what was called Dutch Disease, when the predominance of the high-export natural gas industry in the Netherlands, among other damaging effects, drove up the exchange rate, penalising the exports of other sectors of the economy
I don't see any connection between the Dutch Disease and the Anglo Disease, actually, other than the description as a Disease.
IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land.
The Dutch disease on the other hand was a macro-economic policy mistake, on a grand scale, I think, in that they repatriated most of their surplus and did not adequately neutralise it by investing it in productive domestic assets.
The Norwegians have made sure that much of the profits of their carbon windfall have in large part been invested overseas. While this has avoided the problems experienced by the Dutch, it has not been adequately invested in productive assets. This may now be changing in response to the Credit Crunch etc.
The problem for the Norwegians - as for the other holders of petro wealth - has been the overseas investment choices they have made. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land. The Dutch disease on the other hand was a macro-economic policy mistake, on a grand scale, I think, in that they repatriated most of their surplus and did not adequately neutralise it by investing it in productive domestic assets.
Instead, a lot of the money went to fuelling the property bubble. The brainless should not be in banking. — Willem Buitler
Things may not have looked too bad because government went on a hiring and spending spree on education and healthcare (thus ensuring that jobs were created - in the publc sector, not in the private sector, as the claim of "dynamism" suggests), from its skim of the financial plunder - ensuring that the government is now broke as a large source of income dries up, just at the moment it would be needed to do contra-cyclical policies.
In other words, government hid the plunder by its spending, and is now as naked as the population. In the long run, we're all dead. John Maynard Keynes
In the UK, where the sector's share of GDP rose to 9.4% in 2006, from 5.5% in 2001, City-dominated London received 50% of total foreign investment. Per capita Gross Valued Added rose by between 8% and 9% over the last decade in London while, in all other regions of the UK, it stagnated or fell.
The connection is that you have a sector which has much higher profitability than the rest, and thus attracts further investment, talent and political influence to itself, and causes other industries to shrink, relatively and absolutely.
This may not appear to be a problem for as long as it lasts, but that profitability cannot last - either it's the windfall from a finite resource, or it's, as in the case of finance, the result of plunder/parasitism and it will inevitably crash under its own weight.
Then you have the disease: the "profitable sector" is gone, and the rest of the economy has been irreversibly damaged in the meantime.
The only solution is to capture the profits, to avoid excessive investment in the sector, and sustain the rest of the economy in the meantime.
In other words: tax it.
But it IS fundamentally the same phenomenon, except that in this case the profitability was created by regulatory arbitrage, and not by resource discovery. In the long run, we're all dead. John Maynard Keynes
In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'
The Thatcher revolution was partly a political move to put the working class in its place. So killing those industries was done as much for political reasons as for financial ones.
But more than that - the subsidies and tax breaks which maintained those industries were shifted to the City. So now it was the City which took the place of the industrial sector. While the City was nominally more profitable, and better at attracting foreign money, in real terms deregulation has been equivalent to a generous gift of cash. And before manufacturing died it was given exactly the same kinds of bail outs that we're seeing today.
So there was never any chance the City would be taxed at a reasonable rate. Not only was this ideologically unthinkable, it would also have defeated the object of the exercise - which was state engineering of an 'industrial' replacement for UK manufacturing.
The government is screwed now because there's no obvious replacement sector waiting in the wings.
In fact alternatives exist - green engineering, self sufficiency and resilience, distributed systems of various kinds, and the creative industries. But no one is pushing them seriously in Westminster yet as a replacement, and it's probably going to take half a generation of chaos before government wakes up to the possibilities.
Almost. I think it's easy to make the mistake of assuming that the City has been run independently of government. In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'
Ahem. Royal Dutch Shell hardly counts as an "unsubsidised" company either, by any account.
Granted, its subsidies have been less along the lines of suitcases full of cash from the government and more along the lines of gun shipments to various dictators around the world. But hey, that's a kind of subsidy too.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land
Why is that so specifically Anglo? As far as I'm aware, compounding debt and private land ownership are common to all "developed" economies.
Did it have nothing to do with the Dutch Disease, for instance? How did that qualify for the description a macro-economic policy mistake, on a grand scale, while the financial domination of the US/UK economies would not, if I read you correctly?
On domestic investment (Netherlands/Norway), I quite agree. Isn't there a case, though, for saying that the UK has exported natgas and financial services without adequate investment in a diversified domestic economy?
As far as I'm aware, compounding debt and private land ownership are common to all "developed" economies.
Big differences. The Anglo Disease countries are - by definition of "Anglo Disease", I submit - more focused than non-Anglo Disease countries on the privatisation of everything that doesn't move, and much that does. Land is only part, but the biggest part, of the problem, in that it is through claims over land that over two thirds of Anglo money/credit is backed.
The proportion of public ownership of land/property and a tradition of land/property rentals is much greater in the non-Anglo countries, particularly (say) Germany.
In that money is involved in both Diseases then yes, there is a loose connection.
The Dutch disease is about the misinvestment of the fruits of (wasting) productive assets. The Anglo Disease is about the creation of claims over productive assets and the inequitable allocation of these claims.
afew:
Isn't there a case, though, for saying that the UK has exported natgas and financial services without adequate investment in a diversified domestic economy?
Yes, the UK has pissed away a carbon windfall on unemployment benefit.
The UK has also failed to adequately tax the windfall from the intellectual and human capital represented by the City, and to adequately invest the tax they did raise. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
