Contributions to Economic Theory, Policy, Development and Finance Levy Institute Advanced Research in Economic Policy Titles include: Dimitri B. Papadimitriou (editor) CONTRIBUTIONS TO ECONOMIC THEORY, POLICY, DEVELOPMENT AND FINANCE Essays in Honor of Jan A. Kregel Dimitri B. Papadimitriou and Gennaro Zezza (editors) CONTRIBUTIONS IN STOCK-FLOW MODELING Essays in Honor of Wynne Godley William Lazonick and Mary O’Sullivan (editors) CORPORATE GOVERNANCE AND SUSTAINABLE PROSPERITY Dimitri B. Papadimitriou (editor) MODERNIZING FINANCIAL SYSTEMS Dimitri B. Papadimitriou (editor) STABILITY IN THE FINANCIAL SYSTEM Ghislain Deleplace and Edward J. Nell (editors) MONEY IN MOTION The Post-Keynesian and Circulation Approaches Dimitri B. Papadimitriou (editor) ASPECTS OF DISTRIBUTION OF WEALTH AND INCOME Geoff Harcourt, Alessandro Roncaglia and Robin Rowley INCOME AND EMPLOYMENT IN THEORY AND PRACTICE Levy Institute Advanced Research in Economic Policy Series Standing Order ISBN 978–1–137–02279–0 ( outside North America only ) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England Contributions to Economic Theory, Policy, Development and Finance Essays in Honor of Jan A. Kregel Edited by Dimitri B. Papadimitriou Levy Economics Institute, New York, USA Selection, introduction and editorial matter © Levy Economics Institute 2014 Individual chapters © Contributors 2014 Softcover reprint of the hardcover 1st edition 2014 978-1-137-45095-1 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2014 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-68671-1 ISBN 978-1-137-45096-8 (eBook) DOI 10.1057/9781137450968 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalog record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Contributions to economic theory, policy development and finance : essays in honor of Jan A. Kregel / Dimitri Papadimitriou. pages cm.—(Levy Institute advanced research in economic policy) 1. Economics. 2. Economic development. 3. Finance. 4. Kregel, J. A. I. Papadimitriou, Dimitri B. II. Kregel, J. A. HB171.C776 2015 330—dc23 2014029418 Contents List of Figures and Tables vii Levy Economics Institute of Bard College ix Acknowledgments x Notes on Contributors xi List of Abbreviations xvi 1 Jan Kregel’s Economics 1 Dimitri B. Papadimitriou Part I Economic Theory 2 The Reconstruction of Political Economy: Alternative, Parallel Paths to Rediscovering the Distinctively Classical Surplus Approach 19 Mathew Forstater 3 Post-Keynesian, Post-Sraffian Economics: An Outline 4 0 Alessandro Roncaglia and Mario Tonveronachi 4 Money in The General Theory : The Contributions of Jan Kregel 65 L. Randall Wray 5 A Financial Analysis of Monetary Systems 88 Eric Tymoigne Part II Employment Policy 6 Full Employment, Inflation and Income Distribution: Evaluating the Impact of Alternative Fiscal Policies 1 17 Pavlina R. Tcherneva 7 Can Employment Schemes Work? The Case of the Rural Employment Guarantee in India 145 Jayati Ghosh v vi Contents Part III Economic Development 8 D evelopment Theory: Convergence, Catch-Up or Leapfrogging? A Schumpeter–Minsky–Kregel Approach 175 L eonardo Burlamaqui and Rainer Kattel 9 T he Access to Demand 1 96 L uiz Carlos Bresser-Pereira 10 D evelopment Finance in the Era of Financial Liberalization 2 07 C .P. Chandrasekhar 11 F rom Miracle to Stagnation: The Last Two Stages of Mexico’s Economic Development 226 J ulio López-Gallardo 12 T he New Millennium Argentine Saga: From Crisis to Success and from Success to Failure 245 M ario Damill, Roberto Frenkel and Martín Rapetti Part IV Financial Instability and Crises 13 G lobal Governance for Financial Stability 2 73 S tephany Griffith-Jones and José Antonio Ocampo 14 W hat Did We Learn from the 1997–98 East Asian Crises? 296 J omo Kwame Sundaram 15 F inancial Crises and Countermovements: Comparing the Times and Attitudes of Marriner Eccles (1930s) and Mario Draghi (2010s) 319 E rik S. Reinert Part V Financial Regulation and Supervision 16 C an Basel III Work When Basel II Didn’t? 3 47 F ernando J. Cardim de Carvalho Index 3 69 List of Figures and Tables Figures 5.1 B ank advance: an exchange of promises 94 5.2 S ettlement of promise of firm F 94 5.3 A basic balance sheet 105 5.4 B alance sheet of each macroeconomic sector 105 7.1 F inancial indicators 151 7.2 E mployment indicators 1 52 7.3 A verage person days of MGNREGA per household employed 1 52 7.4 S hares of SCs, STs and women in MGNREGA employment 1 53 7.5 R eal wages for rural casual work 156 8.1 G DP per capita as a percentage of US GDP per capita, 1950–2010, regional simple averages, in 1990 179 8.2 E ast Asia (Korea) vs. Eastern Europe (Hungary): GDP per person employed, index (1980 = 100) (left axis) and industry value added as percentage of GDP (right axis) 1 80 8.3 L eapfrogging the ladder: country shares in world manufacturing exports, 1990-2009, listed as positions among top 50 exporting countries 181 8.4 G DP per capita of selected European countries as a percentage of German GDP per capita, 1950–2010, regional simple averages, in 1990 GK$ 182 9.1 T he three equilibriums and the market exchange rate 2 04 12.1 G DP in constant prices 248 12.2 A nnual CPI inflation rate 253 12.3 B ilateral RER against the US dollar and multilateral RER 2 54 12.4 M anufacturing wages in real terms and in constant US dollars 255 12.5 T erms of trade 2 58 12.6 C ountry risk premiums for emerging markets: EMBI +, Argentina and Brazil 260 vii viii List of Figures and Tables 12.7 G ross private capital outflows 2 61 12.8 E x-ante real interest rates of NOBAC and LEBAC notes 2 64 15.1 T he circular flow of economics 3 22 15.2 I taly, real interest rates 3 25 15.3 P rice levels: US, Germany and Italy compared 332 15.4 I nflation rates in US, Germany and Italy 335 15.5 W age development in Germany and Italy, 1960–2010 3 36 Tables 11.1 P er capita GDP average annual growth rate (1982–2011) 2 32 12.1 K ey macroeconomic variables 2 49 12.2 D ecomposition of changes in unit labor cost (ULC) in foreign currency 2 65 14.1 E ast Asian crisis four: macroeconomic indicators, 1990–99 3 05 14.2 E ast Asian four and developing countries, lending by banks by BIS, end June 1997 307 14.3 E xposure of banks reporting to BIS and non-BIS borrowers, end June 1997 3 08 14.4 M aturity distribution of lending by banks reporting to the BIS to the East Asian four, 1996–97 3 09 14.5 D ebt service and short-term debt, East Asian four, selected years 3 10 Levy Economics Institute of Bard College Founded in 1986, the Levy Economics Institute of Bard College is an autonomous nonprofit public policy research organization. It is nonpar- tisan, open to the examination of diverse points of view and dedicated to public service. The Levy Institute believes in the potential for economic study to improve the human condition. Its purpose is to generate viable, effec- tive public policy responses to important economic problems. It is concerned with issues that profoundly affect the quality of life in the USA, in other highly industrialized nations and in countries with devel- oping economies. The Levy Institute’s present research programs include such issues as financial instability, economic growth and employment, international trade, problems associated with the distribution of income and wealth, the measurement of economic well-being, and gender equality, globali- zation and poverty. The opinions expressed in this volume are those of the authors and do not necessarily represent those of the Levy Institute, its Board of Governors or the Trustees of Bard College. Board of Governors Lakshman Achuthan Leon Botstein Bruce C. Greenwald Martin L. Leibowitz Dimitri B. Papadimitriou, President Joseph Stiglitz William Julius Wilson ix