Wednesday, June 8, 2016

Average per capita GDP Growth Rates: The Post-WWII Bretton Woods System versus Neoliberalism

Here are the figures from the World Bank for the two relevant periods by region:
Average Per Capita GDP Growth Rates 1960–2010
Region | 1960–1980 | 1980–2010

sub-Saharan Africa | 2.0% | 0.2%
Latin America and the Caribbean | 3.1% | 0.8%
Middle East and North Africa | 2.5% | 1.3%
East Asia and Pacific | 5.3% | 7%
Developed Nations | 3.2% | 1.8%
(cited in Chang 2015: 25–26).
Note carefully: in every region except East Asia per capita GDP growth rates slumped under neoliberalism.

There is one exception: East Asia. Was neoliberalism pursued here? Well, to some extent in Japan, South Korea and Taiwan from the 1990s (think East Asian financial crisis and the Japanese lost decade), but not in China, which is where the really spectacular growth occurred in the 1980 to 2010 period.

Also note well: Japan, South Korea and Taiwan from the 1950s to the 1970s pursued (and to some extent into the 1990s) massive anti-free market, state-directed industrial policies combined with access to Western markets. They industrialised and were very successful.

China from the 1980s has been following a similar playbook with a mixed economy and state-directed industrial policy and neo-mercantilism. The success of China is not – repeat not – because of neoliberalism (see here). Nor was the success of Japan, South Korea and Taiwan, before the 1990s.

But we’ve known all this for years.

The late Angus Maddison was widely recognized as a leading scholar on the history of rates of economic growth. In 1995, Maddison published a study called Monitoring the World Economy 1820–1992 (OECD Development Centre, Paris, 1995), the first authoritative study on the effects of globalization and neoliberalism on growth rates in the developing and developed world, as compared with the Bretton Woods era.

Maddison compared growth rates both in terms of real GDP and real per capita GDP in seven major regions of the world from 1950 to 1973 with those in the early era of globalization (1974–1992). He found that there were significant declines in the average annual growth rates in six of the seven areas: in fact, the average annual rate of growth of world GDP was only half of what it had been under Bretton Woods. That is, world economic growth was about 50% lower than in the Bretton Woods era.

The only region that showed an increase was East Asia, precisely the region dominated by the protectionist state-led model of industrialization, led by Japan, South Korea, Taiwan, and (from the early 1990s) China.

Maddison’s study can be supplemented by the following research:
Mark Weisbrot, Dean Baker, Egor Kraev, and Judy Chen. 2001. Scorecard on Globalization 1980–2000: 20 Years of Diminished Progress, Centre for Economic Policy Research (CEPR)
http://cepr.net/publications/reports/the-scorecard-on-globalization-1980-2000-20-years-of-diminished-progress

Chang, Ha-Joon. 2015. “The Failure of Neoliberalism and the Future of Capitalism,” in Satoshi Fujii, Beyond Global Capitalism. Springer, Tokyo. 19–34.
Weisbrot et al. (2001) and Chang (2015) confirm the findings of Maddison. The era of globalization was a disaster for much of the Third World.

Of course, even neoliberalism delivers some poverty reduction because per capita GDP growth was still positive, and it is correct that global poverty has fallen over the last 20 years: but the overwhelming number of such people are in China and East Asia, and above all in China where the government largely rejects the orthodox policy prescriptions of neoliberalism.

So which system was better for the Third World: (1) the Bretton Woods era of import substitution industrialisation that gave a space for economic nationalism or (2) neoliberalism?

The answer is (1). The system also avoided the endless economic crises and instabilities of neoliberalism as well.

We live in interesting times, however. Even the IMF is starting to admit – even if in coy and embarrassed terms – that neoliberalism has failed.

BIBLIOGRAPHY
Chang, Ha-Joon. 2015. “The Failure of Neoliberalism and the Future of Capitalism,” in Satoshi Fujii, Beyond Global Capitalism. Springer, Tokyo. 19–34.

Weisbrot, Mark, Baker, Dean, Kraev, Egor and Judy Chen. 2001. Scorecard on Globalization 1980–2000: 20 Years of Diminished Progress, Centre for Economic Policy Research (CEPR)
http://cepr.net/publications/reports/the-scorecard-on-globalization-1980-2000-20-years-of-diminished-progress

30 comments:

  1. Thank you LK

    Your empirical research always help debunk neoliberal and austrian myths.

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  2. Can't the high growth rates in the post war era simply be less developed countries catching up to the United States in terms of technology? This could even explain the high growth rate for developed countries, since most of these were much less developed then the United States immediately post war.

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    1. U.s had higher growth rates either as well as europe not to mention that since then this third world countries dont catched the first but the opposite the inequality between countries became wider eith the notable exception of east asia

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    2. Carlninja1: It seems as if you are ignoring the point, which is pre and post Bretton Woods?

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    3. carlninja1@June 8, 2016 at 8:24 AM

      To some extent, it is true Europe was catching up with the US in the 1940s and 1950s. But even correcting for this your comment still is wrongheaded. Plenty of Third world countries today need to catch up to the West in terms of technology. But why can't they do it and why did their growth slump under neoliberalism?

      And why did the US itself have a higher growth rate in Bretton Woods era?:

      (1) Average US annual real GDP rate 1950–1973: 4.160%
      (2) Average annual real GDP rate 1974–2001: 2.963%.

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    4. "But why can't they do it and why did their growth slump under neoliberalism?"

      -First, you have to prove there was any "neoliberalism" in those slow-growing countries after 1980. Actually, no. First, you have to define what "neoliberalism" is. Then you can go on with proving there was any in those slow-growing countries after 1980. North Korea follows the pattern of faster growth between 1960 and 1980 than between 1980 and 2010. Doesn't mean any "neoliberalism" happened since 1980, much less contributed to North Korea's slow growth!


      "And why did the US itself have a higher growth rate in Bretton Woods era?"

      -I'm telling ya: fossil fuels is most of the story.

      See, that's the problem with you Berniebros and your slippery definitions: you can't ever define what you're pretending to oppose.

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    5. Before you write a comment you have to prove you are not an alien.

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  3. What the hell is neoliberalism? Name people as they describe themselves. And the USSR grew faster from 1960 to 1980 than from 1980 to 2010 as well. Doesn't mean soviet socialism was the way to go from the start!

    The clearest example of the failure of left-wing economics following the 1970s is Greece: unlike most other comparable countries, it pursued the reverse of pro-market reforms in the 1980s. And unlike comparable countries, it proceeded to slump during the 1980s. By the late 1970s, Greece had become almost as rich as the U.K. Spain, Portugal, and Italy all grew faster than 1980s Greece. So did Britain.

    Obviously, the 1960s-1970s boom period can be ascribed mostly to the growth of per capita oil consumption during that time, as well as, for the 1970s underdeveloped countries, high commodities prices.

    See http://noahpinionblog.blogspot.com/2016/05/the-incredible-miracle-in-poor-country.html

    In some ways, China is more free market than the U.S., as its regulatory system is less developed.

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    1. "The clearest example of the failure of left-wing economics following the 1970s is Greece"

      LOL! Greece's problem is getting on the hook with debt to the same Capitalist banks that fucked up the American economy in the last 8 years. Your argument is #FAIL

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    2. "the 1960s-1970s boom period can be ascribed mostly to the growth of per capita oil consumption during that time, as well as, for the 1970s underdeveloped countries, high commodities prices."

      No, that ignores that real import substitution industrialisation that did happen in these years.

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    3. Ah, the great success of Argentina as compared with Spain in the 1960s and 1970s and with Chile in the 1980s, 1990s, and 2000s... LOL.

      No; the boom happened in most countries, whether industrialized or not, whether free-trade (Singapore) or non-free-trade (Brazil). The major exceptions were India (import substitution!), Bangladesh (more import substitution!), Chile (hm.... maybe "neoliberalism" isn't the problem after all...), and some other very poor Asian countries, like Cambodia (Communism), Vietnam (Communism), Laos (more Communism!) and China (even more Communism!). It did include North Korea, though! North Korea grew faster than South Korea in the 1950s, but South Korea had caught up by 1970, and certainly by 1980. Was North Korea more "neoliberal" (whatever that means) than South Korea, just because it had slower growth in 1980-2010 than in 1960-1980? Again, compare Chile with Argentina. Chilean growth was faster between 1980 and 2010 than between 1960 and 1980, while Argentine growth was faster between 1960 and 1980 than between 1980 and 2010. So much for the anti-"neoliberal" Kirchner boom!

      2010's a bad year, anyway, as this was just after a bad worldwide recession.

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    4. Kevin, I'm talking about Greece in the 1980s. You know; PASOK & all that?

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  4. We've got to be a little fair here. ISI countries certainly got a bad rap for the irresponsibility in the late 70s that led to the Third World Debt Crisis (i.e. borrowing in USDs in the late 70s from places like Citibank, then once the dollar doubles in strength, so do interest payments, and all these countries got into trouble). But we should point out that growth rates during the 40s, 50s, 60s and 70s were all quite high.

    It's also worth pointing out that GDP per capita grew more in 3 years under Allende than in 17 years under Pinochet (the poster child for neo-liberalism).

    But clearly there's been some major success stories too, though it's not so much countries following a "neo-liberal" program, but rather countries going from a failed statism (Maoism and Nehruism in particular) to opening up to the world and reducing obviously mad constraints. You can also put others like Vietnam and maybe the other two South Asian countries in this category (Pakistan/Bangladesh).

    The underdeveloped countries certainly have done better in the last 15-16 years than they did the previous 20 years. That's across the board, from Latin America to Africa to South Asia, Southeast Asia, Southwest Asia, former Soviet Bloc... pretty much every region except Japan. But another question to ask is: how much did the commodities boom of the 2000s and early 2010s contribute to that?

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    1. Sure, ISI wasn't perfect. On the whole, it seems better than what has followed. Certainly there was a degree of incompetence in India and other places.

      "The underdeveloped countries certainly have done better in the last 15-16 years than they did the previous 20 years. "

      What about sub-Saharan Africa, which went from 2.0% to 0.2%

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    2. maybe the problem here is not ISI but taking debt in dollars instead of creating sovereign debt?

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    3. "The underdeveloped countries certainly have done better in the last 15-16 years than they did the previous 20 years"

      The chart at the top of this page would seem to contradict this greatly.

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    4. "It's also worth pointing out that GDP per capita grew more in 3 years under Allende than in 17 years under Pinochet (the poster child for neo-liberalism)."

      -No it didn't; it fell under Allende and grew pretty normally under Pinochet.

      "The chart at the top of this page would seem to contradict this greatly."

      -Kevin can't count. 1980-2000 includes 1980-2010.

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  5. Thanks for the info, LK. A lot of people myself included, have in the past mistaken Bretton-Woods for "The Gold Standard." Perhaps you could unpack the differences for us? Thanks again.

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    1. The real domestic gold standard was abolished all over the world in the 1930s, and this was a very good thing.

      Bretton Woods retained gold only for international payments between nations, until Nixon threw that overboard. Bretton Woods also had fixed exchange rates adjustable by governments.

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    2. oh, and Bretton Woods also had strict capital controls. Keynes was partly the architect of that system.

      https://en.wikipedia.org/wiki/Bretton_Woods_system

      http://www.theguardian.com/commentisfree/2008/nov/18/lord-keynes-international-monetary-fund

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  6. about greece

    this will explain from as far as i read about greece why its happened.

    http://bilbo.economicoutlook.net/blog/?p=33307

    http://bilbo.economicoutlook.net/blog/?p=33782
    china is in a lot of ways pretty protectionist country with protectionoist policies not only their currency manipulation but also a lot buisness subsidies and etc LK posted a post about that here with sources.

    also china have heavy beurocratic machine so i dont really see how its freerer than usa.

    also not all the commodity exporters are oil exporters and not all of this commodity exporters benefited oil price hikes so its ridicouls to think about it like that.

    (i will glad if LK will comment here too and will give more empirical data if he have time for that of course).



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    1. Yep, right on the money. South Korea, Japan and Taiwan were not lucrative primary or energy commodity exporters. How did they industrialise?:

      Amsden, Alice. 1989. Asia’s Next Giant: South Korea and Late Industrialization. Oxford University Press, New York.

      Amsden, Alice. 1990. “East Asia’s Challenge – to Standard Economics,” American Prospect 2 (Summer): 71–77.

      Chang, Ha-Joon. 2002. Kicking Away the Ladder: Development Strategy in Historical Perspective. Anthem Press, London.

      Chang, Ha-Joon. 2005. The East Asian Development Experience: The Miracle, the Crisis and the Future. Zed, London.

      Johnson, Chalmers. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford University Press, Stanford.

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    2. "Yep, right on the money. South Korea, Japan and Taiwan were not lucrative primary or energy commodity exporters."

      -True. Japan is hardly North Dakota or Thailand. But Japan was at no point much of an exporter. Even though Japanese exports are much more famous than British exports, there are also less of them. And last time I heard, Japan is, after a quarter century of weak economic growth, poorer and less productive than the U.K.

      Industrialization is complicated. That's why it apparently requires races with high average IQ to be successful. Chile, which is not known for its high average IQ, is (still) mostly a primary-industry exporting country, but it's the richest one in Latin America! In the country of the blind, the one-eyed man is king!

      https://upload.wikimedia.org/wikipedia/commons/d/d0/Chile_Export_Treemap.jpg

      Japan is poorer than the U.S. (and U.K.) because it is still stuck in its old ways, which were good for it in the 1980s, but hinder it today. To advance, it must, like Sweden and Austria (both nations with higher GDPs per capita and less arduous workdays and lower average IQs than Japan) embrace competition.

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    3. Daniel, how can you explain Greece with posts that don't even mention it? Greece grew faster than the U.K. during the 1970s, even after the transition to democracy.

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    4. This comment has been removed by the author.

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  7. (LK i edited my comment)


    1.uk had the same problems in the 70-s is the same problems greece expierenced in the 80-s thats why the growth rate of greece been higher than of uk

    2.there is 2 definitons of neoliberalism we can use in this debate both damaging.

    1.so called free trade mantra for underdeveloped countries.

    2.financial deregulation loose capital controls no budget deficits when needed and austerity etc.


    2.the lower growth of japan is based on high private debt which cause an incentive for big corporations to delevarge but its cant delvarage because it slow down the economy and it will continue until japan will create strong enough fiscal stimulus.
    if you want more reading about that

    https://en.wikipedia.org/wiki/Balance_sheet_recession

    2.now about exports
    this is current account of japan
    http://www.tradingeconomics.com/japan/current-account-to-gdp

    this is of UK http://www.tradingeconomics.com/united-kingdom/current-account-to-gdp

    its just shows that japan have higher exports than uk the opposite of what you said.

    3.about chile if we arelooking at the real neoliberal period

    https://en.wikipedia.org/wiki/Economic_history_of_Chile#.22Neoliberal.22_reforms_.281973.E2.80.9390.29

    we will find a serious failure of it (1973-1982),since then chile enforced strict capital controls chile subsidized its exports chile natioanlised firms chile imposed higher tarrifs.

    this is why chile started to finally growth again because of smart keyensian policy.

    also its restored itself quite fast after 2008 crisis because its used big fiscal stimulus which helped it to recover.

    its seems chile is not that much neoliberal after all :) .


    4.singapore is not exactly neoliberal success story the government intervened in investments and invested in new companies or existed actually 17 percent of singapore companies owned by the government of singapore.
    https://en.wikipedia.org/wiki/Economy_of_Singapore#Economy_History

    5.the problem of korea taiwan and japan is the asian financial crisis of 1997 which created the problem which 2008 crisis created for western countries its created serious balance sheet recession thats the reasons for low growth the same like the reasons of the low growth in europe and usa and uk now.1

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    1. My info was out of date; Britain had larger exports than Japan in 2013 but not in 2015:

      https://web.archive.org/web/20150204162100/https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html

      Fiscal stimulus would hurt Japan; not help. Japan already has too much government debt, and adding to that burden can't help the country.

      Balance sheet recessions only explain declines in nominal GDP, not real GDP.

      Again, Chile's export composition has always been quite unimpressive (it was less impressive in the 1960s). Its economy only really boomed after the transition to democracy.

      Where do you get your idea fiscal stimulus has any impact at all? Monetary stimulus is always superior to fiscal stimulus in boosting nominal GDP. The only way fiscal stimulus can help is by lowering inflation, not raising it.

      Yes; Singapore's government intervened in investments, but that was to boost its profits in case of a drop in tax revenue. Singapore doesn't need government directing investment to be rich; it's about as rich as New York City.

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    2. 1.japan have so much government? yes it is

      should japan care? no

      should i remind you how much interest japan is paying for 10 year government bonds?

      negative interest rate and thats means that people pay to japanese government for having their bonds not the other way around.

      and why is that?

      simply because if needed japanese central bank always can buy back the bonds create even more liqiudity in the market and lower the interest rates even more (making the bonds scarce).

      2.and what happens when there is decline in nominal gdp? coroporation profits decline as well and what happens? when corporations profit declines they have no incentive to invest in new equipment and no incentive hire new workers its exactly what means stagnation.

      3.its not really important if its been impressive or not but the economic growth of chile been impressive and its started to be impressive not under chicago school but under keyensianism and structural changes with ISI flavour.

      4.it would be true that it just boosting nominal GDP only in case where the capacity utilization of the nation is close to 100 percent there is really low unemployment (2-3) percent and there is no deflationary pressure on the economy.

      in most western countries its not the case in most of this economies there a situation of underconsumption and deficent demand.

      and if you use fiscal stimulus you do 2 important things.

      1.for the private sector fiscal stimulus is free of debt money so its giving to people the chance to delevarge with no risk for slowdown the economy (while if people will start to delevarge on debt based money which created by the banks when you are taking credit thats what will happen https://en.wikipedia.org/wiki/Debt_deflation).

      while monetary stimulus can give the private sector incentive to borrow more and to increase the burden of debt on private sector even more.

      so how exactly monetary stimulus is better than fiscal?

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  8. "Japan is poorer than the U.S. (and U.K.) because it is still stuck in its old ways, which were good for it in the 1980s, . . . "

    Not according to R.A. Werner?

    “In Japan more than two decades of significant structural reform, deregulation, liberalization and privatization, have failed to stimulate the economy. Likewise, the structural reforms implemented in transition economies, or Greece under its debt restructuring, have not stimulated demand.
    . . .
    This seems to describe the situation in Japan well, as it is entering into the third decade of recession and deflationary pressures. It also throws a critical light on the recent argument by the World Bank (2012) that China requires structural reform to stimulate the economy and maintain high growth.
    Werner (2002b) found that Bank of Japan informal ‘guidance’ of credit (‘window guidance’) determined Japanese bank credit creation throughout the postwar era until including 1991. This shows that the experience of excessive bank credit expansion in the 1980s is not an indication of declining effectiveness of the direction of credit (but of the imposition of misguided loan growth targets encouraging speculative credit creation).
    Voutsinas and Werner (2011a) in a data set with 33,000 observations found that the supply of credit was an important constraint that influenced publicly-listed Japanese firms’ corporate capital structure decisions.
    Notice that this conclusion is not dependent on the classical assumption of full employment. Instead of the employment constraint that was deployed by classical or monetarist economists, we observe that the economy can be held back by a lack of credit creation (see above). Fiscal policy can crowd out private demand even when there is less than full employment. Furthermore, our finding is in line with Fisher’s and Friedman’s argument that such crowding out does not occur via higher interest rates (which do not appear in our model). It is quantity crowding out due to a lack of money used for transactions (credit creation). Thus record fiscal stimulation in the Japan of the 1990s failed to trigger a significant or lasting recovery, while interest rates continued to decline.
    The finding suggests that Japanese fiscal policy has been ineffective during the 1990s (but also the prior and subsequent decades, as tests show), because it was not supported by monetary policy. Ironically, this ineffectiveness finding may provide a strong case for using fiscal expenditure policy as an effective avenue for stimulating the economy, especially in times when bank credit is stagnating – fiscal policy, that is, which is appropriately coordinated with suitable monetary policy. The need for coordination of fiscal and monetary policy has been emphasised previously by economists such as Lerner (1943), Wray (2001), but also Schabert (2004).33 “
    http://eprints.soton.ac.uk/339271/1/Werner_IRFA_QTC_2012.pdf



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  9. "Nevertheless, the neoclassical demand for structural reform became mainstream opinion and thus the Japanese government embarked on a major structural reform programme during the 1990s, including several thousand deregulatory measures, administrative reforms and the ‘Big Bang’ liberalization of financial markets. Yet there is no evidence that these structural reforms boosted economic growth. To the contrary, the empirical relationship between economic performance on the one hand and deregulation, abolition of cartels and greater market reform on the other has been quite the opposite of what neoclassical economics proclaims: when Japan significantly increased the number of cartels in its economy during the 1950s, economic growth accelerated sharply. It is less well-known that structural reforms towards greater market orientation were already started in the 1970s – under US political pressure – resulting in the scrapping of cartels and a steadily growing role for market forces. Thus the number of cartels fell sharply during the 1970s. When the structural reform programme accelerated during the 1980s and 1990s, the number of cartels came down further, finally dropping to zero. However, this shift away from the cartelized Japanese economic structure to a market-oriented economic structure was not accompanied by higher economic growth, as the neoclassical theories had predicted. To the contrary, as the number of cartels fell, so did economic growth. The decade of zero cartels was also when GDP growth dropped to zero.”
    http://www.palgraveconnect.com/pc/doifinder/view/10.1057/9780230506077

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