by PRABHAT PATNAIK
One of the striking features of the recent period has been the diffusion of manufacturing and service activities from the countries of the core to the periphery. The logic of competitive striving for the export market among the many “labour reserve” economies in the periphery leads to the accumulation of ever-growing reserves and a constraint on domestic absorption. To believe that the contradictions that emerge will disappear if only the economies with current surpluses appreciate their exchange rates is a fantasy. Such an appreciation, if it is not to reduce the level of activity in the appreciating economies, must be accompanied by an enlargement of the fiscal deficit in these economies, which means both an abandonment of the tenet of “sound finance” and increased domestic absorption entailing a retreat from the strategy of export-led growth.
MRZine for more