There is a difference between using subsidies for beggar thy neighbour trade war versus for keeping domestic output and employment stablized. The West can do the latter whether or not other countries are doing the former.
If the purpose of manufacturing is to create employment, local production to increase self-sufficiency and not just profits for capitalists, then price setting by public sector archives it. Any imports from abroad financed in local currency represents a real gain for the country in this case.
Countries are doing the latter, but it always also does the former. If one country is giving subsidies, especially generous ones as China have done historically, it forces the others to give subsidies to stay competetive. That’s a game bigger countries can play but smaller and less wealthy countries can’t really compete.
I disagree, every country with sufficient knowledge and resources can set up their own manufacturing. Do I think Ghana will be able to make as efficient windmills as China? On their own not anytime soon. Not because of money but because they lack expertise, things take planning and time to build up.
But they can start somewhere, taking advantage of the powers the state has. The problem isnt financial but real.
When your country can produce high value added goods, e.g. European countries but not at internationally competitive prices due exchange rates, labor costs etc, the clear solution is to have the state set prices to be competitive with imports.
First world countries have another advantage though , their currencies are highly demanded internationally so their trade isn’t simply limited to barter like arrangement wherein you only get what you give.
It’s just much harder to be financially competetive when the big countries are pouring in massive subsidies. Of course they could keep domestic manufacturing on life support and hope for domestic consumption to keep it alive, but when foreign big multinationals receiving generous subsidies are competing on the local market, at what cost do you want to keep your domestic company afloat. And do smaller countries have money to even do that
It’s not really a cost to keep domestic industry, the cost is that labor and other resources are used. If the goal is to keep output and employment then it works fine.
If you take the cost in money terms it’s massive. But money isn’t real. If you take it in real terms, the alternative is unemployment and loss of manufacturing knowledge and self sufficiency which is worse.
And do smaller countries have money to even do that
Well, India has this thing called Minimum Support Price, basically a floor price for many agricultural goods to make sure the farmers have a market to sell to. US and WTO hate it because it “distorts markets” yet functionally it keeps the country food sufficient and keeps farmers employed.
It has been downgraded and weakened over the years by the neoliberals but it still exists because taking it away completely is politically NOT financially expensive. In terms of real, it creates income and employment for farmers, it keeps output afloat.
I mean money isn’t real but the workers and materials cost money and workers and material producers expect a payment. And if you want to pay people, you need to make the production somehow sustainable. And then you’ll also compete with other manufacturers, some big multinationals from USA, China etc. who can afford to pay massive subsidies so their products can be artificially cheap compared to your domestic stuff. So you might be producing stock nobody wants to buy, so you don’t get money for them, making the thing less sustainable.
India isn’t exactly a “small country”. It has the 5th largest nominal GDP, world’s largest population…
It is spending that creates income whether public or private. When capitalists do it, it came from a bank loan, from Governments do its created at Treasury.
And if you want to pay people, you need to make the production somehow sustainable.
It is sustainable though.
So you might be producing stock nobody wants to buy, so you don’t get money for them, making the thing less sustainable.
The Government doesn’t need it’s own money. The point for Gov isn’t to get money but to do what’s best for everyone, for me it’s workers.
The question is whether the increased Government spending from deficit of “loss” making SOEs cause total spending to exceed capacity which manifests as inflation or shortages. It depends on how much workers save, it depends on how much the workers are paid and where and what goods they spend money on.
Given that in European countries the workers were previously employed and were spending into local economy but are being displaced by international competition, the clear solution is to keep their output and employment via price matching.
India isn’t exactly a “small country”. It has the 5th largest nominal GDP, world’s largest population…
Yet it’s an extremely poor country Gdp per capita wise, even worse if you take inequality into account.
If you are a small island nation with 1000 people, then of course you won’t be able to much fancy high value goods, that’s not a financial constraint that’s a real cosnstaint. They won’t be able to do so no matter whether trade is open or restricted.
But if the country can produce fish products , the Government can make it so it’ll always be able to do so even with external competition.
I don’t see how it is sustainable if the government is paying people to manufacture products that nobody is buying and using loan money or devaluing their currency to pay for it. The country will either be hit by ever steeper interest rates or by runaway inflation, either of which can make the country spiral and make life worse for everyone. How do you pay for social services if you don’t have money and what does it matter if you get paid if the money is worthless.
If that work is being done as basically to just keep people employed, at that point a much better use for that money is social services, education, that sort of things.
And India is poor per capita but has massive amounts of capital in absolute numbers to subsidise industries they deem important. Countries with much lower GDP can’t keep up with that, they can’t subsidise as much and as long, so they’ll lose out in the end if the subsidy game continues.
You are confusing financial constraints for real. Interest rates are set by the Central Bank, not by the market.
Manufacturing has advantages. I’m not against having people work in social services. That’s the opportunity cost. You can have 1000 people work in industry or healthcare depending on priorities. But everyone should be employed.
Inflation happens when aggregate demand exceeds the capacity of the economy to expand. Am I suggesting that? No. I’m saying employment and output losses from import competition must not result in deindustrialization. That deindustrialization is a political choice, not economic.
Weimar Germany? It’s output was lost due to war, Zimbabwe too had a supply shock. 2022 inflation also partly due to supply. 1970s oil shocks also due to a real resource shock.
For third world countries there is another avenue for inflation, which is foreign currency debt where the country issues local currency to pay off foreign currency debt. Currency mismatch. I’m against sovereigns issuing foreign currency debt.
The alternative is unemployment and waste of skills which is a waste of real resources.
Countries with much lower GDP can’t keep up with that, they can’t subsidise as much and as long, so they’ll lose out in the end if the subsidy game continues.
Gdp doesn’t equal future capacity of the economy. Gdp grows as more resources as utilised.
There is a difference between using subsidies for beggar thy neighbour trade war versus for keeping domestic output and employment stablized. The West can do the latter whether or not other countries are doing the former.
If the purpose of manufacturing is to create employment, local production to increase self-sufficiency and not just profits for capitalists, then price setting by public sector archives it. Any imports from abroad financed in local currency represents a real gain for the country in this case.
Countries are doing the latter, but it always also does the former. If one country is giving subsidies, especially generous ones as China have done historically, it forces the others to give subsidies to stay competetive. That’s a game bigger countries can play but smaller and less wealthy countries can’t really compete.
I disagree, every country with sufficient knowledge and resources can set up their own manufacturing. Do I think Ghana will be able to make as efficient windmills as China? On their own not anytime soon. Not because of money but because they lack expertise, things take planning and time to build up.
But they can start somewhere, taking advantage of the powers the state has. The problem isnt financial but real.
When your country can produce high value added goods, e.g. European countries but not at internationally competitive prices due exchange rates, labor costs etc, the clear solution is to have the state set prices to be competitive with imports.
First world countries have another advantage though , their currencies are highly demanded internationally so their trade isn’t simply limited to barter like arrangement wherein you only get what you give.
It’s just much harder to be financially competetive when the big countries are pouring in massive subsidies. Of course they could keep domestic manufacturing on life support and hope for domestic consumption to keep it alive, but when foreign big multinationals receiving generous subsidies are competing on the local market, at what cost do you want to keep your domestic company afloat. And do smaller countries have money to even do that
It’s not really a cost to keep domestic industry, the cost is that labor and other resources are used. If the goal is to keep output and employment then it works fine.
If you take the cost in money terms it’s massive. But money isn’t real. If you take it in real terms, the alternative is unemployment and loss of manufacturing knowledge and self sufficiency which is worse.
Well, India has this thing called Minimum Support Price, basically a floor price for many agricultural goods to make sure the farmers have a market to sell to. US and WTO hate it because it “distorts markets” yet functionally it keeps the country food sufficient and keeps farmers employed.
It has been downgraded and weakened over the years by the neoliberals but it still exists because taking it away completely is politically NOT financially expensive. In terms of real, it creates income and employment for farmers, it keeps output afloat.
I mean money isn’t real but the workers and materials cost money and workers and material producers expect a payment. And if you want to pay people, you need to make the production somehow sustainable. And then you’ll also compete with other manufacturers, some big multinationals from USA, China etc. who can afford to pay massive subsidies so their products can be artificially cheap compared to your domestic stuff. So you might be producing stock nobody wants to buy, so you don’t get money for them, making the thing less sustainable.
India isn’t exactly a “small country”. It has the 5th largest nominal GDP, world’s largest population…
It is spending that creates income whether public or private. When capitalists do it, it came from a bank loan, from Governments do its created at Treasury.
It is sustainable though.
The Government doesn’t need it’s own money. The point for Gov isn’t to get money but to do what’s best for everyone, for me it’s workers.
The question is whether the increased Government spending from deficit of “loss” making SOEs cause total spending to exceed capacity which manifests as inflation or shortages. It depends on how much workers save, it depends on how much the workers are paid and where and what goods they spend money on.
Given that in European countries the workers were previously employed and were spending into local economy but are being displaced by international competition, the clear solution is to keep their output and employment via price matching.
Yet it’s an extremely poor country Gdp per capita wise, even worse if you take inequality into account.
If you are a small island nation with 1000 people, then of course you won’t be able to much fancy high value goods, that’s not a financial constraint that’s a real cosnstaint. They won’t be able to do so no matter whether trade is open or restricted.
But if the country can produce fish products , the Government can make it so it’ll always be able to do so even with external competition.
I don’t see how it is sustainable if the government is paying people to manufacture products that nobody is buying and using loan money or devaluing their currency to pay for it. The country will either be hit by ever steeper interest rates or by runaway inflation, either of which can make the country spiral and make life worse for everyone. How do you pay for social services if you don’t have money and what does it matter if you get paid if the money is worthless.
If that work is being done as basically to just keep people employed, at that point a much better use for that money is social services, education, that sort of things.
And India is poor per capita but has massive amounts of capital in absolute numbers to subsidise industries they deem important. Countries with much lower GDP can’t keep up with that, they can’t subsidise as much and as long, so they’ll lose out in the end if the subsidy game continues.
You are confusing financial constraints for real. Interest rates are set by the Central Bank, not by the market.
Manufacturing has advantages. I’m not against having people work in social services. That’s the opportunity cost. You can have 1000 people work in industry or healthcare depending on priorities. But everyone should be employed.
Inflation happens when aggregate demand exceeds the capacity of the economy to expand. Am I suggesting that? No. I’m saying employment and output losses from import competition must not result in deindustrialization. That deindustrialization is a political choice, not economic.
Weimar Germany? It’s output was lost due to war, Zimbabwe too had a supply shock. 2022 inflation also partly due to supply. 1970s oil shocks also due to a real resource shock.
For third world countries there is another avenue for inflation, which is foreign currency debt where the country issues local currency to pay off foreign currency debt. Currency mismatch. I’m against sovereigns issuing foreign currency debt.
The alternative is unemployment and waste of skills which is a waste of real resources.
Gdp doesn’t equal future capacity of the economy. Gdp grows as more resources as utilised.