- Paperback: 400 pages
- Publisher: PublicAffairs (7 October 2008)
- Language: English
- ISBN-10: 1586486683
- ISBN-13: 978-1586486686
- Product Dimensions: 15.9 x 3.2 x 24.1 cm
- Average Customer Review: Be the first to review this item
- Amazon Bestsellers Rank: #1,88,908 in Books (See Top 100 in Books)
How Rich Countries Got Rich . . . and Why Poor Countries Stay Poor Paperback – Import, 7 Oct 2008
|Paperback, Import, 7 Oct 2008||
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In _How Rich Countries Got Rich and Why Poor Countries Stay Poor_, Norwegian economist Eric Reinert explains why how rich countries got rich and why poor countries stay poor. Rather than just looking at the facts and negatively criticizing free trade, he digs into the theory nations have used when succeeding with neo-mercantilist economic strategies. Lots of good stuff here: Tudor economic policy, mercantilism, Alexander Hamilton, Giovanni Botero, Antonio Serra, Friedrich List, Jean Baptiste Colbert, the German Historical School, Veblen and the Institutional School, Schumpeter, Sombart, Schmoller, and East Asian economics.
A world devoid of context: the modernism of the 1900s. Neoclassical economics curiously resembles Marxism in having roots in David Ricardo, an economist who looked at labor in a qualitatively empty (and therefore interchangeable) way. Privatize, deregulate, remove barriers to trade, reduce government spending, and, like the spontaneous order of a Jackson Pollock painting, your nation should take off economically. Comparative advantage tells us to specialize! Empirically, we know many poor countries have been devastated by such policies, getting stuck in sectors with diminishing rather than increasing returns; industrial countries like the United States have seen their wages stagnate by blindly following the same ideology. Milton Friedman tells us it is good to auction off the tech base required for long-term innovation for short-term consumption if another country strategically incentivizes this at their own expense. It is an abstract, ahistorical mentality.
Business is more than barter between interchangeable units -- many things are path-dependent, synergistic (e.g. if your city has tech incubators, your finance companies may tap into the talent pool and develop online mortgages), scale-dependent (i.e. have fixed costs), benefit from standardization, etc. etc. There is something out there similar to what Nietzsche called "capital of spirit and will" -- new knowledge, entrepreneurship, organizational ability. This makes me wonder if something called Say's Law, which most economists think is false, is true -- our ability to consume grows out of our ability to produce. This would explain why barber compensation has gone up in industrialized countries, and why a bus driver in Frankfurt makes 16x more than his counterpart in Lagos for doing identical work. We win and fail as our nations win and fail. This also explains why the Marshall Plan succeeded, while the Morgenthau plans the IMF and the World Bank force on other countries fail. And -- this also explains why palliative economics fails, since throwing money at countries does not by that fact alone make them more productive. Usually a state needs to artificially induce imperfect competition, through all sorts protective, artificial barriers, along with the state support of critical infrastructure and institutions, to kick off growth. That's what Hamilton recommended for the United States, and is the recipe every successful country has followed. Yet, rather than knowledge being cumulative, the neoclassical perspective too frequently views it as free, hitting everyone at the same time, a frictionless world.
Reinert convinces us of his perspective via numerous examples--old and new, successful and unsuccessful--of economies whose best path involved protecting an industry it wants to develop and letting it mature. Post-1960 South Korea in steel and cars, post-1990 Ireland in information technology, etc.
Reinert's focus on choosing industrial activity with great potential for productivity growth--rather than just any modernization--is key. Unfortunately, many development projects have failed exactly because they ushered in "modernization" through introduction of capital--dams, machinery--without any of the positive feedbacks ("synergies") that allow productivity to grow rapidly.
As important and convincing as this work is, we should take Reinert's recommendations with a grain of salt: Choosing the right sectors in which to pour resources is easier said than done. Everyone attributed Japan's economic miracle to it--at least up until 1990 when the economy imploded. Should a very poor country try to jump all the way to modernity, or develop in a number of steps that are more manageable and more appropriate given the level of education in the country? How should the country coordinate education, intellectual property, and other policies with its industrial policy?
These caveats aside, Reinert provides a great read, lots of examples of successful industrial policy based on increasing returns, and a good historical/theoretical background.
Packed with plenty of quotes from past economists who don't get much air time or respect today, personal anecdotes and footnotes galore, this is not to be a book to be missed, even if you don't end up agreeing with the writer. Also a very well-proofed manuscript; I found one sentence at the end of page 199 lacking a verb (but still making sense) and a close parenthesis on page 257 without a precedent but that was it.