The World Economy’s Orbit

The map below shows the shifting location of the world’s economic center of gravity. It was compiled by McKinsey and reproduced by The Economist.

All is broadly as one might expect. In pre-industrial times, the world’s economic center of gravity was always basically triangulated between India, China, and the Roman Empire (later North-West Europe). By 1913, the US had became a significant world power, and in mid century it had drawn the center of gravity out into the North Atlantic. Since then the rise of the USSR, Japan, and then China, SE Asia, and India, started shifting the ball east and south at an accelerating pace. Today the speed of this transition is 140km per year. So there you have it: A cartographic representation of The Rise of the Rest.

By 2025, as shown on the map, the ball will be located somewhere in the Altai Mountains of Siberia. After that it will probably take a small dip south as India starts becoming much more prominent. Eventually however it will start going north and west again as the Arctic opens up and countries like Russia and Canada start growing much more rapidly as the century draws to a close. The cycle will retrace its ancient path.

Ayn Stalin: Soviet Inequalities In 1929-1954

While researching my article on Soviet economic performance relative to the US (it was bad), I came across this fascinating graph showing income inequality in the USSR since 1946.

As you can see, the 10% richest Soviet citizens in the first postwar year were more than seven times as rich as the 10% poorest. That is actually substantially higher than in many capitalist social democracies today: Czech Republic (5.2), Finland (5.7), Germany (6.9), Japan (4.5), Sweden (6.2). Russia’s current R/P ratio is about 13 IIRC.

And there’s lots of factoids that support this assertion:

(1) Stalin increased his own salary as General-Secretary from 225 rubles (until 1935), to 500 rubles in 1935, 1,200 rubles in 1936, 2,000 rubles by the end of the war, and a cool 10,000 rubles by 1947.

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The Soviet Economy – Charting Failure

Many Communists, leftists, and even patriots (I’m sorry to say) have a pronounced tendency to make out the Soviet economy as not quite the resounding failure it really was – or even to paint it as a success story that was only brought down by perestroika and liberal reforms.

The above chart – based on historical GDP per capita (Geary-Khamis 1990 Int$) by Angus Maddison, compiled by liberal economist Illarionov, popularized online by Lopatnikov, and Starikov – purports to destroy two “myths”: That of (1) Prosperous Tsarism, and (2) The ineffectiveness of the Soviet economy. After all, the average Russian went from being 40% as rich as the average American in 1885, to only 23% by 1917; whereas during the Soviet period, despite the turmoil of two major wars, Russian incomes reaches a relative peak at 40% of American levels during Brezhnev’s “stagnation” period.

These is however a glaring hole in this logic, namely that (1) relatively slow growth under late Tsarism reflected a permanent state of affairs, as opposed to the heavy but temporary burden of a large rural, illiterate population; and (2) that a level of per capita GDP that is a mere 40% of what Americans enjoy was in any way a fulfillment of Russia’s potential during the 20th century. In fact, graphical comparison with other countries shows this to be almost certainly false.

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A Short History of Venezuela, c.1800-1950

Caracas, Venezuela.

January 2019: I have just reread an essay I wrote – a short history of Venezuela from c.1800-1950 – for an economic development class during my Berkeley days. It’s not entirely irrelevant given current events, so I am posting it for perusal.

The beginning of Venezuela’s integration into the world economy can be dated to 1522, the start of Spanish colonization. It did not produce gold or silver, so colonial control was lax; local and municipal officials enjoyed a degree of leeway unusual for the rest of Spain’s American possessions. Apart from grain grown for subsistence, the 16th century economy was dominated by ranching, with the livestock raised by Indian herders, using Spanish-introduced horses, for their Spanish landlords on the llanos grasslands. By the 17th century, the cash economy came to be dominated by cocoa, cultivated by imported African slaves. This ushered in the basic format of Venezuela’s subsequent integration with the world economy: Primary commodities exports to the North Atlantic markets filtered through the Caracas-based bureaucracy. It allowed the capital to develop as an economic and cultural center; the Universidad Central de Venezuela was founded in 1721, and – thanks in part to the lack of censorship, which provided Venezuelan luminaries access to Enlightenment European thinkers such as Voltaire and Rousseau – it would come to play an important role in the war for independence.

In general, however, the country remained underdeveloped, 90% rural, and almost entirely illiterate; indeed, as late as 1936, only 35% of school-aged children were enrolled and the literacy rate was at only 20%[1] (this is comparable to 17th century England, late 18th century France, or c.1900 Russia). This of itself greatly constricted possibilities for economic development, and deeply stratified Venezuelan society. The hacienda system of cocoa exports required slaves, and from the 16th century yjod would come to define Venezuelan society, hardening it into a caste system in which white Spanish peninsulares and criollos, their descendents, occupied the top of the economic chain, while mixed race pardos and African slaves filled out the bottom rungs. Although slavery was abolished in 1854, the basic structure has remained to this day, reflected in income inequality that has remained very high by global (if not Latin American) standards, even under the Chavez administration. This inequality had intellectual underpinnings, in the form of Laureano Vallenilla Lanz – a sociologist who worked under the Gomez administration – who in his Cesarismo Democrático (1920) wrote that the pardos had to be ruled by white caudillos in order to maintain order, for such was the “unconscious suggestion of the majority[2].” Under the Gomez regime, passports were issued for the first time, which identified carriers by the color of their skin; this system remained in place until the 1980’s. This served to reinforce socio-racial stratification in Venezuelan society.

To the extent that Venezuela saw industrialization before the developmentalist era it was almost entirely confined to the oil industry, which exploded in the 1920’s. This would be the latest, and by 1927 by far the most dominant, commodity to dominate Venezuelan exports; by 1929, it was the world’s single largest petroleum exporter. But even this sector’s development was constrained, as the dictator Juan Vicente Gómez, who ruled Venezuela at this time, forbade the construction of oil refineries on Venezuelan soil because of his distrust of trade unions and industrial labors. The proceeds of the oil boom were narrowly distributed: US oil corporations were allowed to write Venezuela’s early petroleum laws[3], and Gomez himself came to possess a $400 million fortune upon his death in 1936, making him the country’s richest oligarch[4]. Meanwhile, apart from a patrimonial bureaucracy that grew up alongside the oil industry, benefits from the oil boom were meager: Education and other social services were neglected, while the in-flood of oil revenue contributed to high inflation, with food prices running ahead of average incomes.

Venezuela shook off Spanish rule in the Venezuelan War of Independence, a brutal struggle that killed off a third to half the population. However, the subsequent state was weak and riven by constant internal infighting: From 1829 to 1899, Venezuela had no fewer than 41 Presidents and 30 insurrections. This was in large part a function of Venezuela’s social structure. White landowners controlled most of the land, many with a few hundred or thousand pardos tenants on it. Due to the profound weakness of the state, all it frequently took was for a local caudillo in the central and eastern llamas to make an inspiring speech, march to Caracas with a ragtag militia, and proclaim himself President.

Furthermore, while Venezuela was formally independent, in practice the post-Bolivar elites almost exclusively looked to Europe. Legislation was progressive – Venezuela became the first major state to abolish capital punishment, and – in theory if not in practice – free and compulsory education was prescribed in 1880-81. But the state remained a plaything for the elites rather than a motor of development. For instance, the late 19th century President Guzman Blanco divided his time between Caracas and Paris; during this period, he amassed massive loans, from which he happened to make a small personal fortune. When a coup was organized, his response was to just stay in Paris. The European powers intervened with gunboats in 1902-03 under Cipriano Castro when Venezuela, for a time, refused to honor the loans amassed under Blanco.

This caudillo system came to an end with the ascendancy of the Andean elites from 1899, of whom Gomez was the most prominent representative. A national army and telegraph system united the country, so caudillo insurrections became a thing of the past. However, the coups and political instability that plagued Venezuela would continue well beyond; indeed, Gomez himself took power in a coup against Castro in 1908, and would himself experience a crisis of authority in 1928 from student insurrectionists taking a cue from the experiences of the Mexican and Russian Revolutions, and the new thinking challenging colonialist relations with the developed world. From the time of Castro’s death in 1935, López ruled as a modernizing dictator; a partial (and unsustained) transition to democracy was made in 1945-46. It is around this time that the colonial period of Venezuelan can be said to have truly come to an end, as consequent regimes until the 1990’s would be dominated by interventionist developmentalists implementing import substitution policies.

In conclusion, Venezuela suffered from a number of features common to other Latin American countries under their conditions of integration into the pre-World War Two global economy. The most important of these, though they are interrelated, are export dependencies on primary products – from cacao to coffee to oil – which made budgets cyclical and encouraged the growth of “comprador elites” dependent on rents and culturally beholden to Europe; and the development of a caste system centered around race. This fostered an unstable form of government, i.e. the caudillismo that resulted in arbitrary authoritarian power structures at the local levels, despite the formally liberal and federal political macro-structure. These factors retarded progress, to the extent that despite its formidable resource wealth and forty years of substantial oil revenues, Venezuela in 1960 was still a very undeveloped country; its total fertility rate was at 6.62, a pre-industrial rate, and literacy was at a still modest 74% (about equivalent to India today).

[1] Sanchez, George I. (1963), The Development of Education in Venezuela, Office of Education (DHEW), Washington, DC., page v.

[2] Executive Power in Venezuela, Leo B. Lott, The American Political Science Review 50, #2 (June 1956), pp. 422–441.

[3] Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon and Schuster. 1990. pp 233-36; 432.

[4] Bart Jones. Hugo!: The Hugo Chavez Story from Mud Hut to Perpetual Revolution. Steerforth. 2007. Pp 31.

Book Review: Kenneth Pomeranz – The Great Divergence

Pomeranz, Kenneth – The Great Divergence: China, Europe, and the Making of the Modern World Economy (2001)
Category: economy, history, world systems; Rating: 5*/5
Summary: Brad DeLong’s reviewThe Bactra Review; Are Coal and Colonies Really Crucial?

The Power Of Contingency: Why China Didn’t Rule The World

great-divergence-pomeranzIt’s a rare book that not only vastly informs you on a particular issue, but in so doing overturns many prior conceptions you had on the general subjects. Now, Pomeranz is not a good writer. The text is slow and turgid, and readable only by dint of my interest in the subject. Many potential counter-arguments go unanswered (which is not to say that they sink the overall theory, as I will try to prove in this review). All that said, I have little choice but to give it a 5*/5, as this a truly counter-intuitive and deeply contextualizing work that overturns many of the triumphalist post hoc narratives of Western chauvinism.

This book attempts to answer the big question of world economic history: Why Europe? It does this by systematically comparing Europe with other leading world regions in the pre-industrial age such as Qing China, Tokugawa Japan, and India. The first big finding is that – contrary to the conventional wisdom – there were far more similarities than differences, at least between Britain and the most advanced Chinese region, the Yangtze Delta.

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Another View of the US Economy: Observations on Exergy, GDP & Median Incomes

The standard view of the American economy is one of exponential growth: even if interrupted by a recession once a decade and a Depression once every two generations (the 1890’s, the 1930’s, the 2010’s?), the engines of industry would always come back roaring again. Output per American could always be expected to increase as it has from 1790 until the present day. There has never been a decade, even during America’s two Depressions, when US GDP was lower at the end than at the beginning.

However, another point of view on the US economy can be developed by drawing on observations of factors such as median income, energy consumption and inequality. Broadly speaking, this picture is one relative stagnation from 1890-1940, and again from 1973-today, punctuated by the truly remarkable “miracle economy” of the post-war boom. Furthermore, the US is now about to transition to a new phase: economic stagnation and anarchic stasis, to be followed by oligarchic Caesarism. This first post will be, for now, just a series of observations that I believe to be inextricably linked, but lack the theoretical foundations to put on a sound footing. Feel free to skip it, as it might be hard to follow and I’m mostly writing it to get greater understanding for myself. More polished version(s) to follow.

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The Transition 20 Years On: The Reckoning

It is now nearly 20 years since market reformers began liberalizing the economies of Eastern Europe, or as some smart-ass put it, trying to revive the fish in the centrally planned fish stews. These stews, cooked to diverse recipes from goulash socialism to Soviet “structural militarization“, were subjected to a wide spectrum of overlapping treatments ranging neoliberalism (the Baltics), market socialism (Belarus), and mercantile corporatism (Russia). Other fish stews just stagnated in anarchic stasis (Ukraine). Twenty years on, it is time to observe the oft-surprising results.

I used Angus Maddison’s historical statistics, CIA figures for 2009 growth except where available the results from national statistical services (Belarus & Russia), and the IMF projections for 2010 (adjusted upwards for non-Baltic nations with sharp recent falls in GDP to account for their stronger-than-expected recoveries) to create GDP (PPP) per capita indices for post-Soviet nations and Poland (generally representative of Visegrad) where the output levels of 1989 – the year of peak Soviet GDP – are set to 100.

So which national ponds look like they’ve been subjected to grenade fishing, and which ones have the liveliest fish? Drumroll…

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Book Review: Ha-Joon Chang – Kicking Away the Ladder

Chang, Ha-JoonKicking Away the Ladder: Development Strategy in Historical Perspective (2002)
Category: economy; history; industrial policy; Rating: 5/5
Summary: Kicking Away the Ladder:How the Economic and Intellectual Histories of Capitalism Have Been Re-Written to Justify Neo-Liberal Capitalism (Ha-Joon Chang)

Much has been said of the smug arrogance, cultural aloofness and end-of-history conceit characterizing the neoliberal Washington Consensus, the philosophy that a one-size-fits-all set of “good policies” (e.g. privatization, liberalization, deregulation) and “good institutions” (e.g. patent and IP protection system, etc) can – and must – be transplanted onto any country, irrespective of its historical or cultural traditions, if it were to ever join the developed “international community’. The general bankruptcy of this approach is evident from the facts on the growth, with global GDP growth during the 1960-1980 period of “bad policies” substantially higher than during the “good policies” 1980-2000 period. After seeing high growth during the earlier period, Latin America stagnated, and Africa and Eastern Europe declined during the latter; the major exception was mercantilist China.

Though always disabused by reality, from 1998 Russia to the 2008 crisis, the neoliberals retain their intellectual underpinnings by continuing to claim, like Marxists, that history itself is ultimately on their side – after all, did not Britain and the United States, the world’s greatest economic successes, rise to global preeminence through the virtues of minimal government and free trade? Not at all, argues Ha-Joon Chang in this excellent book.

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