Capital and its Complements (J. Bradford DeLong, May 2008)

Capital and its Complements , J. Bradford DeLong, U.C. Berkeley and NBER, May 2008

※ 어느 세미나에서 발표된 글인데, 경제사적 사실에 근거에서 국제적 자본이동과 세계경제의 문제를 차근차근 풀어가는 소론이다. 더불어 현재의 미국 서브프라임 위기를 큰 시각에서 바라보고 있다. 다시 살펴볼 만한 내용이다. 관점도 훌륭하고 과거 미국 재무부에서 일할 때 자신의 생각이 틀렸다는 솔직한 언급은 감동적이기도 하다. 앞으로 주목해야할 경제학자로 보인다.

This paper will therefore present a confused and rambling look at the issue of capital and its complements[the role of saving, investment, and international capital flows] in economic growth in five stages:

• Historical patterns: what has been the relationship between capital andgrowth in the past, and what economists have thought about that relationship.
• The capital accumulation gradient: the increasing difficulty as industrialization proceeds that poor developing countries have in raising their capital intensities to levels that allow use of the most modern productive technologies.[n3]
• The neoliberal bet: the hope so confidently and widely shared a couple of decades ago that international capital mobility would greatly aid in helping poor countries climb up the capital accumulation gradient—that heightened capital mobility would be able to produce rapid industrialization and growth throughout the world.
• The unexpected reversal: the fact that international capital mobility over the past two decades (a) has expanded much more rapidly than almost anybody had predicted, but (b) has expanded in the wrong direction—the poor have not been borrowing from the rich to finance their investment and industrialization, instead the rich have on net been borrowing from the poor to finance their own consumption.
• What is to be done: this is the weakest part of the paper, because it is not at all clear what is to be done.

※ 메모: Act III: The Neoliberal Bet on International Capital Mobility

• Thus for poor countries to bootstrap themselves by their own efforts alone into rapid sustainable growth is very difficult. Hence the neoliberal bet: the hope that international capital mobility would come to the rescue, first by relaxing this binding capital constraint imposed by the tilt of relative price structures and second by reducing the scope for corruption and rent seeking via the economic controls imposed to prevent international capital mobility. Courtesy of Christopher Meissner and Alan Taylor at this conference, we have already heard about the historical precedent: Britain before 1914. According to Meissner and Taylor, Britain’s net foreign assets in 1913 were equal to 20 months’ GDP. Net foreign assets in 1913 equaled 60 percent of Britain’s domestic capital stock.
• A huge amount of industrialization in the resource-rich, temperate periphery before 1913, was financed by the willingness of British investors to commit their capital overseas—not just to build up Britain’s capital stock, but to build up capital stocks abroad as well. (Let’s pass over for a moment the fact that the British investors in the Erie Railroad found that Jay Gould stole two-thirds of their money, not least by taking a huge leveraged long position in the stock and then announcing his retirement from the company. He retired, the stock price boomed, and he pocketed something like 50 percent of the present discounted value of the fact that he would no longer be around to loot the company.)
• Fifteen years ago I certainly shared this belief: that international capital mobility was perhaps the best thing that could help the world economy. It held the promise of allowing the relatively rich core to fund the industrialization of the poor periphery. Back in 1993 at then-current exchange rates China’s entire capital stock was $2 trillion, at a time when the capital stock of the United States was $20 trillion. All that you would have had to do to double the capital stock of China through international capital mobility was to gradually, over the course of a decade, move 10 percent of the capital stock of the United States across the Pacific. That would have done truly wonderful things. Thus the neoliberal hope at the start of the 1990s was essentially to place a large economic policy bet on capital mobility: to trust that very large and very poor labor forces across the world would turn out to be very attractive to global capital free to flow. If relatively small amounts of technology transfer could be used to make such labor even a small fraction as productiv eas industrial core labor, the incentives for capital to flow toward the periphery like a mighty river would be overwhelming. Before 1914 it was natural resources that had provided the irresistible incentive for internationalcapital mobility toward a periphery composed of economies like Canada,Australia, New Zealand, and the United States but also Argentina, Chile,Uruguay, South Africa, Kenya, Malaysia, Singapore, and Hong Kong. The hope was that in some respects this pre-1914 process could be replicated. That would cut at least a generation off the time needed to make a truly humane and prosperous world economy.

Act IV: The Unexpected Reversal

• Yes, there have been large flows of capital going both ways around the world. But the huge increase in gross flows is not the big story.The big story is that {the large net flow of capital from the rich to the poor countries of the world seeking high profits from reducing disequilibria between the wages and the relative productivity of labor} has simply not happened. Instead, the principal thing that happened was an enormous flow of capital from the periphery [to the poor][to the rich?], a flow perhaps best-tracked in realtime by Brad Setser of the Council on Foreign Relations on his weblog <http://www.regmonitor.com/blog/stetser>.
• ... Hence, I argued, the late Rudiger Dornbush was almost surely wrong when he worried in the early 1990s about the state of the Mexican peso and the possibility of yet another Mexican devaluation crisis.
  Well, as so often happened, Dornbusch proved smarter than I was. It turned out that $20 billion to $30 billion of capital a year did flow from the UnitedStates to Mexico as American firms sought production platforms. But it also turned out that what looked to be $30 billion to $40 billion a year of capital flowed from Mexico to the United States.
• ... It is indeed the case that U.S. labor productivity is now 35 percent higher than it was back in 2000, with, as best as we can see, real wages remaining exactly the same. That represents a huge shift of income in the direction of capital. These represent huge potential profits, which attract foreign investment. It is not just political risks of investing abroad that are driving the long-term inflow of capital to the United States.

... 7월 31일.