Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

14

A study by Robert Barro, a leading neo-liberal economist, concludes that moderate inflation (inflation rate of 10–20%) has low negative effects on growth, and that, below 10%, inflation has no effect at all. See R. Barro (1996), ‘Inflation and Growth’, Review of Federal Reserve Bank of St Louis, vol. 78, no. 3. A study by Michael Sarel, an IMF economist, concurs. It estimates that, below 8%, inflation has little impact on growth – if anything, he points out, the relationship is positive below that level – that is, inflation helps rather than hinders growth. See M. Sarel (1996), ‘Non-linear Effects of Inflation on Economic Growth’, IMF Staff Papers, Vol., 43, March.

15

M. Bruno (1995), ‘Does Inflation Really Lower Growth?’, Finance and Development pp. 35–38; M. Bruno & W. Easterly (1995), ‘Inflation Crises and Long-run Economic Growth’, National Bureau of Economic Research (NBER) Working Paper, no. 5209, NBER, Cambridge, Massachusetts.; M. Bruno, and W. Easterly (1996), ‘Inflation and Growth: In Search of a Stable Relationship’ Review of Federal Reserve Bank of St Louis, vol. 78, no. 3.

16

PBS (Public Broadcasting System) interview: http://www.pbs.org/fmc/interviews/volcker.htm.

17

Calculated from the IMF dataset.

18

On the profit rate data, see S. Claessens, S. Djankov & L. Lang (1998), ‘Corporate Growth, Financing, and Risks in the Decades before East Asia’s Financial Crisis’, Policy Research Working Paper, no. 2017, World Bank, Washington, DC, figure 1.

19

T. Harjes & L. Ricci (2005), ‘What Drives Saving in South Africa?’ In M. Nowak & L. Ricci, Post-Apartheid South Africa: The First Ten Years (IMF, Washington, DC), p. 49, figure 4.1.

20

There are many different ways to calculate profit rates, but the relevant concept here is returns on assets. According to Claessens et al. (1998), figure 1, the returns on assets in 46 developed and developing countries during 1988–96 ranged between 3.3% (Austria) and 9.8% (Thailand). The ratio ranged between 4% and 7% in 40 of the 46 countries; it was below 4% in three countries and above 7% in three countries. Another World Bank study puts the average profit rate for non-financial firms in ‘emerging market’ economies (middle-income countries) during the 1990s (1992–2001) at a lower level of 3.1% (net income/assets). See S. Mohapatra, D. Ratha & P. Suttle (2003), ‘Corporate Financing Patterns and Performance in Emerging Markets’, mimeo., March, 2003, World Bank, Washington, DC.

21

OECD Historical Statistics (OECD, Paris), Table 10.10.

22

There is no evidence that greater central bank independence has any association with lower inflation, higher growth, higher employment, better budget balance or even greater financial stability in developing countries. See the evidence presented in S. Eijffinger & J. de Haan (1996), ‘The Political Economy of Central-bank Independence’, Special Papers in International Economics, No. 19, Princeton University and B. Sikken & J. de Haan (1998), Budget Deficits, Monetization, and ‘Central-bank Independence in Developing Countries’, Oxford Economic Papers, vol. 50, no. 3.

23

http://en.wikipedia.org/wiki/Federal_Reserve_Board

24

On the evolution of IMF policy in Korea following the 1997 crisis, see S-J. Shin & H-J. Chang (2003), Restructuring Korea Inc. (Routledge Curzon, London), chapter 3.

25

J. Stiglitz (2001), Globalization and Its Discontents (Allen Lane, London), chapter 3.

26

H-J. Chang & I. Grabel (2004), p. 194.

27

It is for this reason that Ocampo (2005) argues that ‘fiscal policies cannot be expected to serve by themselves as the major instrument of counter-cyclical management’ (p. 11).

28

The remark was made in the documentary movie, Gore Vidal: The Man Who Said No, made when Vidal campaigned in 1982 for a California senator seat against Jerry Brown. The full quote is: ‘In public services, we lag behind all the industrialized nations of the West, preferring that the public money go not to the people but to big business. The result is a unique society in which we have free enterprise for the poor and socialism for the rich.’

29

John Burton, the Financial Times correspondent in Seoul in the early days of Korean financial crisis in 1997, wrote: ‘The public has reacted as it has done in previous economic downturns by obeying calls to tighten their belts in the belief that spending less will somehow save the nation from its debt crisis’. Unfortunately, in his view, ‘no economist has warned that some austerity measures, such as promises by housewives to serve smaller meals at home, could deepen the country’s plunge into recession since it would further