September 29, 2004

Apology to Seth Stevenson

On reflection, I do owe Seth Stevenson an apology. He is not a moral imbecile, and he is wrestling with the right questions (even if, from my perspective, he lacks the intellectual tools he needs to get the correct answers). What is wrote looks, in the cold light of the computer screen, a lot rougher than I intended it too.

I therefore apologize.

But I do not concede the point. I want to preserve it: First Worlders are more complicit in the continuation of Third World poverty when they don't buy products made by Third World labor than when they do. The big problem (which the government of Kerala and the CPI(M) are trying hard to solve) is the thin market/local politics monopsony of Mr. Shady Middleman. Debbie is doing a good thing (although not the best thing) for world development by raising demand for coir in India rather than sourcing her mats from some high-tech materials factory in North Carolina. It is important to think analytically. Et cetera...

Posted by DeLong at September 29, 2004 10:28 PM | TrackBack
Comments

The key to prosperity is industrialization. Low-margin labor-intensive business of making rugs (or hand baskets, or growing coffee) will not make the country well-off. All you do is provide excuses for your conspicious consumption.

Posted by: a at September 29, 2004 10:46 PM

Stupid question from a non-economist: given that there is no truly free world market when immigration is restricted, what market system with standard immigration constraints best approximates a free market?

Posted by: Matt at September 29, 2004 11:10 PM

Standard theory says that free trade ought to be able to compensate for restrictions on immigration, but what is standard theory worth? It and a farecard will get you a ride on BART...

Posted by: Brad DeLong at September 29, 2004 11:14 PM

Debbie is an enabler. You wouldn't approve of Debbie if she were enabling her husband's alcoholism, why do you encourage her to enable the poor working conditions of others?

Posted by: jerry at September 29, 2004 11:42 PM

All other things being equal, say I place a higher value on a product made by someone earning a living wage, than someone earning a less than subsistence wage.

(Perhaps it's of higher value to me, because I believe that a world that had no less than subsistence wage products will in fact be a world not with lots of poverty, but a world in which third world countries find a way to earn living wages, and in turn that will make my world more politically stable.)

You are saying that contrary to my own desires, I am somehow guilty of a moral wrong if I don't by the lesser product.

In what way can you call yourself a free market proponent?

Posted by: jerry at September 29, 2004 11:56 PM

The CPI(M) "Communist Party of India (Marxist)" - you have to love the nuance - is in power in West Bengal, not in Kerala, which is governed by the Congress (I) (I for Indira).

Posted by: Fazal Majid at September 30, 2004 12:03 AM

Simply google "OVOP Japan" and OTOP Thailand" and learn

Posted by: Hans Suter at September 30, 2004 12:44 AM

"but what is standard theory worth?" That's a good question! One that more professors should ask themselves!

Posted by: Mats at September 30, 2004 12:47 AM

no googleing just paste:
http://www.littletongov.org/bia/economicgardening/default.asp

Posted by: Hans Suter at September 30, 2004 01:19 AM

If there are no restrictions on immigration then there is no national sovereignty. One simply has an open piece of real estate. Is this what you want?

Posted by: A. Zarkov at September 30, 2004 01:22 AM

Why is it that the Progressive Era and the New Deal did not lead to economic blight in the United States in the twientieth century? As I understand the argument here, child labor laws, minimum wage laws, occupational safety laws and such only keep workers from bettering themselves. Oddly, the greatest economic advance in this country occurred when collective bargaining, overtime pay standards, steady government jobs paying middle class wages and a host of other political decisions and accomodations led to a labor force earning compensation above subsistance level.

Even following a libertarian paradigm, the United States consumer market is insufficient to raise the living standards of the entire third world. Therefore why is it moral for our country seek out the most exploitative labor markets for a supply of imports? Instead the United States could choose to enter into bilateral relations with trading partners requiring they assure minimum standards for their own labor force. The argument for this policy - decency aside - is that it leads to a maximization of economic progress for other populations; the better compensated become pump primers themselves.

The current White House administration seeks to return this country to McKinley Era economics and morality. Put-upon capitalists believe wage slavery is just tough love for labor; slavery itself and its off-spring, Jim Crow share cropping, are what made the deep south great. This is a new day for that mindset.

Globalisation is a chance to recapture the dream of unfettered capitalism that FDR killed in America. Why intrude upon the domestic affairs of other countries when seeking that fair market price? The profits of prison and slave labor lead to wealthier, happier and more benevolent rulers in oppressive states which only a mush head lacking humanity would fail to realize. The point being, don't you think we could get those door mats cheaper from Myanmar?

Posted by: CMike at September 30, 2004 01:34 AM

Aww, I can't stay mad at you, Professor! MMMWAAAAH!

But I do think that Kleinman was wrong to suggest that smugness and ignorance are all on one side of this debate. Krugman's 1st column for the Times was just as smug and ignorant as any Seattle protestor -- perhaps more so, since at that time he refused to even recognize there was a problem.

Posted by: Carl at September 30, 2004 02:01 AM

Could you say a bit more on standard theory regarding immigration? That just doesn't seem intuitively right to me. If it were true, we'd all be working from home, wouldn't we?

Posted by: Keith M Ellis at September 30, 2004 02:03 AM

"If there are no restrictions on immigration then there is no national sovereignty. One simply has an open piece of real estate. Is this what you want?"

Yes. Eventually. As soon as conditions allow.

Posted by: bob mcmanus at September 30, 2004 02:28 AM

A. Zarkov wrote, "If there are no restrictions on immigration then there is no national sovereignty. One simply has an open piece of real estate. Is this what you want?"

Well, so-called libertarians would love it. It would bid down the price of labor and bid up the price of land. And since (most) right-libertarians are really feudalists in disguise, this would be fine with them:
http://geolib.pair.com/essays/sullivan.dan/royallib.html

Posted by: liberal at September 30, 2004 04:45 AM

CMike wrote, "Therefore why is it moral for our country seek out the most exploitative labor markets for a supply of imports?"

The real exploitation isn't of workers by capitalists; it's of non-landowners by landowners.

Google on "Henry George".

Posted by: liberal at September 30, 2004 04:49 AM

"a": Actually, isn't weaving rugs instead of subsistence farming industrialization by definition? The amount of capital (the looms you want to smash) has risen, as has the marginal productivity of the worker (and also his wage). So exactly what about this situation isn't industrialization? I don't think you can exactly expect these people to start running steel mills or even sweatshops without the skills or capital.

Posted by: Harri Turunen at September 30, 2004 04:51 AM

China and India are have radically changed the development profiles of lower income countries. Through a mix of low wage low cost production and education and technology investment in high wage production and trade trade trade, 2.4 billion people have the potential of living remarkably more comfortable lives.

Wish to change the conditions of mat workers, allow and encourage them to form cooperatives to gain increasing bargaining edges. Change is occuring already, there will be much more with national labor safe-guards.

Posted by: anne at September 30, 2004 05:17 AM

CMike,
I lcouldn't have said it better myself.
My question is this: As we seek to raise the standard of living in the developing world, by whatever mechanisim chosen, what is the net effect on the wealth of the middle class here at home? Is it not diminished?

Posted by: nanute at September 30, 2004 05:19 AM

Remember too that there is a need for cooperative labor organization in America. Notice how readily forgotten is the California supermarket workers campaign to protect against low wage low benefit competition from Wal-Mart. There is need in China and India and America, for increased labor protections.

Posted by: anne at September 30, 2004 05:42 AM

There are two reasons for me not to buy these mats:
1) I don't like them. I don't want one.
2) I don't want to buy a product whose workers were exploited.

Am I understanding economics correctly, that reason 1 is an acceptable reason not to buy one? That in fact, by buying what I like (high tech fibers from NC, say), I become part of the invisible hand that in its clever creatively destructive way moves resources to fulfill wants? That this is the wonder of the market?

And as I understand economics, reason 2 is, to quote the post that started this, "No. No! No!! No!!!! No!!!!!!!!" In this case, by buying what I like (products that pay living wages, like say high tech fibers from NC), I step outside the invisible hand, which moves resources to fulfill wants only if those wants are limited to material tastes. This is why I don't understand economics.

It's like, I've never seen an economist shout "No. No! No!! No!!!! No!!!!!!!!" about the psychological value created by advertising. I have read articles in which economists explain how the fantasies underlying brand preferences are utilitarian in that they create an additional value for the consumer. This seems to apply to preferences for athletic shoes, cars, liquor brands, but not ever, ever, ever to issues of economic justice. As a number of commenters on the previous thread and here have noted, economists always point out that people who bring moral issues rather than material wants to the marketplace really create horrendously immoral results and should be ashamed of ourselves. Ah, well.

So I hope you'll not think too hard of me -- I don't want a mat -- is that enough to keep me from being reincarnated as a dungfly, or does the fact that I don't want to benefit from economic injustice condemn me to the lowest end of the evolutionary scale?

Posted by: nihil obstet at September 30, 2004 06:48 AM

"I don't think the Bush administration itself knows why it is in favor of Social Security privatization. It only knows that it is."

The Administration wishes to lessen the influence of government on the economy. Of course, having a proper budget would do just this, but logic is not as important as ideology. Social Security is a New Deal social benefit program that conservatives have long wished to limit. Privatizing Social Security has the flavor of lessening government influence and that is all that is needed for conservative support.

The reason the Administration was able to convince conservatives in Congress to expand Medicare, is that the expansion will be to the gain of private insurance and drug companies. Again, there is a sense that government influence will be limited even in the expansion. Notice that the government will not be bargaining over drug prices for the coverage.

Posted by: anne at September 30, 2004 08:27 AM

I just wanted to point out one more of the 4237 reasons why Brad Delong is not Ayn Rand -- he apologized.

I also wanted to point out that once you get past my chair-throwing and bad language, that I agree with everything the estimable Anne has written here over the past two years.

Alas, poor Debbie. Let's not be too hard on her.
At least she has a conscience when in her cups. She's not Socrates, whom I always believed should have forsaken the hemlock and escaped to the hills to fight the regime as a guerilla.

If you want to rid the world of Ayn Rand, train your sights on the Bush Administration, who mouths the words of Christ but has the cheesy, petrified heart of Dagny Taggert.

Posted by: John Thullen at September 30, 2004 08:36 AM

Low wage countries could be fixed if they allowed/enabled a good union movement.

Posted by: bakho at September 30, 2004 08:43 AM

Sorry, my post appears on the wrong thread. Who knows how?

Posted by: anne at September 30, 2004 08:43 AM

Brad has graciously suggested that I supply substance rather than signposts in my comments.

Most of us know little about the coir industry, and it wouldn't be that easy to learn. However, experience doth show that many elements of agrarian life and industrialization are found in many societies. Therefore, I will illustrate my reservations with the example of the English wool industry in the year 1600.

At that time, perhaps 2/3s of the enclosures had taken place. Some workers enjoyed higher wages as a result; others made less or were without jobs. England was well on the road to the semi-slavery of the working classes in Victorian England, a period in which poor nutrition and living conditions would actually result in the working class Englishman being smaller, and living a much shorter life, than his middle-class or noble compatriot of the same genetic stock.

The effects of a boycott of the wool industry may be imagined from the effects of other expansions and contractions of the wool market. In general, enclosures and displacement of the rural population increased when the market expanded and slowed when the market contracted.

In other words, the wool-workers did well when the market expanded; the pre-existing agrarian classes benefitted from a contraction of the wool market. Over a long period of time, however, another effect became dominant: the concentration of wealth, and the benefits of wealth, in a smaller number of wealthier landowners.

In short, if you buy coir mats you help some people and hurt others, and if you don't the reverse is true.

This seeming conumdrum may be addressed in a number of ways. In the 20th century, starting especially with the 'handicrafts' movement in Scotland, and also fairly visible in the efforts in China in the 30s, and in the Appalachian highlands at about the same time, efforts were made to form cooperatives that could improve the marketing position of the producer.

Naturally, it is rare, or impossible, to find an example of a producer's co-op marketing goods like automobiles or steel. In our PNW many of the plywood mills were worker-owned until the demise of the old-growth timber, and subsequent changes in plywood manufacturing technology, formed a challenge they could not meet. The workers in these mills enjoyed a standard of living meeting or exceeding that of the workers at Boeing.

In the early 70s I was a member of a worker-owned bakery collective. In a heated debate, motivated members convinced a majority that chocolate was BAD, if not EVIL, and that we should only make carob brownies. Naturally, these were poor sellers and shoppers simply went next door to a shop that did sell chocolate brownies. The entire point became moot when feminist members of the collective split off the most profitable part of the business to create a man-free workplace.

It's all part of a process and drawing a conclusion of intense moral indignation may, in the matter of coir mats, be premature.

Posted by: serial catowner at September 30, 2004 08:44 AM

JUst as in the developed world, the challenge is to empower the workers, to organise them somehow, to use group power to extract more of the surplus generated by their labor -- without destroying the enterprise altogether. This is extremely difficult in such 3rd world situations: the middle man can play villages against each other and can pay off village and district heads, police, the local army captain, etc. "Debbie", if she really wants to, can attempt to use leverage on this. Of course, if she's not a big buyer, she doesn't have much leverage. But she might sponsor a school in the village or support an NGO who brings health care to the village, in that way returning some of the profits.

Posted by: paulo at September 30, 2004 08:52 AM

John Thullen

Same for me.
Lovely :)

Posted by: anne at September 30, 2004 08:52 AM

The moral argument here is unclear.

First, traditional economics. When there is a labor surplus, the least-employable must accept what they can get or be reduced to begging. In the long run an economic solution to a chronic labor surplus would be to let the population adjust itself downward until the surplus dissipates. The governmet etc could do things to try to artificially increase the supply of jobs to meet the (uncontrolled but slowly changing) supply of workers who demand jobs. But that distorts the market. Productivity is highest when the population size adjusts to meet the demand for workers. Demand for labor in an economy is like demand for rabbits in an ecosystem. You can distort the system by putting out rabbit food and providing protection from predators etc, but there's no particular reason to think the distorted system will work better than the undistorted system.

Given that we do have a lot of surplus workers who will take time to starve off, productivity is better if they take whatever sub-subsistence jobs they can get before they die. If they starve off without working they do no one any good. If they can find jobs that pay them almost enough to eat, they'll starve much slower and the rest of the world gets everything they produce while they are being worked to death.

Labor unions and collective bargaining let some workers shut out the competition. So they can get more money, and those who are shut out get nothing. This can create a middle class where there would otherwise not be one. It could be argued that's better than letting a lot of the poorest people starve slower. The poorest people may not agree.

If there was a labor shortage, then good jobs would tend to drive out bad. Everybody could have a living wage. With more jobs available than people to fill them, people would take their pick and each choose the job that gives them the best rewards -- to the limit of their ability to find good jobs in the chaotic job market. But when there's a labor surplus, what can you do? The surplus people must either be fed for free, and would be a drain on the economy -- they'd be even less useful than the owner class, though they wouldn't consume as much. Or they will starve. Or they will find jobs that let them starve slower, and maybe they'll have a chance at better jobs that might turn up before it's too late for them individually.

There might be some moral clarity here somewhere, but I don't see it.

Posted by: J Thomas at September 30, 2004 08:59 AM

Posted by Harri Turunen: "a": Actually, isn't weaving rugs instead of subsistence farming industrialization by definition?

Not in 21st century.

Posted by: a at September 30, 2004 09:02 AM

The APOLOGY is great, but so, perhaps, was the harshness of the initial lesson. The HARSH actually got people's attention on this issue.

We all want Seth to be OK, but it's more important that the coir weaver families have food.

Posted by: Yesh at September 30, 2004 09:15 AM

http://www.nytimes.com/2004/09/30/business/worldbusiness/30vietnam.html?pagewanted=all&position=

Outsourcing Finds Vietnam
By KEITH BRADSHER

HANOI - With a portrait of Ho Chi Minh gazing down benevolently opposite the doorway and fan blades making leisurely orbits above, the long green room looks as if it could still belong to officials from the Communist-controlled legislature here, its former occupants.

Instead, the room holds one of the more unusual outposts in the shift of clerical jobs to ever-poorer countries in the developing world.

Rows of young university graduates working for World'Vest Base, a company based in Chicago, scan the Internet for everything from emerging market stock prices to corporate filings with the Securities and Exchange Commission in the United States. They copy data into spreadsheets and e-mail it to clients around the world.

Vietnam is making a big push to turn itself into an outsourcing powerhouse. Mathematics instruction has long been the strong suit of Vietnam's educational system, and now the country's government is trying to train people across the country in computer skills.

At the same time, wages remain extremely low: World'Vest Base hires recent graduates with accounting or finance degrees, but no experience, for a starting salary of $100 a month, little more than an unskilled factory worker earns in neighboring China.

Very low wages and strong math skills are a combination that has made believers of some experts.

"You're going to see Vietnam competing with India and some of the other countries doing this within the next five years," said Pete Peterson.

Mr. Peterson was a prisoner of war here for six years during the Vietnam War who went on to become the first United States ambassador after President Clinton normalized relations.

Yet Vietnam still faces considerable obstacles in its pursuit of the kind of low-skill jobs that now employ hundreds of thousands of people in India, Malaysia and the Philippines, let alone the higher-paid computer programming jobs that have helped turn Indian cities like Bangalore and Hyderabad into prosperous models of economic development.

With the approach of the 30th anniversary of the fall of Saigon next spring, Vietnam remains one of the poorest countries on Earth. It still struggles under a Communist government that has moved more slowly than China's to embrace capitalism.

Posted by: anne at September 30, 2004 09:49 AM

Very low wages, very strong math skills and financial information processing will certainly get the attention of some very enterprising people. It is just about the most fertile ground imaginable for some very lucrative fraud.

Just imagine the pump-and-dumps you could rig once these Vietnamese data clearing houses gain respect. Hell, just kick 1% back to these guys and they'll think they're in Fat-City.

Posted by: Njorl at September 30, 2004 10:15 AM

"a": How nice of you to address all of my points in such a thorough fashion, I've never been so devastated in a debate. I guess you seriously think those people will start a biotech company next week?

Posted by: Harri Turunen at September 30, 2004 11:32 AM

Posted by Harri Turunen: "a": How nice of you to address all of my points in such a thorough fashion, I've never been so devastated in a debate. I guess you seriously think those people will start a biotech company next week?

When England industrialized, it had no capital and no knowledge of what works and what does not so it took generations (and arguably populated Australia with cast-offs). In the 20th century the countries that were able to industrialize (for example, South Korea or Taiwan) did so in one generation or less. Now China is industrializing - again in the lifetime of one generation. On the other hand, Latin American countries that supplied bananas and hand-woven baskets to US a hundred years ago are still supplying bananas and hand-woven baskets. The train of economic development is moving ever faster - if you cannot outrun it, you will be left in the dirt.

Posted by: a at September 30, 2004 11:46 AM

And that makes capital accumulation "not industrializing" how? Not to mention, in for example rural China no such process is happening, just as in rural India. And even in the parts of your "advanced" China most of the growth is coming out of very labor intensive work, not biotech or whatever people do in your 21st century. Not to mention the fact that the urban Chinese areas have been accumulating capital for thousands of years now.

Oh, and what exactly does it mean when these people are "left in the dirt"? That they'll never ever be able to catch up? No industrialization for them ever? Ever heard of the Solow growth model and the decreasing marginal productivity of capital?

Posted by: Harri Turunen at September 30, 2004 12:03 PM

"The CPI(M) "Communist Party of India (Marxist)" - you have to love the nuance - is in power in West Bengal, not in Kerala, which is governed by the Congress (I) (I for Indira)."

I think that's what Brad meant when he said "the government of Kerala and the CPI(M)". Btw, the present Congress (I) led Kerala government was elected in 2001. In the 2004 elections when Kerala sent its representatives to New Delhi for the current Parliament, the Congress (I) did not get a single seat. The CPI(M) led LDF got 18 of the 20 seats for the state, of which 14 were from the CPI(M). So its not at all clear whether the government enjoys the trust of the people of that state.

The problem is that although there are progressive elements in the Kerala unit of the Congress(I) as well as its ally the Indian Union Muslim League, they are outnumbered people who "manage (and advance) the affairs of the local landlord class and the local bourgeoisie."

Unfortunately, people in Kerala need to wait another couple of years for them to be booted out of power.

Posted by: vinod at September 30, 2004 12:38 PM

The post raises an interesting point. In a nation large enough to support internal markets, or at least with diverse enough resources to encourage and buffer development, industrialization tends eventually to raise the living standards of everyone.

So why hasn't this happened in India? We have a pretty clear idea of why it hasn't happened in Africa or South America. But most of us, I'm sure, would be hard pressed to explain why it hasn't happened in India.

I'll also note that few posters have recognized the evil influence of U.S. policy on development. Vietnam, for instance, lags- but why wouldn't it? We bombed the hell out of it and left their soil poisoned and full of unexploded ordnance. Considering what we did to Vietnam, is their performance really worse than Thailand or Burma?

In many nations, the most notable today being Colombia, we have sponsored decades-long programs of murder of labor leaders and journalists. Is it reasonable to think industrialization will improve the lives of people who can't organize, or see corruption exposed in the press?

Considering the heavy hand with which the U.S. pries open markets and secures unequal terms of trade, it hardly seems unreasonable to also insist on freedom of the press and freedom to organize as conditions of access to our markets.

And one of the most amazing situations involves Canada, where our drug prohibition policies have made marijuana the second-largest cash crop. In a bizarre post-industrial scenario, suburban homes are converted into indoor farms, obviously the least efficient form of farming ever known, but still immensely profitable. I wonder what outcome classical economics would suggest for this strange development?

Well, I suppose we mustn't let our minds wander...

Posted by: serial catowner at September 30, 2004 12:49 PM

http://www.nytimes.com/2004/09/30/business/worldbusiness/30vietnam.html?pagewanted=all&position=

In coming to Vietnam, Philippe O. Piette, the chief executive of World'Vest, who was born in Antwerp, the Netherlands, has followed an odyssey that says much about how far some companies are willing to look these days for cheap labor.

Trying four years ago to expand overseas, he initially considered Dubai because he wanted to sell market data from Arabic-speaking countries. But he found costs in Dubai were too high, and that few Arabs were available anyway.

"The labor pool was all Indians, Bangladeshis, Pakistanis and Filipinos - no Arabs," he said.

Mr. Piette considered India, but was discouraged by what he saw as sloppiness and poor quality in data-entry operations there. So he ended up opening an operation three years ago in Kuala Lumpur, Malaysia, a polyglot nation with many linguistic groups that were brought together before it gained independence from Britain in stages, beginning in 1957. But wages in Kuala Lumpur are still fairly high: $450 a month for a new graduate and as much as $800 a month for someone with a few months of experience. Even worse for Mr. Piette was the job-hopping.

"We lost a whole slew of people - we're the perfect training ground for the investment banks and brokerage houses," he said.

Mr. Piette, a naturalized American, wanted to offer more data from French-speaking countries and looked to former French colonies in Indochina. He called a diplomat to inquire about Cambodia, was told it was hopeless, and flew to Hanoi late last year instead.

Five decades after independence from France, Hanoi is still poor, with practically no skyscrapers and streets still filled with motorcycles and bicycles. When Mr. Piette tried to place an overseas call from his hotel, it took him nine hours to get an international phone line.

Dismayed but not deterred by the delay, he kept investigating.

He found that Vietnam had not only plenty of French speakers and some English speakers, but also lots of people who spoke Russian and German, having worked in the former Soviet Union and the former East Germany. While World'Vest Base still has 56 employees in Kuala Lumpur, its biggest expansion now is in Vietnam, where Mr. Piette now pays up to $400 a month to some of his first hires who are especially productive and have stuck with the company.

Being a native French speaker has helped in navigating the government bureaucracy.

"The whole country runs on who you know, not what you know," Mr. Piette said. "It's true of most countries, but it's particularly true here."

Posted by: anne at September 30, 2004 12:50 PM

"The CPI(M) "Communist Party of India (Marxist)" - you have to love the nuance - is in power in West Bengal, not in Kerala, which is governed by the Congress (I) (I for Indira)."

I think that's what Brad meant when he said "the government of Kerala and the CPI(M)". Btw, the present Congress (I) led Kerala government was elected in 2001. In the 2004 elections when Kerala sent its representatives to New Delhi for the current Parliament, the Congress (I) did not get a single seat. The CPI(M) led LDF got 18 of the 20 seats for the state, of which 14 were from the CPI(M). So its not at all clear whether the government enjoys the trust of the people of that state.

The problem is that although there are progressive elements in the Kerala unit of the Congress(I) as well as its ally the Indian Union Muslim League, they are outnumbered people who "manage (and advance) the affairs of the local landlord class and the local bourgeoisie."

Unfortunately, people in Kerala need to wait another couple of years for them to be booted out of power.

Posted by: vinod at September 30, 2004 01:36 PM

"The CPI(M) "Communist Party of India (Marxist)" - you have to love the nuance - is in power in West Bengal, not in Kerala, which is governed by the Congress (I) (I for Indira)."

I think that's what Brad meant when he said "the government of Kerala and the CPI(M)". Btw, the present Congress (I) led Kerala government was elected in 2001. In the 2004 elections when Kerala sent its representatives to New Delhi for the current Parliament, the Congress (I) did not get a single seat. The CPI(M) led LDF got 18 of the 20 seats for the state, of which 14 were from the CPI(M). So its not at all clear whether the government enjoys the trust of the people of that state.

The problem is that although there are progressive elements in the Kerala unit of the Congress(I) as well as its ally the Indian Union Muslim League, they are outnumbered people who "manage (and advance) the affairs of the local landlord class and the local bourgeoisie."

Unfortunately, people in Kerala need to wait another couple of years for them to be booted out of power.

Posted by: vinod at September 30, 2004 01:44 PM

Posted by Harri Turunen:

> And that makes capital accumulation "not industrializing" how?

I already said how. If it helps you to understand, if you collect the pennies from your school lunches, you will not accumulate enough to go to colledge - among other things because the price of colledge education raises faster than you can collect pennies.

> Not to mention, in for example rural China no such process is happening, just as in rural India. And even in the parts of your "advanced" China most of the growth is coming out of very labor intensive work, not biotech or whatever people do in your 21st century. Not to mention the fact that the urban Chinese areas have been accumulating capital for thousands of years now.

Oh, yes, it is the capital of urban Chinese areas that is used in the current industrialization. Funny Mao could not use it in the Great Leap. Maybe not enough built up by than?

> Oh, and what exactly does it mean when these people are "left in the dirt"? That they'll never ever be able to catch up? No industrialization for them ever? Ever heard of the Solow growth model and the decreasing marginal productivity of capital?

I heard about many models. Being left in the dirt is being in Africa, being in rural Russia, being in the large parts of South America. You have trouble understanding what it is to be left in the dirt?

Posted by: a at September 30, 2004 01:56 PM

My impression is that the rural USA, in fact, didn't modernize until the public works programs of the Great Depression. Is this perhaps a problem which can only be addressed in that way?

Posted by: Randolph Fritz at September 30, 2004 07:02 PM

"I just wanted to point out one more of the 4237 reasons why Brad Delong is not Ayn Rand -- he apologized."

He was briefly possed by Rand, but according to official reports by the Berkly Ghost Busters she was removed from him at Midnight as the appology does demonstrate.

P.S The purpose of the comment was more on the style of turning a bromide (does anyone really use that word?) into moral treason, that the substance would line up was just gravy.

"If you want to rid the world of Ayn Rand, train your sights on the Bush Administration, who mouths the words of Christ but has the cheesy, petrified heart of Dagny Taggert."

Incidently I don't want to rid the world of her ideas, and if you think Bush is anything like the character Dagny Taggert you should call the Ghost Busters and schedual a consultation.


Posted by: Rob Sperry at September 30, 2004 08:38 PM

Some research into foreign aid has recently been carried out in the UK.

The findings will be presented to the annual meetings of the World Bank and the IMF this weekend in Washington. The study is a combined effort by the Foreign Office, the department for international development and the Treasury.

>>Privatisation and trade liberalisation policies foisted on developing countries in return for financial help are often bad for the poor. . . The paper says: "We believe that developing countries must have room to determine their own policies for meeting millennium development goals, and can use aid most effectively if they can predictably rely on it as part of their long-term budget plans."<< http://www.guardian.co.uk/business/story/0,3604,1317216,00.html

Getting a consensus on Bretton Woods 2 - if globalisation of finance is to continue - won't be easy.

Posted by: IJ at October 1, 2004 04:36 AM

backtracking to the original coir industry topic that started this discussion, if I may, I came across this when googling for more info.

http://krpcds.org/publication/Ramohan.html

K. T. Rammohan here writes (in passing; the paper is about the backwards technology in the coir industry in Kerala) that "Despite intense trade unionisation the wages in the [coir yarn] industry are lower than even in agriculture. Statutory minimum wages are not paid even in the co-operative segment of the industry."

I'm not entirely sure what my point is yet.

Posted by: ArC at October 1, 2004 05:43 PM

What I worry about, with the coir mats, is that the possibility of hard-currency profits is tasty enough to make the middleman invest in buying some judges, some thugs, some damage to the irrigation system; something to change people's choices so that starving slowly over coir is the best choice left.

There's lots worse in life than subsistence farming, unfortunately. The people I've met who were closest to it were helping grandchildren through college, but one of the reasons this was possible was that in economic crashes the young generation could come home and eat off the farm instead of putting themselves permanently in hock in the city. (The family has decent land tenure because of a Socialist gov'ts land reform. This may not be what various market proponents are thinking of when they recommend private property in land as a cure for Third World poverty.)

Posted by: clew at October 1, 2004 08:44 PM

why so obsessed with the 'dirt'and poverty in India.India mooves in its own pace.A bit slow but why is it that the NRIs prefer to come back ones they have earned enough?Seth is puzzled for he has not yet understood the india (its soul)where a child comes back from school to the warmth of his home and his moms loving arms however poor she is.where he plays with his neighbourhood friends all as 'dirty' as he but loving and open.
It is the love and security that chains all those well heeled NRIs to the dirty India.the pull of the nostalgia.Some to be understood has to be experienced.Even the begger with the wrat would come back from the west once he is cured.Cant be sure the 2nd generations brought up in west would be the same as thier papas.probably they will walk about with empyness in their 'soul' .

Posted by: good2read2002 at October 2, 2004 05:32 AM

I tried to get a copy of Isaac's monograph on the Keralan coir industry, but the copy at the only library that might get it to me quickly has gone missing. So I offer, instead, this general question: why it is that "fair trade" groups cannot easily put greedy middlemen out of business? It seems to me they have the opportunity to undercut the greedies's pricing, pay their suppliers decently, and still make a respectable profit. For that matter, what prevents the coir weavers from forming a selling co-op? Is this a matter of corruption--some government bought out that makes it impossible for the fair traders to do business? Or...?

Posted by: Randolph Fritz at October 2, 2004 08:50 AM

Apologies for this belated follow up to my earlier posting on the original Seth Stevenson/India topic.

First of all, I would like to make it clear that I agree with Brad DeLong that buying coir products is actually helpful - at least right now. It's just his analysis that is flawed, and I want to direct my own remarks mostly to that.

As a starting point, let's look at Nassau Senior's analysis of how absentee landlords harmed the Irish, though they didn't hurt industrialised England. For Ireland, the value chain was mostly outside the country and remitting the revenues overseas worked its way through as sending primary products out of the country. It wasn't just the Georgist thing that "liberal" has been posting about; Georgist analysis leaves out a couple of things:-

- Landlords did a double function, receiving rents and also providing capital, the way Adam Smith described in Brad's recent post on "Government Deficits, and the Debt to Which They Give Rise" (this can now be provided differently by modern financial institutions, though that too has somewhat analogous problems). Paternalism made for cross-subsidy that didn't need to be churned through the state or other institutions (that churning has now become a cost of the modern institutions).

- Landlords often brought in capital to get things started, giving rise to local opportunities from trickle down - the Irish case of no local value chain was not what generally happens when a country's economy is opened up.

Ireland had actually had some of those beneficial conditions until mercantilism moved the value chain out of the country (which is why some of the middlemen suffered first from mercantilism and protestants made up some of the early nationalists). But before that such early landlords as the Great Earl of Orrery had made great improvements on their estates, though for selfish and paternalistic reasons (few now remember that the English originally sought to settle the Irish in an agricultural lifestyle to help pacify an area that was needed for strategic reasons, and not simply to get revenues and exploit the place).

But mercantilism drove out the improvements, the landlords had got their holdings by force and not by purchase, and then the landlords became absentees and took the trickle down away. All this meant that there was less food to go around for the people in Ireland than there otherwise would have been. Yes, those directly involved in producing the cash crops were better off - but at the expense of raising local prices without generating local opportunities. Yes, cash wages were indeed higher, but since the individuals at the bottom of the heap were only marginally integrated with the cash economy they were worse off. They were losing their subsistence resources without compensation, working its way through as evictions
and such. (We are talking about the endemic Irish situation here, not just crisis famine conditions.) This is precisely what Julian Elson described on 28.9.04, and it is the general case in developing countries, including India, since ipso facto they have poor institutions that don't compensate properly - good institutions would mean that people sold up and got paid out. It's why the gains from globalisation that Dollar and Kraay reported don't mean what they appear to at face value (they only measure cash incomes and not subsistence resources, if you don't read them carefully). Survivor bias doesn't help - Brad DeLong's comments about raising wages being good is true, but only for those in the statistical base (so
it's applying an accurate observation drawn from our own developed economies to other times and places, omitting the people at the bottom of the heap).

But Nassau Senior's analysis wasn't fully general. It doesn't cover what happens when there are good institutions, and we unconsciously expect things to work out better because we are used to those better cases. What should happen is, outside investment buys out local resources and everyone ends up better off - those bought out apply the compensation in ways that create new opportunities, and what explicit compensation doesn't do, trickle down does "a rising tide lifts all boats"). But at least three things go wrong in India:-

- The poor don't get bought out. The cash crop workers are better off, and wages improve, but the people at the bottom of the heap don't get that until trickle down reaches them because there is no identically compensating bundle of resources that reaches them as they lose their old resources (identities, symmetries, invariants - all that Noether's Theorem stuff). If it did there would be an identical matching of resources with no wealth transfer at the point of change, just a later growth of opportunities down the track.

- Trickle down isn't fast enough, since there is a constant wave of change; it's more of a shock wave like inertial containment than a transition to a new equilibrium, at least on any meaningful timescale.

- The new investment is nominal, not real. A large part of it is "printing money", helped by the US dollar's status as a reserve currency that is also a fiat currency. There is an acquisition of resources that is just a wealth transfer, and the increasing transaction demand for money as the economy gets more cash oriented has a deflationary effect that offsets the inflationary tendencies. This is why the Palestinian Mandate economy wasn't inflationary despite Zionist funds flowing in and buying land - even when they owned land and had developed an understanding of land ownership, the locals needed more cash and had to sell up to meet the needs imposed by such things as the commutation of tithes. Though the Zionist
settlers didn't know it, it was a classic case of colonialist "peaceful penetration" as practised in North Africa and the Dutch East Indies (but I suspect the organisers knew of the precedents).

In India today's form of land ownership is a relatively recent institution in many places, flowing from the Zemindar/Ryotvary approach to revenue raising the British introduced. Over and above that, water resources aren't handled by well developed and mature institutions. All this makes for the appropriation of resources by sectors of Indian society, and by outsiders now that the economy has opened up (with correspondingly less local trickle down). Brad's remarks about higher wages are all true, but only apply to those getting the trickle down. Since the cake doesn't grow enough in the short term, there can easily be losers. The coir case, though, does work out OK - for now. But the moment coir starts being grown
as a cash crop, diverting resources rather than applying resources that were there anyway (palm trees that were growing anyway without displacing subsistence crops), then we get the very common bad case.

What is the bad case? Cash crops drive out subsistence uses, and the displaced don't tap into the gains. Note that this is not what is usually criticised. Nike factories do help the locals - they help the locals who work there, and they don't harm the rest, so that trickle down doesn't get defeated by larger and quicker harm. Cotton, on the other hand, takes land out of subsistence use and takes water resources that aren't handled properly (wealthier farmers can drill deeper wells and pump water higher). Coffee is usually bad, no matter how much "fair trade" is paying the growers and not the middlemen; that's just improving the trickle down, not helping the people not in the system. (Even for coffee, some places
are different - just as today's coir doesn't take away subsistence resources, coffee in East Timor comes from old plantations being recovered from the bush they reverted to during a generation of civil strife, so right now coffee isn't taking away subsistence resources there.)

Coasian solutions aren't there, and even if they were they would still suffer two defects:-

- Implementing them creates a wealth transfer, which may or may not be compensated (remember, you have an undeveloped set of institutions when you begin, so that the thing that keeps things right later on doesn't help set things right to begin with, it just locks in any initial imbalance). This happened in England, Scotland and Ireland (see below).

- Enforcing property rights has its own costs, which are correspondingly greater when there is no intuitive or culturally learned respect for the property in question (think Russian oligarchs, or for an extreme case the costs of running slave patrols). These costs often end up externalised too, and they should by handled by Pigovian methods if the state insists on providing them as part of its monopoly of force. These costs were externalised in England, Scotland and Ireland (see below).

Vagrancy Costs are an external cost of dispossession too. Think Irish evictions, Scottish clearances, or English enclosures. All delivered jam tomorrow in due course - but we are talking about developing countries where this is their today. Serial catowner's remarks of 30.9.04 are good illustrations.

It's the perpetuation of all this that makes Brad DeLong's comments about organ purchase apply to buying coir mats too. Both lock in an exploitative situation. Right now, though, coir mats are helpful - though they may not be very long, and this is where tactical use of pressures may help. Unfortunately fair trade is actually harmful, Nike sales are actually helpful, and since a free global market in developing countries' cash crops and capital markets is usually at least somewhat harmful there are no good guys in the free trade argument. And, of course, I don't know the whole story myself and I haven't had time or space to tell all I know anyway. PML.

Posted by: P.M.Lawrence at October 6, 2004 10:20 PM