How Rich Countries Got Rich . . . and Why Poor Countries Stay Poorby Erik Reinert
Pub. Date: 10/06/2008
In this refreshingly revisionist history, Erik S. Reinert shows how rich countries developed through a combination of government intervention, protectionism, and strategic investmentrather than through free trade. Yet when our leaders lecture poor countries on the right path to riches they do so in almost perfect ignorance of the fact that our economies were
In this refreshingly revisionist history, Erik S. Reinert shows how rich countries developed through a combination of government intervention, protectionism, and strategic investmentrather than through free trade. Yet when our leaders lecture poor countries on the right path to riches they do so in almost perfect ignorance of the fact that our economies were founded on protectionism long before they could afford the luxury of free trade. How Rich Countries Got Rich will challenge economic orthodoxy and open up the debate on why self-regulating markets are not the best answer to our hopes of worldwide prosperity.
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Table of Contents
Foreword Jomo K. S. vii Acknowledgements xi List of Figures xv Introduction xvii
1 Discovering Types of Economic Theories 1
2 The Evolution of the Two Different Approaches 21
3 Emulation: How Rich Countries Got Rich 71
4 Globalization: the Arguments in Favour are also the Arguments Against 101
5 Globalization and Primitivization: How the Poor Get Even Poorer 165
6 Explaining Away Failure: Red Herrings at the End of History 203
7 Palliative Economics: Why the Millennium Goals are a Bad Idea 239
8 'Get the economic activities right', or, the Lost Art of Creating Middle-Income Countries 271 Appendices I David Ricardo's Theory of Comparative Advantage in International Trade 301 II Two Different Ways of Understanding the Economic World and the Wealth and Poverty of Nations 305 III Frank Graham's Theory of Uneven Development 309 IV Two Ideal Types of Protectionism Compared 31 V Philipp von Hornigk's Nine Points on How to Emulate the Rich Countries (1684) 313 VI The Quality Index of Economic Activities 317 Notes 318 Bibliography 336 Index 357
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Erik Reinert, Professor of Technology, Governance and Development Strategies at Tallinn University of Technology in Estonia, has written a most remarkable book. He has shown that the free trade creed - the free movement of capital, deregulation and privatisation - doesn¿t work. As Keynes wrote, ¿the worse the situation, the less laissez-faire works.¿
The American economist Paul Samuelson won a Nobel Prize for `proving¿ that under free trade prices paid to capital and labour tend to be the same across the world. But in the real world, free trade has led, not to the levelling up of world wages and the end of poverty, but to growing inequality and poverty. Half the world lives on less than $2 a day. In many countries, real wages peaked 30 years ago.
Reinert proves that the mode of production determines social forms, and that the technology and mass production of industry are the key to economic growth, not capital, property rights and the rule of law. Industry also has good economic, social and political effects. As he writes, ¿Creating and protecting industry is creating and protecting democracy.¿
But how can countries build industry? They need to protect their infant industries and to subsidise their industries.
Countries need to have an industrial policy that provides work for their educated people. Otherwise Western countries, outsourcing their education costs, will take them away - education for migration.
For example, 82% of Jamaica¿s doctors practise abroad and 70% of university-educated Guyanans work abroad. Their remittances fund consumption and dependence, not investment and industry.
It is better to have an inefficient industry than no industry at all. Reinert points out that the Soviet countries were better off before the 1990s counter-revolutions which deindustrialised and then depopulated them. In 1991-95 Mongolia pastoralised, cutting 90% of its production; wages fell, but the finance, insurance and real estate sector grew.
The old empires all banned manufacturing industry in their colonies. Now the World Bank and the IMF ban industrial policy. They lie to third world countries ¿open up to imports of goods and capital, be competitive, make your labour markets flexible and you¿ll grow. The European Central Bank tells EU members the same story.
Welfare colonialism, with $2.3 trillions in aid since 1950, has failed. The Millennium Development Goals will fail too. Aid is a means of control, not of growth, keeping the third world dependent. Palliative economics, which is supposed to ease poverty¿s symptoms while ignoring its causes, does neither.
Of course, the true market faithful believe that the economics are right, but then the question arises, why are the poor still poor? If the theory is right, there must be something wrong with the people. So some say that it must be race ¿ Keynes was, shamefully, a vice-president of the English Eugenics Society.
Reinert writes, ¿a major financial crisis is increasingly likely.¿ But the true market faithful are still in power and are making the workers of the world pay for their failed system. How much longer will we allow this?