Jomo Kwame Sundaram’s Blog

Limited liability protection for shareholders in joint stock companies was introduced to encourage investments in them. However, it has encouraged irresponsibility, causing much harm while generating profits without responsibility. Limited liability limits responsibility Columbia Law School’s Professor Katarina Pistor has extended her critique of the legal system to emphasize the implications of such limited liability. Limited liability encourages shareholders not to pay attention to the harm corporations they invest in may do. Instead, as emphasized by Milton Friedman, shareholders should focus on returns to investment, and not be distracted by other considerations, especially the notions of corporate social responsibility and stakeholderism. Chicago University’s Professor Luigi Zingales has…

Milton Friedman was arguably the most influential economist of the second half of the 20th century, associated with promoting ‘neo-liberal’, free-market, shareholder capitalism. Friedman’s monetarist economics is now widely considered irrelevant, if not wrong, especially with the low inflation associated with ‘unconventional’ monetary policies following the 2008-2009 global financial crisis. Friedman’s doctrine challenged Nevertheless, Friedman’s ‘shareholder capitalism’ doctrine remains influential in most financial markets, especially emerging ones in the developing world. His doctrine, prioritizing short-term profit maximization, has long dominated Anglo-American corporate governance despite chatter about ‘stakeholder capitalism’ and ‘corporate social responsibility’ (CSR). Chicago University’s Raghuram Rajan claims that long-term…

Industrial policy – or the promotion of particular investments, technologies, industries, regions and enterprises – has been practiced by a variety of governments to try to accelerate economic growth and transformation. The ascendance of the Washington Consensus, inspired by the neoliberal counter-revolution in economics, focused on alleged national macroeconomic mismanagement in developing countries and later, transition economies. This was typically blamed on ‘soft budget constraints’ (SBCs) in socialist states and enterprises, macroeconomic populism and industrial policy. Blaming industrial policy Enterprise-level SBCs have also been wrongly blamed on industrial policy to promote certain economic activities, usually manufacturing with more advanced technologies.…

Milton Friedman’s libertarian economics advocating shareholder capitalism has influenced generations trying to understand the economy, not only in the US, but all over the world. He was not just an academic economist, but an enormously influential celebrity conservative ideologue who legitimized ideas for the like-minded, including the belief that ‘greed is good’. Now, shareholder capitalism’s consequences haunt the world and threaten humanity with stagnation and self-destruction. Friedman’s lasting influence In 1962, Friedman published his most influential book, Capitalism and Freedom. In September 1970, the New York Times Magazine published his essay, The Social Responsibility of Business is to Increase Its Profits.…

'Ethno-populism' has emerged and spread in recent decades in response to the mixed consequences of neoliberal globalization. It appropriates nationalist rhetoric for narrow ethnic, religious, cultural or other communal ends, typically with a chauvinist, jingoist rejection of selected Others as politically expedient. Politics of macroeconomic policy Most elected governments in the world typically rely on the political support of coalitions among different interest groups, including classes. Hence, unsurprisingly, most political platforms involve what are essentially populist coalitions, within a political party or among several such groupings, seeking popular electoral support. Mancur Olson’s notion of ‘distributional coalitions’ — i.e., political alliances…

In recent decades, many contemporary macroeconomic and financial problems have been blamed on ‘soft budget constraints’ (SBCs), with the term becoming quite popular in the economics lexicon, financial media and political discourse. Soft budget constraints Originally coined four decades ago to purportedly describe the economic roots of problems in centrally planned ‘socialist’ economies, it was soon also invoked for ostensibly dirigiste developing countries accused of ‘macroeconomic populism’ and ‘industrial policy’. It has since assumed a double life, invoked on one (microeconomic) hand to discipline large enterprises not maximising shareholder value by investing too much for the medium and long-term, and…

With many in the world experiencing declining living standards, there has been growing frustration. Many hope that progressive taxation will improve things. While some economies once had progressive tax systems, recent decades have seen regression. Competing, contradictory trends Triumph of Injustice, the recent book by Emmanuel Saez and Gabriel Zucman, both associates of ‘rock-star’ economist Thomas Piketty, calls for a US return to progressive taxation. The duo show that the US had one of the world’s most progressive tax systems, but now, the richest pay a lower tax rate than the poorest. The two French economists at Berkeley consider the…

After accusing the World Health Organization (WHO) of pro-China bias, President Donald Trump announced US withdrawal from the UN agency. Although the US created the UN system for the post-Second World War new international order, Washington has often had to struggle in recent decades to ensure that it continues to serve changing US interests. Invisible virus trumps POTUS In early July, Washington gave the required one-year notice officially advising the UN of its intention to withdraw from the WHO, created by the US as the global counterpart to the now century-old Pan-American Health Organization (PAHO). However, the White House decision…

The World Bank leadership must urgently abandon its ‘Maximizing Finance for Development’ (MFD) hoax. Instead, it should resume its traditional multilateral development bank role of mobilizing funds at minimal cost to finance developing countries. Funding is urgently needed for Covid-19 containment, relief and recovery efforts, to prevent recessions becoming protracted depressions and to achieve the Sustainable Development Goals (SDGs). Mobilizing funds, maximizing finance The World Bank’s MFD – a reheated version of its 2015 Billions to Trillions: Transforming Development Finance (B2T) campaign – promised to leverage billions of ODA into trillions of development finance. However, MFD has failed to achieve its purported…

With the Covid-19 contagion from late 2019 spreading internationally this year, governments have responded, often in desperation. Meanwhile, predatory international law firms are encouraging multimillion-dollar investor-state dispute settlement (ISDS) lawsuits citing Covid-19 containment, relief and recovery measures. Sharing the pain Most governments failed to introduce sufficient precautionary measures early enough to prevent Covid-19 contagions from spreading. And when they did act, they often believed they had little choice but to impose nationwide ‘stay in shelter’ lockdowns to enforce preventive physical distancing. To enable businesses and households to survive the adverse effects of such lockdowns, governments have provided relief measures, for…