Saturday, 1 November 2008

Socialist Economic Bulletin in Shanghai - Keynesianism Chinese style

Ken Livingstone has been invited by the government of Hong Kong to advise it on environmental policy and the Mayor of Shanghai to visit the city this weekend - hence the delays in posting on SEB.
The world economic situation seems very different from here. Hong Kong banks are concerned about the financial situation. But in Shanghai there is no concern about mainland China's banks, which had almost no exposure to the toxic derivative products which brought down Lehman Brothers, Bear Sterns and other US and European banks. The issue dominating discussion here is the effects on the real economy. The rapid turn down in the international economy can affect China's exports, as can the fact that China's currency is stable against the dollar when almost all other currencies are falling against it.
The solution is a specifically Chinese form of Keynesianism which can be used to boost the domestic economy. China is using classical Keynesian methods of reduction of interest rates and increased state spending. But it also has one very powerful tool not available in the US or Europe.
Due to the very large state company sector China can directly boost investment - it does not have to rely only on indirect methods. There is no risk, to use Keynes famous analogy, of the government merely 'pushing on a piece of string.' China, through its state owned company sector, has direct methods to avoid the decline in investment which is the driving force of a classic Western recession. Far from the state sector being a hindrance for the the economy it permits macro-economic regulation to take place far more strongly than in the US or Europe.
Chinese Keynesianism has far more powerful tools at its disposal than Keynesianism in the UK, US or Europe.


Benjamin said...

Count me in as a supporter of Ken generally, but I part company when he starts waxing lyrical about regimes like China.

Bemused Economist said...

Benjamin, you need a sense of perspective. It was not China that bombed Yugoslavia and invaded Iraq and Afghanistan. Yes, it's run by a bureaucracy, but it is leading the way on green issues, and is raising the living standards of many millions of people. The provision of food and shelter and work on such a scale in a Third World country is a massive achievement.

Alun Griffiths said...

Hi, I can see where you get your name bemused ;-)...

There are a lot of good things we can say about China and you do but to say that China is"leading the way on green isues" Is very questionable. I hope you can explain how because I’m sure many people would be interested in listening to and debating that assertion.

Similarly I am bemused about how Ken Livingstone can be asked to advise Hong Kong on Green issues if he is also advocating similar Keynesian, consumption growth policies as he is for London. The world cannot go on growing, consuming and emitting greenhouse gases when it is a mere decade away from the point of no return for Climate Change, the point when we don't know what happens next,,the point when Gaia's climate is out of control and human kind is probably sentenced to a long, protracted and painful death and extinction or given the geopolitical and resource tensions which will be unleashed, at the least violent conflicts, which would be just as bad..

I took a lot of confort from listening to this below and I would suggest that everybody could as well take some time out and listen to this excellant interview with Hermann Daly, one of the wise men of Ecological Economics and Political Ecology who explains why we can’t go on in the way that we have relating his ideas to many of the Classic Political Economists. Marshall, Smith, Ricardo etc.

Can I reiterate the invitation to SEB to attend the european forum and « rassemblement « at Marseille on the 22-24 November when the 27 European Ministers of Housing, Urban Planning and Sustainable Development meet in the city.

The National Secretary of the French Green Party will be present among others, and I’m sure Ken would be given a platform to speak, and media time.
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