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Abstract

This post outlines the challenges that Modern Monetary Theory proposals may encounter in the context of the periphery. It underscores the main characteristics of peripheral countries, highlighting capital formation and the materiality of technology within it as a key factor in economic development.

 

Introduction  

Throughout this paper, we will observe that Modern Monetary Theory (MMT) constitutes a framework that challenges the mainstream approach to monetary and fiscal policy. MMT posits that sovereign governments, which issue their own currency, possess substantial flexibility in funding public expenditures and fostering economic growth. In contrast to conventional perspectives, MMT argues that public spending is not constrained by tax revenue but rather by the real capacity of the economy to absorb such spending without causing inflation.  

According to MMT, economic growth can be stimulated by expanding aggregate demand through expansive fiscal policies. Since the state can issue its own currency, governments have the capacity to achieve full employment and fund public spending without necessarily relying on taxing or borrowing. However, it is important to note that inflation is a crucial consideration within the MMT framework. Monetary policy aims to boost the economy until it reaches full productive capacity. Beyond this point, inflation is likely to occur.  

The proposals put forth by MMT are undeniably compelling for policy formulation. However, they raise the question of their feasibility and potential effectiveness when implemented in peripheral countries for the purpose of promoting economic progress. This paper aims to contribute to the ongoing debate surrounding the applicability of the MMT approach in Latin American countries.  

While some research has explored MMT ideas in the context of the periphery (Fritz et.al., 2017; Vernengo & Pérez, 2019; Aboobaker & Ugurlu, 2020), there is a noticeable dearth of studies specifically focused on Latin American countries, except for Edwards’ (2019) paper, wherein he argues that MMT-style policies have been implemented with unfavorable outcomes.  Edwards (2019) examined some historical Latin American countries cases where some MMT-related policies were implemented, however, although MMT approach advocates for fiscal-deficit policies, it is only a part of the MMT argument and in Latin America such an approach has not been implemented in strict. On the other hand, the success of MMT policies would depend on several factors, such as the political stability, and Edwards’ (2019) oversaw the fact that both Chile and Venezuela where under foreign pressure that brought about political turmoil and at least affected the economic outcome of their governments measures.  

A critical examination from the structuralist standpoint is noticeably absent. This post seeks to address this gap and provide such a critical analysis. To do so, an exposition of the MMT approach will be presented through the perspectives of prominent proponents, including Warren Mosler, Randall Wray, William Mitchell, and Stephanie Kelton, who have contributed significantly to MMT insights. Given the importance of the external sector for the peripheral economies, international trade will be examined from a theoretical perspective in the light of structuralism, keeping in mind the importance of the rate of profit in economic development from a Marxist perspective. It will allow us to analyze the empirical evidence of Latin American countries as a case study to illustrate the potential limitations of the MMT policy proposed in the periphery.

The paper is organized as follows: In the second section, the MMT approach is presented, highlighting key points. The third section discusses the challenges of implementing the MMT approach in peripheral economies. Section four presents empirical data from Latin America. 

 

2. The MMT approach overview  

The MMT points out that under a gold standard, money is considered to be an economic resource, and the state has to tax or borrow revenue to fund its spending. However, under a fiat-money system, such reasoning is not applicable since the government is both the issuer and user of money. Therefore, there is no budget constraint as in a gold standard or any commodity money system (Mosler, 2018).   

According to Wray (2012), we have been residing within a state money system for the preceding 4,000 years. Within this framework, states possess the authority to designate the unit of currency for accounting purposes and to establish commitments denominated in said currency, including taxes, tribute, tithes, fines, and fees. To fulfill these obligations, the state issues a currency that is accepted as a mean of payment. Contemporary governments are equipped with central banks that facilitate the creation and receipt of payments on their behalf. It is the government’s prerogative to direct the central bank to credit or debit accounts held by private banks.  

In the context of the MMT framework, the state sets the supply and demand of its own fiat currency. The issuance of money comes out of thin air, as the government generates currency (comprising central bank reserves and physical currency) via expenditures, while private banks generate deposits (notes) through loan activities. It is important to acknowledge that while both the governmental and private banking sector engage in money creation within a fiat currency system, a «money pyramid» exists. This pyramid positions the government’s own currency at its pinnacle, beneath which resides private bank money and various other forms of currency that may be present. On the other hand, a sovereign government stimulates the demand for its own currency by imposing taxes and other obligations (e.g., fines) within its jurisdiction, exclusively payable in said currency. The demand for government money is rooted in an administrative framework, whereas private bank money is contingent upon market dynamics, given that private banks generate deposits through loans (Wray, 2012).   

Building upon the aforementioned perspective, it can be posited that the MMT recognizes the dual nature of money as both endogenous and exogenous. This acknowledgment arises from the fact that both the state and private banks generate money. The state’s money creation occurs within a top-down administrative framework, while private banks contribute to money creation through responding to public demand.  

As the state currency is imposed from the top, taxes are mere instruments of the State to create demand for the currency, rather than a necessity for private funding of the public sector. According to Wray (2012), contrary to a household’s budget, a government that issues its own currency and possesses the authority to compel economic agents within a territory to pay taxes in said currency, “does not need tax revenue before it can spend. Further, if taxpayers pay their taxes using currency, then government must first spend before taxes can be paid«. Consequently, «a sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency.» (p.2).  

If the public sector provides means of exchange to the currency-users (including taxpayers) and reserves to private banks (required to buy public bonds), neither taxes nor public debt are a necessity but a policy choice (Wray, 2012).  The possibilities of an economy to expand is set by the amount of material means such an economy counts on. The issue does not lie in how an economy will pay to afford goods and services supplies, but how an economy will “resource it”. Thus, “MMT places inflation at the center of the debate over spending limits” (Kelton, 2020, p.234-235). From the MMT perspective, the money creation out of thin air is not a problem, but the quantities and the way it is used; thus, deregulation of the private banking system may bring about bubbles and misallocation of resources, and it is a hurdle mostly if it is supplied beyond the point of full employment of the economy’s factors of production (Wray, 2012).   

If resources are the limit to the monetary policy, investment is the key variable that expands such resources and make space for the money expansion aimed to get full employment. Resources must be allocated in capital-building activities in order to get higher volumes of output in the future. Contrary to the orthodoxy, the MMT asserts that investment does not come from savings but the other way around. Savings are seen as a real variable that stems from investment; since manpower is paid to turn out capital goods that wage labor cannot purchase and consume, which means that there is an abstention of present consumption that left new capacity to produce consumer goods in the future1. Therefore, a reduction in individual spending will not boost investment (Mosler, 2018), on the contrary, it would make room for “the paradox of thrift”, where individual savings provoke insufficient demand that discourages investment (Krugman, 2016, p.30) as unsold inventories pile up. In Mosler’s (2018) words:  

Savings equals investment, but the act of investment must occur to have real savings… The root of this paradox is the mistaken notion that savings is needed to provide money for investment. This is not true. In the banking system, loans, including those for business investments, create equal deposits, obviating the need for savings as a source of money. Investment creates its own money. (p.11)  

Higher savings means lower consumption and discouragement of investment, which in turn, means lower income and lower savings as “one person’s savings can become another’s pay cut. Savings equals investment. If investment doesn’t change, one person’s savings will necessarily be matched by another’s’ dissavings” (Mosler, p.11). In the same guise, a public budget surplus does not raise savings but squeezes the wealth of the non-government sector and shrinks savings (Mitchell, 2011).  

The identity savings equal investment (S=I) as it is exposed by the MMT makes room for the public sector as a booster of economic activity since the government can allocate manpower and capital in capital-building activities. Nevertheless, it does not mean an administrative top-down model of resource allocation, the MMT acknowledges the importance of the private sector as a source of money creation and as a booster of private initiative. However, Wray (2012) considers that there is little government-creation to serve the public interest and too much private money creation by the for-profit financial sector going to financial markets. It can be interpreted as the creation of too many means of exchange rather than use-value goods and services. In this regard, it is illustrative the Bill Mitchell’s explanation of the Chinese economic success; according to Mitchell (2011), China, as a developing country (capital-scarce economy), is the outcome of a strong domestic growth, rather than an export-led model, boosted by the public spending stimulus that provides income growth, and in turn, rising savings to the private sector. In this view, the public sector can create savings as it can encourage private investment –or even, why not? raise directly the public investment.   

In the MMT approach the public spending is seen as a foster of economic activity as it provides funds to the private sector, hence, a balanced government budget means that the currency has returned to the public sector without any net contribution to the financial wealth of the private one. To illustrate this point, in Rallo (2017, p.103) an explanation about the MMT reasoning can be examined using the macroeconomic identity of an economy without foreign trade. The purpose here is not to criticize the MMT approach as Rallo (1917) does, but to expose its main features:   

  

GDP=C+I+G      [1] 

 

Where each compoent of the equation stands for the following variables: gross domestic product (GDP) equals consumption (C), investment (I), public spending (G). Knowing that investment equals savings and taxes are the counterpart of the public spending, we get the following cleared equation: 

 

GDP=C+S+T       [2] 

C+I+G=C+S+T    [3] 

S-I=G-T                [4] 

 

As the equation shows, the net private savings equals the public budget. However, if we allow the equation for foreign trade as it is found in Medina (2017, p.96), the reasoning can give us some key points for the case of the peripheral economies. 

 

 

GDP≡C+I+G+X-M                            [5] 

GNP ≡GDP+ Pi ≡C+I+G+X–M+ Pi     [6] 

(GNP -C-T-I) + (T-G) + (M-X-Pi) ≡0    [7] 

  

In the given context, GNP stands for Gross National Product, then, (GNP -C-T-I) represents private sector savings, (T-G) denotes the public balance, and (M-X- Pi) signifies the external balance, given Pi to denote the primary income account2. A trade surplus indicates that the economy is extending loans to its trade partners, as its exports surpass imports from the global market (M<X+ Pi). Conversely, if this economy imports more than it exports, it accrues debt with its trade partners (M>X+ Pi). Notably, the equation demonstrates that the sum of all balances equals zero; whenever one sector aims to save, at least one of the other sectors must incur debt or dissave. There are four possible outcomes that ensure equilibrium across all balances: a) when both the private and public sectors are saving, the rest of the world must accumulate debt by importing more from the economy than it exports; b) if the public sector and the rest of the world prioritize saving, the private sector must incur debt; c) if the private sector and the rest of the world are saving, the public sector must accrue debt; d) all sectors are balanced, maintaining incomes equal to spending1.    

If we rearrange equation 7, the current account (external balance) equals the net private savings.  

  

(M-X- Pi) ≡ – GNP +C+I+G   [8] 

X-M+ Pi = GNP -C-I-G         [9] 

X-M+ Pi   = S-I                     [10] 

  

The equation evidence that the excess of investment over domestic savings (S<I) entails a negative current account that is funded by external debt; higher external unbalance means higher levels of external debt.   

The equation illustrated earlier, allow us to see the importance of economic trade as it has to do with the balance of payments and the foreign debt, given that while sovereign currency allows policy space, the issue of debt in foreign currencies reduces such a space (Tymoigne and Wray, 2013). This is key to understand the economic condition of the periphery as technological-dependent countries and therefore as foreign currency users.  

 

 

3. Some challenges of the MMT approach in peripheral economies 

3.1 Capital as an embodied technology 

It is well-known that historically, manufacturing has played a pivotal role in economic development (Kaldor, 1977; Chang, 2017). Prebisch (2012) pointed out the necessity for Latin America to industrialize through manufacturing to achieve economic development, since the primary products deliver low income-elasticity of demand (Hengel’s law). On the other hand, Nurkse (1953) argued that capital formation is a key part of the development process and that the underdeveloped conditions of the periphery pose a hurdle to induce investment, as the size of the market is too small in real terms to promote savings and productivity growth. As Nurkse (1953) stated, “If it were merely a deficiency of monetary demand, it could easily be remedied through monetary expansion; but the trouble lies deeper.” (p. 104). Peripheral economies rely on importing manufactured capital goods to produce consumer goods because they do not yet have the necessary economic conditions in place to establish their own capital goods industry, as explained by Akamatsu (1962). In line with the theoretical work of Murphy et al.(1989), the peripheral countries remain in a non-industrialized equilibrium and they would require a “big push” from the State to move to an industrialized equilibrium. However, the question that arises is to what degree the State’s intervention is constrained.  

Although investment creates savings, as explained by the MMT approach, peripheral economies encounter hurdles due to their underdeveloped conditions and lack of technology. This technology, essential for efficient production, is often embodied in imported physical capital and technical knowledge. Since this knowledge is linked to the learning-by-doing process inherent in production (Nurkse, 1953), peripheral economies require imports of capital goods, along with technical assistance, to function effectively within a modern economy and avoid the high costs associated with autarky.  

Moreover, technology’s inseparability from its material body is a principle underscored by Fagerberg (1994). This principle extends to the intangible assets of modern economies, as emphasized by Jones (2017) in an illustrative article where asserts that “we still live in a material world, and these intangible investments, important as they are, are still largely realized in physical objects”. This challenge is particularly pronounced in peripheral economies, where the lack of knowledge and technology for efficient production forces a dependence on imported capital goods that encapsulate the technology, they are unable to generate domestically (Merhav, 1969). De Long and Summers (1991, 1992) further emphasize the critical role of investment in machinery and equipment for economic growth through their empirical study. As a result, they assert that policymakers must prioritize the inclusion of capital goods imports as a crucial factor in their strategic decision-making.  

The most successful economic development strategies relied on manufacturing sector as a vehicle to boost capital formation and labor productivity, besides technological progress. The East Asian economies’ performance is an evidence of this. Capital goods production through own manufacturing seems to be a trend of development as it can be seen in the table 1.  The data for gross fixed capital formation is used as a proxy for the level of investment in capital goods and manufactured intermediate goods. This is because the two measures are closely correlated, and they both provide information about the amount of investment in the economy.  

It is noteworthy to mention that here we are not asserting that the only possible way to achieve economic development is through the manufacturing expansion. Nevertheless, it has been a feature of the major success experiences (Chang, 2007). 

As you can see, there is a clear trend of increasing investment goods production as a percentage of GDP in countries with higher income levels. Lower-middle-income countries have also seen sustained high levels of investment goods production in recent decades. However, their levels are still lower than those of the high-income countries.   

Table 1. Fixed gross capital formation as a percentage of GDP by income level  

  

Income Level	1950	1960	1970	1980	1990	2000	2010	2022
High-income	18.9	21.7	25.2	27.5	28	28.2	27.4	27.4
Upper-middle-income	12.9	14.4	17.1	18.8	19.8	20.1	19.3	18.9
Lower-middle-income	10.8	12.2	14.8	16.7	17.7	18.1	17.6	17.3
Low-income	7.6	8.7	10.3	11.3	11.8	12	11.8	11.7

https://databank.worldbank.org/source/world-development-indicators  

 

A question arises, can a country develop without advancing its own manufacturing base? In principle, an economy could rely on the other sectors (e.g. agriculture and/or services) and imports manufactured capital and consumer goods, however, a development strategy that dismisses manufacturing as a central pillar of economic growth would encounter some difficulties. Firstly, imports necessitate exports to secure foreign currency reserves. Secondly, the service sector lacks the same level of tradability as manufacturing. Lastly, while the resource-based primary sector is tradable, it relies –as well as services –on manufactured capital goods for sustained operations. These observations provide insight into the success of East Asian countries, as they focused their development on manufacturing and utilized it as a source of foreign exchange. In sum, manufacturing matters; it is not only the source of capital goods and key intermediate goods but also of hard currency (Chang, 2007).  Can the MMT be a framework to find the way out of underdeveloped capacity to produce manufactures? 

Based on the above-mentioned, a peripheral economy will demand foreign exchange to develop its productive forces, since it cannot produce the capital goods required to turn out goods and services in modern conditions (keeping minimum productivity global standards).  Therefore, loans denominated in foreign currency happen to be a requirement rather than an option for a developing country to get technology and develop. The need for hard currency can be easily evidenced if we clear investment in equation 5 to get the following equation:  

 

  I = Y – (C+G+X) + M     [11] 

 

  

Taking equations 10 and 11 into consideration, it becomes evident that investment grows as long as imports and domestic savings increase. From equation 10, we derive the following definition of investment. 

I=S-X+M- Pi                  [12] 

Demand for investment requires imports of every type of capital and intermediate goods that allow the expansion of the productive capacity, and as already mentioned, in a peripheral economy the demand for capital equipment faces discouragement by the smallness of the market size (Nurkse, 1953). If the MMT approach may solve the problem of demand, it is problematic that it can solve the supply of investment goods -and technology -that cannot be produced internally. In other words, the periphery is resource-constraint since it requires hard currency that they cannot issue at will to import embodied technology. 

Although it is true that in the domestic sphere there is a «money pyramid» as Wray (2012) argues, also there is an international currency hierarchy where the dollar, euro and yen are at the top of the global pyramid and the peripheral economies are forced to borrow in foreign currency (the original sin). This backward condition is well-explained by XXX. The peripheral countries are before a condition where they issue a weak currency and are forced to borrow in a hard foreign currency while keeping the exchange rate in check to avoid the exchange rate pass-through effects ( ).  

 

3.2 The exports side hurdle 

Difficulties also stem from the export side; the periphery encompasses one-product exporting countries, so that their import capacity is limited by the export of a commodity that depends on the international price. Since in the long run the capacity to import is set by exports (Thirwall, 1979, 2011), the peripheral countries’ performance is subjected to fluctuations.    

If the exports have a high degree of concentration in one product, the revenue that comes from the exported output is the outcome of the quantities exported Q times the international price P*. An example of this condition is Venezuela, where its main export is oil. 

 

X = P* × Q                      [14] 

 

The above-mentioned makes the case for a need of productive diversification that reduces the dependency on a unique commodity to export. It is stated by the structuralism approach that the expansion of the investment and the economy requires structural changes in the productive apparatus (Ocampo, 2014).  Once again, manufacturing gains much more significance.  

Utilizing the aforementioned equations in conjunction with the developmental trajectory of East Asian economies, we can discern fundamental elements for analyzing the challenges that beset Latin American economies in their pursuit of development. During the 1950s, East Asian nations shared a similar level of development to that of Latin America (Maddison, 2010). However, East Asia adeptly sustained a robust and persistent pattern of external savings by fostering a vibrant external sector (M<X+Rx), along with substantial private savings (PNB-C-T-I), characterized by a propensity for restrained consumption (C) in favor of directing resources towards substantial investments (I). In this context, such an economy is well-placed to effectively manage significant public deficits, aligning with the magnitude of its external and private savings. In other words, public deficits cannot entail an economic problem per se if there is a thriving external and internal sector that create savings. As it is stated by Park & Estrada (2009), the Asian countries deliver a huge amount of reserve accumulation, even beyond their necessity. Can the MMT be a good framework to solve the problem of lack of foreign exchange and technical dependence of the periphery?  

Latin America’s reality differs from that of the East Asian countries, this held large external deficits and low private savings, brought by imports larger than exports and high consumption and low investment over long periods. In other words, Latin America is getting debt as the rest of the world is saving and funding its deficits.  

The MMT stresses the idea of the supremacy of exogenous money creation over endogenous money creation, as the state is the one that can lead the economy to full employment (through a job guarantee policy) rather than the market-banking mechanism. However, it seems that the MMT approach does not respond to the fact that in a market economy, the private sector (including banking) delivers efficiency in resource allocation, as it consists of profit-seeking enterprises3. Moreover, the MMT does not address the rate of profit problem capitalism seems to face, as suggested by the data of the last few decades.

Low capital formation is one of the main problems backward economies must cope with, and it is what holds such economies in an underdeveloped equilibrium (Nurkse, 1953). If the United States is used as a benchmark of level of development, capital formation of Latin America is indeed a significant challenge for the region. The figure 1 highlights the amount of capital per worker in selected Latin American countries compared to the United States, indicating a considerable gap in capital stock. These economies continue holding the main characteristic of the periphery as it is underequipped with capital (Nurkse, 1953) in comparison with the advanced industrialized center.  Except for Chile, Uruguay, and Peru, the trend shows a decline in capital stock per worker. This declining trend signifies a worrisome situation, as it suggests a lack of investment in productive assets, and technology. Insufficient capital per worker can hinder productivity growth and limit economic development.

Figure 1. The capital stock of selected Latin American countries compared to that of the United States  

 

Reference  

Chang, H. (2007). Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Londres: Bloomsbury Press. Recuperado de https://analepsis.files.wordpress.com/2011/08/ha-joon-chang-bad-samaritans.pdf 

De Long, B., Summers, L.H., 1991. Equipment investment and economic growth. Quarterly Journal of Economics 106 (2), 445–502. 

De Long, B., Summers, L.H., 1992. Equipment Investment and Economic Growth: How Strong Is the Nexus? 157-211 

Duque, Carlos (2022). Economía Colombiana: un análisis critico

Eduards, S. (2019). Modern Monetary Theory: Cautionary Tales from Latin America. Economics Working Paper 19106. Hoover Institution. 434 GALVEZ MALL STANFORD UNIVERSITY. 

Fagerberg, J. “Technology and international differences in growth rates”, Journal of Economic Literature, XXXII, septiembre, 1994. 

http://www.softmachines.org/wordpress/?p=2176&fbclid=IwAR2vzsdNCSBcTlDStnAYlhQoRrFbDGRYu4wQlMnxHYsd5mO4CK1h5W_EfxM  

Jones, Richard  2017. An intangible economy in a material world  

Kaldor, N. (1977). Capitalism and industrial development: some lessons from Britain’s experience. Cambridge Journal of Economics 1977, 1, 193-204 

Krugman, P. 2016. End This Depression Now.  

Maddison, A. (2010). Maddison Historical Statistics of the World Economy. Groningen Growth and Development Centre, University of Groningen. Recuperado de https://www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-database-2010 

Merhav, M. (1969), Technological Dependence, Monopoly, and Growth, New York. 

Mitchell, B. (2011). https://billmitchell.org/blog/?p=16523  

Modern Money Theory A Primer on Macroeconomics for Sovereign Monetary Systems L. Randall Wray 2015  

Mosler, W. (2018). Soft Currency Economics.  

Murphy, K. Shleifer, A. Vishny, R. Industrialization and the Big Push. The Journal of Political Economy, Volume 97, Issue 5 (Oct., 1989), 1003-1026. 

Nurkse, R. (1953). Problems of Capital Formation in Underdeveloped countries pp. 99 – 212. 

Ocampo, J. (2014). Latin American Structuralism and Production Development Strategies. 

Ocampo, Jose. 2012. La historia y los retos del desarrollo latinoamericano  

Park, Donghyun. and Estrada, Gemma B. Are Developing Asia’s Foreign Exchange Reserves Excessive? An Empirical Examination  

Prebisch, R. (2012). El desarrollo económico de la América Latina y algunos de sus principales problemas. CEPAL – Naciones Unidas. Recuperado de http://repositorio.cepal.org/handle/11362/40010 

Skott, Peter (2019) : Aggregate demand policy in mature and dual economies, Working Paper, No. 2019-21, University of Massachusetts, Department of Economics, Amherst, MA 

 Smith, A. (2018). The Wealth of Nations  

Warren B. Mosler 2018 . Soft Currency Economics   

Kelton, S. (2020). The Deficit Mith  Stephanie   

Thirlwall, A. P. (1979). The balance of payments constraint as an explanation of international growth rate differences. Banca Nazionale del Lavoro Quarterly Review, 32(128), 45–53. 

Thirlwall, A. P. (2011). Balance of payments constrained growth models: History and overview. PSL Quarterly Review, 64(259), 307–351. 

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Aboobaker, A. & Ugurlu, E. (2020). Weaknesses of MMT as a Guide to Development Policy. 

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Aboobaker, A. & Ugurlu, E. (2020). Weaknesses of MMT as a Guide to Development Policy.  

 Introduction  

Throughout this paper, we will observe that Modern Monetary Theory (MMT) constitutes a framework that challenges the mainstream approach to monetary and fiscal policy. MMT posits that sovereign governments, which issue their own currency, possess substantial flexibility in funding public expenditures and fostering economic growth. In contrast to conventional perspectives, MMT argues that public spending is not constrained by tax revenue but rather by the real capacity of the economy to absorb such spending without causing inflation.  

According to MMT, economic growth can be stimulated by expanding aggregate demand through expansive fiscal policies. Since the state can issue its own currency, governments have the capacity to achieve full employment and fund public spending without necessarily relying on taxing or borrowing. However, it is important to note that inflation is a crucial consideration within the MMT framework. Monetary policy aims to boost the economy until it reaches full productive capacity. Beyond this point, inflation is likely to occur.  

The proposals put forth by MMT are undeniably compelling for policy formulation. However, they raise the question of their feasibility and potential effectiveness when implemented in peripheral countries for the purpose of promoting economic progress. This paper aims to contribute to the ongoing debate surrounding the applicability of the MMT approach in Latin American countries. While some research has explored MMT ideas in the context of the periphery, there is a noticeable dearth of studies specifically focused on Latin American countries, with the exception of Edward’s (2019) paper, wherein he argues that MMT-style policies have been implemented with unfavorable outcomes. Nevertheless, a critical examination from the structuralist standpoint is noticeably absent. This paper seeks to address this gap and provide such a critical analysis.  

The paper is organized as follows. In the second section, the MMT approach is presented through the perspectives of prominent proponents, including Warren Mosler, Randall Wray, William Mitchell, and Stephanie Kelton, who have contributed significantly to MMT insights. The third section discusses the challenges of implementing the MMT approach in peripheral economies. Section four exposes some empirical data of Latin America as a case study to show the possible limits of the MMT policy proposed in the periphery.  

   

2. The MMT approach overview  

 The MMT points out that under a gold standard, money is considered to be an economic resource, and the state has to tax or borrow revenue to fund its spending. However, under a fiat-money system, such reasoning is not applicable since the government is both the issuer and user of money. Therefore, there is no budget constraint as in a gold standard or any commodity money system (Mosler, ).   

According to Wray (year), we have been residing within a state money system for the preceding 4,000 years. Within this framework, states possess the authority to designate the unit of currency for accounting purposes and to establish commitments denominated in said currency, including taxes, tribute, tithes, fines, and fees. To fulfill these obligations, the state issues a currency that is accepted as a means of payment. Contemporary governments are equipped with central banks that facilitate the creation and receipt of payments on their behalf. It is the government’s prerogative to direct the central bank to credit or debit accounts held by private banks.  

In the context of the MMT framework, the state sets the supply and demand of its own fiat currency. The issuance of money comes out of thin air, as the government generates currency (comprising central bank reserves and physical currency) via expenditures, while private banks generate deposits (notes) through loan activities. It is important to acknowledge that while both the governmental and private banking sector engage in money creation within a fiat currency system, a «money pyramid» exists. This pyramid positions the government’s own currency at its pinnacle, beneath which resides private bank money and various other forms of currency that may be present. On the other hand, a sovereign government stimulates the demand for its own currency by imposing taxes and other obligations (e.g., fines) within its jurisdiction, exclusively payable in said currency. The demand for government money is rooted in an administrative framework, whereas private bank money is contingent upon market dynamics, given that private banks generate deposits through loans (Wray, [year]).   

Building upon the aforementioned perspective, it can be posited that the MMT recognizes the dual nature of money as both endogenous and exogenous. This acknowledgment arises from the fact that both the state and private banks generate money. The state’s money creation occurs within a top-down administrative framework, while private banks contribute to money creation through responding to public demand.  

As the state currency is imposed from the top, taxes are mere instruments of the State to create demand for the currency, rather than a necessity for private funding of the public sector. According to Wray ( ), contrary to a household’s budget, a government that issues its own currency and possesses the authority to compel economic agents within a territory to pay taxes in said currency, “does not need tax revenue before it can spend. Further, if taxpayers pay their taxes using currency, then government must first spend before taxes can be paid«. Consequently, «a sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency.».  

If the public sector provides means of exchange to the currency-users (including taxpayers) and reserves to private banks (required to buy public bonds), neither taxes nor public debt are a necessity but a policy choice (Wray, ).  The possibilities of an economy to expand is set by the amount of means such an economy counts on. The issue does not lie in how an economy will pay to afford goods and services supplies, but how an economy will “resource it” (p.234). Thus, “MMT places inflation at the center of the debate over spending limits” (Kelton, 2020, p.235). From the MMT perspective, the money creation out of thin air is not a problem, but the quantities and the way it is used; thus, deregulation of the private banking system may bring about bubbles and misallocation of resources, and it is a hurdle mostly if it is supplied beyond the point of full employment of the economy’s factors of production (Wray).   

If resources are the limit to the monetary policy, investment is the key variable that expands such resources and make space for the money expansion aimed to get full employment. Resources must be allocated in capital-building activities in order to get higher volumes of output in the future. Contrary to the orthodoxy, the MMT asserts that investment does not come from savings but the other way around. Savings are seen as a real variable that stems from investment; since manpower is paid to turn out capital goods that wage labor cannot purchase and consume, which means that there is an abstention of present consumption that left new capacity to produce consumer goods in the future. Therefore, a reduction in individual spending will not boost investment (Mosler, 2018), on the contrary, it would make room for “the paradox of thrift”, where individual savings provoke insufficient demand that discourages investment (Krugman, 2016, p.30) as unsold inventories pile up. In Mosler’s (2018) words:  

Savings equals investment, but the act of investment must occur to have real savings… The root of this paradox is the mistaken notion that savings is needed to provide money for investment. This is not true. In the banking system, loans, including those for business investments, create equal deposits, obviating the need for savings as a source of money. Investment creates its own money. (p.11)  

Higher savings means lower consumption and discouragement of investment, which in turn, means lower income and lower savings as “one person’s savings can become another’s pay cut. Savings equals investment. If investment doesn’t change, one person’s savings will necessarily be matched by another’s’ dissavings” (Mosler, p.). In the same guise, a public budget surplus does not raise savings but squeezes the wealth of the non-government sector and shrinks savings (Mitchell, ).  

The identity savings equal investment (S=I) as it is exposed by the MMT makes room for the public sector as a booster of the economic activity, since the government can allocate manpower and capital in capital-building activities. Nevertheless, it does not mean an administrative top-down model of resource allocation, the MMT acknowledges the importance of private sector as source of money creation and as a booster of private initiative. However, it considers that there few governments money creation to serve the public interest and too much private money creation by the for-profit financial sector going to financial markets (Wray, ), which can be interpreted as a too much creation of means of exchange rather than use-value goods and services. In this regard, it is illustrative the Bill Mitchell’s explanation of the Chinese economic success; according to Mitchell (2011), China, as a developing country (capital-scarce economy), is the outcome of a strong domestic growth, rather than an export-led model, boosted by the public spending stimulus that provides income growth, and in turn, rising savings to the private sector. In this view, public sector can create savings as it can encourage private investment –or even, why not? raise directly the public investment.   

In the MMT approach the public spending is seen as a foster of economic activity as it provides funds to the private sector, hence, a balanced government budget means that the currency has return to the public sector without any net contribution to the financial wealth of the private one. To illustrate this point, in Rallo (2017, p.103) an explanation about the MMT reasoning can be examined using the macroeconomic identity of an economy without foreign trade. The purpose here is not to criticize the MMT approach as Rallo (1917) does, but to expose its main features:   

GDP=C+I+G 

Where each compoent of the equation stands for the following variables: gross domestic product (GDP) equals consumption (C), investment (I), public spending (G). Knowing that investment equals savings and taxes are the counterpart of the public spending, we get the following cleared equation: 

GDP=C+S+T 

C+I+G=C+S+T 

S-I=G-T 

As the equation evidences, the net private savings equals the public budget . 

   

However, if we allow the equation for foreign trade as it is found in Medina (2017, p.96), the reasoning can give us some key point for the case of the peripheral economies. 

PIB≡C+I+G+X-M 

PNB≡PIB+Rx≡C+I+G+X–M+Rx 

(PNB-C-T-I) + (T-G) + (M-X-Rx) ≡0 

  

In the given context, (PNB-C-T-I) represents private sector savings, (T-G) denotes the public balance, and (M-X-Rx) signifies the external balance. A trade surplus indicates that the economy is extending loans to its trade partners, as its exports surpass imports from the global market (M<X+Rx). Conversely, if this economy imports more than it exports, it accrues debt with its trade partners (M>X+Rx). Notably, the equation demonstrates that the sum of all balances equals zero; whenever one sector aims to save, at least one of the other sectors must incur debt or dissave. There are four possible outcomes that ensure equilibrium across all balances: a) when both the private and public sectors are saving, the rest of the world must accumulate debt by importing more from the economy than it exports; b) if the public sector and the rest of the world prioritize saving, the private sector must incur debt; c) if the private sector and the rest of the world are saving, the public sector must accrue debt; d) all sectors are balanced, maintaining incomes equal to spending1.    

If we rearrange the equation, the current account (external balance) equals the net private savings.  

  

(M-X-Rx) ≡ -PNB+C+I+G  

X-M+Rx = PNB-C-I-G  

X-M+Rx  = S-I  

  

The equation evidence that the excess of investment over domestic savings (S<I) entails a negative current account that is funded by external debt; higher external unbalance means higher levels of external debt.   

  

 

 

 

The equation illustrated earlier, allow us to see the importance of economic trade as it has to do with the balance of payments and the foreign debt, given that while sovereign currency allows policy space, the issue of debt in foreign currencies reduces such a space (Wray, p.40-41. Modern Money Theory 101: A Reply to Critics by Éric Tymoigne and L. Randall Wray)  

Al parecer, el ejército de la Federación de Rusia ha encontrado una serie de problemas en su campaña militar en Ucrania, donde la superioridad en material de guerra no ha significado una victoria rápida.

Hasta el momento los hechos muestran la poca efectividad de las fuerzas armadas rusas para cumplir con su objetivo político; Zelenski sigue en el gobierno, Kiev no fue tomada y las tropas retrocedieron de Járkov y abandonaron la franja occidental del rio Niéper en Jersón –el frente se estancó.

Si bien a inicios del 2023 las fuerzas rusas han tomado Soledar y amenazan Bajmut ante las fuerzas ucranianas diezmadas, este hecho no absuelve a la dirigencia rusa de las deficiencias en su ejército altamente mecanizado.

Hoy, las fuerzas armadas de Rusia se asemejan a una gran empresa que ha realizado ingentes inversiones en capital físico, –mostrando un enorme ejército mecanizado– pero que no ha sabido provechar dichos recursos; una muestra más de que la acumulación de medios materiales, es necesaria, pero insuficiente para lograr los objetivos de una organización.

Asumiendo que el ejército funciona como una gran empresa, la economía nos puede brindar luces para entender la inefectividad rusa.

La maquinaria y equipo son muy importantes para que una organización logre sus objetivos, por ejemplo, en un artículo De Long y Summers (1992) señalan la necesidad de las economías de realizar inversiones en maquinaria y equipo para poder conducir sus fuerzas productivas hacia el crecimiento y el desarrollo. Sin embargo, para la gestión rentable de dicho capital físico, estos dos autores enfatizan en el requerimiento de los estímulos de mercado donde las decisiones son descentralizadas –en contraposición a las economías centralmente planificadas.

Si bien la economía ortodoxa señala que la acumulación de recursos materiales es un factor importante en el crecimiento económico de los países, el incremento en la productividad del trabajo y del capital viene dado por condiciones más allá de la mera acumulación de recursos (Easterly y Levine, 2001).

Por un lado, la expansión de la economía requiere de factores complementarios al incremento del capital físico, tales como el crecimiento de la fuerza laboral y el cambio tecnológico (Solow, 1956, 1957; Boianovsky, 2015).

Estos factores muchas veces son intangibles, como el conocimiento administrativo o las instituciones, que son las reglas de juego que afectan a nuestras decisiones –los recursos se gestionan productivamente y el capital se acumula en sociedades donde existen instituciones que incentivan el esfuerzo, la creatividad, la innovación, etc.., y castiga el comportamiento parasitario (Acemoglu y Robinson, 2012).

Lo anterior tal vez nos sirva para entender el por qué los rusos no han podido avanzar en Ucrania a pesar de contar con mayor cantidad de maquinaria de guerra –como muestra el ranking de Global FirePower 2023.

Parece que a los rusos le hicieron falta algunos “factores complementarios” intangibles a su maquinaria; por ejemplo, la falta de información sobre la respuesta militar que tendría Ucrania ante la invasión, que llevó a los rusos a sobrevalorar sus propias fuerzas y a infravalorar la resistencia del ejército ucraniano (The Economist, 2022).

Además, en el Washington Post se explica que faltó logística adecuada para abastecer y movilizar el material de guerra, comunicaciones seguras y  un efectivo modelo de mando. En este sentido, el esquema de mando centralizado y vertical del ejército ruso ha provocado la muerte de generales que micro gestionaban las operaciones e impedían la toma de decisiones descentralizadas de las tropas en el terreno  (The Guardian y Defense one).

Hoy Ucrania continúa defendiéndose ante un ejército mucho más mecanizado, pero desgastado, lo que muestra que la acumulación de medios materiales, es necesaria, pero insuficiente para lograr los objetivos de una organización; se requiere contar con los factores complementarios intangibles que impactan positivamente a la eficiencia.

Sin embargo, –como en toda organización –la dirección militiar y la mano de obra rusa pueden «aprender en el oficio» y corregir lo que haga falta para alcanzar los objetivos trasados por la dirección política. 

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La inversión es medular en el crecimiento económico de largo plazo. Sin embargo, la inversión no puede incrementar indefinidamente; encuentra sus límites en la rentabilidad del capital, que depende del nivel de ingreso que produce la actividad económica por concepto de demanda de bienes y servicios.

Una vez la economía entra en un circulo virtuoso de i) tasa de ganancia, ii) inversión, iii) aumento del ingreso, iv) expansión de la demanda, v) mayor inversión, y así sucesivamente (ver Duque, 2022), la expansión del capital inmovilizado en infraestructura, plantas, maquinaria y equipos, se torna cada vez más sólido.

Con la solidificación del capital –es decir, el incremento del acervo de capital fijo en la economía –viene el aumento de la depreciación, toda vez que es una porción del stock de capital, y si éste último crece, así mismo lo hace la depreciación.  En una economía en expansión, con ingreso creciente, esto no es problema, parte de ese ingreso se destina a contrarrestar la depreciación y a expandir el capital físico (inversión neta).

El problema viene cuando el ingreso deja de crecer o cae. Cuando se ha realizado ingentes inversiones e inmovilizado grandes cantidades de capital y la rentabilidad empieza a caer, entonces, no hay suficiente ingreso para combatir la depreciación y el capital físico empieza a deteriorarse en su conjunto.

Ese es el problema del exceso de inversión. Esto lo recrea el modelo de Solow (1956) mediante el concepto de estado estacionario.

Al menos en términos contables, la depreciación del capital físico depende de su naturaleza, ya sea si se está hablando de maquinaria, equipos, o de infraestructura (De long y Summers, 1991) o de capital intangible (Haskel y Westlake, 2018) –tales como software, desarrollo organizacional, activos de propiedad intelectual, entre otros.

Se conoce que la velocidad a la que se deprecia un activo como la maquinaria, es mayor a la tasa de deterioro de la infraestructura (De long y Summers, 1991). Igualmente, el capital intangible sufre una depreciación relativamente alta, aunque esto depende del tipo de activo intangible del que se hable (Haskel y Westlake, 2018).

Pero, además, el capital se deprecia dependiendo de la actividad económica en el que se encuentre inmovilizado; por ejemplo, la depreciación del equipo de transporte en actividades relacionadas con el comercio, la hotelería y los restaurantes, es más alta que en actividades agrícolas. 

Cuadro 1. Tasas de depreciación por actividad económica

 

En Colombia, en su mayor parte el stock de capital se ha acumulado en el sector financiero, actividades inmobiliarias, empresariales y de alquiler, muy por encima de sectores productivos y con posibilidad de exportación como lo son la manufactura y la agricultura. Esto debido al peso que tienen estos dos sectores en el total de la economía, el cual ha presentado una tendencia decreciente, siendo la manufactura y la agricultura una parte cada vez más pequeña del total de la economía.

 

Figura 1. Acervo de capital neto por actividad económica

 

Evidentemente el problema de la economía colombiana no es el exceso de inversión –Latam adolece de baja inversión como porcentaje del PIB –sino todo lo contrario, la falta de conducir las utilidades hacia el aparato productivo, lo que hace que Colombia este muy alejada de China y demás economías asiáticas en materia de inversión; estos países han ostentado tasas de inversión por encima del 30% del PIB a lo largo de décadas.

Referencias

De Long, B., Summers, L.H., 1991. Equipment investment and economic growth. Quarterly Journal of Economics 106 (2), 445–502.

Duque, Carlos Alberto. 2022. Economic Growth and the Rate of Profit in Colombia 1967–2019: A VAR Time-Series Analysis.

Haskel Jonathan, y Westlake, Stian. 2018. Capitalism without capital: the rise of the intangible economy. Princeton & Oxford p.269

Solow, Robert M. The Quarterly Journal of Economics, Vol. 70, No. 1. (Feb., 1956), pp. 65-94.

Aunque desde una perspectiva empresarial el aumento de la producción y las ventas con bajo empleo es algo positivo para la acumulación de capital, desde una óptica macroeconómica y municipal, alto nivel de desempleo implica problemas sociales.

Con una tasa de desempleo del 11%  (trimestre julio-septiembre 2022) –y de 19% de desempleo juvenil –, la ciudad de Cali requiere del aumento de la producción con aumento del empleo.

El panel izquierdo del gráfico 1, muestra la evolución del índice de producción y ventas nominal y del empleo en la ciudad de Cali –para mayor claridad, en el gráfico se calculó el promedio móvil de 5 meses de los índices.

Se advierte que la recuperación en la producción y en el número de ventas se dio con lento aumento del empleo.

Si se hace el mismo ejercicio eliminando el efecto inflacionario sobre la producción y las ventas para obtener su variación real –sin subida de precios –la brecha entre la tendencia de la producción y ventas, por un lado, y del empleo, por el otro, se reduce, pero no desaparece (panel derecho del gráfico 1).

 

Gráfico 1. Índices de producción nominal y real, ventas nominal y real, empleo de Cali (Media Móvil 5 meses ‘Enero 2018 – agosto 2022)

 

Se observa que antes de la pandemia, tanto la producción, como las ventas y el empleo, evolucionaban una de la mano de la otra. Pero dicha dinámica se rompe una vez estalla la pandemia del Covid-19 en Marzo de 2020 –la producción y las ventas se desenvuelven divorciadas del empleo, creciendo a mayor velocidad que este último.

Desde luego, en una economía de mercado, primero las empresas deben crecer para luego jalonar la generación de empleo y volver a la dinámica pre-pandemia –donde el empleo crecía junto al incremento de la facturación.

La ruptura de la dinámica pre-pandemia mostrada en el gráfico 1 para el caso de Cali, también se encuentra en Yumbo, Bogotá, y en menor medida, en Medellín. El gráfico 2 muestra los datos de Yumbo, donde la brecha producción-ventas/empleo es mayor que en Cali.

 

Gráfico 2. Índices de producción nominal y real, ventas nominal y real, empleo de Yumbo (Media Móvil 5 meses ‘Enero 2018 – agosto 2022)

 

Cabe preguntarse ¿De dónde nace dicho divorcio entre la evolución de la producción y la generación de empleo?

Hay que entender que cuando la producción crece sin empleo, aumenta el producto por trabajador, entonces cada empleado genera más mercancías en la economía. Viene a la cabeza el argumento de Astarita refiriéndose a la tesis de Marx:

…a raíz de la propia crisis, entran en juego fuerzas que vuelven a impulsar la acumulación. Por un lado, porque la paralización de la producción aumenta los niveles de desocupación, y en consecuencia muchos sectores de la clase obrera deben tolerar una baja de sus salarios, que los llevan en ocasiones muy por debajo incluso del valor de la fuerza de trabajo. Por otra parte, el capital está en mejores condiciones para aumentar la explotación vía intensificación de los ritmos de producción, eliminación de tiempos muertos y diversas medidas llamadas de “racionalización”. Paralelamente, se desvalorizan capitales, y con ello también los medios de producción. Todo lleva entonces a la elevación de la tasa de rentabilidad, y así se preparan las condiciones para la recuperación.

En otras palabras, el capital sale de las crisis económicas reiniciando su proceso de acumulación a través del aumento del nivel de explotación del trabajo; en el corto plazo, mayor producción y ventas por trabajador.

Este hallazgo debe matizarse teniendo en cuenta que la economía colombiana está compuesta en su mayoría por micronegocios –que no superan los 9 empleados y en algunos casos ni siquiera son propietarios de los medios de producción. De estos, aproximadamente el 90% son trabajadores por cuenta propia, de acuerdo a la encuesta del DANE.

Pero que se matice la realidad del pequeño capital en Cali y demás municipios, no quiere decir que la lógica de la acumulación desaparezca, ni que no se encuentre soportada en el esfuerzo de los trabajadores –sin propiedad de los medios de producción, y en una ciudad donde el 51,7% no devenga más del salario minimo. 

 

Últimos comentarios

En las condiciones actuales, sólo la recuperación del sector empresarial puede encaminar a la economía por la senda del empleo –el problema es poderlo hacer en una ciudad donde las microempresas son el 90% del tejido empresarial y cuentan con una alta probabilidad de bancarrota ante las crisis.

Una economía basada en la propiedad privada solo puede brindar oportunidades de empleo y fortalecer el poder de negociación de los trabajadores siempre y cuando crezca dicha actividad privada por medio de la inversión, sin embargo, a la larga esto no desaparecerá las crisis cíclicas del capital y su respectivo aumento cíclico del nivel de explotación laboral.

 

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En Cali el costo de la vida ha aumentado. De acuerdo al Informe anual de calidad de vida 2022, la ciudad se enfrenta a retos que tienen que ver con su seguridad alimentaria y el nivel de vida.

En el informe llama la atención que el Indice de Precios al Consumidor (IPC) creció más que el promedio nacional en los años 2019, 2020 y 2021.

La seguridad alimentaria de la ciudad se ve amenaza; los Alimentos y Bebidas No Alcohólicas fue el componente de mayor crecimiento en el IPC, seguido por Restaurantes y Hoteles –que también corresponden a gastos relacionados a los alimentos.

Es claro que lo que acontece en Cali es un reflejo de la economía del país; el incremento del precio de los alimentos es similar al del agregado nacional, cuyos precios han tendido a acelerarse entre 2019 y 2021.

Con precios de los alimentos más altos, se requieren ingresos mayores para mantener el nivel de consumo. Sin embargo, para el 2021 el ingreso per cápita por hogar de Cali-Yumbo continuaba siendo menor al nivel del 2019 –en contraste con la recuperación del ingreso a nivel nacional.

Tabla 1. Ingreso per capita promedio por hogar

Lo anterior es un claro deterioro del bienestar, máxime si se tiene en cuenta que el Transporte es el tercer renglón del gasto que mayor crecimiento de precios tuvo en el 2021 en Cali (16% Alimentos y Bebinas No Alcoholicas, 7% transporte).

De forma consistente con lo hasta aquí mostrado, el porcentaje de personas en situación de pobreza monetaria se mantuvo por encima del nivel pre-pandemia del 2019 en Cali-Yumbo, en el Valle del Cauca y en el agregado nacional –donde la recuperación relativa de ingresos del hogar promedio no logró contrarrestar del todo la pérdida del poder adquisitivo.

Con la pobreza monetaria extrema pasa lo mismo; en el 2021 Cali no logró reducirla a niveles pre-pandemia del 2019.

Entonces, tuvimos en la ciudad alimentos y transporte más caros, pero ingresos familiares menores entre 2019 y 2021; en otras palabras, mayor cantidad de personas en situación de pobreza monetaria.

 

Actividad empresarial

Es claro que la ciudad de Santiago de Cali necesita mejorar el ingreso del hogar promedio para solventar el problema de pobreza monetaria, y para hacerlo, es clave acelerar el crecimiento económico y la productividad de su fuerza laboral.

Se requerirá de políticas públicas que asistan a las microempresas, las cuales son heterogeneas y conforman prácticamente la totalidad de las nuevas empresas registradas en Cali (2020-2021). Pero también, requerirá de una visión de política sectorial; el 84.9% de las nuevas empresas pertenecen a los sectores de comercio, servicios y manufactura.

Las autoridades de la ciudad deberán recoger la información que emite el mercado y asistir con políticas públicas a la iniciativa empresarial –la cual está señalizando con sus inversiones donde los agentes económicos están viendo oportunidades de negocio.

El fomento de la actividad económica de la ciudad es medular para reducir la pobreza vía creación de puestos de trabajo, teniendo en cuenta el alto desempleo de jóvenes en Cali (20,5%), que fue superior al nacional en el año 2021.

 

Comentario final

Aunque fortalecer la actividad económica de Cali no solventará el problema inflacionario que se tiene a nivel nacional y global –que a su vez se desprenden de problemas reales como el deterioro de las cadenas de suministro –, sí podría reducir el empobrecimiento de la población vía mayor ingreso real –crecimiento general de la renta por encima de la inflación.

Para el 2022 las cosas no pintaron muy bien, los Alimentos y Bebidas No Alcohólicas, siguieron estando a la cabeza en la subida general de precios entre septiembre de 2021 y agosto de 2022, según el informe de Costo de Vida de Cali Cómovamos. Sin hablar del incremento de la energía –que aumentó más que el nivel nacional.   

 

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La inflación ha incrementado en Colombia de forma importante. El aumento del nivel general de precios al consumidor pasó de crecer al 4.51% en septiembre de 2021 al 10.84% en agosto de 2022.

Pero la inflación actualmente no es exclusiva de Colombia, es un fenómeno mundial con el que el gobierno nacional tiene que lidiar. Para entender lo que está pasando con los precios de la economía colombiana, hay que entender lo que está atravesando el mundo.

 

Inflación a nivel mundial

Muchos analistas coinciden en que la inflación a nivel internacional se ha debido primordialmente a problemas de oferta, causados por el Covid –que reventó las cadenas de suministro en todo el mundo – y la guerra entre Rusia y Ucrania (OTAN) –que presionó al alza los precios de los alimentos y los combustibles.

Joseph Stiglitz –premio nobel de economía –argumenta que la inflación proviene de problemas en la oferta global, es decir, de dificultades en la producción y abastecimiento mundial, en lugar de exceso de demanda.

El economista Jack Rasmus, en un interesante artículo titulado la anatomía de la inflación, argumenta que en el segundo cuarto del 2022, la inflación fue producto de varios factores: una demanda moderada, –que se recuperaba después del confinamiento –la ruptura de las cadenas de suministro domésticas, los precios fijados por las corporaciones, y el impacto de la guerra de Ucrania y las sanciones a Rusia sobre los precios del petróleo, la energía y demás materias primas. 

Además, Rasmus, señala que se formaron expectativas de inflación futura que coincidieron con la subida del costo laboral unitario (CLU), que se transfiere a los precios de los consumidores. El CLU depende del salario y de la productividad, la cual ha caído en los últimos años, trayendo consigo el encarecimiento de la mano de obra –si los salarios incrementan el CUT incrementa, al igual que si la productividad del trabajo cae.

Steve Keen –reconocido economista Australiano –, quien coincide en que la inflación es causada por el covid y la guerra de Rusia en Ucrania, añade otro elemento: el declive de la productividad de los combustibles fósiles y la minería.

Keen hace explicito que la inflación no es cuestión de salarios ni de márgenes de ganancia (markups) muy altos, sino del incremento en los costos de convertir materias primas en bienes finales.

Todas estas condiciones internacionales se han convertido en una ola inflacionaria que ha golpeado a la economía colombiana desde afuera.

En un documento del Banco de la República, del 13 de Agosto de 2021 –antes del conflicto de Rusia en Ucrania –se señala que la inflación al interior del país fue impulsada por la ruptura de las cadenas de suministro que incrementó los costos del transporte internacional.

Los costos logísticos a nivel internacional se reflejaron en el incremento en la brecha entre los valores FOB y CIF entre 2019 y 2021. Las primeras siglas (Free On Board), corresponden al precio de la mercancía importada en el puerto de origen, mientras que las segundas (Cost, Insurance and Freight), incluyen los costos de seguros y el transporte desde el origen hasta el destino en los puertos de Colombia.

Dicho documento explica que la cuarentena había refrenado una demanda mundial que se expandió vía recuperación económica y subsidios, y que no encontró respuesta rápida por parte de la capacidad productiva y las cadenas logísticas globales que habían estado obstruidas por el confinamiento.

Pero lo que llama la atención, es que el Banco de la República encontró que el aumento de precios más significativo –atípico, digamos –se dio en “el índice de precios de las importaciones de bienes intermedios” –donde la brecha entre los valores FOB y CIF es más amplia – mientras que los precios de los bienes de consumo y de capital tuvieron aumentos similares en años anteriores (precios en dólares).

Las experiencias de los países asiáticos –que crecieron y mejoraron sus niveles de vida rápidamente –muestran que el desarrollo de industrias productoras de bienes intermedios junto con la inversión, constituyeron dos componentes medulares para su desarrollo económico, según argumenta John Ross. 

 

Inflación estructural

Se conoce que el principal problema en países en vías de desarrollo, como Colombia, radica en la falta de capacidad productiva, por tanto, importan inflación cuando las mercancías que compran del exterior se encarecen (Aboobaker y Ugurlu, 2020); ya sea por falta de oferta o por depreciación de la moneda nacional (peso) –lo que se conoce como exchange-rate pass-through.

Entonces, el problema de la inflación en Colombia, sería una cuestión estructural. En este sentido, es interesante el planteamiento que hace Devika Dutt en uno de sus artículos.

Dutt, argumenta que el incremento general de precios en los países en vías de desarrollo proviene del aumento en los precios de la energía y los alimentos, que no son más que reflejo de un problema estructural; cuellos de botella en la oferta de bienes, falta de infraestructura, y mercados subdesarrollados.  Además de malas cosechas y la depreciación de la moneda vía caída del precio de las materias primas que se exportan.

Lo que advierte Dutt, es que estas condiciones se relacionan a la oferta y no a una demanda impulsada por altos ingresos en manos de los consumidores, por tanto, una política antiinflacionaria debe pasar por solucionar la dependencia de importación de alimentos y energía.

Fadhel Kaboub, también pone el acento en la tasa de cambio y la dependencia de importaciones que tienen los países en vías de desarrollo.

Kaboub, sostiene que en países en vías de desarrollo la política de inflación objetivo de los bancos centrales debe ser tarea de ministerios de agricultura y de comisiones de energías renovables, y no de banqueros centrales manipulando tasas de interés.

En suma, de acuerdo a las visiones aquí expuestas, el problema de la inflación en Colombia se desprende, por un lado, de circunstancias de la economía global, y por el otro, de dependencia de su propia economía que se encuentra en vías de desarrollo.

Para solucionar el problema de la inflación estructural, el nuevo gobierno popular de Gustavo Petro y Francia Márquez debe hacer frente a problemas estructurales de la economía.

El DANE muestra en su último reporte, que fueron los alimentos y bebidas no alcohólicas el renglón cuyos precios crecieron más rápido que el promedio de bienes y servicios de la economía (en el mes de agosto de 2022).

Como ya se mencionó, la baja productividad acarrea costos altos, y estos se traducen en precios altos para los consumidores.

En el mejor de los casos, y según como se mida, Colombia ha tenido un muy bajo crecimiento de la productividad –de acuerdo a la productividad laboral (producción por empleado) el crecimiento ha sido del 1.5% en promedio en los últimos 70 años (datos de PWT, versión 10.0). Si se mide la productividad total de los factores –producción que no se explica por aumentos de trabajo y de capital –el crecimiento ha sido del -0.3% entre 1990 y 2022 (sí, entendió bien, ha sido negativa según TED database).

Esto quiere decir que la productividad por trabajador apenas creció en 70 años, y que los recursos empleados (capital y trabajo) crecieron más que el crecimiento de la producción –la eficiencia cayó.

Se conoce que la productividad y el crecimiento son impactados por el nivel de inversión que existe en una economía (recomiendo leer los papers de De Long y Summers 1991, 1992). 

Pero, como se muestra en otros posts, por un lado, Colombia ha tenido baja inversión relativa, y por el otro, la tasa de ganancia que estimula a la inversión pareciera depender de los precios internacionales de las materias primas (carbón y petróleo) que fluctúan y no se mantienen en el tiempo.

Una agenda de gobierno comprometida con la soberanía alimentaria y energética es crucial en la lucha contra la inflación; se debería rescatar la producción nacional de fertilizantes, además de promover fuentes energéticas basada en las renovables.

 

Referencias 

Aboobaker, Adam., Ugurlu, Esra Nur. 2020. Weaknesses of MMT as a Guide to Development Policy. Economics Department  Working paper series. 1-24

De Long, B., Summers, L.H., 1991. Equipment investment and economic growth. Quarterly Journal of Economics 106 (2), 445–502.

De Long, B., Summers, L.H., 1992. Equipment investment and economic growth. How strong is the nexus? 157–211.

 

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Chile underwent a set of economic reforms after the military coup in 1973 that overthrew the leftist-government of Salvador Allende.

The right-wing dictatorship was the pioneer in setting radical market reforms characterized by holding the state out of the way and privatizations of state-owned enterprises –something that turned into a worldwide trend (Magginson & Netter, 2021).

For years, Chile was considered a case of economic success; however, after 50 years of market-oriented reforms, Chile is still a primary goods-oriented economy that underwent a long social turmoil (2006-2019; student protests and social outburst).

A question arises: to what degree does Chile constitute a case of economic success? 

 

To what degree is Chile an economic «miracle»?

By and large, for a developing country, long-term economic growth is the outcome of exports –which brings about the foreign exchange to import capital goods and technical services – and investment –which builds up the stock of capital to expand future production and boosts labor productivity (De Long & Summers, 1991, 1992. Krueger, 1998).

After the economic reforms, Chile’s economy grew driven by exports and investment, relying on imports which grew faster than GDP. In other words, economic growth came about under outer-oriented policies –drawing upon the external sector (exports and imports).

Figure 1. Chile’s GDP by component 1951-2019

 

The country underwent an improvement in its economic growth rates while the rest of the Latin American economies fell behind after market reforms  –for instance,  Brazil and Mexico slowed down their economic growth rates from 1980 to 2011.

 

Figure 2. Economic growth rates, selected countries

 

However, as Palma (2012) points out, the period 1972-2008 delivered precisely the same average economic growth rate as the Import Substitution Industrialization (ISI) model 1950-1972 –that the Chicago boys substitute with a set of liberal recipes gathered in El Ladrillo, the textbook of the military putschists (De Castro, 1992).

When one looks into the data, the dictatorship period turns out not to be astonishing in economic terms as many have been told; the GDP (PPP) growth rates averaged 4.8% before the dictatorship and 2.3% during the dictatorship –the data comes from PWT (version 10.0) and the ranges of years are 1952-1972 vs 1974-1990, excluding the year of the military coup 1973 to avoid distortions.  

On the other hand, investment and capital accumulation stepped up steadily once democracy took over. 

Figure 3. Capital accumulation and investment rates (%GDP) 1951=100

 

It may be argued that the free-market reforms took time to show their benefits; after all, from 1986 the economic growth speeded up in a period that Palma (2019) identifies as a «highly-dynamic 12 year-period» between 1986 and 1998 –that encompasses the last years of the dictatorship and the beginning of democracy.

Why did the economy grow faster at the end of the dictatorship? Economics-Nobel prize winner Paul Krugman writes in The New York Times: 

It wasn’t until the late 1980s, by which time the hard-line free-market policies had been considerably softened, that Chile finally moved definitively ahead of where it had been in the early 70s.

 

Well, moving ahead of a leftist-managed economy under internal and external attacks to bring it down is not a big deal, mostly, when the dictatorship of  Augusto Pinochet was a recipient of «massive capital inflow», as Krugman argues.

In an interesting article on Chile, Michael Ahn Paarlberg writes that «The “economic miracle” Milton Friedman ascribed to Pinochet is one of the great false narratives of modern economic history«. The benefits of the economic reforms «began with kicking out the Chicago Boys, expanding public payrolls, reinstating the minimum wage, and nationalizing the banks.».

As seen in Figure 2, although it is true that in contrast to LA countries Chile succeeded in terms of economic growth rates, it is not that clear compared to the fast-growing countries of Asia (take a look at where China, India, and Vietnam are in Figure 2).

Investment rates are one of the big differences between fast-growing countries and «the Chilean miracle». According to PWT (version 10.0), the ratio of investment to GDP never reached 30%  –in 2008 it peaked at 29.5% during a favorable commodity price boom (including copper, the main Chilean export).

Chile’s ratio of investment to GDP fell far behind the one delivered by countries of East Asia. The following table illustrates what a real booming economy looks like in terms of investment rates sustained over decades.

Table 1. Ratios of investment to GDP, selected countries

 

Palma (2019) argues that, contrary to Asian countries, Chile’s economy has run out of steam due to its inability to «upgrade» (industrialize) its productive apparatus, something that, according to Chang (2007, 2010) Asian countries, among others, achieved through a sound industrial policy.

Aside from the fast-growing countries of Asian, it is hard to consider Chile an economic miracle; while the former became a set of manufacturing-oriented countries that climbed up the ladder of the international division of labor, the latter never got over its primary goods-oriented economy and relatively low productivity growth (Palma, 2019).

 

Last remarks; inequality matters

There is a moral dimension in the economic reforms under a dictatorship, as pointed out by Michael Ahn Paarlberg when wrote down that:

The most appropriate gut reaction to this may be moral revulsion—3,000 people killed or disappeared so that you can enjoy your global sushi at the mall? But it’s also worth asking whether story is even true.

 

Chile has fantastic sushi, no doubt, but its economic growth is not as astonishing as its inequality. Branko Milanovic –a well-known leading economist of inequality  –asserts:

In 2015, its level of income inequality was higher than in any other Latin American country except for Colombia and Honduras. It exceeded even Brazil’s proverbially high inequality. The bottom 5% of the Chilean population have an income level that is about the same as that of the bottom 5% in Mongolia. The top 2% enjoy the income level equivalent to that of the top 2% in Germany… Chilean income distribution is extremely unequal. But even more so is its wealth distribution.

 

Well, holding less inequality than Colombia is not a great feat, as a Colombian, I know very well how income and wealth are distributed in a country where there are big drug traffickers, an unsettled long internal-armed conflict between guerrillas, the state, and right-wing paramilitaries –which has been a historical tool used against the working class.

Back to Branko Milanovic and keeping in mind that the press is not friendly when it comes to Vladimir Putin and Russia (the so-called land of oligarchs), Milanovic asserts:

Chile is the country where billionaires’ share, in terms of GDP, is the highest in the world (if we exclude countries like Lebanon and Cyprus where many foreign billionaires simply “park” their wealth for tax reasons). The wealth of Chile’s billionaires, compared to their country’s GDP, exceeds even that of Russians.

 

It is well-known the political turmoil Chile went through some years ago. I am writing this post from Santiago de Chile (the capital) and I was shocked by how the streets looked after the 2019’s «estallido social» (social outburst) –years earlier, in 2006, the country had undergone student protests called «revolución pingüina».

Many corner shops and store premises are closed and many spontaneous wall paintings made by the demonstrators can be seen around. It proves that inequality matters, even for owners.

 

References

Chang, H. J. (2007). Bad Samaritants: The Myth of
Free Trade and the Secret History of Capitalism.
Bloomsbury Press.

Chang, H. (2010). 23 Things They don’t Tell You about Capitalism. Londres: Penguin Books. Recuperado de https://marcell.memoryoftheworld.org/Ha-Joon%20Chang/23%20Things%20They%20Don’t%20Tell%20You%20About%20Capitalism%20(1550)/23%20Things%20They%20Don’t%20Tell%20You%20About%20Capita%20-%20Ha-Joon%20Chang.pdf

De Castro, Sergio (1992). El Ladrillo: bases de la política económica del gobierno militar chileno. Centro de Estudios Públicos: Santiago de Chile. pp.193

De Long, J. Bradford & Summers, Lawrence H. Equipment Investment and Economic Growth. The Quarterly Journal of Economics, Vol. 106, No. 2 (May, 1991), 445-502.

De Long, J. Bradford & Summers, Lawrence H. World Bank and Harvard University Equipment Investment and Economic Growth: How Strong Is the Nexus? (Oct, 1992), 157-211.

Magginson, William. & Netter, Jeffry. Journal of Economic Literature Vol. 39, No. 2 (Jun., 2001), pp. 321-389.

Krueger, Anne. The Economic Journal. Vol. 108, No. 450 (Sep., 1998), pp. 1513-1522.

Palma, . J. G. (2012). Was Brazil’s recent growth acceleration the world’s most overrated boom?. http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe1248.pdf

Palma, J. G. (2019). The Chilean economy since the return to democracy in 1990. On how to get an emerging economy growing, and then sink slowly into the quicksand of a “middle-income trap”. https://doi.org/10.17863/CAM.46546

 

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In previous posts on Russia’s economy under warfare, it has been shown that the country is facing sanctions on its war machine funding and its supply chains by the US-led coalition. This time, a range of figures will illustrate the readiness of the Russian economy to cope with the West’s penalties on its economy.

Understandably, President Vladimir Putin expected a backlash by the West to damage the Russian economy, as reported by Serina Sandhu, who explained that the economy could face a bank run if the sanctions set by the Western countries were successful.

 

The Russian economic bunker

Russian officials likely thought that the West’s response would lie in the attack on confidence in the economy. A good measure of confidence is the value of the domestic currency –thus, the attack on the national currency might be taken for granted.

On the other hand, it is well known that having enough gold and foreign exchange is a good backing for a domestic currency. Russia stored 2.271 tonnes of gold in 2019, fivefold the quantity held in 2000.

Such a speed of accumulation of real assets was not followed by any other country in Europe. Russia’s movement toward gold storage can be seen in the Russian reserves as a percentage of the US reserves, which rose from 5% to 25% –keep in mind that the US is the country with major gold tonnes stored according to the data reviewed.

Figure 1. Gold reserves of the Russian Federation

 

In the economic hard times, Russian officials have drawn upon gold purchases; after the 2008’s financial crisis, Russia stepped up its purchases of gold and increased the pace even more after 2014 –when the problems with the US and Europe got worse due to the Euromaidan and Crimea integration into Russia.

The thing is that gold international prices in US dollars trended to rise in the last decades. First, the prices of that asset skyrocketed from 2000 to 2012, and then, from 2015 to 2020; If the bull trend turns into the new normal, the Russian government will have a sizeable amount of real assets getting exchange value –a Marxist way to say it –over time.

 

Low debt level

Also, Russia got its economy ready drawing upon austerity; while the government debt to GDP ratio has increased in Europe since the 2008’s global financial crisis (being over 90% of GDP) in Russia the debt fell since 2000, growing slightly since the pandemic outbreak.

Figure 2. The Russian Federation government debt (%GDP) 

 

According to the World Bank database (click here), after the Crimea conflict in Ukraine in 2014, the Russian Federation raised its international reserves faster than its debt, being one of the countries with the highest ratio of international reserves to debt. That is to say, the country counts on enough assets to meet its debt payments.

Such healthy finance has been possible given the trade-balance surplus Russia has enjoyed, exporting more than importing. Something that can be explained by a lack of investment momentum –a fact that is not favorable at all when it comes to long-term economic growth.

As you can see, exports grew faster than the whole economy (GDP), imports kept mostly following the economy, while consumption grew as fast as exports and investment fell behind, growing much lower than the whole economy.

Figure 3. Russia’s GDP index by component

 

In short, before its military intervention in Ukraine, Russia accumulated enough real assets in its warehouse as well as foreign exchange and kept its liabilities as a small portion of its economy. In other words, Russian officials turned the economy into a financial bunker solvent enough to keep steady the investors’ confidence.

 

Supply chain issues and prices hikes

However, as mentioned in a previous post, Russianomics: economic shelling on Russia’s supply chains!, the West has set several penalties on the Russian Federation that turned it into the most sanctioned economy. That means that importers have to face a range of hurdles in carrying out imports of foreign goods and services.

The prices in Russia are reflecting the negative effects of the West’s sanctions, which is why the growth of the consumer price index reached two digits figures immediately after Russia intervened in Ukraine, which comes about on 24 February 2022.

Figure 4. Inflation in the Russian Federation

 

However, from April to June the growth in prices slowed down. Such a behavior matches with a strengthening of the ruble, which recovered its value after its drop in March.

Figure 5. Exchange rate U.S. Dollar/ Russian Ruble 

 

As reported by The Wall Street Journal, Russia manufactured demand for its currency through the selling of gas in rubles rather than dollars and euros, thus, making “sanctioning nations support Russia’s currency” and ensuring “all funds from energy sales support its value”.

Although for now, Russia has been a sanction-proof economy, a question arises: how long can the Russian economic bunker endure economic warfare?

If we accept that prices are the reflection of relative scarcity and that the economy is about real value rather than nominal value, at the end of the day, whether Russians want the pace of prices to continue going down, their economy will have to cope with production and supply chain issues. In other words, it will have to deal with scarcity.

As already seen, investment in Russia has been pretty weak, and the reconversion of the Russian economic apparatus from Western-capital goods intensive to Asian-capital goods intensive (its industrialized allies) can be a very demanding task.

In a previous post it was stated that, when it comes to sanctions, the problem of the Russian economy lies in its capacity to import rather than export. Apparently, sanctions are working through the supply chains.

The following graph illustrates what Russia has to deal with: Russia stepped up its sales to China while its purchases from that country went down. 

Figure 6. China’s exports to and imports from Russia

 

According to PIIE, imports from sanctioning countries have fallen by 60% and from non-sanctioning countries by 40%. Besides, it reads that: “China is the second-largest contributor to Russia’s import decline since the invasion, despite President Xi Jinping’s promise of «no limits» cooperation”.

Although it might mean that China is not backing Russia as it was expected, it is also possible that Russian companies are not able to reconvert their plants as fast as managers wish.

Furthermore, it is worthwhile to mention that a fall in economic activity –due to the pandemic and supply chain disruptions –would naturally bring down the number of imports (a sizeable economic downturn is forecasted click here). In other words,  it is hasty to say that import behavior is infallible evidence of real political support.

 

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Warfare means a massive expenditure on weapons

Proof of it can be found in Alex Vershinin’s calculations:

The Russians have fired between 1,100 and 2,100 missiles… meaning that in three months of combat, Russia has burned through four times the US annual missile production. (click here)

…import substitution­­ is unrealistic under the current circumstances because now it must be a full-cycle production (as was the case, for example, in the Soviet Union)… This problem cannot be solved because the technologies used in the world (and ­in Russia) have advanced considerably, and the Russian industry itself is significantly inferior ­to the former Soviet industry, in both scale and capacity. (click here)

* I am indebted to my friend Mr. James Barry for assistance in editing.