Wednesday, February 27, 2008

How Rich Countries Got Rich . . . and Why Poor Countries Stay Poor by Erik S. Reinert


Erik Reinert's book, How Rich Countries Got Rich . . . and Why Poor Countries Stay Poor, is one of the best I have read in a long time. (I know I said the same thing about Erwin McManus' Soul Cravings, but it is possible to read two great books at thew same time. McManus' book is great, Reinert's is GREAT.) I have no formal training in economics, so the only thing keeping me from raving about this book to everyone I know is that it is fairly technical and I lack the necessary skills to evaluate his arguments.

Reinert's thesis is that the unconditional free trade that the World Bank and Washington consensus is forcing on the Third World is what is making them poor, and that unconditional free trade is not what made wealthy nations like the U.S. rich. Instead, he argues, unconditional free trade widens the gap between the haves and the have nots because poor countries end up specializing in being poor and rich countries specialize in being rich.

The Washington consensus argues that each country should open its markets and specialize in goods in which it offers a "comparative advantage." So, countries in South American that grow the world's best coffee beans should focus on selling coffee beans to the world, and countries that develop the world's best computer software should focus on selling computer software to the world. By doing so, the Washington consensus argues, each nation would be doing what they do best and would be generating wealth most efficiently.

The problem, according to Reinert, is that the world's best coffee bean picker will always make less than the world's worst software engineer because computer software is comparatively more valuable. Until the coffee bean pickers learn how to make software, they will always be poor.

Reinert says that America did not get rich by opening its markets to the world. We imposed tarriffs on foreign steel so that the American steel industry could thrive. Now, we enforce patents on the software that we produce so that other countries can't duplicate it. In everything we do, we practice "unfair" competition ("unfair" in the sense that the government protects local innovators from foreign competition). Reinert says that true wealth comes through innovation, protection of this innovation, and then free trade once a nation has industrialized and caught up to the rest of the advanced nations.

What would happen if the South American nations developed their own coffee brewing companies with retail stores all over the world and said, "We are no longer selling our beans to Starbucks. They are on their own"? That would be a great thing for South America. It would generate true wealth for many countries down there beyond the meagre wages they get for harvesting the beans. If I am not misreading Reinert, that is the kind of thing that he thinks we should be doing for Third World countries--encouraging them to industrialize, not just focus on raw materials. But there is no way that America would encourage such a move because it would screw us over. We like the tax money we get from Starbucks.

Reinert's book is technical, but written in a way that a novice (like me) can understand. Unless an economist shows me how Reinert's thinking is flawed, I think this book is a must read for all Americans as we approach the ethical issue of equal distribution of wealth resources.

1 comment:

Wim said...

Dear Matt,

I stumbled upon your review while I was doing research on the different views on Reinert's book. I am convinced that our opinions on the matter are very similar, thank you for sharing!