All entries for March 2009

Naomi Klein, Milton Friedman and Me

Writing about web page http://www.warwick.ac.uk/go/markharrison/comment/shockdoctrine.pdf

On February 24, 2009, by Naomi Klein was awarded the first Warwick International Prize for Writing, for her book The Shock Doctrine. On behalf of the panel of judges, the novelist China Miéville described The Shock Doctrine as "a brilliant, provocative, outstandingly written investigation into some of the great outrages of our time."

That got my attention. Here's why. On August 26, 2008, Kurt Jacobsen reported in The Guardian about opposition to plans to set up a Milton Friedman Institute at the University of Chicago. The report included some claims that I thought were wrong. So, I replied. Here's my letter, published on August 28:

Your feature on Chicago's proposal to establish a Milton Friedman Institute of economic research (Milton Friedman gives Chicago a headache, August 26) is misinformed in some important respects.

You state: "In postwar America, Friedman's market fundamentalism was regarded as lunatic-fringe stuff." This was never the case. I learned economics in Cambridge in the late 1960s. My professors followed Keynes and Marx, but they rightly made Friedman's work part of my undergraduate syllabus. Friedman's scholarship, not his opinions, made him one of the most influential economists of the 20th century.

You state that Friedman "worked for General Pinochet". While Friedman visited Chile, he did not work for the dictator. His advice was that Chile should turn back from state control of economic life; in the long run, he argued, free markets and political freedoms go hand in hand.

Finally, you give the impression that the mission of the proposed Friedman Institute is tendentious: "The design and evaluation of economic policy requires analyses that respect the incentives of individuals and the essential role of markets in allocating goods and services ... design of public policy without regard to market alternatives has adverse social consequences." While such a statement may be infinitely qualified, few economists today would dispute the principle.

I didn't expect to get away scot-free. On August 30, The Guardian published a letter from David Waddilove of Teignmouth, Devon:

Mark Harrison (Letters, August 28) is disingenuous about the relationship of Milton Friedman to Pinochet's Chile. Neither does he mention the havoc, bloodshed and mass starvation wrought on the people and economies of, among others, Uruguay, Argentina, Russia and Iraq by the Chicago School's symbiotic relationship with sundry dictators and their personal financial gain from those relationships. Nor, of course, does he mention the benefits to US corporate power wrought by the destruction of the public sector in each country the Chicago School meddles with. It is sad to see Warwick University, once the harbinger of some radical thought, now accommodating such "free" market orthodoxies without reference to their real-life testing grounds. Naomi Klein's The Shock Doctrine should be required reading for anyone interested in what actually happened.

I didn't think of replying, but I didn't like the tone. It seemed to be all guilt by association: Chicago-Pinochet. Chicago-Harrison. Harrison-Pinochet. Harrison-Warwick. Warwick-Pinochet. It looked like I must have blood on my hands. If that was the spirit of The Shock Doctrine, I wasn't sure I wanted to read it. Still, it stuck in my mind.

Months went passed. Then, the prize went to ... Naomi Klein for The Shock Doctrine. Not just any prize, but the first biennial Warwick Prize for Writing, a major literary award endowed by a great university, one that I love and have worked and lived for over thirty years.

Maybe I had missed something.

I got hold of the book and read it. It had a big, important message that I wrestled with. I asked my colleagues what they thought about it. It turned out none of them had read it. I think that is a mistake: the book has already had a significant influence on how people see economics and economists, David Waddilove of Teignmouth being one.

After some reflection, I wrote down what I think about the book in a paper called Credibility Crunch: A Comment on The Shock Doctrine. This is how it begins:

If you think that free markets haven’t worked that well recently, it is perhaps not surprising. If you think that free markets are spread only when business executives, politicians, soldiers, technocrats, and economists join to overwhelm popular resistance by force and violence, then you may have read it first in Naomi Klein’s The Shock Doctrine.

It concludes:

For the [Warwick Prize] panel, China Miéville described The Shock Doctrine as "a brilliant, provocative, outstandingly written investigation into some of the great outrages of our time." The Shock Doctrine merits this praise, but it does not merit belief.

If you are still interested, I hope you'll look at my paper and see the reasoning that fills the gap between my opening and my conclusion.

Mark Harrison : 25 Mar 2009 09:12 |  Tags: Globalization Naomi-Klein Politics Using-Data |  Comments (9) |  Close comments |  Report a problem

G20: Gordon Brown's Got It … Anyone Else?

Writing about web page http://www.guardian.co.uk/politics/2009/mar/13/g20-obama-brown

On March 4, the Prime Minister told the United States Congress:

... never before have the benefits of cooperation been so far-reaching.

On jobs, you the American people through your stimulus proposals could create or save at least 3 million jobs. We in Britain are acting with similar determination. How much nearer an end to this downturn would we be if the whole of the world resolved to do the same?

... Just think how each of our actions, if combined, could mean a whole, much greater than the sum of the parts ... the impact multiplied because everybody does it - rising demand in all our countries creating jobs in each of our countries - and trade once again the engine of prosperity, the wealth of nations restored.

I guess the President was listening. But did he really get it? My point is this. Brown was not just indulging in the easy rhetoric of let's-all-pull-together and unity-makes-us-strong. What he said is literally, word-for-word true. But you have to get the economics to really get it.

Why? A fiscal stimulus by one country acting alone creates a spillover benefit (economists call this an "externality") for other countries. There is an increase in our national debt, which is a cost to us, but part of the benefit, the global increase in demand, is received beyond our borders through our demand for imports. Because it is costly to us, and others reap part of the benefit of what we do, the incentive is for us to do less than we should.

This barrier to action can be overcome by everyone agreeing to help themselves and each other at the same time. We can pull each other out of the hole. Through international coordination, each country can reap the benefit at a lower cost measured by the increase in the national debt.

Without coordination, in contrast, each country gains privately from protectionism, which internalizes the benefit of a national stimulus package at the expense of other countries; hence, beggar-thy-neighbour. The resulting losses from despecialization will be long-term and the damage to the international economy will take decades to undo. Sounds familiar? Yes, it happened before. That, with a few twists, is the story of the 1930s.

When I heard Gordon Brown's speech I thought to myself: "Yes! He's got it!" Did Barack Obama get it? I hoped he did. According to this morning's papers, maybe not. Maybe Obama thought Gordon's words were just special-relationship type rhetoric. Or maybe he figured: the United States economy is so big that the Americans can go it alone more easily than any other country. A  huge loss for the world, but only a small loss for America. (Hmm. I hope that's not what he figured. I'd prefer to think he just didn't get it.)

Much harder for us to understand is the cowardice of France's Nicolas Sarkozy and Germany's Angela Merkel. France and Germany are not giant economies that can go it alone. Yet this morning's papers report Merkel, following joint discussion, sending "a common signal" to the G20 summit that France and Germany will stand aside from any further fiscal coordination (unless you call it coordination when everybody does nothing at once). Merkel said:

The issue is not spending even more but to put in place a regulatory system to prevent the economic catastrophe that the world is experiencing from being repeated.

I see ... We're sliding towards disaster, but the right thing to do is not avert it, just hold a seminar about not doing it again. If we're still there at the end of it, that is.

The denial that is currently at the heart of Europe extends to the fate of Europe's East. I know Merkel and Sarkozy don't want this, but almost certainly we will have to bail out others as well as ourselves. There will be no choice over this; it's just another thing that Merkel and Sarkozy don't get yet.

One thing we will be able to choose: Eastwards, how far will the European bail-out extend? Can the EU risk letting longstanding members like Greece (and Ireland in the West) go to the wall? Surely not. New arrivals like Poland, Hungary, the Czech Republic, the Baltic? Hmm. And beyond EU borders, there lie Ukraine and Turkey. Somewhere, either within or beyond current EU borders, a line will be drawn. Inside the line, we will prop up what we can. The countries beyond it will go to the wall.

Don't underestimate the importance of that line. The countries that lie beyond it will be greatly impoverished compared with their position a year ago. They will have been impoverished by Europe's indifference, our lack of coordination, our failure to lead.

The Great Depression was followed by a recovery, it's true. But by the end of the Great Depression every poor country in Europe was ruled by a dictator.

Mark Harrison : 13 Mar 2009 11:19 |  Tags: G20 Globalization Obama Politics Recession |  Comments (0) |  Close comments |  Report a problem

What Does Coventry Do Best?

Writing about web page http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/

Last week, the Economic and Social Research Council awarded a £3.6m contract to the University of Warwick for a centre on Competitive Advantage in the Global Economy.

This seems a good moment to ask, where is Coventry's competitive advantage? What do we do best today? At a time of recession, when many are losing what little sense of security and prosperity they had, what is our city's future?

I arrived in Coventry in 1974. At that time, Coventry was England's motor city -- its Detroit. A friend told me half the city's population belonged to two trade unions, the transport and general workers and the engineers. I don't know if that was true, exactly, but it certainly felt like it.

Between then and now, Coventry has not had it easy. In a way that is nothing new; Coventry's industrial history has seen continual change, from ribbons and watches to bicycles, munitions, machine tools, motor cars, and synthetic fibres. But in the 1980s deindustrialization hit our city hard. The great vehicle building and tool making factories melted away. Employment and wages sagged. Then, other jobs sprang up. Coventry recovered.

What has taken the place of manufacturing? Coventry has a new competitive advantage. It sells to an international market. In the current downturn this market is proving resilient so far: in fact, while global demand for everything else is falling off the shelf, the market in which Coventry is now competing is rising against the trend.

Leading this trend are new corporate giants that have grown up stealthily among us. They are local firms, with their roots are firmly bedded in our region, but they already export a large fraction of what they make.

What are they? The new giants are our city's two universities, Coventry University and the University of Warwick. (For those reading this column at a distance, the University of Warwick is nowhere near the town of Warwick; it is on the edge of Coventry, half in the city and half in the fields of Warwickshire. Coventry University is right in our city centre.) The two universities are not only among our city's biggest employers. Their combined corporate revenues come to around £500 million a year, or nearly £1,700 for every one of Coventry's 300,000 residents. 

The universities are part of a bigger picture. Around them, and not only because of them, a new economy has sprung up; according to the West Midlands Regional Observatory, knowledge-based activities now employ half of Coventry's working population.

Coventry once had a competitive advantage in engineering things. Now, what Coventry does best is the engineering of ideas. At one time, half of Coventry bashed metal; forty years on, half of us bash keyboards. Science and technology parks have sprung up where engines and car bodies were once assembled in giant hangars. The toilets are a lot cleaner, even if the language is just as filthy.

Like the motor factories they have replaced, our universities are big exporters. Instead of selling metal fabricates, they sell and certify knowledge and understanding. One difference is that the customer comes here to collect. Every year more than 10,000 students arrive from continental Europe and beyond to study in our city. The typical international student is likely to pay around £6,000 in annual fees and spend another £6,000 in annual living costs. That would make their total contribution to the economy of Coventry and its South Warwickshire hinterland, and to our national export revenues, £120 million a year and rising. 

The demand for higher education has an important feature that makes it different from the demand for motor vehicles -- it moves against the business cycle. When the economy booms and there are many vacancies, young people entering the market are tempted straight into employment. When the vacancies evaporate, they enroll for courses in order to improve their chances when things pick up. Right now, both our universities are experiencing a small boom in admissions, particularly to courses in management and economics. (Unfortunately, they are also suffering from the slump in everything else from the arts and entertainment to the conference trade.)

How can Coventry make the most of its future? Good management of our universities is important, but it is not the only thing that matters. The poor management of the British motor industry has been criticized, but would better management have saved Coventry's industrial past? It seems unlikely. At best, the decline might have been postponed by a few years.

More important is to understand how our future will remain bound up with the global economy. The international recruitment of academics and students is vital to the competitiveness and prosperity of Coventry's knowledge sector. That's obvious. Less obvious may be what follows.

If we are to maximize our new competitive advantage, and so focus on what we now do best, we have to let others do the same. One country can't do everything best. Today, we are best at science and education. If we are to put our resources into that, then let others exploit their competitive advantage in making the textiles and machinery we used to make and now buy from elsewhere.

Sometimes people feel bad about buying cheap clothes from abroad. There's a "Buy British" lobby that works to make us feel guilty when we do this. We should resist it; it is bad logic. Buying British would mean chopping out the roots of Coventry's knowledge economy just when we need it most.

Think about this: if students from Austria, Bangladesh, China, Dominica, Ecuador, and the rest of the A to Z of nations are to come to Coventry to be educated, their families or governments must have the pounds to pay for them. They can have these pounds, only because we are willing to buy the goods that they make cheaper than we can. When we buy their stuff, we enable them to buy ours. It's a virtuous circle: by trading, everyone can do what they are best at. When everyone is free to exploit their competitive advantage, everyone gains! There are not many such virtuous circles in this world, so we should make the most of them when we find them.

Whatever we do, times are going to be hard. It looks like our political class is going to let us down; obsessed with blaming the bankers and each other, they are failing to do elementary things at home (enacting a fiscal stimulus) and abroad (coordinating fiscal action) that would rapidly improve our situation. To turn our face away from the world, from our competitive advantage, would just make our future harder still.

For the time being, Coventry's future lies in the global knowledge economy. It is what we do best. It is another chapter in our history, one that is still being written.

Mark Harrison : 02 Mar 2009 13:51 |  Tags: Coventry Recession Universities |  Comments (5) |  Close comments |  Report a problem