Munich Personal RePEc Archive

The Road out of Crisis and the Policy Choices Facing Russia

Freeman, Alan (2013): The Road out of Crisis and the Policy Choices Facing Russia.

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Abstract

This paper was presented to the May 2013 conference of the PostGLobalization Initiative (http://pglobal.org/) in response to a request from the organizers to present suggestions for the policies required to get out of the economic crisis which opened in 2007, and their implications for the Russian economy and government.

Drawing on materials from the ‘Key Trends in Globalization’ website (http://ablog.typepad.com/), the paper analyzes growth in four types of country typified by the EU, the USA, India, and China. The fastest growth has been registered in China, which has followed a policy of expansionary money with strong banking controls, combined with an investment-led stimulus. Strong growth has also however been registered by countries that apply a subset of these policies, for example India, which has strong capital controls and a significant – and frequently understated – state presence in the economy. Growth is also weakest in those countries, such as the EU economies and Britain, where governments and banks specifically rule out and impede both the expansion of government spending, and state investment of any shape or form.

The paper shows that it is these economic policies that produce growth, and neither some special characteristics unique to particular countries, such as their political systems or wage régimes, nor some pre-ordained new hegemonic order which decrees that the BRICS must rise because it simply happens to be their turn. Least of all can economic success be attributed to the adoption of neoliberal market policies.

The specific combinations that brings the most growth invariably involve direct public involvement in investment, whose collapse is the primary and most deep-seated underlying cause of the present protracted crisis. Particularly effective – and, the paper argues, essential in the medium to long term – are policies oriented towards human development. These produce an immediate increase in consumer demand as illustrated by the effect of Brazil’s poverty-elimination policies; most decisively, however, they make possible the consolidation of the resultant surge in consumer demand, whose effect will be shortlived if unaccompanied by developmental measures, on the basis of a parallel and stable increase in investment demand and productive capacity – which requires bringing into being the type of workforce that is required to make use of leading-edge technology. On the other hand, industrial development in the modern economy depends critically on human development, precisely because of modern technology, which is ever more dependent on the specifically human contribution of skilled and creative labour. Human and industrial development, in the modern world, therefore march hand in hand.

Such policies, contrary to established neoliberal dogma, require the direct involvement of the national state in both human and industrial development. Any country can develop such policies – taking into account national specificities of course – whether or not it shares China’s particularities. Policies of this type are particularly relevant to countries such as Russia and South Africa which run the risk, in an era of resource shortage accompanied by wild fluctuations of commodity prices, of subordination to a narrow, destructive and unstable development of their extractive industries, leaving them at the mercy of countries which retain command of the production of high-tech goods.

Such policies will succeed all the more, to the extent that those countries who are carrying them out co-ordinate with each other on the basis of mutual justice and equality, to establish financial, material, and trading institutions that afford genuine economic independence.

The decisive reason that such independent national policies are required is that the crisis, above all in the so-called ‘advanced’ economies – better now named the ‘no-longer-developing’ or NLD economies – has deep-seated origins in the long-run fall in the rate of profit, and no immediate or automatic recovery can be expected. This has led to a rise in parasitic sectors rooted in extractivist and financial capital, which have shown themselves capable of inflicting great damage on developing economies, if not prevented from so doing.

The paper finishes with an evaluation of the specific policies best suited to the BRICS and more generally ‘Southern’ or emerging economies, arguing for a policy of ‘combined development’ focused on developing and applying the most advanced technologies available in the world today, combined with an industrial policy whose centre is human development – forging and nurturing a talented and creative workforce with the high levels of education and skills required to make modern technology effective - instead of passing through some mythical ‘stage of development’ requiring a focus on mineral wealth or low wages.

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