FH Hahn and RCO Matthews, “The Theory of Economic Growth: A Survey,” Economic Journal 74, no. 296 (1964): 779-902.
Below are only a handful of quotes selected, mostly focusing on the relationship between the Harrod-Domar model of growth and neo-classical models.
"The distinctive assumptions of the Harrod-Domar model, in the schematic form in which we shall now present it, are as follows: (1) A constant proportion...of income...is devoted to savings. (2) The amounts of capital and of labour needed to produce a unit of output are both uniquely given; for the moment this may be thought of as the result of technological considerations--fixed coefficients in production...(3) The labour force grows over time at a constant rate...fixed by non-economic, demographic forces" (783).
"The requirements for steady growth in Y may be looked at from the side of the two inputs, labour and capital, in turn. They are not on a par, because capital is a produced means of production, and labour is not...Labour. Since labour requirements per unit of output are given, it is impossible for Y permanently to grow at a constant rate greater than n, the rate of growth of the labour supply...Capital. For equilibrium, the amount people plan to save must equal the amount they plan to invest" (783-4).
Neo-Classical models:
"Let us revert to Harrod-Domar as our starting-point. We restore the assumption dropped in the preceding section that employment must grow at the same rate as the labour supply in order for there to be equilibrium. What we drop is the assumption that the amount of labour and capoital required to produce a unit of output are fixed. Instead we postulate a continuous function linking output to the inputs of capital and labour. We continue to assume that there are constant returns to scale and no technical progress. The capital-output ratio is now variable" (787-8).
"It would be wrong to suppose that Harrod was unaware of the arguments on which the neo-classical model is based. His grounds for rejecting them were not that he maintained that the capital-output ratio was unalterable for technological reasons" (789-90).
Wednesday, November 26, 2008
Gill and Law: Global Hegemony and the Structural Power of Capital
S Gill and D Law, “Global Hegemony and the Structural Power of Capital,” Global Governance: Critical Concepts in Political Science 33, no. 4 (2004): 475-499.
"In this chapter we distinguish between direct and structural forms of power. We relate these to the concepts of hegemony, historic bloc and the 'extended' state, in our analysis of present-day capitalism. In so doing we seek to meet two major challenges. The first is to integrate better 'domestic' and 'international' levels of analysis. The second, related challenge, is to theorize the complementary and contradictory relations between the power of states and the power of capital" (93).
The authors start by distinguishing between the realist concept of hegemony and the Gramscian concept. The former argues that there is direct control of one over another, typically one state over another. The later concept argues that there is a set of structural forces that can exist that can create order. "A hegemonic order was one where consent, rather than coercion, primarily characterized the relations between classes, and between the state and civil society" (93).
"Our contribution here mainly concerns the theory of power. We assume that theories of power and hegemony must subsume both normative and material, structural and existential...dimensions of social relations. Part of the richness of Gramschi's concepts is that they combine these elements. Because of this, they offer clues for overcoming the gulf between structure and agency. We believe a possible key to the resolution of the structure-action problem in social theory more generally, and international relations theory in particular may be through the development of mediating concepts such as structural power and historical bloc" (94).3
We may be moving towards a post-Fordian conception of production, which is obviously global. Therefore, we must look at hegemony, blocs and the state from the perspective of the global. This involves a revolution in the social forms of accumulation. This has been referred to as a regime of accumulation. "A regime therefore broadly encompasses the forms of socio-economic reproduction which together constitute the conditions of existence of economic development in a particular historical period of epoch. As such there may be different regimes of accumulation...coexisting at any point in time" (95).
The post-WWII regime of accumulation was very successful at promoting growth in industrialized countries for four reasons. Firstly, the core (the US) was stable and secure. Secondly, the US was able to sustain growth through demand created through deficits and militarism. Thirdly, the system was sustained through "embedded liberalism". Finally, inexpensive inputs, especially oil.
"In a structural sense, what was occurring in the post-war period was the emergence of a globally integrated economy whilst political regulation at the domestic level was becoming ever-more comprehensive" (97).
The authors put emphasis on the emergence of capital markets as a crucial aspect of the establishment of capitalism as a socio-economic system. They expand on this by offering myriad examples of the power of international oligopolistic capital.
"At the international level, the bargaining power of transnational corporations would be reduced if most national governments were able to co-ordinate their regulations and financial concessions. however, even supposedly like-minded, and wealthy countries...like the EC have not been able to seriously discuss, let alone achieve this goal" (106).
"In this chapter we distinguish between direct and structural forms of power. We relate these to the concepts of hegemony, historic bloc and the 'extended' state, in our analysis of present-day capitalism. In so doing we seek to meet two major challenges. The first is to integrate better 'domestic' and 'international' levels of analysis. The second, related challenge, is to theorize the complementary and contradictory relations between the power of states and the power of capital" (93).
The authors start by distinguishing between the realist concept of hegemony and the Gramscian concept. The former argues that there is direct control of one over another, typically one state over another. The later concept argues that there is a set of structural forces that can exist that can create order. "A hegemonic order was one where consent, rather than coercion, primarily characterized the relations between classes, and between the state and civil society" (93).
"Our contribution here mainly concerns the theory of power. We assume that theories of power and hegemony must subsume both normative and material, structural and existential...dimensions of social relations. Part of the richness of Gramschi's concepts is that they combine these elements. Because of this, they offer clues for overcoming the gulf between structure and agency. We believe a possible key to the resolution of the structure-action problem in social theory more generally, and international relations theory in particular may be through the development of mediating concepts such as structural power and historical bloc" (94).3
We may be moving towards a post-Fordian conception of production, which is obviously global. Therefore, we must look at hegemony, blocs and the state from the perspective of the global. This involves a revolution in the social forms of accumulation. This has been referred to as a regime of accumulation. "A regime therefore broadly encompasses the forms of socio-economic reproduction which together constitute the conditions of existence of economic development in a particular historical period of epoch. As such there may be different regimes of accumulation...coexisting at any point in time" (95).
The post-WWII regime of accumulation was very successful at promoting growth in industrialized countries for four reasons. Firstly, the core (the US) was stable and secure. Secondly, the US was able to sustain growth through demand created through deficits and militarism. Thirdly, the system was sustained through "embedded liberalism". Finally, inexpensive inputs, especially oil.
"In a structural sense, what was occurring in the post-war period was the emergence of a globally integrated economy whilst political regulation at the domestic level was becoming ever-more comprehensive" (97).
The authors put emphasis on the emergence of capital markets as a crucial aspect of the establishment of capitalism as a socio-economic system. They expand on this by offering myriad examples of the power of international oligopolistic capital.
"At the international level, the bargaining power of transnational corporations would be reduced if most national governments were able to co-ordinate their regulations and financial concessions. however, even supposedly like-minded, and wealthy countries...like the EC have not been able to seriously discuss, let alone achieve this goal" (106).
Monday, November 24, 2008
Schultz: The Economic Value of Education
TW Schultz, “The Economic Value of Education,” New York (1963).
"My aim is to bring economic analysis to bear on education" (1).
"Concepts of education, like those of freedom, bristle with difficulties...Education is intimately bound to the culture of the community it serves, and for this reason what education means differs from one community to another...Thus, to educate means etymologically to educe or draw out of a person something potential and latent; it means to develop a person morally and mentally so that he is sensitive to individual and social choices and able to act on them; it means to fit him for a calling by systematic instruction; and it means to train, discipline, or form abilities, as, for example, to educate the taste of a person" (3).
Shultz makes a distinction between schooling and education, the first being former and the later less rigidly defined.
"From the evidence already presented, the picture is that schooling and advance in knowledge are both major sources of economic growth. IT is obvious that they are not natural resources; they are essentially man-made, which means that they entail savings and investment. Investment in schooling is presently, in the United States, a major source of human capital" (46).
"Thus, a concept of capital that is restricted to structures, producer equipment, and inventories may unwittingly direct attention to issues that are not central or critical in understanding economic growth over long periods" (47).
"My aim is to bring economic analysis to bear on education" (1).
"Concepts of education, like those of freedom, bristle with difficulties...Education is intimately bound to the culture of the community it serves, and for this reason what education means differs from one community to another...Thus, to educate means etymologically to educe or draw out of a person something potential and latent; it means to develop a person morally and mentally so that he is sensitive to individual and social choices and able to act on them; it means to fit him for a calling by systematic instruction; and it means to train, discipline, or form abilities, as, for example, to educate the taste of a person" (3).
Shultz makes a distinction between schooling and education, the first being former and the later less rigidly defined.
"From the evidence already presented, the picture is that schooling and advance in knowledge are both major sources of economic growth. IT is obvious that they are not natural resources; they are essentially man-made, which means that they entail savings and investment. Investment in schooling is presently, in the United States, a major source of human capital" (46).
"Thus, a concept of capital that is restricted to structures, producer equipment, and inventories may unwittingly direct attention to issues that are not central or critical in understanding economic growth over long periods" (47).
Monday, November 17, 2008
Barro: Economic Growth in a Cross Section of Countries
RJ Barro, “Economic Growth in a Cross Section of Countries,” NBER Working Paper (1991).
"For 98 countries in the period of 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school enrollment rates) and negatively related to the initial (1960) level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions"
In standard neoclassical models of economic growth, a country's growth rate tends to increase in an inverse relationship with the relative size of that country's starting degree of income. "The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407). However, this study claims that this does not fit with empirical evidence.
"Although the simple correlation between per capita growth...and the initial...level of per capita GDP is close to zero, the correlation becomes substantially negative if measures of initial human capital...are held constant. Moreover, given the level of initial per capital GDP, the growth rate is substantially positively related to the starting amount of human capital. Thus, poor countries tend to catch up with rich countries if the poor countries have high human capital per person...but not otherwise. As a related matter, countries with high human capital have low fertility rates and high ratios of physical investment in GDP" (438).
"For 98 countries in the period of 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school enrollment rates) and negatively related to the initial (1960) level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions"
In standard neoclassical models of economic growth, a country's growth rate tends to increase in an inverse relationship with the relative size of that country's starting degree of income. "The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407). However, this study claims that this does not fit with empirical evidence.
"Although the simple correlation between per capita growth...and the initial...level of per capita GDP is close to zero, the correlation becomes substantially negative if measures of initial human capital...are held constant. Moreover, given the level of initial per capital GDP, the growth rate is substantially positively related to the starting amount of human capital. Thus, poor countries tend to catch up with rich countries if the poor countries have high human capital per person...but not otherwise. As a related matter, countries with high human capital have low fertility rates and high ratios of physical investment in GDP" (438).
Pritchett: Divergence, Big Time
L Pritchett, “Divergence, Big Time,” Development (1995).
"Recently, much attention has been paid in the literature on economic growth to the phenomenon of 'conditional convergence,' the tendency of economies with lower-level incomes to grow faster, conditional on their rate of factor accumulation...regardless of conditional convergence, perhaps the basic fact of modern economic history is massive absolute divergence in the distribution of income across countries...[the author] estimates that between 1879 and 1985 the ratio of incomes in the richest and poorest countries increased six fold, the standard deviation of (natural log_ per capita incomes increased by between 60 and 100 percent, and the average income gap between the richest and poorest countries grew almost nine fold" (abstract).
The recent focus on convergence of income or productivity per capital is based on faulty numbers from 1870. Firstly, most countries that could afford to produce good numbers did produce good numers and these countries obviously had higher levels of production and income. There also had to be many assumptions made about the initial levels of production and income for many countries. To fit the model implied in the convergence literature, countries would have had to be impossibly poor in 1870.
Pritchett uses two methods to determine the levels of divergence.
"Whichever way the debate about whether there has been some 'conditional' convergence in the recent period is settled, the fact remains that one overwhelming feature of the period of modern economic growth is massive divergence of absolute and relative incomes across countries, a fact which must be grappled with in a fully satisfactory model of economic growth and development" (37).
"Recently, much attention has been paid in the literature on economic growth to the phenomenon of 'conditional convergence,' the tendency of economies with lower-level incomes to grow faster, conditional on their rate of factor accumulation...regardless of conditional convergence, perhaps the basic fact of modern economic history is massive absolute divergence in the distribution of income across countries...[the author] estimates that between 1879 and 1985 the ratio of incomes in the richest and poorest countries increased six fold, the standard deviation of (natural log_ per capita incomes increased by between 60 and 100 percent, and the average income gap between the richest and poorest countries grew almost nine fold" (abstract).
The recent focus on convergence of income or productivity per capital is based on faulty numbers from 1870. Firstly, most countries that could afford to produce good numbers did produce good numers and these countries obviously had higher levels of production and income. There also had to be many assumptions made about the initial levels of production and income for many countries. To fit the model implied in the convergence literature, countries would have had to be impossibly poor in 1870.
Pritchett uses two methods to determine the levels of divergence.
"Whichever way the debate about whether there has been some 'conditional' convergence in the recent period is settled, the fact remains that one overwhelming feature of the period of modern economic growth is massive divergence of absolute and relative incomes across countries, a fact which must be grappled with in a fully satisfactory model of economic growth and development" (37).
Jones: Convergence Revisited
CI Jones, “Convergence Revisited,” Journal of Economic Growth (1997).
"The recent literature on convergence has departed from the earlier literature by focusing on the shape of the production function and the rate at which an economy converges to its own steady state. This article uses advances from the recent literature to look back at the question that originally motivated the convergence literature: what will the distribution of per capita income look like in the future? Several results are highlighted by the analysis, including the suggestion that there is little reason to expect the United States to maintain its position as world leader in terms of output per worker" (131).
Jones identifies two strands of convergence literature. The first, stemming from Abramovitz ('86) and Baumol ('86) explores the phenomena of rich country convergence without global convergence. Another school of thought, stemming from the work of Barro ('91) and Mankiw, Romer and Weil ('92) explores the effects of convergence after factor accumulation is normalized, with convergence taking place globally at about 2%. "Much of the later empirical work on growth has grappled with interpreting this finding in the context of neoclassical and endogenous growth theory and with estimating parameters related to the shape of the production function. in this later work, however, the empirical growth literature has largely neglected the question that motivated the focus on convergence in the first place. Countries are approaching different steady states at a common rate, but how different are the steady-state values that they are approaching?" (131).
Through a neoclassical methodology, this article explores steady state income per capita as being a function of population, physical capital, human capital and technological growth/investment rates. Three conclusions appear from this: many of the explored income distributions are the very similar to the 1990 distribution; this general overlap does not mean that there is not much of interest at the margins: many newly industrializing countries and OECD countries have not fully reached their steady-state; and finally, total factor productivity emerges as a crucial determinant of income distribution.
"Finally, the model predicts a great deal of 'overtaking' in per capita incomes. The analysis emphasizes that simple neoclassical growth models are consistent with a kind of growth miracle and with changes in leaders in the world distribution of income. In general, the analysis considered here suggests that there is no reason to think that the United States will continue to have the world's highest output per worker, observed in both 1960 and 1990. Economies such as Spain, Singapore, France, and Italy are examples of economies with output per worker predicted to be 9 to 40 percent higher than in the United States, based on current policies" (132)..
"The recent literature on convergence has departed from the earlier literature by focusing on the shape of the production function and the rate at which an economy converges to its own steady state. This article uses advances from the recent literature to look back at the question that originally motivated the convergence literature: what will the distribution of per capita income look like in the future? Several results are highlighted by the analysis, including the suggestion that there is little reason to expect the United States to maintain its position as world leader in terms of output per worker" (131).
Jones identifies two strands of convergence literature. The first, stemming from Abramovitz ('86) and Baumol ('86) explores the phenomena of rich country convergence without global convergence. Another school of thought, stemming from the work of Barro ('91) and Mankiw, Romer and Weil ('92) explores the effects of convergence after factor accumulation is normalized, with convergence taking place globally at about 2%. "Much of the later empirical work on growth has grappled with interpreting this finding in the context of neoclassical and endogenous growth theory and with estimating parameters related to the shape of the production function. in this later work, however, the empirical growth literature has largely neglected the question that motivated the focus on convergence in the first place. Countries are approaching different steady states at a common rate, but how different are the steady-state values that they are approaching?" (131).
Through a neoclassical methodology, this article explores steady state income per capita as being a function of population, physical capital, human capital and technological growth/investment rates. Three conclusions appear from this: many of the explored income distributions are the very similar to the 1990 distribution; this general overlap does not mean that there is not much of interest at the margins: many newly industrializing countries and OECD countries have not fully reached their steady-state; and finally, total factor productivity emerges as a crucial determinant of income distribution.
"Finally, the model predicts a great deal of 'overtaking' in per capita incomes. The analysis emphasizes that simple neoclassical growth models are consistent with a kind of growth miracle and with changes in leaders in the world distribution of income. In general, the analysis considered here suggests that there is no reason to think that the United States will continue to have the world's highest output per worker, observed in both 1960 and 1990. Economies such as Spain, Singapore, France, and Italy are examples of economies with output per worker predicted to be 9 to 40 percent higher than in the United States, based on current policies" (132)..
Saturday, November 15, 2008
Nelson et al.: Investment in Humans, Technological Diffusion and Economic Growth
RR Nelson, ES Phelps, and RAND CORP SANTA MONICA CALIF, “Investment in Humans, Technological Diffusion and Economic Growth” (1966).
"Most economic theorists have embraced the princip0le that certain kinds of education...equip a man to perform certain jobs or functions, or enable a man to perform a given function more effectively. The principle seems a sound one" (69).
"Thus far, economic growth theory has concentrated on the role of education as it relates to the completely routinized job" (69).
"We suggest that, in a technologically progressive or dynamic economy, production management is a function requiring adaptation to change and that the more educated a manager is, the quicker will he be to introduce new techniques of production. To put the hypothesis simply, educated people make good innovators, so that education speeds the process of technological diffusion" (70).
The author then explores two possible models of how education causes diffusion of technology.
"The general subject at this session is the relationshipo between capital structure and technolgoical progerss. Recalling that the process of education can be viewed as an act of investment in people that educated people are bearers of human capital, we see that this paper has relevance to that subject
"Most economic theorists have embraced the princip0le that certain kinds of education...equip a man to perform certain jobs or functions, or enable a man to perform a given function more effectively. The principle seems a sound one" (69).
"Thus far, economic growth theory has concentrated on the role of education as it relates to the completely routinized job" (69).
"We suggest that, in a technologically progressive or dynamic economy, production management is a function requiring adaptation to change and that the more educated a manager is, the quicker will he be to introduce new techniques of production. To put the hypothesis simply, educated people make good innovators, so that education speeds the process of technological diffusion" (70).
The author then explores two possible models of how education causes diffusion of technology.
"The general subject at this session is the relationshipo between capital structure and technolgoical progerss. Recalling that the process of education can be viewed as an act of investment in people that educated people are bearers of human capital, we see that this paper has relevance to that subject
Friday, November 14, 2008
Becker, Murphy and Tamura: Human Capital, Fertility and Economic Growth
GS Becker, KM Murphy, and R Tamura, “Human Capital, Fertility, and Economic Growth,” Journal of Political Economy 98, no. S5 (1990): 12.
"Our analysis of growth assumes endogenous fertility and a rising rate of return on human capital as the stock of human capital increases. When human capital is abundant, rates of return on human capital investments are high relative to rates of return on children, whereas when human capital is scarce, rates of return on human capital are low relative to those of children. As a result, societies with limited human capital choose large families and invest little in each member; those with abundant human capital do the opposite. This leads to two stable steady states. One has large families and little human capital; the other has small families and perhaps growing human and physical capital" (12).
Smith talked about growth vis-a-vis the division of labor, but not rigorously. Malthus presented a theory of economic growth that achieved a kind of steady-state through changes in fertility and death rates. Neoclassical accounts go much further than these accounts and pointing towards the determinants of economic growth. However, these authors present a theory that focuses most heavily on human capital accumulation. "Crucial to our analysis is the assumption that rates of return on investments in human capital rise rather than decline as the stock of human capital increases, at least until the stock becomes large" (13). This leads to a potential variety of steady-states.
"Our analysis of growth assumes endogenous fertility and a rising rate of return on human capital as the stock of human capital increases. When human capital is abundant, rates of return on human capital investments are high relative to rates of return on children, whereas when human capital is scarce, rates of return on human capital are low relative to those of children. As a result, societies with limited human capital choose large families and invest little in each member; those with abundant human capital do the opposite. This leads to two stable steady states. One has large families and little human capital; the other has small families and perhaps growing human and physical capital" (12).
Smith talked about growth vis-a-vis the division of labor, but not rigorously. Malthus presented a theory of economic growth that achieved a kind of steady-state through changes in fertility and death rates. Neoclassical accounts go much further than these accounts and pointing towards the determinants of economic growth. However, these authors present a theory that focuses most heavily on human capital accumulation. "Crucial to our analysis is the assumption that rates of return on investments in human capital rise rather than decline as the stock of human capital increases, at least until the stock becomes large" (13). This leads to a potential variety of steady-states.
Uzawa: Optimum Technical Change in an Aggregative Model of Economic Growth
H Uzawa, “Optimum Technical Change in an Aggregative Model of Economic Growth,” International Economic Review 6, no. 1 (1965): 18-31.
"In this paper we are interested in formulating a model of economic growth in which an advancement in the state of technological knowledge is achieved only be engaging scarce resources in some positive quantities, and in analyzing the pattern of the allocation of scarce resources that results in an optimum growth" (18).
"In this paper we are interested in formulating a model of economic growth in which an advancement in the state of technological knowledge is achieved only be engaging scarce resources in some positive quantities, and in analyzing the pattern of the allocation of scarce resources that results in an optimum growth" (18).
Lucas: On the Mechanics of Development Planning
RE Lucas, “On the Mechanics of Development Planning,” Journal of Monetary Economics 22, no. 1 (1988): 3-42.
"This paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing" (3).
The piece begins with a general overview of 1983 data regarding income, development and growth levels. There is clearly a large array of different levels of living standards and material improvement. Lucas exits this overview of the statistics by wondering whether or not there is something the countries with lower growth rates can do to improve their situation. "Once one starts to think about them, it is hard to think about anything else" (5). This, then, becomes the catalyst for a theory of economic development.
"Even granted its limitations, the simple neoclassical model has made basic contributions to our thinking about economic growth. Qualitatively, it emphasizes a distinction between 'growth effects'--changes in parameters that alter growth rates along balanced paths--and 'level effects--changes that raise or lower balanced growth paths without affecting their slope--that is fundamental in thinking about policy changes" (12).
"In the absence of differences in pure technology then, and under the assumption of no factor mobility, the neoclassical model predicts a strong tendency to income equality and equality in growth rates, tendencies we can observe within countries and, perhaps, within the wealthiest countries taken as a group, but which simply cannot be seen in the world at large. When factor mobility is permitted, this prediction is very powerfully reinforced. Factors of production, capital or labor or both, will flow to the highest returns, which is to say where each is relatively scarce. Capital-labor ratios will move rapidly to equality, and with them factor prices" (16).
Lucas finds that the human capital model performs as well as the Solow model. "What can be concluded from these exercise? Normatively, it seems to me, very little: The model I have just described has exactly the same ability to fit US data as does the Solow model in which equilibrium and efficient growth rates coincide" (27).
"The model I have just worked through treats the decision to accumulate human capital as equivalent to a decision to withdraw effort from production--to go to school, say. As many economists have observed, on-the-job-training or learning-by-doing appear to be at least as important as schooling in the formation of human capital. It would not be difficult to incorporate such effects into the previous model, but it is easier to think about one thing at a time so I will just set out an example of a system...in which all human capital accumulation is learning-by-doing" (27).
UPDATE:
"My aim, as I said at the beginning of these lectures, has been to try to find what I called 'mechanics' suitable for the study of economic development: that is, a system of differential equations the solution to which imitates some of the main features of the economic behavior we observe in the world economy" (39).
"The model that I think is central was developed in section 4. It is a system with a given rate of population growth but which is acted on by no other outside or exogenous forces. There are two kinds of capital...in the system:P physical capital that is accumulated and utilized in production under a familiar neoclassical technology, and human capital that enhances the productivity of both labor and physical capital , and is accumulated according to a 'law' having the crucial property that a constant level of effort produces a constant growth rate of the stock, independent of the level already attained" (39).
"A successful theory of economic development clearly needs, in the first place, mechanics that are consistent with sustained growth and with sustained diversity in income levels...But there is no one pattern of growth to which all economies conform, so a useful theory needs also to capture some forces for change in these patterns, and a mechanics that permits these forces to operate" (41).
"This paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing" (3).
The piece begins with a general overview of 1983 data regarding income, development and growth levels. There is clearly a large array of different levels of living standards and material improvement. Lucas exits this overview of the statistics by wondering whether or not there is something the countries with lower growth rates can do to improve their situation. "Once one starts to think about them, it is hard to think about anything else" (5). This, then, becomes the catalyst for a theory of economic development.
"Even granted its limitations, the simple neoclassical model has made basic contributions to our thinking about economic growth. Qualitatively, it emphasizes a distinction between 'growth effects'--changes in parameters that alter growth rates along balanced paths--and 'level effects--changes that raise or lower balanced growth paths without affecting their slope--that is fundamental in thinking about policy changes" (12).
"In the absence of differences in pure technology then, and under the assumption of no factor mobility, the neoclassical model predicts a strong tendency to income equality and equality in growth rates, tendencies we can observe within countries and, perhaps, within the wealthiest countries taken as a group, but which simply cannot be seen in the world at large. When factor mobility is permitted, this prediction is very powerfully reinforced. Factors of production, capital or labor or both, will flow to the highest returns, which is to say where each is relatively scarce. Capital-labor ratios will move rapidly to equality, and with them factor prices" (16).
Lucas finds that the human capital model performs as well as the Solow model. "What can be concluded from these exercise? Normatively, it seems to me, very little: The model I have just described has exactly the same ability to fit US data as does the Solow model in which equilibrium and efficient growth rates coincide" (27).
"The model I have just worked through treats the decision to accumulate human capital as equivalent to a decision to withdraw effort from production--to go to school, say. As many economists have observed, on-the-job-training or learning-by-doing appear to be at least as important as schooling in the formation of human capital. It would not be difficult to incorporate such effects into the previous model, but it is easier to think about one thing at a time so I will just set out an example of a system...in which all human capital accumulation is learning-by-doing" (27).
UPDATE:
"My aim, as I said at the beginning of these lectures, has been to try to find what I called 'mechanics' suitable for the study of economic development: that is, a system of differential equations the solution to which imitates some of the main features of the economic behavior we observe in the world economy" (39).
"The model that I think is central was developed in section 4. It is a system with a given rate of population growth but which is acted on by no other outside or exogenous forces. There are two kinds of capital...in the system:P physical capital that is accumulated and utilized in production under a familiar neoclassical technology, and human capital that enhances the productivity of both labor and physical capital , and is accumulated according to a 'law' having the crucial property that a constant level of effort produces a constant growth rate of the stock, independent of the level already attained" (39).
"A successful theory of economic development clearly needs, in the first place, mechanics that are consistent with sustained growth and with sustained diversity in income levels...But there is no one pattern of growth to which all economies conform, so a useful theory needs also to capture some forces for change in these patterns, and a mechanics that permits these forces to operate" (41).
Romer: Endogenous Technological Change
PM Romer, “Endogenous Technological Change,” Journal of Political Economy 98, no. S5 (1990): 71.
"Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth" (71).
The author puts forth three premises of the article: The first is that changes in technology is the key stone of economic growth. In this sense, this Romer model closely mirrors Solow's model. "Technological change provides the incentive for continued capital accumulation, and together, capital accumulation and technological change account for much of the increase in output per hour worked" (72). The second premise is that technology improvements are brought about by people who are directly responding to market motivations. "Thus the model is one of endogenous rather than exogenous technological change. This does not mean that everyone who contributes to technological change is motivated by market incentives...The premise here is that market incentives nonetheless play an essential role in the process whereby new knowledge is translated into goods with practical value" (72). According to Romer, the most fundamental supposition is the last: this involves the creation of new "instructions" for dealing with raw materials. Once the cost of these "instructions" has been borne, the benefits continue to accumulate.
There is then an extended discussion of the distinction between rivalrous, nonrivalrous, excludable and nonexcludable goods and how they are and may be treated in economic growth models.
The model is then worked out in some detail.
"The model presented here is essentially the one-sector neoclassical model with technological change, augmented to give an endogenous explanation of the source of the technological change" (99).
"The most interesting positive implication of the model is that an economy with a larger total stock of human capital will experience faster growth" (99).
"Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth" (71).
The author puts forth three premises of the article: The first is that changes in technology is the key stone of economic growth. In this sense, this Romer model closely mirrors Solow's model. "Technological change provides the incentive for continued capital accumulation, and together, capital accumulation and technological change account for much of the increase in output per hour worked" (72). The second premise is that technology improvements are brought about by people who are directly responding to market motivations. "Thus the model is one of endogenous rather than exogenous technological change. This does not mean that everyone who contributes to technological change is motivated by market incentives...The premise here is that market incentives nonetheless play an essential role in the process whereby new knowledge is translated into goods with practical value" (72). According to Romer, the most fundamental supposition is the last: this involves the creation of new "instructions" for dealing with raw materials. Once the cost of these "instructions" has been borne, the benefits continue to accumulate.
There is then an extended discussion of the distinction between rivalrous, nonrivalrous, excludable and nonexcludable goods and how they are and may be treated in economic growth models.
The model is then worked out in some detail.
"The model presented here is essentially the one-sector neoclassical model with technological change, augmented to give an endogenous explanation of the source of the technological change" (99).
"The most interesting positive implication of the model is that an economy with a larger total stock of human capital will experience faster growth" (99).
Barro et al.: Convergence Across States and Regions
Robert J. Barro et al., “Convergence Across States and Regions,” in (1991: The Brookings Institution, 1991), 107-182, http://www.jstor.org/stable/2534639 .
"An important economic question is whether poor countries or regions tend to converge toward rich ones...Although some economic theories predict convergence, the empirical evidence has been a subject of debate. In this study we add to the evidence by extending our previous analysis of economic growth across the US states...The overall evidence weighs heavily in favor of convergence: both for sectors and for state aggregates, per capita income and product in poor states tend to grow faster than in rich states. The rate of convergence3 is, however, not rapid: the gap between the typical poor and rich state diminishes at roughly 2 percent a year" (107-8). This method is then applied to Europe with similar results recorded.
The origin of convergence in the neoclassical model is centered on the assumption of diminishing returns to capital. Because countries who have lower ratios of capital to labor experience these diminishing returns less acutely, they are able to grow more quickly and converge on countries with higher levels of income per capita. The further a country finds itself below the "steady-state", the more likely it is to grow relatively more quickly.
An additional great variety of factors affects convergence. For example, if there are high levels of capital mobility, the diminished capital to labor ratios in poorer countries may actually improve and the affects of diminishing returns may be more strongly felt. Additionally, greater technology transfer from more wealthy countries to more poor countries could speed up the affects of convergence.
The remainder of the paper is the statistical analysis.
"An important economic question is whether poor countries or regions tend to converge toward rich ones...Although some economic theories predict convergence, the empirical evidence has been a subject of debate. In this study we add to the evidence by extending our previous analysis of economic growth across the US states...The overall evidence weighs heavily in favor of convergence: both for sectors and for state aggregates, per capita income and product in poor states tend to grow faster than in rich states. The rate of convergence3 is, however, not rapid: the gap between the typical poor and rich state diminishes at roughly 2 percent a year" (107-8). This method is then applied to Europe with similar results recorded.
The origin of convergence in the neoclassical model is centered on the assumption of diminishing returns to capital. Because countries who have lower ratios of capital to labor experience these diminishing returns less acutely, they are able to grow more quickly and converge on countries with higher levels of income per capita. The further a country finds itself below the "steady-state", the more likely it is to grow relatively more quickly.
An additional great variety of factors affects convergence. For example, if there are high levels of capital mobility, the diminished capital to labor ratios in poorer countries may actually improve and the affects of diminishing returns may be more strongly felt. Additionally, greater technology transfer from more wealthy countries to more poor countries could speed up the affects of convergence.
The remainder of the paper is the statistical analysis.
Barro: Economic Growth in a Cross Section of Countries
RJ Barro, “Economic Growth in a Cross Section of Countries,” NBER Working Paper (1991).
"For 98 countries in the period 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial...level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions" (407).
"The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407).
The effects of human capital are varied, but many have posited that the rate of return increases after a certain point of investment. "As an example, the return to some kinds of ability, such as talent in communications, is higher if other people are also more able. In this setting, increases in the quantity of human capital per person tend to lead to higher rates of investment in human and physical capital, and hence, to higher per capita growth. A supporting force is that more human capital per person reduces fertility rates, because human capital is more productive in producing goods and additional human capital rather than more children" (409).
"For 98 countries in the period 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial...level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions" (407).
"The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407).
The effects of human capital are varied, but many have posited that the rate of return increases after a certain point of investment. "As an example, the return to some kinds of ability, such as talent in communications, is higher if other people are also more able. In this setting, increases in the quantity of human capital per person tend to lead to higher rates of investment in human and physical capital, and hence, to higher per capita growth. A supporting force is that more human capital per person reduces fertility rates, because human capital is more productive in producing goods and additional human capital rather than more children" (409).
Mankiw, Romer and Weil: A Contribution to the Empirics of Economic Growth
NG Mankiw, D Romer, and DN Weil, “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics 107, no. 2 (1992): 407-437.
"This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts" (407).
"This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two variables determine the steady-state level of income per capita. Because saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country" (407).
These authors argue that, on the whole, the Solow model gets it right: when savings are up, income is up; when population growth is up, income is down. However, they also argue that the most basic Solow model left out some important variables that help to define growth: the accumulation of both human capital and physical capital. "First, for any given rate of human capital accumulation, higher saving or lower population growth leads to a higher level of income and thus a higher level of human capital; hence, accumulation of physical capital and population growth have greater impacts on income when accumulation of human capital is taken into account. Second, human-capital accumulation may be correlated with saving rates and population growth rates; this would imply that omitting human-capital accumulation biases the estimated coefficients on saving and population growth" (408).
"It appears that the augmented Solow model provides an almost complete explanation of why some countries are rich and other countries are poor" (408).
The authors then explore the phenomena of convergence, finding that there is little evidence for this and that countries will eventually settle at different steady-states of personal income relative to the amount of physical capital, savings and human capital.
"Overall, the findings reported in this paper cast doubt on the recent trend among economists to dismiss the Solow growth model in favor of endogenous-growth models that assume constant or increasing returns to scale in capital...This conclusion does not imply, however, that the Solow model is a complete theory of growth: one would like also to understand the determinants of saving, population growth, and worldwide technological change, all of which the Solow model treats as exogenous. Nor does it imply that endogenous-growth models are not important, for they may provide the right explanation of worldwide technological change. Our conclusion does imply, whoever, that the Solow model gives the right answers to the questions it is designed to address" (409).
They then work out their equations.
"Over the past few years economists studying growth have turned increasingly to endogenous-growth models. These models are characterized by the assumption of non-decreasing returns to the set of reproducible factors of production...Among the implications of this assumption are that countries that save more grow faster indefinitely and that countries need not converge in income per capita, even if they have the same preferences and technology" (421).
They then explore the concept of convergence, and respond to critics, specifically Barro, who argues that the Solow model emphasizes a convergence of income per capita, and that this does not relate directly to the evidence. These authors claim that the Solow model does not, in fact, predict convergence, but is explicit in its analysis that different countries will reach different steady-states.
"We have suggested that international differences in income per capita are best understood using an augmented Solow growth model" (432).
"This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts" (407).
"This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two variables determine the steady-state level of income per capita. Because saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country" (407).
These authors argue that, on the whole, the Solow model gets it right: when savings are up, income is up; when population growth is up, income is down. However, they also argue that the most basic Solow model left out some important variables that help to define growth: the accumulation of both human capital and physical capital. "First, for any given rate of human capital accumulation, higher saving or lower population growth leads to a higher level of income and thus a higher level of human capital; hence, accumulation of physical capital and population growth have greater impacts on income when accumulation of human capital is taken into account. Second, human-capital accumulation may be correlated with saving rates and population growth rates; this would imply that omitting human-capital accumulation biases the estimated coefficients on saving and population growth" (408).
"It appears that the augmented Solow model provides an almost complete explanation of why some countries are rich and other countries are poor" (408).
The authors then explore the phenomena of convergence, finding that there is little evidence for this and that countries will eventually settle at different steady-states of personal income relative to the amount of physical capital, savings and human capital.
"Overall, the findings reported in this paper cast doubt on the recent trend among economists to dismiss the Solow growth model in favor of endogenous-growth models that assume constant or increasing returns to scale in capital...This conclusion does not imply, however, that the Solow model is a complete theory of growth: one would like also to understand the determinants of saving, population growth, and worldwide technological change, all of which the Solow model treats as exogenous. Nor does it imply that endogenous-growth models are not important, for they may provide the right explanation of worldwide technological change. Our conclusion does imply, whoever, that the Solow model gives the right answers to the questions it is designed to address" (409).
They then work out their equations.
"Over the past few years economists studying growth have turned increasingly to endogenous-growth models. These models are characterized by the assumption of non-decreasing returns to the set of reproducible factors of production...Among the implications of this assumption are that countries that save more grow faster indefinitely and that countries need not converge in income per capita, even if they have the same preferences and technology" (421).
They then explore the concept of convergence, and respond to critics, specifically Barro, who argues that the Solow model emphasizes a convergence of income per capita, and that this does not relate directly to the evidence. These authors claim that the Solow model does not, in fact, predict convergence, but is explicit in its analysis that different countries will reach different steady-states.
"We have suggested that international differences in income per capita are best understood using an augmented Solow growth model" (432).
Thursday, November 13, 2008
Solow: A Contribution to the Theory of Economic Growth
RM Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, no. 1 (1956): 65-94.
Solow begins by explaining that all theory relies on sets of assumptions, and that there are different kinds of assumptions that one can make based on the degree to which they will affect the outcome of the theory. Theories that make assumptions that directly drive the outputs of the theories must clearly articulate why those assumptions were put forth. The author makes an argument about the assumptions underlying the Harrod-Domar model of economic growth.
This core assumption of the Harrod-Domar model is that of fixed proportions in production. "There is no possibility of substituting labor for capital in production" (65). This assumption leads to what Solow terms a "knife-edge" balance, where if one of the "key parameters" is thrown off slightly, than negative consequences will arise for an economic system. "A remarkable characteristic of the Harrod-Domar model is that it consistently studies long-run problems with the usual short-run tools...The bulk of this paper is devoted to a model of long-run growth which accepts all of the Harrod-Domar assumptions except that of fixed proportions. Instead I suppose that the single composite commodity is produced by labor and capital under the standard neoclassical conditions" (66).
"The basic conclusion of this analysis is that, when production takes place under the usual neoclassical conditions of variable proportions and constant returns to scale, no simple opposition between natural and warranted rates of growth is possible. There may not be--in fact in the case of the Cobb-Douglas function there never can be--any knife-edge. The system can adjust to any given rate of growth of the labor force, and eventually approach a state of steady proportional expansion" (73).
Explores examples of Harrod-Domar models, Cobb-Douglas models, and what I assume can be called Solow models of growth.
"Everything above is the neoclassical side of the coin. Most especially it is full employment economics--in the dual aspect of equilibrium condition and frictionless, competitive, causal system. All the difficulties and rigidities which go into modern Keynesian income analysis have been shunted aside. It is not my contention that these problems don't exist, nor that they are of no significance in the long run. My purpose was to examine what might be called the tightrope view of economic growth and to see where more flexible assumptions about production would lead a simple model" (91).
Solow begins by explaining that all theory relies on sets of assumptions, and that there are different kinds of assumptions that one can make based on the degree to which they will affect the outcome of the theory. Theories that make assumptions that directly drive the outputs of the theories must clearly articulate why those assumptions were put forth. The author makes an argument about the assumptions underlying the Harrod-Domar model of economic growth.
This core assumption of the Harrod-Domar model is that of fixed proportions in production. "There is no possibility of substituting labor for capital in production" (65). This assumption leads to what Solow terms a "knife-edge" balance, where if one of the "key parameters" is thrown off slightly, than negative consequences will arise for an economic system. "A remarkable characteristic of the Harrod-Domar model is that it consistently studies long-run problems with the usual short-run tools...The bulk of this paper is devoted to a model of long-run growth which accepts all of the Harrod-Domar assumptions except that of fixed proportions. Instead I suppose that the single composite commodity is produced by labor and capital under the standard neoclassical conditions" (66).
"The basic conclusion of this analysis is that, when production takes place under the usual neoclassical conditions of variable proportions and constant returns to scale, no simple opposition between natural and warranted rates of growth is possible. There may not be--in fact in the case of the Cobb-Douglas function there never can be--any knife-edge. The system can adjust to any given rate of growth of the labor force, and eventually approach a state of steady proportional expansion" (73).
Explores examples of Harrod-Domar models, Cobb-Douglas models, and what I assume can be called Solow models of growth.
"Everything above is the neoclassical side of the coin. Most especially it is full employment economics--in the dual aspect of equilibrium condition and frictionless, competitive, causal system. All the difficulties and rigidities which go into modern Keynesian income analysis have been shunted aside. It is not my contention that these problems don't exist, nor that they are of no significance in the long run. My purpose was to examine what might be called the tightrope view of economic growth and to see where more flexible assumptions about production would lead a simple model" (91).
Tuesday, November 11, 2008
Zakaria: The Post-American World
F Zakaria, The Post-American World (WW Norton & Company, 2008).
The book traces possible future worlds where the US is no longer the sole hegemon. The author posits that there have been three fundamental shifts in global power historically: the rise of the West from the 1500s through the Industrial Revolution and into the 20th century, the rise of the US as the world's main super power from WWII on and the coming "rise of the rest", which will change the way that the world works.
Zakaria briefly explores a seeming paradox between strong economic growth and a seemingly increasingly dangerous world. Even as, for example, war between Israel and Hezbollah raged, the Israeli stock-market drove skywards. The author claims that the apparent violence that is presented graphical and perpetually is overstated by the nature of modern media. This proclamation is obviously poorly timed, as global financial contractions also indicate that previously strong economic growth may have been based on faulty premises.
There is great global abundance of peace and wealth, and this, the author claims, stems from deep structural drivers that have been around for quite a while. These drivers are related to either politics, the economy or technology. These forces create problems of plenty, ie., the most pressing problems that we face globally are those that are a result of our resounding "success".
Will the future world be clearly Western or not? What will the role of culture be? China is positioned as the challenger and India is positioned as the ally. What role will American power play in this post-American world? Now that America has succeeded in globalizing the world, has it failed in globalizing itself?
The book traces possible future worlds where the US is no longer the sole hegemon. The author posits that there have been three fundamental shifts in global power historically: the rise of the West from the 1500s through the Industrial Revolution and into the 20th century, the rise of the US as the world's main super power from WWII on and the coming "rise of the rest", which will change the way that the world works.
Zakaria briefly explores a seeming paradox between strong economic growth and a seemingly increasingly dangerous world. Even as, for example, war between Israel and Hezbollah raged, the Israeli stock-market drove skywards. The author claims that the apparent violence that is presented graphical and perpetually is overstated by the nature of modern media. This proclamation is obviously poorly timed, as global financial contractions also indicate that previously strong economic growth may have been based on faulty premises.
There is great global abundance of peace and wealth, and this, the author claims, stems from deep structural drivers that have been around for quite a while. These drivers are related to either politics, the economy or technology. These forces create problems of plenty, ie., the most pressing problems that we face globally are those that are a result of our resounding "success".
Will the future world be clearly Western or not? What will the role of culture be? China is positioned as the challenger and India is positioned as the ally. What role will American power play in this post-American world? Now that America has succeeded in globalizing the world, has it failed in globalizing itself?
Thursday, November 6, 2008
Kontopoulos: The Logics of Social Structure
Kontopoulos, K., 1993. The Logics of Social Structure, Cambridge University Press.
Ch. 1: Epistemic Strategies in Contemporary Science
The author identifies five distinct epistemic strategies:
“(1) We may define the strategy of reduction…as adhering to a strict microdeterminsim; that is, wholes are nothing more than their parts suitably combined to form a certain level of complexity and, thus, that higher levels of organization are determined and explained by their lower levels of organization, down to the most elementary level of quantum physics (2) In contrast, the strategy of construction or composition is rooted in a partial microdeterminsim, but also pays significant attention to relational-interactional and contextual-ecological variables. That is, this strategy considers the higher levels of organization as products not merely of the aggregation or integration of lower level parts, but of the interaction of these parts with the contextual-ecological ‘exigencies.’ The result is a constructionist, weak emergence of novel forms and properties practically irreducible to their constituent parts. (3) The strategy of heterarchy (moderate emergence), the newest and, admittedly, least developed, strategy, is defined as underdetermination of the macrostructure(s) by the given microparts and as semiautonomous emergence of higher-level phenomena out of lower level phenomena. Therefore it is a strate4gy that supports a nonreductivematerialist position, explaining the emergence of novelty and higher-level properties and laws without falling into untenable dualist or idealist traps. (4) Hierarchy (strong emergency), is a full-fledged hierarchical emergence of more robust macroentities and partial overdetermination of the microparts by the dominant, organizing principles of the new higher entities. Hierarchy is a modified, and clearly more defensible, substitute for holism. (5) Finally, the strategy of systemic transcendence (systemic functionalism, vitalism, holism) is defined as a downward, strong determination of the microparts by the macrosystem; the latter seen as an autonomous, higher entity superimposed on the lower systemic parts in a control-hierarchical manner that clearly supports the claims of a dualist metaphysics” (12-3).
Kontopoulos then goes on to highlight these different epistemic approaches.
“As a caveat, we must begin with the recognition that the concept of emergence is one of the most elusive, pluri-semantic, patently charged concepts in the current vocabulary of science and philosophy; the analytical eludication of the term is still in progress and the task now looks to be richer yet harder and more controversial than origicanlly thought” (20).
Kontopoulos lists different concepts of emergence:
“Level 0: the Democritean…notion of integration, subject to reduction
Level 1: two notions of weak emergence:
1.1: an ecological-contextual notion of emergence at the prebiotic levels
1.2: an evolutionist-selectionist…notion of emergence in the neo-Darwinian and post-=Darwinian sense
Level 2: a moderate notion of emergence of semi-autonomous macrostructures heterarchically related to the microparts and underdetermined by them
Level 3: the strong notion of emergence as a hierarchy based on applied constraints and a peculiar downward control
Level 4: a transcending notion—if the hypothesis of group and species selection…find strong support—emphasizing holism, strong macrodetermination of microparts, vitalism, and mentalism. The notion of dualist control also belongs here” (21).
What does emergence look like at the higher levels as defined above?: “Generally speaking, most of the significant contributors opt to explain emergence in terms of some particular notion of constraints superimposed on entities in a cumulative, successive mode…For the time being it suffices to point out that the talk of ‘constraints’ refers descriptively to the process of the restriction of a system’s ‘degrees of freedom’; the existence of such constraints appears as, at least, the necessary, if not sufficient, condition for robust emergence to occur” (22).
Ch. 1: Epistemic Strategies in Contemporary Science
The author identifies five distinct epistemic strategies:
“(1) We may define the strategy of reduction…as adhering to a strict microdeterminsim; that is, wholes are nothing more than their parts suitably combined to form a certain level of complexity and, thus, that higher levels of organization are determined and explained by their lower levels of organization, down to the most elementary level of quantum physics (2) In contrast, the strategy of construction or composition is rooted in a partial microdeterminsim, but also pays significant attention to relational-interactional and contextual-ecological variables. That is, this strategy considers the higher levels of organization as products not merely of the aggregation or integration of lower level parts, but of the interaction of these parts with the contextual-ecological ‘exigencies.’ The result is a constructionist, weak emergence of novel forms and properties practically irreducible to their constituent parts. (3) The strategy of heterarchy (moderate emergence), the newest and, admittedly, least developed, strategy, is defined as underdetermination of the macrostructure(s) by the given microparts and as semiautonomous emergence of higher-level phenomena out of lower level phenomena. Therefore it is a strate4gy that supports a nonreductivematerialist position, explaining the emergence of novelty and higher-level properties and laws without falling into untenable dualist or idealist traps. (4) Hierarchy (strong emergency), is a full-fledged hierarchical emergence of more robust macroentities and partial overdetermination of the microparts by the dominant, organizing principles of the new higher entities. Hierarchy is a modified, and clearly more defensible, substitute for holism. (5) Finally, the strategy of systemic transcendence (systemic functionalism, vitalism, holism) is defined as a downward, strong determination of the microparts by the macrosystem; the latter seen as an autonomous, higher entity superimposed on the lower systemic parts in a control-hierarchical manner that clearly supports the claims of a dualist metaphysics” (12-3).
Kontopoulos then goes on to highlight these different epistemic approaches.
“As a caveat, we must begin with the recognition that the concept of emergence is one of the most elusive, pluri-semantic, patently charged concepts in the current vocabulary of science and philosophy; the analytical eludication of the term is still in progress and the task now looks to be richer yet harder and more controversial than origicanlly thought” (20).
Kontopoulos lists different concepts of emergence:
“Level 0: the Democritean…notion of integration, subject to reduction
Level 1: two notions of weak emergence:
1.1: an ecological-contextual notion of emergence at the prebiotic levels
1.2: an evolutionist-selectionist…notion of emergence in the neo-Darwinian and post-=Darwinian sense
Level 2: a moderate notion of emergence of semi-autonomous macrostructures heterarchically related to the microparts and underdetermined by them
Level 3: the strong notion of emergence as a hierarchy based on applied constraints and a peculiar downward control
Level 4: a transcending notion—if the hypothesis of group and species selection…find strong support—emphasizing holism, strong macrodetermination of microparts, vitalism, and mentalism. The notion of dualist control also belongs here” (21).
What does emergence look like at the higher levels as defined above?: “Generally speaking, most of the significant contributors opt to explain emergence in terms of some particular notion of constraints superimposed on entities in a cumulative, successive mode…For the time being it suffices to point out that the talk of ‘constraints’ refers descriptively to the process of the restriction of a system’s ‘degrees of freedom’; the existence of such constraints appears as, at least, the necessary, if not sufficient, condition for robust emergence to occur” (22).
Tuesday, November 4, 2008
Fligstein: The Architecture of Markets
Fligstein, N., 2001. The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist Societies, Princeton University Press.
“Market society has produced more income, wealth, goods, and services than any other form of human social organization. It has done so by creating the conditions for social exchange between large groups of human beings, often separated across large geographic spaces. For most observers, the driving forces of this wealth creation have been technology and competition” (3).
“The purpose of this book is to begin to systematically understand how the dynamism of technology and competition is situated in, defined by, and structured through the production of firms, their social relations with each other, and their relations to government. Put simply, the dynamism of market society is made possible by this extensive social organization. Competition and technological change are themselves defined by market actors and governments over time. These forces are not exogenous to market society, but endogenous to these social relations” (4).
“This dependence of t5echnology and competition on social factors implies that making sense of economic growth requires we think more systematically about these factors. Economic growth depends on governments, institutions, and the social technologies by which firms are created, class struggle si routinized, and competition between firms is mediated” (5-6).
“My overall goal is to provide scholars and other persons interested in policy with analytic tools to make sense of such phenomena as globalization. Ultimately, my analysis suggests that governments and citizens are part and parcel of market processes. The evidence shows that very different systems of relations among workers, firms, and governments have produced economic growth. The frequently invoked opposition between governments and market actors, in which governments are viewed as intrusive and inefficient, and firms as efficient wealth producers, is simply wrong. Firms rely on governments and citizens for making markets. Their ability to produce stable worlds depends greatly on these relationships. The analytic frame proposed here explores when these relationships produce positive and less positive outcomes for all members of society” (6).
“Economic sociology is the study of how the material production and consumption of human populations depend on social processes for their structure and dynamics” (6).
The author then attempts to be more clear about exactly what a sociological approach to markets fully encompasses. One wants to strike a balance between being too inclusive and too exclusive in this distinction. Instead of drawing a line around the boundary of the field, the author proposes five key questions that people who work in this field should take interest:
“1. What social rules must exist for markets to function, and what types of social structures are necessary to produce stable markets?...
2. What is the relation between states and firms in the production of markets?...
3. What is a ‘social’ view of what actors seek to do in markets, as opposed to an ‘economic’ one?...
4. What are the dynamics by which markets are created, attain stability, and are transformed and how can we characterize the relations among markets?...
5. What are the implications of market dynamics for the internal structuring of firms and labor markets more generally?” (10-4).
The author then attempts to answer these questions from a framework that he refers to as the “political-cultural approach” (15).
Ch. 9: Globalization:
“The political-cultural approach implies that the relations between political and economic elites and the long histories of their interactions have created laws and informal practices that constitute distinct national systems of property rights and governance” (191). This chapter addresses the paradox between increased globalization and decreasing or stagnating convergence. “The political-cultural approach gives us analytic tools to make sense of some of the reasons why trade can grow and yet national capitalisms persist” (192). The author argues, in part, that globalization is not destroying national firm identities or levers of governmental control.
“Globalization generally refers to three economic processes. First, there has been an increase in the amount of world trade such that firms do not just compete in their won economy, but against first from economies around the world…The second meaning of globalization is that the rise of the so-called Asian tigers has come at the expense of First World jobs in Europe and North America..The final meaning of globalization is that the world financial markets for debt, equity, and particularly currency have grown substantially” (193).
The author argues that standard stories about a revolutionary transformation that resulted from increased global interaction are specious. The process of globalization has taken place over a very long period of time with gradual growth in trade and interconnections. Also, while increased usage of information technology is an important part of this story, it is often overstated. Finally, standard stories of jobs being exported from Western countries in a race to the bottom are not necessarily attributable to globalization.
There is then a discussion of finance and the changing role of central banks. Central banks have moved towards more of an emphasis on price stability, most notably after the contractionary fiscal policy of Volker produced a recession after the 70s oil crisis. Also, it is noted that finance has always relied upon governance for a framework in which to operate.
Arguments that the state is dying in the face of globalization are wrong. Some have claimed that states must choose between equity and efficiency, but this assumes that these are mutually exclusive and that the market universally emphasizes one and the state another. Others have claimed that firms will always be able to bypass the controls of states. This has not proven to be the case. The author argues that many of these views stem from those who believe that governments represent rational rent seekers, and are thus a universal ill on the function of markets.
“There is no evidence that trade has made states ‘smaller’ over the past 30 years. In fact, it is quite the opposite. There is evidence that high exposure to trade combined with organized labor has produced more social protection and larger states. There are theoretical reasons to believe that states continue to matter in producing economic growth by providing public goods, the stable rule of law, and under certain conditions, good industrial policy” (217).
“Market society has produced more income, wealth, goods, and services than any other form of human social organization. It has done so by creating the conditions for social exchange between large groups of human beings, often separated across large geographic spaces. For most observers, the driving forces of this wealth creation have been technology and competition” (3).
“The purpose of this book is to begin to systematically understand how the dynamism of technology and competition is situated in, defined by, and structured through the production of firms, their social relations with each other, and their relations to government. Put simply, the dynamism of market society is made possible by this extensive social organization. Competition and technological change are themselves defined by market actors and governments over time. These forces are not exogenous to market society, but endogenous to these social relations” (4).
“This dependence of t5echnology and competition on social factors implies that making sense of economic growth requires we think more systematically about these factors. Economic growth depends on governments, institutions, and the social technologies by which firms are created, class struggle si routinized, and competition between firms is mediated” (5-6).
“My overall goal is to provide scholars and other persons interested in policy with analytic tools to make sense of such phenomena as globalization. Ultimately, my analysis suggests that governments and citizens are part and parcel of market processes. The evidence shows that very different systems of relations among workers, firms, and governments have produced economic growth. The frequently invoked opposition between governments and market actors, in which governments are viewed as intrusive and inefficient, and firms as efficient wealth producers, is simply wrong. Firms rely on governments and citizens for making markets. Their ability to produce stable worlds depends greatly on these relationships. The analytic frame proposed here explores when these relationships produce positive and less positive outcomes for all members of society” (6).
“Economic sociology is the study of how the material production and consumption of human populations depend on social processes for their structure and dynamics” (6).
The author then attempts to be more clear about exactly what a sociological approach to markets fully encompasses. One wants to strike a balance between being too inclusive and too exclusive in this distinction. Instead of drawing a line around the boundary of the field, the author proposes five key questions that people who work in this field should take interest:
“1. What social rules must exist for markets to function, and what types of social structures are necessary to produce stable markets?...
2. What is the relation between states and firms in the production of markets?...
3. What is a ‘social’ view of what actors seek to do in markets, as opposed to an ‘economic’ one?...
4. What are the dynamics by which markets are created, attain stability, and are transformed and how can we characterize the relations among markets?...
5. What are the implications of market dynamics for the internal structuring of firms and labor markets more generally?” (10-4).
The author then attempts to answer these questions from a framework that he refers to as the “political-cultural approach” (15).
Ch. 9: Globalization:
“The political-cultural approach implies that the relations between political and economic elites and the long histories of their interactions have created laws and informal practices that constitute distinct national systems of property rights and governance” (191). This chapter addresses the paradox between increased globalization and decreasing or stagnating convergence. “The political-cultural approach gives us analytic tools to make sense of some of the reasons why trade can grow and yet national capitalisms persist” (192). The author argues, in part, that globalization is not destroying national firm identities or levers of governmental control.
“Globalization generally refers to three economic processes. First, there has been an increase in the amount of world trade such that firms do not just compete in their won economy, but against first from economies around the world…The second meaning of globalization is that the rise of the so-called Asian tigers has come at the expense of First World jobs in Europe and North America..The final meaning of globalization is that the world financial markets for debt, equity, and particularly currency have grown substantially” (193).
The author argues that standard stories about a revolutionary transformation that resulted from increased global interaction are specious. The process of globalization has taken place over a very long period of time with gradual growth in trade and interconnections. Also, while increased usage of information technology is an important part of this story, it is often overstated. Finally, standard stories of jobs being exported from Western countries in a race to the bottom are not necessarily attributable to globalization.
There is then a discussion of finance and the changing role of central banks. Central banks have moved towards more of an emphasis on price stability, most notably after the contractionary fiscal policy of Volker produced a recession after the 70s oil crisis. Also, it is noted that finance has always relied upon governance for a framework in which to operate.
Arguments that the state is dying in the face of globalization are wrong. Some have claimed that states must choose between equity and efficiency, but this assumes that these are mutually exclusive and that the market universally emphasizes one and the state another. Others have claimed that firms will always be able to bypass the controls of states. This has not proven to be the case. The author argues that many of these views stem from those who believe that governments represent rational rent seekers, and are thus a universal ill on the function of markets.
“There is no evidence that trade has made states ‘smaller’ over the past 30 years. In fact, it is quite the opposite. There is evidence that high exposure to trade combined with organized labor has produced more social protection and larger states. There are theoretical reasons to believe that states continue to matter in producing economic growth by providing public goods, the stable rule of law, and under certain conditions, good industrial policy” (217).
Monday, November 3, 2008
Dobbin: Forging Industrial Policy
Dobbin, F., 1997. Forging industrial policy: the United States, Britain, and France in the railway, Cambridge University Press.
Different countries have different policies to govern industry. Dobbin argues that these different policies stem from different histories that are tied to concepts of governance and instrumental rationality. These distinct trends then promote themselves when new problems are tackled using this same form of rationality.
Many scholars do not go very far in exploring the foundational differences that may exist between different conceptions of progress and rationality. This, Dobbin argues, is potentially a fundamental driver of the differences in different domestic approach to institutional policy production. These different understandings of progress, rationality, etc., become practice, which then becomes institution.
“My contention is that these varieties of realism obfuscate the nature of rationality in modern settings by taking too much of the social world at face value, when they should be asking how the world got to be the way it is” (5).
One form of explanation as to the different policies emanating from different polities is the political realist account, which explores the different forms of group interests, how they compete, and why one eventually wins. Dobbin claims that this explanation misses on a number of counts.
Another school of thought is the economic realist. These argue that economic factors determine the social interaction. This school of thought argues for convergence around the most efficient practices. This thesis is also potentially untenable, as it doesn’t explain divergence in development between such nations as the US and Sweden, for example.
Yet another basis of thought is identified as the institutional realist group who present a different account from the two realist accounts identified earlier. Institutions persist in a country because they have a certain kind of momentum, and this momentum exists because of the durable nature of the institution. Thus we have a circular logic and a reinforcing feedback loop.
“I argue that by following the lead of ethnographers, and viewing the institutionalized meanings found in modern society as products of local, social processes, we can gain a better purchase on public policy. To do so one must shift from the realist problematic, ‘What are the universal, rational laws of social reality?,’ to the constructionist problematic, ‘How do particular, rationalized social institutions develop in particular social contexts?’ I argue that differences in rationalized meaning systems explain broad cross-national policy differences, and that rationality is essentially cultural” (12).
The author then goes on to explain different ways in that these practices can become embedded within a society and go on to effect an understanding of rationality. The author then goes on to trace out different stories from the US, UK and France with an eye towards how different cultural understandings vis-Ã -vis industry lead to different understandings of what kind of policy should be made.
Different countries have different policies to govern industry. Dobbin argues that these different policies stem from different histories that are tied to concepts of governance and instrumental rationality. These distinct trends then promote themselves when new problems are tackled using this same form of rationality.
Many scholars do not go very far in exploring the foundational differences that may exist between different conceptions of progress and rationality. This, Dobbin argues, is potentially a fundamental driver of the differences in different domestic approach to institutional policy production. These different understandings of progress, rationality, etc., become practice, which then becomes institution.
“My contention is that these varieties of realism obfuscate the nature of rationality in modern settings by taking too much of the social world at face value, when they should be asking how the world got to be the way it is” (5).
One form of explanation as to the different policies emanating from different polities is the political realist account, which explores the different forms of group interests, how they compete, and why one eventually wins. Dobbin claims that this explanation misses on a number of counts.
Another school of thought is the economic realist. These argue that economic factors determine the social interaction. This school of thought argues for convergence around the most efficient practices. This thesis is also potentially untenable, as it doesn’t explain divergence in development between such nations as the US and Sweden, for example.
Yet another basis of thought is identified as the institutional realist group who present a different account from the two realist accounts identified earlier. Institutions persist in a country because they have a certain kind of momentum, and this momentum exists because of the durable nature of the institution. Thus we have a circular logic and a reinforcing feedback loop.
“I argue that by following the lead of ethnographers, and viewing the institutionalized meanings found in modern society as products of local, social processes, we can gain a better purchase on public policy. To do so one must shift from the realist problematic, ‘What are the universal, rational laws of social reality?,’ to the constructionist problematic, ‘How do particular, rationalized social institutions develop in particular social contexts?’ I argue that differences in rationalized meaning systems explain broad cross-national policy differences, and that rationality is essentially cultural” (12).
The author then goes on to explain different ways in that these practices can become embedded within a society and go on to effect an understanding of rationality. The author then goes on to trace out different stories from the US, UK and France with an eye towards how different cultural understandings vis-Ã -vis industry lead to different understandings of what kind of policy should be made.
Cohen: The Question of Imperialism
Cohen, B., The question of imperialism, Basic Books.
Ch. VII: Toward a General Theory of Imperialism
“Chapter I suggested that there are two issues of particular importance to any study of the subject of imperialism: (1) the form of dominance-dependence relationships, and (2) the force(s) giving rise to and maintaining them” (229). While imperialism can take many forms, is there a common essence that can be uncovered? Is there a taproot?
The core of imperialist logic, according to Cohen, is clearly not rooted in radical Marxist accounts of under consumption or the changing composition of capital. “The theories are all much too highly deterministic” (230). “All through history there have been innumerable examples of imperialism having nothing to do with the international capitalist economy or the presumed needs of its most advanced constituents” (230). “In short, Marxist and radical theories of economic imperialism do not stand up to close analytical scrutiny. All that needs to be said about them has by now been said. As intellectual constructs, they are like elaborate sand castles—a few waves of the incoming tide, and much of their substance gradually dissolves and washes away” (231).
While Cohen glibly dismisses any radical economic explanation for the drive towards imperialism, he also promotes his own universal understanding of the cause of international economic expansion and dominance: power politics. However, this drive to power should not simply be stated and left without an explanation. That is the mistake of many scholars who posit power politics as being the cause of war, etc., but who have not sufficiently explained why this is the case. Cohen argues that this logic derives from the international system level of analysis, and not the state-based level of analysis. The system level contains a homogenizing characteristic: anarchy.
Anarchy creates a situation in which states can never feel completely secure. This insecurity arises from the fact that no state can ever insure themselves against the actions of another state. The account is a very standard structural realist one. Marxist accounts fail because they look at the level of the state for international affairs explanations, and this simply misses the larger picture. The problem for states comes when they try to “operationalize” this insecurity in foreign policy.
The comparison is drawn between states in anarchy and firms in an oligopolistic market to demonstrate how foreign policy can be derived from this position of insecurity. In an oligopolistic market there is insecurity and vulnerability. Each firm would like to have a monopoly, but they understand this to be unfeasible. Firms must scheme and plan for their long-term stability.
States in this situation want to avoid dependence. One way to accomplish this is through dominance. “This means that imperialistic behavior is a perfectly rational strategy of foreign policy” (242).
This is the core of the argument. Cohen then goes on to list some possible criticisms of his argument: too narrow, too broad and too shallow (three iterations).
Ch. VII: Toward a General Theory of Imperialism
“Chapter I suggested that there are two issues of particular importance to any study of the subject of imperialism: (1) the form of dominance-dependence relationships, and (2) the force(s) giving rise to and maintaining them” (229). While imperialism can take many forms, is there a common essence that can be uncovered? Is there a taproot?
The core of imperialist logic, according to Cohen, is clearly not rooted in radical Marxist accounts of under consumption or the changing composition of capital. “The theories are all much too highly deterministic” (230). “All through history there have been innumerable examples of imperialism having nothing to do with the international capitalist economy or the presumed needs of its most advanced constituents” (230). “In short, Marxist and radical theories of economic imperialism do not stand up to close analytical scrutiny. All that needs to be said about them has by now been said. As intellectual constructs, they are like elaborate sand castles—a few waves of the incoming tide, and much of their substance gradually dissolves and washes away” (231).
While Cohen glibly dismisses any radical economic explanation for the drive towards imperialism, he also promotes his own universal understanding of the cause of international economic expansion and dominance: power politics. However, this drive to power should not simply be stated and left without an explanation. That is the mistake of many scholars who posit power politics as being the cause of war, etc., but who have not sufficiently explained why this is the case. Cohen argues that this logic derives from the international system level of analysis, and not the state-based level of analysis. The system level contains a homogenizing characteristic: anarchy.
Anarchy creates a situation in which states can never feel completely secure. This insecurity arises from the fact that no state can ever insure themselves against the actions of another state. The account is a very standard structural realist one. Marxist accounts fail because they look at the level of the state for international affairs explanations, and this simply misses the larger picture. The problem for states comes when they try to “operationalize” this insecurity in foreign policy.
The comparison is drawn between states in anarchy and firms in an oligopolistic market to demonstrate how foreign policy can be derived from this position of insecurity. In an oligopolistic market there is insecurity and vulnerability. Each firm would like to have a monopoly, but they understand this to be unfeasible. Firms must scheme and plan for their long-term stability.
States in this situation want to avoid dependence. One way to accomplish this is through dominance. “This means that imperialistic behavior is a perfectly rational strategy of foreign policy” (242).
This is the core of the argument. Cohen then goes on to list some possible criticisms of his argument: too narrow, too broad and too shallow (three iterations).
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