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Global capitalism as we face it today has deprived countries of their autonomy in making economic policy decisions. This is even more true for small economies such as developing countries. If they want a chance to provide their populations with acceptable living conditions, they need to regain their scope of action. In particular, countries must be able to defend themselves against devastating macroeconomic events such as capital flight and currency crises. This book has delivered arguments for how poor countries may design macroeconomic strategies to foster economic development. After removing the external constraint and getting the system for their international payments right, developing countries are able to direct the domestic economy. Taxation and social expenditures on the one hand, but mainly public investment on the other hand, are important instruments to bring about economic prosperity and poverty reduction. With the reform of international payments, they can unfold their full potential because they no longer trigger exchange rate volatility, nor do they involve a drag on domestic demand caused by the twofold payment of imports and interest on foreign debt. No doubt, there are gaps in the analysis. It was argued at the beginning that inequality is an important factor determining both objective and subjective poverty. Yet, it has not been systematically integrated into the theoretical analysis. At least, however, the potential of economic policy to influence income distribution, be it by taxation and social transfers or by the public sector’s (intentional) impact on the labor market, has been highlighted. There is a sketch of how a development strategy can also direct the share of total income going to labor. This can be emphasized further, particularly regarding the harmful impact of inequality on a society’s health and violence. Poverty is a multidimensional issue to which this book cannot do justice. But a macroeconomically sound system is necessary to even think about how to reduce it.
When popular Michael Manley took office as the Prime Minister of Jamaica in 1972, the country suffered from high illiteracy, unemployment and poverty. In the two decades before, the private sector had proven not to be able to guarantee long-term economic and social development. The government was expected to initiate change and steer growth (Davis, 1986, p. 77). Immediately after his election, Manley started the program he had promised: among other measures, a minimum wage was established; his land reform redistributed farmland to small-scale farmers; education at all levels became free; adult education programs reduced illiteracy. Did the story end as a success? To finance the program, the government ran high budget deficits that were mainly financed by foreign capital flows. The government expanded, while support for the private sector was reduced. This prompted capital flight (Shams, 1989, p. 75). Capital leaving the country meant currency devaluation, inflation, and economic contraction. Violence spread over the country. Manley lost his election in 1980.
Louis-Philippe Rochon and Virginie Monvoisin
The financial crisis that began in 2007 has generally shown the weaknesses of neoclassical theories and policies, in particular by highlighting the irrelevance of modern macro models such as the Dynamic Stochastic General Equilibrium (DSGE) model and its microfoundations, which has come under considerable attack in the last few years, even from the mainstream. Indeed, as Lavoie (2018, p. 15) observes, “there is considerable dissatisfaction with the current state of mainstream macroeconomics”, leading The Economist (2009) to refer to the “turmoil among macroeconomists”. As early as 2009, Krugman (2009a, Internet) was claiming “[t]he economics profession mistook beauty, clad in impressive-looking mathematics, for truth”. More recently, he once again criticised the quest for microfoundations (see 2013, Internet), arguing “so the truth was that microfoundations in macroeconomics had its moment, but failed utterly at the one thing it was sold, above all, as being able to do - namely, give a better explanation of why nominal shocks have real effects. Time, you might think, to reconsider the project”. A few years earlier, Solow, in a 2010 address to the United States Congress, disapprovingly claimed “I do not think that the currently popular DSGE models pass the smell test” (see Solow, 2010).
In the chapter, ‘The accumulation mode of production in Mexico and the economic structure of the manufacturing industry,’ the author discusses the stagnation of productivity of the workforce in relation to the dominance of large corporations that are connected to global commodity chains and use global competitive advantages to maximize profits; meanwhile, small and medium enterprises compete on the basis of lower costs (wages), which reduces the growth of accumulation and productivity.
Ma. Guadalupe Huerta
In the chapter, ‘The big financial crisis and the European economic adjustment: a road towards the strengthening of the neoliberal agenda,’ the authors argue that the institutional design of the eurozone does not allow for the deployment of fiscal and monetary policies to overcome the crisis, which raises the need for a thorough analysis of European integration in terms of macroeconomic and social aspects, accompanied by an assessment of the economic policies necessary to restore growth.