Friday, February 11, 2022

Francis Akindes : "We Africans Urgently Need a Different Approach to Economic Thinking"


French text is below

Professor Akindes is President of the UAO’s Science Council, and also Director of Programmes, UNESCO Chair in Bioethics. His research interests are diverse, covering political transitions, political violence, the political economy of inequality, public policy analysis, and policies for crises exits.

For nearly two years now, the world has been reeling from the impact of the pandemic. Based as you are in Côte d’Ivoire, how do you assess the pandemic’s economic and social impacts on the country, and more importantly, for the youth? How do you evaluate the measures taken by the Government to address the crisis, and have the country’s economists, or even the Continent’s economists, been involved in formulating these measures?

To begin, in Africa, in Ivory Coast, the pandemic started in March 2020. Like everywhere else, progressively, everything came to a stop in African countries, too. A catastrophe was predicted, and we were all urged to maintain strict sanitary measures. Among Governments, the politicians were faced with imposition of progressively radical measures, “Should we lock down our people?”. Every country had to decide on such measures, with undoubtedly heavy social, economic, and political consequences. African countries took varying paths, but those who established strict bio-security measures such as total lockdowns or curfews witnessed clear and immediate impacts when you consider that the informal sector employs around 80% of the workforce.

These self-employed people, when they stop work, they have no income. Asking them to stay at home because of the pandemic threat is not a lasting solution. Two or three days after the imposition of lockdowns, we saw protests like those in Senegal and South Africa. Clearly, lockdown as an approach to containing the pandemic had its limits. Then came measures aimed at reducing the spread, such as wearing masks: which were very expensive and difficult to find at the start; and social distancing: as I have said previously on multiple platforms, maintaining physical and social distancing in Africa is a luxury. Lockdown works for the wealthy who live in small numbers in large houses. For everyone else, in crowded housing and neighborhoods, the population density is just too high. You find 7 to 10 people under the same roof, it’s impossible to ask people to both stay at home and to maintain distance from others in the house.

So for a large proportion of people, these rules could not be applied. Some countries, such as Benin, refused to impose a lockdown. Benin’s President said he could not take the political risk of demanding people stay at home, given that the country had no resources to make up for the constraints he had imposed on them. Instead, Benin brought in measures such as face masks, hygiene improvement, distancing in public places, as have many other African countries. Most African countries have perhaps chosen this path - putting measures in place but not being stringent about them – which allowed them to be seen as following international guidelines, especially those from the WHO. These governments put measures in place but, strategically, left the responsibility of complying to these measures up to individuals. So, there is this farce of national measures and controls, but their implementation is laissez-faire which also speaks to the weak powers of these Governments.

These Governments made decisions not to monitor and punish those who flouted the rules since they didn’t have clear, credible alternatives which would compensate for loss of incomes from strict adherence to the rules. By these means, governments could avoid risks of protests and the political cost of forcing measures to be applied. In so many countries, there exist already pockets of fragility, frustrations, scarred communities from previous crises which would be badly stirred up and exacerbated by unpopular and damaging new controls over peoples’ lives. African peoples already have multiple reasons to be tired of their governments, so heavy-handed restrictions to deal with the pandemic could provide the political opportunity for old anger and resentment to boil over.

Governments really fear these kinds of unpredictable situations, so they did all they could do, with great caution, to apply measures but not be too stringent about them. From an economic point of view, in the beginning, there was a global shutdown like I pointed out, some sectors such as tourism were especially hit as they depend on international migration of people. The leisure sector, such as restaurants – whether indoors or outdoors - cinemas, nightclubs and other places people go to enjoy themselves, all these businesses had to close. You can well imagine the social and economic risks associated with the loss of employment in these activities, with most of these being informal enterprises. In a city like Abidjan, food preparation and sale are dominated by women, and their little cafes and roadside stalls, known as ‘maquis’, were all forced to shut.

During the curfew, everyone had to get home by 9 pm, whereas it’s the nighttime when so many clubs and bars do the best business, so you can only imagine the cost for small enterprises. In fact, it was all business, small and large, across the country which suffered, in spite of their own strategies to minimize the pandemic’s impact. The ports no longer functioned normally, affecting all import-export businesses. Remember that for a country like ours, 90% of its trade comes by sea. Those ships from countries badly hit by Coronavirus were not coming anymore. So we began to see shortages of goods, even of real essentials.

With the uneven spread and evolution of the virus between Europe, North America, and Africa, we did not experience the catastrophe that had been predicted. After six months, different governments in Africa could see it would be impossible to continue with tight measures and had to relax them for the sake of the economy. Increasingly, people began to ask themselves, why should we be following the same COVID policy route as Europe and North America, if we were not suffering the same health impacts from the pandemic. This question was especially pertinent given the inability of African governments to compensate businesses and people for their income losses, as had been possible in North America and Europe.

France, for example, was able to do a lot for those businesses damaged by the lockdown. In a number of African cases, states made such promises but they were not able to do much in practice. There has been a lot of criticism on social media regarding the criteria used by the government to decide who should receive relief. One year on, there is no more talk of government support, and every business has been working out how best to run their enterprise, adapting to the requirements. Today, we’re faced with mutations of the virus, but for many people there remains a fundamental doubt about whether the virus exists at all. In a city like Abidjan, when you go from better-off residential neighborhoods to low-income areas, you find a big difference in mask-wearing. It’s much more common in Cocody than in Abobo or Yopougon.

At the beginning of the crisis, I went around a lot of low-income neighborhoods because I was being asked by a number of media channels to give them news of how ordinary people were coping with the health measures. As a result, I spent a good bit of time listening to people in wards such as Abobo and Yopougon. There was almost unanimous agreement that the virus didn’t exist, and was an ailment of white people, and those who spend time with them, those who travel. None of the people in these neighborhoods went by air and thus did not think the health measures the government wished to impose applied to them. The public authorities were conscious of the need to avoid annoying ordinary people, by forcing measures on them, for reasons I mentioned earlier, and opted for communicating the risks of the disease rather than forcing adherence to sanitary measures.

In these neighborhoods, in spite of their denial of COVID, there are of course people who are employed for domestic work (driver, servant, cook, etc.) for those who they reckon are at risk, due to them living like Europeans, or being in close contact with them. They go to work in areas like Cocody, a well-off neighborhood, and may contract the virus at work as a result, and then bring it home. Sadly, they don’t always think about the risk of moving between these worlds of work and home, and the associated risks of infection, even for “those who never take a plane” as they like to say. Such connections between neighborhoods have not been part of the public outreach and messaging aimed at changing people’s patterns of behavior relative to the pandemic.

Another angle that I would like to explore is the lack of research on why the predicted catastrophe did not occur. Currently, we can only hypothesize. First, we have the youthful composition of Africa’s population. Second, there is the climate, which may have been in Africa’s favor. Third, is the widespread use of chloroquine (used as anti-malarial treatment). At the moment, we can only speculate about the importance of these and other reasons for the lack of impact such as that experienced by Europe or America.

Africa remains weak when faced with this kind of threat. We have not yet taken on board that we must try to understand what is happening, using rational methods, as is done by scientific research. We often retreat into a narrative that states that we don’t have the means to do the research ourselves because we are poor and have other priorities. But I would say we are poor precisely because we don’t tend to set aside some resources to generate the knowledge which would help map out and prevent these risks. It's as though we have chosen to live in darkness and uncertainty.

What role have economists played in shaping public policy to address the pandemic?

In almost all countries, there has been a culture of “omerta” (or a pledge of silence) as regards how the pandemic has been handled. There has been no debate amongst scholars about the measures taken, and no one knows how decisions were taken. Let’s take the example of air-travel requirements between ECOWAS member states when the land borders were shut. Some governments slapped a tax on COVID tests. Take the case of Benin. While some member states of WAEMU agreed to lower the price to FCFA 25,000, Benin decided to keep it at FCFA 50,000. They also chose to test all arrivals coming into the country, regardless of where they came from, and even when they had a negative test result from their place of origin. This meant that tests were re-done in Benin as though tests done elsewhere weren’t considered valid, as though each laboratory everywhere was not using the same testing kit. It wasn’t until February 2021 that Benin stopped this practice, and it's not only Benin that has generated contradictory and ambiguous COVID health rules. There are a whole range of political, economic, and financial issues at stake, which remain to be explored, in how certain countries have addressed the pandemic.

Lastly, you have to ask whether it is really a question of managing infection risk at the border and preventing wider infection of the population, or whether it’s the revenue associated with carrying out these tests. You see, you have to ask what is the logic of these tests being free within the country, whereas those traveling to neighboring countries have to pay. It's likely that air passengers are considered amongst the privileged few, with sufficient purchasing power, and hence they are targeted as a form of racket. When I read in the media that African governments responded promptly and effectively to the COVID-19 pandemic, I beg to differ. It is true the catastrophe did not happen, but the choices made by each and every government should be analyzed further.

In your written work, you speak of the need for African countries to develop a model of economic growth more rooted in the African context, in which less attention is paid to the policy prescriptions of the World Bank and IMF, and greater focus given to satisfying national needs. You talk about the huge importance of the informal sector, in terms of both production and employment. Is it possible for this sector to furnish the foundations for a different growth model in many parts of Africa? What would this imply for the role of government, given its reliance on revenue from formal sources? What might be better forms of education able to respond more adequately to the needs of people for the economy of today and tomorrow?

The informal sector provides the foundations for the real, tangible economy in almost all African countries. It's quite wrong to call this the “informal” sector since it is highly visible, it just escapes the attention of government accounts. Government attitudes towards the informal sector are influenced most of all by a reflex to impose taxation, to increase its fiscal revenues, by targeting any and all activity. It may seem quite normal that, as soon as you start up some business, you must start paying taxes. But as the informal sector sees it, they cannot point to any help that the state provides them, so what are they paying for? Rather, they tend to be targeted and harassed by the state. Countries have always looked outwards, since Independence, seeking to make themselves attractive to foreign investors, and promoting SMEs which can feed into global value chains, as urged by the Bretton Woods institutions. Recentering policy towards addressing local, national, and regional needs requires a very different approach.

Economic policy can be read as a continuation of the colonial model. It's been difficult to reinvent the system to better address national priorities set in a regional context. What might we mean by “reinvent”? If globalization can be seen as an opportunity for national economies to face outwards, responding to local, national or regional needs has to think about local demand, and how to meet it. This includes strengthening abilities within the economic system, in terms of education and training, and the achievement of some degree of autonomy, as a means to assure sovereignty. Africa’s population structure represents a significant asset. Despite the demographic transition, Africa today accounts for nearly 17% of the total world population. While demographic growth rates elsewhere have fallen since the 1960s, to around 1% p.a., the African continent has seen its number of people increase by 2.7% p.a. Rather than see this growth in the number of people in Africa as a constraint and challenge, you could re-frame such differential growth rates as offering great potential, and a great economic opportunity. This would be possible if well thought out public policy could transform this human material into human capital, by re-centering economic models to meet internal demand. However, now, such a demographic evolution increases domestic demand, and based on our current model, we must seek external help to respond to domestic needs. We are almost entirely external-facing, we produce what we don’t consume, transforming very little raw material, and we consume what we don’t produce which is mostly brought in from outside. To find work for Africa’s unemployed, the World Bank recommends investment in training. But we need to ask – what kind of training? They say: professional and technical, and private professional and technical training schools have opened their doors in many an African city. They each offer more or less identical courses, training people in particular skills which they think correspond to the needs of business. This is how the training is sold to parents and apprentices. But there is then an over-supply of young people with this training. There is a failure to clarify what is meant by training and expertise, and many African counties lack a clear vision for what is needed over the forthcoming years and decades. The kind of skills identified are usually those which multinational companies and local businesses involved in export-led value-chains have put forward.

These training needs will likely evolve rapidly, and do not necessarily align either with the opportunistic vision of private training establishments, or with poorly framed state policy for education and training, neither of which show much flexibility. Overall, we see that rates of employment in the professional field for the newly trained – those coming out of the private schools – are just slightly ahead of the performance in the jobs market for those with classical training coming out of the university sector. We can observe that the currently existing solutions for youth unemployment neither respond to the needs of local goods and services nor to the reorientation of the system to respond to the actual needs.

Notably, reinforcing the informal sector capacity, all activities included, to improve its ability to meet day-to-day demands for goods and services at acceptable quality standards. Raising the quality and performance of the goods and services generated by the informal sector, which represents - as we have said - 80% of the real economic life of most countries, could in itself constitute a significant training program to strengthen expertise, create value add, and improve revenues for enterprise, and additions to the country’s overall wealth. By pursuing such well-thought-out policies, the state itself could achieve positive outcomes, in terms of society and equity. And in return, it could see its investment pay a good return through rising tax revenue which would stem from improved economic performance.

Without turning away from the world economy, African countries would nevertheless gain from pulling away from the neo-liberal pretense, and become more sovereign in their choice of economic policy, less subject to the catechism of the Bretton Woods institutions. Remember their mission is to promote economic orthodoxy, which in the case of countries in the South demands that their economies must adjust to neo-liberal norms, at the heart of which is the retreat of the state. Despite this, it is clear from the last thirty years of experience in south-east Asia that, by contrast to the World Bank, low-income countries can only exit from the poverty trap with massive state intervention and protection.

The Bretton Woods institutions know that they operate in situations of penury, a context of long-standing and permanent asymmetry in power between them and the national governments, the latter which is in desperate need of financial resources, for a majority of the time, to manage crises. These are not situations in which alternative ideas can flower and prosper. Let’s compare Africa with Asia or Latin America, all with different political histories. When the World Bank and IMF get off the plane in an African country, they come with expertise and conditionalities which accompany the immediate offer of cash. Given the urgent need for resources, the policy recommendations are bound to be accepted by the government. Within most African countries, no thought is given to ways of responding to internal domestic needs. For African countries, the Bretton Woods institutions know there is no space for reflection to think through economic alternatives, there are no alternative models.

So, the domination of international capital keeps national economies dependent on financial markets through debt, in turn strengthening the persistence of international capital – the reason why in many African countries, you have two economies working side-by-side with no interconnectedness. We have the informal economy which responds to the needs of domestic consumers, while the so-called formal sector which responds to essential needs but is external-facing, heavily taxed by the state due to its visibility, and is limited in scale. The Governments are dependent on the formal sector for fiscal revenues, while the private sector remarks constantly that the high tax rates are a burden – both ignoring the fact that they could overcome these different challenges if they would reinforce the capacity of the informal sector. But African Governments only see how they can impose themselves on the informal sector and not how to support them – the informal sector in Africa responds to the real needs of Africans in every sector, including health. In any African market, you will find stalls with local remedies, alternative medicines and so much else. People very often turn to the informal health sector when they cannot afford the cost of modern drugs, which in turn denies them access to health services. They depend on alternative medicine to continue to care for their health. If Governments really cared about their people, why would they not bridge alternative medicine and the high cost of modern medicine, to ensure the inclusion of people from all walks of life in access to health services taking into account the ethics of both medicine streams? Why not support, for example, a series of research activities to explore the attributes of traditional medicine, and work out questions of dosage? Solutions from traditional medicine can be very effective, however, what stops us from using science to back up prescriptions that can heal ten distinct illnesses at the same time, and guarantee a more inclusive, caring health system for everyone? Why don’t we start work on this? Because we’ve been captured by the interests of large drug companies, who want to protect their markets, and have no interest in what we might term “neglected illnesses”.

In all aspects of life, we have this kind of phenomenon. I chose the example of the health sector, but, equally, you could find the same forces at work in the agri-food business or in the big socio-economic sectors. We ignore the part of the economy which responds to the needs of the large majority and focus instead on those dimensions which insert the African economy into international dynamics, guaranteeing the government a certain basic level of revenue. This is usually just enough to enable it to function, but which demands that it must go into heavy debt in order to invest in the social and economic infrastructure needed to address people’s most basic priorities. I find this discrepancy in our thinking totally incomprehensible.

Many analysts we have spoken to agree that the pandemic has opened up space for African countries to rethink their development choices, speed up regional integration, diversifying their economies, and pursue green growth…. Do you think that we are indeed at a real turning point for economic transformation in Africa and what route would you recommend?

I noticed, that at the height of the pandemic, it was as though the world had ground to a halt. Wherever we were in the world, we began to understand that a big event had happened, and we had to change how we lived. Equally, fairly soon, I noticed that as soon as the sickness levels started to fall, many people were desperate to get back to pre-pandemic “normal”, as though COVID was just a short, bracketed phase in our lives. While the airplanes were nailed to the ground, we had said that we would build a different, better future, more in touch with nature and the environment. Having seen how people have contributed so much pollution, and what happens when it stops.

During lockdowns, we all had generous ideas for changing our lives and bringing us into greater harmony with nature and the environment. It was a time of repentance for the pattern of life we’ve been living, whether in Africa, in Europe, or in America. The pandemic has not hit us as hard as in America and Europe but, in Africa, as elsewhere, our conversations held many promises about living simpler, cleaner lives, and being more respectful of Mother Nature. We all accepted and believed that we had been trapped in a pattern of life that was a dead-end for humanity. But, what happened once the pandemic started to retreat? We went back to our old ways of life! We forgot every promise we’d made a few months before, as though we’d never had this moment for deeper thinking. Despite our ongoing travails with new variants – delta and now omicron – I see no sign at all of people putting such promises into action and living up to the alternative visions we dreamed of at the height of the crisis. I come back again and again to the phrase – reflection on alternatives – because alternative reflections have a cost and demand engagement. It presumes there is some kind of support that makes such reflection possible since thought about a better future cannot come from nothing. But I can detect no shift in fields of research or public policy in Africa as a consequence of the pandemic. Imagine that this thinking is nurtured in closed circles, we see no sign of any shift in approach to our patterns of life or economic system. We seem to find it too difficult to shift our model because we, perhaps, find the current system sufficiently comfortable, with its existing chapels, and prophets. We have not seen new niches emerging in which people seek out alternatives. It’s as though we are face-to-face with a big wall which we have no way of scaling, and the existing model and powers-that-be are securely seated on top of the wall. There is effective propaganda to ensure we all carry on without blinking. If we are to get beyond our current impasse, we must create the space, the determination, and political will, to reinvent ourselves in different parts of the world. But I see absolutely no evidence of this happening. African countries are especially poorly served given their relentless cycle of urgent crises. Political decisions are made almost always in haste, with thoughtful consideration of options seen as a luxury for rich countries alone.

Côte d’Ivoire finds itself in a difficult neighborhood, with a number of northern neighbors – Burkina Faso, Mali, Niger – who are engulfed by jihadist insurgency. What practical measures might countries like yours, Ghana, Benin, and Togo take to push back the threat of jihadism?

Extremist violence and its growth is a persistent threat in coastal West Africa, with some countries like Benin and Côte d’Ivoire having already experienced attacks both in their northern parts, and Côte d’Ivoire experiencing attacks even in its southern parts. This means that this extremist violence is no longer confined to the Sahelian hinterland, and is now moving into coastal countries which are proving to be equally vulnerable. Both types of countries, those who are engulfed by the extremist violence, and those who are only now beginning to experience it, have something in common – social and political fragility as a result of intercommunal tensions and identity crises, linked to either access to land and natural resources in a context of climate change, or the inequalities in the distribution of access to these resources. The forced idleness of youth, due to unemployment, is a fertile ground for jihadist recruitment. The economy of violence and conflict offers an alternative way of life for those with no clear future, and jihadism proposes itself as a means to address some of the big injustices found in our societies. Islamic religious arguments are no more than a front for those who are mobilizing this violent extremism, profiting from recrimination against the government and capitalizing on the multiple and diverse frustrations felt by populations in these countries.

In the Sahelian hinterland, governments are so weak that they are unable to respond to the needs of their people, especially those in marginalized zones. Often with a strong sense of social injustice, and no evidence of government support, these populations are falling prey to those using narrative, political ideology, and violence to establish an Islamic state or a return of the caliphate. The insurgents aim to dislodge Westerners and overthrow the corrupt, puppet states put in place by the Western powers. They finance themselves through a range of illicit activities, the workforce for which are large numbers of young people who would find the formal economy less attractive in terms of compensations. Violent extremism is above all a response to failed development models. A military approach in these areas has not been successful so far, given the continued spread of jihadism. Our modes of governance have failed, and we have not integrated into our understanding the great weakness and fragility of our states. Jihadism can root itself very effectively in the fertile soil created by those forgotten populations, seeking revenge for decades of neglect.

Français

Dans cet entretien, Folashadé Soulé et Camilla Toulmin échangent avec Pr Francis Akindes sociologue et professeur à l’Université Alassane Ouattara de Bouaké. Pr Akindes est président du Conseil scientifique de l'Université Alassane Ouattara, et Directeur des programmes de la Chaire Unesco de Bioéthique. Son champ d'intérêt scientifique est varié et comprend notamment les transitions politiques, la violence politique, l’économie politique des inégalités, l’analyse des politiques publiques et des politiques de sortie de crise.

1 – Le monde subit les effets de la pandémie depuis près de deux ans. Vous qui êtes basé en Côte d’Ivoire, quel regard portez-vous sur les effets économiques mais surtout sociaux de la pandémie dans ce pays, notamment sur les jeunes et leurs conditions socio-économiques ? Quelle évaluation portez-vous sur les mesures prises par le gouvernement ivoirien pour adresser cette crise et est-ce qu’il y a une implication des économistes ivoiriens voire africains dans la définition de ces mesures pour adresser la pandémie ?

D’abord, la pandémie vue d’Afrique, vue de Côte d’Ivoire, a débuté en mars 2020. Comme partout dans le monde, tout s’était progressivement arrêté dans les pays africains. Surtout qu’on y prédisait un développement catastrophique de la pandémie. Nous étions tous appelés au respect des mesures barrières. Pour les Etats, il fallait prendre la décision politique de prendre des mesures de plus en plus radicales : « Est ce qu’il faut confiner la population ou pas ? » Chaque pays se déterminait par rapport à cette décision qui s’annonçait lourde de conséquences sociales, politiques et économiques. Les pays africains l’ont diversement appliquée. Mais ceux qui ont tenté d’appliquer les mesures bio sécuritaires, soit en imposant le couvre-feu ou le confinement ont vu ce que cela a produit comme effets lorsque l’on prend en compte le fait que plus de 80 % des emplois sont dans le secteur informel. Ces personnes qui s’auto-salarient, s’ils arrêtent de travailler du coup, n’ont plus de revenu. Donc leur demander de rester à la maison parce qu’il y a une pandémie menaçante dehors, ne pouvait pas être une solution qui tiendrait dans la durée. Deux ou trois jours après les tentatives de limitation des mouvements, l’on a commencé à assister à des émeutes comme au Sénégal et en Afrique du Sud. Cette approche de la prévention de la pandémie a montré rapidement ses limites. Ensuite, il y a eu les mesures barrières recommandées : le port du masque qui fut une denrée rare et chère en début de pandémie, et la distanciation sociale. Et comme je le disais à l’époque sur plusieurs médias, la distanciation physique et sociale en Afrique est un gros luxe. Le confinement ne recouvre pas les mêmes réalités pour les privilégiés qui vivent en nombre réduit dans des maisons sur des surfaces plus grandes que pour les personnes vivant dans les quartiers populaires. Dans les quartiers populaires, la plus grande partie de la population vit dans des habitats de forte concentration humaine. Sous chaque toit, l’on dénombre en moyenne 7 à 10 personnes. Il est très difficile, lorsque vous demandez aux gens de se confiner en restant à la maison, de ne pas être dans une promiscuité à risque sanitaire. Ce sont des mesures, qui pour une catégorie de la population, se sont avérées très contradictoires dans leur application. Certains pays ont par exemple refusé d’imposer le confinement à leurs populations. Ce fut par exemple le cas du Bénin. Le Président béninois s’est démarqué en disant qu’il ne pouvait pas prendre le risque politique du confinement de sa population parce qu’il n’a pas les moyens de répondre aux contraintes liées aux confinements. Il s’est en revanche engagé à faire respecter les mesures barrières, ce qui fut la position de bien de gouvernements de pays africains lorsqu’il fallait prendre des mesures. Vous avez une catégorie de pays, et ils sont les plus nombreux, qui adoptent ces mesures parce qu’il fallait donner une réponse nationale à des mesures qui sont internationales, portées par l’OMS mais qui fermaient les yeux sur le respect de ces mesures par leurs populations. Tout se passait comme si les États avaient adopté une posture de laisser-faire stratégique, laissant chacun face à ses responsabilités. On fait semblant d’implémenter ces mesures au plan national mais en réalité on reste laxiste face au non-respect de ces mesures en interne. Cette posture est aussi révélatrice de la faiblesse des États. Ces derniers ont fait le choix implicite de ne pas trop surveiller et punir le non-respect des mesures à défaut d’offrir des alternatives économiques crédibles et soutenables aux risques de perte de revenus que peuvent induire une véritable politique de prévention par le strict respect du confinement en période d’incertitude sanitaire. La plupart des gouvernements ont évité de gérer des émeutes que pourrait entrainer le forcing politique dans l’application de ces mesures. D’autant plus que dans chacun des pays, il y a des poches de fragilité, des frustrations structurelles, des plaies de crise mal pansées par endroits qu’une trop grande insistance sur l’application de mesures impopulaires pourraient réveiller ou exacerber. Car les populations africaines ont moult raisons d’en vouloir à leurs États. Et si en période de pandémie ces États se mettent à leur imposer des restrictions, certains peuvent y voir une opportunité politique pour exprimer le ras-le-bol sur fond de vieux ressentiments. Les États ont une crainte de ce type de situation aux issues imprévisibles. Raison pour laquelle, ils se sont tous essayés, avec beaucoup de prudence, à l’application de ces mesures sans trop de zèle. Au plan strictement économique, comme je le disais dans mes propos liminaires, tout s’était arrêté en début de pandémie. Certains secteurs ont été très touchés, notamment les activités liées au tourisme parce que les migrations internationales n’étaient plus possibles. Tout ce qui était lié au secteur du voyage a été touché. Les segments d’activité touchant aux loisirs ont également été affectés : la restauration extérieure, que ce soit dans des lieux ouverts ou fermés, l’industrie du cinéma par exemple et les lieux festifs, les boîtes de nuit qui utilisent beaucoup de personnes. Tous ces commerçants ont été obligés de fermer leurs portes. L’on peut aisément deviner les risques sociaux et économiques liés aux pertes d’emploi dans ces secteurs dont les actifs se retrouvent dans le secteur informel pour bon nombre d’entre eux. Dans une ville comme Abidjan, le secteur de la restauration, dominé par les femmes, beaucoup de ‘maquis’ (appellation locale des restaurants populaires) ont été contraints de fermer. Pendant la phase de couvre-feu tout le monde était obligé de se retrouver dans les murs clos de la maison à 21 heures. Or c’est à la tombée de la nuit que ces lieux de loisirs fonctionnent le plus. Vous vous imaginez donc ce que cela a pu avoir comme conséquence au plan économique pour les ménages des petits opérateurs économiques ! Toutes les structures économiques de la Côte d’Ivoire ont été touchées malgré les dispositions particulières qu’elles ont dû prendre pour minimiser l’impact du covid-19. Les ports qui sont un poumon de ces activités, ne fonctionnaient plus normalement. Du coup, le secteur de l’import-export a été touché. Rappelons que dans un pays comme la Côte d’Ivoire, 90% des échanges commerciaux se faisant par voie maritime et les navires en provenance des pays fortement touchés par le coronavirus à partir de mars 2020 qui chargent ou déchargent d’habitude à Abidjan ne venant plus régulièrement, l’on a pu noter dans tous les secteurs des pénuries de biens de consommation, allant même jusqu’à la pénurie de denrées de première nécessité.

Avec la progression asymétrique de l’évolution de la pandémie entre l’Europe, l’Amérique du Nord et l’Afrique, la catastrophe annoncée n’a pas eu lieu. Au bout de six mois environ, les différents gouvernements des pays africains ont compris qu’ils ne pouvaient pas tenir plus longtemps et qu’il fallait lever progressivement le pied quant aux mesures sanitaires les plus contraignantes surtout pour les économies. Partout en Afrique, la question sur toutes les lèvres était alors de savoir, pourquoi allons-nous continuer à suivre la tendance en Europe et en Amérique et à nous aligner sur des mesures sanitaires si contraignantes pour la survie des économies si nous n’avons pas relevé les mêmes conséquences de la pandémie ? Surtout dans les situations africaines où les États n’ont pas les moyens de compenser les pertes de gains des entreprises et suppléer le déficit de revenu comme cela a été le cas aux États-Unis et dans les pays européens. Je pense à la France qui a fait cet effort en direction de ses entreprises sinistrées. Dans quelques pays africains notamment la Cote d’Ivoire, la promesse du soutien de l’État a été faite, mais elle n’a été tenue que partiellement. J’ai vu voir passer dans les médias et sur les réseaux sociaux des critiques adressées au gouvernement sur la méthodologie du soutien apporté aux entreprises sinistrées et le critère de choix des bénéficiaires de ce soutien. Un an après, tout ce débat sur la question du soutien de l’État aux entreprises s’est vite estompé. Les entreprises, à coup d’adaptation à la nouvelle donne sanitaire, ont essayé de reprendre leurs activités comme par le passé. On en est aujourd’hui à subir les mutations de la pandémie avec les variants du COVID, mais toujours sur fond de réserve des populations quant à l’existence réelle de cette maladie. Dans une ville comme Abidjan, lorsque vous passez des quartiers résidentiels aux quartiers populaires, vous constaterez le rapport différencié aux consignes du port du masque par exemple. L’on porte plus souvent le masque à Cocody qu’à Abobo ou à Yopougon. En début de pandémie, j’ai fait le tour des quartiers parce que il y avait beaucoup de médias internationaux qui m’appelaient pour savoir comment les populations percevaient-elles et vivaient-elles les mesures sanitaires ? Étant ainsi sollicité pour donner des avis, il fallait que j’aille sur le terrain constater et discuter avec les populations, notamment celles des quartiers populaires comme Abobo et Yopougon. La perception de la maladie faisait quasiment l’unanimité chez les gens ordinaires : la maladie n’existe pas, c’est une maladie des Blancs, une maladie des gens qui côtoient les Blancs, c’est-à-dire la maladie de ceux qui voyagent. Ne prenant pas les avions, ils ne se sentaient pas du tout concernés par les mesures barrières que préconisaient l’État. Les pouvoirs publics, conscients du fait qu’ils n’avaient pas intérêt à les titiller sur la question du respect des mesures sanitaires pour les raisons évoquées plus haut, ne faisaient que sensibiliser en évitant de gérer d’éventuelles tensions sur l’acceptation ou non du COVID comme étant une pandémie qui nous menace tous au même titre. Sauf que, dans le déni de la maladie, parmi ces habitants des quartiers populaires, certains travaillent comme personnel domestique (chauffeur, servante, cuisinier, etc …) chez ceux-là même qu’ils estiment être exposés parce que côtoyant les Blancs ou vivant comme les Blancs. Ils vont travailler dans les quartiers comme Cocody, un quartier résidentiel, contractent la maladie sur le lieu du travail et la ramènent chez eux. Malheureusement, obnubilés par les différences de conditions, ils ne font pas toujours le lien entre migration entre les mondes pour raison professionnelle et les risques possibles de contamination même pour ceux qui ne prennent pas les avions, comme ils aiment bien le dire. Cela n’a jamais fait l’objet d’une réflexion systématique qui aurait pu informer la communication pour le changement de comportement face à la pandémie.

Une autre dimension que je voudrais souligner est que si dans les pays africains, la catastrophe annoncée n’a pas été observée, à aucun moment la recherche n’a été interrogée sur les raisons pour lesquelles l’hécatombe ne s’est pas produite. L’on est resté au stade d’hypothèses. La première étant la jeunesse de la population. La deuxième hypothèse étant qu’un effet climat aurait joué en faveur des pays africains. La troisième hypothèse serait l’accoutumance à la consommation de la chloroquine qui aurait produit une immunité collective même partielle. En termes d’explication, l’on navigue encore entre ces trois idées qui ne restent encore qu’à l’état d’hypothèses. Jusqu’à ce jour, l’on ne sait toujours pas pourquoi cette pandémie n’a pas eu la même ampleur qu’en Europe et en Amérique. Voilà par exemple un point de grande fragilité de l’Afrique face à ce genre de risque. L’on n’a pas encore pris conscience qu’il est important de toujours chercher à comprendre de façon rationnelle ce qu’il nous arrive. Ce qui est la fonction et le but de la recherche scientifique. On se réfugie en Afrique dans le discours selon lequel, nous n’avons pas les moyens de financer la recherche parce que nous sommes pauvres et avons d’autres priorités. Justement, nous sommes pauvres parce que nous n’avons pas une culture d’allocation d’une part de nos ressources à la production du savoir qui permet aussi de prévenir les risques ou faire de l’anticipation. Tout se passe comme si nous avons choisi de vivre dans l’obscurité et dans l’incertitude.

Est-ce que les économistes ont accompagné tout ce qui se passait, les initiatives en thème de politique publique face à la pandémie ?

Si cela a été le cas, je ne suis pas au courant. Parce que dans quasiment tous les pays, il y a eu une vraie omerta sur la gestion de la pandémie. Les plans de riposte n’ont pas fait l’objet de débat ne serais-je déjà qu’entre sachants. L’on ne sait jamais comment les décisions sont prises. Je prends tout juste la gestion des mesures aux frontières surtout aériennes dans les pays de la CEDEAO parce que les frontières terrestres ont été fermées. Certains États y ont trouvé l’occasion de surtaxer le test COVID. Je prends l’exemple du Bénin. Pendant que l’UEMOA décide de faire baisser le prix variable d’un pays à un autre à 25 000 F, les autorités béninoises ont maintenu le prix du test covid à 50 000 FCFA. Non seulement elles ont maintenu le prix du test pour voyageur à 50 000 FCFA , elles font tester les voyageurs à l’arrivée au Bénin même lorsqu’ils disposent d’un test négatif au départ, quel que soit le pays d’où ils viennent. Ce qui veut dire que le test est refait au Bénin comme si le test effectué dans les autres pays n’était pas valable au Bénin, comme si ce n’était pas les mêmes objets de laboratoire qui sont utilisés dans quasiment tous les pays. Ce n’est qu’en fin décembre 2021 que le Bénin a mis fin à cette pratique. Il n’y a pas que le Bénin qui soit concerné par de telles ambiguïtés dans les politiques sanitaires de lutte contre la pandémie du covid-19. Il y a là des enjeux économiques et financiers ou des enjeux politiques de l’usage du COVID non encore questionnés dans certains pays pour en comprendre les logiques.

Finalement on se demande si c’est vraiment de la gestion sanitaire aux frontières, la prévention ou encore la protection de la population contre la contamination qu’il s’agit ou si c’est la manne financière liée au test qui est visée. Vous voyez, à des moments donnés, je me pose énormément de questions sur la logique des tests pour les voyageurs précisément parce que, à l’intérieur des pays c’est resté gratuit. Mais les voyageurs par voie aérienne sont considérés comme des privilégiés qui ont un pouvoir d’achat, et on a l’impression qu’on les rackette systématiquement pour cette raison. Lorsque je lis dans les médias que les États africains, pour une fois, ont réagi comme il se doit en mettant en place des plans de riposte contre la pandémie du COVID-19, j’émets quelques réserves. La catastrophe annoncée ne s’est pas auto-réalisée. Mais les réactions diverses et parfois controversées de ces États face au COVID-19 doivent se prêter à l’analyse.

2 - Dans vos travaux, vous parlez de la nécessité pour les économies africaines de développer un modèle de croissance plus endogène, dans lequel moins d'attention devrait être accordée aux prescriptions économiques néolibérales de la Banque mondiale/FMI et plus de réflexion sur la satisfaction des besoins nationaux. Vous constatez l'importance prépondérante du secteur informel, en termes de production et d'emploi. Est-il possible pour ce secteur de fournir la base d'un modèle de croissance différent dans de nombreux pays africains ? Qu'est-ce que cela signifierait pour le rôle de l'État – étant donné sa dépendance vis-à-vis des revenus du secteur formel – et des formes d'éducation mieux à même de répondre aux besoins des personnes dans l'économie d'aujourd'hui et de demain ?

Le secteur informel constitue l’essentiel de l’économie réelle dans presque tous les pays africains. Cette part de l’économie réelle est qualifiée à tort d’informel parce qu’elle se développe sous les yeux de tous mais échappe à la comptabilité nationale. La réaction de l’État vis-à-vis de ce secteur informel, est déterminée avant tout par une logique de ponction fiscale. L’État cherche à l’imposer, à accroitre son assiette fiscale en taxant les activités économiques dont se compose ce secteur et qui échappent son contrôle. Il paraît tout à fait normal que, dans un pays, lorsque l’on exerce une activité économique, l’on paie les impôts. Le problème est que les opérateurs économiques du secteur informel ne se sentent pas du tout soutenus par l’État. Ils sont plutôt traqués par ce dernier. En posture d’extraversion économique depuis les indépendances parce que préoccupés par l’amélioration du monde des affaires pour attirer essentiellement les investissements directs étrangers et favoriser l’émergence et le développement de petites et moyennes entreprises locales s’inscrivant dans la chaine des valeurs tel que le veulent les institutions de Bretton Woods, ces États ont de la peine recentrer les appareils de production sur les besoins nationaux et régionaux. En cela, les politiques économiques peuvent être lues comme étant une reconduction du modèle colonial. Elles éprouvent du mal à se réinventer en replaçant au cœur de la dynamique économique les priorités nationales pensées à l’échelle régionale. Que voulons-nous dire par réinvention ? Si la globalisation constitue une opportunité pour toutes les économies nationales, les réponses aux besoins locaux, qu’ils soient nationaux ou régionaux, doivent être essentiellement locales. Toute économie nationale viable doit d’abord prendre appui sur les capacités de réponses internes aux demandes locales. Le renforcement de la capacité de réponse de ces économies, en termes d’éducation et de formation jusqu’à l’atteinte d’une certaine autonomie doit être un domaine prioritaire de souveraineté. La structure de la population africaine constitue en cela un atout. Car, malgré la transition démographique, l’Afrique compte environ pour 14% de la population mondiale. Pendant que la croissance de la population mondiale se divise par deux depuis les années 1960 pour s’établir à 1% par an, l’Afrique subsaharienne voit sa population croitre de 2,7%. Au lieu de ne voir cette évolution démographique qu’en termes de contraintes et de défis, ce différentiel démographique peut être envisagée comme une potentialité et une formidable opportunité économique. A condition que de bonnes politiques publiques favorisent une transformation de cette ressource humaine en capital humain. Une telle évolution démographique structure de fait une demande interne qui rencontre des réponses plutôt extraverties, d’autant que les économies africaines ont tendance à se tourner vers des réponses extérieures pour la satisfaction de leurs besoins intérieurs, au point de finir par organiser durablement leur propre dépendance vis-à-vis de l’extérieur. Ils produisent ce qu’ils ne consomment pas et ne transforment que très peu (matières premières agricoles) et consomment ce qu’ils ne produisent pas et qui leur vient de l’extérieur. Pour résorber les problèmes de chômage en Afrique, la Banque mondiale conseille aux pays de former aux compétences. Mais à quelles compétences ? Professionnelles et techniques, répond-t-on. Des écoles professionnelles et techniques privées ouvrent leurs portes partout dans les villes africaines. Elles offrent presque toutes les mêmes curricula de formation. Formant aux mêmes métiers et le plus souvent à ceux qu’elles pensent correspondre aux besoins des entreprises, idée le plus souvent vendue aux familles et aux apprenants, ces modèles de formation finissent par saturer le marché de l’emploi. Ce sont là les effets du manque de clarification du concept même de formation aux compétences qui, dans les pays africains, manque cruellement de vision prospective. Les besoins en compétences dont il s’agit sont la plupart du temps ceux exprimés par les multinationales et les entreprises locales inscrites dans la chaîne de production tournée vers les marchés d’exportation. Ces besoins qui peuvent évoluer rapidement entrent souvent en discordance avec les réponses opportunistes des écoles privées et politiquement mal encadrées par les politiques d’éducation et de formation professionnelle, le plus souvent peu flexibles. Et au bilan, l’on constate que le taux de placement des personnes formées - sorties de ces écoles privées - dans le monde professionnel dépasse d’une courte tête les performances des formations classiques dans les universités sur le marché de l’emploi. Des formations qui, elles, ont du mal à se réformer. En toile de fond, le constat global est que les solutions à l’épineuse problématique de l’emploi-jeune ne se focalisent ni sur les besoins strictement locaux en biens et services transformables en autant opportunités de formations dédiées, ni sur la réorientation des capacités du système de formation à répondre en priorité à ces besoins. Notamment en renforçant les capacités des acteurs du secteur informel, tous secteurs confondus, à améliorer leur capacité à faire face au quotidien à ces demandes de biens et services suivant les exigences des normes de qualité. L’amélioration de la qualité des offres de services et de biens dans le secteur informel qui représente 80% de l’économie réelle dans les pays africains peut en elle-même constituer un projet de formation aux compétences, de création de valeur ajoutée, de plus-value pour les opérateurs transformés et une opportunité de création de richesse nationale. A travers de telles politiques bien pensées, l’État lui-même se donne par la même occasion une justification sociale et distributive. En retour, il pourrait voir son investissement maximisé par l’amélioration de l’assiette fiscale qui en découlera. Sans se détourner de l’économie-monde, les économies africaines gagneraient à sortir de l’imposture néolibérale, à être plus souverainistes dans leurs choix de politique économique et moins soumises au catéchisme des institutions de Breton Wood dont la mission est bien de promouvoir l’orthodoxie économique dont la traduction dans les pays du sud est l’ajustement des économies aux normes néolibérales sur fond d’incitation au retrait de l’État. Pourtant, ce qu’il se passe depuis ces trente dernières années dans les pays d’Asie du sud-est, montre bien, contrairement à ce que défend la Banque mondiale, que les pays à faible revenu ne peuvent sortir de la trappe de la pauvreté sans intervention massive de l’État, sans protection de l’Etat. Mais les institutions de Bretton Woods savent qu’elles opèrent sur des terrains de manque c’est-à-dire qu’elles sont en asymétrie de pouvoir face à des États qui ont en permanence des besoins financiers pour, la plupart du temps, gérer des urgences. Elles savent que ce ne sont pas des mondes dans lesquels peuvent prospérer des idées alternatives. Je compare ici l’Afrique à l’Asie ou à l’Amérique latine qui a toute une autre histoire politique. La dynamique en Afrique n’est pas du tout la même. Quand la Banque mondiale et le FMI débarquent dans les pays africains, ils viennent avec une expertise et des conditionnalités qu’ils imposent avec une promesse de décaissement immédiat. Du coup, dans l’urgence, ces préconisations passent. A l’intérieur des pays africains, l’on ne réfléchit pas aux besoins internes et aux mécanismes de réponse aux besoins internes. Les institutions de Bretton Woods savent que dans les pays africains, il n’y a pas d’alternative en termes de réflexion. Il n’y a pas de modèle alternatif. Donc le capital international continue de dominer et surtout de cultiver la dépendance des économies nationales aux marchés financiers à travers la logique de l’endettement. Le phénomène se poursuit dans le temps. Raison pour laquelle vous avez, dans les pays africains, deux économies qui se côtoient sans beaucoup s’interpénétrer tout en ne s’ignorant pas : l’économie informelle qui répond, elle, aux préoccupations internes et puis l’économie dite formelle extravertie pour l’essentiel, mais qui subit la pression fiscale de l’État parce qu’elle est très limitée en taille. C’est sur elle que l’État compte pour améliorer son assiette fiscale. D’ailleurs, dans les pays africains, le secteur privé se plaint constamment de cette pression fiscale excessive des États qui n’ont pas encore intégré qu’ils gagneraient à renforcer la capacité du secteur informel. Or l’État africain ne lorgne du côté du secteur informel que pour envisager comment l’imposer. Comment soutenir ce secteur qui couvre pourtant tous les domaines de la vie réelle ? Le secteur informel en Afrique répond à tout, même aux besoins de santé. Dans les villes africaines, vous avez des étals de pharmacopées sur les places des marchés, des offres de médecine alternative et tout un tas de choses. C’est toujours vers le secteur informel de la santé que les populations courent lorsqu’elles se retrouvent face aux défis de cette médecine moderne très coûteuse qui finalement les exclut de l’accès au droit à la santé. C’est cette médecine alternative qui leur permet de continuer à se soigner. Pourquoi, au bénéfice des usagers, un État sérieux ne travaillerait-il pas à trouver un compromis entre ces offres alternatives et le coût exponentiel exclusif de l’accès à la médecine dite moderne, avec toutes les précautions éthiques qui s’imposent ? Pourquoi ne soutiendrons-nous pas plus sérieusement les programmes de recherche sur la pharmacopée, aider à résoudre les problèmes de dosage souvent opposés à la pharmacopée ? Les solutions proposées par la pharmacopée peuvent être efficaces. Mais lorsque l’on vous dit que les mêmes produits guérissent dix (10) maladies, il y a de quoi soumettre cette assertion au filtre de la raison scientifique pour espérer garantir aux populations une offre de pharmacopée plus rationnelle et bienveillante. Pourquoi ne pas le faire ? Parce que nous voulons protéger le marché des médicaments pour les grands laboratoires pharmaceutiques qui n’ont aucun intérêt par ailleurs à investir dans les recherches pour ce que l’on appelle aujourd’hui « les maladies négligées » ? Dans tous les secteurs de la vie, vous avez ce type de phénomène. J’ai pris le cas de la santé mais vous pouvez retrouver la même chose dans l’alimentation et dans les grands secteurs socio-économiques. Nous préférons laisser en rade la part de l’économie qui répond aux besoins de la grande majorité et nous focaliser sur celles qui insèrent les économies africaines dans une dynamique plutôt internationale mais qui finissent par garantir à l’État un minimum fiscal, lequel ne permet justement pas à l’État de fonctionner ; ce qui l’oblige de fait à s’endetter pour répondre aux demandes minimales en termes d’infrastructures économiques et sociales de base. C’est ce hiatus qui me paraît incompréhensible.

3 - Plusieurs analystes s’accordent pour dire que la pandémie offre une occasion aux pays africains de repenser les modèles de développement et d’accélérer l’intégration régionale, la diversification de l’économie, une croissance verte, …Pensez-vous également que nous sommes à un moment charnière pour la transformation économique du continent et quelles sont les pistes que vous avancez ?

Ce que je constatais, c’est que au plus fort de la pandémie, le monde semblait s’est arrêté. Et nous avions tous commencé par comprendre que, quel que soit l’endroit où nous nous trouvions dans le monde, il y a quelque chose qui ne tourne pas rond et que nous devons changer nos modes de vie. Aussi, quelques temps après, j’ai pu constater que nous étions tous pressés de recommencer comme par le passé dès que les premiers signes de reprise, dès que les premiers signes de recul de la pandémie ont été observés. Nous sommes repartis comme si la pandémie n’était juste qu’une parenthèse dans nos vies. Pourtant, on se promettait d’avoir un rapport plus sage à la nature, lorsque les avions étaient cloués au sol, pendant que les signes de la pollution se sont tassés et qu’on constatait nous-mêmes que nous polluons la nature, que nous sommes les destructeurs de cette nature. Dans les moments de confinement généralisé, on avait tous des idées généreuses vis-à-vis de la nature, vis-à-vis de l’environnement. C’était le temps de la repentance sur la manière dont nous vivions jusque-là. Il en était de même en Afrique comme en Europe ou en Amérique. Certes, la pandémie ne nous a pas touché comme elle a touché l’Amérique du Nord et l’Europe. Mais dans toutes les conversations, en Afrique également, nous nous faisions également les mêmes types de promesses : vivre plus sainement et simplement ; moins violenter la nature ; réapprendre à vivre de l’essentiel. L’on se rendait bien compte qu’il fallait sortir du style de vie trépidant qui était sans issue pour l’humanité. Mais dès que les activités économiques ont repris parce que on a observé un recul de la pandémie, nous avons recommencé à vivre comme par le passé. Nous avons oublié la promesse que nous nous sommes faites quelque mois avant, comme si cette réflexion n’a jamais eu lieu. Malgré la présence des variants delta et maintenant omicron, je ne vois pas de signe de mise en exécution de cette promesse, de cette réflexion qui appelait à vivre autrement au plus fort de la crise de la pandémie.

Je reviens chaque fois sur le mot ‘’alternative de réflexion’’ parce que la réflexion alternative a un coût et suppose un engagement. La réflexion alternative suppose qu’on la finance parce que la pensée pour l’action positive ne naît jamais ex nihilo. Je ne vois aucun signe qui marque la différence sur le terrain de la recherche en Afrique et même des politiques publiques. Supposons même que cette pensée se développe dans des cénacles fermés, je ne vois ni de signe ni d’engagement en faveur d’une autre façon de faire l’économie et de vivre. Nous avons du mal, ici et ailleurs, à nous fixer de nouveaux horizons parce que j’ai le sentiment qu’on est assez confortable dans le modèle actuel, qui a ses prédicateurs, ses chapelles. On ne voit pas émerger de nouveaux lieux de réflexion pour envisager un autre monde, une autre façon de réfléchir et de vivre. Tout se passe comme si l’on était en face du mur de l’impossible réinvention de soi parce que le modèle dominant est bien assis sur ses rocs. Il a ses supports de propagandes qui continuent de fonctionner et il laisse penser que l’on n’a rien à faire d’autre que de continuer à vivre sans sourciller. Maintenant pour qu’il y ait cette alternative dans la façon de penser et de vivre, il faut qu’il y ait une détermination, une volonté politique de nous réinventer dans les différentes parties du monde, ce que je ne sens absolument pas venir, de toutes les façons. Encore moins dans nos pays africains qui ne gèrent que des urgences, Dans ces pays dans lesquels quasiment toutes les décisions politiques se prennent dans l’urgence, il n’y a pas le temps de la réflexion encore perçue comme un luxe pour pays riche.

4 - La Côte d'Ivoire est dans un voisinage difficile avec plusieurs pays au nord – Burkina Faso, Mali, Niger – très gravement touchés par les insurrections djihadistes. Quelles mesures pratiques la Côte d'Ivoire et le Ghana, le Bénin et le Togo voisins peuvent-ils prendre pour éloigner le risque d'infection par ces groupes ?

Le risque de développement de l’extrémisme violent est grand dans les pays côtiers. Et d’ailleurs, certains pays côtiers comme le Bénin et la Côte d’Ivoire subissent déjà des attaques dans leurs zones septentrionales mais aussi dans la partie sud pour la Côte d’Ivoire. Cela veut dire que le phénomène sort du périmètre de l’hinterland et touche désormais les pays côtiers tout autant exposés. Ces pays qui sont sous la chape des mouvements extrémismes violents et ceux de la côte qui n’ont connu que quelques attaques ont quelque chose en commun. Ils connaissent plusieurs fragilités allant des questions identitaires aux tensions intercommunautaires liées, soit à l’accès aux ressources naturelles en situation de changement climatique, soit aux inégalités dans la répartition des ressources. L’oisiveté des jeunes, rongés par le chômage constitue pour eux une fabuleuse opportunité d’enrôlement. L’économie de la violence se présente dans de tels contextes comme une offre d’alternative aux vies sans projet et une réponse toute faite proposée par les mouvements djihadistes à la demande sociale de justice distributive. L’argument religieux islamiste n’est qu’une imposture que mobilisent les ingénieurs de l’extrémisme violent, profitant ainsi des récriminations contre les États et capitalisant ainsi les frustrations de diverses natures. Dans les pays de l’hinterland, l’on est confronté à des États affaiblis qui n’arrivent plus à répondre aux besoins de leurs populations, surtout celles qui vivent dans des zones de relégation géographique. Vivant avec un sentiment d’injustice sociale, et en situation d’absence de l’État, elles sont réceptives au discours et à l’idéologie politique de l’utilisation de la violence pour instaurer un État islamique ou rétablir un califat. Selon leur logique, il faut déloger les Occidentaux et fragiliser les États fantoches et corrompus qu’ils auraient, selon eux, contribué à installer à la tête des pays africains. Ils se payent sur les ressources glanées via les économies criminelles dans lesquels s’insèrent massivement ces jeunes qui accèdent par ce biais à un revenu parfois bien supérieur à ce qu’ils auraient gagné en travaillant honnêtement. On voit bien que l’extrémisme violent est avant tout un problème de développement. La réponse sécuritaire militaire qu’on tente d’y apporter montre tous les jours ses limites puisque le mouvement s’étend. L’on n’a pas encore assez intégré que c’est aussi le résultat de l’affaiblissement de l’État et de l’inadéquation des modèles de gouvernance qui le caractérise. En clair, le djihadisme trouve dans le besoin de revanche des oubliés de l’État un terreau fertile pour son expansion.


Read More

Thursday, February 10, 2022

Resource Limits to American Capitalism & The Predator State Today


James K. Galbraith discusses the shift of US capitalism from an industrial state to what he calls a predator state: a finance-led, military-centered corporate republic that continues to prevail. To overcome it, he lays out what is needed to focus on employment, stability, and adjustments to rising resource costs. Lynn Fries interviews Galbraith on GPEnewsdocs.



Transcript

LYNN FRIES: Hello and welcome. I’m Lynn Fries producer of Global Political Economy or GPEnewsdocs with guest James Galbraith.

It is normally thought that large investments and technological developments can ensure fast economic growth and prosperity. In the book The End of Normal, James Galbraith argues that while fixed-capital and embedded technology may be essential in a capitalist system, rising resource costs can render any such arrangement fragile. [1]

As it is not possible to obtain cheap resources indefinitely, be it domestically or from the rest of the world notably the Global South, Galbraith argues that the US needs to design institutions and policies to cope with rising resource costs. Not doing so has been one important reason that explains the shift from the American capitalism as described by John Kenneth Galbraith in his 1967 book The New Industrial State to an economy shaped by crises, institutional breakdowns and predatory tendencies, as described by James K. Galbraith in his 2008 book The Predator State.

In today’s program, James Galbraith analyses this long-term transformation of the US economy, describes its current state as a corporate republic in which finance has gained the upper hand and co-opted democratic institutions to forward its narrow interests, and discusses solutions for the way forward, which will also re-shape the future of growth.

Joining us from Texas, our guest, James K Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations and is Professor of Government at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. A prolific author, James Galbraith’s published work includes The End of Normal, Inequality and Instability and The Predator State among numerous other books.

Welcome, James.

JAMES K. GALBRAITH: Thank you.

FRIES: Let’s start with some context on the analysis of American Capitalism presented in The End of Normal. In your words: “this is the economics of organizations developed by John Kenneth Galbraith modified to emphasize that large, complex systems are not only efficient but also rigid…”.[2] The economics of organizations is a concept developed in The New Industrial State and John Kenneth Galbraith of course was your father. Let’s start there. Tell us something about that body of work and related terms like technostructure and countervailing power that John Kenneth Galbraith coined in his analysis of American capitalism.

GALBRAITH: The New Industrial State was the culminating book of a trilogy essentially that my father started in 1952 and completed in 1967. The three books were American Capitalism, the concept of countervailing power, The Affluent Society and The New Industrial State.

And what he developed in that body of work was a portrait of how American capitalism actually worked. And it was clear that it was an industrial capitalism that was rooted in the functioning of large organizations of large industrial corporations. And not in this notion that really was a hangover from the 18th century of essentially independent, small businesses and farmers and so forth all transacting with the so-called market as the dominant institution.

You can’t do advanced production/advanced manufacturing that way, because you have to have a mastery of a whole raft of technologies. And in order to do that, you have to have specialists. In order to have specialists and use them, you have to give them very specific things to do. Someone does the chemistry, someone does metallurgy, Someone does the engineering, hydrodynamics and on and on and on. to bring this all together. And that has to happen in an organization.

And then when the organization actually masters the technology, it has to figure out a way to present it to the public so the public is interested in buying it. It has to manage a regulatory process. It has to manage the financial aspects. It has a whole range of functions that go beyond the pure matters of mastering the technical aspects of production.

So the technostructure, (which was by the way, not my father’s, um, most felicitous coinage. And he was somewhat ambivalent about it as well as a word), [the technostructure] is a group of people who make up as a group the functioning brain of a large organization. And one of the ideas in The New Industrial State was that this group of people were really the governing force.

They were the ones on whom the organization depended. That the top manager, the person, the CEO, the so-called entrepreneur was somebody who could be replaced generally speaking. The Board of Directors didn’t really do anything at all. It was a symbolic body. The shareholders had no role.

The people who actually ran the show were the people who knew how to fit the pieces together and could work together as a team. And that was the message of The New Industrial State.

And that was also the dominant feature of the whole American capitalist system. On the one hand you had the alternative, which was the Soviet Union which was an industrial and behemoth but very centralized and very rigid. And obviously at the end of the day, very fragile. And on the other, you had the developing world which hadn’t mastered the capacities that the American corporation mastered.

So the US system at that time was widely regarded as being a model toward which effective developmental strategies would be attempting to trend. All of that, of course, has changed. The world does not stay still and nobody captures it for any indefinite period of time.

FRIES: Give us more background on the development of the US system and so what were the decades spanned your father’s portrait of American capitalism.

GALBRAITH: Well, the development of the system does start really in the early 1930s. It starts with Roosevelt’s New Deal. I mean, you had an earlier system which was very unstable; which went through an explosive period of growth in the 1920s and then collapsed. And the collapse didn’t go away. It lasted for four very long and painful years in which the factories were idle and the people on the farms couldn’t sell their products and then there was mass migration and all kinds of ecological disaster.

Then Roosevelt in the New Deal created an entirely different structure within which the American economy could function. And that was a federal project and it culminated in the vast industrial mobilization at the time of the Second World War.

So the period my father is describing really picks up from I would say from the early 1940s, when he himself actually played an important role. He was the deputy administrator for prices of the Office of Price Administration. So he controlled basically every price in America for a period of a year. Then he went onto describe the system that he’d had to deal with and that was evolving in the forties and into the fifties.

It’s about managing the uncertainties associated with advanced technology. It’s about having organizations that are stable, that provide livelihoods that are stable. It’s about organizations that are responsive to multiple constituencies, the public sector, to the consumer sector, to various outside forces.

So it’s about the balance of things in society. That’s the concept of countervailing power. It’s about having essentially a world in which you have some economic predictability, not only for the organizations but for the people who work for them and for the larger community.

And again, all of that was certainly the way the system appeared to be functioning into sixties. And then into the seventies it began to run into the kinds of serious difficulties which have been a feature of life for the last 50 years.

FRIES: As you argue in The End of Normal, in the postwar era, economists were living in a kind of dream world because the dominant economic ideology basically obliterated the analysis of resource costs from economic growth theory. This vision then just assumed as you say that the rapid economic growth performance of that period could be pursued indefinitely and extended to everybody.

One of the consequences being the US postwar economic system didn’t get built to cope with rising resource costs. The implications of which did not surface until cheap resources that had enabled rapid growth in the postwar era were no longer so cheap in the 1970s.

GALBRAITH: A couple of distinct points here. The early 1970s were characterized by some epochal changes. The first one in 1970 itself was the peak in conventional oil production in the United States. Which meant that from that point forward, we were increasingly dependent upon imported oil Middle Eastern oil.

In 1971 the exchange rate system that had been developed after World War II broke down. It was dismantled by President Nixon. The dollar was devalued and you had the beginning of a period of substantial instability. This led in 1973 to a big increase in the price of oil. And that was the first energy crisis.

And what did that do? That meant that a great many American industries which had been built on high levels of of energy consumption now had very high costs compared to other industrial structures that were more recent. Or that were being built at that time which could be built to adjust to the higher levels of energy costs.

Which was true of the automobile industry in Japan, for example. Since Japan didn’t come out of the war with a great reserve of cheap energy, it always had to be conscious of that in building up the kinds of industry, automobile industry for example, that it built. And so it was, it was in some sense, better adapted to the new environment.

And here you had two different or two let’s say industrial systems which we’re organized by different corporations, under different governmental structures, which were in alliance with each other, but we’re also in competition. And from that point forward, you began to see this real incursion of German, Japanese and later Korean and then finally much later on then the Chinese industrial organizations and production structures send products into the American market.

And they tended to displace those parts of the American industry which were older, organized under the principles that had been advantageous in the fifties and sixties. And you got a kind of de-industrialization that occurred in the United States. And then greatly accelerated in the 1980s by the way economic policy was managed.

FRIES: I’ll just interject for viewers here that we cannot possibly do justice to the full breadth of your analysis not least of all the international dimension But I’ll just note here that as well as hollowing out the US industrial core, the way US economic policy was managed in the ‘80s set off a debt crisis that went around the world for two decades and was especially devastating for the developing countries in the Global South.

Talk now about the financialization of the US economy following this period of accelerated de-industrialization in the 1980s. So after the industrial core of the United States, so basically that means the agro-industrial middle class economy from the 1930s to the 1970s, was gone. So what then emerged in the 1990s?

GALBRAITH: I published a book in 1989 whose subtitle was Technology, Finance and the American Future that I think captured what was about to happen or what was already already happening at that point. The economy that returned in the context of the 1990s was a very different economy.

It was dominated by global finance which was headquartered, of course, in New York on the East Coast of the United States. Its major industrial element in the United States was no longer in the upper Midwest and no longer basic consumer goods manufacturing, but the technology sector, which is much more located on the West Coast. So, you had aerospace; you had information technology; you had armaments; you had the entertainment industry.

These things prospered under these conditions. They were highly oriented toward global markets. They were also strongly backed by the financial sector. So those two things became in some sense the controlling, the dominant elements in the American place in the world economy. With a great many of the consumer goods coming in from overseas in a way they had not done before.

FRIES: Well that gives us an overview of American capitalism as it evolved from the postwar era into the 1990s. So as further context to the 1990s, let’s bring the Soviet Union into the picture here.

Earlier in the conversation, you said the late Soviet Union was an industrial behemoth but very centralized and very rigid. And so obviously at the end of the day, very fragile. Notably because it was a single integrated high fixed cost industrial system which operated with very little flexibility.

So the question being, do you see any convergence between the late Soviet model and what happened in the United States?

GALBRAITH: Well, there was certainly in both systems a process of obsolescence. And let’s say the downfall of industrial systems that were built up in the first half of the 20th century were no longer effective under the conditions in the second half of the 20th century. So that’s certainly true.

The situation in the Soviet Union was much more dire because among other things, the entire country collapsed in 1991. And that broke apart industrial chains of production which had previously been within one country. They had to cross international frontiers. As national frontiers turn hostile in some cases, the system no longer works. The same thing happened by the way in Yugoslavia.

And the Soviet system was more brittle in important other ways and suffered a much more calamitous collapse. This was a system which, although it had many inefficiencies, it was designed to take advantage of certain kinds of efficiency, particularly very large-scale operations: steel plants, automobile plants, and so on and so forth.

And that was what generated the fragility that led to this breakdown at the end of the Soviet period. From which Russia by the way, over 20 years has substantially now recovered. But, that was the situation at the time.

But what happened in the United States was not of an entirely different type. It’s just that the US had elements that were able to recover and maintain their position in the world economy. And again, the dominant ones were finance, technology. But they were located in very different parts of the country. So you had essentially a large area of economic stagnation and decay.

And that of course, has its political consequences. It’s what led ultimately to what Donald Trump was able to seize upon in 2016 and carried him to the presidency. Before that these developments were what, for example again, carried bill Clinton to the presidency. His strength was on the East Coast, on the West Coast and bringing that into the Democratic Party. Each of these economic developments has a political corollary which you can trace very easily.

FRIES: Let’s turn now to the shift from the form of American capitalism described by your father in The New Industrial State to what you describe in The Predator State as a corporate republic. So talk now about your argument that when weakened by adversity, the US model was destabilized from within and made vulnerable to fraud, predation, and looting.

GALBRAITH: Here’s another case where we can talk a little bit about convergence between the late Soviet model and what happened in the United States. In the Soviet Union when it was no longer profitable or no longer possible to produce in the previously existing structures, the people who had control of the assets liquidated them.

It was called the privatizing nomenclature. They simply enriched themselves at the expense of they previous existing system at the expense of everybody who had been dependent upon it. This contributed greatly to the social distress and to the collapse of life expectancy and so forth in the late Soviet period.

In the United States what I described in my 2008 book, The Predator State, was something about essentially a parasitism on the public institutions that had been developed in the New Deal and the Great Society. The argument I was making was that we had very robust social insurance, social stabilizing institutions including Social Security, Medicare. One could go down the list.

And a certain politics emerged out of that. Free market conservatives might say we want to get rid of these things. We want to privatize them. We want to dismantle them altogether. That isn’t really what they were after. What they realized in this age of particularly George W. Bush and Dick Cheney was that they could make certain parts of their constituency quite happy by skimming. Essentially by taking some of the resource flow and directing it to the narrow constituencies that supported them.

So this was the case, for example of Medicare Part D, which is the drug benefit that was a major expansion of Medicare that occurred under the Bush administration. It became a very complicated system with a lot of private drug companies making a lot of money off of selling pharmaceuticals to senior citizens in the United States. They pay an enormous amount. It’s just unheard of certainly in Europe in terms of what these medicines cost. And that’s not accidental.

The whole idea here is that you get private sector support for the larger program by enriching a small group of people, at the expense of the larger public. It’s not a system, anybody who designed rationally, but from a political standpoint, it makes sense. And it’s understandable that any kind of, let’s say an administration with the ethics of the George W. Bush administration would pursue that road.

And so we saw quite a lot of that. Essentially, as I say, not undoing the public sector but converting it into an instrument that also greatly enriched private interests.

That said one also had in the strictly private sector, there’s nothing quite like… I wouldn’t call anything strictly private, but in the corporate sector, we also went through a period of basically the dismantling of going concerns in order to enrich shareholders and corporate executives who were able to self deal with stock options and buybacks.

The whole business of private equity is largely concerned with that. How do you load up an organization with debt in order basically to walk off with a great deal of the asset value. So you see a great deal of that going on as well.

FRIES: You distinguish between those nations that continued along the lines that once defined US economic success as described by John Kenneth Galbraith in contrast to those that like the US & UK, shifted to the opposing Friedman doctrine of the economics of markets.

Prominent examples of nations that continued along the lines of the Galbraithian the economics of organizations being Germany, Japan, South Korea, and China. So comment on John Kenneth Galbraith’s influence in that respect and specifically in the case of China.

GALBRAITH: Well to begin with it wasn’t my father who directly advised the Chinese. Actually, I did that. In the 1990’s I had for four years a position in a consultancy under the United Nations Development Program as chief technical advisor to the State Planning Commission for Macroeconomic Reform. It was mostly an exercise in providing training and exposure to the people who were working there, rather than direct policy advice.

The interesting thing though is that when I got there in 1993, I got a whiff of a fact that I’ve later confirmed through the work of a young economist named Isabella Weber who has written on this in a very important book about China. The people I was dealing with were very, very familiar, especially, with the American experience with price control in the Second World War. Which was my father’s doing.

And the things that they knew about it were what he’d written about it. And they had his books. They’d been translated internally. They’d studied them. And so this fed into if you like the historic Chinese economic management. Which has always been about stabilizing prices, agricultural prices and then the new problem was industrial prices. And that’s where they drew on my father’s work.

That approach is completely opposite to the idea in Western economics that the prices are supposed to adjust. And that the markets are supposed to, you know, let them go up and down and do whatever. Now that’s just not the way it works.

In the thousands of years of Chinese history, the emperor has always bought the grain when it was cheap and sold it when it was expensive in order to keep the peasants from rising up in revolt. And by and large, it worked. So this is a big difference.

I characterize the economies of a number of countries as Galbraithian. In Germany where you have co determination and strong unions. And you have a kind of collaboration between the industrial and the union and the government sectors. At least in the, in the traditional part of the German economy. In Japan, Korea, and I think China fits under this rubric as well. In which fundamentally the driving forces in the economy are industrial organizations, corporations; some of them State owned, some of them private, some of them joint ventures, some of them foreign. But they maintain long-term objectives. They’re not quick buck operations.

The government has been quite careful to prevent or to restrain the tendency for asset stripping that comes up in capitalist systems. And China has a very substantial capitalist system. The notion that it is a communist country is not something that’s recognized by anybody who knows it well.

This is the big difference. It’s not a country where the equivalent of Wall Street runs the show. It does have its own financial sector. The government has been quite careful to keep it from taking on the kind of overwhelming importance that the financial sector has in the United States or the United Kingdom. And that’s a big difference. That’s a Galbraithian feature, if you like, of the Chinese system.

FRIES: And how is China coping with rising resource costs?

GALBRAITH: Well, the Chinese have been planning for the resource issues and acting on those plans. That’s what the Belt and Road Initiative is largely about. It’s about building pipelines and rail lines and so forth that will supply ports and mines and so forth in resource producing countries. That will establish reliable supply lines so that China can navigate what they anticipate to be a period of rising resource costs because they know they have to reduce their reliance on coal. Coal is the cheap fuel.

But if you’re going to use a gas, you’re going to get it from Russia or from central Asia. And the other things that one needs are going to come from other parts of the world, Africa, notably. And so you see the Chinese going out there and saying: Hey, we’ll build you ports and airports and so forth, rail lines, roads. And making these deals.

They’re doing this very much in their own interest. And the interest of long-term stability of their supply lines. We accuse them of having lots of other motives but it seems to me that this is clearly the dominant motive of Chinese engagement in the developing world.

FRIES: In contrast then to a number of countries that you characterize as Galbraithian in the US, Wall Street runs the show. Your argument is that the US needs to move to a qualitatively form of American capitalism and a new approach to economics is needed for that to happen. And your own approach is to treat the economy as having the same form as a biophysical system. So tell us something about that.

GALBRAITH: This is an argument that I’ve developed in conjunction with a colleague of mine, Jing Chen. And it’s rooted in the most basic physical principles. That in order to extract resources efficiently, you have to invest. There’s no other way of doing it. And then the large scale investments are the most efficient ones.

And when resource costs are low, it just pays. It pays to build when you have a large free-flowing river coming through a canyon with a lot of energy available, it pays to build a big hydroelectric dam. And that’s a capital intensive enterprise. One can go down the list of things of that kind.

The consequence of doing that is that when the resource costs go up, then you’re in a dangerous situation. That’s in the nature of every physical, biological, mechanical system. It’s not accidental that the largest animals have the biggest range and the most diverse diets and so forth. But it is also not accidental that they’re the ones who are endangered. And that they’re the ones who at risk when the climate changes.

FRIES: Talk more about the basic physical principles in this approach that treats the economy as having the same form as a biophysical system [3]. In other words, what all that means.

GALBRAITH: Well, it means that you have to build the economy in conjunction with the environment of which it is a part. Both the resource environment and what’s available in terms of the biosphere for absorbing the waste products of economic activity. And those two things have to be treated as of really great importance. Which we haven’t been doing.

In terms of how economics should be taught and understood, it seems to me that giving everybody grounding in thermodynamics is vital. And understanding that the economics that is in the textbooks is a kind of 18th century idealization. It’s really pre-scientific. It has a theological aspect. It’s sort of Deist. That’s what Adam Smith was.

In some sense, it’s the intelligent design view of the economic world. Which was superseded in scientific understanding already in the middle of the 19th century by Darwin and evolutionary perspective.

So what I’m building on and suggesting is that once you really start with the essence of an evolutionary perspective and get people to understand what that entails.

FRIES: Explain more about that. So give us some context on what an evolutionary perspective entails.

GALBRAITH: First of all, we have to recognize we have some obligations to the planet. Those obligations are to move away from the cheap and dirty fuels. And to create systems that are sustainable over a long period of time. This is partly an engineering problem but it also is a question of resource allocation.

And you’re going to have to put resources into that to make it happen. Economists talk rather glibly about carbon taxes and say: Okay, we can get the price of using carbon up. But it doesn’t work that way. People who own a gasoline powered car cannot immediately switch to something else. It’s not as though they have a horse in the backyard that doesn’t emit carbon dioxide.

So, one has to build systems that are functional. And in order to do that, you’ll have to commit resources. In committing resources, you’re going to have a lot of things that are you’re using resources for that are not immediately consumable. And they will yield benefits down the road. And so you have to manage that transition.

Is it entirely new? No, nothing’s entirely new. This is part of the problem that was dealt with in the Second World War. It was part of the problem that was dealt with in the construction of the infrastructure of the country in the New Deal.

FRIES: Let’s talk more about your argument that in order to move to a qualitatively different form of American capitalism, a new approach to economics and so economic growth strategy is needed. By now most everybody recognizes the problem of boom bust economic growth. Your critique of finance driven growth and the role the wave of financial fraud played in the 2008-2009 Great Financial Crisis is also widely recognized.

Of special relevance to this conversation is your argument that these financial frauds were the culminating phase of efforts to preserve the post war rapid economic growth performance. So the culminating phase of decades of efforts basically from the 1970s when American capitalism ran into serious difficulties. As discussed earlier, the postwar era of easy growth enabled by cheap resources ended with the rise of resource costs in the 1970s.

So to have another stab at some of the underlying insights of your critique of efforts to sustain a high economic growth, I’ll very quickly cite from your book The End of Normal. In your words: A high-growth economic strategy favors capital investment, a substitution of capital and energy for labor, and fosters increased inequality in a winner-take-all-system. [4]

You point out that finance and technology, two sectors that dominate this winner-take-all-system simply don’t provide a large base of direct employment. So focus for a moment, on the issue of productive employment under this high growth model.

One thing we can all understand is a low use of labor compared with machinery and resources has implications for working people. Taking the case of labor saving technology, talk about how the advanced technology sector is accelerating a decline in the base of productive employment.

GALBRAITH: This is a feature of essentially the wave of technologies that we’ve been in the midst of for the last 25 or 30 years, at least.

I’ll put it this way, if you look at what happened in the early 20th century a great many things that were provided within the household were outsourced to machines.

Transportation was one of them. My father grew up on a farm where the the plowing was done by teams of horses and you don’t need a gas station and you didn’t need a mechanic. These were replaced by tractors and the carriage into town was replaced by the automobile. And a whole body of not just producing the employment producing these vehicles but in maintaining them and the roads and the fuel systems and everything else grew up.

So the system was adding employed paid jobs. And one could go through a lot of things that happened inside the house as well. That you know, cooking and cleaning and so forth. Where it became mechanized and became the objects of employment providing industries.

Now this is not what the digital world is doing. It seems to me. What the digital world is doing. And the digital revolution is doing is working out ways to reduce the labor content of a whole range of things. I mean, we can go down enormous lists. But a lot of clerical work, a lot of accounting work, a lot of communications, obviously the information and the entertainment sectors and all kinds of things.

What we’re doing right now, which is talking over a digital link would have only a few years ago required airfares, hotels, restaurant bills, all kinds of things in order to do this. And even though the underlying recording technologies existed for many decades.

So one can see that the ancillary labor requirements are being reduced. Which is not a bad thing. It means that lots of things are becoming accessible, simple, and inexpensive to do that were previously clearly quite expensive and difficult.

But it does mean that we have to adjust. We have to work out things for people to do that are not automated; there are many things. Life can go on in a very agreeable way. And in fact can be improved dramatically provided that the economy is able to give a means of subsistence; make incomes flow for doing those things.

And if the industrial model isn’t going to be providing a lot of jobs, then we have to have institutions that do. And cooperatives are an example and decentralized public sector structures of one kind or another. are an example. The tax system can be mobilized to assist this. We just have to put our minds to it.

FRIES: What you are describing basically means turning the prevailing high growth strategy on its head to what you call a slow growth strategy. Which is not a slowed version of the high growth strategy but instead as you explain, to quickly cite from The End of Normal once again: A slow growth model should instead foster a qualitatively different form of capitalism: based on decentralized economic units with relatively low fixed costs, relatively high use of labor compared with machinery and resources, relatively low rates of return, but mutually supported by a framework of labor standards and social protections. {5]

GALBRAITH: I stand by those words. I think one does need to recognize that some parts of that economy are going to be of a very high fixed cost variety. Entities that actually create the information networks, these are laying down fixed cost systems. The entities that will continue to provide manufactured goods may not be very large in terms of the scale of employment, but they will be very concentrated in their use of capital and technology, otherwise they won’t be able to do this.

They’re going to be complex, concentrated and effectively centrally organized. There’s no I think way around that in the modern world. You don’t want to have excessively duplicative network structures beyond what you need to have a certain amount of resiliency.

So there is an illusion, which I would associate with some of the people who are the advocates of this so-called new antitrust, that the problem is concentration per se. And that the way to deal with this is to establish competition, to have many, many units that are effectively all trying to do the same thing. And this is not an effective way to organize, for example, a communication network. If you had 10 Facebooks or 10 Googles 9 of them would not last for very long, no matter what you did.

So one has to really push back against the idea that the 18th century economic idea had it right That idea was already out of date with the Industrial Revolution. So, what is the right approach?

I think the right approach is, again, a Galbraithian approach. It is to recognize the need for countervailing power. To recognize the need for public purpose and for effective and autonomous regulatory structures that can make these large entities serve a public interest.

You have to recognize there is such a thing as a public interest. It needs to be defined in a coherent way. It needs to be respectful of individual rights and protected from abuse. But there is a public purpose and there is a public interest and some entities and institutions need to represent it. And so you really have to have people who are competent and who are trained, who are dedicated, who are imbued with a public spirit, who have enforcement authority setting a set of rules and making and trying to ensure that they’re actually respected.

By the way, this is most especially true with the financial sector. If the financial sector is controlling its own regulations then you’re going to end up with one financial crisis and disaster after another. And the only way to avoid that, that actually works, that has a demonstrated record of working, is to have a set of regulatory institutions that are fully independent and that have real authority over the behavior of the large financial institutions. And can keep them from essentially abusing the enormous control and authority they have over the extension of loans and what effectively has been the creation of money.

FRIES: So in The End of Normal you analyze the breakdown of law and ethics in the financial sector as one of four major obstacles to sustainable growth and full employment in the US. Two others being, as we discussed, the rising costs of real resources and the labor-saving consequences of the digital revolution. Talk now about the fourth. What in your words is: the now evident futility of military power.

GALBRAITH: A great deal, at least a strong part of the deep backbone of the American economy in the post-war period was furnished by the military position of the United States, by the security environment that emerged out of the war and then was built up in the Cold War. And then in the aftermath of the Cold War got completely out of hand.

There was an idea that the United States was the sole superpower. It was going to essentially provide the guarantee of world security. And an idea that the US military was the the hyperpower or one that nobody would stand up to.

It’s now 30 years down the road from the emergence of those ideas in the early 1990s. And we see that they are both in tatters. They both have been effectively refuted. The United States is not being accepted as the sole guarantor of global security. And in fact, strong powers have emerged which are not going to accept it and insist that the world be organized on principles that are multilateral.

And secondly, it has been demonstrated that for all of its professional commitments and so forth the American military was unable to prevail in Afghanistan and was unable to prevail on a sustained basis in Iraq.

It’s quite clear. And I actually was invited to give this presentation in 2004 to a group of military officers in Germany. And I made the point, which I developed in the book, that in the modern world the military advantage is with the defense. It’s with those who control their own territory. Because first of all, it’s technology. Secondly, it’s the expectation that at the end of the day, they’re going to be the ones who are going to still be there. That nobody’s going to stay on somebody else’s territory indefinitely.

And so we shouldn’t expect that the security arrangements for the world can be like what we imagined, what some people imagined they would be 30 years ago. We have to come to grips with this. It means we really should for our own sake and for the sake of our economy completely reconfigure our military posture; recognize lots of things that we have are not, not going to be useful.

And we need to build a global security framework which takes account of the power centers that have emerged which we need to accept and deal with. We did this in the Cold War when the Soviet Union was essentially the major security partner, adversary, however you want to describe it. Essentially a balance of power, not a particularly happy one, but one which kept conflict down, did develop.

We need to recognize that we’re not going to escape having to do that again. And maybe you don’t like the countries that you deal with, but that’s not the point. You have to deal with them. And you have to come to the best security arrangements you can achieve. We can’t pretend that it is within our power to prevent that.

I think that understanding that is as an element actually of a sensible economic development strategy. Because when you free up the resources that you’ve been putting unproductively into let’s say armaments technology and into the human parts of the military establishment and into the bases that we maintain everywhere. Then you have resources that you can mobilize for other purposes where they can be more effectively used for the benefit of everybody.

FRIES: This then as you say would be an element of a sensible economic development strategy. And as we are talking about the US, you use the word development strategy in the context of a high income, advanced economy. So this would be an element that is part of a constellation of policy advice that you’ve developed as the way forward for the US. As we’re wrapping up, give us an idea of the main thrust of all this. So, what are some main objectives of these policy solutions?

GALBRAITH: In terms of policy and I am by and large a policy economist and not so much a high theorist. In terms of policy, since you recognize that resource constraints are going to be there and you have to deal with them, one should orient consumption patterns as far as possible toward things that can be enjoyed collectively, toward public goods, in other words. The quality of the environment in other words is a substitute for the accumulation of privately held objects. And something which can be provided I think at considerably more resource efficiency than the current system does. That’s true of transportation networks, for example, that’s a very important element in this. So that’s one thing.

And the second thing I think we need to recognize is that in an economy in which material goods are produced by very small numbers of people and often not within the boundaries of the country consuming them, then you need to provide a strong and a very robust security: social insurance, personal security, security of food, of housing, of retirement, access to education and cultural opportunities to the broad population.

That was the great accomplishment of the New Deal to get that process started. It’s by no means complete. But it gives people the chance to lead fulfilling lives; to take a certain amount of personal risk. Because they’re insured against some of the worst outcomes. To be assured that they will get healthcare when they need it. To protect people essentially against the forces of financial rapacity that’s inflicted on them with student debt, with healthcare debt, with old age insecurity. These are things we ought to be trying to banish.

FRIES: James Galbraith, thank you.

GALBRAITH: Thank you.

FRIES: And from Geneva, Switzerland thank you for joining us in this segment of GPEnewsdocs.

(Visual content cited from The End of Normal by James K. Galbraith: [1],[2],[3] p237 & [4],[5] p252-253)

END OF TRANSCRIPT



Read More

How to Deal with a “Bretton Woods Moment”


The world economy is in serious disarray. What can we do about it?

It has become commonplace for political leaders and pundits to pronounce the need for a “new Bretton Woods” to solve the problems of our broken world economic system. The cry evokes memories of the monetary conference in Bretton Woods, New Hampshire, in 1944, during which all the allied countries fighting the Axis in World War II created the rules-based international financial system that produced unprecedented economic growth in the decades that followed the war. But circumstances have changed, and Bretton Woods—the only truly successful global economic meeting of the twentieth century—cannot be reproduced. What would a positive response look like today?

Sometimes the Bretton Woods rallying call reflects a desire to restore discipline by imposing new rules (or reviving old ones) on trade and finance across national borders. Sometimes it is a call for new institutions to deal with new challenges such as climate change or the rise of pervasive digital technology. Sometimes it is just a way of summarizing the urgent need for restoring international cooperation in the wake of rising populist nationalism. In most cases, however, these pleas lack both a clear goal and a roadmap for getting there. As it happens, we can go a long way toward closing those gaps by studying how and why the original Bretton Woods conference succeeded in 1944.

When the American economist Harry Dexter White began in 1941 to plan what would become the Bretton Woods conference, the global situation was far more dire than it is today. War was raging in Europe and Asia; the depression of the 1930s had decimated economic production, employment, and trade; and currency instability was making it impractical to accept or hold any country’s currency other than one’s own. There was simply no model or template to draw on for thinking about how to design a system for restoring prosperity and peace.

A strikingly original thinker, White—the chief economist in the U.S. Treasury—began by setting out a clear vision of what had to be achieved and what steps would have to be taken to get there. Fundamentally, postwar prosperity would require a renewal of international trade. If major countries instead tried to pull inward, a return of the Great Depression would be all but inevitable. Trade would require cooperation, and cooperation would depend on the acceptance of rules and the development of institutions with the power to enforce them. The challenge that White faced was to get political leaders in the United States and across the broad alliance of countries to focus on the problem and agree on a strategy that could be completed after the war was won.

White had four main insights for this process. He had to fight to get each of them accepted, and those battles hold lessons for today.

First, the solution must be devised while the crisis (in that case, the war) is still present. If leaders wait for a more comfortable moment, the incentive to cooperate and accept compromises will be undermined. As evidence, consider that when negotiators decided to postpone consideration of an international trade organization during World War II so that they could focus on creating the World Bank and the International Monetary Fund, discussions broke down, and the World Trade Organization did not get established until fifty years later, in 1994. Nonetheless, senior officials in the U.S. State Department were initially adamant that none of White’s plan could or should be done until after the war. It took several months before they gave way and allowed planning to go forward. The multiple crises of 2022 might persist, or they might diminish. Waiting until the situation clears could be fatal.

Second, all potential participating countries must be engaged in discussions as early and as fully as possible. In 1942-43, British negotiators, led by John Maynard Keynes, argued long and hard for a bilateral deal between Britain and the United States, with other countries to be invited in only after the system was already designed. Many U.S. officials shared that view, but White understood instinctively that most countries would be loath to commit to a deal that had been cooked up by great powers without the opportunity to plead for their own national interests. Countries as diverse as Canada, China, France, India, Mexico, and the Soviet Union all contributed to the final design.

Today the dominant rivalry on economic governance is between the United States and China. Resolving that conflict cannot be achieved bilaterally, because national interests are too conflicting. If the U.S. government wants the existing rules-based world order to survive, it must seek the views and the support of a broad alliance. Taking a multilateral approach was a tough sell in the 1940s when the United States was by far the dominant economic and financial power. In the current multipolar environment, the need for cooperation is more obvious, but achieving it remains challenging.

Third, whatever form a new system might take, it must reflect the world’s practical realities. In 1944, a key fact was that the U.S. dollar had become the pre-eminent currency for global trade. The British knew that the days of dominance by the pound sterling were over, but they wanted to replace it with a new international currency and sideline the dollar. Even White’s boss, Treasury Secretary Henry Morgenthau, Jr., wanted to create such a stateless currency, apparently out of concern that a system based on the dollar would put too much pressure on the value of the U.S. currency. White understood that insisting on a hegemonic role for the dollar was likely to generate a political backlash. His solution was to retain a strong link between the dollar and gold for international settlements so that countries could choose whether to hitch their stars to the dollar or to gold. Domestic monetary policy could be safely delinked from gold, but he feared that foreign institutions and investors would be reluctant to hold dollars if they were no longer convertible into a universal asset. With that assurance, the postwar system was—and had to be—based essentially on the dollar.

The current global financial system is a curious mix of dollar hegemony and multipolar settlements. The IMF recognizes five currencies—dollars, Euros, pounds sterling, yen, and renminbi—as equally suited for its lending and other official transactions. The portion of international trade and finance conducted by or through the United States is a small fraction of what it was in the 1940s. Nonetheless, a majority of cross-border transactions are denominated in dollars, and a majority of official reserves are held in dollar securities. If the hope for a new Bretton Woods is that it will lead to a more stable and sustainable financial system, negotiators will have to find a way to resolve this disconnect.

Fourth, notwithstanding the need for consultation and compromise, the resulting system must be founded on strong principles. For the postwar system, White argued that the settlement of payments balances between national governments had to become open and multilateral. In the 1940s, if, say, Brazil accumulated pounds sterling by running a trade surplus against Britain, it could not readily convert those pounds into dollars to buy U.S. exports. That system benefited Britain, which oversaw a vast network of countries that used the pound as their currency or tied their own currencies tightly to it. The British resisted committing themselves fully to multilateralism, but White held his ground. In the end, White devised a compromise that gave participating countries several years to unwind their bilateral trade relationships. The Bretton Woods system did not become fully realized until the late 1950s, but in the meantime, it grew gradually in effectiveness and importance. Today, the existing rules-based system must adapt to serve the interests of China and other rapidly growing economic powers, but that need not lead to an abandonment of basic principles including the preservation of transparency, openness, and fairness in international financial relations.

It is too early to specify what a new world economic order might encompass, other than in general terms: a revival of cooperation, an acceptance of effective updated rules governing trade and finance, and new or modernized institutions to deal with the challenges of the twenty-first century. The lessons of Bretton Woods might not reveal the endpoint, but they do illuminate the pathway to it.


James Boughton is a former official historian of the IMF. His latest book is Harry White and the American Creed: How a Federal Bureaucrat Created the Modern Global Economy (and Failed to Get the Credit), Yale University Press, 2021


Read More

Wednesday, February 9, 2022

Revealed: New Insight into What Really Drives the Stock Market


If watching the stock market is giving you that old sinking feeling, you’re not alone. Inquiring minds want to know if the funds they’ve so carefully invested in 401(k)s are going to be there for them down the road. Investors of all kinds are worried about wild swings and lingering perils.

Here’s the unnerving thing: No matter how much market enthusiasts hype the stock market’s “efficiency” and hail it for incorporating all possible information, you’re always in for a surprise. That’s because just like death and taxes, you can count on stuff you never saw coming to throw off even the most careful and detailed planning.

Sometimes these unforeseeable events are big ones with massive market consequences. The “black swans,” as they are called, come in the form of terrorist attacks, financial crashes, and yes, pandemics. If an alien delegation lands on the White House lawn, that’s a black swan. These events ask our brains to process a lot of new and complex information. Suddenly old assumptions become irrelevant. New worlds open up.

When we are trying to make sense of things we don’t understand and can’t be certain about, our brains naturally turn to stories. For a long time, scholars in many disciplines, like history, psychology, and anthropology, have understood that narratives are extremely important to people and all that concerns them. Economists, however, have been late to the party. That’s why practitioners like Nobel laureates George Akerlof and Robert Shiller sought to change this by creating a subfield known as “narrative economics” which takes stories seriously and recognizes that they are major drivers of the economy.

The Story-driven Stock Market

In his new contribution to narrative economics, Georgia Southern University economist Nicholas Mangee delves into the link between stories and unrepeatable, unforeseen changes and how they impact the stock market. In his new book from the Institute for New Economic Thinking’s book series with Cambridge University Press, Mangee tracks evidence of narrative dynamics through millions of daily stock market news stories from the last two decades of data, presenting an analysis of nonrepetitive events and associated story elements and how they relate to stock market changes.

Mangee did graduate work under maverick economists Roman Frydman and Michael Goldberg, who helped him to see that 1) unforeseeable change is always happening in financial markets and 2) mechanical ways of thinking that dominated traditional economics were inadequate to understand it — namely the assumption that the future follows mechanically from the past.

He knew that radical uncertainty has to be taken seriously.

Mangee saw that when it comes to the stock market, uncertainty and ambiguity are at the very core, which is why investors are all about stories. His dissertation work on financial news analytics convinced him that the factors driving stock prices are always changing over time, and nobody really knows which of them will matter the most to investors.

In a recent discussion, Mangee gave an example of just-released jobs numbers: “They blasted past expectations, but is that really bullish? Or is it potentially bearish because it confirms for some people that the Fed will tighten and rates are going to come up by more than they expected? Even when you have news that is scheduled, like jobs numbers released by the BLS, it’s not clear how the market is going to interpret that. Context matters.”

The core question in Mangee’s work concerns the degree to which the story threads that investors rely on and perpetuate over time help them deal with unforeseeable change and the uncertainty it engenders.

As he explains in his book, black swans draw people to stories and produce emotional reactions. Our emotions then get mixed into the kind of thinking Mangee refers to as “cold calculation” as we try make sense of what’s going on. Our brains buzz with questions: How will people behave differently? How will companies do business? What government policies can we expect? How we will live during and after the event? Rational sentiment helps reasonably shape answers to these questions in terms of current information and the reality that change is unfolding in real-time.

Mangee points out that just a few weeks after the coronavirus took off, the stock market lost a giant chunk of its total value, erasing the gains of 2019 and bringing a decade-long bull market to a screeching halt. Stories also quickly came into play, fueled by comparisons to history, personal judgment and prior experience, and scary emotions like panic and anxiety. People opened their inboxes to media stories like, “Panicked Shoppers Empty Shelves as Coronavirus Anxiety Rises” (NYT), which reflected, and helped generate, the stories that they latched onto.

“Narratives are the currency of uncertainty,” Mangee writes, and key to how we view the world in uncertain, changing, times. With this insight in mind, he created a new model of stock market instability under situations where we can’t measure the odds of a certain outcome (what economists call “Knightian uncertainty” after influential economist Frank Knight). His “Novelty-Narrative Hypothesis” (NNH) offers a way to understand the stock market that standard economics has missed.

Stories for survival

Stories emerge not only in response to the big black swans but also to smaller unforeseen events like supply chain snarls and corporate legal issues. Even a product recall or a bankruptcy can create enough uncertainty and ambiguity to spark stories. These “novel corporate events,” as Mangee calls them, can impact the bigger trends and vice versa, in a processes too complex for our brains to deal with. So investors turn to narratives as a survival tactic, a defense mechanism, and a tool for making a satisfying decision when faced with limited information and Knightian uncertainty. Stories fill in the gaps, and, as Mangee points out, turn our emotions into cognitive guideposts and anchors when we’re dealing with the meaning of novel events for future stock returns.

We’re continuously dealing with novel events. Mangee notes, for example, that two-thirds of events identified in news reports as important to corporate prospects and share prices are “unscheduled,” as are four-fifths of big events in the U.S. economy. Instability and uncertainty are everywhere. All the time. Every day.

Some stories are flexible. Others are more rigid. Some are based on pretty good information. Others are not. They reflect our prior beliefs about how things work, and they reflect our culture, societal norms, and the popular zeitgeist. Some economists, like Shiller, have looked at the negative side of stories and how they drive us to do illogical things. Shiller scrutinized “narrative epidemics” and how stories are connected to cognitive disorders and conspiracy thinking.

Mangee has a different take. He explains that unlike Shiller, he doesn’t treat stories as stuff outside the stock market emanating within a few people’s minds, but rather a fundamental part of what the stock market is all about. He emphasizes that it’s perfectly rational, normal, and actually necessary for people to engage with stories when there’s uncertainty and ambiguity. Just because emotion is involved doesn’t mean that the stories will steer us wrong, Mangee stresses.

As Mangee sees it, traditional economists have tended to misunderstand how humans make decisions, holding the view that emotion and cold calculation are necessarily at odds. But he (like scholars from many other disciplines) holds that both are both perfectly rational and necessarily interdependent.

Mangee points out that capitalism produces profit –- and loss -- through unanticipated change. “You can have knowledge and be skillful and roughly right,” says Mangee, “but you cannot know what precisely right looks like ex ante.” He says that when looking at the stock market rollercoaster currently underway, we can think of each moment in time as a node of intersecting highways of narratives concerning events that are not routine. “So you have a stock market correction of 10%. What does it mean? The Novelty-Narrative Hypothesis says that we have to take seriously that each and every day events are happening that are not perfect replicas of the past. We’re still learning about what omicron did and didn’t do to the economy, for example. The past doesn’t predict the future in a mechanical way.”

Mangee’s work suggests that ordinary investors need to diversify much more than they’re already allowing. Just holding the broad stock market doesn’t cut it. “There are too many macro shocks, so you need to be represented in more asset classes than just the S&P 500,” he says. “You need high and low yield bonds; high-cap, mid-cap, low-cap value stocks; high-cap, mid-cap, low-cap growth stocks; international, and so on. The S&P500 is dominated by high-cap. That’s not enough diversification.” Mangee’s work reminds us of how volatile financial markets can be.

His work also makes it clear that when we hear anyone making economic and financial forecasts, we need to keep in mind the limitations of those forecasts. “The recognition of those limitations should almost outweigh what the modelers are saying in their predictions,” says Mangee. “We have to give up precision but we can allow for more nuanced relationships and, importantly, for the novelty of real-world change. People don’t like that tradeoff, scientifically. They don’t like the idea that they can’t apply an objective probability distribution to something before the fact.”

Lastly, Mangee’s emphasis on the importance of narratives steers us to scrutinize our own and those of our communities. “Reality for an individual can depend on contextualized meaning of the world around us,” says Mangee. “You interact with this meaning, and the reality you shape depends on your training, your experience, your culture, your generation, your family -- it’s all related.” It might behoove us to remind ourselves, especially when we’re pointing the finger at someone and saying “Oh, look, that silly person over there is making an emotional decision,” that we all make decisions based on emotion, whether we admit it or not. And that’s not a bad thing – we couldn’t deal with the unforeseeable future otherwise.

Perhaps the best way to approach the future in the face of uncertainty is with a strong dose humility. And beware of under-diversification!


Read More

Thursday, February 3, 2022

Beyond Price Caps: A Regulatory Framework for Pricing of Medicine Innovation


Drug prices and corporate profits

The United States is unique in its failure to regulate pharmaceutical drug prices. The nation’s households pay on average over two and a half times as much for prescription medicines as their counterparts in other OECD countries. In 2018, pharmaceutical spending totaled $1,229 per capita in the United States, compared to, for example, $884 in Germany and $865 in Canada. Congressional complaints that U.S. drug companies engage in price gouging go back to the 1980s, but Americans are still waiting for significant legislative remedies.

The unregulated monopoly over the determination of prices that U.S. society currently grants the pharmaceutical industry has devastating consequences for many U.S. households, particularly those that are uninsured. Despite an overall reduction in the number of uninsured Americans following the introduction in 2010 of the Affordable Care Act, in 2019 26.1 million people—eight percent of the population—were not covered by an insurance plan at any point during the year.

The Biden administration has pledged to make drug prices more affordable as part of its signature Build Back Better agenda. Biden’s plan includes three key policy reforms: i) permitting Medicare to negotiate with manufacturers prices of a list of specific drugs; ii) penalizing companies that raise prices faster than inflation for Medicare Parts B and D; and iii) introducing price caps on patients’ out-of-pocket costs. Even if these reforms are enacted, they will have been watered down to win the votes of some Congressional centrists. Gone, for example, will be the original proposal to empower the government to negotiate the list prices of the 250 single-source brand-name drugs on which Americans spend the most. These drugs include insulin analogs, which saw price increases of 252 percent between 2008 and 2017 across the three manufacturers that dominate the U.S. market.

Those challenging the proposed reforms have argued that federal intervention to reduce drug prices would adversely affect investment in drug innovation because companies would have less profits to fund drug development. That high profits are needed to finance drug investment is a well-known pharmaceutical industry claim—and it is no coincidence that a number of the Congressional Democrats who have resisted drug-price reform have been among the largest recipients of campaign donations from the pharmaceutical industry.

We define drug innovation as the generation of a medicine that is both higher quality (safer and more effective) and lower cost (more accessible and affordable) than those previously available for a specific medical condition. As we show in our new Institute for New Economic Thinking working paper, “Pricing for Medicine Innovation,” the argument that drug companies need profits on existing products to finance the next round of innovative medicines may have merit in an economic system that relies on business corporations to develop, manufacture, and deliver drugs. But that is precisely why the public requires regulation of drug prices: Business corporations should not unilaterally decide how high drug prices should be to generate the amount of profits that innovation purportedly requires.

Drug-price regulation is needed both to set the amount of profits that are potentially available for corporate reinvestment in innovation and to ensure that a pharmaceutical company actually allocates those profits to the development, manufacture, and delivery of innovative medicines. Given the investments by government agencies and scientific communities in drug development that precede and make possible value added by an innovative pharmaceutical company, it makes no sense to leave the setting of the product price solely to the business firms that market, insure, and sell the drug. Working on behalf of American households, a government agency, which we would call the Pricing for Medical Innovation (PMI) regulator, must be directly involved in the negotiations that set the drug price.

Unregulated drug pricing in a financialized industry

Research has shown that the status quo absence of pricing regulation in the United States is not associated with higher investments in research and development but rather with value-extractive financial practices that undermine innovation. As egregious examples of the predatory value extraction that occurs throughout the U.S. corporate economy, major U.S. pharmaceutical companies have been allocating their profits to cash dividends and stock buybacks at the expense of drug innovation. These same companies price gouge patients for the sake of higher profits that can be used to pump up stock yields. The stock-based compensation of U.S. corporate executives incentivizes this anti-innovation behavior, as does pressure for strategic control over corporate resource allocation applied by hedge-fund activists.

Especially in the current unregulated environment populated by financialized drug companies, the Biden administration needs to be guided by a “theory of innovative enterprise” as it seeks to balance patient access to affordable drugs with its stated objective of “mak[ing] sure that market incentives foster scientific innovation to promote better health care and improve health.” Rooted in the theory of innovative enterprise developed by Lazonick and colleagues, our INET working paper outlines how informed drug-price regulation can support the funding of innovative medicines by business corporations while enabling equitable financial returns to those parties, including taxpaying households, public servants, and company employees, who have invested money and effort in the innovation process.

The theory of innovative enterprise as a regulatory framework

The theory of innovative enterprise focuses on the existence and interaction of three social conditions—strategic control, organizational integration, and financial commitment—that enable a business firm to manage the uncertain, collective, and cumulative character of the innovation process. Strategic control requires resource-allocation decisions by corporate executives with the abilities and incentives to invest in uncertain innovation processes. Organizational integration enables people with different hierarchical responsibilities and functional capabilities to engage in the collective learning that is the essence of innovation. Financial commitment sustains the innovation process until its cumulative result is a higher-quality, lower-cost product that enables financial returns.

The development, manufacture, and delivery of a safe, effective, accessible, and affordable medicine is an innovation process. As in all cases of industrial innovation, its essence in pharmaceuticals is the organizational learning that is required to create a higher-quality (safer and more effective) product than had previously been available. The availability of a higher-quality product enables the innovative pharmaceutical company to access a larger extent of the market and, depending on the size of accessible demand for the drug, achieve economies of scale in the costs of development, manufacture, and delivery. It is the existence of a higher-quality product that can reap scale economies to achieve a lower unit cost that permits a drug with a regulated price to generate “adequate” corporate profits while delivering the drug at an “affordable” cost to patients.

The task for a government regulator, guided by the Pricing for Medicine Innovation (PMI) framework, is to negotiate with the pharmaceutical industry concerning the relation between profits that are adequate and patient costs that are affordable. A regulatory system of PMI would require that, first and foremost, the responsible government agency recognize the flaws of the pharmaceutical industry’s various arguments against intervention in pricing. In our INET working paper we summarize and rebut the four main arguments against regulated drug pricing put forth by the pharmaceutical industry and its advocates:

Argument 1. High drug prices are needed so that a pharmaceutical company has sufficient profits to fund future drug development.

Argument 2. Expectations of high corporate profits yielded by setting high drug prices incentivize financiers to make the risky investments needed for drug innovation.

Argument 3. New drugs save patients’ lives and therefore provide value for money, even if they are expensive.

Argument 4. Other actors in the supply chain, and not the manufacturers, capture the higher profits from higher drug prices.

Some proponents of lower drug prices have demanded that the Biden administration exercise “march-in rights” contained in the Bayh-Dole Act of 1980, which encourages the licensing of federally funded research to commercial enterprises. It has been suggested that even by threatening to revoke exclusive licenses, the federal government could get pharma companies to think twice about drug-price increases. But this course of action fails to confront the U.S. pharmaceutical industry’s arguments against price regulation. The federal government would be trying to use march-in rights as a form of competition policy to influence the price of a drug without an analytical framework for assessing whether its actions would actually make the drug in question more accessible and affordable.

The theory of innovative enterprise would enable the PMI regulator to mobilize the facts and challenge the assumptions that underpin the industry’s four arguments against price regulation. Our approach confronts the ideological dominance of the “free market” theories that the pharmaceutical industry often invokes in opposition to price regulation. Quite apart from overcoming the enormous political influence of pharmaceutical money, a drug-pricing regulatory agency would have to train personnel in the PMI approach and gain access to company data on which the regulator’s drug-pricing assessment could be based. It is an understatement to say that the creation of a PMI regulatory agency would be challenging, given the political and economic power that the U.S. pharmaceutical industry currently wields. If, however, “Build Back Better” really seeks to chart a course toward a more equitable, inclusive, and sustainable America, PMI offers a path forward for that part of the agenda which seeks medicines that are safer, more effective, more accessible, and more affordable.


Read More