Another Nobel for Anglocentric Neoliberal Institutional Economics

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Oct 22 2024 (IPS) - New institutional economics (NIE) has received another so-called Nobel prize, ostensibly for again claiming that good institutions and democratic governance ensure growth, development, equity and democracy.

Daron Acemoglu, Simon Johnson, and James Robinson (AJR) are well known for their influential cliometric work. AJR have elaborated earlier laureate Douglass North’s claim that property rights have been crucial to growth and development.

But the trio ignore North’s more nuanced later arguments. For AJR, ‘good institutions’ were transplanted by Anglophone European (‘Anglo’) settler colonialism. While perhaps methodologically novel, their approach to economic history is reductionist, skewed and misleading.

NIE caricatures

AJR fetishises property rights as crucial for economic inclusion, growth and democracy. They ignore and even negate the very different economic analyses of John Stuart Mill, Dadabhai Naoroji, John Hobson and John Maynard Keynes, among other liberals.

Historians and anthropologists are very aware of various claims and rights to economic assets, such as cultivable land, e.g., usufruct. Even property rights are far more varied and complex.

The legal creation of ‘intellectual property rights’ confers monopoly rights by denying other claims. However, NIE’s Anglo-American notion of property rights ignores the history of ideas, sociology of knowledge, and economic history.

More subtle understandings of property, imperialism and globalisation in history are conflated. AJR barely differentiates among various types of capital accumulation via trade, credit, resource extraction and various modes of production, including slavery, serfdom, peonage, indenture and wage labour.

John Locke, Wikipedia’s ‘father of liberalism’, also drafted the constitutions of the two Carolinas, both American slave states. AJR’s treatment of culture, creed and ethnicity is reminiscent of Samuel Huntington’s contrived clashing civilisations. Most sociologists and anthropologists would cringe.

Colonial and postcolonial subjects remain passive, incapable of making their own histories. Postcolonial states are treated similarly and regarded as incapable of successfully deploying investment, technology, industrial and developmental policies.

Thorstein Veblen and Karl Polanyi, among others, have long debated institutions in political economy. But instead of advancing institutional economics, NIE’s methodological opportunism and simplifications set it back.

Another NIE Nobel

For AJR, property rights generated and distributed wealth in Anglo-settler colonies, including the US and Britain’s dominions. Their advantage was allegedly due to ‘inclusive’ economic and political institutions due to Anglo property rights.

Variations in economic performance are attributed to successful transplantation and settler political domination of colonies. More land was available in the thinly populated temperate zone, especially after indigenous populations shrank due to genocide, ethnic cleansing and displacement.

These were far less densely populated for millennia due to poorer ‘carrying capacity’. Land abundance enabled widespread ownership, deemed necessary for economic and political inclusion. Thus, Anglo-settler colonies ‘succeeded’ in instituting such property rights in land-abundant temperate environments.

Such colonial settlement was far less feasible in the tropics, which had long supported much denser indigenous populations. Tropical disease also deterred new settlers from temperate areas. Thus, settler life expectancy became both cause and effect of institutional transplantation.

The difference between the ‘good institutions’ of the ‘West’ – including Anglo-settler colonies – and the ‘bad institutions’ of the ‘Rest’ is central to AJR’s analysis. White settlers’ lower life expectancy and higher morbidity in the tropics are then blamed on the inability to establish good institutions.

Anglo-settler privilege

However, correct interpretation of statistical findings is crucial. Sanjay Reddy offers a very different understanding of AJR’s econometric analysis.

The greater success of Anglo settlers could also be due to colonial ethnic bias in their favour rather than better institutions. Unsurprisingly, imperial racist Winston Churchill’s History of the English-Speaking Peoples celebrates such Anglophone Europeans.

AJR’s evidence, criticised as misleading on other counts, does not necessarily support the idea that institutional quality (equated with property rights enforcement) really matters for growth, development and equality.

Reddy notes that international economic circumstances favouring Anglos have shaped growth and development. British Imperial Preference favoured such settlers over tropical colonies subjected to extractivist exploitation. Settler colonies also received most British investments abroad.

For Reddy, enforcing Anglo-American private property rights has been neither necessary nor sufficient to sustain economic growth. For instance, East Asian economies have pragmatically used alternative institutional arrangements to incentivise catching up.

He notes that “the authors’ inverted approach to concepts” has confused “the property rights-entrenching economies that they favor as ‘inclusive’, by way of contrast to resource-centered ‘extractive’ economies.”

Property vs popular rights

AJR’s claim that property rights ensure an ‘inclusive’ economy is also far from self-evident. Reddy notes that a Rawlsian property-owning democracy with widespread ownership contrasts sharply with a plutocratic oligarchy.

Nor does AJR persuasively explain how property rights ensured political inclusion. Protected by the law, colonial settlers often violently defended their acquired land against ‘hostile’ indigenes, denying indigenous land rights and claiming their property.

‘Inclusive’ political concessions in the British Empire were mainly limited to the settler-colonial dominions. In other colonies, self-governance and popular franchises were only grudgingly conceded under pressure.

Prior exclusion of indigenous rights and claims enabled such inclusion, especially when surviving ‘natives’ were no longer deemed threatening. Traditional autochthonous rights were circumscribed, if not eliminated, by settler colonists.

Entrenching property rights has also consolidated injustice and inefficiency. Many such rights proponents oppose democracy and other inclusive and participatory political institutions that have often helped mitigate conflicts.

The Nobel committee is supporting NIE’s legitimisation of property/wealth inequality and unequal development.

Rewarding AJR also seeks to re-legitimise the neoliberal project at a time when it is being rejected more widely than ever before.

Related IPS Articles:

• Industrial Policy, East or West, for Development or War?

• Imperialism, Globalisation and Its Discontents*

• The Best Law Capital Can Buy

• Economic Ghosts Block Post-Lockdown Recovery

• Neoliberal Reforms Strengthening Monopoly Power and Abuses

• Is Good Governance Key To Eliminating Poverty?

• Ignore Standard Good Governance Prescriptions To Accelerate Development

• Is Good Governance Good For Development?

Available online here: Another Nobel for Anglocentric Neoliberal Institutional Economics

IPEF: Much Ado about Nothing

By Ong Kar Jin and Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Oct 9 2024 (IPS) - After 2.5 years, US President Joe Biden’s Indo-Pacific Framework for Prosperity (IPEF) is increasingly irrelevant due to its own limitations and broader US foreign policy shifts.

IPEF pillars

Unlike free trade agreements (FTAs), IPEF does not offer better market access by reducing tariff or non-tariff barriers. Instead, it has been styled as a standards agreement involving four ‘pillars’:

• Fair and resilient trade: This imposes ‘high standard’ rules, particularly for the digital economy, labour and the environment. Enforcing such standards is now widely seen as protectionist.

• Supply chain resilience: This seeks to establish reliable supply chains bypassing China. Many countries hope to benefit from such ‘friend-shoring’. However, most recent inflationary supply disruptions have been due to the new Cold War, pandemic, and sanctions.

• Infrastructure, clean energy, and decarbonisation will supposedly enhance mitigation efforts, ignoring the adaptation priorities of developing countries.

• Tax and anti-corruption: IPEF promises to improve tax information exchange and curb money laundering and bribery. But most developing countries have retrieved little from such efforts. Their recent experience with the OECD-led Inclusive Framework for taxation has deepened such suspicions.

Each IPEF pillar involved separate negotiations, allowing partners to opt in or out. While this accommodates diverse interests, the resulting fragmentation undermines likely effectiveness. Worse, IPEF is a White House initiative lacking Congressional support, raising doubts about its longevity.

Great expectations, humble reality

Yet, Asia-Pacific interest in better US market access remains after Trump’s withdrawal from the Trans-Pacific Partnership (TPP) and Regional Cooperative Economic Partnership (RCEP) agreements.

IPEF’s advent over half a decade after Trump withdrew from the TPP suggests it was never a Biden priority. The US caricatures and dismisses the RCEP as a ‘low-standards’ China-led agreement, but East Asia does not seem to agree.

Instead, the Biden administration touted IPEF as a strong US-led response to the RCEP, but its modest offer has further undermined Washington’s reputation, fuelling caution and scepticism.

Taiwan is part of the US-led Asia-Pacific Economic Cooperation (APEC), and Washington is believed to be surreptitiously promoting its independence. But the island province has been excluded from IPEF, perhaps due to deliberate ‘strategic ambiguity’.

America First

The upcoming US presidential election compounds the uncertainty. If re-elected, former President Donald Trump has promised to ‘knock out’ IPEF, describing it as worse than the TPP!

Presidential candidate Kamala Harris has long been sceptical of international trade agreements, including the TPP. She is expected to replace Deputy Secretary of State Kurt Campbell, architect of Obama’s ‘pivot to Asia’ via the TPP and Biden’s IPEF.

The past decade has seen US domestic politics increasingly shaping foreign economic and trade policies, regardless of party affiliation, with protectionist sentiments surging in both parties.

Scepticism about FTAs and retreats from earlier US foreign policy ‘activism’ have become bipartisan rather than only associated with Trump.

Bretton Woods exception?

Historically, the doctrine of Manifest Destiny drove territorial acquisitions in the American hemisphere, the US ‘backyard’ since the Monroe Doctrine. At the same time, protectionist trade policies accelerated US industrialisation after the North won the Civil War.

Domestic politics favoured the US Neutrality Acts of the 1930s. The 1929 Crash led to the 1930 Smoot-Hawley Tariff Act, raising import duties on thousands of goods.

The US’s international role significantly grew after World War Two, creating postwar multilateral institutions like the United Nations, the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade (GATT).

Creating regional blocs soon superseded Roosevelt’s multilateral legacy as the Cold War changed perceptions of security threats and economic priorities. After the Cold War, the US briefly remained globally engaged as a unipolar power.

However, growing domestic discontent over economic globalisation and interventionist conflicts eroded support for earlier policies. Trump’s ‘America First’ mantra has driven this shift, even challenging plurilateral trade agreements.

While ‘re-engaging’ multilaterally to reassert dominance, protectionism has not retreated under the Biden administration, even increasing some Trump-era tariffs on Chinese imports.

More actions against Chinese tech firms like Huawei reflect the bipartisan belief that previous free trade policies had inadvertently benefited China without securing promised gains. With more rhetoric of ‘safeguarding’ critical industries and technologies, bipartisan scepticism toward FTAs has grown.

Geopolitics, not geoeconomics

Neoliberals claimed economic liberalisation would lead to political liberalisation and strengthen the rule of law. Thomas Friedman even claimed countries with McDonalds’ franchises would not go to war with one another.

China has not adopted the political reforms many in the West wanted. Instead, it looms larger on the world stage, pursuing policies at odds with US interests.

Likewise, integrating post-Soviet Russia into the world economy via World Trade Organization and G8 membership was expected to align it with the West. But such efforts ended before Russia’s forcible entry into Crimea and, later, Ukraine.

Southeast Asian governments quickly realised IPEF was not a US political priority. Negotiating was intended not to offend the US. IPEF was supposed to reassert US leadership to counter China’s growing influence. But content-wise it appears to be about setting standards serving US corporate interests.

US reluctance to offer tangible benefits, such as improved market access, made IPEF less attractive, especially compared to China. IPEF’s limited ambition and commitments reflect the deeper malaise of US foreign policy.

As US domestic politics increasingly drive foreign policy, initiatives like IPEF seem less viable. Hence, IPEF seems like the last gasp of a fast-fading approach to engagement rather than a blueprint for future cooperation.

Related IPS Articles

·                IPEF: New Cold War Weapon Backfires

·                Reject CPTPP, Stay out of New Cold War

·                Weaponizing Free Trade Agreements

·                TNCs Reviving TPP Frankenstein

·                CPTPP Trade Liberalization Charade Continues

·                A Bad Free Trade Agreement Is Worse than Nothing

·                Lessons from the Demise of the TPP

Available online here: IPEF: Much Ado About Nothing

Ong Kar Jin is an independent researcher and writer focusing on the socio-political dimensions of technology.

The Global South in the New Cold War

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Sep 11, 2024 (IPS) - Marginalised and dominated economically by the Global North, developing countries must urgently cooperate to better strive for their shared interests in achieving world peace and sustainable development.

Cold War rivalry

During the first Cold War between the US, NATO, and other allies, on the one hand, and the Soviet Union and its allies, the former prided itself on sustaining economic growth, especially during the post-war Golden Age.

Since the 2008 global financial crisis (GFC), successive governments – led by Obama, Trump and Biden – have all strived to sustain full employment in the US. However, real wages and working conditions for most have suffered.

Exceptionally among monetary authorities, the US Fed’s mandate includes ensuring full employment. However, without the US-Soviet rivalry of the first Cold War, Washington no longer seeks a buoyant, growing world economy.

This has affected US relations with its NATO and other allies, most of which have been hit by worldwide economic stagnation since the GFC. Instead of ensuring worldwide recovery, ‘unconventional monetary policies’ addressing the ensuing Great Recession have enabled further financialisation.

Interest rate hikes slow growth

Since early 2022, the US has raised interest rates unnecessarily. Stanley Fischer, later IMF Deputy Managing Director and US Federal Reserve Bank Vice Chair, and colleague Rudiger Dornbusch found low double-digit inflation acceptable, even desirable for growth.

Before the fetishisation of the 2% inflation target, other mainstream economists reached similar conclusions in the late 20th century. Since then, the US Fed and most other Western central banks have been fixated on inflation targeting, which has no theoretical or empirical justification.

Fiscal austerity policies have complemented such monetary priorities, compounding contractionary macroeconomic policy pressures. Many governments are being ‘persuaded’ that fiscal policy is too important to be left to finance ministers.

Instead, independent fiscal boards are setting acceptable public debt and deficit levels. Hence, macroeconomic policies are inducing stagnation everywhere.

While Europe has primarily embraced such policies, Japan has not subscribed to them. Nevertheless, this new Western policy dogma invokes economic theory and policy experience when, in fact, neither supports it.

The US Fed’s raising interest rates since early 2022 has triggered capital flight from developing economies, leaving the poorest countries worse off. Earlier financial inflows into low-income countries have since left in great haste.

New Cold War contractionary

The new Cold War has worsened the macroeconomic situation, further depressing the world economy. Meanwhile, geopolitical considerations increasingly trump developmental and other priorities.

The growing imposition of illegal sanctions has reduced investment and technology flows to the Global South. Meanwhile, the weaponisation of economic policy is fast spreading and becoming normalised.

After the Iraq invasion fiasco, the US, NATO and others often do not seek UN Security Council to endorse sanctions. Hence, their sanctions contravene the UN Charter and international law. Nonetheless, such illegal sanctions have been imposed with impunity.

With most of Europe now in NATO, the OECD, G7 and other US-led Western institutions have increasingly undermined UN-led multilateralism, which they had set up and still dominate but no longer control.

Inconvenient international law provisions are ignored or only invoked when useful. The first Cold War ended with a unipolar moment, but this did not stop new challenges to US power, typically in response to its assertions of authority.

Such unilateral sanctions have compounded other supply-side disruptions, such as the pandemic, and exacerbated recent contractionary and inflationary pressures.

In response, Western powers raised interest rates in concert, worsening the ongoing economic stagnation by reducing demand without effectively addressing supply-side inflation.

The internationally agreed sustainable development and climate targets have thus become more unattainable. Poverty, inequality and precariousness have worsened, especially for the most needy and vulnerable.

Limited options for South

Due to its diversity, the Global South faces various constraints. The problems faced by the poorest low-income countries are quite different from those in East Asia, where foreign exchange constraints are less of a problem.

IMF First Deputy Managing Director Gita Gopinath has argued that developing countries should not be aligned in the new Cold War.

This suggests that even those walking the corridors of power in Washington recognise the new Cold War is exacerbating the protracted stagnation since the 2008 global financial crisis.

Josep Borrell – the second most important European Commission official, in charge of international affairs – sees Europe as a garden facing invasion by the surrounding jungle. To protect itself, he wants Europe to attack the jungle first.

Meanwhile, many – including some foreign ministers of leading non-aligned nations – argue that non-alignment is irrelevant after the end of the first Cold War.

Non-alignment of the old type – a la Bandung in 1955 and Belgrade in 1961 – may be less relevant, but a new non-alignment is needed for our times. Today’s non-alignment should include firm commitments to sustainable development and peace.

BRICS’s origins are quite different, excluding less economically significant developing countries. Although not representative of the Global South, it has quickly become important.

Meanwhile, the Non-Aligned Movement (NAM) remains marginalised. The Global South urgently needs to get its act together despite the limited options available to it.

Available online here: Global South in the New Cold War