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CEPA Research Projects External Liberalization, Economic Growth and Distribution, and Social
Policy As seen from the year 2000, economic policy in developing and post-socialist economies during the preceding 10-15 years had one dominating theme. Packages aimed at liberalizing the balance of payments, on both current and capital accounts, showed up throughout Latin America, Eastern Europe, Asia, and even in parts of Africa. Together with large but highly volatile foreign capital movements (often but not always in connection with privatization of state enterprises), this wave of external deregulation was the central feature of "globalization" for the non-industrialized world. In recent research projects, the liberalization process has been investigated through the use of quantified narrative histories for a number of countries, based upon a methodology developed by Lance Taylor to decompose and analyze changes over time in effective demand, productivity growth, employment, and the sectoral/functional income distribution. These studies appear in collections edited by Ganuza, Taylor, and Vos (2000) and Taylor (2000). The former concentrates on countries in Latin America and the Caribbean (with the significant omission of Brazil) while the latter includes papers on Argentina, Colombia, Cuba, India, South Korea (hereafter simply referred to as "Korea"), Mexico, Russia, Turkey, and Zimbabwe. The research proposed herein - to be undertaken by the Center for Economic Policy Analysis (CEPA) at the New School University - will be devoted to extending this analysis to selected countries in the Middle East, Eastern Europe, Asia, and to Brazil, and to updating the papers on India, Korea, Russia, and Turkey. The principal goal will be to provide a more complete picture of the ongoing impacts of liberalization in semi-industrialized and transition economies. Examination of the outcomes of the financial crises that affected many such countries will be of particular interest, as well as the changes in policy orientations that the crises provoked. Secondly, the project will be aimed at stimulating discussion of the macroeconomics of liberalization in a non-Latin American context. Middle Eastern and Asian economists have tended to devote less attention to open economy macroeconomics than their Latin counterparts - this is one reason why the Asian crises came as such a surprise. The country papers to be written should help open up internal macro policy debates. Finally, fundamental questions arise regarding social coherence and social policy during the liberalization process. As discussed in more detail below, the mainstream view emphasizes likely positive effects of liberalization on economic performance. Adverse transitional impacts can in principle be smoothed by social policies, and in any case after some time "a rising tide lifts all boats." The much more disquieting possibility is that liberalization can unleash dynamic forces leading not only to an unimpressive aggregate economic performance but also to long-term slow employment expansion and increasing income concentration. In principle, governments could put countervailing social policies into place. In practice, they probably lack the capacity to do so because of their own fiscal and administrative limitations. Such constraints on social policy and burden-sharing can be reduced by investment in the capability of the state, as experience in now industrialized countries demonstrated in the 19th century and again after World War II in the construction of welfare states (Polanyi, 1944). But an explicit political decision would be needed before such investments could be undertaken. It would be comparable in scope to the one that led to the worldwide spread of liberalization in the first place. Nevertheless, for the countries to be considered, the initial outcomes of liberalization suggest that a "double movement" (A la Polanyi, first toward and then away from an extreme liberal policy stance, could be forthcoming in the not-so-distant future. Inadequate social performance of any economic policy line leads ultimately to its reversal as society organizes to protect its own. Country authors will be encouraged to think boldly about these possibilities. Links:
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