Article

Europe's Hunger Games: Income Distribution, Cost Competitiveness and Crisis

April 2014
Cambridge Journal of Economics 39(3):959-986

Authors:

The dominant view, both on the mainstream right and on the left, holds that the Eurozone crisis is a crisis of labour-cost competitiveness—with trade imbalances (and hence foreign indebtedness) being driven by divergences in relative unit labour costs (RULCs) between surplus and deficit countries. To re-balance Eurozone growth, the mainstream solution is a deflationary policy of ‘internal devaluation’ (i.e. cutting the wage share by as much as 30%) in the deficit countries. The ‘progressive’ view holds that the surplus countries should adjust by raising their wage shares. We argue that both sides of this debate are wrong and unhelpful. Europe’s trade imbalances are determined by domestic and world demand—whilst RULC divergences play only a negligible role. Eurozone growth can only be revived when Eurozone demand growth is restored, not by lowering wages here and/or raising them there. The current deflationary adjustment forced on the wage-led economies of Greece, Italy, Portugal and Spain is self-destructive: it is a ‘confidence killer’, not only deepening the free fall of southern European incomes but also damaging their productive base and productivity growth. The outlook is depressing—further increases in already high unemployment rates, inequality measures and poverty rates inconceivable in prosperous Europe just a few years ago—and arguably dystopian.

The Promised Land or a Mirage? The Puzzling Divergence of the European Union's Periphery

Article

Jan 2023

João Alcobia

THE PROMISED LAND OR A MIRAGE? THE PUZZLING DIVERGENCE OF THE EUROPEAN UNION'S PERIPHERY.

Preprint

Full-text available

May 2023

João Alcobia

Using a Balance-of-Payments Constrained Growth model and a Convergence Quadrants Diagram this paper finds evidence of economic divergence of most European Union (EU) peripheral member states and the EU average between 1996 and 2019. In only two cases-Spain and Cyprus-do we find a trend of economic convergence, but which was of an unsustainable nature since it was accompanied by growing external imbalances. Further, using a productivity convergence/divergence model this paper again finds evidence of productivity divergence between peripheral member states and the EU average between 1996 and 2019, though it finds evidence of productivity convergence between 1996 and 2008. In the 2009-2019 period, productivity divergence was driven by a more pronounced reduction in the income elasticity of exports than in the income elasticity of imports and by a reduction in the importance of economies of scale. JEL: C22, C23, E12, F15 and F45.

Labor costs, KIBS, and export performance: A comparative analysis of Germany and Mediterranean economies

Article

Mar 2023
Struct Change Econ Dynam

Following the onset of the Eurozone crisis, Mediterranean economies (Greece, Italy, Portugal, Spain) followed the example set by Germany, implementing structural reforms with the aim of restraining labor costs and transitioning to export-led growth. Using input–output tables, this paper analyzes the role of labor costs and nonprice factors in the export performance of the manufacturing sectors in these Mediterranean economies and in Germany. We estimate an export model taking subsystems as units of analysis, permitting us to consider how the productive linkages between manufacturing and services affect export growth. Our results show that the effect of labor costs on export performance has been negligible in these five economies, while non-price factors stand out as the main drivers of export growth. In addition, we find that the development of stronger linkages between knowledge-intensive business services (KIBS) and manufacturing provides a substantial stimulus for non-price competitiveness.

The Ambiguous Effects of Targeting Current Account Surpluses

Chapter

Dec 2022

Nina Eichacker

This paper argues that seeking to maintain a trade surplus may have negative economic consequences. It explains how countries trying to run a trade surplus may generate a paradox of thrift by seeking to reduce their spending on foreign-made goods and depressing growth in both nations. When many nations do this, the result will be slow growth throughout the world. Furthermore, there is no escape from the simple math of trade balances—one nation’s trade surplus must be another nation’s trade deficit. Export-led growth cannot increase global demand. If countries experiencing trade deficits employ policies to create trade surpluses, the result will be economic volatility, which reduces spending, especially investment spending, and slows economic growth.KeywordsBeggar-thy-neighbor trade policyCurrent account surplusExport-led growthBalance-of-payments constrained growthMercantilismParadox of thrift

Exporting differently? The political economy of alternative export-led strategies

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Sep 2022

The paper enters the current debate at the intersection of comparative political economy and international trade on the role of price and non-price competitiveness in influencing export. Through an econometric exploration, we identify price competitiveness as a non-negligible factor in driving export, for a set of OECD countries from 1994 to 2019. The documented price sensitiveness, combined with the institutions and policies adopted to promote export-led growth, casts an unsettling light on the prospects for a recovery, particularly for the Euro area. These worrying conclusions are not, however, unescapable. The emergence of the export-led growth model - with its twin brother, the debt-led one - answered the demand-generating problems created by years of wage share decreases and a steady retreat of the State from its traditional demand management role. Drastically inverting these tendencies would contribute to strongly narrowing the need for export-led strategies.

The evolution of debtor-creditor relationships within a monetary union: Trade imbalances, excess reserves and economic policy

Article

Full-text available

May 2022
Struct Change Econ Dynam

This paper analyzes the emergence of internal debtor-creditor relationships within a monetary union. We develop a stock-flow consistent model consisting of three regions – North, South, and the Rest of the World (RoW) –, where North and South form a monetary union. We show how the simultaneous presence of investment booms, declining export performance and mercantilist policies within a monetary union can interact in order to create Minsky-type boom-bust cycles. Fiscal policy and a Eurozone lender of last resort can help sustain economic life under existing structural imbalances, but without eliminating the root causes of boom-bust patterns.

Labor Costs, KIBS, and Export Performance: A Comparative Analysis of Germany and Mediterranean Economies

Preprint

Full-text available

Apr 2022

After the onset of the Eurozone crisis, Mediterranean economies (Greece, Italy, Portugal, and Spain) followed the example set by Germany, implementing structural reforms with the aim of restraining labor costs and transitioning to an export-led growth. Using input-output tables, this paper analyzes the role of labor costs and non-price factors in the export performance of the manufacturing sector in Mediterranean economies and Germany. To do so, we estimate an export model taking subsystems as units of analysis, which allows us to consider how the productive linkages between manufacturing and services affect export growth. Our results show that the effect of labor costs on export performance turns out to be negligible in these five economies, while non-price factors stand out as the main drivers of export growth. In addition, we find that the development of stronger linkages between knowledge-intensive business services (KIBS) and manufacturing provides a substantial stimulus for non-price competitiveness.

Trade models in the European Union

Article

Full-text available

Jan 2022

By studying the factors underlying differences in trade performance across European economies, this paper derives six different “trade models” for 22 EU countries and explores their developmental and distributional dynamics. We first introduce a typology of trade models by clustering countries on the basis of four key dimensions of trade performance: endowments, technological specialisation, labour market characteristics and regulatory requirements. The resulting clusters comprise countries that base their export success on similar trade models. Our results indicate the existence of six different trade models: the ‘primary goods model’ (Latvia, Estonia), the ‘finance model’ (Luxembourg), the ‘flexible labour market model’ (UK), the ‘periphery model’ (Greece, Portugal, Spain, Italy, France), the ‘industrial workbench model’ (Slovenia, Slovakia, Poland, Hungary, the Czech Republic), and the ‘hightech model’ (Sweden, Denmark, Netherlands, Belgium, Ireland, Finland, Germany and Austria). Subsequently, we provide a comparative analysis of the economic development and trends in inequality across these trade models. Inter alia, we observe a shrinking wage share and increasing personal income inequality in most of them, yet find that the ‘high-tech model’ is an exceptional case, being characterised by relatively stable economic development and an institutional setting that managed to counteract rising inequality.

The export performance and competitiveness of the Euro area's periphery

Article

Full-text available

Dec 2022

Radovan Kovacevic

This paper examines the impact of the selected factors on the real exports of goods and services in the several Euro area (the eurozone) peripheral economies. There are five countries in the sample (Italy, Spain, Portugal, Ireland, and Greece). The time period from 2000 to 2019 is considered. The research is aimed at providing robust estimates of the long-term relationship between the real exports of these countries and the selected explanatory variables using panel data analysis. The coefficients of the cointegration export equation were estimated using the FMOLS and DOLS estimators. Using the FMOLS estimator, the estimated coefficient of the real effective exchange rate is negative (-0.80) and of the variable foreign demand is positive (2.25). The coefficient of the real effective exchange rate confirms the fact that, from the point of view of the eurozone peripheral members, the overestimated real value of the Euro has a disincentive effect on their real exports. The estimated coefficient of foreign demand suggests that the real export of goods and services (volumes) of the eurozone peripheral members increases by 2.25% when the real GDP of the EU increases by 1%. The real export elasticity of the eurozone periphery countries is higher for foreign demand (income elasticity) than for relative price changes (price elasticity). Reductions in wages and prices in peripheral countries have led to redistributive effects in favor of the core.

Out of balance? Revisiting the nexus of income inequality, household debt, and current account imbalances after the Great Recession

Article

Oct 2021

Rising current account imbalances around the globe preceded the Great Recession in the late 2000s. These imbalances narrowed significantly during the crisis mainly due to a negative demand shock and plummeting imports in deficit countries. While income inequality and household debt played a pivotal role in current account imbalances prior to the crisis, it is unclear whether these relations still hold when including the post-crisis era. We estimate current account determinants using a panel of 31 OECD countries over 45 years and include measures for functional and personal income distribution as well as household debt. We find a sustained relation between income inequality and current accounts when including the post-crisis period, while the link to household debt diminishes, indicating a change in the debt regime in a number of countries.

Secular stagnation and core-periphery uneven development in post-crisis eurozone

Article

Full-text available

Mar 2021

In this paper, we analyse secular stagnation in the eurozone. We adopt a core-periphery perspective and analyse whether the 2007–2008 financial crisis triggered off diverging dynamics in the growth potential of core and peripheral eurozone countries. We find that secular stagnation affects the whole eurozone but is a much more serious concern in the periphery. Among the components of potential GDP, the NAIRU in particular has diverged since 2008. We find that the increase in the NAIRU is strongly related to demand-side factors such as investment demand and the fiscal policy stance, as well as to the technological level of the economy. Labour market institutions seem to play a relatively minor role, which may also change depending on the level of technological development of an economy. In line with these findings, we argue that reforms in the eurozone should focus on levelling out the core-periphery technological gap via industrial policy, and on the creation of homogenous financial and macroeconomic conditions among member countries, rather than on the generalized deregulation of labour markets.

The evolution of debtor-creditor relationships within a monetary union: Trade imbalances, excess reserves and economic policy

Preprint

Full-text available

Mar 2021

In the name of competitiveness: a discursive institutionalist analysis of the EU’s approach to labour market structural reform, 2007–2016

Article

Full-text available

Jun 2019

Joan Miró

This article explores the evolving interplay between different discourses on competitiveness, on the one hand, and different approaches to labour market reform on the other, all in the context of the European Union policymaking during the last decade (2007–2016). It asks how the idea of competitiveness has been used in EU policymaking in order to legitimize reforms in labour markets. Theoretically, the article builds on the discursive turn in institutional research. Methodologically, it applies a clause-based semantic text analysis of the Council’s country-specific recommendations on labour market policy issued to a selection of 10 Eurozone Member States. By developing this temporal comparative analysis, the article seeks to trace the potential impact of the euro crisis on the uses of the idea of competitiveness in labour market policy. The resulting analysis sheds light on the institutionally embedded perception of international competitiveness that prioritizes the cost-based (rather than quality-based) elements of the notion.

The Emergence of Core-Periphery Structures in the European Union: a Complexity Perspective The Emergence of Core-Periphery Structures in the European Union: a Complexity Perspective

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Full-text available

Aug 2020

This paper investigates the emergence of polarisation patterns in the EU during the last 60 years from a structuralist and complexity economics perspective. Based on the results, feasible opportunities for EU policy-making, which aim to counteract a tendency of polarization, are delineated. The study comprises of a historical analysis of the politico-economic events during this time and a complementary quantitative analysis of the European trade network. The results suggest that trade in the Eurozone is unequal at the expense of the peripheries and follows a pattern of „unequal technological exchange“. The paper also assesses the usefulness of country taxonomies such as ‘cores’ and ‘peripheries’ for identifying the roots of polarization patterns. While it generally affirms the relevance of structural dependencies, and confirms the epistemic usefulness of country taxonomies, it also highlights three challenges – the challenges of dynamics, of ambiguity and granularity – that any such taxonomy necessarily faces, and which must be dealt with explicitly in any structuralist analysis using such taxonomies.

The Political Value of Internal Devaluation in the Euro Area Crisis

Article

Full-text available

Jul 2020

Ramon Xifré

To overcome the euro area (EA) crisis, the core pushed the periphery to cut labour costs. However, this paper documents that internal devaluation (ID) only mildly improves exports and it can significantly harm firms’ non‐price competitiveness factors. This raises the question of whether ID entered the bail‐out conditionality only for economic reasons or also with political motivations. We argue that the economic crisis reignited a trust‐confidence crisis between the core and periphery countries, with the latter emerging as non‐credible reformers. While some adjustment to regain competitiveness was necessary in the periphery, it is hard to conceive that the policy mix adopted was the outcome of taking all costs into account. Political reasons appear to have exerted a notable influence and this may undermine the effectiveness, ownership and sustainability of present and future reforms. Recovering competitiveness in the euro area (EA) is vital to sustaining social progress and political stability.

Pandemic pushes polarisation: the Corona crisis and macroeconomic divergence in the Eurozone

Article

Full-text available

Jul 2020

This paper discusses the uneven consequences of the macroeconomic fallout from the Coronavirus and related economic policy responses against the background of an analysis of longer-term macroeconomic divergence in the Eurozone. We show that the macroeconomic impact of the Corona crisis is estimated to be more severe in Southern Eurozone countries than in Northern Eurozone countries, which further reinforces the tendency of an increasing economic polarisation. This polarisation process can be traced back to existing differences in production structures and uneven vulnerabilities of the underlying growth models. As a consequence, any policy response to the Corona crisis that does not take the deeper problems of structural polarisation into account will suffer from limited impact in the medium to long run.

Pandemic pushes polarisation: The Corona crisis and macroeconomic divergence in the Eurozone

Preprint

Full-text available

Jun 2020

This paper discusses the uneven consequences of the macroeconomic fallout from the coronavirus and related economic policy responses against the background of an analysis of longer-term macroeconomic divergence in the Eurozone. We show that the macroeconomic impact of the Corona crisis is estimated to be more severe in Southern Eurozone countries than in Northern Eurozone countries, which further reinforces the tendency of an increasing economic polarisation. This polarisation process can be traced back to existing differences in production structures and uneven vulnerabilities of the underlying growth models. As a consequence, any policy response to the Corona crisis that does not take the deeper problems of structural polarisation into account will suffer from limited impact in the medium to long run.

Functional Income Distribution and Secular Stagnation in Europe: An Analysis of the Post-Keynesian Growth Drivers

Research

Full-text available

Jul 2023

The majority of policymakers in the more developed countries have engaged in Reaganomics and Thatcherism in the last four decades by privileging the adoption of wage restraint policies to sustain economic growth. During that time, the wage share has registered a sustained fall, and economic growth has been rather dismal, which seems to support the theoretical claims of post-Keynesian economics that wage restraint policies are detrimental to economic growth because their disruptive effects on private consumption do not counterbalance their supportive effects on private investment and net exports. We analyse the relationship between the wage share and economic growth by performing a panel data econometric analysis of all European Union countries from 1981 to 2021. Results confirm that wage share positively influences economic growth in the European Union countries, which in reality is a wage-led growth model. Results also show that the decline of the wage share has represented one of the main constrainers of growth in all European Union countries in the last four decades, particularly in the euro area countries. These results suggest that policymakers in the European Union countries should adopt pro-labour policies in order to revert the decreasing (increasing) trend of the wage (profit) share and avoid the consolidation of a secular stagnation in Europe.

Between a rock and a hard place. Long-term drivers of EU structural vulnerability

Article

Full-text available

Mar 2023

This work analyses the European Union’s structural vulnerability vis-à-vis a global economy that is increasingly divided into two opposing blocks with ever more ‘weaponized’ interdependencies. First, we provide an empirical assessment of EU’s vulnerability focusing on four main dimensions – demand, supply, technology and critical raw materials. Second, we provide a comprehensive theoretical framework identifying the major drivers of vulnerability. The latter are associated with the German-centered export-led growth model that has largely shaped the European economy during the last twenty years. Three are the (intertwined) key drivers: demand-repression, fallacious economic policy set-up and core-periphery divide. Finally, we analyse the recent revival of industrial policy in Europe discussing whether and to what extent such policies, particularly those directed at accelerating digitalization and energy transition, might be able to reduce vulnerability.

The Dutch disease of the Euro Area peripheral member states

Research

Full-text available

Jan 2023

This paper analyzes explanations identified in the literature for the subpar economic performance of the so-called peripheral member states of the Euro Area since the mid-1990s. It argues that a key factor was a Dutch disease-like transmission mechanism, as the adoption of the euro led to a capital inflow shock. This resulted in a structural shift in the productive structure of the peripheral economies away from technologically advanced manufactured goods, which are characterized by higher productivity growth. As a consequence, the peripheral member states specialized in non-tradable sectors, and in low-technology and labor-intensive tradable goods sectors, which largely explains the peripherals' low economic growth, low productivity growth, and growing macroeconomic imbalances.

The North-South divide: sources of divergence, policies for convergence

Preprint

Full-text available

May 2022

Labour Market Flexibility and Workers’ Living Conditions in Europe

Article

Jun 2022
Struct Change Econ Dynam

Labour market flexibility is one of the main pillars of the European policy framework, as it is perceived as an instrument to promote growth with positive spillover effects on the workers’ income. The aim of this article is to investigate the effect of competition in the labour market on workers’ living conditions from a macroeconomic perspective. An empirical dynamic panel co-integration technique connecting indicators of workers’ poverty to an index of ‘labour flexibility’ is applied to 15 European Union countries. The results suggest that higher flexibility of the labour market is correlated, in the long run, with a higher number of workers living in poverty, considered in both relative and absolute terms. When examining the population as a whole, these results seem to be amplified, suggesting that the strategy of pressure on the labour market could be detrimental not only for workers but also for general living conditions.

Price Competitiveness in the European Monetary Union: A Decomposition of Inflation Differentials based on the Leontief Input-Output Price Model for the period 2000 to 2014

Conference Paper

Full-text available

Jul 2019

This paper studies the persistent producer price inflation differentials within the European Monetary Union. By applying a decomposition procedure within the input output framework, the drivers of sectoral producer price inflation in a representative sample of member states are revealed. We find that in the pre-crisis period (2000-2008) the inflation differentials in manufacturing and market services of all countries vis-à-vis Germany were consistently positive resulting in a loss of price competitiveness for all economies. Manufacturing and market service sectors of many countries continued to lose price competitiveness, though to a lesser extent, also during the crisis period (2009-2014). We observe that differences in unit labour cost developments across countries constitute an important driver, especially in the pre-crisis period. Other drivers, such as import costs, intermediate input costs and operating surpluses also contribute, in particular during the crisis period.

Throwing Darts and Missing the Bullseye: Fiscal and Debt Sustainability in Open Economies

Conference Paper

Full-text available

Apr 2022

Collin Mervin Constantine

This article develops a stock-flow consistent (SFC) model to study fiscal and debt sustainability in an open economy since the standard debt indicator (debt-GDP ratio) combines stock and flow variables. The model demonstrates that the government's budget constraint yields a fiscal rule that is not SFC: a long-run primary surplus overshoots/undershoots stock-flow equilibria (the bullseye) or engenders debt crises. On the contrary, an SFC fiscal rule shows that a long-run primary deficit as a share of GDP obtains goods market equilibrium at potential output and a steady-state debt ratio, even when the economy is dynamically efficient and irrespective of the exchange rate regime. SFC accounting permits a primary deficit because it includes the private sector and external balances, unlike the government's budget constraint. Moreover, the model finds that monetised-fiscal deficits undermine debt sustainability in fixed and flexible exchange rate systems by compromising the peg and increasing the rate of nominal depreciation, respectively.

Non‐Price Competitiveness Factors ‐ A simple measure and implications for the five largest euro area countries

Article

Full-text available

Apr 2021

Ramon Xifré

This paper obtains a versatile measure of non‐price competitiveness factors (NPCF) based on a simple international trade model. Trade frictions are reinterpreted as the NPCF conditions (inferior product quality, suboptimal geographical and industry specialization of exports and any other limitations of the production and exporting channels) that inhibit trade. The setup is applied to the five largest euro area economies for the period 2000‐2018. Over this period, NPCF have improved significantly in the Netherlands and Spain, mildly in Italy and Germany, and mildly worsened in France. In all countries the improvement in NPCF has been more intense and sustained in the first half of the period and more unstable in the second half. The setup is also applied at the product level, considering four types of products depending on the stage of processing, rendering results which are similar across product types and aligned with those for the whole economy. The results suggest that the conventional North‐South divide in the euro area might not be entirely applicable regarding NPCF.

‘Banks 1 – Portugal 0’? Financial player entanglements in the Eurozone crisis

Article

Full-text available

Nov 2020

Victoria Stadheim

The euro has been at the heart of the debate about the crisis in the Eurozone. For some, it represents a fixed exchange rate regime, which hampered peripheral countries’ competitiveness, and for others, the European Monetary Union has a ‘flawed institutional design’ and an insufficient degree of integration that engendered the crisis. The present article analyses monetary integration from a materialist perspective. It draws attention to political agency, power and crisis management. The article focuses on the case of Portugal and poses the question of how the country's authorities were compelled to request a rescue package from the International Monetary Fund, the European Central Bank and the European Commission in 2011. It shows that this decision was triggered by the political agency of a series of players within the world of finance, most notably Portugal’s domestic banks, the independent Bank of Portugal and the European Central Bank. Reflecting their material interconnection through the European monetary system, their agency was highly coordinated. The strategies for crisis management that came to deepen the recession were not the result of insufficient European integration – they rather reflected Portugal’s form of integration within the European Monetary Union at the specific moment of crisis.

Essays in Open Economy Macroeconomics: Technological Gaps, Income Distribution and the Balance of Payments Constraint

Thesis

Full-text available

May 2020

Collin Mervin Constantine

This thesis contains four chapters. In the first chapter, I provide a structured survey of balance of payments (BP) constrained growth models. Unlike other surveys, this chapter reviews the various mechanisms of relative price adjustments, undertakes a comprehensive review of capital flows and surveys the literature on endogenous trade elasticities. The second chapter contributes to the literature on technological gaps and BP constrained growth by developing a theoretical framework to account for the ambiguous effects of capital inflows on short and medium-run growth. The model shows that when a technological gap exists between two countries in an Economic and Monetary Union (EMU) and it exceeds a critical threshold, capital flows toward the technological laggard deteriorate its production structure and reduce its BP constrained growth rate. Several conclusions are derived. The size of the technological gap and demand-regimes are consequential for relative economic performance and regional cohesion. Capital flows within a community can produce both convergence and divergence effects. Finally, if political consensus is lacking at the regional level as to the design framework for a Fiscal Union, then the principal convergence criteria must include demand regimes and the size of the technological gap. The third chapter endogenizes the trade elasticities as an ambiguous function of the wage share but a positive function of the inverted technological gap. When the laggard economy has a small capital goods producing sector, high inequality and conspicuous consumption, a tradeoff emerges between distribution and technological convergence. However, the tradeoff becomes less binding if an EMU provides for investments in technological innovation and emulation that assist the catching-up process. The fourth chapter incorporates the monetary economy into a three-incomes post-Kaleckian model. It demonstrates how a devaluation can induce contractionary effects by lowering the profit share and raising the loan rate. These results are driven by oligopolistic bankers who exercise market power in the bond and loan markets. Moreover, the chapter demonstrates that monetary policy increases bankers’ rent share, which lowers the rate of firm-level innovation. These results imply that the effects of a devaluation depend on the degree of competition in the banking sector, the size of banks’ foreign assets- and loan-capital ratios and whether or not the economy is in a regime of excess reserves.

The role of internal devaluation in correcting external deficits: The case of Spain

Article

May 2020
Struct Change Econ Dynam

This paper carries out an ex-post evaluation of the internal devaluation policy in correcting external deficits. We examine to what extent and through which mechanisms the internal devaluation strategy implemented after 2010 is responsible for the readjustment in net exports in the case of Spain. Our analysis incorporates the effects linked to changes in external competitiveness and domestic prices and those associated with changes in income distribution. The main way in which internal devaluation contributed to external readjustment was through a decrease in domestic demand and imports rather than through enhanced external competitiveness. These demand effects derived from the distributive impact of changes in unit labor costs, which reduced the Spanish wage share during this period. According to our estimates, internal devaluation explains 33% of total external sector readjustment over the 2010-2018 period, 98% of which is driven by the demand effect, with the remaining 2% resulting from price effects.

Product specialisation, global competition, and industrial decline: Portugal’s path to crisis

Article

Apr 2023

Victoria Stadheim

A widely held view in economics and comparative capitalism states that the crisis in the eurozone was a crisis of labour cost competitiveness. This view maintains that a divergence in unit labour costs engendered a cleavage between the euro area’s core and periphery. Critics have disputed this and drawn attention to export specialisation, along with global competition, rather than intra-European competition. To make progress on this agenda, this article focuses on structures of production as a source of crisis vulnerability. It advances the notion that countries have unique forms of articulation within global capitalism, and that this matters to understanding national crisis trajectories. Focussing on the Portuguese case, the article scrutinises the interactions between export specialisation, global competition and industrial decline. The article shows that Portugal’s current account deficit developed within a context of industrial change and deindustrialisation, which was facilitated competition from China and Eastern Europe. By stressing industrial patterns and global competition, the article provides a more concrete analysis of production than most accounts of the eurozone crisis.

Foundering on fallacies: theorizing the Eurozone’s self-harming mercantilism

Article

Mar 2023

Palma Polyak

The Eurozone’s export-oriented policy regime and pursuit of trade surpluses remains thoroughly puzzling. Rooted in overly strict fiscal policies, inequality and underinvestment; undermining growth and contributing to trade tensions– it defies economic self-interest. This paper develops an analytical framework to confront this puzzle. It argues that these policies are self-harming, but are nonetheless pursued, because of three fallacies that obscure the cost-benefit calculus attached to them. These fallacies are rooted in the empirical problem of observational equivalence: the same observed surplus can be driven by different underlying processes, and its net benefit will depend on our assumptions about these drivers. The first fallacy is mistaking external enablers for domestic competitiveness—interpreting export success to be linked to domestic reform, when it was largely explained by better links to faster growing trading partners. The second fallacy is mistaking weak imports for strong exports—interpreting surpluses as ‘winning’, even when they are not driven by superior exports but sluggish imports. The third fallacy is mismeasuring multinational firms’ contributions to national exports—interpreting profit shifting and assets stashed in low tax jurisdictions as export performance. Germany and Ireland, as paradigmatic ‘success cases of austerity’, are used to expand the argument.

Macroeconomic ingredients for a growth model analysis for peripheral economies: a post-Keynesian-structuralist approach

Article

Dec 2022

Engelbert Stockhammer

The growth models approach (GMA) has become increasingly prominent in Comparative Political Economy over the last years. While it has originally been developed for advanced economies, there is a growing number of applications for developing countries. This raises the question of how readily transferable the GMA concepts are to the peripheral capitalist experience. This paper explores the analytical building blocks for an extension of the GMA to developing economies from post-Keynesian-structuralist perspective. It argues that in a developing country context supply-side considerations will be more important and build on structuralist theory to understand the ‘real’ constraints in the developing countries' growth process. It uses Minskyan theory to understand how currency hierarchy creates financial causes for international economic stratification. As a consequence, the role of the state is more crucial than in advanced economies, but at the same time states are more vulnerable. This paper concludes by reflecting on the key concepts of GMA, finance-led, export-led and state-led growth in the light of developing economies and identifying neoliberal as well developmentalist versions of these.

The North-South divide: Sources of divergence, policies for convergence

Article

Nov 2022
J POLICY MODEL

Building on the labour-augmented K+S model framework, we analyse the Italian North-South divide by means of an agent-based model (ABM) endogenously reproducing the divergence between two artificial macro-regions. The latter are characterized by identical initial conditions in terms of productive and innovation structures, but different labour market organizations. We identify the role played by these different arrangements on the possible divergence across the two regions. We found that divergences in the labour market reverberate into asymmetric productive performance due to negative reinforcing feedback loop dynamics. We then compare alternative mitigation policies by showing that schemes increasing machine renewal and replacement investment are the most effective in fostering convergence.

A tale of housing cycles and fiscal policy, not competitiveness. Growth drivers in Southern Europe

Article

Full-text available

Nov 2022

Southern European countries are widely considered a distinct type of capitalism, but they have experienced a varied growth performance, both over time and across countries. This paper investigates the growth drivers in southern Europe since the mid-1990s. We consider a broad set of potential growth drivers derived from the literature on Mediterranean capitalism and Comparative Political Economy more broadly. On the demand side, these include the role of house prices (as the main financial variable; highlighted in parts of the growth models approach); the ‘financial curse’ hypothesis (which posits that financial inflows caused house price booms and crowded out manufacturing activities); and Keynesian arguments on the impact of fiscal policy. On the supply side, these encompass the cost competitiveness argument (consistent with mainstream economics and the Varieties of Capitalism approach), research-led technological change; and neo-structuralist arguments regarding the productive capacity. We find strong evidence for the growth contributions of house prices and fiscal policy. While these findings are generally supportive of extant analysis of these economies as finance-led rather than export-led, they call for a more serious integration of house prices in growth model analysis and for a more systematic analysis of the growth impact of fiscal policy.

The Greek Sovereign Crisis: A Post-Keynesian Synthesis

Article

Apr 2022

Vigny Leo

The Greek crisis shocked many by its magnitude and by the nature of the policies implemented in its aftermath. The radical nature of the so-called Memorandum of Understanding was justified by the imbalances that the Greek economy experienced before the crisis. The current account deficit had been rising, as private and external debts. In addition, the ratio of public debt to GDP exceeded 100%. The crisis has been widely explained by a lack of fiscal discipline, a loss of competitiveness, and the rise of capital inflows. In this article, we seek to refute these narratives and offer a post-Keynesian interpretation of the Greek economic trajectory. Growing private indebtedness boosted imports. The resulting current account deficits were offset by rising capital inflows. Greece’s high level of public debt goes back to the 1980s. The narrow tax base of the country and usurious interest rates are to blame. However, none of these trends was sufficient to trigger the sovereign debt crisis. We argue that the main cause of the Greek crisis lies in the political economy of the Eurozone, and more particularly in its asymmetric governance.

Reconsidering the drivers of country-specific recommendations: The Commission's ideological preferences on wage policies

Article

Full-text available

May 2022

Joshua Cova

As part of the European Semester, the European Commission issues country-specific recommendations for all member states. I contribute to the literature on this political instrument, by considering the determinants of recommendations calling for greater wage moderation and enhanced cost competitiveness. For the most part, research on European economic governance has either understood the European Commission as a politicized and ‘ideological’ institution or as a de-politicized, technocratic actor. My analysis shows that the European Commission's ideological preferences on labour markets and wage bargaining institutions are more convincing predictors than explanations based on economic indicators. By testing a series of multilevel models, I find that irrespective of developments in competitiveness, countries with stronger social actors are more likely to be recipients of country-specific recommendations calling for wage restraint.

Learning from distant cousins? Post-Keynesian Economics, Comparative Political Economy, and the Growth Models approach

Article

Mar 2022

Since the global financial crisis there has been growing interest in Post-Keynesian macroeconomic theory by political economists. In particular, the recent Growth Models approach in Comparative Political Economy (CPE) draws heavily on Kaleckian macroeconomics of demand regimes. This paper, firstly, traces the disintegration of nineteenth-century political economy and highlights that many streams within heterodox economics are a continuation of the political economy project, as are the sub-fields of CPE and International Political Economy in the social sciences. Secondly, the paper gives an overview of the Growth Models approach and its relation to Post-Keynesian Economics (PKE). It clarifies different strategies of identifying growth models empirically, namely GDP growth decomposition versus analysing growth drivers, and it highlights changes in growth models since the global financial crisis. Finally, it identifies opportunities and challenges that emerge from a continued engagement of PKE with political economy and with CPE in particular.

Excessive Inequality and Socio-Economic Progress

Book

May 2022

A Buddha Land in This World: Philosophy, Utopia, and Radical Buddhism

Book

Full-text available

Apr 2022

Lajos Brons

In the early twentieth century, Uchiyama Gudō, Seno’o Girō, Lin Qiuwu, and others advocated a Buddhism that was radical in two respects. Firstly, they adopted a more or less naturalist stance with respect to Buddhist doctrine and related matters, rejecting karma or other supernatural beliefs. And secondly, they held political and economic views that were radically anti-hegemonic, anti-capitalist, and revolutionary. Taking the idea of such a “radical Buddhism” seriously, A Buddha Land in This World: Philosophy, Utopia, and Radical Buddhism asks whether it is possible to develop a philosophy that is simultaneously naturalist, anti-capitalist, Buddhist, and consistent. Rather than a study of radical Buddhism, then, this book is an attempt to radicalize it. The foundations of this “radicalized radical Buddhism” are provided by a realist interpretation of Yogācāra, elucidated and elaborated with some help from thinkers in the broader Tiantai/Tendai tradition and American philosophers Donald Davidson and W.V.O. Quine. A key implication of this foundation is that only this world and only this life are real, from which it follows that if Buddhism aims to alleviate suffering, it has to do so in this world and in this life. Twentieth-century radical Buddhists (as well as some engaged Buddhists) came to a similar conclusion, often expressed in their aim to realize “a Buddha land in this world.” Building on this foundation, but also on Mahāyāna moral philosophy, this book argues for an ethics and social philosophy based on a definition of evil as that what is or should be expected to cause death or suffering. On that ground, capitalism should be rejected indeed, but utopianism must be treated with caution as well, which raises questions about what it means – from a radicalized radical Buddhist perspective – to aim for a Buddha land in this world.

Acceleration of Labour Cost Along with Deceleration of Productivity: How the Slovak Manufacturing Lost the Advantage of Low Unit Labour Cost

Article

Full-text available

Sep 2021

The recent development in the Slovak economy erased a significant competitive advantage of manufacturing – low labour cost. The paper analyses the driving factors of rising unit labour costs in the manufacturing sector. The paper aims to explain why the unexpectedly rapid loss of traditional competitive advantage took place in the group of V4 countries and why this phenomenon was particularly pronounced in Slovakia. The paper identifies the driving factors that caused a strong increase in labour costs in addition to factors that also caused a slowdown in productivity growth. The decomposition of ULC dynamics has shown that the primary problem in the case of Slovakia is a very significant slowdown in labour productivity growth. Especially, from a marginal perspective, the components of gross value added developed strongly in favour of increasing compensations of employees. The decrease in the working-age population represented a significant driving force of increasing labour cost (wages) along with a halt in productivity growth caused by relatively low investment rate and absence of convergence in capital-to-labour ratio. Such development was identified in all V4 countries; however, the least favourable trend took place in Slovakia.

Centre–Periphery in the EU-20: a classification based on factor analysis and cluster analysis

Article

Sep 2021

Alfredo del Río

One of the main targets of the European Union (EU) is the achievement of economic convergence among its member states. However, economic and social differences have not been diminishing. Over the past decade, asymmetries have become more obvious and use of the expression ‘European periphery’ has increased significantly. The ambiguity around this term has led to the development of a classification based on the Latin American Structuralist School and Dependency Theory, adapting these approaches to the European economies at present. Through factor analysis, we obtain a rigorous and consistent classification of a representative group of European countries, the EU-20, which allows us to identify the most relevant asymmetries between two clusters: the centre and the periphery. Moreover, analysis over time, examining data from 1995 to 2014, enables us to detect important changes in these classifications as well as the composition of the two clusters.

Cohesive Growth in Europe: A Tale of Two Peripheries

Article

Full-text available

Mar 2021

Michael Dauderstädt

Over the last two decades, income disparities between EU member states tended to decline, particularly before the financial crisis. While Central and Eastern Europe caught up with the EU average, Southern Europe fell behind after 2009. Catch-up growth in both peripheries relied on nominal convergence (real appreciation) and foreign capital. Further growth can and should be fostered by an economic policy that does not neglect domestic demand, stabilises capital markets and invests in research, education, health and intangibles.

quo-vadis-finale

Article

Full-text available

Mar 2021

1 QUO VADIS, EUROPA. Un percorso critico in tre movimenti e mezzo. Riccardo Bellofiore Francesco Garibaldo 0.1 Il lettore che voglia farsi un giudizio sullo stato dell'Europa ha oggi la possibilità di documentarsi a partire da tre scritti che ne illuminano la storia, la crisi, e le prospettive. Ci riferiamo: (i) a tre working paper di Joseph Halevi per l'Institute for New Economic Thinking nel 2019, sull'economia politica europea dal 1945 ai primi anni duemila; 1 (ii) al volume Una Unione divisiva. Una prospettiva centro-periferia della crisi europea, di Giuseppe Celi, Andrea Ginzburg, Dario Guarascio, Annamaria Simonazzi, precedente la pandemia; 2 (iii) al libro La riconquista. Perché abbiamo perso l'Europa e come possiamo riprendercela, di Francesco Saraceno, anch'esso del 2020, ma dopo la prima ondata della pandemia. 3 0.2 In queste note di commento ci proveremo a proporre una lettura ragionata (e teoricamente orientata) delle tre prospettive interpretative, mostrandone la ricchezza e per molti aspetti la complementarità: ma anche le tensioni interne e alcuni limiti. Ne emergerà, speriamo, un discorso unitario: talvolta grazie agli argomenti che riprenderemo da questi autori, talaltra in dialettica con loro. È un'ottica volutamente parziale, la nostra, che non ripercorrerà tutto ciò che di valido si trova nei lavori a cui ci riferiamo, ma che d'altra parte vorrebbe estrarne, mediante il procedimento di una critica che si vuole simpatetica, una sorta di 'verità interna' racchiusa nelle loro opere che possa risultare utile ad affrontare le questioni dell'oggi. 0.3 Ci chiederemo, in conclusione, cosa comporti di nuovo per il ragionamento che i volumi aiutano a delineare la pandemia del coronavirus. Di nuovo in termini di politica economica e di intervento sociale; o se si vuole, più semplicemente ma più sostanzialmente, di sfida politica e di compiti urgenti per l'azione. La storia molto politica dell'unificazione economica e monetaria europea 1.1 Conviene partire dai saggi di Joseph Halevi. I tre working paper-più di cento pagine, un vero e proprio libro-entrano nel dettaglio nella questione delle origini della costruzione dell'unificazione economica europea nel secondo dopoguerra. Inoltre, con più trasparenza che negli altri autori il discorso è metodologicamente elaborato come vera e propria storia 'concettuale'. I fatti sono inquadrati dentro una griglia analitica che è subito rivelata al lettore, e che si oppone a tutto campo alle varie declinazioni del pensiero economico dominante. Condividendo totalmente la scelta di metodo di Halevi, e in larga parte la sua griglia analitica, non stupisce che il quadro che delinea ci appaia, con poche eccezioni, del tutto convincente. 1.2 Chiariamo subito quale sia lo schema teorico con cui opera il nostro autore. Il centro è costituito da una lettura del tutto originale degli schemi di riproduzione di Marx. Il triplo filtro con cui vengono appropriati quegli schemi rimanda al dibattito russo-tedesco-austriaco, all'esperienza della cartellizzazione, e alla grande crisi. Per un verso, Halevi riprende la rielaborazione di Adolf Löwe: l'esponente forse maggiore della Scuola di Kiel, formatosi al marxismo socialdemocratico e attento 1 Halevi

The Future of the Eurozone: A Reflection Paper on the North/South Divide

Chapter

Feb 2021

There is now a wide agreement that reforms of the architecture of the Eurozone (EZ) are needed, reforms aimed at fostering further integration of economic policy and governance. Behind the plea for “more Europe”, divergences loom large across member states. The cleavage is normally represented in geographic mode, the Northern EZ countries (NEZ) on one side, the Southern EZ countries (SEZ) on the other. It is quite clear that divergences have more to do with economy and polity than with geography. Suspicion runs high and mutual trust runs low between SEZ and NEZ. In these circumstances, it is extremely difficult to reform the EZ, while the conditions are set for populist, sovereigntist, anti-European movements to thrive. However the COVID pandemic may turn out to be a catalyst of reforms. We first attempt at understanding the legacy of the EZ crisis of the 2010s and its mismanagement by appealing to the present “consensus view”. This effort will help the reader focusing on why NEZ and SEZ disagree and to find out whether and how they can agree. Second, we try to build on this common narrative in order to identify the possible consensus changes in the EZ rules and institutions.

Current account imbalances and the Euro Area. Controversies and policy lessons

Article

Full-text available

Jan 2021

The crucial role of current account imbalances (CAI) is widely acknowledged in the consensus narrative of the European crisis that followed the Great Recession. On the basis of this interpretation, CAI play a prominent role in the EU Macroeconomic Imbalances Procedure (MIP), which broadens the EU economic governance framework to include the surveillance of unsustainable macroeconomic trends. Although the widening of the CAI in the Euro Area before the crisis is a matter of fact, and the consensus narrative contains elements of truth, alternative views have been put forward on three main issues: (i) the relevance of CAI, (ii) their causes and connection with the crisis, and (iii) their policy implications. The aim of this paper is to examine these controversial points about the causes, meaning and consequences of CAI, and discuss the alternative policy prescriptions that emerge.

Alternative explanations for the euro crisis and their implications

Article

Full-text available

Sep 2020

Ricardo Paes Mamede

The paper discusses alternative explanations for the crisis that hit the euro area in 2010-2012. The crisis is inseparable from the accumulation of external imbalances between member countries since the mid-1990s. Therefore, the explanation for its origins has to be found in the identification of the mechanisms that contributed to the accumulation of those imbalances. The different explanations discussed here - convergence between economies, fiscal practices, labour relations, capital flows and specialization profiles - are not mutually exclusive. However, the available evidence suggests that some processes are more relevant than others - and they are not the most obvious.

Beyond the Euro: Limits to Economic Policy in the EU

Article

Full-text available

Jan 2019

The euro's crisis is often theorized as that of a fixed exchange-rate monetary system, whose rigidity in the face of heterogenous national economies is the main factor behind the Eurozone's troubles. We argue instead that the euro should be primarily considered as a successful attempt to further the integration of the European economy within an ordoliberal framework, part of an institutional continuum stretching from the European Single Market to the present. Further, we note that the constraints placed by the euro on national economies are deeply entangled with those deriving from EU membership, so that both are likely to weigh on any attempt to break with neoliberalism at national level.

Diversificación de mercados y crecimiento de la exportación

Article

Full-text available

Nov 2020

En este sentido, una de las claves del éxito de la exportación española reside en su patrón geo-gráfico que, aun cuando sigue dependiendo de nuestros socios comunitarios de mayor dimensión, a lo largo de las tres últimas décadas, y con especial intensidad desde los primeros años 2000, se ha ido diversificando hacia las economías emergentes con una demanda más vigorosa y mejores expectativas de crecimiento, así como hacia otras más maduras y con extensa capacidad de compra. La ampliación de la cartera de destinos permite ante todo aprovechar las oportunidades que depa-ran los mercados más dinámicos, pero tiene tam-bién otras repercusiones positivas, como la com-pensación de los ciclos recesivos en unos mercados con los expansivos en otros (que da estabilidad a la exportación), la acumulación de experiencias dispares en las empresas (lo cual mejora su capaci-dad competitiva), o la posibilidad de diferenciación de los productos en función de los mercados, en calidades y características, una estrategia con fre-cuencia seguida por las grandes empresas y que I. INTRODUCCIÓN P ESE al asombro general que ha suscitado entre analistas y responsables políticos, el destacado ascenso de las exportaciones españolas desde 2010 no constituye un fenómeno nuevo, sino que es la continuación de una sólida y dilatada trayecto-ria expansiva, que se vio espoleada con la adhesión de España al proyecto comunitario y cosechó sus ritmos de crecimiento más elevados en el decenio de 1990 (Myro, 2015). Por otra parte, la excelente marcha de la expor-tación española, solo comparable a la de Alemania entre las principales economías desarrolladas (Álvarez-López y Vega-Crespo, 2017), ha renovado el interés por identificar sus razones explicativas, que van más allá de los tradicionales determinantes (demanda externa y precios relativos expresados en una moneda común) incluidos en las funciones de demanda de exportación. DIVERSIFICACIÓN DE MERCADOS Y CRECIMIENTO DE LA EXPORTACIÓN M.ª Elisa ÁLVAREZ-LÓPEZ Universidad de Valladolid Rafael MYRO Universidad Complutense de Madrid Resumen En el presente trabajo se determina la influencia que ha ejercido la estructura geográfica de las exportaciones españolas sobre la evolución de la cuota porcentual que estas representan en el comercio mundial de bienes. Se utiliza para ello la metodología que se conoce habitual-mente como de la cuota de mercado constante. Se concluye que la excesiva concentración de las ventas españolas en los destinos comu-nitarios resulta clave para explicar el descenso de la cuota de España en el mercado mundial en los años expansivos inmediatamente anteriores a 2008, de la misma forma que la estrategia de diversificación de mercados emprendida desde entonces por las empresas españolas ha sido clave en el apreciable ascenso de la citada cuota desde 2010, un aspecto que ha causado sorpresa general. El que esto haya ocurrido también en los tres últimos años que se analizan, 2014-2016, posee una especial relevancia por cuanto estos son años marcados por una notable desaceleración de los flujos de comercio internacional. Palabras clave: exportaciones, cuota exportadora, diversificación de mercados, competitividad, España. Abstract The aim of this paper is to determine the influence that the geographical structure of Spanish exports has had on the evolution of the percentage quota of world trade in goods. The `constant market share´ methodology is used for this purpose. It is concluded that the excessive concentration on EU estinations is key to explaining Spain´s declining world market share in the expansive run-up to 2008. Similarly, the strategy of market diversification Spanish companies since then is crucial to explaining rise in the quota since 2010; something which has caused general surprise. The same happened 2014 to 2016, which is particularly noteworthy as these years were characterised by a considerable slowdown in international trade flows.

The Eurozone as a Trap and a Hostage: Obstacles and Prospects of the Debate on European Fiscal Rules

Article

Full-text available

Oct 2020
Intereconomics

Orsola Costantini

Structural change and cumulative causation: A Kaldorian approach

Article

Jun 2020

This paper presents a multisectoral model based on Kaldor's approach to explain the importance of structural change and cumulative causation. Divergence in countries' growth rates in Kaldorian models are explained either by different degrees of increasing returns among sectors on the supply side or by different income elasticities of exports and imports on the demand‐side, but it is not explained by both factors together. In this vein, a multisector growth model that combines different sectoral income elasticities and different sectoral increasing returns is built to explain how structural changes toward high‐tech industries can trigger a process of cumulative causation and ensure higher growth rates in the long run.

The Macroeconomic Impact of the Porter Hypothesis: Sustainability and Environmental Policies in a Post-Keynesian Model

Article

May 2020

Giulio Guarini

The aim of the paper is to propose a post-Keynesian analysis of the Porter Hypothesis (PH) according to which regulation policies can bring about new economic opportunities by generating ‘green’ environmental innovations. Firstly, I illustrate the main features of the PH. Secondly, a Post-Keynesian growth model is developed by focusing on the macroeconomic impact of the PH. Finally, two equations of the model are estimated, an investment function and a green productivity function, by applying the GMM for panel data to European countries, over the period 1999–2012. The theoretical findings concern the potential rebound effect of regulation if its multiplier effect is greater than its innovation effect and the need for a policy mix to achieve environmental and socio-economic goals together. The empirical section verifies both the weak version of the PH, according to which environmental policies can stimulate green productivity, and (indirectly) the strong version of the PH by estimating the positive impact of green productivity dynamics on private investment.

Labor Relations and Productivity Growth in Advanced Capitalist Economies

Article

Full-text available

Mar 1999

In this paper, we claim that worker rights (including collective bargaining rights, employment protection, and income security) promote productivity growth. We argue that cooperative labor-management relations encourage workers to make positive contributions to technical and organizational innovations that raise labor productivity, and that an industrial relations system that secures strong worker rights fosters cooperative labor-management relations. These arguments are supported by an empirical analysis of long-run productivity growth in 15 advanced capitalist countries. We first develop an index of worker rights and show its positive effect on several indicators of labor-management cooperation. We then develop an index combining measures of worker rights and labor-management cooperation and show its positive effect on the rate of growth of labor productivity.

The imprudence of labour market flexibilization in a fiscally austere world

Article

Full-text available

Mar 2013
INT LABOUR REV

. This article assesses the effects of combining fiscal austerity with policies aimed at reducing labour costs and, in doing so, sheds new light on current policy debates. Taking a global perspective, the authors explore the aggregation problem by proposing a stylized analytical macro-model with explicit distribution dynamics. In this framework, flexibilization policies that suppress the labour share trigger global feedbacks that result in a downward spiral, with contraction even in export-led economies. The initial gains of more competitive economies are shown to be ephemeral. In the long term, the world economy is essentially wage-led and responds positively to coordinated Keynesian stimuli.

The Revenge of the Market on the Rentiers. Why Neo-liberal Reports of the End of History Turned Out To Be Premature

Article

Full-text available

Jul 2009

José Gabriel Palma

Starting from the perspective of heterodox Keynesian-Minskyian-Kindlebergian financial economics, this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis. These include excess liquidity, income polarisation, conflicts between financial and productive capital, lack of appropriate regulation, asymmetric information, principal-agent dilemmas and bounded rationalities. However, the paper then proceeds to argue that perhaps more than ever the ‘macroeconomics’ that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated. Taking the perspective of critical social theories the paper concludes that, ultimately, the current financial crisis is the outcome of something much more systemic, namely an attempt to use neo-liberalism (or, in US terms, neo-conservatism) as a new technology of power to help transform capitalism into a rentiers’ delight. In particular, into a system without much ‘compulsions’ on big business; i.e., one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy (while doing the opposite to workers and small firms). A key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital. The architects of this experiment include some capitalist groups (in particular rentiers from the financial sector as well as capitalists from the ‘mature’ and most polluting industries of the preceding techno-economic paradigm), some political groups, as well as intellectual networks with their allies—including many economists and the ‘new’ left. Although rentiers did succeed in their attempt to get rid of practically all fetters on their greed, in the end, the crisis materialised when markets took their inevitable revenge on the rentiers by calling their (blatant) bluff.

The Design Faults of the Economic and Monetary Union

Article

Full-text available

Mar 2011

The basic proposition of this paper is that the economic problems which have threatened the existence of the euro have not arisen in the main through ‘bad’ behaviour of some member states. They rather come from ‘design faults’ in the construction of the euro project. These faults can be seen as present in the nature of the convergence criteria which focus on nominal rather than real variables; pay no attention to the validity of the exchange rates at which countries enter the EMU, or to the prevailing current account deficits and surpluses; nor to the differences in inflation mechanisms between countries. These ‘design faults’ continue with the inadequacy of a fiscal policy based on numerical targets operating at the national level. The design of the ‘independent’ European Central Bank has largely precluded the necessary co-ordination of fiscal and monetary policy, and has also disabled the central banking system from providing sufficient support to national governments and their budget deficits. It is concluded that a complete re-design of the Stability and Growth Pact and related policies is required.

Functional Income Distribution and Aggregate Demand in the Euro Area

Article

Full-text available

Mar 2007
CAMB J ECON

An increase in the wage share has contradictory effects on the subaggregates of aggregate demand. Private consumption expenditures ought to increase because wage incomes typically are associated with higher consumption propensities than capital incomes. Investment expenditures ought to be negatively affected because investment will positively depend on profits. Net exports will be negatively affected because an increase in the wage share corresponds to an increase in unit labour costs and thus a loss in competitiveness. Therefore, theoretically, aggregate demand can be either wage-led or profit-led depending on how these effects add up. The results will crucially depend on how open the economy is internationally. The paper estimates a post-Kaleckian macro model incorporating these effects for the Euro area and finds that the Euro area is presently in a wage-led demand regime. Implications for wage policies are discussed. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Distribution and Growth Reconsidered: Empirical Results for Six OECD Countries

Article

Full-text available

May 2008
CAMB J ECON

We analyse the relationship between functional income distribution and economic growth in Austria, France, Germany, the Netherlands, the UK and the USA from 1960 until 2005. The analysis is based on a demand-driven distribution and growth model for an open economy inspired by Bhaduri and Marglin, which allows for either profit- or wage-led growth. We find that growth in France, Germany, the UK and the USA has been wage-led, whereas Austria and the Netherlands have been profit-led. In the case of Austria a domestically wage-led economy changes to profit-led when including the effect of distribution on external trade. The Netherlands, however, are already profit-led without external trade. Our results so far only partially confirm Bhaduri and Marglin's theoretical conclusion that wage-led growth becomes less feasible when the effects of distribution on foreign trade are taken into account.

New Trade Theory, Non-price Competitiveness and Export Performance

Article

Full-text available

Jan 2010
ECON MODEL

This paper develops a demand function for Greece's exports of manufactures according to New Trade Theory. Non-price competitiveness plays a vital role in explaining export performance and failure to include it in the export equation may lead to mis-specification error. Foreign income has a moderately high effect on exports in the long run and no effect in the short run. Exports are also sensitive to domestic and competitors' prices in the long run, but cost and price competitiveness elasticities are close to one, indicating that Greek exporters have some ability to compete on the basis of prices.

Distribution, aggregate demand and productivity growth - theory and empirical results for six OECD countries based on a Post-Kaleckian model

Article

Full-text available

Feb 2008

Empirical research based on the Bhaduri/Marglin-variant of the Kaleckian model has recently shown that aggregate demand in many medium-sized and large open economies tends to be wage-led in the medium to long run, even in a period of increasing globalisation. In this paper we extend this type of analysis and integrate the effects on productivity growth, theoretically and empirically. Productivity growth is introduced into the theoretical model making use of the Verdoorn effect or of Kaldor’s technical progress function and hence of a positive relationship between GDP or capital stock growth and productivity growth. Further on, a costpush or Marx/Hicks-effect and hence a positive impact of real wage growth or the wage share on productivity growth is taken into account. In the empirical part we estimate productivity growth equations for six countries introducing these two effects. Finally, economic policy conclusions are drawn.

Labor relations and productivity growth in advanced capitalist economies

Article

Dec 2000

Robert Buchele

What is labour-market flexibility? What is it good for?

Article

Jan 1998

R.M. Solow

Labour market rigidities can be useful: A Schumpeterian view

Article

Jan 2013

Estimations des élasticités du commerce extérieur sur l’ensemble des biens et services pour un panel de 17 pays

Article

Jan 2001

Karine Hervé

Elasticity values in trade equations have led to much discussion on subjects such as the role of the exchange rate in long-term distortion of nominal trade balances. This paper contributes to the discussion by calculating a trade model for a panel of 17 industrialised countries. Its innovative feature is to apply an original econometric method that makes it possible to test the equality of parameters between countries. This study demonstrates that there are structural differences between countries which may be more or less pronounced depending on the behaviour and range selected and that exchange-rate variations affect economies unequally.

The Pure Theory of International Trade

Article

Jan 1946

Joan Robinson

Is a stable workforce good for productivity?

Article

Sep 2005
INT LABOUR REV

In a follow-up to former studies on the resilience of the long-term job in Europe, the present study asks whether, on average, long tenure of a country’s workforce is good or bad for productivity growth. While there is concern that high average tenure indicates a “rigid” labour market with low adjustment capacity to structural change and with an assumed detrimental effect on productivity, the findings do not support such a hypothesis, at least not for the countries and the period analysed. The relationship between tenure and productivity for the period 1992 to 2002 shows that at an aggregate level, tenure has a positive effect on productivity for about 14 years and levels off thereafter. Overall, it seems that countries remain productive with a high share of long-tenured workers. While long tenure seems to be good for productivity, it might be less positive for the labour markets within Europe, as the more flexible labour markets are generally associated with higher employment rates. We discuss ways to overcome productivity-employment trade-offs, in particular we propose using social dialogue to institutionalize “flexibility-security.” Doing so does not only benefits individual workers and employers, but macroeconomic performance as well.

Chapter 20 Income and price effects in foreign trade

Article

Dec 1985
Handbook Int Econ

This chapter identifies, summarizes, and evaluates the main methodological and policy issues that have surrounded the estimation of trade equations. By “trade equations,” it mean equations for the time-series behavior of the quantities and prices of merchandise imports and exports, and as the title of the chapter suggests, it focuses explicitly on the role played by income and prices in the determination of these trade variables. The chapter addresses the main methodological issues in the specification of trade models. It discusses variables in demand and supply functions for imports and exports, what choices and compromises have to be made in the measurement of these variables, and what light existing evidence throws on the choice among competing specifications. The treatment of dynamics and time lags, aggregation, simultaneity, and stability of the relationships concerned has also been discussed in the chapter. The empirical estimates of income and price elasticities themselves and to the policy implications of those estimates have also been reviewed. Finally, suggestions are made for further research in the chapter.

The 45°-rule revisited

Article

Oct 1993

P. S. Andersen

The purpose of this note is to update and reconsider the 45°-rule (or Thirlwall's law) by applying cointegration techniques to export equations based on national accounts data for 16 countries. The income demand elasticities derived on this basis are fairly close to those found earlier, whereas the relative price elasticities are much lower, with the Marshall-Lerner condition satisfied for only few of the 16 countries. More important to the validity of the 45°-rule is that the conditions for cointegration are not satisfied, suggesting that the equations are misspecified and that current external accounts are non-stationary. When analysing this issue further it appears that the reasons for the apparent breakdown of the 45°-rule can be traced to developments in the 1970s and 1980s when countries were exposed to major changes in their terms of trade and real effective exchange rates.

Labor Market Regulation and Productivity Growth: Evidence for Twenty OECD Countries (1984–2004)

Article

Oct 2009

We present empirical evidence for a cross section of twenty OECD countries (1984–2004) that a relatively regulated and coordinated (“rigid”) industrial relations system promotes long-run labor productivity growth. This conclusion is reinforced when we differentiate between (three) categories of OECD industrial relations systems and test for differences in productivity performance.

Regulating for Decent Work: New Directions in Labour Market Regulation

Article

Jul 2011

Introduction to Regulating for Decent Work: New Directions in Labour Market Regulation (Palgrave/ILO 2011). The book is an international and interdisciplinary response to the two most significant accounts of the role and significance of labour market regulation: orthodox economic theory and the International Labour Organization’s Decent Work Agenda. It is the first volume to be compiled from the work of the Network on Regulating for Decent Work, an international and interdisciplinary research network established to support and encourage interdisciplinary research on labour market regulation. The volume advances the academic and policy debates on post-crisis labour regulation by identifying new challenges, subjects and theoretical perspectives. It identifies central themes in the contemporary regulation of labour, including the role of empirical research in assessing and supporting labour market interventions; the regulation of precarious work; and the emergence of new types of labour market. This Introduction first outlines the recent evolution of the deregulatory narrative. It then draws on subsequent chapters in the volume to address the design of theoretical, conceptual and methodological frameworks through which research on labour market regulation can be advanced. Two issues of central relevance are elaborated: the potential benefits of labour regulation and the complexity of regulatory frameworks.

Current Account Imbalances and Real Exchange Rates in the Euro Area*

Article

Sep 2008
Rev Int Econ

Global current account imbalances have been one of the focal points of interest for policymakers during the last few years. Less attention has been paid, however, to the diverging current account balances of the individual euro area countries. In this paper we consider the dynamics of current account adjustment and the role of real exchange rates in current account determination in the EMU countries. After controlling for the effects of income growth, we find the relationship between real exchange rates and current accounts to be substantial in size and subject to nonlinear effects. We find that real exchange rates can offer further insights, beyond the effects of the income catch-up process, relevant to current account determination in the EMU.

Structural changes, cointegration and the empirics of Thirlwall's law

Article

Apr 2010

Alberto Bagnai

Thirlwall's law establishes a relation between the long-run growth rate, the growth of exports and the long-run income elasticity of imports. The estimation of this parameter requires cointegration techniques, which in turn require a large span of data, thus exposing the estimates to risks of structural changes. While this problem has been recognized in the literature, the evidence produced is still partial, being concerned with a very limited number of countries, and in some respects unsatisfactory. In this article we fill this gap by assessing Thirlwall's empirical regularity on a sample of 22 Organization for Economic Cooperation and Development (OECD) countries using econometric techniques that allow for the presence of a shift of unknown date in the long-run parameters. The results are generally supportive of Thirlwall's hypothesis and allow us to reconcile and qualify the evidence provided in the existing literature.

OECD demand regimes (1960-2000)

Article

Feb 2007

Real wage growth restraint is generally regarded as a necessary condition for sustained gross domestic product growth and lower unemployment in the Organization for Economic Cooperation and Development (OECD). We use a general Keynesian growth model, allowing demand growth to be wage led or profit led, to argue that the case for real wage restraint is based on weak foundations. The model is applied to eight OECD countries (1960-2000). We find that (1) demand is wage led in France, Germany, Italy, the Netherlands, Spain, and the United Kingdom, and (2) the decline in world trade growth is the dominant cause of sluggish growth in all economies, including profit-led Japan and the United States.

Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?

Article

Feb 2002
BROOKINGS PAP ECO AC

Both Portugal and Greece have been running large current account deficits, and these are expected to continue in the future. Yet, financial markets do not appear to be worried. Starting from this observation, we document that Portugal and Greece are in fact representative of a broader evolution: Increasing goods and financial market integration is leading to an increasing decoupling of saving and investment within the European Union, and even more so within the Euro area. In particular, it is allowing poorer countries to invest more, save less, and run larger current account deficits. The converse holds for the richer countries.

Power and the Useful Economist

Article

Jan 1973

John Kenneth Galbraith

This report examines the process of economic and financial integration in East Asia in the light of Europe's experience.� The report provides a comprehensive analysis of East Asian monetary and financial integration process (including a deep analysis of East Asia's response to the 1997-98 financial crisis), a comprehensive critical survey of the literature on monetary and financial integration in East Asia, and an assessment of the various initiatives undertaken in the region for financial cooperation and macroeconomic surveillance.� Its aim is to evaluate the evolution of the last decade and to offer policy suggestions.� The main policy recommendations concern essentially two areas: (i) how to promote the creation of a regional financial market in Asia and (ii) how to encourage cooperation and macroeconomic surveillance in the region. (Provisional version. The printed publication will be delayed until the final text is available).

Europe's Hunger Games: Income Distribution, Cost Competitiveness and Crisis

Abstract

No full-text available

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