February 27th, 2021

Queen Mab's Cave


Since November 2020, thousands of Indian farmers from Punjab, Haryana, and other states have protested the implementation of national market-based agricultural reforms.

A look to a series of liberalization measures in the 1990s, which did not specifically address agriculture, reveals a dramatic restructuring of the agricultural sector. In a 2017 paper, Abhijit Sen and Jayati Ghosh investigate the impacts of these measures, highlighting shifts in investment, subsidies, and credit that inform the current debate.

From the paper:

"In the initial years, the reforms package did not include any specific policies specifically designed for agriculture. In the early 1990s, it was felt that the devaluation of the rupee had already provided sufficient incentive to agriculture, because it was expected to make it more attractive to export crops and thereby improve farm incomes. However, even if no explicit attention was paid to agriculture, various economic policies and other changes in patterns of government spending and financial measures had significant implications for the conditions of cultivation.

Over the initial period of economic reforms, which coincided with government attempts at fiscal stabilisation, there were actual declines in government expenditure on agriculture and rural development. Thereafter, there were cuts in particular subsidies such as on fertilizer in real terms, and the 1990s experienced overall decline in per capita government expenditure on rural areas in both absolute per capita terms and shares of GDP and aggregate public spending. There were also very substantial declines in public infrastructure and energy investments that affect the rural areas. These were especially marked in irrigation and transport, both of which matter for agricultural growth and productivity. In addition, financial liberalisation measures, including the emerging scope of what was designated as 'priority sector lending' by banks, effectively reduced the availability of institutional credit. Although the problem of credit access to cultivators was far from solved in India, the nationalization of banks had caused some positive differences, as public sector banks made more efforts to open rural branches and rural accounts, and to provide more crop loans to farmers. But after 1993 in particular, various financial liberalization measures, and the explicit and implicit incentives provided to public sector banks, made this much less attractive for bankers who anyway faced very high transaction costs when dealing with agricultural lending. The growth of branches, accounts and lending to agriculture all decelerated and in some states showed absolute declines. This forced many cultivators, particularly smaller farmers, tenant farmers and those without clear titles to land, to seek recourse to informal channels of credit like input dealers and traditional moneylenders. All this made farm investment and working capital for cultivation more expensive and more difficult, especially for smaller farmers."

Link to the text.

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February 18th, 2021

François Mitterrand's Austerity Turn

The Rise and Fall of the French Road to Socialism

The history of French socialism is filled with famous and heroic dates: 1789; 1848; 1871 1936; 1968. But less well remembered is another date of great significance: 1981. It was in May of that year that the French left achieved its greatest electoral triumph of the postwar era, with the election of Socialist Party (PS) leader François Mitterrand as President of the Republic. That victory, which came after a quarter century of uninterrupted conservative rule, raised hopes for a new departure in French politics. Mitterrand’s election manifesto, the 110 Propositions for France, embodied the sweeping reform agenda he had promised since ascending to the leadership of the PS a decade earlier, when he memorably capped his speech at the Party’s 1971 Congress with a thunderous call for a “rupture” with capitalism. As head of the PS, Mitterrand’s decision to pursue an electoral agreement with his long-time his rivals from the Communist Party (PCF), which resulted in the 1972 “Common Program,” was both a milestone for the postwar French left, and an important step in his own rise to the Élysée Palace.

Mitterrand’s election in the spring of 1981, and the subsequent triumph of the left in parliamentary elections which followed immediately afterwards, led to the formation of a government under Prime Minister Pierre Mauroy that was more radical than any France had seen since Léon Blum’s Popular Front in 1936. For the first time since the start of the Cold War, Mauroy’s cabinet included four communist ministers.

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December 5th, 2020



This year's turbulent oil market, in combination with the Covid-19 pandemic, has threatened the financial outlook of several Latin American nations. With many governments dependent on oil revenues, the issues of public ownership of the oil sector and financial liberalization are subject to intense political debate. But given the fluctuations of the market and national responses over the past three decades, some have called into the question the ideological nature of oil policy in the region.

In a chapter from the 2019 volume The Political Economy of Taxation in Latin America, FRANCISCO MONALDI examines oil expropriation and taxation across Latin America, arguing that oil policy is determined less by political ideology and more by structural factors of the oil sector and investment cycles.

From the chapter:

"In 2013–2015 Mexico opened up its oil industry to private investment, following seventy-five years of exclusive state control. Other Latin American governments, including Argentina, Brazil, Colombia, Ecuador, and even Venezuela, covering all political tendencies, are also enthusiastically courting foreign investment in oil, offering increasingly attractive fiscal conditions, with lower government-take. This trend would seem to proclaim a new liberalization cycle in the industry. In contrast, during the previous decade, under an oil price boom, the region had witnessed a resource nationalism cycle. Most countries in the region significantly increased the government-take on hydrocarbons and the government control over the industry. What are the determinants of these swings in oil policy, and in particular in hydrocarbon taxation policy? This chapter argues that structural factors, such as the characteristics of the oil sector (rents, sunk costs, risk profile of projects), the countries’ geological endowments, and price and investment cycles are key determinants of oil taxation policy. These factors interact with the broader institutional environment of a country to define oil policy. Ideology usually plays a role in how policy change is enacted, particularly regarding the degree of government control, but the general direction of oil taxation policy is largely determined by the incentives provided by structural factors and market conditions.

To understand the dynamic of resource nationalism it is important to focus on the deeper determinants of the historical cycles of private opening and expropriation. These are the incentives faced by political leaders under different scenarios of international prices, stages of the investment cycle, production and reserve tendencies, and size of net exports (imports). Expropriation in its different forms, including significant tax increases, tends to occur when prices rise substantially – that is, when its benefits increase significantly for the government. Expropriation is also more likely to occur in an environment of high and increasing reserves and production, and when the country becomes a large net exporter. Thus, after a cycle of significant and successful private investment, the probability of expropriation paradoxically increases. Given the amounts of the oil rents, which can be as high as 90% of revenues, the fiscal benefits can be politically irresistible. Most relevant petroleum exporters are fiscally reliant on oil. Thus, in this so-called high-sunk-cost sector, the effects of a decline in investment can take years to lead to the consequent decline in production. Therefore, government leaders with short-term horizons may be tempted to obtain high current benefits while deferring costs, leaving future leaders to bear the political consequences of declining production and revenues."

Link to the text.

  • "The scaling-up of NAFTA to the SPP (Security and Prosperity Partnership of North America)—which bolstered U.S. national security—is the basis for changes in the Mexican energy sector." Alejandro Alvarez Béjar's account of NAFTA's implications for energy policy challenges Monaldi's framing. Link.
  • "Contrary to an explanation based on rentier state theory, Chavez's proclivity for state intervention, both as a candidate and as president remained constant regardless of significant changes in oil prices." Gustavo Flores-Macías' study of Latin American leftism sheds light on Chavez's resource nationalism. Link.
  • "Compared with high-income resource-abundant countries, Latin American & Caribbean commodity exporters have much lower (known) natural resource endowments per capita but are much more dependent on natural resource revenues." Emily Sinnott, John Nash, and Augusto de la Torre's World Bank report provides an overview of commodity dependence in the region. Link. And Maristella Svampa examines the tensions between commodity dependence and indigenous rights. Link.
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November 14th, 2020

The Continuous Moment


The conclusion of the United States election has prompted a resurgence of commentaries on the state's role in markets. By focusing on the state's capacity to shape and alter market structure, these discussions build on a longstanding academic tradition which overturned classical historical accounts of free markets.

Among the most influential texts is CHARLES TILLY's 1990 book, which examines the co-development of commercial capitalism and nation states.

From the introduction:

"The story concerns capital and coercion. It recounts the ways that wielders of coercion, who played the major part in the creation of national states, drew for their own purposes on manipulators of capital, whose activities generated cities. Men who controlled concentrated means of coercion (armies, navies, police forces, weapons, and their equivalent) ordinarily tried to use them to extend the range of population and resources over which they wielded power. When they encountered no one with comparable control of coercion, they conquered; when they met rivals, they made war. War, and preparation for war, involved rulers in extracting the means of war from others who held the essential resources—men, arms, supplies, or money to buy them—and who were reluctant to surrender them without strong pressure or compensation.

The organization of major social classes within a state's territory, and their relations to the state, significantly affected the strategies rulers employed to extract resources, the resistance they met, the struggle that resulted, and the sorts of durable organization that extraction and struggle laid down. These relations varied significantly from Europe's coercion-intensive regions to its capital-intensive regions. The demands major classes made on the state, and their influence over the state, varied correspondingly. The increasing scale of war and the knitting together of the European state system through commercial, military, and diplomatic interaction eventually gave the war-making advantage to those states that could field standing armies; states having access to a combination of large rural populations, capitalists, and relatively commercialized economies won out. They set the terms of war, and their form of state became the predominant one in Europe. Eventually European states converged on that form: the national state. "

Link to the book.

  • A 2019 article by Didac Queralt compares tax-financed and externally-financed wars from 1816 to argue that "globalization of capital markets in the nineteenth century undermined the association between war, state making, and political reform." Link. And a recent article by Roberto Bonfatti, Adam Brzezinski, K. Kıvanç Karaman, and Nuno Pedro G. Palma draws on "money stock and tax revenue data for European states from antiquity to the modern period" to argue that "monetary and fiscal capacity, and by extension, markets and states, have a symbiotic relationship." Link.
  • In the most recent edition of Herman Mark Schwartz's States Versus Markets, a helpful overview of debates on the Great Divergence: "Other ancient agrarian empires, like China and the Ottomans, were successful in monetizing their territory, taxing peasants, and subordinating both merchants and the landed aristocracy. But no European state succeeded in unifying Europe." Link.
  • "The emergence of a peculiarly British version of the fiscal-military state, complete with large armies and navies, industrious administrators, high taxes and huge debts, was not the inevitable result of the nation’s entry into European war but the unintended consequence of the political crisis which racked the British state after the Glorious Revolution of 1688." From John Brewer's classic Sinews of Power. Link. And a recent article by Benoît Maréchaux challenges Brewer's traditional narrative by "analyzing the business organisation and activities of Genoese naval entrepreneurs who managed galleys for the Spanish Empire in the late 16th and early 17th centuries." Link.
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September 5th, 2020

Hot Oil

Gardiner Means, administered prices, and why the Texas Railroad Commission should regulate oil production again

Even at the depth of the Great Depression, oil producers were always paid a positive price for their product. But on April 20 of this year the price of West Texas Intermediate oil traded for negative prices, reaching a record low of negative \$37.86. While oil prices have largely recovered at the time of writing, negative prices indicate deep underlying problems with the oil market. Currently, OPEC+ coordinates with Russia, Mexico, and other oil producing nations to set production quotas and balance supply and demand. Their systematic reduction in oil production prevented the collapse in prices that the United States saw, and the Brent oil contract, a global benchmark, continued to trade for positive prices (on the same day West Texas Intermediate reached subterranean prices Brent Oil traded for +\$17.36, a spread of over \$50). In response to the US disaster, oil producers called for the Texas Railroad Commission (TRC) to regulate oil production to try and balance American oil markets.

Yet the Texas Railroad Commissioners maintained that plunging prices would reduce production and balance the market on their own. It is true that US producers, facing negative prices, have rapidly reduced production. But with prices rising, production may return quickly, setting the stage for another crash.

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