Category Archive: Sources

  1. Spare Parts

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    This is an archived version of the PW Sources newsletter from Saturday, April 27, 2024. Sign up to receive PW Sources directly to your inbox here.

    INDONESIA

    On Wednesday, Prabowo Subtiano was officially declared the winner of Indonesia’s 2024 election. The former defense minister has promised to continue the legacy of President Joko “Jokowi” Widodo, with an agenda that includes industrial downstreaming, infrastructure development, and “good neighbor” policies with both the US and China.

    In a 2007 report, YASUYUKI MATSUMOTO examines how speculative finance made Indonesia particularly vulnerable during the 1998 East Asian financial crisis, which was a precursor to the end of Suharto’s dictatorship:

    “A number of studies link debt accumulation by the private sector to the liberalization policies that were actively pursued in East Asia’s crisis-affected countries in the 1980s and 1990s. In particular, the private sector’s external debt problem is viewed as a result of capital account liberalization. Indonesia undertook a dramatic deregulation of its financial sector in the 1980s and by the 1990s had one of the most liberalized financial markets in the world. Deregulation policies were introduced between 1983 and 1989. In June 1983, bank credit ceilings and most interest rate controls were eliminated. In December 1987, a deregulation package for the investment and capital markets was introduced, in which daily price controls on the Jakarta Stock Exchange were eliminated. In October 1988, the government introduced a major banking reform and deregulation package that eliminated restrictions on the opening of new banks, branches, and foreign joint-venture banks. In December 1988, the amendment and supplemental package Paket 20 December 1988 was introduced, allowing foreign ownership of securities companies. The government refined PAKTO in March 1989 and changed foreign borrowing restrictions on bank and non-bank financial institutions to controls on net open positions. It is not surprising that the monitoring system and regulatory framework was not put in place as quickly as the new financial products, services, and institutions. During the finance boom, the Indonesian corporate sector accumulated offshore private debt and transformed the economy from robust to fragile and unstable while economic fundamentals remained essentially sound.”

    + “Unlike Prabowo, who had planned to reshape the political system to suit his interests, Jokowi had no intention of radically changing the polity. This also meant that he allowed the forces of the establishment to aggressively defend their interests.” By Marcus Mietzner. Link. And see a JATAM report on Jokowi’s controversial job creation bill. Link.

    +  “Palm oil-based green energy is very problematic, as it has the potential to accelerate the expansion of palm oil plantations into forests.” Firdaus Cahyadi on Prabowo’s climate policy. Link. And see Sirojuddin Arif’s new PW essay on Prabowo’s developmental policies. Link. 

    +  “Resource nationalism in Indonesia is a top-down, corporate project that has been largely determined by a rising class of domestic business elites.” By Eve Warburton. Link. And in a PW essay from last year, Alvin Camba examines Indonesia’s export ban on nickel. Link.

    NEW RESEARCHERS

    Expellees & the far right

    ANIL MENON is an assistant professor in the Department of Political Science at UC Merced. In a 2020 paper, he examines how forced migration post-WWII has shaped the contemporary electoral politics of Germany.

    From the paper:

    “The local population of postwar Germany was in a ‘spiritual and moral vacuum […] with yesterday’s idols fallen and new ideals not yet established.’ They had little time, resources, or sympathy to spare for unwelcome strangers while struggling to piece their lives back together. This native apathy toward expellees stifled the latter’s social integration. Nevertheless, locals were required to house expellees. Such shared living situations proved difficult for both hosts and guests. Many expellees, who had owned homes in the East, found their entire families confined to a single room. Congested living spaces coupled with cultural differences led to inevitable tensions. The situation proved even worse for expellees assigned to mass housing. Many remained in displaced person camps for years or had to live out of bomb shelters. The unique economic challenges faced by expellees exacerbated the situation. Their haphazard allocation led to sizable mismatches between skills and employment opportunities. Severe restrictions on expellee movement in the early postwar years limited expellees’ ability to correct these imbalances. Moreover, their lack of deep social ties with local employers meant that they were discriminated against, becoming the ‘last hired and first fired.’ Faced with these compounded obstacles, expellees fared worse than their native counterparts, providing fodder for native caricatures of the expellee as lazy dead-weights within society. The postwar administration also viewed expellees as a potential reservoir of societal agitation and unrest. General Lucius Clay, military governor of the American occupation zone, repeatedly cautioned German officials about the possibility of radicalization among disillusioned expellees. Officials feared that collective political action within the expellee community would hinder efforts at expellee integration into the larger community, increase tensions between the pre-war local population and expellees, and transform them into focal points for forces interested in destabilizing the postwar order. Such fears led to the ban of any expellee political parties or groups in the immediate postwar period.”

    + + +

    +  “The program represents the adoption of an unprecedented institutional and legal framework for debt management via public policy, placing family debt at the center of current attempts to restructure the Brazilian economy.” New on PW, Lena Lavinas and Bruno Mader on “financial inclusion” and Lula’s Desenrola program. Read in English, Portuguese, and Spanish. 

    +  “Prabowo’s populist vision may be disastrous for vulnerable and marginalized groups at the bottom of the economic pyramid, as state-backed development projects are likely to threaten their livelihoods.” Also new on PW, Sirojuddin Arif on president-elect Prabowo’s promised continuity with Jokowi’s ten-year regime in Indonesia. Link.

    +  “El 57 por ciento de los ingresos por la tributaria en 2023 debía venir de los impuestos a las empresas de petróleo y carbón.” On PW’s new Spanish website, Camilo Andrés Garzón interviews Colombia’s former Minister of Finance, José Antonio Ocampo, about the country’s recent progressive tax reform. Link. 

    +  In a nationwide movement, triggering many hundreds of arrests, student coalitions have set up tent encampments, rallies, or building occupations at Columbia University, USC, UC Berkeley, Ohio State University, UT Austin, George Washington University, Cal Poly Humboldt, Emerson College, NYU, Brown University, University of Michigan, Fashion Institute of Technology, the New School, the City College of New York, CUNY, Northwestern University, Indiana University, Michigan State, UCLA, Rice University, University of Connecticut, University of Pennsylvania, Stanford, Princeton, Harvard, and Yale, demanding divestment from Israel as the country threatens its assault on Rafah.

    +  “The Lapis Lazuli corridor is one of Afghanistan’s largest initiatives in regional and international politics, through which Afghanistan will reach Central Asia, Eastern Europe, and the Mediterranean coast.” By Mohammad Talib Tariq. Link.

    +  Nileena MS and Swetha Kadiyala on the Vedanta-Foxconn joint venture in semiconductors and India’s electoral bonds scandal. Link. 

    +  “Brazil’s hugely popular Pix payment system now threatens the dominance of credit cards in the booming e-commerce sector.” By Marcela Ayres. Link.

    +  David Stein and Ira Regmi contrast “true” full employment, as eradicating involuntary employment, with the NAIRU tradition, which emphasized it as a purely quantitative ideal. Link.

    +  “We’ve seen growing economic concentration, the emergence of a small number of national champions with close connections to the central government, which have increasingly overshadowed the space for regional capital.” Rohan Venkat interviews Louise Tillin on Indian federalism and the ongoing general election. Link. 

    +  “There is little doubt that bedouin tribes were indeed within the sphere of mobilization of urban power centers. During the 1854–1858 internal conflict in Nablus, for example, both urban-led factions boasted bedouin allies and referred to them as junior—though fierce and valuable—partners. The same held true during factional struggles in the Jerusalem, Hebron, and Gaza regions. As the prosperity of Jabal Nablus in the eighteenth century clearly demonstrates, economic life could and did thrive through continually reproduced and negotiated alliance systems. The occasional breakdowns were merely the exceptions that proved the rule. For instance, the area east of the River Jordan where most of the bedouins dwelled was economically integrated by Nabulsi merchants as a source of, among other things, olive oil, livestock (sheep, goats, horses, camels), clarified butter (samn), and, most of all, qilw. The social history of soap fits well with Talal Asad’s contention that interdependency of economic activities was the organizing framework. There was not a single relationship of an everyday nature that tied bedouins with Jabal Nablus in a subordinate but mutually dependent manner more thoroughly than the supply of qilw for soap production.” By Beshara Doumani. Link.

  2. By The Window

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    This is an archived version of the PW Sources newsletter from Saturday, April 20, 2024. Sign up to receive PW Sources directly to your inbox here.

    INDO-PACIFIC TENSIONS

    On April 11, Prime Minister Fumio Kishida attended the first trilateral summit between Japan, the United States, and the Philippines. Kishida promised to double Japan’s defense outlay to 2% of GDP by 2027, making its military budget the world’s third largest, behind only the United States and China.

    In a 2018 book, GAVAN McCORMACK examines the contested identity of Japan as both a promoter of “positive pacifism” and as a “client-state” of the United States:

    “21st century Japan is a major customer for military material from US arms manufacturers, including Lockheed-Martin F-35 Joint Strike Fighters, Boeing KC-46 Tankers, Northrop-Grumman E2D Hawkeye airborne early warning aircraft, General Dynamics Advanced Amphibious Assault Vehicles and Boeing/Bell MV-22 Ospreys, and for missile and anti-missile systems. In 2017, a preliminary 4.4 billion yen was set aside by the establishment for detailed planning of a space surveillance unit in close cooperation with the Pentagon. The Abe government had also allowed a second early warning US ‘X-Band’ radar system to be installed at a Japanese Self-Defense Force (SDF) base in Kyoto, and permitted long-range US surveillance (spy) drones to roam the region’s skies from Japanese bases. Overall, 90 percent of Japan’s defense acquisitions are made from US companies. While spending generously on building and maintaining military bases for the US, Japan was also building up its own SDF facilities, especially in the Islands fronting China across the East China Sea. In 2014 Abe dropped the self-imposed ban on military exports adopted forty years earlier at the time of the Miki government, and in 2016 he gave notice that he no longer felt bound by that same government’s ‘one per cent GDP’ ceiling on military spending. Amid rising concerns and talk of a possible renewed Korean peninsular (and wider) war, major Japanese manufacturers began to look towards ‘ship-mounted radar systems, laser technology, amphibious search and rescue aircraft and quiet-running submarines’ as future growth sectors, even as a kind of ‘fourth arrow.’ “

    + Sheila A. Smith on unspoken economic tensions in the US.-Japan summit and Kishida’s concerns for the security of the Indo-Pacific. Link. And see Premesha Saha on the implications of the trilateral summit. Link.

    +  “Tokyo’s new commitment to support not only Japanese companies but foreign ones as well shows the determination to regain the country’s former leading role as a semiconductor powerhouse.” By Ryohtaroh Satoh and Cheng Ting-Fang. Link. And Todd Tucker on Biden’s opposition to Japanese company Nippon Steel’s takeover of US Steel. Link.

    +  “In response to the January 26 International Court of Justice ruling recognizing potential genocide in Gaza, Itochu Corporation, a Japanese trading conglomerate, has recently severed ties with Elbit Systems.” By Irene Cho. Link. And Brendan Howe on Japan’s geopolitical alignments in the Asia-Pacific region. Link. 

    NEW RESEARCHERS

    Sanitation in Gaza

    MARIAM ZAQOUT is a PhD researcher in the School of Civil Engineering at the University of Leeds. A recent paper co-authored with Mariam Fayad, Dani J. Barrington, Anna Mdee, and Barbara E. Evans examines stakeholder incentives for delivering sanitation services in the Gaza Strip.

    From the abstract:

    “The Gaza Strip is dependent on external aid to deliver basic services, including water and sanitation. Such services are not sustainable due to the Israeli occupation and the limited financial and technical capacities of service providers and the state. This paper examines the incentives of stakeholders in delivering sanitation services in the Gaza Strip through a qualitative institutional economics analysis of literature supplemented with qualitative key informant interviews. External aid is crucial to deliver basic services in the Gaza Strip. However, this has created a dependency that undermines the sustainability of sanitation services. Donor agencies often prioritise capital expenditure on visible infrastructure, such as wastewater treatment, without addressing its long and short-term operational needs; hence the Gaza Strip’s needs are continually addressed as an emergency response. The Palestinian Authority and Hamas de facto governments lack sovereignty over the Gaza Strip and Palestine. Therefore, they also lack the capacity and incentives to create an enabling environment for delivering safely managed sanitation.”

    + + +

    +  “Once in place, the IMF’s conditions create self-reinforcing dynamics, as policy areas that are marketized are difficult to re-regulate and increased international economic integration is difficult to reverse.” New on PW, Alexandros Kentikelenis and Thomas Stubbs on the economic and social upheavals caused by IMF conditionality. Link.

    +  “In 2023, the private sector collected $68 billion more in interest and principal repayments than it lent to the developing world.” New on the Polycrisis, Kate Mackenzie and Tim Sahay examine the structures that back the dominance of the global dollar system. Link.

    +  Join us next Wednesday, April 23 at 12 pm ET for a discussion around Brett Christophers’s new book The Price is Wrong, featuring Christophers, Melanie Brusseler, Kyle Chan, and Robinson Meyer. Register here. 

    +  “Iran’s highly-choreographed attack gained valuable intel on Israeli, American, and regional air defense capabilities; cost Israel and its US benefactors over $1 billion in a single night; and further eroded Israel’s image of military invincibility.” An Al-Shabaka roundtable on escalating Iran-Israel relations. Link. 

    +  “The timing of U.S. interest rate cuts is being pushed back, increasing the risk of an unexpectedly prolonged appreciation of the dollar, which could hurt emerging economies.” By Juntaro Arai. Link.

    +  Mario Draghi, in his speech at the High-level Conference on the European Pillar of Social Rights, argues for radical cooperation among EU member states to restore European competitiveness. Link.

    +  “The new fascism embodied by Putin does not threaten to sweep Europe; rather, it struggles to survive in the global world.” By Traverso Enzo. Link. 

    +  Iñaki Aldasoro, Sebastian Doerr, Leonardo Gambacorta and Daniel Rees on the potential of AI to increase output and offset detrimental secular developments that threaten to depress demand. Link. 

    +  “China had a long history of using commodities, metal, or paper as media of exchange. The first paper money, the jiaozi 交子, appeared around 1010, during the Northern Song (960−1127 CE) dynasty. In 1105, the Northern Song government issued an additional paper money, qianyin 錢引, in parallel to the jiaozi. The qianyin was pegged to copper coins, iron coins, and state-monopolized commodities such as iron and salt. After the Song had to retreat to South China in 1127, the Southern Song regime was established, issuing the third and fourth paper money notes—the guanzi 關子 and huizi 會子. However, the circulation of jiaozi, qianyin, and guanzi remained only regional, in contrast with the later situation under the Yuan, when paper money circulated widely in the country. In 1234, the Mongols defeated the Jin and conquered Northern China. After becoming the Khan of the Mongol Empire in 1260, Kublai promulgated that a new paper money, the zhongtongchao 中統鈔, pegged to silver, was to be issued to replace circulating notes. A paper money economy, backed by silver, replaced a previously chaotic monetary system that mixed various types of paper money with copper coins, iron coins, and silver ingots.” By Hanhui Guan, Nuno Palma, and Meng Wu. Link.

  3. Traces of a Circle

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    This is an archived version of the PW Sources newsletter from Saturday, April 13, 2024. Sign up to receive PW Sources directly to your inbox here.

    GREEN BANKS

    Last week, the EPA announced eight awardees who will receive funding under the Greenhouse Gas Reduction Fund (GGRF), a $27 billion financing program established in the Inflation Reduction Act of 2022. The GGRF aims to bring private investment toward low- to zero-emission projects in communities that have struggled to attract capital for green development.

    In a 2014 article, WHITNEY ANGELL LEONARD advocates for the use of the green bank model at the state and, eventually, the federal level:

    “The magic of green banks lies in their shift to a finance-based model from a subsidy-based model of support for clean energy technology. Subsidies have traditionally been the other mechanism that governments have used to support clean energy, but they are not nearly as efficient as the green bank model. In addition to the problem of ‘picking winners,’ subsidies also tend to be expensive per unit of technology deployed. While a subsidy is an expenditure that will not be paid back to the government, a loan represents an asset because it will be paid back, and, in the meantime, the lender can charge interest on it. In the case of government loans, both the federal government and state governments have a low discount rate because they have relatively easy access to capital and a high certainty of being able to collect money through taxes. And as long as a state government can loan money at an interest rate that is above its own (low) discount rate, it can actually create value with that loan. Moreover, partnering with the private sector also helps introduce private lenders to the clean energy technology market and helps develop secondary markets in clean energy investment. Both of these developments will help ensure the private sector is positioned to finance clean technology on its own at some point in the future, without the need for government support. The green bank model is meant to work toward this goal.”

    + “Manchester and other municipalities would save millions if the GGRF capitalized the state’s historic green bank, which could secure lower fees and interest rates.” In PW, David Backer on how the GGRF could be applied towards public school capital projects. Link. And a Climate Policy Initiative report from January examines the main challenges in implementing the GGRF. Link. 

    +  “With the launch of the GGRF, we have an enormous new pool of financial capital in institutions carrying public missions to close the gap between ‘financeable theoretically’ and ‘financing in reality’ for the clean energy economy.” By Ilmi Granoff. Link.

    +   “Another instrument in the weak derisking toolkit are green capital requirements that impose additional capital requirements on banks.” Daniela Gabor and Benjamin Braun’s October 2023 paper offers a critical perspective on “derisking.” Link. And see Gabor’s 2022 PW essay on the subject. Link. 

    NEW RESEARCHERS

    Political Forests

    BOSMAN BATUBARA is an Indonesian postdoctoral researcher at the Human Geography and Spatial Planning Department, University of Utrecht. A recent paper coauthored with Michelle Kooy, Yves Van Leynseele, Margreet Zwarteveen, and Ari Ujianto links uneven urban and rural in Indonesia.

    From the paper:

    “This process of turning village land into forest exemplifies what Peluso and Vandergeest have termed political forest: the enclosure of forest lands by the state. As Peluso notes, ‘village enclaves in the teak forest are among the poorest of the poor forest villages.’ Political forest then explains the relatively high percentage of landless people in Kedungwringin. Ibu Siji’s village was far from exceptional. According to the company profile, Perhutani currently controls almost 2.5 million hectares of land across 6381 villages in the island of Java and Madura. With the enactment of the Basic Forestry Act 5/1967, the New Order regime claimed the majority of the country’s land as state forest. From 1967 onwards, the New Order state extended its ‘political forest’ to the forested lands on Indonesia’s outer islands that had so far remained untouched, dividing forest lands into several categories, including that of ‘industrial forest.’ By 2018, 63% of Indonesia’s land area was demarcated as kawasan hutan or forest area. The Basic Forestry Act 5/1967 also made it possible for the New Order regime to allocate large-scale logging concessionaries to non-state companies, paving the way for massive capital investments in the logging sector. Between 1967 and 1980, 519 logging concessionaires covering a total area of 53 million hectares were given to non-state corporations.”

    + + +

    +  “While overcapacity can be seen as economically wasteful, it engenders a Darwinian struggle for entrepreneurial survival and technological innovation, which nurtures internationally competitive export champions.” New on PW, Paulo Gerbaudo examines China’s leadership in EV manufacturing. Link.

    +  Ahead of the upcoming proxy season, join the Center for Active Stewardship on April 17 at 1 pm ET for a discussion on climate-related risks and opportunities in a post-IRA world, featuring Lee Harris, Nolan Lindquist, Marian Macindoe, Michael O’Leary, and Jessica Whitt. More information and registration here. 

    +  Join PW on April 23 at 12 pm ET for a discussion of profits, prices, and the green energy transition, on the occasion of Brett Cristopher’s new book The Price is Wrong, featuring Christopher, Melanie Brusseler, and Kyle Chan, and moderated by Heatmap’s Robinson Meyer. 

    +  On April 25, we are happy to support a conference at Columbia University organized by Ella Coon and Ben Kodres-O’Brien, and featuring many friends and collaborators: “New (and Old) Directions in Historical Political Economy.” Register here. 

    +  “Squeezed by the Manchin-Sinema vise, congressional Democrats sacrificed everything besides climate in their reconciliation bill because it offered a goldilocks solution to their true concern: the triple crisis of China–climate–secular stagnation.” By Ted Fertik and Tim Sahay. Link.

    +  “If Uttar Pradesh, growing 2 percentage points slower than Tamil Nadu, were to expand 2 percentage points faster than the southern state, per capita incomes would level—in 64 years.” By Andy Mukherjee. Link.

    +  By forecast comparison, Leila Bengali analyzes which categories of goods and services have responded to hikes in the federal funds rate between 2020 and 2024. Link.

    +  “The Marshall Plan and IBRD lending may have played a smaller role in European reconstruction than what has been commonly believed. Instead, Europe was primarily responsible for rebuilding its own economy.” By Paulina Restrepo-Echavarría and Brian Reinbold. Link.

    +  Aditi Sahasrabuddhe argues that interpersonal trust enabled policymakers to engage in ad hoc cooperation during the 2008 Global Financial Crisis, reinforcing global hierarchies. Link. And see Sahasrabuddhe’s 2021 PW article on central bank independence. Link. 

    +  “Scholars have observed that, historically, state engineers’ understanding of their social role has bound them together more than their expertise: their group has identified less as a profession than as a social category. Consequently, some researchers have questioned whether state engineers really were (or are) engineers in the technical sense at all. Terry Shinn has argued that the work of state engineers was ‘almost totally lacking in scientific and engineering content: the attributes that mattered were social and political.’ Eda Kranakis, however, disputes such conclusions on two counts. First, she argues, the public works design and construction projects of nineteenth-century state engineers clearly included large amounts of technical work. Second, she notes, the emergence of large-scale technological systems increasingly required both state and civil engineers to perform a variety of different kinds of tasks, and defining engineering as a narrow set of technical tasks offers too simple a view of what it means to be an engineer of any kind. To put the matter somewhat differently, state engineers did not so much derive legitimacy from their technological achievements as the other way around. That is, their position within the state conferred legitimacy on their technologies.” By Gabrielle Hecht. Link.

  4. Tres Ventanas

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    This is an archived version of the PW Sources newsletter from Saturday, April 6, 2024. Sign up to receive PW Sources directly to your inbox here.

    EXTERNAL CONSTRAINT

    Upon entering office in December, Argentina’s President Javier Milei has attempted a “shock” adjustment—devaluing the peso by more than 50 percent against the dollar in order to reduce the country’s trade deficit. The move has increased consumer prices and dramatically reduced real incomes, unleashing social unrest. 

    A 1968 paper by OSCAR BRAUN and LEONARD JOY diagnoses inflationary policy, stagnation, and the foreign exchange constraint on the Argentine economy:

    “It is clear that a major constraint on the economic development of the Argentine is the shortage of foreign exchange and that the policies for development must first aim at increasing the net foreign-exchange earnings. Our historical review has also shown that capital movements add to foreign-exchange difficulties and that policies to maintain the balance of payments should therefore concern themselves also with capital movements. Unless capital exports can be controlled, then devaluation may again be forced by speculators who withdraw their capital from the country as soon as the first signs of balance of-payments difficulties become evident. The lessons of 1962 were learnt by the new Government, which imposed exchange control in April 1964. However, while exchange control of capital movements may be essential for stability, it will not of itself ensure balance of payments at full-employment equilibrium. Moreover, whatever may be achieved by economising in foreign-exchange expenditure, ultimately the greatest scope for raising the growth rate lies in increasing exports. We have not attempted to measure the scope for increasing exports from the agricultural sector, but the general appearance of accumulated neglect of this sector would suggest that it is very considerable. One thing is certain, and that is that the scope for increasing foreign-exchange earnings in agriculture within the next few years is infinitely greater than that for increasing foreign-exchange earnings from the manufacturing sector. While this does not mean to say that we would discourage attempts to initiate or expand the export of manufactures, we do consider that the task of building up export markets and the reputation for a reasonable product will take Argentina a substantial period of time.”

    +  “The challenges of Argentina’s external accounts are not due to faltering commercial or economic competitiveness.” Ignacio Juncos in PW. Link. And from December, Maria Haro Sly on Argentina’s relationships to China and the IMF. Read in Spanish, English, or Portuguese. 

    +  “The incipient distributive struggle pinned workers and capitalists concerned with the internal market against exporters of agricultural and industrial products.” New on PW, Manuel Cruz, Mauro Gardiner, and Santiago Gahn on the politics of inflation and the balance of payments in Argentina. Read in Spanish or English. And also in PW, Sara Cufré and Gustavo Robles reflect on the nation’s general strike in January. Read in Spanish or English. 

    +  Matias Vernengo and Nathan Perry’s 2017 study of exchange rate depreciation and wages in Argentina from 1882-2009: “The results show that the exchange rate (external constraints) has been the primary cause of inflation.” Link. And see Vernengo’s PW essay from November on Milei’s dollarization proposal. Link. 

    NEW RESEARCHERS

    Domestic regimes

    KEYI TANG is a Postdoctoral Research Fellow at the Boston University Global Development Policy Center. In a 2021 working paper, she compares the impact of Chinese and World Bank development finance in Zambia and Ethiopia, analyzing how domestic regime type interacts with lender conditionalities.

    From the paper:

    “The main contribution of my empirical study is two-fold. First, democracy may not always help prevent clientelism but may actually facilitate it under weak institutions. Second, domestic political competition matters more than the external conditionalities set by donors in determining the subnational distribution of foreign aid. While the World Bank’s conditionality may insulate development finance from being captured by elites for ethnic favoritism in some cases, this effect disappears when domestic political competition increases. Under the mounting pressure for political survival, elites face a much shorter time horizon in policymaking and may be willing to take more risks in manipulating development finance as a resource for vote-buying and credit claiming.”

    + + +

    +  “Milei’s relationship with the unions will determine the fate of his government.” New on PW, Manuel Cruz, Mauro Gardiner, and Santiago Gahn on inflation and distributive struggle in Argentina. Read in English or Spanish. And new in Portuguese, Pedro Rubin on measurements of debt and poverty in Brazil. Link. 

    +  “Nearly 82% of the workforce engages in the informal sector, and nearly 90% is informally employed.” Tamanna Naseer’s analysis of a new ILO report on Indian employment. Link to the article, link to the report. 

    +  A new report on China-Africa trade, foreign direct investment, and African energy access, by Oyintarelado Moses, Dianah Ngui, Lucas Engel, and Abbi Kedir of the Boston Global Development Center and African Economic Research Consortium. Link. 

    +  “Today, there are nearly 12,000 local government financing vehicles (LGFV) in China.” Jonathan P. Sine on the financial challenges of the LGFVs that support China’s infrastructure agenda. Link. 

    +  James K. Galbraith on Bidenomics and voter discontent. Link. And see a 2020 paper by Galbraith and Jaehee Choi on economic inequality and US presidential elections. Link. 

    +  “All industrial policies promote investment by removing or mitigating risks in an environment of fundamental uncertainty.” Chirag Lala on “derisking” and the Inflation Reduction Act. Link. And see a Polycrisis panel on “derisking” in climate policy from last June, featuring Lala, Skanda Amarnath, Melanie Brusseler, Daniela Gabor, and JW Mason. Link.  

    +  Magdalena Broquetas and Gerardo Caetano on the far-right in Uruguay: “This electorate also expressed that Uruguayan society—perhaps more gradually than is the case in other Latin American and European countries—is navigating a turn toward more critical views on the functioning of democracy, political parties, and politics.” Link. 

    +  “We have argued that increasing competition between patrons from rival city-states in classical Greece contributed to generating quality-enhancing innovations and rising prices for artists’ works, together with the growing prestige of the same artists within society. Instead, the later Roman Empire developed a larger integrated market that tended to foster mass production and cost-saving innovations, and therefore a general leveling out of prices paid for art over time and across space, with the artists gradually sinking back into the anonymous role of craftsmen. The available evidence on art prices over time and space appears to be consistent with these different paths.” Federico Etro on Greco-Roman art markets. Link. 

  5. Limite-Limificaças

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    This is an archived version of the PW Sources newsletter from Saturday, March 30, 2024. Sign up to receive PW Sources directly to your inbox here.

    FISCAL POLICY

    As the Lula administration tries to balance spending with fiscal rules compliance, some investors have cast doubt on the government’s target of erasing Brazil’s primary fiscal deficit by next year.

    In a PW essay from last October, CLARA BRENCK and PEDRO MARQUES examine the fiscal rule debate in Brazil:

    “Like other Latin American economies, Brazil’s alternative measure for inflation control was based on the “macroeconomic tripod”: the floating exchange rate regime, inflation targeting, and establishment fiscal targets as part of a Fiscal Stabilization Program signed with the IMF. The arrangement made fiscal surpluses necessary to control public debt resulting from above-average real interest rates. The tripod was expected to promote inflation control, balance of payment equilibrium, and public debt stability in the medium run. Price stabilization, therefore, is at the origins of the rule-based fiscal policy in Brazil. Given the dependence on export revenues and foreign capital inflows, Brazil (and other Latin American countries) have always been sensitive to boom and busts in the global economy. When the latter experiences exceptional growth, it is likely that the former will have additional room for fiscal intervention. By contrast, when global economic trends recede, developing economies are exposed to liquidity shocks, an increased risk of balance of payment crises, and weakened capacity for tax collection and revenue generation. These changes, in turn, can affect fiscal rules compliance.”

    +  “We analyze carbon emission sources and industrial structure in several developing countries and revisit global climate policy instruments to set up a more comprehensive decarbonization effort in developing countries. We advocate for the targeted use of green fiscal policy.” By Joao Paulo Braga, Erin Hayde, and Julia Torracca. Link. 

    +  “It is important that the Brazilian G20 presidency vigorously defends proposals for debt relief or forgiveness for low-income countries—especially in a context of fiscal adjustment widely encouraged by the international monetary and financial systems.” By Bruno De Conti, Pedro Rossi, Arthur Welle, and Clara Saliba. Link. And Fernando Haddad on Brazil’s transition to a green economy. Link.

    +  “Redistributive efforts undertaken by the Workers’ Party government (2000–2016) could not increase the wage share of income.” By Fernando Rugitsky and Pedro Romero Marques. Link. And from 2021, Lena Lavinas, Barbara Weinstein, and André Singer discuss Brazilian social policy in PW. Link.

    NEW RESEARCHERS

    Open Source Software

    ANAMIKA SEN recently obtained her PhD in economics from the University of Massachusetts, Amherst. In an article coauthored with Curtis Atkisson and Charlie Schweik, she examines the cost-benefit distribution of Apache Software Foundation policies on entering open source software products. 

    From the paper:

    “In the early days of OSS, small groups of like-minded individuals would come together to work on a project of mutual interest. These self-governing projects were left to their own devices for survival, trying to maintain development and grow a user base on their own, operating under idiosyncratic norms and rules (Schweik and English, 2012). In the last 20 years, organizations have emerged as second-order actors in the production of OSS. They provide various collective services to aid OSS projects, such as legal, technical, and financial support (Riehle and Berschneider, 2012). A recent paper by Izquierdo and Cabot (2020) reports over 100 OSS nonprofit foundations exist today offering differing levels of support services. The Apache Software Foundation (ASF) – the focal nonprofit in this study – is one of the oldest such organizations with one of the largest numbers of associated OSS projects. A key service the ASF provides is the “incubation of podlings,” which is a mechanism and social process within the foundation to nurture OSS projects that are interested in becoming a project formally associated with the ASF. To achieve their goal of integrating new projects into the
    ASF community, the ASF Incubator program has created policies or requirements that protect both ASF’s interests and, according to Apache, make OSS projects more sustainable (Khudairi, 2019).”

    + + +

    +  “The idea of a self-coordinating competitive market was emphasized far more by the Progressive policy-makers and technocrats who did battle with the courts, albeit largely by asserting special exceptions to it.” New on PW, Sanjukta Paul on the National Industrial Recovery Act of 1933, its judicial reception, and the maturation of the self-coordinating market ideal. Link. 

    +  “Though it coincided with the period of market reform, it was government restructuring rather than markets which encouraged the rise of China’s science, technology, and innovation sector.” Also new on PW, Yutao Sun, Cong Cao, and Yuehang Liu on the structural reconfigurations backing China’s investments in R&D. Link. 

    +  On April 23rd at 12pm ET, join us for a for a discussion on profits, prices, and the green energy transition, on the occasion of the publication of Brett Christophers’s The Price Is Wrong, with Christophers, Melanie Brusseler, Kyle Chan, and Robinson Meyer. Link.

    +  “However scarce the physical cocoa owned by commercial traders at those warehouses may be now, as traders are being served delivery notices for the expiring March futures contract, that record-high futures price truly is the price of the real stuff.” By Elaine Kub. Link. 

    +  Matthew Soener suggests that IMF programs are linked to greater greenhouse emissions in the global South when borrowing conditions are inflexible. Link.

    +  Ezra Oberfield, Esteban Rossi-Hansberg, Nicholas Trachter, and Derek T. Wenning on the spatial expansion of large banks in the ’80s and ’90s as determining conditions of local bank competition and interest rates for individuals and firms. Link.

    +  “The Savings and Loan crisis of the late 1980s and early 1990s caused major disruptions in the flow of mortgage capital and encouraged the growth of the secondary mortgage market.” By Kevin Fox Gotham. Link.

    +   “Exchange theorists argue: ‘Individuals do not assess rewards and costs, and make decisions or choices, as independent monads in a Hobbesian situation, but rather as ‘selves’ in an interpersonal matrix or field of at least partly matched or common symbols and intimate exchanges of information.’ The ‘intimate exchanges of information’ made by pretelegraphic entrepreneurs, like those made by modern business executives, usually consisted of local, regional or national, and international components. However, given the relatively small volume of pretelegraphic long-distance information flow, the local component was probably more important in relative terms between 1790 and 1840 than it is today. If so, and if group ‘influentials’ affected information receipt and attitude formation, while membership in informal and formal face-to-face groups tended to be locally restricted, then entrepreneurial attitudes in a pretelegraphic city ought to have resembled one another to the extent that group memberships, or private-information fields, overlapped one another.” By Allan Pred. Link.

  6. Forest Fire

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    This is an archived version of the PW Sources newsletter from Saturday, March 23, 2024. Sign up to receive PW Sources directly to your inbox here.

    PETROCARIBE

    In January, Haiti paid Venezuela $500 million to settle $2.3 billion in arrears from PetroCaribe loans. Between 2005 and 2014, PetroCaribe became the largest single source of concessional finance to Caribbean countries, more than doubling US foreign assistance to the region.

    In a 2019 article, GUSTAV CEDERLÖF and DONALD V. KINGSBURY examine the mechanics of PetroCaribe trade agreements:

    “The agreement defined two payment procedures for oil shipments, working to undermine the structural inequality existing between importing and exporting states. The first was a pricing mechanism where, depending on the current 8 market price, a fraction of the cost would be paid over an extended term. This fraction ranged from 5 percent with prices below 20 US dollars per barrel to 50 percent with prices exceeding 100 dollars. The deferred payments would be placed in the ALBA Caribe Fund to be used for regional development projects. The second option was a ‘commercial offset mechanism,’ which allowed members to countertrade oil for goods to completely counteract any structural economic inequality. Cuba offered medical services while Nicaragua, the Dominican Republic, Guyana, and Jamaica reportedly had offset 2.73 billion US dollars by early 2014, sending 2.2 million tons of rice, coffee, beans, vegetable oils, sugar, meat, milk, pasta, animal fodder, and clinker to Venezuela in lieu of money, as well as 111,931 cows, calves, and bulls. Key here was a view of oil, medical services, and agricultural products as complementary use-values: dependence on Venezuela for oil signified interdependence and ‘mutual control’ while dependency under market-regulated exchange constituted a relation of Caribbean subjugation.”

    +   “An estimated $4.2 billion borrowed for development and not one completed project.” The Anakawona Collective on the 2019 protests around the PetroCaribe embezzlement scandal in Haiti. Link. And Henry Mace interviews Robert Fatton on the current crisis. Link. 

    +  “After 2003, the Chávez energy team crafted new international trade and energy alliances with non-traditional partners such as China, Russia and Iran. These were intended to guarantee new markets for Venezuelan oil products and lift the international oil price through output agreements.” By Julia Buxton. Link. And see a new PW essay on disputes between Venezuela, ExxonMobil, and Guyana over newfound oil reserves. Link.

    +  “By 2014 PDVSA debt had reached US$40 billion. Much of the borrowed money has been used to shore up the overvalued bolivar and to sustain the company’s role in social and economic programs.” Daniel Hellinger on “landlord states” and Hugo Chavez’s fiscal regime. Link.

    NEW RESEARCHERS

    Personal Forecasts 

    MUHAMMED BULUTAY is a PhD candidate in economics at the Technical University of Berlin and the Berlin School of Economics. His working paper studies household perceptions of the European Central Bank’s forecasting performance. 

    From the paper:

    “Central banks publish their macroeconomic forecasts not only to inform the public about the future of the economy, but also to manage expectations. However, disagreements about the future persist between central banks and private agents. For central banks, disagreement is particularly troubling when it comes to future inflation, because inflation expectations can translate into inflation and deanchoring can hinder the transmission of monetary policy. For private agents, it is inefficient not to adopt the central bank’s inflation forecast because forming personal forecasts is costly in terms of time and resources. Information about the accuracy of past forecasts lowers inflation expectations, reduces uncertainty about future inflation, promotes trust in the ECB, and discourages the consumption of certain goods, such as major items (e.g., cars, furniture) and clothing. Using instrumental variable estimation to account for endogeneity, I identify the causal relationship between trust in the ECB and inflation expectations. This analysis shows that the information shifts inflation expectations through its effect on trust in the ECB. In terms of marginal effects, a one standard deviation increase in trust in the ECB reduces inflation expectations by 5.3% to 8.5% and inflation uncertainty by 2.4% to 7.1%.”

    + + +

    +  “Guyana has again become a battleground for geopolitical ambitions.” New on PW, Raphael Padula, Matheus de Freitas Cecílio, Igor Candido de Oliveira, and Caio Jorge Prado on ExxonMobil-led oil discoveries in Guyana. Link.

    +  “Why Milei opted to provoke both governors and political factions that had supported him in the runoff election remains unclear. The possibility that the decision was simply a consequence of Milei’s political ineptitude in building alliances should not be underestimated.” Also new on PW, Sara Cufré and Gustavo Robles review the Argentine president’s first hundred days in office. Read in English or Spanish. 

    +  “In the make-or-break phase of the energy transition, the market structure and regulatory setting of the utility industry will be all-important.” A new post from the Center for Active Stewardship, by Nolan Lindquist. Link.

    +  Dani Rodrik examines shifting perspectives on free trade between the nineteenth and twentieth centuries. Link.

    +  “The data disclosed so far provides ample grounds for suspecting malfeasance.” Prasenjit Bose’s preliminary analysis of newly released data from India’s electoral bonds scheme. Link. 

    +  “Tel Aviv serves as a coordinating point in a globally-integrated imperial project with dizzying financial and demographic porousness.” By Kaleem Hawa. Link.

    +  Rodrigo Oliveira, Alei Santos, and Edson Severnini find that evidence from Brazil contests common criticisms of affirmative action. Link.

    +  “The Gaitanistas’ prominence in Colombian crime and conflict both makes their participation essential for the success of ‘total peace’ and confounds efforts to include them.” A new report from the International Crisis Group. Link. Also see Jerónimo Ríos Sierra’s PW essay on Gustavo Petro’s negotiations with the ELN. Link. 

    +   “The island of Haiti, both on the Spanish and French side, still grows about every plant described by Oviedo when he first informed the Europeans of the crops of the Indies. In the Dominican Republic these provide abundance; on Haiti they make possible survival. Cuba, largely resettled only in late years, knows and uses the fewest root crops. The food potential of the traditional conuco planting, or provision ground, is hardly appreciated by ourselves, be we agricultural scientists, economists, or planners, because its tradition as well as content are so different from what we know and practice. Yields are much higher than from grains, production is continuous the year around, storage is hardly needed, [and] individual kinds are not grown separately in fields but are assembled together in one planted ground to which our habits of order would apply neither the name of field nor garden. And so we are likely to miss the merits of this system. The conuco system can make intensive use of steep slopes and thereby may encounter erosion hazards that should not be blamed on the system itself, as commonly they have been.” By Carl O. Sauer. Link.

  7. Buffalo Bill

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    This is an archived version of the PW Sources newsletter from Saturday, March 16, 2024. Sign up to receive PW Sources directly to your inbox here.

    AGRICULTURAL MECHANIZATION

    On March 6, Egypt agreed to float its currency in exchange for a $5 billion increase in its current loan program with the IMF. It remains to be seen how long the Egyptian pound may remain flexible, as the inflationary effects of a devalued currency will chafe against Egypt’s enormous bread subsidies—already strained by the war in Ukraine, a plunge in remittances, and more domestic farmland transitioning to flex crops.

    In a 2002 book, TIMOTHY MITCHELL details how foreign direct investment mechanized Egypt’s agriculture and shifted production from staple foods to luxury consumption:

    “The demand for mechanization had intensified among large landowners in the later 1970s, due to a supposed shortage of agricultural labor that lasted into the early 1980s. This ‘shortage’ took the form of a temporary rise in the wages of male agricultural laborers, particularly in regions close to large cities, caused by the higher wages available for urban construction work during the building boom of that period and by labor migration to the oil-rich countries of the Gulf. Agricultural wages, having averaged only one-third of the average real wage for all economic sectors during the first half of the 1970s, for a while began to catch up with urban wages. Large farmers, given the artificially low prices they received for their crops, were unable or unwilling to pay the higher wages. The larger cause of the labor ‘shortage,’ in other words, was the unequal distribution of land into large farms requiring hired labor (small farms use mostly family or cooperative labor) and the low agricultural prices imposed by the state. Rather than addressing these problems, however, the government, large farmers, and international development agencies turned to the high-payoff program of mechanization. The high payoffs did not take the form of increased yields but of higher profits to the new machine owners and their importing agents and foreign manufacturers. The demand for rural male labor was reduced once again, and the inequalities between agricultural laborers and landowners were kept in place. It is these inequalities that mechanization and other ‘high-payoff’ inputs consolidate, and that accounts of the Nile valley and the need to transform its ‘traditional’ agriculture keep from view.”

    +  “Egypt’s credit policy seems to be heavily weighted toward large-scale livestock production whereas most of Egypt’s livestock is held by small farmers.” By Mohamed Abd El Azim and Ibrahim Soliman. Link. And Habib Ayeb and Ray Bush make the case for food sovereignty in Egypt and Tunisia. Link. 

    +  “In 1997, more than 800,000 fellahin lost their landholding titles that allowed them to cultivate land on the basis of permanent rent contracts.” Detlef Müller-Mahn on informal sector activity in the aftermath of agrarian counter-reform in Egypt. Link.  And Mohammed Soliman on Egypt’s growing informal economy. Link.

    +  “With state-market relations driven by rent seeking, the performance of economic sectors varied according to their proximity to those rents.” Robert Springborg on development under Egypt’s military regime. Link. And Richard Solomon’s new PW essay explores Egypt’s negotiations with the IMF, food import dependence, and the military. Link.

    NEW RESEARCHERS

    Bureaucrats and Industrial Policy 

    PHILIPP BARTESKA is a PhD candidate at the London School of Economics. His job market paper, coauthored by Jay Euijung Lee, studies the relationship between bureaucracy and industrial policy in South Korea. 

    From the abstract:

    “What makes an industrial policy successful? This paper finds that the effect of an industrial policy changes tremendously with the implementing bureaucrat. We study Korean bureaucrats who promote exports on appointments to 87 countries between 1965, when Korea was one of the world’s poorest countries, and 2001. We exploit the rotation of bureaucrats between countries to show that individual bureaucrats matter greatly in boosting exports. Moving from a bureaucrat at the 20th percentile to the median is associated with a 40% increase in exports. This effect is comparable to that of opening an office, implying that this industrial policy has no effect under a 20th percentile bureaucrat. We exploit differential import demand growth to study a mechanism via which better bureaucrats increase exports: transmitting information about market conditions. Under better bureaucrats Korean exports increase more with a product’s import demand. Finally, we investigate whether experience can bridge the gaps between bureaucrats. We isolate quasi-random variation in experience exploiting a product’s import demand growth during the bureaucrat’s first appointment. In subsequent appointments exports increase in products with greater bureaucrat experience. This highlights that organizational capacity grows endogenously, implying a novel channel for path dependence in organizational capacity.”

    + + +

    +  “An IMF rescue and devaluation of the Egyptian pound in turn are unlikely to substantially civilianize the public sector because the regime’s political survival rests on military management of the economy.” New on PW, Richard Solomon on Egypt’s military economy and the IMF. Link. 

    +  “The language of climate change remains an elite, technical language. It is opaque and impenetrable to most people, and it excludes the working class.” New on the Polycrisis, Tim Sahay interviews Chris Shaw on the challenges of building a working-class climate coalition. Link.

    +  Ndongo Samba Sylla challenges dominant assumptions about governments issuing debt denominated in foreign currencies. Link.

    +  “Because the transmission of evidence is relational, the messenger can matter as much as the method. That is, the question of who is providing the evidence becomes crucial, too.”  Ranil Dissanayake, Janeen Madan Keller, and Erin Collinson on how research effectively reaches policymakers. Link.

    +   Benjamin Braun, Donato Di Carlo, Sebastian Diessner, and Maximilian Düsterhöft on how monetary regimes such as the ECB influence structural policy beyond their mandate. Link.

    +  “The CAA is an outcome of the new politics of Hindutva constitutionalism.” Hilal Ahmed on the Citizenship Amendment Act (CAA) in India, from June 2020. Link. And Shoaib Daniyal on how the newly-implemented CAA will affect West Bengal ahead of national elections. Link. 

    +  “We find that for-profit hospitals are more likely to treat high-cost patients than not-for-profit hospitals.” A new study on for-profit psychiatric hospitals in California. Link. 

    +   “In the 1610s and 1620s, a new computational technology took hold in England: printed mathematical tables for compound interest and discounting (‘present value’) problems. Historians of finance and accounting have long recognized these paper tools as predecessors of essential modern techniques like ‘discounted cash flow.’ Yet the history of these tables remains hazy. This article turns to one obscure but influential text—Ambrose Acroyd’s Tables of Leasses and Interest (1628)—as a guide to these questions. Two key facts emerge. First, despite the prominence of similar calculations in financial applications today, these early tables were not confined to England’s nascent financial sector. Rather, their foremost use related to agricultural property, specifically in assessing certain payments (‘fines’) landlords charged tenants for farm leases. Second, among the leading ‘early adopters’ were institutions of the Church of England.  Mathematical tables like Acroyd’s emerged out of long-running conflicts between church landlords and tenants over how to determine just and reasonable fines on church lands.” By William Deringer. Link.

  8. French Doors

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    This is an archived version of the PW Sources newsletter from Saturday, March 9, 2024. Sign up to receive PW Sources directly to your inbox here.

    GOLD MINING

    Last year, the Brazilian senate enshrined the controversial Milestone Thesis (marco temporal) into law, whereby indigenous groups can only make land claims on territories they occupied before October 1988. The new legislation opens the door to road-building, dam construction, and mining activities in indigenous communities. 

    In a 2022 essay, MARCELO FIRPO DE SOUZA PORTO and DIOGO ROCHA examine indigenous labor in the gold mining sector after 1971:

    “With the end of the Bretton Woods agreement in 1971, gold stopped being a financial backing of the international financial system to become a commodity. At the first moment, this turn caused a strong increase on the price of gold and a run to the various auriferous reserves in the world, including in Brazil and the Tapajós region by means of artisanal gold prospection, which incorporates investments in its mechanization that amplify the socio-environmental impacts. As this process was poorly regulated by the State and had intense participation of economic agents from the lower circuits of capitalism, neo-extractivism involving illegal gold prospection has strong connections with illicit activities, which results in an even more violent dimension of its expansion. Gold prospection workers, often natives of the indigenous peoples and riverbanks communities, end up subordinated to local entrepreneurs who finance and organize an activity that is increasingly mechanized and expensive. On a local level, the neo-extractivism of gold prospection reproduces the inequalities and injustices that characterize this market on a global level in the relationship between the countries involved, but it aggravates the aspects of violence and spoliation typical of the colonial pattern that persists and is re-updated.”

    + “Government focus has been on the creation of environmental laws rather than technical assistance programs on the ground.” Rodolfo Sousa, Marcello Veiga, Dirk Van Zyl, Kevin Telmer, Sam Spiegel, and Jeff Selder on regulating Brazil’s gold sector. Link. And Sousa and Veiga on the Global Mercury Project’s efforts to train informal miners in the Tapajós river basin.  Link.

    + “By presiding over the legalisation of domestic illicit financial flows, the Bolivian state abandons higher tax revenues to perpetuate a long-running political settlement.” By Fritz Brugger, Felicitas Fischer, and Joschka J. Proksik. Link. And an edited volume on governing extractive industries in Bolivia, Ghana, Peru, and Zambia. Link.

    + “The three large-scale gold mining companies currently produce approximately 30% of the gold, while small-scale mining operations account for approximately 70% of the national production.” A 2013 chapter on gold mining in Colombia. Link. And see Kari Lydersen and Adriana Cardona-Maguigad’s multi-part investigation into the social conflicts resulting from artisanal, illegal, and large-scale mining. Link. 

    NEW RESEARCHERS

    Corporate Tax Codes

    JORDAN RICHMOND is a PhD student in economics at Princeton University. His job market paper, coauthored by Lucas Goodman, Adam Isen, and Matthew Smith, studies how limiting interest deductions influences firms’ investment and financing choices. 

    From the abstract:

    “The 2017 law known as the Tax Cuts and Jobs Act (TCJA) implemented an interest limitation for big, high-interest firms. Using an event study design comparing big and small high-interest firms, we rule out economically significant impacts of the interest limitation on investment and leverage, and find evidence that the interest limitation led firms to increase their equity issuance. A triple difference design that accommodates size-varying impacts of other TCJA policy changes yields similar results, as does a regression discontinuity design focusing on marginal firms that are just large enough to face the interest limitation. Our results indicate many firms do not use debt as their marginal source of financing and provide evidence consistent with capital structure models with fixed leverage adjustment costs. Furthermore, our results suggest limiting interest deductions is unlikely to have large impacts on investment or to address concerns about rising corporate debt levels.”

    + + +

    +  “Since Petrobras has a long tradition of ensuring industrial safety in exploring oil, expanding this tradition would allow us to invest in new energy sources.” New on PW, Hugo Fanton interviews Cibele Vieira about the history of Petrobras in the context of Brazilian development. Read it in English or Portuguese. 

    +  “In the Gujarat of this time, state authority did not only rely on a ‘deep state’; it also ruled over people through the network of the Sangh Parivar and, more specifically, through vigilante groups which had penetrated and permeated society in such a way as to fashion a ‘deeper state.'” Christophe Jaffrelot on surveillance in BJP-ruled Gujarat, India. Link. 

    +  “Sisi’s economic path is predicated on denying the people access to channels of dissent.” Hesham Sallam on a decade of Abdel Fattah al-Sisi’s rule in Egypt. Link.

    +   L. Price and R. Mapes on oil exploration in the Guyana/Suriname Basin since 2015. Link.

    +  “The vast majority of the companies that took part in the UK pilot decided to keep the policy in place—54 out of 61 organisations, with 31 confirming that the change is permanent.” Autonomy reports on the 2022 UK 4-day week pilot, one year on. Link.

    +   Tobias Franz, Diana Gómez, C. Julián Idrobo, and Olga Corzo on maritime infrastructure and the Tribugá Port project on Colombia’s Pacific coast. Link. 

    +  “Price increases in the 1970s were driven by contingent events propagating through politically constructed markets.” By Brian Judge. Link.

    +  “In the first six months of 2023 alone, nearly 400 children in Gaza were denied permits to travel to the West Bank for critical healthcare, leaving many to die.” An al-Shabaka roundtable from November, featuring Yara Hawari, Tariq Kenney-Shawa, Fathi Nimer, and Alaa Tartir. Link.

    +   “On May 21, 1963, American farmers voted down an administration proposal that would have required significant cuts in grain output in exchange for higher guaranteed prices. The farm programs inherited from the New Deal had not successfully controlled production (despite the goal of ‘supply management’) because a technological revolution in agriculture had raised farm productivity to unforeseen levels, and farmers were never really beholden to restrictions on output, only to limits on the acreage under cultivation. From the 1930s to the 1960s, the United States maintained farm prices higher than world market prices, and, at considerable expense, stored the portion—the surplus—that it could not sell, donate, or dump. At the peak of this storage regime, in the late 1950s, the government ran out of room in the usual holding spots—warehouses, elevators, and terminal markets—and started shoving grain into abandoned movie theaters and empty Texas oil tanks. By 1959, owing to commodity storage costs, agricultural expenditures made up the third largest item in the federal budget, following only defense outlays and interest on the debt.” By Sarah T Phillips. Link.

  9. Speed Trial

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    This is an archived version of the PW Sources newsletter from Saturday, March 2, 2024. Sign up to receive PW Sources directly to your inbox here.

    LEADING TECHNOLOGIES

    The CHIPS and Science Act aspires to draw the manufacturing of US leading technologies back into domestic supply chains. Speaking on the policy’s implementation, Secretary of Commerce Gina Raimondo stated earlier this week that the US is on track to manufacture 20 percent of leading-edge logic chips by 2030. 

    In a 1976 memo for the US Department of Defense, FRED BUCY argued that preserving the US lead in strategic technologies—especially amid concerns around Soviet technological theft—required export controls to target technology transfers rather than commodity exports: 

    “U.S. export control law applies to reexportation of strategic goods and technical data of U.S. origin to a third country by the receiving firm. Major allies of the U.S. do not have a similar law. They limit export control enforcement to acts performed within their own boundaries. Thus, strategic technology originated in these countries can be reexported through third countries to Communist nations without restriction. There is cause for concern for strategic technology possessed by foreign firms that have subsidiaries in non-Communist nations. This uncertain control and enforcement environment among several countries dictates that the key elements of a high-velocity strategic technology—one which has experienced a revolutionary gain—should not be exported to these countries. A nation that allows strategic technology to be passed on to Communist countries should be restricted from receiving further strategic technology of U.S. origin.”

    +  “Bucy explained that the point of export controls was ‘not to interdict trade, but to delay an adversary’s acquisition of commercial technology of military significance for as long as possible.’ ” From Mario Daniels and John Krige’s 2022 book. Link. And see Ella Coon’s review of the text in PW. Link.

    +  “In designing the controls, the US is making an implicit assumption that industry and partner resistance will eventually give way to alignment with US regulations.” Reva Goujin and JP Kleinhans on a package of stricter export controls against China, announced last October. Link. And William Alan Reinsch, Matthew Schleich, and Thibault Denamiel examine the impacts of the 2022 export controls. Link. 

    +  “Simple observations of a geographical concentration of high-technology establishments cannot be taken prima facie as evidence of the new industrial cluster arguments.” Philip McCann and Tomokazu Arita on industrial clustering and the semiconductor industry. Link. 

    NEW RESEARCHERS

    Education and Extreme Poverty

    AMORY GETHIN is a recent PhD graduate from the Paris School of Economics. His job market paper quantifies the role played by education in the decline of global poverty.

    From the paper:

    “In my benchmark specification, I find that private returns to schooling can account for about 50% of global economic growth and 70% of income gains for the world’s poorest 20% since 1980. They also explain 40% of the reduction in the share of the world’s population living in extreme poverty. On the whole, education has been a major source of global inequality reduction, driving a large share of income gains in low-income countries and among the poorest individuals in all world regions. This progressive nature of global educational expansion has intensified over time and has been most pronounced among recent cohorts. Given the predominant role that governments have had in providing education and other basic services to low-income households, this puts public policies at the center of the fall of global poverty. Combining measures of direct government redistribution from a companion paper with indirect investment benefits from education estimated in this paper brings the total contribution of public policies to global extreme poverty reduction to at least 50%.”

    + + +

    +  “Countries can realize success with industrial policy rooted in the petroleum sectors in spite of the machinations of predatory elites.” New on PW, Jesse Salah Ovadia on the oil and gas sectors in Angola and Nigeria. Link. 

    +  “The ELN has become significantly more powerful since 2017. In addition to gaining territory in the peripheries, the group has almost entirely consolidated several areas once under the control of the FARC-EP. ” Also new on PW, Jerónimo Ríos Sierra on the Petro government’s negotiations with the Colombia’s largest active guerrilla. Read it in English or Spanish.

    +  “The IMF’s latest assessments of debt stress indicate that 10 countries were in debt distress, while 52 countries were in severe to moderate debt stress—currently totaling USD 3 trillion in debt, a doubling since 2010.” By Rajko Kolundzic. Link.

    +  Banks raise their US real estate loss provisions amidst a commercial property crisis. By Rich Asplund. Link.

    +  “We show that less-educated Americans differentially demand “predistribution” policies (e.g., a federal jobs guarantee, higher minimum wages, protectionism, and stronger unions), while more-educated Americans differentially favor redistribution (taxes and transfers).” Ilyana Kuziemko, Nicolas Longuet-Marx, and Suresh Naidu on changes in the Democratic Party’s voter base. Link.

    +  Noah Barkin and Gregor Sebastian on Germany and China’s “zero-sum” economic relationship. Link. 

    +  “As climate change creates greater uncertainty and impacts the quality of farm produce, farmers say guaranteed support from the government is essential to help them move beyond rice and wheat cultivation.” Vaishnavi Rathore on climate crisis and farmers’ protests in India. Link. 

    +   A Kaufman Hall report on the role financial reserves play in not-for-profit healthcare. Link.

    +   “This accelerated shift toward heavy industries in the throes of the Great Depression ultimately proved to be an epochal event in the nature of Yokohama’s role as a port of foreign trade. In the bargain, Yokohama’s primary function was transformed from a specialization in silk exports to the importation of goods and materials related to heavy industry. The port’s imports recovered faster than its exports, with the former finally surpassing the latter by 1935. Heavy chemicals went from 49 percent of the total value of manufacturing output in Yokohama in 1929, to 75 percent in 1935, then 83 percent in 1938. At the same time, the share of Yokohama’s exports occupied by heavy industrial manufacturing also grew from 15 percent of the port’s total export values in 1929 to 39 percent by 1935, then 50 percent in 1938. These new industries were fed by a growing Keihin industrial corridor, with machine parts occupying 39 percent, chemicals 24 percent, and metals 20 percent of the city’s total manufacturing values, respectively, by 1938. Thus, the 1930s were not simply a time of economic crisis for Yokohama, but also a time of profound and fundamental transformation in the nature of the city’s economy and consequently its role within the global economy.” By Jeffrey C. Guarneri. Link.

  10. Metaphysical Drawing

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    This is an archived version of the PW Sources newsletter from Saturday, February 24, 2024. Sign up to receive PW Sources directly to your inbox here.

    MILITARY BIAS

    In light of Israel’s assault on Gaza post-October 7 and growing instability in the region, S&P Global and Moody’s have both downgraded Israel’s credit rating to “negative.” Israeli finance minister and extremist settler Bezalel Smotrich called the revisions “alarmist” and politically motivated. 

    In a 1996 paper, economists SHIMSHON BICHLER and JONATHAN NITZAN suggest that the militarization of Israel’s economy from the late 1960s bolstered the profitability of large corporate conglomerates at the expense of small firms:

    “To the extent that the government maintained or even increased the military-related profitability of the large firms, it contributed toward undermining the long-term viability of the Israeli economy. Much like the transformation of U.S. big business, as predicted by Kalecki (1967) and later analyzed by Melman (1985), the growing ‘military bias’ since the early 1970s became the dominant structural process of Israel’s ‘big economy.’ This ‘military bias’ shifted the industrial focus toward areas in which Israel did not have and could not have any competitive edge. It raised the domestic and foreign debt and increased Israel’s dependence on the United States. Most significantly, through its effect on the aggregate concentration of profit, it turned the large conglomerates into a decisive political force. Indeed, since the early 1980s, a growing number of mainstream Israeli economists started to express concern about the backward link between the ‘military bias’ of Israeli industry and the course of Israel’s foreign policy: defense spending was no longer seen as a mere political issue, but also as a reflection of economic pressures exerted by the ‘angry elements’ that came to dominate many boardrooms in the ‘big economy.’ The evolution of military spending in Israel was hence part of a double-sided structural transformation. On the one hand, the level of military expenditures was influenced by the progressive ‘military bias’ and increasing concentration of the Israeli economy. On the other hand, these latter developments were themselves partly the outcome of high military spending.”

    +  “In Israel, the military budget at the margins is also employed as a political-economic instrument to help manage the economy and to provide a favorable election climate for incumbents.” From Alex Mintz and Michael D. Ward’s 1989 article. Link.

    +  Andrew Cockburn traces the growth of the military-industrial complex in the US: “Education came in first by a wide margin, producing 26,700 jobs, followed by health care at 17,200. Defense, generating 11,200 jobs, ranked last.” Link. And James Cypher on military Keynesianism. Link. 

    +  “Israel’s move into high-technology military production resulted in slower growth of civilian output than otherwise would have occurred.” By Paul Rivlin. Link. And in the Financial Times, how companies have benefitted from Europe’s recent defense revival. Link.

    NEW RESEARCHERS

    Disaster Shocks 

    REBECCA MARIA MARI is a senior economist at the Bank of England and a recent PhD graduate from the London School of Economics. Her doctoral thesis studies the effects of natural disasters on credit markets and public investment.

    From the abstract:

    “Three main questions are explored using natural disasters, private credit, and public investment alternatively as shocks and conditioning assumptions in the study of private capital development at local level. What is the role of local private capital endowment on the private sector’s responsiveness to public investment? How do credit market imperfections affect the firm’s response to investment subsidies and the selection of the policy’s optimal target group? What is the impact of a negative shock to the entrepreneur’s home on their small-medium business? This thesis provides three main novel insights. The first one is the crucial role of private capital stock endowment at local and firm-level in determining the effectiveness of different types of public investment in mobilising private investment and labour demand. The second one is the significant impact of natural disasters on local economies not just through physical destruction and factor relocation, but also through indirect effects generated by credit market imperfections and wealth effects. The third one is the effectiveness of public policy in fostering private capital development at local level, which is shown to be related to the degree of complementarity between the public investment and the pre-existing private capital stock.”

    + + +

    +  “The increased weight of the global South among countries making up the G20 indicates a changing balance of forces within the group.” New on PW, Bruno De Conti, Pedro Rossi, Arthur Welle, and Clara Saliba on Brazil’s G20 presidency. Read it in English or Portuguese. 

    +  “For a maturing technology like wind, year over year trends in costs are no longer driven by an idealized process of ‘learning’  but rather by the gales of creative destruction (Schumpeter) endemic to any capital intensive industry.” A new post from Nolan Lindquist of the Center for Active Stewardship. Link. And see Lindquist’s December PW essay on offshore wind and tech forecasting. Link. 

    +  Chloe Tarrabain on the racial and gender dimensions of migrant labor in temporary work agencies. Link.

    +   “While Beijing has bested Washington in production and trade dominance, several factors—such as the petrodollar—obstruct China’s attainment of financial dominance in the UAE, thereby preventing bifurcation.” By Toufic Sarieddine. Link.

    +  Fritz Brugger on gold trading and formal value chains in Bolivia. Link.

    +   “The Moscow-centric approach, with the focus on Mikhail Gorbachev and Boris Yeltsin, has its limits. The Soviet Union fell in the end over the issue of Ukraine.” Serhii Plokhy in conversation with Katherine Younger. Link.

    +  Vincent Ialenti’s ethnographic fieldwork studies the corporate ownership “mankala” model backing Finland’s nuclear energy companies. Link.

    +   A new study by Janine Heck, Lars Jahnke, and Jen Leker analyzes sustainable energy incentives in the chemical industries of Germany, Austria, and Switzerland. Link.

    +   “Progress was also not linear. In the immediate wake of the sit-down strikes, the UAW experienced rapid growth. In less than a year, membership surged from 30,000 to nearly 400,000, driven by the example of the strike, active organizing efforts, grassroots frustration with low wages and lack of shopfloor autonomy, and the path-breaking protections provided by the National Labor Relations Act (1935). ‘This organization during the past year expanded its membership and its functions at a pace unheard of before in the history of the entire labor movement,’ the IEB reported in January 1938. In 1938, however, the U.S. economy nosedived, and many of these new members were laid off, robbing the union of stability. Membership rolls fluctuated wildly, as did the union’s finances, causing regular deficits. Leaders – most of them relatively young men who had been in the plants themselves until recently – learnt on the job. They also vied for influence within the new organization.” By Timothy Minchin. Link.