ECON3020 Final exam questions. This assessment task is worth 4.docx

ECON3020 Final exam questions. This assessment task is worth
40% of the overall mark in this
unit.
You are given 6 questions and you must answer 4 of your choice
(4 out of 6). Please respect a word
limit of 400 words for each question. A gentle reminder that the
Turnitin similarity report must be
below 20%. Failure to comply with this submission rule will
constitute a breach of integrity rules.
PLEASE READ THESE INSTRUCTIONS CAREFULLY:
(I) You are given 6 questions and you must answer 4 of your
choice (4 out of 6).
(II) Please clearly indicate the questions you are addressing.
(III) Each question’s maximum marks are clearly reported.
(IV) Please respect the word limit as reported.
(V) A gentle reminder that the Turnitin similarity report must
be below 20%.

Failure to comply with this submission rule will constitute a
breach of integrity
rules.
Question 1 (max 400 words, max 10 marks):
(i) Refer to the reading Howes, S. and P. Wyrwoll (2012) to
discuss one key aspect of the
Global Ecological Challenge that China is currently facing.
(Max 5 marks)
(ii) Explain in your own words why China’s reliance on
economic performance indicators
such as Gross Domestic Product may not help in achieving a
solution to the global
ecological challenge China is currently facing. (Max 5 marks)
(i) Using the material discussed in class explain in your own
words how Adam Smith and
Karl Marx differ in their criticism of capitalism. (Max 5 marks)

(ii) Adam Smith proposes to rely on educated consumers to
improve the social outcomes
stemming from capitalist economic organization. Explain. (Max
5 marks)
(i) Consider a rapidly developing economy such as Vietnam,
with limited investment
opportunities (low aggregate savings) and a large unskilled
workforce. Under what
conditions Vietnam’s integration in global modes of production
may help reduce poverty
and inequality? (Max 5 marks)
(ii) What are the main obstacles to business innovation Vietnam
faces in global modes of
production? (Max 5 marks)

(i) Consider the structure of the Indian economy, which
comprises a large informal sector.
How can the 4th Industrial Revolution positively impact on
governments’ ability to
fiscally sustain their policies? (Max 5 marks)
(ii) How can India’s 4IR lead to a premature de-industrialisation
and what labour market
implications would that have? (Max 5 marks)
(i) Explain in your own words why Japan currently faces a crisis
of reproduction. (Max 5
marks)
(ii) Why does the crisis of reproduction in many Asian countries
involve both waged and
non-waged labour? (Max 5 marks)

(i) Consider the reading by Narula J (2019) discussed in class.
Summarise in your own words
the argument this article develops in the context of the need for
labour standards applicable
to Multinational Enterprises. (Max 5 marks)
(ii) Consider the case of Vietnam and the rise of new forms of
employment that rely on
precarious labour and digital platforms (e.g., Uber eats). Why
do these recent developments
require new approaches to anti-trust regulation according to
economists such as Kaushik
Basu (2021)? (Max 5 marks)
ECON3020
Economic and Business Environments
Unit Convenor: Professor Elisabetta (Lisa) magnani
The context of contemporary business and economic
environments—Part I

Global challenges:
https://www.millennium-
project.org/projects/challenges/
In the Asian context:
https://www.iias.asia/the-
newsletter/article/rethinking-asia-21st-century
https://www.europeanbusinessreview.eu/page.asp?pid=2418
https://www.schroders.com/en/insights/economics/the-four-ms-
why-the-21st-century-belongs-to-asia/
In the Asian context:
Our short-list
The Demographic Global Challenge
The Ecology and Energy Global Challenge
The Labour and Inequality Global Challenge
The Global Mode of Production Challenge

The Technological Global Challenge
A brief introduction to our short-listed global crises
The Demographic Global Challenge (week 2)
The Ecology and Energy Global Challenge (week 3)
The Labour and Inequality Global Challenge (week 4)
The Global Mode of Production Challenge (week 5)
The Technological Global Challenge (week 6)
Week 7
Starting on September 5Mid-session exam: A 60 minute open-
book Class Test, comprising short and long answer questions,
will be held in Week 7. This exam will cover material from
Week 1 to Week 6 included.
The context of global challenges: What is an economy?
The economy is the system by which a society takes in
resources and uses them to produce and distribute goods and
services.
An economic system is a response to the three standard
economic questions, what to produce, how and for whom.
Different types of economic organization in history
Primitive society,
slave society,
feudal society,
capitalist society,
socialist society
are all different ways to organize the economy and the

surrounding society.
Evolution of capitalism in the West
A pre-capitalist feudal society transformed itself from a slave
society into a feudal system first and then into a capitalist one
until capitalism developed through its own dynamics,
commodity production and capital accumulation.
From this point on, capitalism developed in accordance with its
inherent dynamics and contradictions.
Private profit (the accumulation of capital), generated through
the exploitation of wage labour, became the motive force of
capitalism and capitalist development through the 19th and 20th
centuries.
Contemporary business and economic environments –part II
Capitalism: What is capitalism?
Capitalism’s key features:
A mode of production (the main relation of production being
wage labour versus capital) (HOW TO PRODUCE);
A mode of distribution (differential ownership means capitalists
are paid different from workers) (FOR WHOM TO PRODUCE);
A mode of accessing political power: economic and political
power and authority in society derived from their ownership and
control of the means of production (WHAT TO PRODUCE).
Capitalism: key features

The capitalist mode of production has three central features:
(1) private property is owned by members of the capitalist class;
(2) workers sell their labor power to the capitalists in order to
survive; and
(3) surpluses of wealth are produced, and these surpluses are
either kept as profit or reinvested in production in order to
generate further surplus.
Capitalism is only one of the many ways we can organize an
economy
Capitalism is a particular structuring of the economy that
prioritises exchange value above other types of value. (GDP:
the value of all goods and services produced in a given economy
in a unit of time (usually a year).
•Prioritising exchange value has led capitalism to develop
unprecedented productive capacity.
Capitalism also links markets to trade and money in very unique
ways. First, though, we will take a closer look at each of the
three modes of production.
•Capitalism primarily uses its productive capacity to produce
more exchange value. This process undermines other value
forms, including health.
The capitalist economic system:

National accounting and Gross Domestic product
GDP: the value of all goods and services produced in a given
economy in a unit of time (usually a year).
We are used to think of
A measure of how well we are: GPD per capita
A measure of how well the economy is performing: GDP
GROWTH RATE
Department of Economics, Jeju National University, 102
Jejudaehak-ro, Jeju 63243, Republic
Department of Economics, Jeju National University, 102
Jejudaehak-ro, Jeju 63243, Republic
GDP per capita: A measure of how well we are
GDP growth: A measure of how well the economy is performing
ACTIVITY: PROBLEMS WITH GDP AS AN ECONOMIC
BAROMETER (BY JOSEPH STIGLITZ, NOBEL PRIZE IN
ECONOMICS IN 2009)
GDP AND THE TYPICAL PERSON
GDP AND SUSTAINABILITY
GDP AND WHAT REALLY VALUES
https://youtu.be/QUaJMNtW6GA
Back to the circular representation of the economy
Capitalism as a form of organization of activities to provide
what people need
The economy has four different provisioning systems: the

market, state, household, and commons.
Within any specific economic system, the power balances
between the four provisioning mechanisms vary.
Before capitalism, markets existed, but they were not essential
to procuring the basic goods of life for most people.
Access to food and shelter in precapitalist societies was
principally mediated by direct access to land. This land could be
held in common or privately owned by the household.
Under capitalism, people are disconnected from the direct
means of production and are instead forced to take part in
market activities to survive.
What first year economics has not told you…
The economy is not really a circular flow. Rather, it is
embedded within the planet’s environment, drawing on its
natural resources and dumping pollutants back out into it.
Sure, first year Economics told you about environmental
externalities has not solved the problem. Rather Economics has
created some of the problems we are dealing it. Why?
The reason for this is that the circular flow treats the
fundamental resource on which all life depends as a factor
external to the system.
Rather…
What is missing in the textbook circular flow

The circular flow produces inequality
This representation of the economy as a form of organization of
activities to provide what people need hides elements such as
Bargaining power
Market structure such as monopoly and monopsony
The presence of externalities across groups and markets
These features produce inequality, which we don’t see it
because we focus on the “representative agent”.
Wait… is it what you are thinking of?
…. Please don’t go, Economics offers tools to these challenges
Understanding crises in the economic context
Understanding crises in the economic context: Adam Smith
https://youtu.be/ejJRhn53X2M
The four pillars of Adam Smith’s understanding of capitalism
Division of labour and specialization
Consumer capitalism
How to treat the rich
Educate consumers (the role of taste)
Understanding crises in the economic context
Understanding crises in the economic context: Karl Marx
https://youtu.be/fSQgCy_iIcc
The pillar of Marx’s critique of capitalism

Modern work is alienated. The root of workers’ alienation
(feeling of alienation between a person what she is and what she
does).
Alienation and economic power: who decides what to produce,
for whom and why in a capitalist society?
The origin of this economic power: primitive accumulation
Crises are endemic to capitalism
The root of capitalism’s production/inequality crisis (crises of
abundance);
The root of capitalism’s ecological crises;
The root of capitalism’s reproduction crisis: the tendency to
value things that have no value (Commodity fetishism)
Exchange value and evaluation of “value” (Amartya Sen, Nobel
Prize in Economics 1998)
What are the objects of value? How valuable are the respective
objects?
Sen’s “capability approach” makes room for a variety of human
acts and states as important in themselves (not just because they
may produce utility).
Capabilities, (people’s ability to do valuable acts or reach
valuable states of being);
Focus on the various ‘functionings’, capabilities that people
have actually achieved.
Development as a process of conversion from means to
functionings. People’s ability to convert a set of means -
resources and public goods - into a functioning depends on
various conditions, which, in the capability literature, are called
‘conversion factors.’
Capabilities and freedom: The freedom to lead different types of
life is reflected in the person’s capability set.
Why Capability, Not Just Achievement? Ability to choose is
valuable even before agency leads to achievements (e.g.,

poverty reduction).
Sen’s approaches to sustainability:
the capability approach
THE ENDS-VERSUS-MEANS APPROACH: GDP IS A MEANS
TO ACHIEVE ENDS.
Instead of looking at the growth of this “means” let’s
concentrate on how, over time, we got better in our ability to
achieve the ends.
Why not directly examine the growth of variables we ultimately
value (ends) rather than concentrate entirely on the growth of
GDP (the means to achieve what we value)?
THE MEANS-VERSUS-MEANS APPROACH: GDP IS ONLY
ONE OF THE MEANS BY WHICH WE CAN ACHIEVE A
CHOSEN END.
THE MEANS-VERSUS-MEANS APPROACH
THE MEANS-VERSUS-MEANS APPROACH: GDP IS ONLY
ONE OF THE MEANS BY WHICH WE CAN ACHIEVE A
CHOSEN END.
Why not examine the growth of the various means that promote
our basic objectives rather than concentrate entirely on one
mean, namely GDP?
Additional reading on Sen’s capability approach:
https://plato.stanford.edu/entries/capability-
approach/#:~:text=Functionings%20are%20'doings%20and%20b
eings,achieve%20these%20doings%20and%20beings.
Crises and the context of contemporary business and economic

environments—Part III
Capitalism and the production/inequality crisis
Owners of means of production attempt to defend or restore
profits by increasing labour productivity, speeding up work,
cutting wages and using other time-honored ways of getting
more production from fewer workers’.
Tendency towards overproduction crises (otherwise known as
‘realization’ crises).
This results in a polarization crisis --the simultaneous creation
of increasing poverty and increasing wealth within and between
societies
Capitalism and the ecological crisis (including climate change)
Tendency of global capitalist development to have a high
impact on the environment, including neo-extractivism, land
and water grabs, and growing greenhouse gas emissions.
This result in the unsustainability of the system (the ecological
crisis).

Capitalism and the social reproduction crisis
The tendency of capitalist economies to undervalue care as a
social right and an issue of social development.
Care refers to a series of human interactions, including feeding,
educating, nursing, parenting, supporting and protecting.
These interactions lie at the heart of social life, and all human
beings need care.
This neglect has profound and widespread implications for work
and gender equity.
Mapping global challenges and crises
The Demographic Global Challenge
The Ecology and Energy Global Challenge
The Labour and Inequality Global Challenge
The Global Mode of Production Challenge
The Technological Global Challenge
The production/inequality crisis
The ecological crisis
The social reproduction crises
environments —Part IV, Global Labour and Global Capital

Economics and beyond
National Accounting: What is the economy
Economy and Nature
Production and care
Can capitalism address our global challenges? Adam Smith vs.
Karl Marx
https://youtu.be/ejJRhn53X2M
https://youtu.be/fSQgCy_iIcc
environments —Part IV, Global Labour and Global Capital
The twenty-first-century global crisis shares a number of
aspects with earlier structural crises of the world economy of
the 1970s and the 1930s, but there are also several features
unique to the current situation:
1. The system is fast reaching the ecological limits of its
reproduction.
1a. Capitalism must continually expand or collapse. How or
where will it now expand? Capitalism is reaching apparent
limits to its extensive expansion. There are no longer any new
territories of significance that can be integrated into world
capitalism, de-ruralization is now well advanced, and the
commodification of the countryside and of preand noncapitalist
spaces has intensified.
2. The concentration of the means of global communication and
symbolic production and circulation in the hands of a very few
powerful groups. (…) There has been an historically
unprecedented concentration of wealth and power in a few
thousand global corporations, financial institutions, and
investment funds.
2a. The extent of the concentration and centralization of capital

in the hands of the TCC and the TNCs it controls is truly
astounding.
2b. There is the rise of a vast surplus population inhabiting a
“planet of slums.”
3. There is a disjuncture between a globalizing economy and a
nationstate-based system of political authority.
The contemporary crises of capitalism are global in nature
The globalization of production has involved the fragmentation
and decentralization of complex production processes, the
worldwide dispersal of the different segments and phases in
these processes, and their functional integration into vast chains
of production and distribution that span the globe.
Globalization is rooted in changes that took place in the
relations of production starting in the 1970s, when the world
economy entered a period of stagnation and crisis. The process
evolved out of the response of distinct agents to the 1970s crisis
of Fordism-Keynesianism, or of redistributive capitalism. Let us
examine these matters in more detail.
The central concept of globalization. New forms of production
that are global in nature (Global capital + Global labour). An
acceleration of a process of change initiated in the 1970s. A
new burst of transnationalization in the first decade of the
twenty-first century.
Capitalist globalization has been driven, at the strictly technical
level, by technological and organization change.
New information technologies and organizational innovations in
capitalist production have modified how value is created,
circulated, and appropriated around the world.
Global capital and global labour
It is the globalization of the production process that provides

the basis for the transnationalization of classes, understood as
groups of people who share a common relationship to the
process of social production and reproduction and are
constituted relationally on the basis of social power struggles.
Global challenges, national systems of regulation
This accelerated transnationalization of both production and
marketing involved not only giant corporations but also small
manufacturing firms.
This process involves new forms of market and non-market
competition among firms, which in turns, requires new forms of
strategic behaviour and government regulation.
The increasing levels of material/social integration brought
about by globalization tend to undermine the bases for more
national, local, or autonomous political, social, and cultural-
ideological processes.
The globalization of exchange and production mandates a
convergence in economic policies and institutions, of
socioeconomic systems.
One was worldwide market liberalization and the construction
of a new legal and regulatory superstructure for the global
economy. The other was the internal restructuring and global
integration of each national economy. The combination of the
two was intended to create a “liberal world order,” an open
global economy and a global policy regime that breaks down all
nationalbarriers to the free movement of transnational capital
across borders and the free operation of capital within borders
in the search for new productive outlets forexcess accumulated
capital. Economic restructuring programs sought to achieve
within each country the macroeconomic equilibrium and
liberalization required

Global capital, global labour: what does “global” means here?
The “North”-”South” divide and the related debate.
In 1957, Paul Baran, a Russian-born U.S. Marxist, published
The Political Economy of Growth to discuss the effects of the
colonial system in distorting the economic and class
development of the Third World.
Baran specifically identified structures of “backwardness”
generated by colonialism that resulted in the drainage of surplus
from the colonies and former colonies to the metropolitan
centers.
An overarching framework of development strategies:
Gereffi
According to Baran, the import-substitution industrialization
strategy that most Third World countries pursued in the postwar
era was futile because the economies of these countries had
developed to the stage of “monopoly capitalism,” so that the
dominant class interests in these countries would block the
social transformations necessary to bring about development.
State Capitalism or Capitalist Colonization of the State?
The legacy of the postcolonial struggles and the ISI era meant
that many former Third World countries entered the
globalization age with significant state sectors.
At the same time, several countries, such as China and the oil
exporters of the Middle East, have set up “sovereign wealth
funds” (SWFs) – that is, state-held investment companies – that
involve several trillion dollars.
These state corporations undertook a wave of investment in
“emerging market” equities and in other investments abroad.
In sum, the global capitalist system developed out of the

historical structures of world capitalism. That system’s
centuries-long expansion out of its European birthplace and
later on out of other metropolitan centers means that emerging
global structures are disproportionately dominated by agents
from those regions.
Global Labour
Capital is not a “thing” but a relationship; we cannot speak of
global capital outside of its dialectical relationship with global
labor, and without its relationship to the key parts of the system
we are dealing with.
The global working class labors in the factories, farms, mines,
banks, and commercial and service centers of the global
economy. These global economy workers do not need to
physically cross borders in order to participate in transnational
circuits of accumulation – and indeed, the vast majority does
not. Yet workers do not enjoy the transnational mobility that
capital and capitalists have achieved.
Capital’s control over the labor process, and real economic
ownership by capital, which refers to control over the
organization or goals of production and appropriation of
surpluses. Under capitalist globalization there has been an
acceleration of these processes of subsumption and of
possession.
Transnational capital has subordinated virtually the entire
world’s population to its logic and its domination through these
processes. In this sense the world’s people live under a
dictatorship of transnational capital.
Power Balance Theories
Emphasized exploitation of poor “southern” economies by the
rich industrial “northern” economies.

Deterioration of terms of trade of agricultural products in poor
economies further aggravates the situation.
Global labour in global settings
As globalization has advanced there has been a dual process in
the subordination of global labor.
One the one hand, a mass of humanity has been dispossessed,
marginalized, and locked out of productive participation in the
global economy.
On the other hand, another mass of humanity has been
incorporated or reincorporated into capitalist production under
new, precarious, highly exploitative capital-labor arrangements.
For example, the International Labor Organization reported that
1.53 billion workers around the world were in such “vulnerable”
employment arrangements in 2009, representing more than 50
percent of the global workforce.
Understanding Asian Global Challenges
Understanding Global Challenges in the Asian Context:
https://www.iias.asia/the-
newsletter/article/rethinking-asia-21st-century
https://www.europeanbusinessreview.eu/page.asp?pid=2418
https://www.schroders.com/en/insights/economics/the-four-ms-
why-the-21st-century-belongs-to-asia/
An overview of our global challenges
The Demographic Challenge:

See
https://youtu.be/-DjU4gsy78Q finish at minute 1:15
The Ecological Crisis (including climate change, pollution and
loss of biodiversity)
See
https://youtu.be/aTrWtFR_FrQ?t=36
The Social and Inequality Global Challenge
See
https://youtu.be/uWSxzjyMNpU
The Global Model of Production Challenge
See
https://youtu.be/cqTS7AXKdcg?t=3
The Technological Change Global Challenge
See
https://youtu.be/w5aUIqX3_kA
Understanding crises in the economic contexts of India, China,
Vietnam and Japan
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Week 13 Crises or Opportunities?
ECON3020 Asian Business Environment
Essential Readings
Shrinking capitalism: components of a new political economy
paradigm,
Samuel Bowles,
Wendy Carlin, Oxford Review of Economic Policy,
Volume 37, Issue 4, Winter 2021, Pages 794–810,
https://doi.org/10.1093/oxrep/grab029
The ground beneath our feet,
Kaushik Basu, Oxford Review of Economic Policy,
Volume 37, Issue 4, Winter 2021, Pages 783-793,
Fixing capitalism’s good jobs problem,
Dani Rodrik,
Stefanie Stantcheva, Oxford Review of Economic
Policy, Volume 37, Issue 4, Winter 2021, Pages 824–837,
Other readings:
Capitalism: what has gone wrong, what needs to change, and
how it can be fixed,
Paul Collier,
Diane Coyle,
Colin Mayer,
Martin Wolf, Oxford Review of Economic Policy,

Old/new capitalism: three good questions (from week 12)
Ideas about changing the organization of society in the long run
are clearly needed, quite apart from strategies for dealing with
an immediate crisis.
Sen would separate out three questions from the many that can
be raised.
First, do we really need some kind of "new capitalism" or rather
we need an economic system that is not monolithic, draws on a
variety of institutions chosen pragmatically, and is based on
social values that we can defend ethically?
Second, The second question concerns the kind of economics
that is needed today, especially in light of the present economic
crises.
How do we assess what is taught and championed among
academic economists as a guide to economic policy?
More particularly, what does the present economic crisis tell us
about the institutions and priorities to look for?
Third, in addition to working our way toward a better
assessment of what long-term changes are needed, we have to
think—and think fast—about how to get out of the present crisis
with as little damage as possible.
The ground beneath our feet,
Kaushik Basu, Oxford Review of Economic Policy,
Volume 37, Issue 4, Winter 2021, Pages 783-793,
Key lessons from the Technological Global Challenge:
the rapid advance in technology (labour-savings/labour
augmenting);
the arrival of artificial intelligence (key new global players
such as China, Korea, Japan, but also smaller new players in the
global scene);
easy digital connectivity across nations, the access to a global
audience for achieving the previously considered unachievable

in terms of global challenges (see readings for W12);
This has given rise to new social and political problems and
challenges for market capitalism.
What kind of economics do we need?
What challenges to understand the role of markers in this new
era?
What out-of-the-box policies?
The example of antitrust law, currently inadequate for our
digital-platform-based economy, illustrates the need for new
forms of regulation.
The ground beneath our feet is shifting
A lesson from Economic History
100 years of first Industrial Revolution: 1750-1850 and its
effect
Vastly greater per capita income
Improvements in health, quality of life and life expectancy.
We are now growing 10 times faster than we were before the
Industrial Revolution.
But the Industrial Revolution was also possible thanks to
skies darkened by smoke and soot,
labourers, including children as young as 5 years of age,
toiling 12 to 14 hours a day, sound bleak.
Profits were rising, total incomes were rising,
but large segments of the population were suffering and there
was climatic damage happening on several fronts.
The role of law changes and regulation
The Factories Act of 1802 we saw one regulation after another
altering the way markets functioned. It was capitalism, but
capitalism with a new set of rules.
The series of laws, placing restrictions on children’s work

(1802 onwards),
putting caps on the hours of work (Factory Act of 1847),
taxing people’s income (1842)
Antitrust laws: the United States’ Sherman Act 1890, antitrust
laws have played a major role protecting consumers and
deterring firms from some of the worst practices.
The Fourth Industrial Revolution and its challenges
There is now ample evidence that the share of GDP going to
workers as wage income is declining in almost all advanced and
higher middle-income economies (Karabarbounis and Neiman,
2013; Autor et al., 2020).
The rise of artificial intelligence, robotics, and ever more
sophisticated machinery is displacing labour.
But thanks to the revolution being based on digital technology,
this time we have labour being displaced not just by capital but
by labour in countries that have low wages (Elsby et al., 2013).
If the United States does not use the cheap labour accessible by
digital connections in Kenya, Manila, or Santiago, then the
United States will be outcompeted in the final goods and
services market by other advanced or higher-middle income
economies, say Germany or China, that use this cheap labour
and cut down the cost of production.
We are also facing an astronomical inequality in income and
wealth that we have seen over the last few decades
(Bourguignon, 2015; Milanovic, 2018).
We should use our antitrust laws intelligently and be mindful of
labourer exploitation.
Automation in the context of development
Basu’s main line: “While these diverse crises have many
different proximate causes, they have important common roots.”
The First Industrial Revolution was a turning point thanks to
technological change.

We are today at yet another turning point; and once again we
face a challenge of both
science and policy.
The basic change that has brought us to this is once again
technology. This is the change brought
about by the rise of digital science.
What are the key dimensions of this technological challenge?
See again Week 6 material.
There is now ample evidence that the share of GDP going to
workers as wage income is declining in almost all advanced and
higher middle income economies (Karabarbounis and Neiman,
2013; Autor et al., 2020).
Declining labour shares: from Benanav (2019), from essential
reading in Week 6
“The rise of artificial intelligence, robotics, and ever more
sophisticated machinery is displacing labour. But thanks to the
revolution being based on digital technology, this time we have
labour being displaced not just by capital but by labour in
countries that have low wages”
“Astronomical inequality”
Alongside the slippage in the share of labour income, one
broader problem that is causing a lot of pain and distress is the
astronomical inequality in income and wealth that we have seen
over the last few decades (Bourguignon, 2015; Milanovic,
2018).

See material discussed in Week 4 (the social and labour global
challenge)
Labour linking technologies
Thus alongside the labour-saving technology that happened
during the Industrial Revolution, this time we have ‘labour-
linking technology’ (Basu, 2021a).
Thanks to Global Production Networks and the 4th Industrial
Revolution, “(…) It is possible for workers to be based in
Bangalore and work for a corporation in Detroit and for
customers in London.
The rise in equity and non-equity relationships among firms
means that “(…) outsourced work has risen in popularity and
there has been a surge in outsourcing over the last three
decades.
This is one of key factors behind the take-off of the Indian
economy that occurred in the early 1990s. (See Week 5 and
Week 8 materials)
Some un-resolvable trade offs (from week 12)
Can single firms adopt Global Labour standards?
High cost of labour may mean this firm cannot compete with
other firms;
Can MNE be called responsible for tier 1 and tier 2 firms in
their GPN? Yes, but possibly at the expense of involvement in
GPN of informal firms that give employment to millions of
people globally.

How to address these thorny global challenges?
First and foremost, the need is to understand how dramatically
the nature of the economy and the ground beneath our feet,
where we make, buy, and sell, has changed.
(Please recommend ECON3020 to your friends!)
What kind of economics? We need data and statistical capacity,
but what is fundamental
is the capacity to see, imagine, and visualize, which has come
from the seminal breakthroughs in economic theory.
Theory must not be equated with mathematics.
More than ever, there is the need today to take a holistic, multi-
disciplinary view of what
is happening.
Returning to economics, it is clear that our policies are
malfunctioning, the normal regulatory framework under which
capitalism and its many markets function reasonably
effectively, is faltering. What are the hidden assumptions that
need to be changed? This is one of the most vexing questions.
Autor et al. (2020)
If globalization or technological changes push sales toward the
most productive firms in each industry, product market
concentration will rise as industries become increasingly
dominated by superstar firms, which have high markups and a
low labor share of value added.
We empirically assess seven predictions of this hypothesis:

(i) industry sales will increasingly concentrate in a small
number of firms;
(ii) industries where concentration rises most will have the
largest declines in the labor share;
(iii) the fall in the labor share will be driven largely by
reallocation rather than a fall in the unweighted mean labor
share across all firms;
(iv) the industries that are becoming more concentrated will
exhibit faster growth of productivity;
(v) these patterns should be observed not only in U.S. firms but
also internationally.
Autor works find support for all of these predictions.
The queen of policies: regulation to limit market power
In recent years there is the additional worry of corporations,
large MNE leadings GPN armed of extra-ordinary market
power.
The example of the Big Tech companies and Big Pharma,
gaining control over large markets and earning astronomical
profits.
Apart from being undesirable in itself, staggeringly high
inequalities do damage to democracy by robbing ordinary
people of their voice and by giving a few disproportionate
influence over government decision-making.
Our antitrust laws were meant to be a market-respecting form of
control over excessive power and profit going into the hands of
a few corporations.
Digital platforms as new institutions
With the arrival of the digital platform firms, such as Amazon,

Uber, or Alibaba,
these markets have changed in one dramatic way.
The platforms now play the role of the auctioneer allowing for
prices (and quantity) adjustments that ideally should be
informally performed by competition in the markets.
In other words, the imaginary auctioneer in the competitive
market has suddenly come into actual existence and it is not just
that.
The auctioneer is itself a profit-maximizing firm.
Clearly, this novel market has to be analysed and regulated in
novel ways.
Examples of anti-trust laws
To begin with a relatively narrow matter, let us look at antitrust
law. Beginning with the pioneering effort in the United States
in the late nineteenth century, when it enacted the Sherman Act
1890, antitrust laws have played a major role the world over,
protecting consumers and deterring firms from some of the
worst practices.
However, while we should use our antitrust laws intelligently
and aggressively and we should cover monopsonies and be
mindful of labourer exploitation, I would argue that this in
itself will prove to be inadequate in our new digital world.
The reason is a proviso that was already there in the Sherman
Act 1890.
Breaking up a firm into many is undesirable when the monopoly
is a natural one in the sense that there are such great economies
of scale that to break up the firm into several small firms is to

do damage to efficiency. It has been recognized that antitrust
laws do not apply in such situations.
That is what has happened with the arrival of the digital
platform firms, such as Amazon and Uber. Their advantage is
their size.
New institutions, new forms of labour exploitation and old anti-
trust laws
That is what has happened with the arrival of the digital
platform firms, such as Amazon and Uber. Their advantage is
their size.
But this same advantage creates the problem of disproportionate
power on the part of the platform, thereby creating a deep
policy dilemma.
Antitrust laws cannot solve this problem. It can be argued that
we are reaching the end of the antitrust century (Basu, 2021a).
Our antitrust laws have helped us a lot and we must continue to
use them for a host of sectors, but the big problems of consumer
and labourer exploitation that accompany the rise of the digital
corporations are beyond what can be solved by these laws.
New institutions, astronomical profits and new forms of profit
sharing
If we have to live with large corporations because of the large
returns to scale provided by the digital platforms, what we need
is to turn our attention to some form of profit-sharing.
We have to bring in new laws to require corporations to have
dispersed shareholdings.

More generally, the astronomical market power by star/global
firms begs the question:
What responsibilities should be placed on companies that serve
millions of businesses and billions of consumers with services
that in the eyes of many have become essential?
Going beyond corporate profits, we need steps to curtail overall
inequality in society, especially inherited inequality. This
means having larger wealth tax and inheritance tax.
Technology, economic growth and the ecological global
challenge
However, higher GDP growth does not have to mean a lower
chance of long-run sustainability.
Many activists make the mistake of equating the two because
they equate higher GDP growth with more cars, more jets, more
houses, more carbon emissions, all of which do damage to the
environment.
In reality, we can get higher GDP growth because we are
consuming better health, longer lives, more music, more art,
more philosophy.
What does need to change to make economic growth more
compatible with a solution to the ecological global challenge?
We need to work on changing the constituents of that growth
way from cars, yachts, and houses, to better health and stimulus
for the mind.
This change in the composition of growth will need planning
and policy and the use of incentives to make the shift happen.

This has to be a major part of our policy effort if we are going
to weather the more rapid growth that is bound to come with the
ongoing digital revolution.
Fixing capitalism’s good jobs problem,
Dani Rodrik,
Stefanie Stantcheva, Oxford Review of Economic
Policy, Volume 37, Issue 4, Winter 2021, Pages 824–837,
Proposal for a new form of regulation:
Conventional welfare state policies that centre on education,
training, progressive taxation,
and social insurance are inadequate to address labour market
polarization, which is capitalism’s most
pressing inclusion global challenge at present.
We emphasize the importance of new institutional arrangements
that enable strategic long-term information exchange and
cooperation between governments and firms.
Capitalism, the crisis of production and the social/labour global
challenge
One of the fundamental problems of contemporary capitalism is
its failure to produce adequate numbers of good jobs.
Quantitative indicators of this can be found in measures of
labour market polarization,
rising spatial inequality,
declining job stability,
greater self-reported economic insecurity,
declining middle-class income shares

the collapse in the number of jobs for medium-skill occupations
in leading advanced economies.
These dimensions of the labour global challenge are related to a
wide variety of social ills such as family breakdown, crime, and
substance abuse.
It is even a problem for economic efficiency and growth insofar
as it limits households’ ability to support children’s education,
and this slows down the dissemination of innovation from the
more advanced sectors and firms to the rest of the economy
through the creation of more productive jobs in the middle of
the skill distribution.
Measures against inequality in the OECD area
A 21st century view of the labour global challenge in the face
of shortage of middle class jobs.
The assumption is that good middle-class jobs will be available
to all with adequate
education and skills.
We need a different—or at least complementary—approach
when inequality and economic insecurity are structural
problems, and when the inadequacy of good middleclass jobs is
driven by secular trends such as technology and globalization.
Preparing young workers for the labour market and reskilling
older workers for newer occupations will not work if firms are
not supplying an adequate quantity of good jobs.
This calls for targeting the middle cell of the matrix, focusing

on direct interventions in the productive sphere with the goal of
expanding the supply of middle-skill jobs.
New labour market policies for the labour global challenge
This new form of regulation would be aimed directly at the
productive sphere of the economy and targeting an increase in
the supply of ‘good jobs’.
The main elements of this strategy are:
active labour market policies linked to employers;
industrial and regional policies directly targeting the creation of
good jobs;
innovation policies that incentivize labour-friendly
technologies;
international economic policies that facilitate the maintenance
of high domestic labour/social standards.
New active labour market policies
There is an opportunity to enhance training and active labour
market policies by transforming them into vehicles of sustained
engagement and collaboration with local
(and prospective) employers.
The provision of customized services to both job-seekers and
employers can help achieve multiple objectives.
It makes training and job placement more effective. It makes it
possible to reach workers who might otherwise drop out of the
labour market because of particular circumstances.
It might not only enhance the productivity of local firms
through qualified employees, but also induce them to adapt their
employment and human resources practices to the needs of local
labour markets.

Industrial policy (think of examples drawing upon the 4 country
specific experiences)
Industrial strategy consists of a collaborative process of
‘discovery’ involving business and agencies of the state, where
the objective is to identify the constraints and opportunities
over time, and to design interventions appropriately.
In the broader context of the four focal economies we have dealt
with (China, India, Japan and Vietnam), industrial policies
would need to consider some of the following groups:
Small and medium enterprises;
Informal businesses
MNEs;
Subsidiary and affiliated firms linked with equity relationship
to MNE.
International companies partners in GPNs.
“Humans are under-rated” (Musk, Tesla CEO)
The direction of technological change depends on several
conditions that may be
amenable to policy influence.
First and most directly, government-funded and –directed
innovation programmes make decisions about what kind of
innovations to promote.
Defence-related and green technologies are examples.
Employment-friendly technologies— those that augment rather

than replace labour—could be part of those priorities, though
they are not at present.
Furthermore, most advanced economies tax capital income more
lightly (through depreciation allowances and various incentives
of the type we discussed previously) and tax labour more
heavily (through personal income taxes, social insurance
contributions, and payroll taxes).
An unintended consequence of such a tax system is to make it
more attractive to firms to economize on labour by investing in
machinery, to an extent that may be socially suboptimal
(Acemoglu et al., 2020).
Finally, the direction of technological change also depends on
the balance of power between employers and employees.
A new way of thinking about technological change
The gap between skills and technology can be closed in one of
two ways:
either by increasing education to match the demands of new
technologies, or by redirecting innovation to match the skills of
the current (and prospective) labour force.
The second strategy, which gets practically no attention in
policy discussions, is
worth taking seriously.
It may be possible to direct technology to better serve the
existing workforce’s needs, in addition to preparing the
workforce to match the requirements
of technology.

More labour-augmenting technological change/AI
Acemoglu and Restrepo (2018) have argued that it is possible to
countervail present
technological trends and push innovation in a direction that
creates new, labour-augmenting
tasks.
They cite three areas.
First, they suggest artificial intelligence (AI) could be used in
education in order to create more specialized tasks for teachers,
personalize instruction for students, and increase effectiveness
of schooling in the process.
Second, they note a similar potential in healthcare, which is
perhaps closer to realization. AI tools would allow ‘less skilled’
practitioners to perform tasks that only physicians with many
more years of professional education
have traditionally undertaken.
Third, Acemoglu and Restrepo (2018) mention the use of
augmented and virtual reality technologies in manufacturing,
enabling humans and robots to work together in performing
precision tasks
Governance issues to create high quality mid-income jobs
The objective itself (‘good jobs’) needs to be operationalized in
a way that is both evolving and
context-dependent.
Furthermore, creating good jobs depends on a wide array of
decisions on investment, technological choice, and business
organization, the consequences of which are unknowable ex
ante.

Technological and operational possibilities are highly uncertain,
and neither firms nor government agencies have the information
needed to devise concrete behavioural schedules from the
outset.
Hence the interaction between the government and firms must
take as its starting point the provisionality of ends and means
and the need for disciplined review and revision.
The task of governance is to establish an information exchange
regime that induces
firms and other entities to cooperate with the government and
adjust their strategies in
the desired direction in a context of extreme uncertainty.
A structuralist approach to our global challenges
The proposed approach is explicitly and self-consciously
structuralist.
It aims to shape production, innovation, employment incentives,
and relationships in situ, instead of taking them as given and
only addressing their consequences after the fact, through taxes
and transfers.
Second, it moves us away from the institutional fetishism
reflected in the traditional distinction between markets and
states.
Rather, it pushes us to think in terms of complementarities
between private actors and state agencies and collaborative,
iterative rule-making under extreme, multi-dimensional
uncertainty.
Finally, the general approach to regulatory governance
highlighted in the paper is open ended and can be applied within

different domains and at different levels of the economy and
society.
Shrinking capitalism: components of a new political economy
paradigm,
Samuel Bowles,
Wendy Carlin, Oxford Review of Economic Policy,
Since the late 1970s, however, ‘shared affluence’ has given way
to dramatic increases
in inequality and stagnant real wages in many countries.
The climate emergency, rising inequality, and pandemic
diffusion have raised the question: for what purpose is
capitalism fit?
Implementing new policies and institutions to meet these
challenges will require a realignment of political forces on very
large scale.
We suggest that a successful new paradigm must provide the
basis of a dynamic and sustainable economy and be constituted
by a synergistic set of ethical commitments, economic models,
emblematic policies, and a new vernacular economics by which
people understand and seek to improve their livelihoods and
futures.
Top-down regulation of capitalism?
A remedy commonly proposed is a more interventionist and
egalitarian state, a form
of social democracy now recast to include environmental
protections—the ‘green New

Deal’ in the US, for example.
Although a necessary component of a solution, capitalism with
shared affluence plus sustainability would not be an adequate
‘fix’.
There are two reasons.
First, it neglects the fact that capitalism is shrinking and, on
conventional welfare
economic grounds, should be shrunk. In large parts of the
knowledge- and care-based
sectors that dominate the contemporary high-income economy,
much of the work done
does not take place in capitalist firms, traditionally conceived.
The team-based nature of the work—contributing to the design
of a new app, preparing meals in a restaurant, educating the
young, and caring for the old—this requires a less hierarchically
structured workplace.
The example of the covid-19 pandemic
Four different PE paradigms
A new paradigm, a new policy perspective
A new paradigm becomes a force for change when it is
constituted by four complementary attributes: new economic
thinking capable of addressing the pressing current societal
problems is integrated into
a powerful moral framework, illustrated by emblematic policy

innovations, and articulated
in everyday conversations by means of what we term a new
vernacular economics.
A restricted one-dimensional continuum of policy options, one
that appears anachronistic in light of two important
developments in economics.
New policy perspectives for our ecological global challenge
The limitations of the one-dimensional depiction of the policy-
institution space
are illustrated by returning to the challenge of environmental
sustainability shown in
Figure 1. Where do we locate policies that cultivate and
mobilize green values and social
pressures from neighbours and friends to alter one’s lifestyle so
as reduce one’s own
carbon footprint?
Dismissed by some as a fringe concern, the impact of values’
changes can be substantial.
A recent empirical study of ‘green’ and ‘dirty’ patents in the
automobile manufacturing
sector around the world found that a greening of values (of a
magnitude
observed over the past two decades) along with increased
competition would account
for a greening of innovation of the same magnitude as would
have resulted from a
(politically explosive) 40 per cent increase in fuel prices.

The Synergy Simplex
The synergy simplex: state, market, and civil society as
complements not substitutes
As a result of these considerations, a new space is opened up for
policies and also for new critiques of the status quo. The third
pole in Figure 3 is labelled ‘Civil society’ and any point in the
interior of the triangle represents a particular configuration of
policies or institutions that combine motivation and
implementation mechanisms from all three poles working
together.
We call it the synergy simplex because we are not posing the
question as governments versus markets or state versus civil
society. Instead, well-designed organizations and rules of the
game allow its vertices—governments, markets, and civil
society—to work in complementary ways rather than as
substitutes.
The role of the civil society here is central in motivating
through social norms (e.g., green social norm to address the
ecological global challenge.
The state can direct innovation and enforce competition and
regulation, along with new policies to democratize access to
innovation.
The role of civil society in addressing global challenges
Eleanor Ostrom’s work on community-based ways of addressing
environmental and other social problems grounds our inclusion
of the civil society in the policy simplex of figure 3.
The comparative advantage of civil society is based on the fact
that the members of communities making up civil society often

have information not available to economic actors in markets
(lenders, or employers, for example). As a result they can
interact in mutually beneficial ways, with contracts being
substantially replaced by informal peer enforcement motivated
by reciprocity, mutual concern, or other shared values.
But these social preference underpinnings of the successful
workings of communities do not flourish under conditions of
elevated conflicts of interest due to extreme inequality of
reward or hierarchical organization.
The dark side of civil society
Thus, there is a danger associated with our emphasis on civil
society.
Unless directly addressed, the greater reliance on community-
based solutions, such as worker-owned cooperatives, may make
it more difficult to sustain a cosmopolitan and tolerant society.
An endemic shortcoming of community-based civil-society
organizations is the risk that they may provide greater scope for
acting on the identity-based us-versus them sentiments that are
the downside of other-regarding preferences. For example: a
producer-owned, and democratically managed cooperative is
likely to be more homogeneous in personnel than a conventional
firm.
Consideration of market’s external effects (more than simply
market failures)
The economic model component of the paradigm is based on an
expanded concept of uncompensated external effects of an actor
on the wellbeing of others.
These external effects include not only the familiar market

failures arising from our interaction with the biosphere and
increasing returns, but also the central markets in a modern
capitalist economy, those for labour, credit, and information.
In these crucial markets, the exchange is governed in part by
some combination of the contract, social norms (such as a work
ethic on the part of the employee or truth telling by the
borrower), and the private exercise of power by the employer
(in the labour market), by the lender (in the credit market), and
by big tech firms (in the market for
information). Here is the crucial role of the civil society.
Global/local reach of the three main policy actors
The three modes of governance differ fundamentally in their
scope, from global to local.
Markets potentially encompass the entire planet, effectively
ignoring national boundaries in the absence of market-
restricting policies.
By contrast, state capacities beyond national (or more local)
boundaries are limited.
Civil society is often local—based on neighbourhood or
workplace interactions—but it can also extend to global
dimensions as with the growing economic and political impact
of green preferences.
Policies for a new paradigm
(i) Redistribution of endowments
Reduced wealth inequality would support less unequal standards
of living, greater security, and equality of dignity and voice,

addressing unequal power not only at work but also in the
polity. Wealth redistribution would also provide conditions
favouring more collaborative and less hierarchical workplace
organizations. This means that a condition for sustaining the
values and social norms critical to exploiting the problem-
solving capacities of civil society is substantial equality of
wealth.
A more equal distribution of endowments along with public
policies to enhance the value of the time we spend not at work
would support a redefinition of how we conceive ‘the good
life’, placing less emphasis on material consumption (with its
negative impacts on the biosphere) and more on free time.
(ii) Opportunities to innovation via risk sharing
Egalitarian redistribution of wealth (broadly construed to
include endowments
of all kinds) is key not only to the objectives of equal dignity
and voice, but also
to the democratization of innovation and to sustaining the trust,
reciprocity, and other
social preferences on which a high-performance modern
economy depends.
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