Determinism
Productivity is the foundation of prosperity, dark money and unrestrained campaign donations, Scale of Polish rearmament is breathtaking, Iran as SCO permanent member.
UPDATE: Economists have long argued that productivity is the foundation of prosperity. The only way a country can increase its standard of living sustainably is to produce more goods and services with fewer resources. Since the Industrial Revolution, this has been achieved through innovation, which is why productivity has become synonymous, in the public imagination, with technological progress and research and development.
Last summer, Bernie Sanders’s YouTube channel released a short clip entitled simply “Oligarchy or democracy?” But, between dark money and unrestrained campaign donations, the noxious imprint of concentrated wealth is rarely far from sight.
The scale of Polish rearmament is breathtaking, leaving much bigger NATO allies such as France, Britain and Germany behind in its wake. From South Korea alone, the Poles are buying 1,000 (yes 1,000!) K2 main battle tanks, 673 K9 self-propelled howitzers and 48, allowing it to junk (or give to Ukraine) what’s left of its Soviet-era air force. Poland is now the biggest importer of South Korean military hardware in the world.
Discussions at the recent SCO Summit in New Delhi now point to the inevitable: The merging of new multipolar organisations and their collective reorganisation of global finance. The 23rd summit of the heads of state of the Shanghai Cooperation Organization (SCO), held virtually in New Delhi, represented History in the making: three BRICS (Russia, India, China), plus Pakistan and four Central Asian “stans” (Kazakhstan, Kyrgyzstan, Uzbekistan, and Tajikistan), finally and formally, welcomed the Islamic Republic of Iran as a permanent member.
Focus on Productivity, Not Technology
By Dani Rodrik
Economists have long argued that productivity is the foundation of prosperity. The only way a country can increase its standard of living sustainably is to produce more goods and services with fewer resources. Since the Industrial Revolution, this has been achieved through innovation, which is why productivity has become synonymous, in the public imagination, with technological progress and research and development.
Our intuition about how innovation promotes productivity is shaped by everyday experience in business. Firms that adopt new technologies tend to become more productive, allowing them to outcompete technological laggards. But a productive society is not the same as a productive firm. Something that promotes productivity in a business may not work, or may even backfire, at the level of a whole country or economy. Whereas firms have the luxury of focusing on the productivity of only those resources they choose to employ, a society needs to enhance the productivity of all of its people.
But many economists (and others) have failed to appreciate this distinction, owing to the assumption that technological progress will eventually trickle down to everyone, even if its immediate benefits accrue only to a small group of firms and investors. As economists Daron Acemoglu and Simon Johnson remind us in their useful new book, this belief has not quite been true historically. The Industrial Revolution may have inaugurated the period of modern economic growth, but it did not produce advances in well-being for most ordinary workers for the better part of a century.
Worse, the conventional narrative may have become even less true with the most recent wave of technological advances. New technologies may fail to lift all boats because their benefits can be overwhelmingly captured by a small group of players – be it a few firms or narrow segments of the workforce. One culprit is inappropriate institutions and regulations, which skew bargaining power in the economy or restrict entry by outsiders to modern sectors. Another is the nature of technology itself: innovation often empowers only specific groups, such as highly skilled workers and professionals.
Consider one of the paradoxes of the hyper-globalization era. After the 1990s, as trade costs fell and manufacturing production spread around the world, many firms in low- and middle-income countries became integrated into global supply chains and adopted state-of-the-art production techniques. As a result, these firms’ productivity increased by leaps and bounds. Yet the productivity of the economies in which they were domiciled stagnated in many cases, or even regressed.
Mexico provides a startling case study, since it was once a poster child for hyper-globalization. Thanks to the government’s liberalizing reforms in the 1980s and the North American Free Trade Agreement (NAFTA) in the 1990s, Mexico experienced a boom in manufactured exports and inward foreign direct investment. Yet the result was a spectacular failure where it really mattered. Along with many others in Latin America, Mexico experienced negative total factor productivity growth in subsequent decades.
As a recent analysis by the economists Oscar Fentanes and Santiago Levy demonstrates, Mexican manufacturing did indeed become more productive as it was forced to compete globally. While less productive firms that failed to adapt eventually shut down, many remaining firms adopted new technologies and became more productive.
The problem was twofold. First, manufacturing firms – especially formal ones – shrank in terms of employment, absorbing an ever-smaller share of the economy’s labor force. Then, the rest of the economy, which was dominated by small, informal firms, became less and less productive. The upshot was that productivity gains in the (shrinking) globally oriented manufacturing sector were more than offset by the poor performance in other activities, mostly informal services.
Fentanes and Levy attribute these consequences to Mexican labor and social-insurance regulations, which they claim encouraged informality and hampered the growth of formal-sector firms. Yet one can find the same pattern of productivity polarization in many other Latin American economies, as well as in Sub-Saharan countries.
An alternative explanation concerns the changing nature of manufacturing technology itself. So great are the skill and capital requirements of integrating into global value chains that countries poorly endowed with these resources face sharply rising cost curves, preventing their firms from expanding and absorbing much labor. Workers flocking to the cities from the countryside have little choice but to crowd into low-productivity petty services.
Whatever the underlying cause, this issue exemplifies why government strategies to boost productivity can miss the mark. Whether it comes in the form of plugging into global value chains, subsidizing R&D, or investment tax credits, conventional policies often target the wrong problem. In many cases, the binding constraint is not a lack of innovation in the most advanced firms, but rather the large productive gaps between them and the rest of the economy. Raising the bottom – by providing training, public inputs, and business services to smaller, service-oriented firms – can be more effective than lifting the top.
There are lessons here for the new age of artificial intelligence. Large language models’ potential to perform a wide range of tasks at greater speed has generated much excitement about significant future productivity growth. But, once again, the overall impact of this technology will depend on the extent to which its benefits can be disseminated throughout the economy.
As Arjun Ramani and Zhengdong Wang argue in a recent commentary, the productivity benefits of AI may be limited if important parts of the economy – construction, face-to-face services, human-dependent creative work – remain immune to it. This would be a version of the so-called Baumol cost disease, whereby the rising relative prices of certain activities choke off economy-wide improvements in living standards.
These considerations should not turn us into techno-pessimists or Luddites. But they do caution against equating productivity with technology, R&D, and innovation. Scientific and technological innovation may be necessary for the productivity growth that enriches societies, but it is not sufficient. Transforming technological progress into broad productivity growth requires policies specifically designed to encourage broad diffusion, avoid productive dualism, and ensure inclusivity.
Read more here.
Wealth Inequality & American Oligarchy
Last summer, Bernie Sanders’s YouTube channel released a short clip entitled simply “Oligarchy or democracy?” Featuring compiled footage spanning Sanders’s career in both the House and Senate, the clip opens with the simple declaration, “Those who have the money have the power.” It’s a simple, and in many ways obvious truth. But it’s also one that sometimes gets ignored or marginalised in mainstream discourse about democracy. Threats to democracy, of course, don’t always directly involve questions of money or wealth. From attacks on voting rights to political institutions designed to protect minority rule, racism is a major factor as well. But, between dark money and unrestrained campaign donations, the noxious imprint of concentrated wealth is rarely far from sight.
That reality is difficult to ignore when you examine the obscene way that America’s collective wealth has come to be distributed. This maldistribution was incidentally the subject of a recent report requested by Sanders from the nonpartisan Congressional Budget Office (CBO), which found that wealth has continued to flow upward to an increasingly tiny number of well-off Americans.
Between 1989 to 2019, the CBO reports, the total real wealth (adjusted for inflation) held by all families in the United States tripled from $38 trillion in 2019 dollars to $115 trillion — or about five times the national GDP. The fruits of that growth, however, have accrued heavily to those at the top. As of 2019, the richest 10 percent of families held an astonishing 72 percent of this wealth, while those in the top 1 percent held more than one-third. The appalling asymmetry of these developments is underscored even more strongly by the CBO’s findings vis-à-vis the bottom half of all American families — who now hold a mere 2 percent of the country’s total wealth. There is a strong racial bias as well, with the median wealth of white families considerably higher than that of black or hispanic ones.
The political implications of concentrated wealth, needless to say, are often hiding in plain sight. Those who have the money, as Sanders often says, also tend to have the power. This applies in the obvious and direct sense that wealthy people wield not just their individual votes but also a greater means to influence the political process, make legislation more favorable, and fund political campaigns in a self-interested way.
But it’s ultimately the case that concentrated wealth threatens democracy regardless of whether such avenues legally exist for the rich to influence political life or not. For basic moral reasons, America’s current wealth distribution would not suddenly become acceptable if the top 1 percent had fewer direct ways to exert such influence. More to the point, those who have money still have both more power and liberty regardless of whether they actively try to influence political outcomes. Money buys access, true. But it also buys the freedom to live a healthy, dignified, and comfortable life, and plenty more besides. Thanks to the obscene hoarding of wealth by an ever diminishing sliver of Americans, that freedom is increasingly a privilege enjoyed by only a small few — who, with each passing year, wield even greater power over politics and society.
Bernie is right: America is becoming an oligarchy in which the collective abundance of the many is increasingly held by the few. And, until the power of that oligarchy is broken, its democracy will remain more of an ideal than a reality.
Read more here.
Poland is New NATO Frontline
By Andrew Neil (edited)
The scale of Polish rearmament is breathtaking, leaving much bigger Nato allies such as France, Britain and Germany behind in its wake. From South Korea alone, the Poles are buying 1,000 (yes 1,000!) K2 main battle tanks, 673 K9 self-propelled howitzers and 48, allowing it to junk (or give to Ukraine) what’s left of its Soviet-era air force. Poland is now the biggest importer of South Korean military hardware in the world.
But the spending spree doesn’t stop there. Poland is also spending more than $6 billion on 366 American Abrams tanks, including 250 of the latest, state-of-the-art model (the M1A2). Combined with its Korean armour, Poland will boast a force of tanks so formidable that it will be unmatched by anyone else in Europe.
The Americans are also selling Poland 32 F35A fighter jets, the most advanced in the world (our own BAE has a stake in it) and 96 of its unrivalled Apache attack helicopters which, along with helicopters it’s buying from Italy, means Poland will also have the biggest fleet of military helicopters in Europe.
Amid this avalanche of new equipment, boots-on-the-ground have not been forgotten. Poland is on course to double its active-duty forces to 300,000 (including 50,000 reservists), which means it will have the largest combat-ready, land army in Europe, bigger than Germany’s Bundeswehr, even though the German economy is five times bigger and Poland’s population of 38 million is less than half that of its western neighbour.
It will also be one of the best-equipped, with more than 500 long-range rocket systems (including the U.S.-made HIMARS, which have proved so effective in Ukraine) and the latest air defence protection. Rearming on this scale doesn’t come cheap. But because Poland is prepared to buy so much of its military hardware off the shelf from tried-and-tested suppliers.
Polish defence spending this year is up 20 per cent on 2022, taking it to more than $20 billion (the UK spends three times as much yet ends up with less military personnel and equipment) or about 3 per cent of its GDP. By 2025, Poland will be devoting 4 per cent of its GDP to defence, the highest percentage in Europe.
The contrast with Germany is stark. On Thursday night in Warsaw, I listened to German policy experts explain how hard it was proving to deliver Chancellor Scholz’s promise, solemnly made in the days after Putin’s onslaught on Ukraine, to boost Germany’s ailing armed forces.
Agreement wasn’t always possible among the three parties in Berlin’s governing coalition, they said. The politicians couldn’t get too far ahead of public opinion, which still has a strong pacifist strain. Germany’s armed forces were generally in such a poor state there was no consensus on where to start the modernisation.
As a result, German defence spending this year as a share of GDP would likely rise by no more than 0.1 per centage points to 1.6 per cent. My Polish colleagues rolled their eyes and shook their heads in a mixture of disbelief and disgust. Later that night, I caught up on some news from Berlin.
The Scholz government had unveiled its spending plans for next year. Defence was to rise a piddling €2 billion on top of this year’s €50 billion. That will barely cover the increase in inflation. The German military had better get used to using broomsticks for guns in military exercises (as it did a few years back in Norway).
Poland has been emboldened to plough its own furrow on defence because, on the big things that matter to Europe’s security, it has been proved right, the Germans (and the French) hopelessly and dangerously wrong.
As Berlin touted the case for more pipelines to bring more cheap Russian gas to Germany, Poland built specialised ports to unload Liquefied Natural Gas (LNG) off ships from America.
As former Chancellor Merkel panicked after the Fukushima nuclear plant disaster in Japan and decided to shut down all Germany’s nuclear power stations (thereby increasing its energy dependency on Russia), Poland decided to build a new fleet of nuclear power plants.
The Americans love newly-assertive Poland. They’ve always been more prepared to come to an ally’s defence if that ally is prepared to spend generously on its own defence. Poland, almost alone of America’s Nato allies in Europe, meets that crucial criterion. There are now more than 11,000 U.S. troops based in Poland and the U.S Army has opened its first-ever permanent garrison in the country.
Around 130 miles west of Warsaw at Powidz on the way to Berlin, America has created a massive military logistics hub of seven gigantic warehouses jam-packed with everything needed to arm, equip and mobilise at speed a full U.S. armoured brigade for combat.
At a cost of $360 million, it’s Nato’s biggest infrastructure project in 30 years. The U.S. forces are not there merely to act as a tripwire. They are there to defend Poland.
Warsaw has also been pivotal in funnelling aid to Ukraine. More than 90 per cent of all military and humanitarian assistance going to that war-torn country goes through Rzeszow in south-east Poland.
It’s only an hour’s drive to the Ukraine border. In the early days of the war there was a problem: who would protect the aid as it was shipped by road and rail from Rzeszow into Ukraine. As Nato members, neither American nor Polish forces could be involved.
The Poles came up with an answer. They put out a call for those who’d recently retired from Polish special forces to sign up for the task as a sort of private army. The veterans responded in their hundreds, all still fit and well-trained. Problem solved.
The rise of Poland as a military and diplomatic power of significance is rewriting the power balance in Europe. Taken together with the Nato membership of Sweden and Finland (and some rearming of their own), power in Europe is tilting east, away from Paris and Berlin, both of whom have lost their way and now squabble among themselves.
In a speech last March at Germany’s Heidelberg University, Poland’s prime minister said: ‘Europe is at an historic turning point. We need to shake up the Brussels status quo and stop those who want a superstate run by a narrow elite. Only nation states can safeguard nations — their culture, society, economy, politics, military security. The alternatives are illusory and utopian.’
The Polish government, of course, has problems of its own with Brussels. But these words could have come from the mouth of even a pro-Remain British prime minister any time in the past 20 or 30 years. Is it too much to expect the UK Foreign Office to desist from constantly cozying up to a Franco-German hegemony that is in retreat, and to put more emphasis on building military, political, security and cultural ties with our new and increasingly important friends in the East?
I understand our diplomats’ love affair with Paris. But I can assure them Warsaw has its delights too — and it’s much more welcoming.
Read more here.
SCO welcomes Iran
Discussions at the recent SCO Summit in New Delhi now point to the inevitable: The merging of new multipolar organisations and their collective reorganisation of global finance. The 23rd summit of the heads of state of the Shanghai Cooperation Organization (SCO), held virtually in New Delhi, represented History in the making: three BRICS (Russia, India, China), plus Pakistan and four Central Asian “stans” (Kazakhstan, Kyrgyzstan, Uzbekistan, and Tajikistan), finally and formally, welcomed the Islamic Republic of Iran as a permanent member.
And next year will be Belarus’ turn, as confirmed by India’s First Deputy Foreign Minister Vinay Kvatra. Belarus and Mongolia took part in the 2023 summit as observers, and fiercely independent Turkmenistan, as a guest. After years of US “maximum pressure,” Tehran may now finally get rid of the sanctions dementia and solidify its leading role in the ongoing process of Eurasia integration.
Arguably, the star of the show in New Delhi was Belarusian President Alexander Lukashenko, who has led his country since 1994. Old Man Luka, unbeatable in the headline-stealing department, especially after his mediator role in the Prighozin saga, may have coined the definitive slogan of multipolarity. Forget the western-termed "golden billion" which in fact barely reaches 100 million; embrace now the “Global Globe” – with a firm focus on the Global South.
As the clincher, Lukashenko proposed total integration of the SCO and BRICS – which in their upcoming summit in South Africa will be heading the BRICS+ way. And it goes without saying, this integration also applies to the Eurasia Economic Union (EAEU).
The next step for the “Global Globe” – what the collective west dismissively qualifies as “the rest” – is to work on the complex coordination of several development banks and then the process to issue bonds linked to a new trading currency.
The main ideas and the basic template already exist. The new bonds will be a real safe heaven compared to the US dollar and US Treasuries, and will imply accelerated de-dollarization. Capital used to purchase those bonds should be used to finance trade and sustainable development, in what will be a certified, Chinese-style “win-win.”
The SCO declaration made it clear that the expanding multilateral body is “not directed against other states and international organizations.” On the contrary, it is “open to broad cooperation with them in accordance with the purposes and principles of the UN Charter, the SCO Charter and international law, based on consideration of mutual interests."
The heart of the matter is of course the drive towards a fair multipolar world order – the polar opposite of the Hegemon-imposed “rules-based international order.” And the three key nodes are mutual security; trade in local currencies, and eventually, de-dollarization.
It's quite enlightening to outline the converging focus, expressed by most leaders, during the New Delhi summit. India’s Prime Minister Modi stated in his keynote address that the SCO will be as important as the UN. Translation: a toothless UN controlled by the Hegemon may end up being sidelined by a real “Global Globe” organization.
In parallel to Modi praising the key role of Iran in the development of the International North South Transportation Corridor (INSTC), Iranian President Ebrahim Raisi firmly supported SCO trade in national currencies to decisively break the US dollar’s hegemony.
Chinese President Xi Jinping, for his part, was adamant: China is all in favor to sideline the US dollar, stand firm against all forms of color revolutions, and fight against unilateral economic sanctions.
Russian President Vladimir Putin once again stressed how “external forces have put Russia’s security at threat by unleashing hybrid war against Russia and Russians in Ukraine."
Pragmatically, Putin expects trade within the SCO, using national currencies, to grow - 80 percent of Russia’s trade is now in rubles and yuan – plus a renewed cooperation drive in banking, digitalization, high-tech, and agriculture.
Kyrgyz President Sadyr Japarov also stressed mutual settlements in national currencies, plus a crucial move: the setting up of a SCO development bank and development fund, quite similar to the BRICS’s New Development Bank (NDB).
President Kassym-Jomart Tokayev of Kazakhstan, which will exercise the SCO presidency in 2024, also supported a common investment fund, plus the configuration of a network of partners of major strategic ports connected to China’s BRI as well as the Astana-based Trans-Caspian International Transport Route, linking Southeast Asia, China, Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, and Europe.
Of course all SCO members agreed that no Eurasia integration is possible without stabilizing Afghanistan – in fact linking Kabul geoeconomically with both BRI and the INSTC. But that’s another long, twisting story entirely.
Now compare all that action in New Delhi with what happened in Tianjin a few days before, in late June: the World Economic Forum (WEF) event known as the “summer Davos”, held for the first time after the Covid-19 pandemic.
Chinese Premier Li Qiang’s critique of the new US/EU “de-risking” slogan may have been predictably sharp. What was way more intriguing was a BRI panel discussion titled “The Future of the Belt and Road Initiative.”
So what the “Global Globe” should expect, according to Liang, is a surge of “small is beautiful” projects, very pragmatic. That ties up with the new focus by both Chinese banks and companies: Very large infrastructure projects around the world may be problematic for the time being, as China concentrates on the internal market and regimenting every front to fight the Hegemon’s multiple Hybrid Wars.
Read more here.