Political Economy Constraints Research Articles

Market Maker of First Resort – The People’s Bank of China and the Rise of Market-Based Banking

ABSTRACT Drawing conceptually upon the literature on critical macro-finance and market-based banking, this article investigates the People’s Bank of China’s (PBC) role in transforming China’s financial system. By analysing regulatory and monetary policy in the context of the party-state’s financial reform agenda and against the background of structural changes in liquidity creation, it shows how the PBC has created a bond market from shadow banking. To this end, the PBC makes and governs through financial markets by targeting the liquidity of interbank collateral through unconventional monetary policies, that is, by expanding its own balance sheet. By developing an interbank bond market, the PBC has restored its control over credit creation and financial stability previously lost to shadow banking, however, at the price of inserting itself more tightly into political economic constraints created by the nexus of liquidity and growth.

Pathways to stringent carbon pricing: Configurations of political economy conditions and revenue recycling strategies. A comparison of thirty national level policies

There is general agreement among economists and climate policy practitioners that carbon pricing should play a central role among all policies used to tackle climate change effectively. However, in most jurisdictions that have adopted carbon pricing mechanisms, the prevailing price levels remain too low to accelerate decarbonization and drive down emissions. This deficiency can be attributed to numerous political economy constraints, but most pressingly, to the negative distributional effects of the policies combined with the drain they impose on firms' competitiveness. These factors negatively influence the public acceptability of these policies and, thus, the feasibility of introducing ambitious carbon pricing. Recent innovations in the literature suggest that using the revenue from carbon pricing for specific social purposes may ease this political impasse. This study analyzes which revenue recycling strategies are effective, in various political economy environments, to support stringent carbon pricing. Employing the method of fuzzy-set Qualitative Comparative Analysis, this research draws findings from a cross-case comparison of thirty national-level policies. The salient conclusion is that hybrid use of carbon revenue that combines various compensatory schemes and spending on climate projects is the most effective strategy to enhance stringency, while a lack of compensation renders the introduction of ambitious carbon pricing implausible, even in some highly developed countries.

The Economics of Tropical Deforestation

Two factors have elevated recent academic and policy interest in tropical deforestation: first, the realization that it is a major contributor to climate change; and second, a revolution in satellite-based measurement that has revealed that it is proceeding at a rapid rate. We begin by reviewing the methodological advances that have enabled measurement of forest loss at a fine spatial resolution across the globe. We then develop a simple benchmark model of deforestation based on classic models of natural resource extraction. Extending this approach to incorporate features that characterize deforestation in developing countries—pressure for land use change, significant local and global externalities, weak property rights, and political economy constraints—provides us with a framework for reviewing the fast-growing empirical literature on the economics of deforestation in the tropics. This combination of theory and empirics provides insights not only into the economic drivers and impacts of tropical deforestation but also into policies that may affect its progression. We conclude by identifying areas where more work is needed in this important body of research.

Political Development and Political Thought

This essay applies existing research in new institutional economics to early modern European political theory so as to offer an interpretive proposal. Using Hobbes, Hume, and James Madison as examples, the essay proposes that understanding early modern European political theorists as inhabitants of developing countries (in a particular sense of that term) can benefit contemporary readers in interpreting some of these theorists’ normative prescriptions. Early modern political theorists faced significant risk of large-scale violence, political instability, and state repression in polities that still struggled to accomplish goals such as implementing rule of law, protecting property rights, and widely distributing material resources using impartial criteria. By contrast, many contemporary readers of these writers live in the developed and liberal-democratic West. Contemporary readers are thus liable to normalize their own conditions and to underestimate the political-economic constraints under which early modern political theorists wrote, thereby misreading some of the latter’s normative prescriptions. By interpreting early modern political theorists as writers who faced institutional constraints that have significantly receded in today’s West, contemporary readers can enrich their understanding of these writers’ objectives.

A basic income for every crisis? Building blocks of a political economy framework

In the wake of several recent crises, universal basic income has emerged as a serious policy solution. Not only is basic income pitched as a tool to mitigate the effects of a diverse set of emergencies, it has been argued that successive crises have importantly contributed to the surge in media and policy interest in basic income. In this article we critically examine this proposition. We first argue against the inherent functionalism of many accounts and instead propose a political economy framework that ties basic income directly to a series of mechanisms that may explain the opening up of basic income policy windows during recent crises, including the Covid-19 pandemic. It is equally important to carefully distinguish between different types of crises and we argue that two key competing types – cyclical and permanent crises – face a distinctive set of political economy constraints. We illustrate our approach by analysing the prospects of basic income in six distinct crisis events.

India's just energy transition: Political economy challenges across states and regions

To comply with international climate targets, India will eventually need to phase out coal-fired power plants and substantially increase the use of solar-PV and wind power. Winners and losers of this transformation will not be distributed equally across the country, which potentially holds severe implications for the feasibility of the transformation. In an effort to understand political economy constraints from adversely impacted key societal groups, we discuss how Indian states would be affected in terms of distributional implications for households, industrial competitiveness and employment. We examine the effects of phasing-out of energy subsidies and carbon pricing (USD 40 per ton CO2) on household incomes. We likewise analyze employment effects of ramping-up renewables and phasing-out of coal-fired power plants. Finally, we assess the impacts of carbon pricing on key industries. Our findings suggest that adverse impacts are strongly concentrated in Eastern, less wealthy, coal- mining states, which would face employment losses with pressure on poor households and energy intensive industries. Employment creation through deployment of renewables would, however, be more dispersed across India's Western and Central states. Complementary policies, such as recycling carbon tax revenues, will be necessary to avoid deepening regional disparities and increase acceptance from adversely impacted regions.

Optimization and reflexivity in interdisciplinary agri-environmental scholarship

IntroductionThe Chesapeake Bay and Upper Bann watersheds in the United States and Northern Ireland, respectively, exemplify how agricultural systems contribute to groundwater and surface water pollution, which leads in turn to water quality issues in downstream water bodies. Interdisciplinary research, public outreach, and stakeholder engagement have received increased attention and consideration as pragmatic approaches for addressing these types of complex agri-environmental dilemmas. However, such approaches are far from guaranteed to improve water quality, as political-economic constraints, power asymmetries, cultural differences, divergent incentives, research gaps, and personality differences all complicate the process, and this can ultimately impact water quality efforts.MethodsWe present a holistic approach to addressing these challenges in the Chesapeake Bay and Upper Bann watershed management efforts by integrating the methodological strategies of optimization and reflexivity. Our use of these approaches, widely recognized as respective successful practices in quantitative and qualitative research, is novel in that it focuses directly on the researchers themselves as they discuss, evaluate, and develop potential solutions for complex agri-environmental water quality dilemmas. More specifically, our quantitative optimization is explored via a Functional Land Management (FLM) approach to land and natural resources management, while our qualitative reflexivity is explored through the process of participant observation.ResultsThis paper provides a behind-the-scenes perspective on how interdisciplinary teams can improve their cooperation efficiency when addressing complex agri-environmental issues. In being reflexive, we sought to “optimize” on the methodological, ethical, social, and environmental possibilities of our scholarship. We found that our reflexive work on this project furthered our interest in FLM, a tool that embraced complexity and creativity over rigidity and oversimplification - the very same principles that guided our reflexive work.DiscussionThroughout our collaborative investigation of FLM as a potential solution to soil and water quality issues, we came to appreciate that in order to better understand agri-environmental challenges issues, we also needed to better understand ourselves—our own disciplinary, cultural, and ethical standpoints. Reflexive approaches to research can provide practical guidance in this process by encouraging us to critique and analyze our assumptions, our methodologies, and the socio-historical context of our research.

What tradeoffs are made on the path to functional zero chronic homelessness?

Built for Zero (BFZ) is a resource allocation method for homeless systems that has gained popularity in North America. Community Solutions, the organization that created/promotes BFZ, argues system managers can end homelessness by using business management techniques to flexibly allocate housing assistance and achieve systemwide benchmarks like functional zero chronic homelessness. Little research has analyzed how BFZ strategies are applied to homeless systems. This is a notable blind spot because homeless systems confront different barriers/enablers that facilitate/constrain BFZ integration. I extend housing scholarship by using ethnographic data of referral meetings in a large U.S. County to analyze managerial use of BFZ strategies promoted by Community Solutions. I show political economic constraints force macro-micro tradeoffs on the path to functional zero that marginalize the wants/needs of some clients by referring them to suboptimal housing. My findings show equitable progress to functional zero requires adequate housing resources so the wants/needs of service recipients are not sidelined.

Walking a Tightrope: Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy

Abstract As with the global financial crisis, there are once again demands on central banks and financial regulators to take on new responsibilities, this time for supporting the transition to a low-carbon economy. Regulators can indeed facilitate the reorientation of financial flows necessary for the transition. But they may find themselves walking a tightrope, having to balance exaggerated expectations against limited capabilities and political economy constraints. Their diagnostic and policy toolkits are still in their infancy. Expanding their legal mandates to take on these new, essentially political, responsibilities should be done through the political process and be accompanied by strengthened governance and accountability arrangements. Taking on these new responsibilities can also have potential pitfalls and unintended consequences on financial markets. Ultimately, central banks and financial regulators cannot deliver a low-carbon economy by themselves and should not risk being caught again in the role of ‘the only game in town’.

Why Emissions Pricing Can’t Do It Alone

This article explores whether emissions pricing is sufficient to achieve the low-emissions transition in Aotearoa New Zealand. It draws on a critical review of the international literature on emissions pricing, policy interactions and political economy to make three broad arguments. First, that emissions pricing alone cannot be expected to induce the necessary levels of behaviour change and technological transition in the urgent time frame required. Second, non-pricing policies can deliver emissions reductions, even within the context of emissions trading under a volume cap. Third, even if emissions pricing could induce sufficient change, there are political economy constraints on reaching the adequate price in a feasible and equitable way. Consequently, we argue that the weight of evidence lies with utilising emissions pricing as part of a policy mix.

“Save Auburn Avenue for Our Black Heritage”: Debating Development in Post–Civil Rights Atlanta

This article investigates debates concerning the redevelopment of Atlanta’s historic Black business district, “Sweet” Auburn Avenue, in the 1980s. It argues that the revitalization debates suggest two ways of conceptualizing the post–civil rights era; first, as an era of limits in which shifts in the global economy and the national political landscape narrowed the scope of what liberal Black politicians and civic activists believed what politically possible, and second, as an era of anxiety in which political and economic crises fostered nostalgia about the Black past and uncertainty about the future of Black Americans. Focusing on the divisions that emerged among Black Atlantans over the creation of the Martin Luther King, Jr. Historic Site and the construction of the Auburn Avenue Research Library, the article analyzes how the political-economic constraints and anxieties of the period informed various visions of redevelopment. In doing so, it reveals how the conditions of the post–civil rights era, and the affect produced by them, structured urban Black politics in the last quarter of the twentieth century.

The political economy of fiscal procyclicality

It is well-recognized that fiscal spending in developing countries tends to display significant procyclicality (increased spending during expansions and vice versa), in contravention of rational stabilization policy. Theoretical explanations have relied on either financial access or political-economic factors to justify this phenomenon. In this paper, we model the fiscal-output relationship as a dcc-garch process, and inquire whether debt or political economy constraints play a comparatively more important role in conditioning this correlation. Our evidence favors a positive effect from political economy, with weaker and more mixed results pertaining to financial access. Somewhat surprisingly, we also find that politics-induced procyclicality appears to be driven by advanced economies, and fiscal rules exacerbate procyclical tendencies.

Power systems expansion planning with time-varying CO[formula omitted] tax

This article analyzes the effects of implementing a two-stage carbon tax on a ten-year power expansion planning model. The timing effect of the tax is analyzed by studying the costs, capacity investments, economic dispatch, and CO2 emissions in fixed (flat) and two-stage tax schemes. Results show that, under the absence of political economy constraints, the most cost-effective solution is to have a low CO2 tax in the first stage and an optimal (higher) tax in the final stage. However, early actions can be justified depending on how relevant the policy maker considers the beneficial economic and not economic outcomes of a higher first-stage tax. Consequently, focusing on a final-period goal may not be the best way of facing the global warming problem, if emissions saved early have an important value when preventing the consequences of Climate Change.

Capitalism and Earth System Governance: An Ecological Marxist Approach

Growing recognition of the Anthropocene era has led to a chorus of calls for Earth System Governance (ESG). Advocates argue that humanity’s newfound sociotechnical powers require institutional transformations at all scales of governance to wield these powers with wisdom and foresight. Critics, on the other hand, fear that these initiatives embody a technocratic impulse that aims to subject the planet to expert management without addressing the political-economic roots of the earth system crisis. This article proposes a more affirmative engagement with existing approaches to ESG while also building on these critiques. While advocates of ESG typically ignore the capitalistic roots of the earth system crisis and propose tepid reforms that risk authoritarian expressions, their critics also have yet to systematically consider the potential for more democratic and postcapitalist forms of ESG. In response, I propose an ecological Marxist approach based on a structural analysis of capitalism as the primary driver of the earth system crisis and an “ecosocialist” vision of ESG that subordinates the market to democratic planning at multiple scales. I argue that an ecological Marxist perspective is needed to foreground the structural political-economic constraints on earth system stability, though existing approaches to ESG can in turn inform ecosocialist strategies for global institutional design and democratization.

Hvordan kan miljø- og klimahensyn integreres i den økonomiske politik?

Through decades, the natural sciences have documented some troubling links between the growing economy and damages to the environment, most prominent of which are global warming and the loss of biodiversity. Recent years have however shown that the road from identifying the problems to action is slow and complicated to navigate: The goal to reduce greenhouse gas emissions does not stand alone; rather it is weighed against numerous other policy objectives. This paper first outlines a way of measuring the links between economic activity and the environment: The Green GDP. This measure attempts to measure the environmental damages in the same metric as other economic activity, thus informing us on whether or not economic growth comes at the expense of the environment. Next, the paper introduces a research project aimed at developing the GREEN REFORM model that can simulate the environmental effects of economic policy as well as the impact of environmental policy on the economy. While the Green GDP is an indication of the environmental costs of current and past economic activity, the GREEN REFORM model can be used for evaluation of future scenarios and policy interventions. Finally, the paper presents an analysis of the political barriers to adopting the above-mentioned tools in decision-making in a Danish context. The paper argues that while there is some demand for the tools, there is a potential for significant opposition in the form of political-economy constraints.

Evaluating the efficiency of carbon emissions policies in a large emitting developing country

Using the energy-environmental version of the Global Trade Analysis Project, this study compares the effects of three carbon emissions mitigation strategies – a carbon tax, a fuel tax and an emissions trading scheme (ETS) to combat the intended emissions target for Indonesia, a large emitting developing country. Although the fuel tax was found to raise economic growth by 0.29% in 2030, the carbon tax and ETS which reduce economic growth by about 0.11% have less adverse effects on inflation, welfare loss, wage decline, and employment loss. Unlike the fuel tax, the carbon tax and ETS are also likely to promote substitution towards renewable energy given the massive increase in the price of coal of over 100% due to the carbon tax and ETS. To meet Indonesia's emissions target, a carbon tax of US$36/ton of CO2 is needed. The carbon tax which is simpler and more swiftly implementable is the more practical choice compared to the ETS in the short to medium term for developing countries with political economy constraints in their energy and transportation sectors.

The potential contribution of emerging economies to stop dangerous climate change. The case of Brazil

AbstractEmerging economies are designing and sometimes implementing low GHG emission development strategies (LEDS) that can be used as examples by other developing countries to avoid the high‐carbon development pathway established by industrialized countries. Using the example of Brazil, this Opinion Article discusses the need to design LEDS that are in line with the national resource endowment and political economy constraints. Brazil is very rich in natural resources with a huge potential for renewable energy deployment. Developed countries can compensate the lack of a similar resource endowment with technological and financial resources, while poorer countries will need technological transfers and financial support from the international community. On the other hand, Brazil is an oil producer and will need to carefully navigate the reduction in oil demand, driven by a global trend toward transport electrification, in order to avoid stranded assets. The article also discusses the need to choose the right instruments to overcome the economic, financial, and noneconomic barriers to mitigation options and achieve an economically and socially sustainable transition to a low carbon society. LEDS can be designed in a way that minimizes economic and social impacts if they are accompanied by policies aiming at a gradual reduction of inequalities, including governmental transfers to keep substantial social development gains, energy, and food security. LEDS can leverage each country's competitiveness while protecting the poor, and they can be made politically acceptable. If such policies are implemented quickly enough across the world, then it may be not too late to stop dangerous climate change.This article is categorized under: The Carbon Economy and Climate Mitigation > Benefits of Mitigation

Do free trade agreements promote sneaky protectionism? A classical liberal perspective

Abstract A neglected aspect of regional trade agreements (RTAs) is their protectionist potential. In times of a stagnating World Trade Organization (WTO), growing economic nationalism and skepticism about the merits of free trade and trade agreements, the paper examines to what extent recently signed RTAs really promote genuine free trade or rather foster sneaky protectionism under the guise of free trade. For this, the paper proposes an ideal-type free trade agreement benchmark model based on a classical liberal perspective and applies it in a multiple case study approach to assess three cases of recently concluded mega-RTAs: the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the renegotiated North American trade agreement USCMA, and the Canada–European Union (EU) agreement CETA. The article shows that all of them are far from the classical liberal ideal of totally free trade and have a high content of back door protectionism suitable to raise trade barriers when politically opportune. In particular, the United States–Mexico–Canada Agreement (USMCA) includes many clear protectionist provisions that might even outweigh its liberalizing stipulations, whereas CPTPP and CETA can be deemed net liberalizing. It concludes that given political economy constraints, RTAs can nevertheless remain a second-best solution to the classical liberal ideals of completely unhampered trade and unilateral liberalization provided that they remove more impediments to free exchange than they cement or create.

The political economy of carbon pricing: a panel analysis

Abstract In virtually all jurisdictions that explicitly price carbon, its average (emissions-weighted) price remains low. Our analysis focuses on the political economy of its introduction as well as its stringency in an international panel of national and North American subnational jurisdictions. Results suggest that political economy factors primarily affected the former and that policy stringency is a highly persistent process. This has two important policy implications. First, successful passage of carbon pricing legislation will either come with contemporaneous compensation of incumbent, CO2-intensive, sectors or occur after their relative weakening. Second, if political economy constraints continue to prevail, climate change mitigation strategies will require multiple instruments.

Carbon policy in developing countries: Giving priority to non-price instruments

Carbon pricing might not be appropriate as the main element of the carbon policy package in emerging and developing countries (DCs), because the political economy constraints are greater than in developed countries. Non-price instruments and policies such as efficiency standards, market-oriented regulation, subsidies for clean technologies and public programs involving low carbon infrastructure should be preferentially developed to deal with market and regulatory failures, which are more widespread than in developed countries. These approaches are most effective in orientating technology and infrastructure, the principal means to achieving the mitigation imperative in DCs. Moreover, even if, in theory, policy packages using non-price instruments are less socially efficient than those focused on carbon pricing, they allow governments to circumvent political economy constraints, because their costs to consumers and citizens are not generalized and tend to be much less visible, while their redistributive effects are, if appropriately designed, generally not too regressive. In the end, developing a carbon policy that emphasizes non-price instruments and measures will pave the way to leverage carbon pricing as the main pillar of their future carbon policy in long term.