government policy, partly as a result as a result of the collapse of the socialist bloc, partly as a result of changes in technology, and partly as a result of the horrors of Cambodia’s and North Korea’s attempt to promote total economic self-sufficiency

The Role of The Transnational Corporations.

It has become the conventional wisdom among many environmentalists that there has been some takeover of Western national governments by multinationals following the dictates of the World Trade Organization. In fact, many of the top executives of multinationals are far more progressive in their personal views than are national politicians, and far more aware of the difficulties in basing everything on free markets and private capital placements.

The 1996 cuts in U.S. social entitlements and global economics

MIT economist Paul Krugman points out that “economic globalization” (neoliberalism) does not require the U.S. to cut the social safety net, in order to remain competitive internationally. It is important to stress this point. Yet, the cutbacks in social entitlements such as Medicaid and welfare are not entirely unrelated to neoliberalism. Here is what happened. After the passage of NAFTA, in 1993, Mexico with U.S. connivance, kept the Peso artificially high to suck in U.S. exports and to enable Clinton to show how beneficial NAFTA-type agreements were to the U.S. trade deficit. After GATT was passed, Mexico attempted to lower the Peso, a policy which started a massive flight of capital from Mexico. The Clinton administration responded with an emergency bailout in early 1995. At this point, global investors became aware that much of the world’s economy had become “dollarized”, that many of the private capital placements were being made in dollars. There was a perception that the Federal Reserve could not possibly act to reduce the supply of dollars in global circulation (in order to raise the value of the dollar relative to the yen), without, at the same time, risking a massive capital flight from the Third World. Thus, there was a “flight from the dollar” into the Japanese yen. The dollar dropped precipitously. Such a drop did not hurt the U.S. economy, because a large part of the Fed’s huge output of dollars was being used to finance Third World manufacturing capacity, which, in turn, was flooding the U.S. market with cheap products and keeping inflation in check.

Meanwhile, the low dollar was benefitting U.S. exports. Japan, on the other hand, was being pushed to the brink of a financial “meltdown”. Japan had trillions of dollars in outstanding yen debt. The drop in the dollar was increasing the “real value” of Japan’s debt daily and pushing Japan into a deflation. The U.S. obviously could not let the Japanese financial system go into a tailspin. The dollar had to be brought up, but not by monetary tightening. The only way to accomplish this was by implementing Republican-style budget cuts, but avoiding Republican style tax cuts. Clinton simply had to reach budget agreements with the Republicans in Congress, many of whom were determined to “wage class warfare from the top down”, and many of whom were simply ignorant about global financial problems, and, thus, in a far better position to “play chicken”. The upshot? Republicans lost their massive tax cuts, but got their welfare cuts. Clinton, whatever his feelings on entitlements and welfare, simply had no choice. A different Congress would have reached a different resolution to the budget crisis, globalization or no globalization. Thus, globalization is not an excuse for supporters of the social safety net to “throw in the towel”.

Four fifths of the world’s population lives in the Third World. Thus, sustainable (ecological) economic growth to address basic and mounting social needs simply cannot be avoided. It is imperative to develop a global alternative to neoliberalism. In a paper presented at the alternative summit “T.O.E.S. 1990,” we outlined some elements of this alternative. Working alternatives at the local level are very good, but some discussion must be devoted to how well these alternatives will “scale up”.

Economic growth is simply an increase in the volume and/ or size of economic transactions, as measured in monetary terms adjusted for inflation. There are billions of people in the world. Their educational and psychological problems cannot be addressed without first addressing their basic material needs (i.e. access to clean water, health care, adequate diet, shelter, etc.). Neoliberalism is only a stop-gap measure to the recent dilemmas of the world economic system — primarily Third World debt which in the 1980’s threatened the world financial system, and the lack of growth in Western capitalist countries). However, many corporate leaders, World Bank officials and the U.S. administrations, from Reagan to Clinton, know that it ultimately cannot work as a long-term global development strategy..

On the other hand, the no-growth” perspective of environmentalists will only continue to marginalize and isolate them from public economic debates, preventing them from addressing social issues such as “corporate downsizing” and “unemployment” — the results of economic stagnation in the U.S. and other advanced industrialized nations. Addressing the material and social needs of people North and South is inevitably going to involve an i ncrease in the number and/ or size of economic transactions, i.e. economic growth. Thus, “steady state economics” is a term borrowed from natural systems, and doesn’t, in our opinion, really apply to human historical and social development.

Economic Growth and Sustainable Development

The definition of “sustainable development”, by its very nature, has to be open-ended. The current mode of global economic growth (neoliberalism) shows us what sustainable development is not. Neoliberalism has clearly led to the rapid growth in industrial capacity and the rapid expansions of the middle class populations in many parts of the Third World, particularly in Asia. It has led to a considerable amount of environmental investment, albeit of the “clean up after the fact’ nature, in many parts of the Third World. However, it is still “economic growth for the hundreds of millions”, whereas the world’s population numbers in the billions. Environmentally and economically sustainable development requires a basic change in production methods and not simply “cleaning up after the fact.”

Several things, in our view, can be said about sustainable development. First of all, it has to involve the material betterment of the majority of the world’s population, not simply a numerically large minority. It has to involve non-market means to eliminate global poverty directly and not simply “global trickle down economics” . It has to involve production technologies which are themselves nonpolluting and not simply clean-up after the fact. It has to involve, reforestation, non-polluting solar energy, environmentally viable modernization of subsistence agriculture, rural and urban land reform, and large scale recycling of effluent and waste products. In our opinion, it will turn out to be most economically viable, precisely in those areas of the world that are now the least developed and, thus, not locked into the infrastructures of non-sustainable development. It will have to involve non-private global monetary/fiscal institutions which are accountable and globally democratic.

Anti-Third World Populist Hostility in The West

The problems of global development will not be resolved simply by having rich countries impose environmental, social and human rights conditions on the exports of poor countries. There is simply too much populist anti-Third World hostility in the rich countries. Many Americans, in particular, see the populations of the Third World as a mass of starving wretches who want to “take what we have”, either by violence, such as terrorism, or by unfair, predatory trade practices. To take an example, in early 1993, the historian Paul Kennedy published a book entitled Preparing for the 21th Century. The major premise of the book was that if the West did not help the Third World achieve sustainable development, the West itself would be overwhelmed by the Third World’s problems. In response to this appeal, Robert Kaplan wrote an article in the Atlantic Monthly entitled “The Coming Anarchy”, in which he predicted the social, economic and environmental collapse of the Third World, but asserted that the West could protect itself from this collapse by adopting the “fortress strategy” suggested by the right-wing Israeli military analyst, Martin Van Creveldt. .

Unfortunately, Mr. Kaplan’s scenarios of collapse and chaos in large parts of the non-Western world cannot entirely be ruled out. However, his predictions that such catastrophes will not endanger the West are, not only crazy, but actually dangerous. Why? Because there are all too many Americans who, equally threatened by Third World poverty and Third World prosperity (non-whites with money), would love to see the entire Third World collapse into Rwandan-style chaos. Mr. Kaplan ( like the American isolationists in the 30’s) assures them that they will not be personally endangered by such a catastrophe…

Therefore, decisions which put environmental, human and labor rights into trade agreements cannot possibly be left to the dictates of the populations of the developed world. International, democratic, and globally democratic, economic and financial institutions are an absolute necessity to any rational discussion of human rights, labor rights, social rights, environmental issues and economic justice

Misguided Attempts to Circumvent Anti-Third World Populism.

Early in 1983, Reagan’s secretary of agriculture, Bill Brock, said, “There’s a lot of Third World out there, and we are just beginning to discover how important it is to our own well being.” The Reagan administration, while it agreed privately with this insight, was not terribly anxious to share it with the American public, ( which was still in a Third World bashing mood after the oil price hikes and Iranian hostage taking of the late 70’s.)

During the Reagan and Bush period, therefore, Americans were given the impression that, aside from oil, the developing world was sort of “marginal” to American well being. It was assumed that the “rich man’s club” (America, Europe and Japan) was the global “engine of growth”, which could, in turn, “pull up” the non-Western world. The non-Western world, for its part, had to “behave itself”, open its markets, privatize its economy, welcome Western capital investments, tone down its “Third World rhetoric” and make nice with Israel. And, if it didn’t, well then, who cared, “we” didn’t need “them” anyway.

In 1990, however (fearful of competition from a newly capitalist Eastern-bloc), the Third World began to “behave itself”. At that point, the official American line on the Third World, did a complete about-face. The Third World went from being a “problem”, a “mess”, a “threat”, a “side issue”, to being “the future”, to being an unstoppable locomotive of economic growth that the U.S. had to board or be left behind. Clinton “talked up” Third World growth and played down problems and barriers to Third World development. An officially sanctioned “love affair” began between international capital and large sectors of the developing world, a love affair between the strong and the weak, fraught with anxiety and abuse. As an Argentinian director of tourism, Hector Sabato, put it. “The old theme of the invading Yankees gave way to the wonderful Yankees driving the global train that you’d better board immediately or your finished.” (NYT 2/7/98). Or as William Greider (author of One World Ready or Not) put it, even many of the exploited in the developing world were “seduced’ by the “faustian bargain” of capitalist development through globalization.

In any case, the “child” of this love affair is the current international political and economic crisis, in which much of the world economy is turned into a giant “global distress sale”, the proceeds of which go to finance America’s own rapid economic growth.

A Twenty Six Year History of Global “Quick Fixes”

To review the above history in more detail, American global economic policy from 1982 to the present can be divided into three periods; (1) a period of debt-led growth from 1982 to 1985, in which the U.S. deliberately ran large trade and budget deficits in order to stabilize the world economy by becoming what David Hale of Kemper Financial Services called “a consumer and borrower of last resort”; (2) a period from 1985 to 1990, in which the U.S. pressured other industrialized countries to liberalize their financial systems and stimulate their economies in order to help the U.S. work off the trade deficit caused by the first period above. This period ended with a Japanese financial collapse and a deep European recession. (3)The period from 1991 characterized by the US promotion of the neoliberal model of growth in which the developing world underwent a rapid process of financial liberalization and economic privatization, attracting large amounts of private capital, enabling it to become a growing market for American exports even as it kept American inflation down by low-wage exports to the American economy. This period produced seven years of non-inflationary growth for the US economy which allowed it to work down its trade and budget deficits (at everyone else’s expense).

More precisely, from 1985 to the present, the US has been imposing a series of unsustainable economic and financial bubbles on various regions of the world successively (first Japan and Europe, then Asia, then Latin America, then China, etc.) in order to satisfy its insatiable demand for exports. Countries and regions have been overwhelmed by floods of outside capital, which they had neither the social nor economic institutions to deal with. A more viable policy would be the promotion of economic growth in more areas of the world simultaneously, but at a slower and more sustainable pace. Africa and the Arab world should not be written off as “basket cases” to be left to the dictates of a fickle global financial market.

As of this writing, policy makers are urging Japan to become the “locomotive” for Asia. Poor people in Asia are being asked to reduce their consumption, even as rich people in Japan are being asked to increase theirs. It seems that we’re back to ”Western-led growth” again. However, the only real “locomotive” for global and American economic growth, the only “locomotive” that doesn’t turn out to be a “bubble” is the alleviation of Third World poverty and the promotion of Third World sustainable development.

Advice to Policy Makers

Therefore, it is extremely important for progressives, such as yourself, whose “heart is in the right place”, to articulate the following points loudly and clearly:

●          Successful Third World development is vital not only to the economic well being, but also to the national security of America;

●          Insertion of environmental, labor and human rights conditions into trade agreements has to be accompanied by direct, massive Western assistance to eliminate global poverty. A transfer of wealth from “Third World elites” to “Third World masses” (however necessary) is, by itself, not going to do the job;

●          Western assistance is a necessity, but is, by no means, sufficient. It also has to be accompanied by Third World reforms at both the national and local levels. Thus, the future well being of the Western populations is not entirely in the hands of the West;

●          The “right to development and subsistence” is also a basic human right, in addition to the rights of free speech, gender equality, etc.;

Conclusions

An American egalitarianism, which stops at the water’s edge, is as meaningless as it is regressive. Statements such as “we must solve our problems, before we solve their problems”, or “we must solve problems here, before solving them there” are childish nonsense. In today’s world, everyone is “we”, and everywhere is ‘here”.

The belief that “de-globalization” and return to “national economies” will solve our economic problems, and be “good for the Third World too”, is pious wishful thinking.

Here are some of the arguments supporting this “pious wishful thinking”: The nearer production decisions are made to local communities, the more the needs of local consumers, workers and natural environment are taken into account. Decisions taken by investors in distant capitals cannot possibly serve the needs of the people in local communities.. Local production and investment mean local accountability, “local capital is good, global capital is bad” and, so on and so forth.

The problem with these arguments is this: It would take the power of a “global government” to turn “global capital” into “local capital”. Why? Because cross border flows of capital and goods would have to be continuously and minutely monitored and suppressed, and such activities could only be carried out by a global government .

Now, observe how difficult it is to do such things with illegal drugs and illegal drug capital. Imagine how difficult it would be to do them with all goods and all capital. It would take the powers of an immensely powerful world government. Peoples lives would no longer be determined by distant global corporations, but by distant global bureaucracies, and the problems of globalization would remain. And if global capital were to be abolished by a massive breakdown in the global capitalist system, as in the 1914-1945 period, well then look at what happened in the 1914 – 1945 period, and imagine what would happen now.

All too much of the debate about trade policy on the part of liberals and labor seems to reflect a desire to “make the rest of the world go away”. However, the problems of the rest of the world have to be solved, if America’s problems are to be solved, and this is going to require (among other things) global markets, global business, and (yes) global regulation and governance (including global fiscal stimulus and global North-South redistribution). To be sure, global solutions risk global screw-ups, markets can crash, markets can breach global environmental limits, markets are unfair. Governments, on the other hand, can oppress, they can ossify, they can make mistakes (and global governments can make them on a global scale), they can become ineffectual, they lack “feed back” mechanisms, and so on.

But the fact is that human beings, who are, after all, not social insects and thus have no instinct for collective organization, have nonetheless organized themselves into ever more complex, and ever more populous societies, at an ever increasing rate. The nature of this organization, the way it takes place, is very complicated, very convoluted, and ultimately very mysterious. It is certainly not any of that “elaborate, self-adaptive complexity arising from simple market laws” nonsense you might read about in some business magazine or other. It is, in fact, the central dilemma of human existence, a dilemma which is not about to go away now. And the world’s problems, if they are solved at all, are not going to be solved by making them out to be simpler than they are.

It is imperative that progressives and labor frame global alternatives to neoliberalism, global alternatives which stress the needs of the world’s poor. Otherwise, when neoliberalism really gets into trouble, as it will, the field will be left open to right wing extremists of all types; paramilitary groups, white separatists, right wing religious zealots, neo-fascists, hate-mongers like David Duke and chaos-mongers like Robert Kaplan. At that point, the stability of the United States itself might be thrown into question.

It might seem paradoxical that those Americans who are themselves struggling to make a living should be called upon to advance the cause of global North-South equity, sustainable development, and global poverty alleviation. But if they don’t do it, then who will? Rich business executives? Academics with cushy tenured positions? Employees of prestigious well-heeled foundations? Such people, no matter how knowledgeable they are, are too comfortable and complacent to understand the main problem with the world economy (global poverty). People on top can rarely diagnose adequately the flaws of a system which put them on top. As economist Albert Fishlow says, “the old rules (of the global capitalist system) don’t work and the new ones haven’t been written yet.” (New York Times, 1/15/98). It’s up to progressives in all countries to write those rules after the ball is taken away from the blind and destructive neoliberals and neoconservatives.. .

L. Feiner and R. Melson

NOTES

MORE:

Feb 7, 2008 … CAMBRIDGE FORECAST GROUP.

BOOK: ‘World Economy/Big Prediction’.

(Kappa Publishing. Kobunsha, Tokyo, from 1984)

http://cambridgeforecast.org/blog2/2008/02/07/cambridge-forecast-group-book-world-economy/

 

CAMBRIDGE FORECAST GROUP: OVERVIEW

September 22, 2008 on 5:21 pm | In Books, Economics, Financial, Globalization, History, Middle East, Research, Science & Technology, Third World, USA, World-System | No Comments

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CAMBRIDGE FORECAST GROUP

Analyzing globalization, the Middle East & the world-system

CFG Intro

About CFG

CFG Today

CFG Tomorrow

Home

Middle East

Globalization

Economic Data

Background Essays

Blogs

The West & the Third World

Muslims & Jews in the World-System

Economic & Corporate Data

CAMBRIDGE FORECAST GROUP

CAMBRIDGE FORECAST GROUP: WORLD ECONOMY BIG

PREDICTION BOOK

Unsustainable Patterns of World Economic Growth

FINANCIAL BUBBLES AND UNSUSTAINABLE PATTERNS OF WORLD ECONOMIC GROWTH

Globalization The Middle East and The World-System:

GLOBALIZATION AS A TRAFFIC JAM OF THREE

SUBWORLDS

GLOBALIZATION DEEP STRUCTURE

GLOBALIZATION AS THREE GEARS

Analyzing globalization, the Middle East & the world-system

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CFG INTRO: MAIN WEBSITE COPY

September 24, 2013 on 1:35 pm | In History | Comments Off on CFG INTRO: MAIN WEBSITE COPY

CFG was founded in the late 1970’s.

The two co-founders were Lawrence (“Lance”) Feiner of New York City and Richard Melson of Cambridge, Massachusetts.

The basic standpoint of CFG from 1979-2013 is that the world system – the dollars, guns, doctrines and deceptions that govern our world – is groping its way towards a new world economy whose engine will be Third World development and not American/Western consumption.

A Tokyo office was established in 1982.

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See some sample Japanese CFG books shown below:

The 1973-2013 structural crisis is basically a kind of world-economy “traffic jam” where the three players, the West, OPEC, and the non-oil Third World (India, China, Brazil and so on) need to “re-link” and travel down the highway of Third World development. The stagflation of the 1970’s was an “historical hint” that the old traffic pattern, driven by American/Western consumption, was dysfunctional and blocked. This blockage “caused” the oil shocks.

Politics from 1973-2013 has been an American/G8 set of moves designed to buy time, and wait for a technical “deus ex machina” to bypass the traffic tie up.

This is partly why the 1990’s were so feverish: they promised a technological “leapfrog” via computers, nanotechnology, desktop fusion, genomics, robotics,  and so on. CFG interprets this as a kind of Western wishful thinking or escapism.

These dimensions and this “traffic pattern in the global political economy” are explained in many CFG books, such as the one shown below:

Cambridge Forecast Reports:Newsletters & Forecasts

In June 1979, in our first CFG newsletter, Cambridge Forecast Reports, we forecast the industrialization of the Third World – the phenomenon now visible in China, India, Brazil, etc. – as the future driver of the world economy. See below, “Long Term Forecast” for verbatim predictions made in June, 1979.

http://WWW.CAMBRIDGEFORECAST.ORG

© 1997-2008 Cambridge Forecast Group

Last Updated January 2013

CFG TOMORROW: MAIN WEBSITE COPY

September 24, 2013 on 1:33 pm | In History | Comments Off on CFG TOMORROW: MAIN WEBSITE COPY

CFG Tomorow: Thinking About the Future January 2006

We have seen in “CFG Intro,” “About CFG,” and “CFG Today”, as shown on our home page, that the world system is “stumbling” towards a world economy driven by Third World development and not American-lead Western consumption.

The world is of course not a person or living thing and cannot “stumble” in a normal sense, since the world has a body politic but not a body.

By “stumble” we mean that the “actors” in the world are themselves only dimly aware of where they are and what they are presiding over and many of them—we call this Zionomics and Judeocentrism—hope to achieve the exact opposite of what we predict, which is precisely why Iraq came to be invaded.

This is of course a case of “unintended consequences” on a macrohistorical scale.

We predict that current American elites will ultimately “go with the money” and that the current Iraq bloodshed will be retrospectively understood as an adolescent American tantrum and rampage and that at the end of this military mayhem, America will “jump ship” and begin to leave Judeocentrism and Zionomics on the backburner and get into what might be called “developmentalism,” whether overtly or covertly or both.

Bush militarism is a kind of developmental militarism which is ultimately not anti-developmental. Anti-developmentalism is fundamentally the neo-con/Israel agenda. The Bush bloodshed is itself a kind of mask or camouflage which hides a globalist agenda underneath the bullying and domination theatrics.

The arc of the Paul Wolfowitz career, from leading neo-con theoretician to the World Bank, encapsulates this evolution.

The Japanese call this kind of political syndrome,“same bed, different dreams.”

We are not implying any of the following theories:

  1. “the long run always wins in the end”(in the way that the great French historian Fernand Braudel (1902–1985) argues in such classic works as his “Mediterranean,” Volume II.
  2. the world finds a way to go from sub-optimal pathways to optimal ones…ie the world is a “discovery process” that finds a maximal path.
  3. “the great fact to remember is that the trend of civilization itself is forever upward” as Franklin Roosevelt used to say in his 1940’s speeches, including his Fourth Inaugural Address, January 20, 1945.

Developmentalism will involve intensive Western coordination and negotiations with Arabs, Muslims, OPEC and will move Islamic finance and Islamic banking from the periphery of world development policy and practice more towards the center. The BIS (Bank for International Settlements) Basel, for example, is now intensively exploring both Islamic banking and finance and this is a “straw in the wind” that tells you about “tomorrow.”

The IMF quarterly publication, Finance & Development, December 2005, features an article called “Islamic Finance Gears Up,” where we find:

“Islamic finance is developing at a remarkable pace. Since its inception three decades ago, the number of Islamic financial institutions worldwide has risen from one in 1975 to over 300 today in more than 75 countries…Total assets are estimated to exceed $250 billion, and are growing at an estimated 15 percent a year…”

Blocking all such West/Third World “re-linking” is the Palestine problem, which is the microcosm of the world’s current “traffic jam.”

Re-Thinking the World

The purpose of CFG is to rethink the world and hence to rethink “tomorrow.”

CFG sees the world as being in a particular historical crisis we will define as follows:

A historical crisis exists when:

1. the future is suddenly behind you.
2. the past is suddenly ahead of you.

The future was to be high-tech “blasting” the West away from the Third World towards “infinite stock prices” and infinite distance from the non-Western world. (ie. cellphones, etc means the West “flies away” from the rest of the world.)

The past—now ahead of you—is the opposite of this: high-tech will be married to “developmentalism,” whereby the West “flies into” the rest of the world and the world hybridizes. (cellphones, etc actually means more global integration, not less)

Bush-Cheney belligerence is a militaristic tantrum caught between points 1. & 2. above.

“Tomorrow” will ultimately see the rise of a post-Zionist “developmental world,” brought about by American violence, subterfuge, and deception, which are meant to obfuscate what is happening.

The main catalyst and accelerant for this process will involve “taking the ball away” from the Zionist pressure groups by introducing this CFG line of analysis in Washington, London and finally worldwide, ie creatinganalytical and conceptual leadership.”


CFG Mission:

To analyze globalization, the Middle East & the world-system.


The CFG approach to forecasting is explained in more detail at the main website:

WWW.CAMBRIDGEFORECAST.ORG


CFG TODAY: MAIN WEBSITE COPY

September 24, 2013 on 1:29 pm | In CFG, Globalization, History, World-System | Comments Off on CFG TODAY: MAIN WEBSITE COPY

The CFG Perspective Applied to Today:

Professor Martin Feldstein of Harvard is one of the most influential economists in the world and was Reagan’s Council of Economic Advisors chief in the early 1980’s. As head of the NBER (National Bureau of Economic Research, Cambridge Massachusetts), he was instrumental in placing top-level Presidential advisors such as Lawrence Lindsey in 2001 and Gregory Mankiw, who left recently.

When the 1997/8 Asian baht crisis hit, followed by the Russian “GKO” crisis in August ’98, Feldstein was asked by a TV reporter to explain what was happening and he blanched and said, “I don’t really know.” “I have no idea.”

The CFG explanation of why Feldstein could not have known is the following:

Typical of the 1973-2008 structural system-crisis, such as we are in, the complexity of the global economy increases exponentially while the ability to understand the data and architecture grows arithmetically. Thus a gap opens and it gets wider.

Economists like Feldstein use data sets derived from the following sorts of sources:

  1. The Fed Greenbook for real GDP began in 1965.
    Greenbook Data Sets (Updated through the Greenbook Forecast of December 1999)
    Several data sets contain the projections from the Greenbooks of the Federal Reserve Board of Governors.
    The Greenbook is produced before each meeting of the Federal Open Market Committee.
    Using an assumption about monetary policy, the Research staff at the Board of Governors prepares projections about how the economy will fare in the future.
    These projections are made available to the public after a lag of five years.
    See: http://www.phil.frb.org/publicaffairs/index.html Survey of Professional Forecasters began in 1968.

    1. The Philadelphia Fed’s Greenbook data set:
      This data set contains Greenbook projections of real output growth and inflation from the Greenbook closest to the middle of each quarter.
      The data set includes the projections from November 1965 to November 1999.
      This data set will be updated annually, usually in January.
    2. PDF data set from the Board of Governors:
      This data set contains Greenbook projections of all variables for all Greenbooks from July 1966 to December 1999.
      For some variables, the projections are for levels; for other variables, the projections are for growth rates.
      This data set will be updated annually, usually in January.
    3. ASCII data set from the Board of Governors:
      The PDF files above have been converted into ASCII files from January 1978 to June 1998.
      Updating these files is under consideration.
      For more recent forecasts, please see the “PDF data set from the Board of Governors.”

     

  2. The Survey of Professional Forecasters is the oldest quarterly survey of macroeconomic forecasts in the United States.
    It began in 1968 and was conducted by the American Statistical Association and the National Bureau of Economic Research.
    The Federal Reserve Bank of Philadelphia took over the survey in 1990.
  3. DRI forecasts began in 1970.
  4. Blue Chip forecasts began in 1977.
  5. The Wall Street Journal Survey began in 1986
  6. The regional feel for the economy now is given by the Fed “Beige book”
  7. The Livingston Survey
    The Livingston Survey was started in 1946 by the late columnist Joseph Livingston.
    It is the oldest continuous survey of economists’ expectations.
    It summarizes the forecasts of economists from industry, government, banking, and academia.
    The Federal Reserve Bank of Philadelphia took responsibility for the survey in 1990.
    The Livingston Survey’s data base offers the actual releases, documentation, mean and median data of all the respondents as well as the individual responses from each economist.
    The individual responses, which are kept confidential by using identification numbers, are in a separate file, organized by variable.

While a Feldstein is pondering such data, the political response to the crisis is to buy time and see if it goes away or if technological miracles allow a “bypass.” The political response involves: While you buy time, watch the cost-benefit (or cost-benefit-risk) equation evolve and only move when the political benefit “stays home” while the economic costs are “offloaded.” (the weak pay)

The Reagan Republicans were elected to “get rid” of all this “global stuff” And the Bush Republicans, their successors, are terrified by any discussion of who gets what/who pays what on a world scale.

One of the reasons that Zionomics became so prominent in recent decades is that it seemed to offer a “magical means” to avoid Third World development issues by a combination of techno-miracles (such as desktop fusion in 1989) and military bellicosity. (invasions of Iraq, Lebanon, Grenada, etc)


The reader can follow the Reagan-ite (and hence Bush) reactions to the need for Third World development in a book by that name, from 1985, one of the key documents of our time:

Third World Development 3 Volumes – Carim, Enver, editor
London: Grosvenor Press International 1985 676 pp., 217 pp., 248 pp.
3 Volumes: Industrial Development and Agriculture, Health and Education, High Technology and Communications.
Proponents of free trade outline its benefits. Articles by authorities in developing countries and in the West. With illustrations and numerous ads.
ISBN: 094602765X
See CFG: http://www.cambridgeforecast.org/Reports.htm

CFG Comment:

This 1985 book Third World Development, a three-volume encyclopedia of commercially oriented articles on Third World development, published by Grosvenor Press, featured articles by Ronald Reagan, George Schultz and Caspar Weinberger.

These articles stressed free trade, privatization, free market liberalization, and carefully controlled social and agrarian reform, which “avoided chaos and disorder.”

The literature put out by the International Center for Economic Growth, started by Casper Weinberger after he left the administration, gives a good idea of the kind of thinking about Third World development questions that was taking place in the Reagan White House in the mid-80’s.

In fact, we found some (lower level) Reagan appointees to the Agency for International Development and the Department of Commerce quite enthusiastic about promotion of Third World development and the benefits it would have for the U.S. economy.

The Reagan-Bush Republicans are committed to a non-discussion of these topics in terms of public discourse because they are “ideologically frightened” by Third World development and globalization.
The changing relationship between the West and the Third World, which is at the core of the structural system-crisis from 1973-2008, frightens Reagan-Bush Republicans profoundly and the Reagan-Bush “move” is to avoid these topics at all costs . In the meanwhile, conventional Feldstein-type forecasts and econometrics break down since the new system dynamics run faster than the analytics.
They are basically trying to “fudge past” these issues and this led to the adoption of what we call Zionomics: try subjugation as a way of “cutting the Gordian knot.”    See:   http://www.cambridgeforecast.org/aboutcfg2


About The Present:

As of September 2005, one worries about the oil price spike and the potential for a collapsing dollar which would bring us back full circle to the late 1970’s. During the first oil shock, from May 1973 to January 1974, the price of crude rose 325%. During the second, from September 1978 to November 1979, it jumped 213%. During the latest episode, from September 2001 to today (early September, 2005), it has increased by 292%.

The London “Financial Times” of Saturday, September 3, page 6, notes:

“The standard rule of thumb – based on an International Monetary Fund study five years ago – is that a $10 rise in the price of oil knocks 0.5% off global growth annually for the next four years. This study allowed for the fact that developed countries now need less energy to produce a dollar of output than they did in the 1970s.Yet the world economy grew at a record pace last year.One balancing factor was the wealth effect from asset prices. Since January 2003, property prices in the UK and the US have soared, with the US housing market up 26 per cent and still rising. Shares have also powered up …the Federal Reserve and the Bank of England in particular have been able to offset the loss of spending power by setting interest rates lower than they would have been otherwise.But the biggest victims are likely to be the emerging markets and other developing countries that import oil. They no longer benefit from a compensating rise in other commodity prices. Expect jitters in emerging market debt and possible balance of payments crises…in the months ahead.”

CFG Comment:

As we have explained in our books and newsletters going back to 1979, the problem is one of a “traffic jam” involving the West, OPEC, and non-oil Third World. A growth alliance would lead to the new engine of global growth as explained in http://www.cambridgeforecast/aboutcfg2

At the very heart of the impasse is the political blockage caused by the Palestine problem, with Sharon’s “apartheid wall” a global symbol of separation and chaos as opposed to economic integration. Hence the Middle East problem and the neo-con “hold” on Washington is a key factor in maintaining the impasse at the world economy level, with its “traffic jam” pattern. Depicting the world as a “see-saw” – them against us – is the essence of what we call “Zionomics.”

This means that the world as theatre (“all the world’s a stage”) is impeding world policy.

At the deepest level, this is how one must analyze the world of “now,” using September 2005 as a benchmark: a historical traffic jam and not a see-saw.

Finally, one immediately sees from this CFG discussion that the standard American political directions -back to FDR and the New Deal for Democrats or back to Herbert Hoover and pre-New Deal for Republicans – are not “aerodynamic” at all when the world just described is thought of as a global “wind tunnel.”

Two Novel Aspects of the World Seen as a “Global Wind Tunnel”

  1. Islamic Finance could be very key in Third World development since its emphasis on profit-sharing and not “interest-rate slavery” is potentially very “physiologic” for Third World development…it fits perfectly.”Global Finance” magazine, September 2005, reports:
    “Islamic banking is now twenty years old…it is difficult to gauge the exact size of the Islamic banking market, current estimates suggest it is between $270 billion and $500 billion and growing at rates of 15% to 20% a year.”
    (“Global Finance” magazine, Trends column, Islamic Finance article, September 2005, page 19)
    http://www.megaevents.net/wibc 
  2. In the past, housing bubbles were typically confined to one or two countries or areas within them, such as the Florida land boom of the 1920’s. But now unusually low interet rates worldwide have fuelled the first global property boom in history. Property prices have been jumping upwards not only in America but also in Britain, Australia, China, Ireland, France, New Zealand, Spain, South Africa, as well as elsewhere.
    This housing bubble follows the high-tech share price bubble of the 1990’s which popped in April, 2000.
    These two bubbles– in shares and houses– tell you that the West/Third world link is still a maldevelopmental one since the bubble monies and energies should have gone into Third World development. The bubbles are signs and symptoms of “system-blockage” on a world scale.

The classic paper in this area of economics is of course by the Nobel Prize winner, Prof. Robert Lucas of the University of Chicago, “Why Doesn’t Capital Flow from Rich To Poor Countries?” American Economic Review 80 (May): 92-96

Defining Globalization.

Globalization here means economic globalization as seen in the data:

  1. the convergence on a world scale of prices for goods, labor, capital, etc. ie. market integration.
  2. nations enter “convergence clubs” in terms of per capita growth rates.
  3. the spread of industrial fluctuations, manias, panics, crashes, bubbles worldwide, ie. contagion effects such as the 1997/8 Thai-baht-to-Russian-ruble crisis or the contemporary post-2000 “property bubble” discussed above.
  4. the business cycle jumps beyond nations or regions and thus we experience the rise of international business cycles.

Globalization here does not mean the rise of world religions like Christianity or Islam, the original peopling of the world out of Africa, the voyages of Columbus or Magellan or Da Gama, the spread of plants and animals around the world, the rise of Telstar-type satellite-based phone calls in 1962, English becoming a global lingua franca, or the rise of global styles, fashions, and fads in dress, movies, food, hit tunes, or bestseller books like the Harry Potter series.

It also does not mean the pre-1820’s type emergence of the world as a marketplace where one can buy anything, for money, such as described by the Venetian Geminiano Montanari, in the 1680’s:

“Intercourse between nations spans the whole globe to such an extent that one may almost say all the world is but a single city in which a permanent fair comprising all commodities is held, so that by means of money all the things produced by the land, the animals and human industry can be acquired and enjoyed by any person in his own home.”
(Geminiano Montanari, Della Moneta, Trattato Mercantile in Custodi (editor), Scrittori Classici Italiani di Economia Politica Parte Antica, Tomo III, Milan, 1804)

Globalization, 1820-2020:

In other words, CFG focuses on the two modern economic globalization centuries, broadly speaking, from 1820-2020.

The 1820’s represent the “big bang” of modern economic globalization through “CPC,” commodity price convergence in grain markets.

Economic globalization as a process begins as market integration, defined as follow:

“When markets are integrated, price changes produced by supply and demand conditions in one place affect behavior in other places. Standard measures of integration are based on tracking differences in prices for the same commodity or factor (such as capital) across space and time. Where price trends are similar and differences small (or at least constant) markets are said to be integrated.”
(“Measuring National and International Integration,” Latin America and the World Economy Since 1800, edited by John H. Coatsworth and Alan M. Taylor, Harvard University, 1998, paperback edition, page 203)

In this schema from 1820-2020, the period 1914-1945 represents catastrophic collapse into de-globalization.

For a similar view:

“Despite occasional manifestations of disappointment and distrust, the globalization of economic life is now almost taken for granted. Nowhere has this trend been more pervasive than in global financial markets in the past few decades. Capital flows have surged in volume, in both the developed and the developing world, creating new opportunities for economic benefit and difficult challenges for policymakers. The dust has by no means settled.

It may surprise some readers to learn that the paragraph above describes not only 2004 but also 1904 during the era of globalization that spanned the years 1870 to 1914.

The striking parallels between that era and the current era of globalization have been described in many recent studies. These parallels raise a number of questions about the evolution of the global economy in the 19th century, its collapse in 1914, and the rebirth of globalization at the end of the 20th century.”
(“Global Finance:Past and Present,” Finance & Development Quarterly, IMF, Professor Alan M. Taylor, March 2004, page 28.)

CONCLUDING COMMENT:

In our 1979 English-language newsletter, “Cambridge Forecast Report”, we predicted that the longterm future of the world economy would center around the industrial development of the Less Developed Countries, the LDCs.
(You may see the exact wording by going to: http://www.geocities.com/cambridgeforecastgroup Click on Globalization on the left. Read the first essay, “CFG English-language newsletter, 1979”)

We also predicted at that time that the export of developmental services would ultimately be America’s main export.

Conventional forecasting of the Martin Feldstein/NBER-type has broken down since the world is in uncharted waters and therefore the “charts” and extrapolations based on those charts, representing conventional forecasting, no matter how econometrically intricate and ingenious, could not possibly work. The English economist Pigou once called this problem, the “defective telescopic faculty” problem, a kind of myopia.

As we said in http://www.cambridgeforecast.org/aboutcfg2, the world economy has been in a structural system-crisis since the oil shocks of the seventies. These oil shocks are not the cause of the crisis but a consequence of it.

Globalization “wants” a Third World development engine and all attempts to bypass this need, or attempts to go back to FDR (Democrats) or go back to Herbert Hoover (Republicans) represent misunderstandings of the nature of the historical crossroads. Technical change is not going to “blast” the West away from Third World development but into it.

Thus the key is a relinking between and among:

  1. The West (OECD)
  2. OPEC.
  3. Non-oil Third World (such as China, India, Brazil)

In the realm of ecology, say, this trilateral relinking would give policy-makers a growth-oriented basis for dealing with the leading carbon dioxide/climate change forecasts now in hand, such as those created by Prof. Daniel Schrag of Harvard:

“Scientists have seen the levels of carbon dioxide in the Earth’s atmosphere rise over the past few decades, from a level of about 315 parts per million in 1955 to about 390 ppm today.

Projections show a “best-case” scenario of carbon dioxide levels topping out at about 500 ppm…by 2100.

The worst-case scenario couples today’s energy use patterns with rapid economic growth in large developing nations like India and China and would result in carbon dioxide levels as high as 1,000 ppm.

China is set to surpass the United States as the world’s largest carbon dioxide emitter in the near future…”
(“Climate Choices: Grim and Grimmer,” Harvard News Office, “Harvard University Gazette,” October 6, 2005, page 9. See http://www.geocities.com/cambridgeforecastgroup Click on Middle East on the left. Read essay 86. CLIMATE CHANGE CARBON PPM: DANIEL SCHRAG, “HU GAZETTE”)

Such trilateral relinking allows not only the resolution of world economy/world finance “traffic jams” but other sticking points in world politics as well, such as climate change.

The American fusion of the “neoliberal” (ie Reagan-Thatcher) brand of globalization (anti-social versions of “government is the problem”) with “Zionomics” (subjugate the Third World by neocon-inspired hyperviolence, starting with Iraq) has of course provoked many kinds of de-globalization tendencies. This is pictured below:


CFG Mission:

To analyze globalization, the Middle East & the world-system.


The CFG approach to forecasting is explained in more detail at the main website:

WWW.CAMBRIDGEFORECAST.ORG


ABOUT CFG

September 24, 2013 on 1:27 pm | In CFG, History, World-System | Comments Off on ABOUT CFG

About CFG (Cambridge Forecast Group):

In a structural system-crisis, such as we are now in, the usual diagnoses and forecasts are useless since a structural system-crisis means that the textbooks and experts are suddenly all wrong.

This is true for the entire 1973-2008 period.

The purpose of CFG is to explain this structural system-crisis and introduce a unique kind of forecasting based on long-term historical trends.

Economic globalization, for example, first shows up in the data in the 1820’s with “commodity price convergence.” This historical process combines with other processes such as industrialization and the polarization of the world into West and Third World, to give us the scaffolding of the world we are in.

At the heart of these trends, today, is the changing relationship between the West and the Third World.

This changing relationship and the globalization story are driving each other.

This changing relationship is clearly visible from economic data, as new global patterns emerge:

“As in the nineteenth century data, there appears to be a clear connection between interest rate volatility and economic recessions, at least for the recessions of 1973-1975, 1980, and 1981-82…Nor is this pattern unique to the United States. For example, domestic interest rate spikes preceded the strong economic downturns in Mexico in 1994, Brazil and Argentina in 1995, and Korea and the Philippines in 1997, each of which had important similarities with the financial crises seen repeatedly in the United States in the nineteenth century.”
(from: Professor James Hamilton, Federal Reserve Bank of St. Louis, Review, July/August 2005, Volume 87, Number 4, pages 448-449.)

Furthermore, “stagflation” in the US in the 1970’s cannot be analyzed in the manner of Profs. Paul Samuelson and Morris Adelman of MIT as lineal consequences of the two oil shocks of ’73 and ’78/’79 since the oil shocks themselves are part of this West/Third World “double helix.”

The oil shocks and the stagflation, the gyrations in the dollar and energy prices, trade and budget imbalances, Third World currency and debt crises, are causes and effects that lie along both sides of a global Moebius strip, as pictured on the left, and cannot be isolated in a static fashion. The oil shocks are at the deepest level not the cause of the crisis but a consequence of it. This is true for the entire crisis period, 1973-2005.

CFG calls such Samuelson and Adelman-type anti-Third World explanations of change “Zionomics” since they reflect, at the deepest level, the rise of an acute Zionist anti-Third World antagonism.

The world-famous Egyptian economist Samir Amin analyzes the world-system as a systematic political economy “trap” for the Third World and advocates de-linking by the Third World, while the neo-cons, theoreticians of the Zionist anti-Third World antagonism, also advocate de-linking, but by the West, for exactly obverse reasons.

Sharon’s “apartheid wall” in Palestine is the ultimate global symbol of violent de-linking today.

CFG is the analytical headquarters of re-linking. Re-linking analyzes and predicts a new relationship between the West and the Third World. It will be this new relationship which will give the world economy a new engine. This engine began to fail in the 1970’s and it is this engine-failure that caused the stagflation of that decade as well as subsequent global imbalances through 2005.

Among these “subsequent global imbalances” is the massive US current account deficit. Commenting on the 2005 US current account deficit, the famous Berkeley macroeconomist Maurice Obstfeld says of this particular global imbalance:

“In absolute terms, of course, the deficit is the biggest ever seen in world history, absorbing a full-three quarters of the world’s available external surpluses – including those of China, Japan, Germany, Norway, and Switzerland.”
(from: Professor Maurice Obstfeld, America’s Deficit, the World’s Problem, Bank of Japan, Institute for Monetary and Economic Studies, Discussion Paper Series, July 2005, page 1)

The CFG perspective is that such global imbalances are themselves caused by deeper “plate tectonics” which will lead to “seismic shifts.” A reviewer of some of our Japanese-language CFG books from the 1980’s says of our analyses of these tectonics and seismic shifts:

“As in their previous work, ‘World Economy/Big Prediction’ (Kappa Publishing from 1984), the authors base their long term view on the assumption that modernization of the developing world will be the engine of world economic growth in the future.”
(for the full review and our forecasts from as far back as the 1980’s, see: http://www.cambridgeforecast.org/review.htm)


Thus CFG analysis links together:
1. global imbalances
2. the deeper tectonics that cause them
3. expected seismic shifts via West/Third World re-linking, and this leads us to forecast anew:
4. “the modernization of the developing world will be the engine of world economic growth in the future.”

 

Demographic trends reinforce these links and forecasts, as the June 2005 UN “Population Newsletter” shows:

“The population of the world stands at 6.5 billion today, an increase of 380 million since 2000. Despite declining fertility, world population is projected to grow to 9.1 billion by mid-century. While population at the global level continues to increase, that of the more developed regions as a whole is barely changing – virtually all population growth is occurring in the less developed regions.”
(UN “Population Newsletter,” Number 79, “World Population Prospects,” page 1, June 2005)


CFG Approach:

The four pictures you see below give you a “flow chart” of the CFG approach:

     

1. you examine the world with long-term historical trends in mind. (the eye looking for intelligence)
2. you ask how the changes affect the world-system (the gears meshing)
3. you map these changes into the Middle East since the Israel/Palestine problem is the hinge political problem of this era.
4. you triangulate into the future and get a sense of the pathways to the year 2016. (the medium-term future)

In other words, CFG uses a completely novel forecasting technology based on the process of West/Third World re-linking, with the Middle East as key “theatre.”


CFG Mission:

To analyze globalization, the Middle East & the world-system.

To explain relevant newspaper stories.


CFG Perspective On Newspapers:

“The front page of every newspaper contains a large-scale report of world-history as a whole; a few pages later, the reader finds stories reported which are small, less remote from everyday life, such as news of the social life of the city. And finally, in a corner stands the daily weather report.

Anyone who has not become dulled through habitual reading of the paper will have to ask the following question: What do these three “spheres of life” have in common, large-scale world history, the small events of daily life, and nature…?

The simple fact that man must live in the midst of nature, his environment, and world-history, determines the way we must approach the events of the world”

“From Hegel to Nietzsche” by Karl Loewith, 1967 paperback, Doubleday Anchor Books, page 212.



The CFG approach to forecasting is explained in more detail at the main website:

WWW.CAMBRIDGEFORECAST.ORG


CAMBRIDGE FORECAST GROUP: MAIN WEBSITE

September 24, 2013 on 1:24 pm | In Blogroll, CFG, World-System | Comments Off on CAMBRIDGE FORECAST GROUP: MAIN WEBSITE

CONTENTS:


Home

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Globalization

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WILLIAM STANLEY JEVONS BOOK: “MONEY AND THE MECHANISM OF EXCHANGE” 1875

August 10, 2013 on 11:43 pm | In Books, Economics, Financial, History, United Kingdom | Comments Off on WILLIAM STANLEY JEVONS BOOK: “MONEY AND THE MECHANISM OF EXCHANGE” 1875

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Money and the Mechanism of

Exchange

Jevons, William Stanley (1835-1882)

Preface

In preparing this volume, I have attempted to write a descriptive essay on the past and present monetary systems of the world, the materials employed to make money, the regulations under which the coins are struck and issued, the natural laws which govern their circulation, the several modes in which they may be replaced by the use of paper documents, and finally, the method in which the use of money is immensely economized by the cheque and clearing system now being extended and perfected.

This is not a book upon the currency question, as that question is so often discussed in England. I have only a little to say about the Bank Charter Act, and upon that, and other mysteries of the money market, I refer my readers to the admirable essay of Mr. Bagehot on “Lombard Street,” to which this book may perhaps serve as an introduction.

There is much to be learnt about money before entering upon those abstruse questions, which barely admit of decided answers. In studying a language, we begin with the grammar before we try to read or write. In mathematics, we practice ourselves in simple arithmetic before we proceed to the subtleties of algebra and the differential calculus. But it is the grave misfortune of the moral and political sciences, as well shown by Mr. Herbert Spencer, in his “Study of Sociology,” that they are continually discussed by those who have never laboured at the elementary grammar or the simple arithmetic of the subject. Hence the extraordinary schemes and fallacies every now and then put forth.

Currency is to the science of economy what the squaring of the circle is to geometry, or perpetual motion to mechanics. If there were a writer on Currency possessing some of the humour and learning of the late Professor De Morgan, he could easily produce a Budget of Currency Paradoxes more than rivalling De Morgan’s Circle-Squaring Paradoxes. There are men who spend their time and fortunes in endeavouring to convince a dull world that poverty can be abolished by the issue of printed bits of paper. I know one gentleman who holds that exchequer bills are the panacea for the evils of humanity. Other philanthropists wish to make us all rich by coining the national debt, or coining the lands of the country, or coining everything. Another class of persons have long been indignant that, in this age of free trade, the Mint price of gold should still remain arbitrarily fixed by statute. A member of Parliament lately discovered a new grievance, and made his reputation by agitating against the oppressive restrictions on the coinage of silver at the Mint. No wonder so many people are paupers when there is a deficiency of shillings and sixpences, and when the amount merely of the rates and taxes paid in a year exceeds the whole sum of money circulating in the kingdom.

The subject of money as a whole is a very extensive one, and the literature of it would fill a very great library. Many changes are now taking place in the currencies of the world, and important inquiries have been lately instituted concerning the best mode of constituting the circulating medium. The information on the subject stored up in evidence given before Government Commissions, in reports of International Conferences, or in researches and writings of private individuals, is quite appalling in extent. It has been my purpose to extract from this mass of literature just such facts as seem to be generally interesting and useful in enabling the public to come to some conclusion upon many currency questions which press for solution. Shall we count in pounds, or dollars, or francs, or marks? Shall we have gold or silver, or gold and silver, as the measure of value? Shall we employ a paper currency or a metallic one? How long shall we in England allow our gold coinage to degenerate in weight? Shall we recoin it at the expense of the State or of the unlucky individuals who happen to hold light sovereigns?

In America the questions are still more important and pressing, involving the return to specie payments, the future regulation of the paper currency, its partial replacement by coin, and the exact size and character of the American dollar, regarded in relation to international currency. Germany is in the midst of a great, and probably a sound and successful, reorganization of the currency, both metallic and paper. In France the great debate upon the double versus the single standard is hardly yet terminated, and active measures are being taken to place the paper issues on a convertible basis. Among the other countries of Europe—Italy, Austria, Holland, Belgium, Switzerland, the Scandinavian kingdoms and Russia—there is hardly one which is not at present reforming its currency, or has lately done so, or is discussing the proper method of attempting the task. As regards all such changes, we should remember that in the present we are ever moulding the future, and that a world-wide system of international money, though it may seem impracticable at the moment, is an object at which all those should aim who wish to leave the world better than they found it.

I wish to acknowledge the assistance which I have derived from the works of Mr. Seyd, especially his treatise on “Bullion and the Foreign Exchanges,” from Professor Sumner’s “History of the American Currency,” M. Chevalier’s work “La Monnaie,” M. Wolowski’s various important publications upon money, and many valuable articles in the Journal des Economistes. I must express my thanks to many bankers and gentlemen for information and assistance kindly rendered to me, especially to Mr. John Mills, Mr. T. R. Wilkinson, Mr. Roberts, the chemist of the Royal Mint, and Mr. E. Helm.

I should also like to take this opportunity of thanking those gentlemen who have from time to time sent me documents and publications bearing upon the subject of money, which have proved very valuable. I may mention especially a series of reports and documents concerning the American mint and currency received through the kindness of the Director of the Mint, and of Mr. Walker and Mr. E. Dubois.

I am much indebted to Mr. W. H. Brewer, M.A., for carefully reading the whole of the proofs, and to Professor T. E. Cliffe Leslie, Mr. R. H. Inglis Palgrave, and Mr. Frederick Hendriks for examining particular portions.

May 31st, 1875.

William Stanley Jevons

Money and the Mechanism of Exchange [1875]

Author: William Stanley Jevons

Jevons’s formative 1875 classic work came into print at the height of interest in gold, silver, and international monetary standards. Refreshingly written, widely quoted, and authoritatively researched, the book begins with the origins of money and works its way through to international banking and credit. Of particular interest are the clear discussions of Gresham’s Law (Ch. VIII), competitively supplied money (Ch. VII), and fractional-reserve- and Free-banking (Ch. XVII-XVIII and XXIV). Also: If you think the only reason to not use coins worth their weight in precious metal is their weight, I recommend Chapter X for an excellent reminder of additional drawbacks. Jevons is best known for his work on marginal utility, which he describes with customary succinctness in the book. His interest in the way the forces of the market evolve toward an equilibrium without (and often in opposition to) government influence runs throughout the book.

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CAMBRIDGE FORECAST GROUP INTRODUCTION

July 22, 2013 on 2:36 pm | In Books, CFG, Globalization, History, Third World, USA, World-System | Comments Off on CAMBRIDGE FORECAST GROUP INTRODUCTION

 CAMBRIDGE FORECAST GROUP

CFG History

CFG was founded in the late 1970’s.

The two co-founders were Lawrence (“Lance”) Feiner of New York City and Richard Melson of Cambridge, Massachusetts.

The basic standpoint of CFG from 1979-2013 is that the world system – the dollars, guns, doctrines and deceptions that govern our world – is groping its way towards a new world economy whose engine will be Third World development and not American/Western consumption.

A Tokyo office was established in 1982.

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See some sample Japanese CFG books shown below:

 

The 1973-2013 structural crisis is basically a kind of world-economy “traffic jam” where the three players, the West, OPEC,
and the non-oil Third World (India, China, Brazil and so on) need to “re-link”
and travel down the highway of Third World development. The
stagflation of the 1970’s was an “historical hint” that the old traffic pattern,
driven by American/Western consumption, was dysfunctional and blocked. This blockage
“caused” the oil shocks.

Politics from 1973-2013 has been an American/G8 set of moves designed to
buy time, and wait for a technical “deus ex machina” to bypass the traffic tie
up.

This is partly why the 1990’s were so feverish: they promised a technological “leapfrog” via computers, nanotechnology,
desktop fusion, genomics, robotics,  and so on. CFG interprets this as a kind of
Western wishful thinking or escapism.

 

These dimensions and this “traffic pattern in the
global political economy” are explained in many CFG books, such as the one shown
below:

Cambridge Forecast Reports:Newsletters & Forecasts

In June 1979, in our first CFG newsletter, Cambridge Forecast Reports, we forecast the industrialization of the Third World – the phenomenon now visible in China, India, Brazil, etc. – as the future driver of the world economy. See below, “Long Term Forecast” for verbatim predictions made in June, 1979.

 

http://WWW.CAMBRIDGEFORECAST.ORG

 

© 1997-2008 Cambridge Forecast Group

 

Last Updated January 2013

 

 

“THE MAKING OF THE MODERN WORLD” SERIES:

July 15, 2013 on 8:01 am | In Books, Economics, Globalization, History, Research, World-System | Comments Off on “THE MAKING OF THE MODERN WORLD” SERIES:

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 ALAN MACFARLANE EBOOK SERIES:

http://www.alanmacfarlane.com/FILES/ebooks.html

In response to comments on the cost and short life of published books, I am reproducing some of my writings as eBooks. These are not direct copies of the original book but have been edited, sometimes as a result of comments by readers and sometimes because my own thoughts have changed. They are produced as PDF for which you will need Adobe Reader.

 ALAN MACFARLANE EBOOK SERIES:

Yukichi Fukuzawa and the Making of the Modern World (Published originally in ‘Making of the Modern World’, Palgrave 2002)

F.W. Maitland and the Making of the Modern World (Published originally in ‘Making of the Modern World’, Palgrave 2002)

Baron de Montesquieu and the Making of the Modern World (Published originally in ‘Riddle of the Modern World’, Macmillan 2000)

Adam Smith and the Making of the Modern World (Published originally in ‘Riddle of the Modern World’, Macmillan 2000)

Alexis de Tocqueville and the Making of the Modern World (Published originally in ‘Riddle of the Modern World’, Macmillan 2000)

Thomas Malthus and the Making of the Modern World (Ebook only)

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CAMBRIDGE FORECAST GROUP: JULY 2013 UPDATE ON PERSPECTIVE

July 3, 2013 on 1:27 pm | In Books, CFG, Development, Economics, Financial, Globalization, History, Third World, World-System | Comments Off on CAMBRIDGE FORECAST GROUP: JULY 2013 UPDATE ON PERSPECTIVE

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CFG Update:

The Limits of Global Reaganomics and the Need for Global Pro-Third World Economic Institutions.

In our 1984 book “World Economy/Big Prediction” we predicted that barring some really revolutionary new technology of physical production (a la “cold fusion”), the future long-term engine of growth for the world economy would have to be modernization of the less developed countries. In making this prediction we used our observations on technology and the Solow economic growth model. The problem is that, despite the impressive growth in some Third World countries, the global institutions to facilitate this growth have not developed.

(For Cambridge Forecast Group book “World Economy/Big Prediction” from 1984 as mentioned above)

See:

http://cambridgeforecast.wordpress.com/2008/02/07/cambridge-forecast-group-book-world-economy/

Basically, the current problems with the world economy, trade tensions, bubbles, cash crises, debt crises, etc. are caused by two global failures, (1) the failure to create a pro-Third World global fiscality that can stimulate Third World economies directly, (2) the failure of global urban and rural land reform in the developing world and the subsequent failure to expand the South’s internal market enough forcing them to rely on exports to the West.

To flesh out this point, let’s look at an updated history of the last 40 years. (the cfg book was written in 1992/1993) In the 1970’s, after the ’73 oil price rise by OPEC the patterns of world growth were as follows: OPEC‘s enormous petrodollar surpluses were deposited in the money-center banks and the loaned out short-term to Third World countries on the theory that sovereign governments wouldn‘t default. This together with the commodity price boom kept Third World markets opened. The developed countries had recovered from the recession of the early 70’s and America’s budget deficit was small compared with what it was later to become. The problem was dollar inflation which had cooled down considerably rose dramatically after the second oil price rise.

US policy now faced a dilemma. If it slammed on the monetary breaks it would make Third World debt unpayable and endanger the money-center banks. If it let the dollar inflation soar into double digit levels it would endanger the world economy. At the IMF meeting in Belgrade in the autumn of 1979, a solution was proposed. OPEC would use its petrodollar surpluses to convert short term Third World debt into long-term (lower payment) debt. This would sop up excess petrodollars and keep inflation down and also would keep Third World markets for Western products open. The hangup was the Saudi insistence that the PLO be given observer status at the IMF and that the US recognize the PLO. This was too politically controversial, so then Sec’y of the Treasury Paul Volcker flew back from Belgrade and slammed on the monetary breaks causing the Third World debt crisis to worsen.

Discussion of Western/OPEC cooperation continued until finally the Israeli invasion of Lebanon put the kibosh on it. The Reagan administration adopted a policy of drastic tax cuts, vastly increased military spending , running a huge budget deficit and trade deficit. In other words, the US became the borrower, consumer and importer of last resort (in the words of David Hale of Kemper Financial Securities) hopefully giving the Third World countries, which undergoing austerity, someplace to export to. By the mid-eighties this policy ran into the roadblock of rising protectionist sentiment in the US.

It was at this point that the “Reagan revolution” came up with the concept that was to dominate global development strategy. In order to explain this concept, it is important to observe that the “Reagan revolution” was not so much a revolution as it was a continuation and intensification of long-standing U.S. policy towards global economic growth. Since 1945, the US had historically run budget and trade deficits in order to act as “an engine of growth” for the rest of the world economy. The Reagan debt-led model of growth simply put this strategy into “full throttle” by an “order of magnitude” increase in the U.S. budget and trade deficits, and, in order to ward off inflation, financed the deficits by debt creation rather than by monetary creation.

The Reagan debt-led model of global growth, however unpalatable it might have seemed from a bookkeeping point of view, was in fact a bold and decisive strategy. For several years, it put the U.S. squarely back in charge of the world economy. and allowed the U.S. to break the international OPEC/West/LDC “gridlock” on global economic strategy. The world’s most important commodity was now, not oil, but the U.S. dollar. Commodity prices plunged. Large parts of the global economy were turned into a “global distress sale” and U.S. growth was financed from the “proceeds”. A significant portion of the Third World’s consumer markets were shut down and replaced by the U.S. consumer market. The world’s financial power and “market” power which had been dispersed between the U.S., Europe, Japan and OPEC was now pulled firmly back into the hands of the U.S. In short, Reagan’s response in 1982 to ten years of Western, OPEC and Third World bickering was: “You’ll do it my way. Even if I’m not quite sure what my way is yet.”

In other words, the U.S. was now able to set the agenda for discussions of global development strategy for the next decade.

The strategy towards North/South development that ultimately emerged from this U.S. dominance was the so-called neoliberal strategy. It’s most important feature was the initiation, in 1986, of a new round of global trade negotiations, the Uruguay Round, of the General Agreement on Trade and Tariffs (GATT). To give some background, the origins of the General Agreement on Tariffs and Trade (and of its stillborn predecessor, the International Trade Organization (ITO)) go back to American-British wartime discussions concerning the shape of the post-war world economy. Despite vigorous efforts by developing countries (in the Havana negotiations of 1947) the draft ITO Charter only “paid lip service to development concerns”. The GATT, a separate temporary agreement negotiated by 23 countries (which became permanent when ITO was never ratified), was even less receptive to the needs of the developing countries. Tariffs on trade in manufactures between developed countries were reduced substantially under the auspices of GATT, but products in which the developing world had a comparative advantage (such as textiles or agricultural products) received much less favorable treatment. In addition, when the developing countries diversified into industrial exports, they faced a proliferation of new discriminatory non-tariff trade restrictions directed specifically at them (such as the Multifibre Agreement which discriminated against Third World textile exports).

The basic thrust of the Uruguay Round was as follows: It had been estimated that the above restrictions on LDC exports to the West cost the Third World 500 billion dollars each year. The West would agree to abolish those restrictions, thus providing 500 billion dollars worth of economic benefit to the Third World. In return, the Third World would agree to:

– open up their service economies to imports;

– give wide autonomy to outside investment;

– agree to strengthen their patent protection of Western technologies, (thus, according to some critics, “locking in” Western advantage in these technologies).

According to the neoliberal strategy, such an agreement, and even the promise of such an agreement, would bring about a massive North/South capital transfer. This capital would be lured by the promise of access to Western markets, by cheap labor, and by a favorable climate for Western investment brought about by deregulation in the LDC’s. This flood of capital investment would, in turn, “jump start” the Third World economies, lead to a rising standard of living and open up markets for Western exports. The Third World would follow the path of the dynamic Asian LDC’s and would simultaneously break the cycle of slow growth, trade imbalances and fiscal deficits in the West. In the meantime, the West’s increased access to LDC service sector and high-tech markets, brought about by the GATT agreement, would reduce protectionist sentiment in the West.

“Cheap labor is drawing investment and production away from the industrial countries. Plentiful goods and materials are crowding the world markets, and annual exports from developing to industrialized nations have risen by $100 billion since 1989. A new economic order is being born. Eventually, the entire world should share the bounty of this new order. As nations develop, their need for imported goods rises, and worldwide demand grows. Multinationals expect the developing countries to become vast new markets by the end of the decade (for Western high tech, capital equipment and services, a la GATT) as productivity and incomes climb worldwide. History is on the side of the optimists.” (Editorial from Business Week, 8/2/93.)

To look at another aspect of this, the economist Robert Lucas maintains that the reason why underdeveloped countries are underdeveloped is that they have a small amount of “human capital” (individual and social labor productivity). And the economist Helpman says that a developing country can increase its human capital by exporting to the markets of the developed countries. Going up against first world competition increases the developing countries “learning by doing” (increases human capital) However, Lucas counters by saying that the Third World as a whole cannot do this, because “there is a zero sum aspect, with inevitable mercantilist overtones, to productivity growth fueled by ‘learning by doing’’. What this means is that the vast majority of the human race cannot grow economically indefinitely simply by exporting to a small minority of the human race. In other words, (following Samir Amin) the internal market of the developing countries has to be expanded directly by urban and rural land reform and by a pro-Third World global fiscality that funds sustainable development projects in the Third World.

(Although Lucas underestimated the growth potential of the Third World and the willingness of the developed countries to absorb imports from the developing countries).

To continue with our history, the nativist backlash to the proposed GATT agreement was the Perot candidacy. When Perot turned out to be a nutcase, it was Clinton that benefited from this sentiment.

And it was Clinton that passed the GATT legislation and the smaller but similar NAFTA (North American Free Trade Agreement). The problems began immediately. After the NAFTA agreement Mexico, under pressure from the Clinton administration, kept the Peso artificially high so that the US could have a trade surplus with Mexico in order to generate support for the GATT agreement. After the GATT agreement passed in 1994, Mexican debt built up attempting to keep its currency up but became unpayable and Mexico had to be bailed out by a special US fund, the Exchange Stabilization Fund.

After the passage of GATT, Clinton, to avoid wage nativism (fear of trade with low wage countries), talked up the Asian economies, saying that they were the “wave of the future”. In addition, the Southeast Asian countries pegged their currencies to the dollar which was weakening against the yen. Money surged into the Southeast Asian countries. As one investor put it “investing in Asia became a religion”

Meanwhile the Japanese yen was rising dangerously against the dollar endangering Japan’s exports to the US. In 1995, Japan took action to lift the dollar up (by buying US bonds) As the dollar rose, the Southeast Asian countries became less and less competitive and their economies collapsed in a wave of currency devaluations and their debt became unpayable. The IMF raised hundreds of billions of dollars to bail them out. Money flowed out of the Southeast Asian economies into the US, causing the internet bubble, and causing (a temporary) surge of US growth which (together with a tax rise) wiped out the deficit.

Under the Bush junior and Obama administrations, the US ran huge budget and trade deficits and printed an enormous amount of dollars. This kept US interest rates low and money flowed into the stock markets of the developing countries which had a higher rate of return. As a result, in the early 21st century, the developing countries were growing rapidly even as the developed countries stagnated. (And 500 million people were lifted out of poverty in the developing world).

However, in the spring of 2013, Fed Chief Bernanke said that the US was reconsidering its monetary policy and would stop its bond buying program (for fear of another real estate bubble like the one under Bush junior). The surge of money into Third World markets stopped on a dime. In fact, in June of 2013, the amount of money going into Third World markets dropped by over 90% from the month earlier. It remains to be seen whether the concerns about the health of the developing countries’ economies will cause the Fed to back off.

Lawrence Feiner and Richard Melson July 2013 Cambridge Forecast Group

CFG Comment on this Update, July 12, 2013:

“It looks like the Fed has backed off of its proposed monetary tightening, as we predicted (sort of) in the Blog update. In other words it has to overstimulate the American economy (and real estate market) in order to safeguard Third World solvency. By overstimulating U.S. asset prices–stocks and houses–the American consumer starts to spend as his 401k looks better and America absorbs more imports worldwide….going back to the American consumer as locomotive, absent a new locomotive. Also lower interest rates sends money to emerging markets.

See: G20 MEETING MOSCOW JULY 19 2013

More Background:

CAMBRIDGE FORECAST GROUP INTRO

http://cambridgeforecast.wordpress.com/2011/11/29/the-reagan-revolution-and-the-developing-countries-new-cambridge-forecast-group-book/

the reagan revolution and the developing countries (1980-1990) a seminal decade for predicting the world economic future

Book Review:

The Reagan Revolution and the Developing Countries (1980-1990):

A Seminal Decade for Predicting the World Economic Future

by Lawrence Feiner and Richard Melson:

“Both former principals of the Cambridge Forecast Group, the authors have written a sharp challenge to prevailing economic thought, arguing that despite the chaos that seems to have enveloped the world economy since the end of the Cold War, the direction and development of world economic history is, in fact, quite predictable. Professors of economics and professional economists will find this book both appealing and important.” Read review.

http://publishingperspectives.com/2012/07/julys-top-self-publishing-reviews-from-blueink/

by lawrence feiner, richard melson

CAMBRIDGE FORECAST GROUP

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GLOBAL ECONOMY: BIS JULY 2012

July 23, 2012 on 3:14 pm | In Asia, Development, Economics, Eurozone, Globalization, History, Research, World-System | Comments Off on GLOBAL ECONOMY: BIS JULY 2012

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Central bankers’ speeches for 19 and 20 July now available‏

Press, Service (press@bis.org)

Fri 7/20/12

Central bankers’ speeches for 20 July 2012
now available on the BIS website

Már Guðmundsson: Fragmentation in the international financial system – can the global economy become one again?

Duvvuri Subbarao: Of economics, policy and development

Anand Sinha: Small is still beautiful and competitive – reflections on the growth of Micro, Small and Medium Enterprises (MSMEs) in India

Ignazio Visco: Brief overview of the Italian economy and its banks

Central bankers’ speeches for 19 July 2012
now available on the BIS website

Prasarn Trairatvorakul: Financial crises and the future of global and Asian banking

G Padmanabhan: Issues in IT governance

Mark Carney: Summary of the latest Monetary Policy Report

All speeches from 1997 onwards are available from the BIS website at http://www.bis.org/list/cbspeeches/index.htm.

Communications

Bank for International Settlements

E-mail: press@bis.org

Website: www.bis.org

Phone: +41 61 280 8188

Bank for International Settlements (BIS)

Central bankers’ speeches for 18 July 2012
now available on the BIS website

Jens Weidmann: The financial assistance can only buy time but does not address the root causes of the crisis

Ben S Bernanke: Semiannual Monetary Policy Report to the Congress

G Padmanabhan: Global convergence of banking regulations and its impact on the Indian banking system

G Padmanabhan: Getting “IT” right

Duvvuri Subbarao: Statistics and statistical analysis in Reserve Bank of India’s work

Deepak Mohanty: Statistics in the Reserve Bank of India

V S Das: Leadership, performance and transformation through personnel management

Njuguna Ndung’u: Ongoing developments in the Kenyan financial sector

Njuguna Ndung’u: Financal services sector – steering the economy to the next level

Yaseen Anwar: Monetary policy framework in the SAARC region

Anselmo Teng: Development opportunity arising from cross-border RMB business and internationalization of enterprises

Gane Simbe: The role coins play in the Solomon Islands’ payment system

Prasarn Trairatvorakul: Economic and financial cooperation between China and Thailand

Ebson Uanguta: The impact of the euro area debt crisis on southern Africa

Ebson Uanguta: Towards a financially literate Namibian society

Zeti Akhtar Aziz: Participation of Japanese financial institutions in Malaysia

Jörg Asmussen: Building deeper economic union: what to do and what to avoid

Luis M Linde: Assessment of Spain’s economic situation

Yaseen Anwar: Developments of the microfinance sector in Pakistan

Central bankers’ speeches for 17 July 2012
now available on the BIS website

Már Guðmundsson: Iceland’s crisis and recovery and the crisis in the eurozone

Arde Hansen: Overview of Bank of Estonia’s first year of the euro

Zeljko Rohatinski: Restoring the luster of the European economic model report

All speeches from 1997 onwards are available from the BIS website at http://www.bis.org/list/cbspeeches/index.htm.

Communications

Bank for International Settlements

E-mail: press@bis.org

Website: www.bis.org

Phone: +41 61 280 8188

Bank for International Settlements (BIS)

Central bankers’ speeches for 13 July 2012
now available on the BIS website

Duvvuri Subbarao: Agricultural credit – accomplishments and challenges

Central bankers’ speeches for 12 July 2012
now available on the BIS website

Ivan Iskrov: Association of Banks in Bulgaria – 20 years

Dimiter Kostov: The world of finance is becoming more IT

Ivan Iskrov: Global and regional challenges to the economy and the financial system. Do we have working solutions?

Ivan Iskrov: Conflicts and complementarities between monetary and macroprudential policies

Subir Gokarn: Launch of the OTC derivatives trade repository

Philip Lowe: Bank regulation and the future of banking

All speeches from 1997 onwards are available from the BIS website at http://www.bis.org/list/cbspeeches/index.htm.

Communications

Bank for International Settlements

E-mail: press@bis.org

Website: www.bis.org

Phone: +41 61 280 8188

Bank for International Settlements (BIS)

Central bankers’ speeches for 11 July 2012
now available on the BIS website

Prasarn Trairatvorakul: Financing the Greater Mekong Subregion

Ardian Fullani: Building a sound and efficient Albanian banking system

Duvvuri Subbarao: Touching hearts and spreading smiles

Hirohide Yamaguchi: European debt problem and its impact on Asia

Central bankers’ speeches for 10 July 2012
now available on the BIS website

Mario Draghi: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament

Prasarn Trairatvorakul: Financial crises and the future of global and Asian banking

Choongsoo Kim: Monetary and macroprudential policies in the aftermath of the crisis

All speeches from 1997 onwards are available from the BIS website at http://www.bis.org/list/cbspeeches/index.htm.

Communications

Bank for International Settlements

E-mail: press@bis.org

Website: www.bis.org

Phone: +41 61 280 8188

Bank for International Settlements (BIS)

Central bankers’ speeches for 5 July 2012
now available on the BIS website

Ardian Fullani: Overview of Albania’s recent economic and financial developments

Tharman Shanmugaratnam: Ensuring strong anchors in our banking system

Central bankers’ speeches for 4 July 2012
now available on the BIS website

YV Reddy: Society, economic policies, and the financial sector

José de Gregorio: What does society expect from the financial sector?

Ignazio Visco: What does society expect from the financial sector?

Jörg Asmussen: Can we restore confidence in Europe?

Miroslav Singer: The role of creditors and debtors in the world economy

Anand Sinha: IT and governance in banks – some thoughts

Mugur Isărescu: Monetary policy during transition. How to manage paradigm shifts

All speeches from 1997 onwards are available from the BIS website at http://www.bis.org/list/cbspeeches/index.htm.

Communications

Bank for International Settlements

E-mail: press@bis.org

Website: www.bis.org

Phone: +41 61 280 8188

Bank for International Settlements (BIS)

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