On the face of it, this is puzzling. Over the long term, a government’s ability to spend is limited by its ability to raise taxes. In the past 20 years, better international communications and freer movement of capital should have made it easier for taxpayers to avoid high-tax jurisdictions, putting downward pressure on public spending. Why does this appear not to have happened in a significant way?
The answer is partly that taxpayers remain less mobile than one might think. Financial capital, to be sure, now moves instantly from country to country. But once capital has been turned into physical assets such as buildings or equipment, moving it is costly. Governments may grant tax preferences to attract new capital to their countries, but they can continue to tax the profits from physical capital that is already in place.
Labour, in any case, remains far less mobile than capital -rooted by ties of family, culture and language. In recent years, therefore, many governments have reduced their rates of company taxation (as well as granting special concessions for new investment), and have shifted the burden on to people instead. Taxes on wages and salaries have risen. This has more than made up for the fall in revenues due to lower company taxes.
Extremely high rates of personal taxation in many countries, notably in Europe, confirm that people cannot readily escape the clutches of high-spending governments. It is true that competition among governments has changed the structure of personal taxes in many countries, as the extremely high rates paid by the highest-income taxpayers have been cut. So far, however, this has failed to reduce the overall tax burden. Only in the most extreme cases - such as Sweden, where public spending reached 71% of national income in 1993 - has emigration of high-income taxpayers forced a retrenchment (and even then only a comparatively modest one) on the government.
Free to borrow
So much for taxes and spending. What about public borrowing and monetary policy? It is often argued that today’s global market for capital applies a particularly severe discipline in these areas. Again, this is misleading. In the first instance, greater mobility of capital gives governments more freedom of manoeuvre in fiscal policy, not less. By borrowing from abroad, they are able to let their spending exceed their revenues by more and for longer than would be possible if their economies were closed to international finance.
Of course, if they abuse this freedom, capital markets will turn against them, and raise the offenders’ cost of borrowing. But this is only like saying that people who run up too big a bank overdraft will be offered poor terms for further loans. The fact remains that an overdraft facility increases financial freedom, it does not reduce it.
Admittedly, living with financial freedom can be more complicated than living without it. In particular, the extreme mobility of modern financial capital makes monetary policy more difficult to conduct For instance, it has become difficult for governments to peg their exchange rates indefinitely in the face of adverse circumstances. Numerous crises, from the collapse of Europe’s exchange-rate mechanism in 1992-93 to the trauma in East Asia, make this clear.
The risk of “contagion”, when a crisis in one country leads the market to change its view of prospects in others, is a further complication, as recent events in Asia have emphasised. Nonetheless it remains entirely possible for a government to use monetary policy to steer the domestic economy, provided that it is willing to let its currency float. Today’s global capital market only rules out sooner what has always been impossible in the longer term - namely, treating interest rates and the value of the currency as entirely separate instruments matters. Globalisation has not altered the basic limits: monetary policy can be used to regulate the domestic economy or to regulate the exchange rate, but it cannot successfully accomplish both goals at once.
Finally, what of the argument that the new global economy makes it impossible for governments to mandate social protection, such as minimum-wage laws, rules on working hours, health-and-safety standards in the workplace, and so forth. According to this popular view, if governments grant such protection, they will make their firms uncompetitive and put workers on the dole. Globalisation is thus blamed for a “race to the bottom” in economic regulation.
There is no reason why this should be true. Certainly, social protection does carry economic costs, reducing the amount of output that can be squeezed from any given amount of capital, labour and other resources. This is not to say that social protection is wrong. Citizens may well decide the cost is worth paying. But the cost must be borne. The only question is how.
In an economy closed to flows of trade and finance, the cost will take the form of lower incomes. In an open economy, the same must ultimately be true. This basic logic is the same whether the economy is closed, partially open or globalised. The only difference is that open economies with floating currencies may experience that fall in incomes through currency depreciation - and thus higher prices for consumer goods-while a closed economy will suffer a decline in wages as expressed in the local currency.
The important thing to remember about social-protection. Rules is simply that, in economics, you rarely get something for nothing. That is the bad news. The good news is that social-protection rules are as feasible, and in the end no more costly, in a globalised economy than they are in a closed economy.
Much the same goes for financial regulation, public spending and macroeconomic policy. Governments, always eager to deflect political pressure, may prefer to justify unpopular decisions by pretending that their hands are tied. In truth, despite all the changes in global markets, they have about as much, or as little, control of their economies as they ever had.
VOCABULARY
| 1. in the aggregate | в совокупности, в целом |
| 2. income (s) | доходы (ы) |
| 3. benefit (s) | выгоды, преимущества |
| 4. public spending | государственные расходы |
| 5. to cushion | зд.оказывать финансовую помощь; перераспреде-лять средства в пользу...; |
| 6. working practices | организация труда |
| 7. collapsing currency | валюта, курс который неуклонно снижается |
| 8. lighter regulation | смягчение регулирования (контроля) |
| 9. health-care system | система здравоохранения |
| 10. education reform | реформа в сфере образования |
| 11. privatization of state-owned enterprises | приватизация государственных предприятий |
| 12. «flexibility» | «гибкость» |
| 13. foreign borrowing | займы (заимствование) за границей |
| 14. deregulation | отмена государственного регулирования |
| 15. banking industry | банковская система |
| 16. abolition of exchange controls | отмена валютного контроля |
| 17. non-bank lenders | небанковские кредиты |
| 18. building societies | строительное кооперативное сообщество с функциями ипотечного банка |
| 19. boom | «бум», бурный рост (экономики) |
| 20. bust | резкий спад (экономики) |
| 21. upward trend | повышенная тенденция; тенденция к повышению |
| 22. share of national income | доля национального дохода |
| 23. physical assets | материальные активы |
| 24. to grant tax prefere-nces (concessions) | предоставить налоговые льготы |
| 25. revenues | поступления, доход |
| 26. personal tax | налог на личную собственность |
| 27. public borrowing | государственное заимствование |
| 28. monetary policy | денежно-кредитная политика |
| 29. fiscal policy | фискальная политика; бюджетная политика; налогово-кредитная политика |
| 30. a bank overdraft | банковский овердрафт (кредитование суммы превышающей остаток средств на счете) |
| 31. to peg exchange rate | «привязать» курс национальной валюты к движению курса другой твердой валюты (например, доллара) |
4. Переведите отрывок «Free to Borrow».
5. Напишите реферат и аннотацию данного текста.
Text B.
1. Переведите следующий текст:
Developing countries have their own branch of economics. It is far from obvious that they need it.
Michel Camdessus, the managing director of the IMF, calls it the “silent revolution”. Wall Street financiers talk of the “emerging market era”. Other commentators refer more sourly to the “triumph of free-market economics”. They are all describing the same phenomenon: the dramatic shift in economic policy that has swept the developing world in the past few years.
The individual prescriptions are, by now, familiar: dismantle trade barriers, tighten fiscal policy, privatise state-owned firms, attack inflation, and so forth. Underlying them all, however, is an implicit assumption that the basic premises of prudent economic management are the same whether you are in Brazil, Benin or Belgium.
But is this assumption right? Three decades ago most economists would have answered, No. Spawned by the end of the colonial era in the 1950s and 1960s, a whole branch of economic theory grew up around the question of how to promote economic development in poor countries. The proposition on which “development economics” was built was that poor countries were intrinsically different from rich ones, and so needed their own set of economic models.
Some development economists argued, for instance, that the self-interested, rational individual (the basic actor in most economists’ models since Adam Smith’s time), did not exist in “traditional” tribal societies. And they claimed that because many poor countries had large agricultural populations and were often dependent on a few commodity exports for foreign-exchange earnings, economic policies that suited rich nations would not be appropriate for them.
With hindsight, much of this was misguided, and policies based on it had disastrous effects. Development economists believed that the state had to play a big role in fostering modernisation. But this led to huge, corrupt and inefficient bureaucracies, massive budget deficits and, indirectly, to rampant inflation. Much of the “silent revolution” of the past decade has consisted of correcting these mistakes.
So what, if anything, is left of development economics? Pierre-Richard Agenor, an economist at the IMF, argues that while the basic microeconomic assumptions about how people behave are similar for all countries, developing economies still differ “structurally” from rich ones, and therefore demand different models.
To support their case, the author lists the traits that he reckons “typical” developing countries still share. They tend to be more open than richer ones (that is to say, trade contributes a bigger fraction of national income), and to depend more on foreign capital. They tend to have fixed exchange rates and, often, exchange controls. Their financial markets are rudimentary and often distorted by heavy government regulation. The public sector plays a bigger role than in rich countries, particularly in directing the pattern of investment.
One obvious difficulty with this approach is that there is, in fact, no such thing as a “typical” developing country. Remember that the official “developing world” includes the fast-growing Asian tigers, the volatile economies of Latin America and the poorest nations in Africa. While some countries may share a number of the traits that the authors outline, few share them all.
A second objection is that many of the “structural differences” are, in fact, the relics of old policies inspired bydevelopment economics. Exchange controls are an example. As countries begin their reform process, these have been quickly lifted. Ditto for some of the restrictions on local financial markets.
Moreover, other apparent differences such as the importance of trade and capital flows in emerging markets - are nothing of the sort. They apply equally to many industrialised countries. This does have an implication for macroeconomics, but for the field in general, not just for the poor world. For simplicity’s sake, most traditional mainstream macroeconomic models assumed that an economy was closed (ie, that it had no relations with the rest of the world). In an increasingly integrated global economy, this assumption makes little sense. Macroeconomics, in rich and poor countries alike, must take the rest of the world into account.
That said, certain specific policy issues do seem to matter more in developing countries than in rich ones. Few developed countries, for example, have to contend with inflation rates of 20-30% a year; none has to worry about taming hyperinflation. In poorer countries, this problem is still high on the economic-policy agenda. In less developed economies, policymakers have a smaller range of financial tools at their disposal. Conducting monetary policy in an African country where domestic bond markets barely exist is clearly different from influencing interest rates in, say, France.
Behind the times
In the early 1990’s stabilising high inflation and the aftermath of the 1980s debt crisis preoccupied many goverments.
Nowadays, the problems of coping with rapid swings in capital flows are more pressing - a fact that was highlighted by Mexico’s financial crisis, 1998. As poor countries continue to free their markets and to curb the role of the state, many of the remaining “structural differences” with rich ones will disappear. Sooner rather than later, there will only be two types of macroeconomic policy: good and bad.
VOCABULARY
| 1. emerging markets | развивающиеся рынки |
| 2. emerging countries | страны с развивающимися рыночными отношениями (часто новые индустриальные страны) |
| 3. development economics | экономическая теория развития |
| 4. a fraction of national income | доля (часть) национального дохода |
| 5. trait(s) | характерные черты |
| 6. macroeconomics | макроэкономическая теория |
| 7. taming hyperinflation | обуздание гиперинфляции |
2. Напишите аннотацию данного текста.