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1
On the sustainability of global development
Alessandro Vercelli
Department of Economic Policy, Finance and Development
University of Siena
2
Basic References
-Borghesi, S. and A. Vercelli, 2008, Sustainable Globalization. Social and Environmental conditions, Palgrave Macmillan
(Alessandro Vercelli e Simone Borghesi, 2005, La sostenibilità dello sviluppo globale, Carocci editore, Roma.)
-Stiglitz, J.E., 2006, Making Globalization work, Norton, New York
(Stiglitz, J.E., 2006, La globalizzazione che funziona, Einaudi, Torino)
3
FIRST PART
BASIC CONCEPTS
AND THE EMPIRICAL EVIDENCE
4
Approach
On globalisation we cannot say anything in general:
→ different phases characterised by different features and effects
→ any appraisal is relative to a particular point of view. My own:
PHASES OF
GLOBALISATION
SUSTAINABLE
DEVELOPMENT
I want to clarify whether:
• the recent phase of globalisation is consistent with the requirement of sustainable development
• the current phase of globalisation is sustainable or requires substantial modifications
• → policy implications
5
Definition of economic globalisation
Process of progressive integration of world markets based on the free movement across borders of goods, services, and production factors
THREE PERIODS:
• 1820-1915: FIRST GLOBALISATION• 1915-1945: DE-GLOBALISATION• 1945-2007→: SECOND GLOBALISATION
6
The three phases of economic globalisation: the world exports
Ratio between world export of goods and world GDP
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
1820 1870 1913 1929 1950 1973 1990 2000
EXP/GDP
Source: Maddison (2001) updated using WTO (2001)
7
The three phases of globalisation: the stock of Foreign Direct Investment
Ratio between the world stock of FDI and world GDP
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
1870 1913 1930 1945 1960 1980 1985 1990 1995 2000
FDI/GDP
Source: Obstfeld and Taylor (2004)
8
Sustainable development: definitions
Development:
process of expansion of individual economic freedom (Sen, 1999)
Sustainable development:
“Development is sustainable if it satisfies present-day needs without compromising the capacity of future generations to satisfy their needs” (Brundtland Report, 1987)
9
Sustainable development
Foundations
DISTRIBUTIVE EQUITY CHOICE FREEDOM• Income• Wealth• Resources
INTER-GENERATIONAL
ENVIRONMENTAL CRITERION SOCIAL CRITERION
INTRA-GENERATIONAL
2 CONDITIONS
10
Ethical and economic foundations: the social condition
equal access to the basic economic opportunities: ethical foundations
this is also a fundamental condition of economic efficiency
-prerequisite for a well-functioning competitive market: guarantees that the winners of the economic competition are actually the best participants as each of them plays on a “level playing field”
-poverty (malnutrition) implies a restriction of the option set reducing the potential contribution of poor people to economic efficiency and wealth:among poor people who cannot afford a good education there are potentially good scientists, engineers, physicians, managers and so on
-social and political tensions that have negative effects on income growth(Alesina and Perotti, 1996; Benhabib and Rustichini, 1996)
11
Ethical and economic foundations: the environmental condition
similarly environmental degradation has adverse economic effects:
↓ health of people → ↓ productivity
↓ land productivity
poverty-environment trap: the poor rely heavily on the direct exploitation of natural resources:
↑ environmental degradation →↑ poverty →↑ environmental degradation
12
The influence of globalisation on the conditions of sustainability
The main influence is through the impact of globalisation on income
→ positive correlation for sound theoretical reasons:
- ↑ extension of markets → ↑ division of labour → ↑ productivity- ↑ scale and scope economies →↑ efficiency- ↑ across borders and domestic competition- ↑ diffusion of information and technology across borders
- Globalisation offers opportunities of development provided that the country adopting an outward trade orientation complies with a few crucial conditions: rule of law, institutions to monitor, control and regulate markets
- Notwithstanding this proviso, the empirical evidence generally finds a positive correlation: e.g. Bhagwati (2004), Wolf (2004)
13
Average rates of growth of per capita GDP
In developing countries
Orientation of trade
1963-1973 1973-1985 1980-1992
Open to trade 6.9 5.9 6.4
Moderately open 4.9 1.6 2.3
Moderately protectionist
4 1.7 -0.2
Protectionist 1.6 -0.1 -0.4
Source: World Bank
Fig. 2
Orientation of trade and growth rate of GDP 1963-1992
14
Per
cap
ita
GD
P (
tho
usa
nd
s o
f $)
Per
cap
ita
GD
P (
tho
usa
nd
s o
f £)
Source: Lomborg (2001)Fig. 3
Per capita GDP United States
Per capita GDP United Kingdom
Evolution of per capita GDP
15
Impact of globalisation on the social conditions of sustainability
1a) BETWEEN
1) INEQUALITY { COUNTRIES
1b) WITHIN
16
(*) Global inequality is the sum of the other two curves
Source: Bourguignon and Morisson (2002)Fig. 1
Th
eil
ineq
ual
ity
coef
fici
ents
Inequality within countries
global inequality (*)
Inequality between countries
Inequality indexes of individual incomes 1820-1992
17
Correlation between globalisation and inequality? The global index suggests a positive answer
however, as soon as we decompose it in its two determinants, and consider different phases, the outlook becomes more complex and articulated
Between-country inequality:
Correlation in the 19th century
In the 20th century the positive correlation breaks downglobalisation has two opposite effects on the inequality:between globalising and non-globalising countries →↑ inequalityand within globalising countries → ↓inequality
→ the weight of the second effect progressively increased during the second globalisation as a consequence of the spreading of globalisation
negative correlation? Question not yet settled (Branko Milanovic, 2002)
18
Correlation between globalisation and inequality?
Within-country inequality: mild positive correlation
the aggregate index conceals the empirical pattern of groups of countries
new globalising countries: India, China, Russia: ↑ inequality
most OECD countries → U pattern since 1915:
1915-1971: ↓ inequality (solidarity from wars, depression, welfare state)
1975-2005: ↑ inequality (“neoliberal policies”)
→ I will focus on the second empirical trend that has important policy implications
19Source: OECD Fig. 4
1975-1985 1985-1995
AUSTRIA 0 ++BELGIUM +CANADA + 0CHECK REP. -- +++DANMARCK ++FINLAND - +FRANCE - +GERMANY - +UNGHERIA + +++ITALY -- +JAPAN 0 +COREA + +HOLLAND 0 ++NEW ZELAND +++NORWAY - +POLAND 0 +++SWEDEN - +++
+++ HIGH INCREASE > 15%
++ INCREASE 7-15%
+ MODERATE INCREASE 2-7%
0 NO VARIATION -2 - +2%
- MODERATE REDUCTION 2-7%
-- REDUCTION 7-15%
--- STRONG REDUCTION > 15%
Variation in within-country income inequality
20
Gin
i in
dex
Source: Brandolini (2002)Fig. 5
24
28
44
48
52
56
40
36
32
20
1940
1945 195
0
1955 196
0
1965 197
0
1975 198
0
1985 199
0
1995 20
00
1935
16
Inequality in the U.K., 1939-1996 (%)
21Source: Brandolini (2002)Fig. 6
1915 19
20
1925 193
0
1935 194
0
1945 195
0
1955 196
0
1965 197
0
1975 198
0
1985 199
0
1995 20
00
16
24
28
36
44
52
20
32
40
48
56
Gin
i in
dex
Inequality in the USA, 1929-1996
22Source: OECD Fig. 7
MIN.INCOMES
AVER.INCOMES
MAX.INCOMES
AUSTRALIA = = =AUSTRIA = = =BELGIUM = --- +++CANADA = = =DENMARK + = -FINLAND = --- +++FRANCE = - +GERMANY - = +HUNGARY + = =ITALY --- - +++JAPAN - = +MEXICO = --- +++HOLLAND - = +NORWAY - - +++SWEDEN - = +TURKEY - --- +++U. K. - - +
U.S.A. = - +
+++ INCREASE > 1.5%
+ INCREASE between 0.5 E 1.5%
= VARIATION between -0.5 and +0.5%
- DECREASE between 0.5 E 1.5%
--- DECREASE > 1.5%
Share of income (quintiles: 1985-1995)
23
The impact of globalisation on the social condition of sustainability
The indirect effect on inequality:
the environmental Kuznets Curve
24
Indirect correlation between globalisation and within-country inequality
Extensive empirical literature on within-country inequality studying its correlation with per capita income
Since there is a strong correlation between globalisation and per capita income
we can interpret the above as an indirect correlation between within-country inequality and globalisation
Literature initiated by the Nobel-laureate Simon Kuznets who suggested in 1955 the conjecture that within-country inequality increases in the first phase of industrial development but decreases in a second phase
25
Inequality
Per capita income
Social carrying capacity
Fig. 9
KUZNETS CURVE (1955)
26
KUZNETS CURVE (1955)
Plausibility → take-off (triggered by the adoption of outward-oriented policies):-diffusion takes time -urbanisation -growing pressure in favour of redistribution
(progressive taxation, transfers, welfare state)
Optimist message; the problem tends to disappear “spontaneously”
Kuznets conjecture corroborated by econometric studies up to the 1970ssince the early 1980s new econometric studies have progressively weakened the empirical support (emergence of the U-pattern in OECD countries)
historical explanation: the KC described a specific historical process and not general tendencies intrinsic in the process of globalisation→ policy is needed
27
The impact of globalisation on the social condition of sustainability
The effects on poverty
28
Impact of globalisation on the social conditions of sustainability: 2) poverty
we have to reject the optimist message of the Kuznets curve
however, according to many economists, in order to study the social effects of globalisation we should focus not on inequality but on poverty
Conviction based on the “Bhagwati hypothesis and prescription”:
Countries have similar distribution of income → we can only reduce poverty by increasing the rate of growth of income (Bhagwati, 2004, p.66)
29
Impact of globalisation on the social conditions of sustainability: 2) poverty
misleading hypothesis: Bourguignon and Morisson (p.733) calculated that:
“had the world distribution of income remained unchanged since 1820, the number of poor people would be less than 1/4th than it is today and the number of extremely poor people would be less than 1/8th of what is today”
→ we should try hard to realize a more egalitarian growth
30
The long-run trend of poverty(< $2 a day)
POVERTY
0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
1820 1850 1870 1890 1910 1929 1950 1960 1970 1980 1992
hea
dco
un
t (m
illi
on
s)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
hea
dco
un
t (p
erce
nts
)
poverty poverty %
Source: Bourguignon and Morisson (2002)
31
The long-run trend of extreme poverty (< $1 a day)
EXTREME POVERTY
0
200
400
600
800
1000
1200
1400
1600
1820 1850 1870 1890 1910 1929 1950 1960 1970 1980 1992
hea
dco
un
t (m
illi
on
s)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
hea
dco
un
t (p
erce
nt)
extreme poverty extreme poverty %
Source: Bourguignon and Morisson (2002)
32
Extreme poverty (headcount)
Source: World Bank
Var
iati
on
s
East Asia andPacific Area
Europe and
central Asia
Latin America
and Caraibi
Middle East and
North Africa
SouthAsia
Sub-saharian Africa
Fig. 10
100
75
50
25
0
-25
-50
-75
-100
-125
-150
Poverty in the world from 1987 to 1998
33
Fig. 8
Source: OECD
Poverty is defined as the number of persons who detain less than 50% of average income of total popolation. Taxes include all direct taxes on incomes, included social security contributions. The transfers include all the benefits deriving from money transfers.
Pre-tax transferts Post-tax transfers
Variation rates of poverty (1985-1995)
34
The impact of globalisation on the environmental condition of sustainability
The indirect effect:
the environmental Kuznets Curve
35
Environmental KUZNETS curve (Panayotou, 1993)
No historical series of comprehensive indexes of environmental deterioration
→ correlation with specific indexes of environmental deteriorationSome of them behave as in the KC → “environmental Kuznets curve”
Plausibility:-take-off: shift of labour from agriculture to heavy industry
then increase of light industry and services-growing pressure of final users and electorate
Econometric studies seemed to corroborate the hypothesis but then it was falsified in many cases:- it works only when the environmental effects are local- recently N-shaped curves
36
Environmental deterioration
Per capita income
Environmental carrying capacity
Fig. 11
Environmental KUZNETS curve
37
1972
1986
Source: Shafik (1994)
Per capita income (PPP$)
Su
lfu
r D
ioxi
de
g
/m3
Fig. 12
Environmental KUZNETS curve (sulfur dioxide)
DEVELOPMENT
38
1986
1972
Source: Shafik (1994)
Per capita income (PPP$)
Fig. 13
Environmental KUZNETS curve (particulate matter)
DEVELOPMENT
39
1979
1986
Source: Shafik (1994)
Per capita income (PPP$)
Th
ou
san
ds
colif
orm
s p
er
100m
l
Fig. 14
Environmental KUZNETS curve (coliform bacteria)
DEVELOPMENT
40
Generalisation of the environmental Kuznets curve
Environmental sustainability relation:
ED growth = pc income growth + intensity of ED growth + population growth
where ED is a global index of environmental degradation; pc is per capita
Condition of long-term global environmental sustainability (ED growth ≤ 0 ):
pc income growth ≤ - (intensity of ED growth + population growth)
→ positive growth of pc income may be sustainable only if:
negative growth of ED intensity > population growth
41
Crucial requisite of sustainabilty
Technologic change Consumption
Calls for:
Reduction rate of ED intensity
Rate of growth of population>
Development is sustainable only if:
Increasingly eco-compatible
More likely in developed countries
42
The environmental sustainability relation and the energy problem
The condition for long–term energy sustainability is given by:
pc income growth ≤ - (population growth+energy intensity growth+CO2 energy intensity growth)
or:
income growth ≤ – (energy intensity growth + ED growth)
We may define: max sustainable growth of income:
Max sustainable income growth = – (energy intensity growth + ED energy intensity growth)
Sustainability Gap = actual income growth – max sustainable income growth
43
The sustainability gap in the current model of energy production and consumption
sustainability gap
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1971-1980 1981-1990 1991-2000 2001-2025
rate
of
gro
wth
gap
Average observed values for each decade (projection 2001-2005)
Source: Energy Information Administration
44
SECOND PART
An Attempt at Causal Interpretation
45
Prevailing empirical correlations
ENVIRONMENTAL DETERIORATION
INEQUALITY AND POVERTY
PER CAPITA INCOME
GLOBALISATION
SUSTAINABILITY OF DEVELOPMENT
+
+
-
+/- (Kuznets) +/-
-
+ +
46
Tentative answer to the first question
WITHIN-COUNTRYINEQUALITY
ENVIRONMENTAL DETERIORATION
1945-1971 MODERATE IMPROVEMENT
WORSENING
1980-2002 WORSENINGPARTIAL
IMPROVEMENT
NEITHER OF THE PHASES OF POSTWAR GLOBALISATION
MAY BE CONSIDERED AS FULLY SUSTAINABLE
ALTHOUGH FOR DIFFERENT REASONS
Postwar globalisation: two phases
47
Towards a causal analysis
STATISTICAL CORRELATION
DOES NOT IMPLY CAUSALITY CAUSAL ANALYSIS
ECONOMIC RATIONALE OF GLOBALISATION
THE INTEGRATION OF LOCAL MARKETS IN A UNIFIED GLOBAL
COMPETITIVE MARKET IN ORDER TO REALISE THE OPTIMAL
ALLOCATION OF WORLD RESOURCES AND TO MAXIMISE THE
WELFARE OF THE INTERNATIONAL COMMUNITY
48
Towards a causal analysis
Goods and services Production factors Technology and information
The validity of the argument depends on a series of conditions.
In particular:
Effective mobility across countries
Anomalies
A) barriers against imports from developing countries (agriculture, textiles)
B) Strong restrictions to the international mobility of labour
C) Free movement of capital without distinction between FDI and speculative flows
49
ANOMALIES
A) according to estimates of the UN (1994) these protectionist measures produce a transfer of wealth equal to the overall flow of foreign aid
B) these restrictions are much more severe now than at the time of the first globalisation
→ “last resort” equalizing instrument precondition of a competitive market (“laissez faire, laissez
passer”, Smith)
50
ANOMALIES
C) -FDI: factor of development – SF (speculative flows): source of instability: dramatic change in their proportion: Early 1980s FDI 90% Now much less than 10% while daily SFs exceed the sum of
reserves in foreign currency of G7 countries
Lucas paradox:
according to the standard neoclassical theory capital should flow from rich to the poor countries until the return to investment is equalized in all countries
in reality the opposite happens (notwithstanding the higher marginal product of capital in emerging countries):
role of perceived risk and institutions
51
Short-termism
the recent process of globalisation strengthened short-termism:
a) Growing importance of finance
b) Greater flexibility of labour markets and industrial relations
c) Incentives to top managers and directors
52
Short-termism
a) Growing importance of finance:
Goldsmith FIR: from about 1 in the early 1980s (G5) to 2/3 2000s
Liberalisation of capital flows almost complete without distinction between FDI and speculative flows → change of proportion
Stock exchange markets unified by Internet →↑ “herd behaviour”
→ huge gains and losses from short-term speculative transactions
53
Short-termism
managers: frequent revisionsb) deregulation labour markets {
workers: short-term horizon
short-term indexes (stock options)c) incentives to top managers {
→ short-term objective function
Short-termism jeopardises sustainability
↑ liberalisation of capital account
globalisation contributed to these trends { ↑
deregulation
54
Regulation of international markets
the effects of globalisation depend crucially on the regulation rules of
the international markets
Bretton Woods period (1945 - 1971)
two phases {
Washington consensus (1980 - 2000)
Different philosophies of market regulation
55
Regulation of international markets
ACTIVE REGULATION OF
INTERNATIONAL MARKETS
IN ORDER TO AVOID
“MARKET FAILURES”
1. FIXED EXCHANGE RATES IN ORDER TO STABILIZE THE EXPECTATIONS
2. LIBERALIZATION OF INTERNATIONAL EXCHANGES BASED ON THE GATT AGREEMENTS
3. COUNTERCYCLICAL INTERVENTIONS OF IMF IN ORDER TO AVOID EFFECTIVE DOMAND DEFICIENCIES
4. STRUCTURAL INTERVENTIONS OF THE WORLD BANK MAINLY TO FIGHT POVERTY
The Bretton Woods System
56
Regulation of international markets
PRIVATISATION AND
DEREGULATION OF
INTERNATIONAL MARKETS
TO AVOID STATE FAILURES
1. FLEXIBLE CURRENCY EXCHANGES
2. INSTITUTION OF OMC TO COMPLETE THE LIBERALISATION OF INTERNATIONAL TRADE
3. NEW PRESCRIPTIONS OF IMF: DEREGULATION, PRIVATISATION AND AUSTERITY
4. SUBORDINATION OF FINANCIAL SUPPORT OF THE WB TO THE COMPLIANCE TO IMF CONDITIONS
The “Washington consensus”
57
Regulation of international markets
THE NEW POLICY PHILOSOPHY MAY JEOPARDISE SUSTAINABILITY
A. THE WTO URGED THE REPEAL OF ENVIRONMENTAL AND SOCIAL CONSTRAINTS TO INTERNATIONAL TRADE INTERPRETED AS NON-TARIFF BARRIERS
B. THE IMF URGED STRICT BUDGETARY POLICIES EVEN TO THE COST OF INTERRUPTINGSOCIAL AND ENVIRONMENTAL INVESTMENT AND TRANSFERS
The “Washington consensus”
58
Microeconomic aspects
DEVELOPMENT IS SUSTAINIBILE ONLY IF IT IS BASED ON A FABRIC
OF SUSTAINABLE
FIRMS
SUSTAINABLE FIRM
HAS UN A LONG-PERIOD TIME HORIZON AND TAKES INTO ACCOUNT THE
INTERESTS OF ALL STAKEHOLDERS
MAX LIFE EXPECTATION AND AVERAGE PROFITABILITY
59
Total returns normalized to 100
Source:www.sustainability-index.com
Dec
-93
Sep
t-94
jun
e-95
Mar
-96
Dec
-96
Sep
t-97
Jun
e-98
Mar
-99
Dec
-99
Sep
t-00
Jun
e-01
Mar
-02
350
300
250
200
150
100
50
0
Ind
ex
Fig. 15
Dow Jones indexes
DJSI World: SUSTAINABILITY INDEX
DJ World:GENERAL INDEX
60
The Influence of Globalisation
The growing spatial fragmentation of productive activity made increasingly difficult the active control of stakeholders
Progressive shortening of the time horizon of economic decisions
The new regulation rules of International markets contributed to weaken the sustainability of development
The case of banking: shadow finance
61
Concluding remarks
The Implications for Economic, Environmental and Social Policies
62
Tentative answer to the second question
The confrontation pro or con globalisation is misleading The problems depend on:
Incompleteness of globalisation Anomalies of globalisation Inadequate regulation of markets
The recent process of globalisation
is not fully sustainable
it can and should be made sustainable with apt interventions of economic, environmental and institutional policy
63
General policy interventions that descend from the analysis
Strengthen the sustainability of world development:
more egalitarian growth rapidly reducing poverty
vigorous reduction in the intensity of environmental deterioration
Defence and corroboration of genuine environmental and social constraints in cross-country trade
Elimination of unjustified constraints to labour mobility
Control of speculative flows and/or of their effects
Incentives to CSR and enforcement of minimal standards
Incentives to the financial system to channel saving towards sustainable investment
64
The basic policy dilemma
Interventions such as those mentioned above may be implemented by national policy authorities
but in the short period they could damage the national interests or powerful particular interests
this problem extends to the global economy the dilemma:
should the markets be regulated by some sort of public authority?
65
Paradigm pro-regulation
Dominant paradigm in the Bretton Woods period:
standard objection:
-omniscientstate { → state failures
-benevolent
defence: democratic control
Invisible hand
market failures
government
MARKET
STATE
economic power
reaction
regulation interventions
66
Paradigm pro-deregulation
Dominant paradigm in the Washington consensus era:
standard objection:
the real market is not the }→ market
failures perfect competitive market
defence: reduction of the gap
Invisible hand
state failures
government
MARKET
STATE
reaction
deregulation privatisation
economic power
67
The gap between real markets and the ideal model of a perfectly competitive market
distributiona) perfect competition market: limits {
incompleteness → externalities
ideal perfectly competitive market b) wide gap between {
real markets: strong uncertainty, bounded rationality, transaction costs, irreversibility of time...
c) the gap may be reduced but not fully eliminated (e.g. incompleteness)
→ markets, even global markets, have to be regulated
68
Traditional paradigms
Alternation at least since Adam Smith
Both paradigms are simplistic, unilateral and misleading:
mistaken foundations of the sources of economic power and failures:
State: hierarchical and centralised (government)trad. sources { Market: impersonal - decentralised (invisible hand)
third source → Firms: hierarchical and centralised (governance)
-different from the state: control of stakeholders-different from the market: Coase (1937)
→ corporate failures (short-termism & C Irresponsibility)
69
the three sources of economic power and failures
GOVERNMENT
CORPORATE
GOVERNANCE
INVISIBLE
HAND
ECONOMIC FAILURES
manipulation
competitive pressures
corporate failuresmarket failures
state failureslobbyingconstraints
regulation and deregulation regulation and deregulation
STATE
MARKET FIRMS
70
Concluding remarks on the policy dilemma
Very often deregulation and privatisation translated not in more power to the market more power to firms (mainly to the big ones, often transnational)
this did not mean more competition: collusion, insider trading, conflicts of interests, regulatory capture, and other corporate failures undermine competition
neither less power to the state:
-the share of public expenditure did not diminish: what has changed is the structure of taxation and public expenditure in a less egalitarian way
-collusion between particular corporate and political interests: crony capitalism is by no means a distinctive trait of developing countries (Bhagwati, 2004)
71
The policy dilemma and globalisation
What we need both at the national and international level is:
more effective competition on a really level playing field (→↓ inequality and poverty)
more democratic control on government from citizens more democratic control on corporations from stakeholders
the problem is not so much the dislocation of nominal power between the three sources, but the quality of the management of power at the national and global level:
-genuinely competitive markets government
-accountability and transparency of { corporate governance
under these conditions globalisation may offer crucial opportunities of development guaranteeing at the same time its sustainability
72
Theoretical presuppositions
1) assertions on the market
-distribution
a) perfect-competition market: intrinsic limits {
-externalities
ideal of perfect competition (GEM)
b) wide gap between market {
real: incompleteness, strong uncertainty, limited rationality, externalities, transaction costs, irreversibility, etc.
c) The gap may be narrowed but not fully closed (e.g. incompleteness)
73
2) liberalism vs. neoliberalism
α) classic β) updated (Keynes, Pigou, etc.)
Liberalism { → discontinuity: γ) neoliberalism
α) e β) endorse the three assertions{ γ) rejects or underscores them:
externalities → property relationsa) optimism {
distribution: collateral effects of growth (temporary: Kuznets)b) minimization (e.g. contestable markets)
c) no limits in principle (e.g. Arrow securities to complete markets)
74
3) Policy implications
a) public interventions inevitable
Liberalism { b) ↓ gap but further interventions necessary → ↑ well-being
c) abolition of unjustified constraints
a) avoid public Interventions (state failures in principle worse)
Neoliberalism { b) reducible through deregulation and privatization
c) completely superable: completion of markets, etc.
75
4) Postwar globalizations
i) liberal (Keynesian updated liberalism): 1945/1971
Globalization {ii) neoliberalism: 1980/2007
i) ↑ welfare stateSocial condition {
ii) ↓ welfare state
i) ↓ awarenessEnvironmental condition{
ii) ↑ environmental policies: rise and decline
