Why digital tech might not be the key to development for poor countries

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Interesting essay by Dani Rodrik:

Any optimism about the scale of GVCs’ contribution must be tempered by three sobering facts. First, the expansion of GVCs seems to have ground to a halt in recent years. Second, developing-country participation in GVCs – and indeed in world trade in general – has remained quite limited, with the notable exception of certain Asian countries. Third, and perhaps most worrisome, the domestic employment consequences of recent trade and technological trends have been disappointing.

Upon closer inspection, GVCs and new technologies exhibit features that limit the upside to – and may even undermine – developing countries’ economic performance. One such feature is an overall bias in favor of skills and other capabilities. This bias reduces developing countries’ comparative advantage in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade.

Second, GVCs make it harder for low-income countries to use their labor-cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. These two features reinforce and compound each other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.

The usual response to these concerns is to stress the importance of building up complementary skills and capabilities. Developing countries must upgrade their educational systems and technical training, improve their business environment, and enhance their logistics and transport networks in order to make fuller use of new technologies, goes the oft-heard refrain.

And here’s the punchline:

But pointing out that developing countries need to advance on all those dimensions is neither news nor helpful development advice. It is akin to saying that development requires development. Trade and technology present an opportunity when they are able to leverage existing capabilities, and thereby provide a more direct and reliable path to development. When they demand complementary and costly investments, they are no longer a shortcut around manufacturing-led development.

Great essay.

Facebook: another routine scandal

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From today’a New York Times:

SAN FRANCISCO — On the same day Facebook announced that it had carried out its biggest purge yet of American accounts peddling disinformation, the company quietly made another revelation: It had removed 66 accounts, pages and apps linked to Russian firms that build facial recognition software for the Russian government.

Facebook said Thursday that it had removed any accounts associated with SocialDataHub and its sister firm, Fubutech, because the companies violated its policies by scraping data from the social network.

“Facebook has reason to believe your work for the government has included matching photos from individuals’ personal social media accounts in order to identify them,” the company said in a cease-and-desist letter to SocialDataHub that was dated Tuesday and viewed by The New York Times.

Piketty: our politics is now about Brahmin vs Merchant elites

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Fascinating paper by Thomas Piketty. He constructs a long-run data series from post-election to document a striking long-run evolution in the multi-dimensional structure of political cleavages in the US, UK and France.

The nub of it is this:

In the 1950s-1960s, the vote for “left-wing” (socialist-labour-democratic) parties was associated with lower education and lower income voters. This corresponds to what one might label a “class-based” party system: lower class voters from the different dimensions (lower education voters, lower income voters, etc.) tend to vote for the same party or coalition, while upper and middle class voters from the different dimensions tend to vote for the other party or coalition.

Since the 1970s-1980s, “left-wing” vote has gradually become associated with higher education voters, giving rise to what I propose to label a “multiple-elite” party system in the 2000s-2010s: high- education elites now vote for the “left”, while high-income/high-wealth elites still vote for the “right” (though less and less so) — i.e. the “left” has become the party of the intellectual elite (Brahmin left), while the “right” can be viewed as the party of the business elite (Merchant right).

I show that the same transformation happened in France, the US and Britain, despite the many differences in party systems and political histories between these three countries.

This links to the observations of Daniel Rodgers summarised below.

Sometimes, it’s the data you’re missing that’s the key to understanding something

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Nice salutary tale for data fiends:

How Not to Be Wrong opens with an extremely interesting tale from World War II. As air warfare gained prominence, the challenge for the military was figuring out where and in what amount to apply protective armor to fighter planes and bombers. Apply too much armor and the planes become slower, less maneuverable and use more fuel. Too little armor, or if it’s in the “wrong” places, and the planes run a higher risk of being brought down by enemy fire.

To make these determinations, military leaders examined the amount and placement of bullet holes on damaged planes that returned to base following their missions. The data showed almost twice as much damage to the fuselage of the planes compared to other areas, most specifically the engine compartments, which generally had little damage. This data led the military leaders to conclude that more armor needed to be placed on the fuselage.

But mathematician Abraham Wald examined the data and came to the opposite conclusion. The armor, Wald said, doesn’t go where the bullet holes are; instead, it should go where the bullet holes aren’t, specifically, on the engines. The key insight came when Wald looked at the damaged planes that returned to the base and asked where all the “missing” bullet holes to the engines were. The answer was the “missing” bullet holes were on the missing planes, i.e. the ones that didn’t make it back safely to base. Planes that got hit in the engines didn’t come back, but those that sustained damage to the fuselage generally could make it safely back. The military then put Wald’s recommendations into effect and they stayed in place for decades.

The great Chinese hardware hack: true or false?

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This morning’s Observer column:

On 4 October, Bloomberg Businessweek published a major story under the headline “The Big Hack: How China Used a Tiny Chip to Infiltrate US Companies”. It claimed that Chinese spies had inserted a covert electronic backdoor into the hardware of computer servers used by 30 US companies, including Amazon and Apple (and possibly also servers used by national security agencies), by compromising America’s technology supply chain.

According to the Bloomberg story, the technology had been compromised during the manufacturing process in China. Undercover operatives from a unit of the People’s Liberation Army had inserted tiny chips – about the size of a grain of rice – into motherboards during the manufacturing process.

The affected hardware then made its way into high-end video-compression servers assembled by a San Jose company called Supermicro and deployed by major US companies and government agencies…

Read on

The task facing liberals now

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This from a very perceptive essay by Daniel Rodgers:

More realistically, liberals must find ways to win back some of those who swung to Donald Trump’s camp. Populists, the press routinely calls them. But aside from their distrust of distant experts and cosmopolitan elites, Trump’s core voters have little in common politically with the People’s Party of the American 1890s. The 1890s Populists, like today’s Trump supporters, sometimes fell for terribly oversimplified answers. But the Populists hurled their political fury at the forces of organized money: the bankers, the monopolists, the railroad magnates, and the politicians who wrote the back-room deals of the money-men into law. The conviction that powers Trump voters’ imaginations is just the reverse. Theirs is a world in which not capitalist institutions but the political establishment hogs the seats of power. In their minds, government rigs the game for its own advantages, tying up the potential expansive force of business with rules that only serve to keep the regulators in jobs and the poor as their clients. Only through this story is it possible to redirect anger at plant closings from the corporations who order them to the liberal establishment that is said to be covertly responsible.

Amazon’s minimum wage

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Interesting commentary by Alex Tabarrok:

Amazon’s widely touted increase in its minimum wage was accompanied by an ending of their monthly bonus plan, which often added 8% to a worker’s salary (16% during holiday season), and its stock share program which recently gave workers shares worth $3,725 at two years of employment. I’m reasonably confident that most workers will still benefit on net, simply because the labor market is tight, but it’s clear that the increase in the minimum wage was not as generous as it first appeared…

Worth reading in full.

In the long run…

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Adam Tooze has an amazingly informative and thoughtful review in the LRB of Geoff Mann’s book on Keynes and Keynesianism.

If you were seeking an example of Keynesian government today you wouldn’t look first to the West, but to China, where a Communist Party that brooks no opposition presides over a technocratic regime par excellence. Not only are China’s economic managers hard-headedly pragmatic in their approach to the politics of the market, but the deeper impetus for the policy-makers in Beijing is, in Mann’s sense, truly Keynesian. What is at stake is the post-Tiananmen compromise: accept and support the regime in exchange for growth and social transformation. Much has been made of the role of neoliberal thinkers in launching Deng’s market revolution in the 1980s. But when the going gets rough, the Chinese turn Keynesian. Beijing’s response to the 2008 crisis was the most dramatic work-creation stimulus in history. When in 2009 the governor of the People’s Bank of China proposed a new global currency system, he explicitly invoked Keynes’s proposals at Bretton Woods. Beijing’s successful management of China’s growth involves exchange controls, guidance of the exchange rate and direct regulation of bank lending – techniques reminiscent of 1950s Keynesian fine-tuning. And President Xi’s current personal priority is the elimination of the final residuum of absolute poverty by means of large-scale resettlement and investment.

Tooze is very good on the intrinsic pragmatic ad-hocery of a Keynesian approach to policy. “It isn’t by accident”, he writes,

that ‘when liberal government comes face to face with necessity, it “goes Keynesian”’; in other words it ‘acknowledges uncertainty and disarticulation, recognises imperfection and indeterminacy, and turns away from the long run to the immediacy of the moment’. The crisis of 2008 was a classic demonstration of this. What central bankers like Bernanke were asking politicians to do in September and October 2008 had been unthinkable only weeks before.

But the Chinese regime isn’t in the business of ad-hocery. And they are — like all of us, but perhaps in a more extreme way — faced with the problem of climate change. “Xi’s ‘Chinese dream’”, says Tooze, “is the most spectacular Keynesian promise ever made”.

The underlying fear of domestic unrest is palpable, the scale of repression is astonishing, but so is the gamble on growth. There is no counterpart in Western experience to the astonishing transformation in the fortunes of a population of more than a billion people in a matter of thirty years. But like any instance of rapid capitalist growth, China’s boom is fraught with danger. The country’s finances are highly unstable. The boom generates deep inequality at home, while abroad it incurs the envy of the United States, a declining hegemon with erratic politics and a track record of aggression. Added to which few places on earth experience the environmental costs of growth more acutely than China. Large parts of the country are at risk of becoming uninhabitable. The promise of growth is more real and more life-altering than ever. But so too is the possibility of catastrophe. Keynesians insist that we resist the blandishment of future calm to focus on the turmoil of the present. But on a rapidly warming planet, the waters are calmer now than they will be later. Just decades from now, a large part of humanity may count itself lucky if it is only in the long run that we are all dead.

Fabulous essay, well worth reading in full.

Why Banksy is a genius

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From The Art Newspaper

Was Banksy at the evening sale at Sotheby’s on Friday night? That was the question on everyone’s lips when one of the Bristolian street artist’s paintings mysteriously self-destructed as the contemporary auction drew to a close.

Girl with a Balloon (2006) was the final lot of the night, and just as the canvas hammered at £953,829—exactly the same figure as the artist’s previous auction record, achieved in 2008—an alarm was triggered inside the work of art. Onlookers turned just in time to see the canvas slip through its faux-gilt frame and be shredded into pieces.

Who said Surrealism was dead?