- By Daniel W. Drezner
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a senior editor at The National Interest. Prior to Fletcher, he taught at the University of Chicago and the University of Colorado at Boulder. Drezner has received fellowships from the German Marshall Fund of the United States, the Council on Foreign Relations, and Harvard University. He has previously held positions with Civic Education Project, the RAND Corporation, and the Treasury Department.
There’s a lovely passage in John Le Carré’s The Secret Pilgrim in which George Smiley explains why governments don’t simply rely on open source information instead of spending gazillions on their own intelligence operations: "governments, like anyone else, trust what they pay for, and are suspicious of what they don’t."
Oddly enough, in studying the global political economy, the sentiment often works in reverse in the academy. Scholars, understandably, tend to prefer open source research while looking askance at private sector work that requires $$$ to unlock.
I’m genuinely on the fence about this kind of question. In writing about sovereign wealth funds, for example, I found the private sector stuff far superior on the empirics to the open source research. The private sector stuff is also usually published before academics enter the breach (a good rule of thumb for aspiring IPE types — if your literature review consists mostly of corporate research, then you are ahead of the academic curve on a new issue area). On the other hand, the private sector work often lacked the analytical bite of scholarly work. For some of it, I could not escape the sense that someone was trying to sell me something.
I raise this conundrum because Martin Wolf’s latest column is essentially a precis of a Goldman Sachs report that requires cashy money to read. Wolf’s summary:
The paper points to four salient features of the world economy during this decade: a huge increase in global current account imbalances (with, in particular, the emergence of huge surpluses in emerging economies); a global decline in nominal and real yields on all forms of debt; an increase in global returns on physical capital; and an increase in the “equity risk premium” – the gap between the earnings yield on equities and the real yield on bonds. I would add to this list the strong downward pressure on the dollar prices of many manufactured goods.
The paper argues that the standard “global savings glut” hypothesis helps explain the first two facts. Indeed, it notes that a popular alternative – a too loose monetary policy – fails to explain persistently low long-term real rates. But, it adds, this fails to explain the third and fourth (or my fifth) features.
The paper argues that a massive increase in the effective global labour supply and the extreme risk aversion of the emerging world’s new creditors explains the third and fourth feature. As the paper notes, “the accumulation of net overseas assets has been entirely accounted for by public sector acquisitions … and has been principally channelled into reserves”. Asian emerging economies – China, above all – have dominated such flows….
The authors conclude that the low bond yields caused by newly emerging savings gluts drove the crazy lending whose results we now see. With better regulation, the mess would have been smaller, as the International Monetary Fund rightly argues in its recent World Economic Outlook. But someone had to borrow this money. If it had not been households, who would have done so – governments, so running larger fiscal deficits, or corporations already flush with profits? This is as much a macroeconomic story as one of folly, greed and mis-regulation.
I’m pretty sympathetic to this argument, but I can’t fully embrace it unless I can read the friggin’ paper.
Question to readers: compared to academic work, how reliable is private sector research?