The Growth of Nations

Martin Wolf is The Financial Times chief economics commentator. He recently wrote a review of"How Rich Countries Got Rich...and Why Poor Countries Stay Poor" by Erik S. Reinert and also "Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World"by Ha-Joon Chang. It was a passionate (but controlled)"rave review". If you have any interest in the subject - one that was a very lively interest of every Irish person until about 10 years ago - then I would urge you to read it in full.

Here are some extracts:

..The broad question is the one Erik Reinert states in his title: How Rich Countries Got Rich... and Why Poor Countries Stay Poor. Reinert is a Norwegian professor who now teaches at Tallinn, Estonia. Ha-Joon Chang, a well-known Korean development economist, teaches at Cambridge. But both give strikingly similar answers to this question.

Both state that the priority in development is rapid and sustained growth. Only industrialisation can deliver such growth, because industry is the only sector in which rapid and sustained rises in productivity are feasible. Furthermore, to industrialise, countries must upgrade their technological and managerial capabilities, which can be achieved only if they are able to nurture infant sectors. That requires protection, they both argue, as has been the case in every successful economy of the past half-millennium.

Tragically, they argue, the “neo-liberal hegemony” - the broad consensus on liberal trade and freer markets of the past quarter century - has deprived countries of these valuable tools. The result has been a development disaster, particularly in Latin America and Africa, where the International Monetary Fund and the World Bank have run amuck. The World Trade Organisation and a host of one-sided so-called free trade agreements further constrain the ability of developing countries to adopt sensible policies. ....

[Reinert]... points to the success of protection against imports since the Renaissance. Reinert argues that, for poor countries, specialisation in line with comparative advantage means specialising in poverty. ... free trade is suitable only for countries at the same level of development.

So, in respect of Africa - surely the most important and urgent case for treatment - Reinert recommends internal free trade and external barriers to trade, in place of what he condemns as the mere “palliative economics” of millennium development goals, bed-nets and ever more aid....

... I agree with both authors that ....some policies that now affect developing countries are dangerous: restrictions on easy access to intellectual property are perhaps the most important....

South Korea and Taiwan were exceptional cases. The argument that success will follow the overthrow of the neo-liberal consensus and the return of protection is nonsense. But the authors are right that those who argued that free trade alone is the answer were wrong. There are no magic potions for development. Developmental states can work. Many fail. But some may succeed.

Above all, developing countries should be allowed to try, and so learn from their own mistakes. Countries should be warned of the difficulties of following South Korea’s example, but allowed to do so if they wish....

Chang is right that some of the constraints imposed upon developing countries, notably on intellectual property, are unconscionable. Most should enjoy the benefit of open markets from the rich, but be allowed to pursue their own paths, from laissez-faire to its opposite. They will make many mistakes. So be it. That is what sovereignty means.

The comments of Dani Rodrik, my favourite on-line economist at present, on the review are interesting, too, as all of his contributions, especially on this subject, are.

Comments

[Bonn]

I think it would be great and much more interesting if you read Erik Reinert's book, and make a review of your own. This is especially so because Reinert touches on Ireland's success as well, viewed from a historical perspective.