DUAL ECONOMY

In a series of INET-sponsored working papers written between 2015–2018, economists Peter Temin, Servaas Storm, and Lance Taylor took W. Arthur Lewis’s dual economy theory of development (which describes split labor markets between rural and urban sectors characteristic to developing countries) and reapplied it to unbalanced output, employment, and income flows in the US economy over recent decades. While Lewis postulated a natural transition of employment from the subsistence zone to higher productivity sectors such as manufacturing, this trend is observed to be running in reverse in the US service-based economy.

In a 2020 book, LANCE TAYLOR stresses how wage repression is the biggest driver of rising inequality in the US since the 1980’s:

“As discussed, “real” output levels are calculated by deflating production flows at market values by price indexes. With this methodology in action, the signal that a sector is enjoying relatively high productivity growth is that the current price value of its real output is falling relative to the rest of the economy. In other words, its “terms of trade” are deteriorating. The terms of trade will shift in favor of a sector with lagging productivity in line with the “Baumol effect” (Baumol and Bowen, 1966). Computer power has become relatively less expensive over time while the cost of health care has gone up.

Both Storm (2017b) and Rada (2007) assume that workers who do not find dynamic sector jobs are driven into the stagnant part of the economy. To paraphrase Storm: for rich economies, especially the USA, this “full employment” assumption reflects the fact that, in the absence of unemployment insurance and social security worth the name, workers must find jobs, if not in the better paid core, then in a low-end job in some peripheral activity. In contrast to standard models, endogenous adjustment of productivity in the stagnant sector allows employment (supplemented by fiscal transfers) to be maintained.”

+  “The American dual economy appeared unable to provide basic public services at full employment, and it took the world-historical shock of the Covid-19 pandemic to make such deformations part of genuine legislative struggle.” New on PW, Andrew Elrod on the forgotten promise of Build Back Better and the prioritization of national security and corporate profitability over social reform in deficit spending. Link. And see JW Mason on the Biden administration’s trade war with China and whether the pursuit of industrial policy can be disentangled from militarism and economic nationalism. Link.

+  “Even after the pandemic made their critical role clearer than ever, care workers have experienced one of the most incomplete economic recoveries post-pandemic.” By Alí R. Bustamante. Link. “Government-supported investments in chips, renewable energy, and military hardware contribute to growth and to massive corporate profits. Such investments do create jobs. But they add nothing visible to living standards.” By James K. Galbraith. Link.

+  See Peter Temin’s 2015 working paper for his application of W. Arthur Lewis’s dual economy model in an American context. Link. “If we want to revive our vanishing middle class, which Temin so eloquently describes, we’ll need to do more to undermine the dual economy structures he so accurately details.” By Chief Economist for the Invest in America Cabinet at the White House Heather Boushey. Link.

NEW RESEARCHERS

Ecologically unequal exchange

CHRISTOPHER OLK is a PhD candidate in the Otto Suhr Institute for Political Science at the Freien Universität Berlin. In a 2024 research article, he examines currency hierarchy as a driver of ecologically unequal exchange (EUE).

From the paper:

“Ecologically unequal exchange describes a self-reinforcing dynamic whereby peripheries are driven to export large quantities of embodied resources in exchange for less resource-intensive imports from core countries. Such large-scale outflows of resources from the periphery typically lead to persistent poverty, ecological degradation, and political instability, all of which impair peripheral states’ capacity to follow a path of autonomous social, political, economic, and technological development (Bunker and Ciccantell, 2005, Rice, 2007, Costantini et al., 2022). Lack of such development and of productivity growth, in turn, reproduces the initital inequality. Core countries, in contrast, can satisfy high levels of domestic resource consumption while offloading onto peripheries the most socially and environmentally destructive effects, such as biodiversity loss (Shandra, Leckband, McKinney, & London, 2009), water pollution (Fitzgerald & Auerbach, 2016), or deforestation (Jorgenson, Dick, & Austin, 2010). Access to cheap biophysical resources also allows core countries to continually further their technological advantage, thereby increasing their factor productivity (Hornborg, 2014). Asymmetric resource transfers and technological disparities thus feed each other, creating a self-reinforcing cycle of global technological and economic divergence, alongside an ecological collapse of planetary scale but very unevenly distributed harm. While EUE is a structural feature of the world system since the early modern period, the volume of asymmetric resource flows has increased in absolute terms over time, especially over the last decades.”

+ + +

+  “In the current wave of deglobalization, decoupling is an option only for nations that can afford it. Friendshoring, as a trade and national-security policy, is reserved for those who can choose their friends.” New on PW, Marcos Nobre on the international call for a “new Bretton Woods” occasioned by the recovery from the Covid-19 pandemic. Link.

+  “There are now governments, left and right, across Europe, the US, and beyond that oppose the powers and structures of independent central banks in their entirety.” Also new on PW, Leah Downey on the democratic politics of central banking. Link.

+  A new ProPublica report reveals that Secretary of State Anthony Blinken disregarded assessments by the US Agency for International Development and the State Department’s Bureau of Population, Refugees and Migration, which both concluded that Israel had deliberately blocked deliveries of food and medicine into Gaza. Link. And in PW, see Tim Barker and Dylan Saba’s interview with former DoD attorney Sarah Harrison on US legal limitations regarding weapons transfers to countries committing human rights violations. Link.

+  “African countries borrow at rates that are up to eight times higher than Germany’s and four times higher than the United States’. It is a reverse Marshall Plan, in which the poorest finance the richest.” See Brazilian President Luiz Inácio Lula da Silva’s speech at the opening of the 79th session of the United Nations General Assembly in New York. Link.

+  “We advocate for a combination of end-user, worker, and community-member deliberation and control that varies based on specific vulnerability and the risk of different groups in each provisioning system.” By Julia Steinberger, Gauthier Guerin, Elena Hofferberth, and Elke Pirgmaier. Link.

+  Shiuli Vanaja, Niruj Deka, and Amit Basole conduct a field study of Rajasthan’s urban employment guarantee program, focusing on how it promotes the participation of women in the labor market and whether it provides income stability for participants. Link.

+  Ilaria Mazzocco, Ryan C. Berg, and Rubi Bledsoe offer an overview of Chinese firms’ involvement in various segments of the EV supply chain in Latin America and the Caribbean and the implications for US strategy. Link.

+  “In any attempt to account for the prosperity of the domestic American market, which is inseparable from its capacity to expand, the first point to underscore is the privileged fiscal regime of patronage in the United States, with benefits flowing alike to private persons, foundations, corporations, and museum supporters. Although the way US legislation deals with capital gains and the portion of an asset allowed for usufruct is complex, tax deductions are made on the basis of the current market value (fair market value) of a work subsequently donated to a museum, and not on its purchase price. The repercussions of this procedure on rising prices and on speculation are obvious. The number and size of corporate collections have grown steadily since the 1960s and represent a significant part of the domestic market.” By Raymonde Moulin. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org