The recent global financial crisis has resulted in a new creative set of economic policies. The justifi- cation for the unconventional policy response was based on the implicit assumption that the departure from the norms of macroeconomic policies would be temporary. This detour has lasted longer than expected. Now that the process of normalization has started in the United States and is likely to be followed (albeit in some delay) in Europe, it would be important for policy makers to emphasize that the unconventional set of economic policies were just a detour from the longstanding convention rather than representing a new paradigm. The experience of the crisis and the post-crises years should be recorded in history as refl ecting a period during which new and important policy chapters were drafted. These chapters should be added to the corpus of knowledge of macroeconomic theory and policy. The new chapters contain important lessons that should definitely not be forgotten once the crisis is over. They should be added to, but not replace, the old textbooks.
The contemporary economic system developed by China in the last two decades, supremely successful in achieving economic growth, defies traditional classification. It has been variously defined as socialist (by Chinese leaders), capitalist (Kornai), state socialist (Coase and Wang), political capitalism (Milanovic), a unique system with features of both socialism and capitalism not conforming to either system (Kolodko). This essay seeks to support, substantiate and develop Kolodko’s notion of the uniquess of China, while expressing greater pessimism than Kolodko about the economic, social and political sustainability of that system, its merits as a beneficial engine of globalisation and growth, and its exportability to other countries in the developed West.
Since Deng Xiaoping and reformers Hu Yaobang and Zhao Ziyang launched radical market reforms in China, the country became a capitalist economic system with a communist political regime, a regime never observed before in history. We discuss the nature of that regime, how stable it is likely to be over time and what the challenges are for democracies of international coexistence with this new regime in the twenty first century.
The Eurozone is at a crossroads. Its neoliberal and ordoliberal construction proved to be unworkable and, after the crisis, made the macroeconomic adjustment slow and costly – causing financial and real divergence among the member countries. Kolodko’s writings offer interesting insights. This article considers Kolodko’s study of Poland and Greece and adds two other paradigmatic cases, those of Germany and Italy. Kolodko’s case studies and criticism of neoliberalism lead him to propose a New Pragmatism in policy making. This proposal offers important insights, but neglects two fundamental problems: moral hazard and institutional differences. These have to be included in the New Pragmatism to give this the strength and ability to contribute to solve the Eurozone problems.
The sustainability of an unfunded pension system depends highly on demographic and labour market trends, i.e. how fertility, mortality, and employment rates change. In this paper we provide a brief summary of recent developments in these fields in Hungary and draw up a picture of the current situation. Then, we forecast the path of the economic old-age dependency ratio, i.e. the ratio of the elderly and employed populations. We make different alternative assumptions about fertility, mortality, and employment rates. According to our baseline scenario the dependency ratio is expected to rise from 40.6% to 77% by 2050. Such a sharp increase makes policy intervention inevitable. Based on our sensitivity analysis, the only viable remedy is increasing the retirement age.
Economists think they know a great deal about economic growth, both about why countries differ so much in their growth experience, and what needs to be done to get a country on track for faster growth, raising living standards. However, while there are many important theories about growth, and numerous country case studies of outstanding and sustained performance, there are also still too many countries that grow slowly if at all, where economic performance has somehow become ‘stuck’ at a low level. In the development context, a major policy concern is often to create enough jobs in a given period to employ all or most of those entering the labour force, preferably productively. Thus growth is not just about expanding aggregate output (GDP) but also about large-scale job creation. In the transition economy context, there was not only the complex matter of switching to a market-type economy in quite a short time, but generating growth and employment to catch up with more prosperous neighbours to the West. This has proved harder than many expected.
Kolodko himself has written much about many aspects of economic growth, and has also contributed in important ways to concrete policy formation in Poland (especially when he served as Minister of Finance). In this paper I shall explore the ideas and challenges indicated above, drawing on Kolodko’s work as appropriate, but also developing some new ideas that seem to be needed to understand better both growth successes and growth failures around the world.
China has persevered its market-oriented economic transition since 1978. In this paper, we use the provincial-level NERI Index of Marketization from 1997 to 2014 and a panel data model to investigate the quantitative contribution of market-oriented reforms to China’s total factor productivity (TFP) and economic growth. Our results indicate that marketization reforms contributed 1.3 percentage points to China’s annual economic growth rate and accounted for 35 percent of the increase in TFP. This means that the institutional reforms significantly improved resource allocation. However, economic transition in China has not yet been completed and sustainability of future growth will depend on further market-oriented reforms.
That fiscal policy may have limits has been known and has been discussed since 1936, when Keynes published The General Theory in the middle of the Great depression. The criticism of countercyclical fiscal policy should have changed over the years, because of economic, social and structural changes that have taken place in the economies of the countries. This paper focuses on changes in the socio-economic ecology of countries and argues that those changes are likely to have reduced the effectiveness of traditional countercyclical fiscal policy.
The purpose of the paper is to analyse the weaknesses, both epistemological and applicative, of the contemporary orthodox economics and, based thereon, to indicate the necessary changes it needs to undergo. Two groups of weaknesses are distinguished here – the intrinsic ones and the acquired ones. The former ones result from diversity and variability of its object of study and from the teleological nature of the economy. The latter ones, related to the methodological principles of economics stem from errors or omissions committed by the founders of economics in the historical development. The author identifies and analyses three such weaknesses – superficiality of cognition, overformalisation and the delusion of universalisation.
The analysis shows that globalisation processes and other varied civilisational transformations we have been experiencing over the last 15–20 years have brought into light and highlighted the weaknesses of economics. The author comes to the conclusion that consequently the economics for the 21st century, to meet the challenges of the new times, should undergo three basic shifts: a/ from positive, descriptive science to including also the evaluative and axiological one; b/ from homogeneous, universal science to a considerably contextual one and c/from pure, formalised science to a deeply interdisciplinary one.
For this essay, to honor Professor Kolodko, I take up the case of an older pragmatist whose circumstances and achievements I knew well – that of my father, John Kenneth Galbraith. While I cannot do full justice in this space to the life and work of 97 years, what I hope to show is how the application of my father’s background and experience in a world of mundane knowledge and urgent problems led to his development of a compelling critique of classical and neoclassical economics, and to his presentation of a world-view that stood, for a time, as the leading vision of industrial capitalism in the modern age. That this vision was swept aside, and largely dismissed or ignored, by the professional academic economists is, under the circumstances, merely a continuing testimony to its merit, and to the threat it poses to a comfortable, but wholly impractical, world-view.