JAF Debate – Developing World

1. JAF Debate – Developing World (etc.)

2. A Student’s Guide to Economics • Paul Heynes • “The dramatic failure of socialism that could no longer be denied at the end of the twentieth century was not, as many seem to believe, a consequence of the fact that people are selfish and put their own interests ahead of the interests of society. It was a consequence of the fact that no one is omniscient” (24). • “But we do not, because we cannot, put their interests ahead of our own” (25). We only really know our own interests

3. More quotes… • “Markets coordinate self-interested behavior, which certainly may be selfish behavior, but much more frequently is not” (25). • “The moral critics of market systems often object at this point that such systems make no provision for social justice. Market systems allegedly accept what emerges from individuals’ pursuit of their own interests and ignore the inequalities and injustices that this produces. Considered abstractly, that may be true. But market systems don’t exist in abstraction; they are always part of a larger social system” (32).

4. Introduction to Politics of the Development World • “The World Bank, one of the major international organizations that provides financial assistance to the Third World, divides developing countries according to their annual gross national income (GNI) per capita (a general measure of the total output of an economy divided by the total population) into four broad groups: low income, $935 or less; lower middle income, $936-3,705; upper middle income, $3,706-11,455; and high income, $11,456 or more. The most developed countries are in the high income category…but these countries, in fact, have an average GNI per capita of over $37,500 per year” (17).

5. Cont. • Graphs on page 21 – pop. Of world and income • China, India, Mexico, Brazil, Nigeria, Iran,

6. Having It Both Ways (response by Wells-Dang) • “The authors…confuse the issue of inequality with poverty reduction. It is indisputable that absolute poverty has declined dramatically in countries such as China and Vietnam following market reforms, and that millions of people are better off as a result. Nevertheless, relative inequality has risen just as dramatically, creating a host of social problems” (9).

7. Spreading the Wealth (Dollar, David, and Kraay) • Lumsdaine Article • From the Abstract: “Contrary to popular perception, globalization has not resulted in higher inequality within economies…globalization has actually promoted economic equality and reduced poverty” (1).

8. Stabilization • “…a long-term global trend toward greater inequality prevailed for at least 200 years; it peaked around 1975. But since then, it has stabilized and possibly even reversed. The chief reason for the change has been the accelerated growth of two large and initially poor countries: China and India” (1). • Growth percentages

9. Naivety • “It would be naïve to think that trade and investment along can alleviate poverty in all locations. In Fact, for those locations with poor geography, trade liberalization is less important than developing proper health care systems of providing basic infrastructure—or letting people move elsewhere” (7).

10. Migration • Each year, 83 million people are added to the world’s population, 82 million in the developing world. In Europe and Japan the population is aging, migration from South to North is needed. (7).

11. Inequality Is No Myth (response by Pitts) • “…the latest World Bank report on globalization, of which Dollar was a principal author, backed away from the claim that the most globalized countries were those that had adopted the most protrude policies” (10). • “…the net worth of the world’s richest 200 individuals exceeds that of the world’s poorest 2.5 billion people” (11). • “Policies such as greater and more effective foreign aid; investment in developing countries’ education, infrastructure, and technological capacity; enhanced access to rich-country markets; and international financial reforms are also vital in achieving a more stable, just, and sustainable system” (11).

12. Dollar and Kraay Reply • “We reiterate that by ‘global inequality’ we refer to the distribution of income across individuals around the world” (11). • “Our point is simply that countries that have become more globalized, in the sense of becoming more open to trade and direct foreign investment, have grown faster” (12). • “It is hard to imagine that China would have been able to sustain as high a growth rate over the next two decades without the benefits of further integration with the world economy” (12).

13. The End of Poverty (Jeffrey Sachs) • “One of the ironies of the recent success of India and China is the fear that has engulfed the United States that success in these two countries comes at the expense of the United States. These fears are fundamentally wrong and, even worse, dangerous. They are wrong because the world is not a zero-sum struggle in which one country’s gain is another’s loss, but is rather a positive-sum opportunity in which improving technologies and skills can raise living standards around the world” (16). • “The greatest tragedy of our time is that one sixth of humanity is not even on the development ladder” (19). • Two hundred years ago, everyone poor (26). • World population chart page 27 – income chart on page 28

14. Cont. • “…today’s vast inequalities reflect the fact that some parts of the world achieved modern economic growth while others did not” (29). • “Technology has been the main force behind the long-term increases in income in the rich world, not exploitation of the poor” (31). • “The extent of extreme poverty is shrinking, both in absolute numbers and as a proportion of the world’s population” (51).

15. Different Countries • Bolivia, Poland, Russia, China, India, Africa • Page 244, six major kinds of capital extreme poor need: • Human capital, business capital, infrastructure, natural capital, public institutional capital, knowledge capital • “Many poor countries today pretend to reform while rich countries pretend to help them, raising the cynicism to a pretty high level” (266) • “Since 1978, China had undertaken dramatic market-based reforms” (148). • “Asia is not merely catching up with Europe and the United States; it is also catching up with its own past as a technological leader” (149).

16. Global Political Economy (Robert Gilpin) • “The American model, like the neoclassical model, rests on the assumption that markets are competitive and that, where they are not competitive, competition should be promoted through antitrust and other policies” (151). – managerial capitalism • “In the Japanese scheme of things, the economy is subordinate to the social and political objectives of society” (157). – neomercantilism • “The German state and the private sector provide a highly developed system of social welfare” (169). – “corporatist” or “welfare state capitalism”

17. Financial Crises • “Recurrent financial crises cause one to question the rationality of markets…” (264) • “The specific event or market signal that triggers the rout and eventually causes a financial panic may be a bank failure, a corporate bankruptcy, or any number of untoward events” (265) • Completely open and unregulated international financial system – creates moral hazard, people acting recklessly, or “as unregulated financial market would itself punish investors and borrowers who failed to pursue prudent economic behavior. If international investors realized that no one would rescue them if they got into trouble, they could become more cautious with their investments” (272)