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Is there any meaningful distinction left between the core and the periphery? Bernanke says no, I disagree …

by Brad Setser
August 25, 2006

Bernanke says no:

The traditional distinction between the core and the periphery is becoming increasingly less relevant, as the mature industrial economies and the emerging-market economies become more integrated and interdependent. Notably, the nineteenth-century pattern, in which the core exported manufactures to the periphery in exchange for commodities, no longer holds, as an increasing share of world manufacturing capacity is now found in emerging markets. An even more striking aspect of the breakdown of the core-periphery paradigm is the direction of capital flows: In the nineteenth century, the country at the center of the world's economy, Great Britain, ran current account surpluses and exported financial capital to the periphery. Today, the world's largest economy, that of the United States, runs a current-account deficit, financed to a substantial extent by capital exports from emerging-market nations.

Bernanke is right to highlight the fact that emerging markets are exporting capital to the US, financing the US current account deficit.  Euroland and the UK both have deficits, and Japan's surplus hasn't increased significantly — so the recent rise in the deficit has largely been financed by an increase in the surplus of emerging markets.

But does that make the distinction between the core and the periphery less relevant?

Not in my book.   Those flows aren't coming from private citizens and private financial institutions in the periphery.  They are coming from governments.  China is a case in point, but the oil exporters matter too –  Russian reserves grew by about a billion a day in the first ten days of August.  The Saudis are sitting on a huge inflow of dollars.  Even Brazil is once again adding to its reserves at a rapid rate.   

That means there is a big difference between the core and the periphery.   In the periphery, private capital inflows are used to finance the build-up of reserves.  In the core, official capital inflows are used to finance current account deficits.

That is true for all of the "core" — not just the US

The pound's rising share of global reserves implies that central banks are financing a big share of the UK's deficit.   Stephen Jen is right on this point.

For that matter, by my calculations (alas, hidden behind the RGE firewall), central bank inflows into the eurozone are more than enough to finance the eurozone's 40 to 50b euro ($50-60b) current account deficit over the past 12 months. The world's central banks probably added over $200b to their euro portfolios in 2005.

And I write non-stop about the role central bank inflows play financing the US current account deficit.

That seems to make the core-periphery distinction all the more relevant.   Government policy choices in the periphery are leading them to finance the core.

On this, I fully agree with Dooley, Garber and Folkerts-Landau!

37 Comments

  • Posted by Gcs

    as mister north vs south i agree with u completely brad

    what is this

    showmanship??

    i know most successful magic acts
    reqiuire making large concrete objects disappear

  • Posted by Dave Chiang

    Emerging Economies around the world are increasingly following the Asian Developmental model. The Neo-liberalism Washington Consensus model has been discredited across the emerging economies of the world. The Japanese pioneered the Asian Developmental model of state driven Industrial capitalism with the Chinese and Koreans following suit. With the rapid accumulation of Industrial wealth, the periphery economies that Western economists refer to will soon become the economic central core. The global balance of economic power has only just begun to shift. Collectively, with over half the world’s population, Asia will be the dominant economic bloc in the 21st century.

  • Posted by Gcs

    “On this, I fully agree with Dooley, Garber and Folkerts-Landau!”

    well i don’t…
    i’ll agree with folkerts-landau in a heart beat
    but those other two lawless resolutes….

  • Posted by Emmanuel

    Dr. Setser, I know you’re not fond of IPE stuff, but it’s relevant here. B-B-B-Bennie of the Feds is of course borrowing terminology from Wallerstein’s Modern-World System Theory, whether intentional or not. Accordingly, Bernanke should pay attention to Wallerstein’s intuition that technological advantages can expand the world economy and give rise to changes in peripheral or semi-peripheral areas. This is a key passage from Wallerstein’s (1976) book:

    In this case, particular regions of the world may change their structural role in the world-economy, to their advantage, even though the disparity of reward between different sectors of the world-economy as a whole may be simultaneously widening. It is in order to observe this crucial phenomenon clearly that we have insisted on the distinction between a peripheral area of a given world-economy and the external arena of the world-economy. The external arena of one century often becomes the periphery of the next–or its semiperiphery. But then too core-states can become semiperipheral and semiperipheral ones peripheral.

    What I offer in support of MWS theory are the following:

    (1) Technological advancement has made manufacturing the “new agriculture” and (higher-level) services the “new manufacturing” in the value-added totem pole;

    (2) China is moving to the core as it is increasing in technological sophistication through partnerships and joint ventures with the West (with perhaps some industrial espionage mixed in). In any event, China does not seem to fit the description of a peripheral area in MWS theory–at worst, it is a semi-peripheral area;

    (3) The US is in danger of peripheralizing itself in the not-so-distant future as its twin deficits continue to mount. If Britain lost its similar role before, why wouldn’t the US? The dynamics of overextension do not change.

  • Posted by Menzie Chinn

    Excellent post, Brad. One comment on Emmanuel’s rejoinder — I thought it was Raul Prebisch (CEPAL) and Hans Singer who coined the core-periphery distinction.

  • Posted by Emmanuel

    Dr. Chinn–right you are. MWS is based on dependencia theory. I raise MWS theory though because I believe that it better explains the contemporary situation than dependencia–especially after the limitations of import substitution and strong curbs on foreign investment have been revealed, which of course do not seem to hold in the current case of China.

  • Posted by bsetser

    China seems to fit uncomfortably into most core/periphery distinctions (apart from the one used by Dooley, Garber and Folkerts-Landau). It has the domestic characteristics of the periphery (bad banks and the like) but the external characteristics of the old — as in before BW2 core. I.e. it exports capital. It clearly could emerge as the core of a new system. but right now it is exporting its savings (and no doubt getting some things in return) to support the existing global economic/ financial order (or stable disequlibrium).

    The strange thing is that those who export capital usually tend to set the rules of the global financial order. See the UK in the british empire, the US in the early days of Bretton Woods. The US still set the rules in the 90s, though it wasn’t technically exporting capital. But it supplied (or organized the provision) of the emergency cross border loans many emerging economies needed. And many emerging markets thought they needed access to US markets (and european markets) and the pool of accumulated US and European wealth to develop.

    The past five years have been very different, obviously. China is exporting capital. And is the Gulf. But not setting the rules. On the other hand, it isn’t clear that the US is still in a position to set the rules either … kind of strange.

  • Posted by Dave Chiang

    The New World Order will be a multi-polar world order. The economic blocs including NAFTA, EU, and China-centric Asian order will cooperate on certain issues and compete on certain other issues. The unipolar world order envisioned by the Neo-cons can be relegated to the dustbin of history. In reality, the nations of Southeast Asia hide behind the mighty military and economic shield of China. Cultural and ethnic ties will continue to bind together a Greater China.

    The Chinese are content with its present strategy: keep the engines of growth humming with exports on the one hand and a constant flow of foreign investment on the other. If rapid domestic growth goes on long enough, China presumably hopes that the percentage of the country’s total assets tied up in export sector enterprises will be small enough to be manageable in any US slowdown.

    China also hopes that, if and when the dollar-centred global financial regime unravels, it will have an economy sufficiently developed to permit the yuan to takes its place among the world’s major currencies without the need for external backing that the country’s dollar reserves currently provide. That will allow it to deal with the collapse in American purchasing power when the US is finally forced to live within its means.

  • Posted by Barkley Rosse

    Menzie,

    It is a close call, and I am not sure who actually coined it first, but one more frequently sees Gunnar Myrdal identified as the father of the “core-periphery” concept, sometimes in conjunction with Albert Hirschman, although one finds it associated with Prebisch and Singer as well. I bet that Bob Baldwin would know the answer, :-).

  • Posted by Guest

    It’s the most tantalizing question in Asian economics: When can the region stand alone from the U.S.? It would seem to follow that if the U.S. slows significantly, so does Asia. Not so fast, says David Carbon, an economist at DBS Bank in Singapore.

    Carbon argues the impact of a U.S. slowdown will be “less than one would think, and certainly less than in the past.” Yet it’s his take on Asia’s exponentially increasing role in the global economy that may come as a surprise to many.

    The basic gist of Carbon’s argument is that in five years’ time, domestic demand in Asia will outstrip that of the U.S. The reason: Asian economies are booming, rapidly integrating and their young, growing populations will support strong growth. “We’re definitely on the cusp of a big handover in terms of who drives global growth,” Carbon says. “It’s looking us square in the face. Funny nobody sees it.”

  • Posted by Stormy

    “That means there is a big difference between the core and the periphery. In the periphery, private capital inflows are used to finance the build-up of reserves. In the core, official capital inflows are used to finance current account deficits. ”
    Agreed. Now add the fact that U.S. investment in the periphery reaps higher rewards than investment at home.

    Bernanke seems to be playing Tamny’s game—in disguise. Tamny sees labor worldwide as a resource for capital. Bernanke’s muddling of the core and the periphery has a ghostly resonance to Tamny’s view.

  • Posted by HK

    Brad–Core/periphery distinction may continue to be relevant in the sense that the core country (the US) enforces its rules on the periphery countries, including China and Saudi Arabia.

    Former core countries (the UK in 19th cencury and the US in 20th century) used their military power to enforce their rules and discipline the periphery countries in order to protect their foreign assets.

    The current core country, the US, is by far the biggest debtor, and as such does not need to protect its foreign assets by the military power. If China ceizes the US assets in China, the US can easily retaliate by ceizing far larger Chinese assets in the US. So, China as a peripheral creditor is in a much weaker position than the US as a core debtor. In fact, paradoxically, the US is currently in a stronger position compared with the US in 20th century or the UK in 19th century.

    The puzzle is not the fact that the US currently enjoys such a favorable position (core status and easy debtor status), but the fact that China and Saudi allows it. My judgement is that political leaders in both countries have made mistakes, while rational decisions would have been significant appreciation of their currencies and stimulation of their domestic demand.

    Lesson to be learnt by peripheral creditors is an old one; a financier is very strong before he extends credit to a borrower, but after extendinding credit all what he can do is just to pray for rapayment to god. Never become a major creditor unless you are a core country!

  • Posted by Dave Chiang

    “Helicopter Commander” Ben S. Bernanke should familiarize heimself with analysis of Credit Bubble Ponzi Finance by Economist Hyman Minsky.

    Hyman Minsky on Credit Bubbles
    by Doug Noland
    http://www.prudentbear.com/creditbubblebulletin.asp

    ” In order to understand why our economy has behaved differently since the middle of 1960s than it has earlier in the post-World War II epoch we have to appreciate how the broad contours of the financial structure have changed.

    The changes in the financial structure have increased the proportion of speculative and Ponzi finance in the total financial structure and therefore increased the vulnerability of the financial system to refinancing and debt validating crises.

    In our economy it is useful to distinguish between hedge and speculative finance. Hedge finance takes place when the cash flows from operations are expected to be large enough to meet the payment commitments on debts.

    Speculative finance takes place when the cash flows from operations are not expected to be large enough to meet payment commitments, even though the present value of expected cash receipts is greater than the present value of payment commitments.

    In addition to hedge and speculative finance there is Ponzi finance – a situation in which cash payments commitments on debt are met by increasing the amount of debt outstanding… Ponzi financing units cannot carry on too long.

    A strong analytical case can be made that our expansive Financial Sphere has been operating in the realm of Ponzi Finance Dynamics for some time now – at the minimum going back to the late-nineties technology/telecom Bubble which heralded the Mortgage Finance Bubble and the now unfolding Corporate Debt Bubble and Global Credit Bubble.

    Minsky’s “big government” as “stabilizer” insights require considerable updating. Today, with the unprecedented ballooning of federal mortgage agency debt and guarantees (Fannie, Freddie, Ginnie Mae, the FHLB, FHA, VA, etc.), a large swath of US mortgage finance has been effectively nationalized.

    But when it comes to masking the fragility of Ponzi Finance, one should keenly direct analysis to contemporary derivatives markets. I’ll this evening propose that the now all-encompassing Derivatives Arena amounts to The Alchemy of Big Government Stabilizers – most prominently, prospective federal government deficits and debt guarantees; central bank telegraphed “pegged” interest rates; and foreign “official” recycling of dollar Credit Inflation. “

  • Posted by Dave Chiang

    To “Helicopter Commander” Ben S. Bernanke,

    From German Economist Dr. Kurt Richebächer’s Lecture (About the US economy), November 19, 2005:
    “…

    It was a very complicated bubble system that they developed with their short term rates and propaganda to get some growth. It is impossible to re-establish this system. They may reduce their interest rates but the Federal Reserve is sure that when there is trouble they can lower the interest rates and everything will be “ok” again, because there is a blind faith in the ability of monetary policy to steer the economy. This blind faith also exists among the carry trade players. They think: “Greenspan will come into action again and then we’ll continue, as always.” It’s really a mystery! I would say that a weakening would unleash forces that would lead to cracks in the whole system. I would expect a USD crash. The USD is also a component of the carry trade bubble. When this carry trade bubble collapses I wouldn’t assume that they would reduce interest rates and everything would be fine again. I can’t and won’t believe this. No, I would say that there will be a change in perception. We have at the moment a perception that the US economy is in splendid shape. Interest rates make nothing and yet consider the bullishness in the stock market. I think the American economy is at its most critical situation point in the whole of the post-war period because all of the excesses have accumulated. There has never been a pause in this and the savings rates are in negative territory. … ”

    – Dr. Kurt Richebächer’s Lecture, November 19, 2005

    PArt I: http://www.gold-eagle.com/gold_digest_05/richebacher120405.html
    Part II: http://www.gold-eagle.com/gold_digest_05/richebacher120805.html

  • Posted by Guest

    Asking Brad, Emmanuel, HK if we should be looking beyond core-periphery (hub and spoke?) structures:

    “…The most susceptible networks have the greatest reliance on hub-and-spoke configurations… In contrast, there are 11 network providers that use network topologies that resemble a mesh rather than a hub and spokes; these providers are robust enough to survive the loss of any of the largest hubs. These mesh-like topologies are more expensive to construct, but clearly have advantages where survivability is concerned…” – ‘Hubs increase Net risk’, http://www.trnmag.com/Stories/2003/010103/Hubs_increase_Net_risk_122502.html

    Interesting piece on the spies Emmanuel – wonder what keeps them from defecting.

  • Posted by Emmanuel

    Everyone–there are a number of theories using the core-periphery distinction. I believe that the main difference is in the context the terms are used in -

    (1) Gunnar Myrdal used core-periphery in the context of regions within nation-states. For example, the “core” of Italy was (and still largely is) its industrial heartland in the North of Milan, Turin, etc., while the slower growing South was considered the “periphery”.

    (2) Latin American scholars like Raul Prebisch and Theotonio dos Santos broadened the use of core-periphery terminology to an international context, especially that of Latin America and its supposed dependency on the United States and other core states. The main idea is that since peripheral countries produce mostly commodity goods, their terms of trade tend to decline over time, hence they become dependent. Dependencia theory was popular in the mid-Seventies, and gave rise to Latin policy experiments in import substitution for promoting indigenous industry accompanied by curbs on foreign investment. Even the United Nations Commission on Trade and Development (UNCTAD) subsequently incorporated ideas from dependencia theory.

    (3) My namesake Immanuel Wallerstein came up with Modern-World System Theory based on his research in the context of post-colonial Africa. To me, it is the more comprehensive conception because it provides a historical picture of how the MWS came to be, starting with the end of feudalism, then the expansion of capitalist motives during the imperial era. In short, it covers both local (Myrdal) and international (Prebisch/Dos Santos) core-periphery dynamics. Also, to me at least, it is the most adaptable of the core-periphery theories in that it can explain more modern evolutions like the BWII system. In my view, it is a contest between a core country attempting to hold on to its preeminence in the core (US) versus a potential usurper quickly moving from the semi-periphery to the core (China). And of course, China is not suffering declining terms of trade. If anything else, it is moving up the ladder in the sophistication of its product offerings vis-a-vis the West as demonstrated by its growing trade surpluses with the US and the EU.

    Now, my beef with Dooley et al. is that they seem to be using the terms “core” and “periphery” in a manner which is not consistent with any of these three general variations of core-periphery theories. The two international theories here–dependencia and MWS–have clear Marxist overtones, whereas the authors seem bent on concocting yet another variation with (apologies) “neoliberal” overtones. For me, IPE already has too many theories as it is! My intuition is that MWS describes facts on the ground best if you want to refer to the core-periphery, though of course this matter is highly contested. Nevertheless, I think that economists should be better informed before bandying IPE terminology.

  • Posted by Emmanuel

    Guest–Unfortunately, I am no expert on communication infrastructure (!), so I can’t offer a definitive reply. Internet governance is obviously one of the areas of discussion in international political economy. It’s a big area of debate with a myriad of organizations covering a whole bunch of issues. You might have heard of it, but if not, do visit Net Dialogue for a comprehensive discussion of the organizations and issues involved in Internet governance. A book I can recommend on this topic is “Who Rules the Net?” which is edited by Thierer and Crews.

  • Posted by bsetser

    Dave — I edited the Richebacher quote. I don’t mind short quotes in the comments, but I would rather not see whole essays posted in. comments are supposed to be just that comments.

  • Posted by Gcs

    here’s fun

    core bubbles and periphery bubbles are not similar hasards

  • Posted by Movie Guy

    Does anyone have the list of speakers from the advanced global trade (AGT) economic church services conducted in Jackson Hole, Wyoming since Thursday night?

    >

  • Posted by Anonymous

    Aside from the first two paragraphs, which have to do with a different discussion, you may find the attached re. unequal exchange of some interest.
    NB, this is from a Marxist perspective so, in my opinion, more complete than those theories relying strictly on exchange relations — once the value/price distinction not present in neoclassical works is grasped then it becomes possible to ‘see’, e.g., the transnational sector’s relations to the national in a perhaps clearer fashion.
    http://archives.econ.utah.edu/archives/marxism/2004w01/msg00187.htm (‘Reply to Paul Cockshott on the implications of Marx’s Theory for Understanding Unequal Exchange’, 8 January 2004)

    Brad – You say: “The past five years have been very different…Obviously China is exporting capital. And the Gulf. But not setting the rules. On the other hand, it isn’t clear that the U.S. is still in a position to set the rules either … kind of strange.”

    Consciously or not, you echo a statement made by the late Charles Kindleberger in his 1973 book “The World in Depression” — “[During the interwar years] the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility…the British couldn’t and the United States wouldn’t.”

  • Posted by Dave Chiang

    Chinese “Soft Power” Balancing Strategy versus US Global hegemony project
    http://www.brookings.org/fp/cnaps/papers/wang2006.pdf

    Adobe PDF file Whitepaper

  • Posted by Guest

    Emmanuel – I don’t think the link I supplied was about internet governance! I am simply questioning whether the core-periphery idea is adequate given that ‘globalization’ in large part is about better understanding information and transportation systems are (significantly) changing, and have the potential to change economic organization, along with currencies of exchange and the domicile of, and ways in which transactions are done. Not to ignore history, but aren’t contemporary circumstances very different from Wallerstein’s world – pre 1976???

  • Posted by Cyrus

    The past five years have been very different, obviously. China is exporting capital. And is the Gulf. But not setting the rules. On the other hand, it isn’t clear that the US is still in a position to set the rules either … kind of strange.

    A microeconomic trend of the past decade that many have noted is the shift in market power from the manufacturer to the retailer. Is the macroeconomic version of this, that the countries that control access to large consumer markets are the ones in the superior negotiating position.

  • Posted by Dave Chiang

    Congressman Ron Paul (R-TX) hearing with Federal Reserve’s Ben Bernanke on “Plunge Protection Team” manipulation of US financial markets
    http://www.dailyreckoning.com/Featured/Paul082406.html
    by Ron Paul
    July 20, 2006

    MR. PAUL: Good afternoon, Chairman Bernanke.

    I have a question dealing with the Working Group on Financial Markets. I want to learn more about that group and actually what authority they have and what they do. Could you tell me, as a member of that group, how often they meet and how often they take action; and have they done something recently? And are there reports sent out by this particular group?

    MR. BERNANKE: Yes, Congressman. The President’s Working Group was convened

    by the President, I believe, after the 1987 stock market crash. It meets irregularly, I would guess about four or five times a year, but I am not exactly sure. And its primary function is advisory, to prepare reports. I mentioned earlier that we have been asked to prepare a report on the terrorism risk insurance. So that is what we generally do.

    MR. PAUL: In the media you will find articles that will claim that it is a lot more than an advisory group you know, if there is a stock market crash, that you literally have a lot of authority, you know, to impose restrictions on the market. And we are talking about many trillions of dollars slushing around in all the financial markets, and this involves Treasury and, of course, the Fed, as well as the SEC and the CFTC. So there is a lot of potential there.

    And the reason this came to my attention was just recently there was an article that actually made a charge that out of this group came actions to interfere with the prices of General Motors stock. Have you read that, or do you know anything about that?

    MR. BERNANKE: No, sir, I don’t.

    MR. PAUL: Because they were charging that there was a problem with General Motors, and then there was a spike in GM’s stock prices.

    But back to the issue of the meeting. You tell me it meets irregularly, but there are minutes kept, or are there reports made on this group?

    MR. BERNANKE: I believe there are records kept by the staff. These are staff mostly from Treasury, but also from the other agencies.

    MR. PAUL: And they would be available to us in the committee?

    MR. BERNANKE: I don’t know. I am sorry, I don’t know.

  • Posted by Guest

    Hmmm – so Bernanke and team should stand back and say to heck with all the foreigners who stand to loose a bundle if the US economy crashes. The people I know of who have invested heavily in North American property markets are Chinese.

    Thinking about how Britain’s core – whether property ownership is one indicator of how it may have changed. “The typical buyer of a £2m-plus home in central London is now more than likely to be a foreigner, in a sign of how international the UK capital has become.More than 51 per cent of homes worth more than £2m ($3.8m, €3m) sold in the last year have gone to overseas buyers from Russia, the Middle East and elsewhere…. The change in ownership of central London streets has happened gradually. In the 1960s, British buyers still made 90 per cent of purchases, falling to 70 per cent in the 1970s, 60 per cent in the 1980s and 1990s and less than half today…” http://www.ft.com/cms/s/aa977fa6-3459-11db-bf9a-0000779e2340.html

  • Posted by Stormy

    Chiang,

    Re Plunge Protection Team and Bernanke: “I just don’t know.” Yup, yup.

    Did anyone demand the minutes be made available? Demand that the staff testify?

  • Posted by Emmanuel

    Guest–I think I get what you’re saying. Hasn’t globalization rendered the core-periphery distinction superfluous? That’s more or less Bernanke’s point. Fortunately, there’s a whole bunch of research that’s been done on globalization, where authors are classified into three groups:

    The hyperglobalist view holds that we live during the “End of History” (Francis Fukuyama), where the “World is Flat” (Tom Friedman), and the “End of the Nation-State” (Kenichi Ohmae) is at hand. Supposedly, it is now global finance and corporate capital–not states–that exercise decisive influence over the organization, location and distribution of economic power and wealth.

    The sceptical view cautions against making such extraordinary claims about the nature of globalization. Most notable among those with this view are Paul Hirst and Grahame Thompson who put “Globalization in Question”. They point out that actually, the volume of trade as a percentage of national income was higher in most European countries during the pre-WWI era than it is now. Also, they point out that trade and FDI activity has largely been concentrated in North America, Europe, and East Asia–hence, what is called globalization is in reality just regionalization.

    The transformationalist view propounded by the likes of David Held and Anthony McGrew attempts to find a middle ground between the hyperglobalist and sceptical views. I like their thesis because it puts current globalization trends in a long-term view of what has happened before–like slavery and the creation of nation-states. I think that the core-periphery debate fits in quite well with this version of globalization: Power struggles among nation-states are still ongoing, but they are conditioned by the time-space compression of current trends.

    My personal answer, then, is no–globalization is not a wholly unique phenomenon that is washing upon us to remove all else, but the latest in a series of events with global implications. I am wary of claims that “everything is different now” because they seldom are so. Trade dynamics may change, but they don’t change the fact that (especially with regard to the US and China) deficits still matter, and it’s a bad idea to bite the hand that feeds.

    BTW: Here’s an excellent summary of the globalization literature that was written by Held and McGrew for the Oxford Companion to Politics.

  • Posted by Emmanuel

    (Comrade?) Anonymous–I’d never heard of Jurriaan Bendien before, but he writes good stuff. Tell him to make his own blog and I’d be sure to visit it. Readers often dismiss Marxist ideas out of hand, saying Communism was discredited a long time ago, etc. But, I must say that Marx offers good explanations of current economic dynamics–especially growing inequities within developed nations. If you put aside biases against Marxism and are more interested in explanations than ideology, then he still has much to offer.

  • Posted by gillies

    that mad circular posting is some glitch in the programme – not intended. i posted and failed. posted again and was thanked. the third posting is the programme’s own idea. sorry folks.

  • Posted by Greg Byshenk

    As someone who has some knowlege of networks (I am not an economist, but a computer system engineer), and also at least some minimal familiarity with Wallerstein (if not the other versions of the core/periphery discussion), I would suggest that comparing ‘hub and spoke’ to core/periphery is unlikely to be particularly fruitful. Indeed, analogizing from “the Internet” (the actual network traffic, its routing, etc.) to anything else should be read very skeptically.

    Consider that, at the most basic level, the Internet works as it does because TCP/IP packets do not matter. Routing and switching on the Internet work as they do because packets can be thrown away (if packets are misrouted, if a route is lost, if a router is overloaded, etc.). This is something that just isn’t the case with most of the things that economists (or others) deal with.

  • Posted by Anonymous

    Emmanuel — I agree, Marx’s analysis of capitalism remains valid, though so few have ever actually read what is not at all short or easy but have, as you say, settled for ideology, so almost always confuse his work with the creation of state capitalisms such as the old Soviet Union and especially the Stalinist variety.

    Agree as well with your categorization of perspectives on globalization: the ‘hyperglobalist’ tends to deny the nation-state; the ‘skeptical’ tends to deny what is a changed, further developed, mode of organization, the TNC. If we stop right there, it’s a classic either/or rather than the more correct ‘both’ at least partially captured by the ‘transformationalist view’ which I would argue must take account of the nation-state (system) _vs_ the transnational (or antional) form of production and distribution manifest in the TNC. This is a dialectic. In overly simplified terms, global corporations on one side and national states on the other. There are competitive antagonisms in the unity of these two sides. For example, national states compete with one another in the offering of most favorable terms and this is an induced competition to include not only direct subsidies but also such conditions as a cheap and disciplined labor force. As always, the drive is towards greater accumulation and profit maximization even though these always undermine themselves.

    One of those ‘underminings’ can be seen as the Great Depression which effectively ended the immediately prior phase of globalization, an ending or discontinuity which forced resolution of what had become a crisis of hegemony.

    But I’m way off track since was only going to say that the essence of unequal exchange is more value for less, so involves both production and exchange and not necessarily evident in capital flow data or terms of trade but moreso in relative mass of capital and the technical composition of that capital…larger more technically advanced firms, for example, can usually appropriate rent from smaller, less advanced firms. I am fairly confident that the transnational sector in China does this in relation to the strictly national, but as I think someone above noted, this is never a static condition.

    You know, we might even imagine the transnational as becoming the modern core, i.e. a partial, never to be completed, denationalization of what we still assign national labels to, but this brings in a further contradiction, that between the national political and an evolving anational economic. The transition becomes ‘jammed’.

    PS, Marx’s distinction between formal equality and substantive inequality holds at the international level as well

  • Posted by Guest

    Can’t really disagree with anything that has been said, except to suggest the obsession with TNCs is overriding the impact of point-to-point transactions between communities…
    http://www.firstmonday.org/issues/issue4_2/gurstein/index.html

    …and individuals – and too bad information on global enthnic transaction networks is usually framed in this light – but as the article says, only some of these transactions are ‘criminal’ (as defined by whose legal system?)
    http://www.interpol.int/Public/FinancialCrime/MoneyLaundering/EthnicMoney/default.asp

    and the types of parallel economies which seem to be facilitated by these networks.

    Whether or not local and informal economies may buffer (perhaps lending to the mesh idea), or intensify a ‘crash’ of the institutional – regionally or globally – difficult to determine, but interesting to consider.

  • Posted by Ken Jarboe

    I happen to agree that the core-periphery model has been less useful in the networked economy (as I have said in my own blog The Intangible Economy: Bernanke on globalization. Is this the case of Castells supplants Wallerstein? They sit next to each other on my bookshelf. To go back to Brad’s original point, Bernanke (and Brad) highlighted capital flows as evidence of the breakdown of the core-periphery model (Bernanke says yes, Brad says no). The real evidence of the breakdown is in the distribution of production, which Bernanke goes on in his speech to mention: “Third, production processes are becoming geographically fragmented to an unprecedented degree. Rather than producing goods in a single process in a single location, firms are increasingly breaking the production process into discrete steps and performing each step in whatever location allows them to minimize costs.”
    To the extent that the production process is still high value added in “developed” countries and low value added in “developing” countries, then the core-periphery model still holds – just updated to reflect that manufacturing (not just production of raw materials/commodities) can be a low value added. But to the extent that high-value added (knowledge work) can be done in pockets of “developing” nations (i.e. India and China), then the model – as applied to nation-states – breaks down. It may still hold true for regions (see Florida’s The World is Spiky). But as (and if – it is still not certain) knowledge work spreads, then all the traditional models need to be re-thought.

  • Posted by Guest

    Agree the world is not flat. Don’t think knowledge is something the ‘developing’ world doesn’t have! – it’s more a matter of packaging, pricing, marketing and distribution (lawyers and accountants perhaps too) – the yoga industry boom. Eastern medicine. African herbals. Don’t agree value is necessarily ‘added’ through manufacturing – french fries? Different types of knowledge will spread and mesh as will productive capacity, but what seems to be important is where and how the outputs are applied (constructive or destructive), along with where and how profits (and losses) are taken.

    Interesting thing about ‘informal’ networks is the types of knowledge people choose to develop and the ways they may apply and profit from it. More or less ‘productive’? Are there ways to influence this?

  • Posted by gillies

    i read that mr. rumsfeld accuses north korea of counterfeiting dollars.

    this is interesting. if you replace the emotional word ‘counterfeiting’ with a more neutral term you have a world in which there is a shared ‘dollar hegemony.’ although north koreans get the first ‘spend’ of these dollars, presumably they then enter the great pool of paper currency and become anyone’s to earn and to spend ? and does this mean that the north koreans will import more than they export, thus generate their own version of the trade deficit that seems to be the mark of the hegemon ?

  • Posted by Guest

    Counterfeit “represents, according to the OECD, six percent of world commerce…”- ‘Prospering on Crime: Money Laundering and Financial Crises’, Prof. Guilhem Fabre, International Affairs, Le Havre University & Co-Director, UN Office for Drug Control and Crime Prevention, 2003