What Can We Learn?

If we can learn anything from the history of economic development, it is that culture makes all the difference. (Here Max Weber was right on.) Witness the enterprise of expatriate minorities – the Chinese in East and Southeast Asia, Indians in East Africa, Lebanese in West Africa, Jews and  Calvinists throughout much of Europe, and on and on. Yet culture, in the sense of the inner values and attitudes that guide a population, frightens scholars. It has a sulfuric odor of ace and inheritance, an air of immutability.  In thoughtful moments, economists and social scientists recognize that this is not true, and indeed salute examples of cultural change for the better while deploring changes for the worse. But applauding or deploring implies the passivity of the viewer – an inability to use knowledge to shape people and things.  The technicians would rather do: change interest and exchange rates, free up trade, alter political institutions, mange. Besides, criticisms of culture cut close the ego, injure identity and self-esteem. Coming from outsiders, such animadversions, however tactful and indirect, stink of condescension. Benevolent improvers have learned to steer clear…

Do globalization and convergence signal the end of national striving? Does the very idea of international economic competitiveness no longer make sense? The economist Paul Krugman would say so: the “views (of those who call for a national economics) are based oon a failure to understand even the simplest economic facts and concepts.”

Peremptory and dismissive, and yet the proponents of state intervention have not surrendered. We are talking here of two goals, power and wealth; and two ideas, distributive justice and impersonal efficiency. All of these things hang together. Each has its own appeal, constituency, and justification.

Even within the economics profession, opinions differ. The neoclassicists say no: for them, no signals more reliable than market signals. They follow here in the steps of the great master: “Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands.” Adam Smith worried that these place servers might consume the produce needed to sustain the productive members of the society. (there are countries like that.)

Yet Adam Smith also understood that the state can (will) do some things – defense, police – better than private enterprise. In Ottoman Turkey, firefighting was in the hand of private companies, who came running when the alarm sounded. They competed with one another and negotiated price with house owners on the spot. As the negotiations proceeded, the fire burned higher and the states diminished. Or spread. Neighbors had an interest in contributing to the pot. “Twixt meanness and greed, many a house fire turned into a mass conflagration.

The issue presses in those countries where enterprise is wanting. In a world of rapid change and international competition, can society afford to wait for private initiative? Look at the role of the state in such exemplar countries as Korea, Taiwan, and even Japan: triggering, sheltering, and guiding nominally free market enterprise. To which the free marketeers make reply by recalling Pearl Harbor.

The record,, ten, is clearly mixed. State intervention is like the little girl who had a little curl right n the middle of her forehead: when she was good, she was very, very good; and when she was bad, she was horrid.

Besides the state can be very useful as the servant of business. Officials have always been liable to temptation (bribes); that human nature. But the growth of private salaries and bonuses in expanding economies has inflated and accelerated this venalization of government and administration. Men of money can buy men of power. Presidents and prime ministers act as traveling salesmen and judge their success by deals closed and contracts signed…

The people who live to work are small and fortunate elite. But it is elite open to newcomers, self-selected, the kind of people who accentuate the positive. In this world, the optimists have it, not because they are always right, but because they are positive. Even when wrong, they are positive, and that is the way of achievement, correction, improvement, and success. Educated, eyes-open optimism pays; pessimism can only offer the empty consolation of being right.

The one lesson that emerges in the need to keep trying. No miracles,. No perfection. No millennium. No apocalypse. W Africa

All the ills that have hurt Latin America and the Middle East are exponentially compounded in sub-Saharan Africa: bad government, unexpected sovereignty, backward technology, inadequate education, bad climate, incompetent if not dishonest advice, poverty hunger, disease, and overpopulation – a plague of plagues. Of all he so-called developing regions, Africa has done wort: gross domestic product per head increasing, maybe, by less than one percent a year, statistical tables sprinkled with minus signs; many countries with lower income today than before independence. The failure is the more poignant when one makes the comparison with other parts: in 1965, Nigeria (oil exporter) had higher GDP per capita than Indonesia (another oil exporter); twenty-five years later, Indonesia had three times the Nigerian level. ..

The governments produced by this strong-man rule have proved uniformly inept, with a partial exception for pillage. In Africa, the richest people are heads of state and their ministers. Bureaucracy has been inflated to provide jobs for henchmen; the economy, squeezed for its surplus. Much (most?) foreign aid ends in numbered accounts abroad. These kleptocrats have much to gain by living in Switzerland, near their banks. But maybe money alone is not enough.

We must cultivate a skeptical faith, avoid dogma, listen and watch well, try to clarify and define ends, the better to choose means.

“I have set before these life and death, the blessing and curse; therefore choose life.  (Deuteronomy 30:19 )

Epilogue 1999

In theory, everything up to now is history. But as every historian knows, the closer one gets to the present, the more uncertain and precarious the storoy.

No sooner had I sent in the final text forthis volume when the countries of EastAsia, featured as big winners in the context for growth and development, fell into crisis and contraction. The baby tigers – Thailand, Indonesia, Malaysia – went into contagious convulsions.  Their better established competitors – South Korea, Taiwan, Singapore, and Hong Kong – resisted awhile but then succumbed to investors’ doubts and fears.China – enormous and mysterious – seemed impervious tin its relative isolation to market movements, but China’s turn would come. Even Japan – bellwether and second largest economy in the world but strongly linked by export and investment to the region’s emerging economies – saw major sectors such as banking and real estate shudder and stall. For the first time since the oil embargo of the 1970’s, this paragon of success saw national product shrink…

The problem, in a way, was t oo much success. These economies had grown too fast, had become the focus of a gold rush yielding inebriated rates of profit and spectacular capital gains – the kind of returns that gild a balance sheet in London or New York and promise fast advancement for investment prodigies.  But high returns imply/entail high risk, and good businessmen should be suspicious of spectacular profits as they are alarmed by big losses…

My answer would be that economic prowess has never exempted anyone from the ups and downs of the business cycle.  Indeed that success is its own worst enemy and a temptation to greed and flolly.  Rectifying mistakes has to be painful. ……But this too shall pass, and I would expect that the east Asian and southeast Asian economies will soon resume the path of growth, because  they have the skills and are capable oflearning. But they will achieve this only on  condition that they overcome the racist friction that invites fear, risk avoidances, and even flight.  How long will this take? Impossible to say.

David S. Landes: The Wealth and Poverty of Nations, 1999. (from How Did We Get Here?)