Factors in economic development of second and third world

[Surlethe]

Surprise! I'm posting in an economics thread!

Samuelson spent a good deal of his life arguing for the application of the scientific method to economics. In the end we just get Austrian pseudoscience again. I think that's kind of like battling creationism. The more publicity you give to them, the stronger they get. But ignoring them is not an option either. Hammer and anvil.

Hell, Friedman wrote a brilliant essay on the application of the scientific method, "The Methodology of Positive Economics." (It's also a great rebuttal to the perennial idiot whine: "But people aren't perfectly rational!") The Austrians have plenty of useful hypotheses to contribute to scientific economics --- the economy as a distributed algorithm to solve a hard computational problem, the economy's intertemporal capital structure, the relationships between Wicksellian interest rates, full employment, and the structure of capital, rebutting the "paradox" of thrift and other microfoundations before their time, prices as information --- but praxeology is not among them. Even Hayek's writings, say "Road to Serfdom," taken in the context of the era's planned wartime economies, are not so vituperous. Yet what do we see in vulgar Austrianism? Praxeology, market fundamentalism, irrational devotion to gold, and of course a good dose of right-wing social controls. (sigh)

PS- Also amusing to see Pinochet, a man who tortured and murdered his way to power, called a "libertarian."

[K. A. Pital]

PS- Also amusing to see Pinochet, a man who tortured and murdered his way to power, called a "libertarian."

You know, I'm also always amazed when libertarians bring up Pinochet as their idol. Many do, they even make funny photos of Pinochet and display them on their websites. Or exalt Singapore, where homophobic laws and censorship would easily make any European cringe - that's so libertarian, no better example could be found.

[Surlethe]

You know, I'm also always amazed when libertarians bring up Pinochet as their idol. Many do, they even make funny photos of Pinochet and display them on their websites. Or exalt Singapore, where homophobic laws and censorship would easily make any European cringe - that's so libertarian, no better example could be found.

It's one thing to say, "At least Pinochet did his economic policies right. Chile would have been a complete disaster if he'd coupled his dictatorship with heavy state direction of the economy." It's another entirely to say, "Pinochet is a great example of libertarianism in action." One at least is narrow and possibly defensible; the other is just wrong. Same with Singapore. "I think Singapore pretty generally does economic policy right, their universal healthcare is nicely market-oriented and the rule of law is consistently applied with little corruption" is maybe defensible. "I think Singapore is a paragon of libertarianism" is just wrong.

You do know that China's GDP is heavily fixed on a real-estate bubble, right?

(a) I don't believe you without evidence,
(b) Toward (a), do you have a falsifiable definition of "bubble"?
(c) China's GDP growth is "heavily fixed" on the gradient between the rural poor and the industrial, urban rich. (I use "rich" in a relative sense here.) The fundamental, dominant force in China's economy right now is the symbiosis between industrialization and migration. As long as that force is in place, housing "bubbles" are just froth and eddies on the current of the massive river. Maybe when China's GDP/N is approaching 0.7(US GDP/N), we can hunt for "bubbles." Until then, it's almost certainly economic fundamentals driving their growth.

***

I wonder whether an authoritarian central government which consistently implement relatively liberal economic policies (e.g. China, Singapore, Chile) is necessary for catchup growth to proceed quickly. Compare China's performance to India's. The latter has a large democracy that lurches from election to election, many local and regional governments, all ultimately beholden to the fickle voter. The former has a central government that has decided, more or less, to implement and stick with market-oriented reforms.

[K. A. Pital]

The former has a central government that has decided, more or less, to implement and stick with market-oriented reforms.

It has also largely solved public health problems well before embarking on these reforms, as well as utterly and violently crushing religion and feudal relations in the cultural revolution. India has had a concept of private property well before that under late British rule, whereas China only has industrial and apartment lease right (no permanent property right, that's only for peasants and land). However, that didn't help as all other institutions in India were hopelessly backwards, often broken between regions.

[Surlethe]

China is also ethnically homogeneous (99% Han). This is true of the other economic success stories as well: Scandinavian countries, UK, Germany, Japan. Even the US, at its economic best, was governed largely by an ethnically homogeneous landed elite. Perhaps this is because social trust is higher, hence institutions are stronger, in an ethnically homogeneous society.

[PeZook]

If you think development aid makes countries grow why don't all these countries receiving up to 75% of their GDP per year in aid(!) grow faster than China?

Is that a serious question? No, really, have you really just asked me why Sao Tome and Principe, Guinea-Bissaur, Sierra Leone and the like don't grow as fast as China?

Like Stas said, it's not just about GDP: Sao Tome's entire yearly production, aid and all, would not be enough to build a single modern factory, while Germany had literally hundreds of years of idustrialization behind it already. The war did not destroy all the accumulated infrastructure or institutions (indeed not even a significant portion!), and the Marshall Plan was used to replace the ruined machine tools with modern ones, buy raw materials and the like.

Also, West Germany had all the best industry, much of the natural resources, got billions in aid AND was not required to pay any reparations whatsoever, while East Germany not just got its industry looted most thoroughly (and didn't have nearly as much in the first place), not only suffered through an actual ground campaign, but was also required to pay nearly 10 billion in reparations to the USSR.

And as I pointed out, all the ocupations you mentioned were very brief in the first place - utterly and completely unlike hundreds of years of colonial rule where the country was set up as a giant plantation, and further unlike the constant meddling with governments set up post-decolonization. West Germany did not have a single military coup in its post-war history!

By comparison Marshal Plan aid was more like 5% of GDP - as proportion of their economy 48 countries are receiving more aid than West Germany did right now! The comparison is ridiculous anyway; this money just paid part - no where near all - of cleanup cost of military damage allies inflicted on Germany. There were no thousand-bomber raids on Delhi! Now the major country in Europe to be bombed the least, receive most Marshal aid, and grow slowest was UK.

It was all used to modernize factories and farms and keep them supplied with raw materials. On the other hand, East Germany was being looted and slapped with massive reparations in the meantime.

And it did not fail to grow - it just grew slightly slower, and the growth began several years later. By the 1970s it had increased the major indicators several times over 1945 levels.

If Japan had failed to grow after 1945, would you say it's because "independent" Japanese government that is not allowed to have a military or make alliances without US permission had chosen bad economic policies, or would you blame evil racist-imperialist MacArthur and his western military junta?

Why the obsession with single factors? Countries are complex. You can have solid economic policies, but fail miserably because your country is embargoed and suffers from chronic resource shortages, or has a problem with communist guerillas, or the government keeps changing every two years due to coups, and it will fail to develop as well (because the guerillas murder business owners and attack all new development).

In other words: if "adopting market policies" is totally impossible due to politics (because they're associated with murderous thugs, for example), is it really that great a plan? It's like suggesting to Hitler that he just drive his tanks to England ; It would've been a brilliant plan in 1940...if not for the damn English Channel. If only it wasn't there!

[K. A. Pital]

Multi-factor models are inherently extremely unpredictable and hard to control. Therefore the resort of the simple-minded is to just rely on one factor and turn it into an obsession. East German reparations were such a serious issue that by 1953 it was causing riots among East Germans - even those who were supportive of the ruling party. They had to be stopped, and once they were, East German growth resumed at a remarkably high pace. Brief occupations have indeed failed to bring a serious development hindrance unless the invaders were completely genocidal and hellbent on literally turning the place into an agrarian backwater.

Energiewende would probably fail to notice that in his own list, Mongolia (a nation where there are no current civil wars or post-war reconstruction programs) grows at 17% per year (even in crisis years, the growth was at 7%). Mongolia receives 22% of GDP in aid and, compared to China, is a much less diversified economy with worse natural conditions.

So of course aid does create conditions for extremely fast growth, especially when starting from a low base, unless there are hindering factors such as civil war, for example, or low-intensity conflict ongoing, or a massive economic collapse a-la Argentina with resort to barter trade.

[PeZook]

Multi-factor models are inherently extremely unpredictable and hard to control. Therefore the resort of the simple-minded is to just rely on one factor and turn it into an obsession. East German reparations were such a serious issue that by 1953 it was causing riots among East Germans - even those who were supportive of the ruling party. They had to be stopped, and once they were, East German growth resumed at a remarkably high pace. Brief occupations have indeed failed to bring a serious development hindrance unless the invaders were completely genocidal and hellbent on literally turning the place into an agrarian backwater.

IIRC the reparations extracted from East Germany alone were similar to the the entire Marshall Plan in magnitude, except East Germany was of course much, much poorer than West Germany even before the war!

Energiewende would probably fail to notice that in his own list, Mongolia (a nation where there are no current civil wars or post-war reconstruction programs) grows at 17% per year (even in crisis years, the growth was at 7%). Mongolia receives 22% of GDP in aid and, compared to China, is a much less diversified economy with worse natural conditions.

So of course aid does create conditions for extremely fast growth, especially when starting from a low base, unless there are hindering factors such as civil war, for example, or low-intensity conflict ongoing, or a massive economic collapse a-la Argentina with resort to barter trade.

Or a kleptocratic government that literally cannot manage to get the aid to where it's needed. This is the reason why EU transfers have all those restrictions on how the money is transferred and when, and they have been in general pretty succesful.

[energiewende]

SHell, Friedman wrote a brilliant essay on the application of the scientific method, "The Methodology of Positive Economics." (It's also a great rebuttal to the perennial idiot whine: "But people aren't perfectly rational!") The Austrians have plenty of useful hypotheses to contribute to scientific economics --- the economy as a distributed algorithm to solve a hard computational problem, the economy's intertemporal capital structure, the relationships between Wicksellian interest rates, full employment, and the structure of capital, rebutting the "paradox" of thrift and other microfoundations before their time, prices as information --- but praxeology is not among them. Even Hayek's writings, say "Road to Serfdom," taken in the context of the era's planned wartime economies, are not so vituperous. Yet what do we see in vulgar Austrianism? Praxeology, market fundamentalism, irrational devotion to gold, and of course a good dose of right-wing social controls. (sigh)

I'm not an Austrian. I hold very similar views to Friedman on this (and many other) issues. You claim to have read him and agree with his ideas but then I am not sure why you would support Stas Bush in this debate.

PS- Also amusing to see Pinochet, a man who tortured and murdered his way to power, called a "libertarian."

Only person who called Pinochet a libertarian was Stas Bush who seems to be if not Marxist at least sympathetic to those ideas. Pinochet is loved by left because he is "evil" guy with libertarian-ish economic policies. Having killed as "most evil" "libertarian" 1-10k people versus >100m for "most evil" lefitsts.

Is that a serious question? No, really, have you really just asked me why Sao Tome and Principe, Guinea-Bissaur, Sierra Leone and the like don't grow as fast as China?

Like Stas said, it's not just about GDP: Sao Tome's entire yearly production, aid and all, would not be enough to build a single modern factory, while Germany had literally hundreds of years of idustrialization behind it already. The war did not destroy all the accumulated infrastructure or institutions (indeed not even a significant portion!), and the Marshall Plan was used to replace the ruined machine tools with modern ones, buy raw materials and the like.

Yes I ask that question. Now can you answer it? Small size of Sao Tome's economy is not answer because GDP growth is a relative measure. If you think countries grow because of development aid then Sao Tome (and, if your standard of significant development aid is the Marshall Plan, 50 other countries) is a devastating counter-example.

Also, West Germany had all the best industry, much of the natural resources, got billions in aid AND was not required to pay any reparations whatsoever, while East Germany not just got its industry looted most thoroughly (and didn't have nearly as much in the first place), not only suffered through an actual ground campaign, but was also required to pay nearly 10 billion in reparations to the USSR.

You are arguing West Germany and East Germany's living standard differences in 1990 are not related to the economic systems? Sorry I thought this was a serious debate. Next you will tell me only reason North Korea is poorer than South Korea is China stole all its industries

Energiewende would probably fail to notice that in his own list, Mongolia (a nation where there are no current civil wars or post-war reconstruction programs) grows at 17% per year (even in crisis years, the growth was at 7%). Mongolia receives 22% of GDP in aid and, compared to China, is a much less diversified economy with worse natural conditions.

So of course aid does create conditions for extremely fast growth, especially when starting from a low base, unless there are hindering factors such as civil war, for example, or low-intensity conflict ongoing, or a massive economic collapse a-la Argentina with resort to barter trade.

Mongolia ranks 60 places higher on economic freedom index than China and started at very low base, so why does that contradict my theory? And according to wiki, received 33% of GDP from USSR in aid before 1990 and grew hardly at all. Of course it would be very strange if none out of 50 countries had reformed their institutions and and were growing at all. Argument is that development aid is, after correcting other factors, correlated either not at all, or so weakly as to not be relevant, with economic growth, not that development aid prevents growth.

Fact you do not direct your point to me indicates you are aware of the weakness of your argument.

[energiewende]

The only dishonesty I see here is yours. North Korea and Turkmenistan are also democratic in name

Yes you read previous poster's argument and repeated it, but it isn't good one. India is a real democracy so parties cannot pursue policies that are dramatically at odds with public perception. This is actually huge problem for the left because mostly they blame the failure of the East on their lack of democracy and social liberties.

Then we have the ridiculous strawman. Apparently, I was saying "the eeeeeeevil Brits shot a few people, therefore lack of development". Hey asshole, do you understand the difference between industrialised and non-industrialised countries? Do you understand the difference between brief occupation and centuries-long colonial rule? Do you understand the difference between billions of dollars in aid and famines because the colonialists across the sea couldn't bother themselves?

Brief occupation is more damaging. Evil Brits wiped out Hamburg, Cologne, Dresen and a dozen other cities. Meanwhile they built Kolkatta and Mumbai. Japan and Germany were made un-states (there is still question in international law whether Germany and Japan have any legal continuity at all with the pre-1945 states that inhabited part of their territory), while right up to Independence huge tracts of India were ruled in traditional manner by native client states from before Britain's arrival.

To give you an example: post-WWII, one of the discussed plans for Germany was to dismantle its industry and revert them in an economy reliant on agriculture and dairy products. If this actually went through, and was then backed up by force of arms for five decades, would we be correct to blame the US and Soviets for their lack of development or not?

This plan would have failed because it was invented by people like Stas Bush who think that one can "not invest" in country and "dismantle its industry" and it will stay poor forever. Only way to permanently de-industrialise German would be to pass laws, say, tying people to land and making it illegal for them to leave. That is, to eliminate the free market and return to feudalism. There was never serious chance US and UK, which justified their war effort as defence of liberty and indeed seem to really care for liberty, would have done such a horrible plan. But if they had, they would be to blame for failure to develop because they would have eliminated free markets in Germany.

The most I can grant to the conspiracy theory argument: US and UK could be causing non-development of countries if they force them to abandon free markets. But they do not have this sort of power outside own borders, and anyway both have had as policy to promote free markets. So give me examples where the US and UK are forcing countries to abandon market policies and I will concede that US and UK are in some way responsible for failure to develop - but, remember my argument isn't that US and UK cause countries to develop, it's that markets cause countries to develop!

[Surlethe]

I'm not an Austrian. I hold very similar views to Friedman on this (and many other) issues. You claim to have read him and agree with his ideas but then I am not sure why you would support Stas Bush in this debate.
...
Only person who called Pinochet a libertarian was Stas Bush who seems to be if not Marxist at least sympathetic to those ideas. Pinochet is loved by left because he is "evil" guy with libertarian-ish economic policies. Having killed as "most evil" "libertarian" 1-10k people versus >100m for "most evil" lefitsts.

I haven't weighed in on your debate at all, just added some thoughts in response to a few of Stas's posts and one other about China.

[energiewende]

The tone on which you ended your post, "Yet what do we see in vulgar Austrianism? Praxeology, market fundamentalism, irrational devotion to gold, and of course a good dose of right-wing social controls." seemed to imply at least someone in the debate defended those ideas (no one did, but someone did "accuse" me of doing so). If you were making a comment on austrianism not related to the debate then I apologise for jumping to this conclusion.

[PeZook]

Yes I ask that question. Now can you answer it? Small size of Sao Tome's economy is not answer because GDP growth is a relative measure. If you think countries grow because of development aid then Sao Tome (and, if your standard of significant development aid is the Marshall Plan, 50 other countries) is a devastating counter-example.

First of all, that list shows aid, total, not development aid in particular, while the Marshall Plan was specifically tailored to restart German industry after the war.

Second, of course the small size of an economy is a factor in development! If you would have to invest your ENTIRE GDP in order to construct a single factory, your development will be painfully slow at best, because there's a sharp limit on how many small businesses you can set up. Look at how nations that are industrializing experience massive growth for a short while, when for developed nations 3% a year is pretty high.

Third, you're doing the "single factors explain everything" schtick again: you're saying that development aid is not a factor at all (or a very small one) if countries that receive it don't grow very fast, ignoring the fact that amongst 50 countries, there may very well be 50 individual crippling problems that prevent their economies from developing, or 150, or 200, which doesn't mean aid is useless, or that "better policies" would cheaply and efficiently fix all these problems. You can have the most awesome market policy in the world, but it's going to be useless if you keep getting invaded by your stronger neighbors, or if you spent 150 years being a huge plantation serviced by slaves while Europe was busy industrializing.

Or if implementing said policies will start riots and maybe an open rebellion or two, for that matter.

You are arguing West Germany and East Germany's living standard differences in 1990 are not related to the economic systems? Sorry I thought this was a serious debate. Next you will tell me only reason North Korea is poorer than South Korea is China stole all its industries

I'm arguing that a lot more happened at the divergence point than a mere change in economic policy, and so you can't simplify the differences ENTIRELY down to economic systems. There's military spending, resources, international politics, pre-existing industry, natural disasters, war...The USSR had periods of growth in which it far outpaced more economically liberal Western nations - so, what, did it have superior economic policies at those (and only those!) times?

It even suffered a massive, crippling recession after it broke up!

[energiewende]

If a country has a very small GDP it doesn't need to set up a huge factory to grow by 10%. Just increasing agricultural efficiency (for instance) would do it. That is the point. If you think this is something that is recognised by scientific economics feel free to post a journal paper; I can access them.

If you think other factors than policies matter then please tell me what they are. But first thing: can I justify this being more important or comparably important than policy?

USSR didn't outpace Western countries. In fact it ended up about the same place relative to the Western countries as the Russian Empire had been (despite that we expect poor countries to grow faster, all else equal.).

[K. A. Pital]

Only person who called Pinochet a libertarian was Stas Bush who seems to be if not Marxist at least sympathetic to those ideas. Pinochet is loved by left because he is "evil" guy with libertarian-ish economic policies. Having killed as "most evil" "libertarian" 1-10k people versus >100m for "most evil" lefitsts.

Pinochet is not the worst among right-wing dictators; Indonesia, Guatemala and many other Latin American dictators easily put him to shame. No "evil leftist" ever killed over 100 million people. If you combine the death toll of all famines, wars (regardless of who and how started them) and revolutions in all nations of the world in the XX century, you would probably get a figure of around 120 million people (around 70 million of them dead in World War II, and 15-20 million for World War I).

Yes I ask that question. Now can you answer it? Small size of Sao Tome's economy is not answer because GDP growth is a relative measure. If you think countries grow because of development aid then Sao Tome (and, if your standard of significant development aid is the Marshall Plan, 50 other countries) is a devastating counter-example.

You are an idiot again. If there is nothing to apply the aid to (e.g. no industrial enterprise) and the aid is instead consumed as food (pure biological consumption), then this aid is only enough to prevent mass starvation in the nation and not even barely enough to cause an inch of GDP growth. If there is pre-existing industrial enterprise, the nation is not at starvation levels and the aid is used to buy resources for industrial growth, rebuild industry and/or modernize it, the effect of aid would be magnified. In essence, you are lumping aid to a nations with almost zero GDP (as we know, GDP is derived from a market in industrial goods; nations which run barter economies or almost purely rely subsistence farming have a GDP of zero even though there is product that is created for human consumption) with nations that already have a sizeable GDP and industrial base. By doing so, you have demonstrated that you are a total moron.

You are arguing West Germany and East Germany's living standard differences in 1990 are not related to the economic systems? Sorry I thought this was a serious debate. Next you will tell me only reason North Korea is poorer than South Korea is China stole all its industries

Idiotic laughter like yours should be consigned to asylums, not places where serious discussion is to be had. The actual reason North Korea is poor is that the DPRK maintains a complete autarky with the rest of the world. It is too small to reliably produce all necessary natural resources, much less all necessary industrial goods, on its own. Lack of natural resources combined with complete autarky makes sure that the DPRK can neither produce everything alone, nor rely on the world division of labour to get goods from abroad. Therefore it is poor. East Germany was stripped by the USSR, as quite a few Eastern European nations were, to rebuild its own industries after the enormous damage of World War II. West Germany's industries were not dismantled by the occupiers for a prolonged period of time and in fact got industrial aid.

Mongolia ranks 60 places higher on economic freedom index than China and started at very low base, so why does that contradict my theory?

Ghana is near Mongolia based on the Heritage index (which I assume you use), also started at a very low base, but does not exhibit double-digit growth rates. Ghana receives only half the aid Mongolia does, incidentally. Uganda, another Economic Freedom Index neighbor, is growing slower yet, but started at a base which is much, much lower than Mongolia. Your explanation?

Argument is that development aid is, after correcting other factors, correlated either not at all, or so weakly as to not be relevant, with economic growth, not that development aid prevents growth.

However, see above. All neighbors of Mongolia in the Economic Freedom Index, despite a low starting base (often lower than or equal to that of Mongolia itself) exhibit far lower growth rates. Croatia has a negative GDP growth rate (recession), Sri Lanka and Madagascar growth stands at 7%. Paraguay, another low-base neighbor, has a recession.

Fact you do not direct your point to me indicates you are aware of the weakness of your argument.

I can easily direct my point to you because you are pathetic moron. I want to see you address the above.

India is a real democracy

The fact that India ranks highly in the Corruption Perceptions Index means that it is a very corrupt government which, then, cannot be judged as a "real democracy" compared to the relatively non-corrupt nations of North-Western Europe and Australia.

This is actually huge problem for the left because mostly they blame the failure of the East on their lack of democracy and social liberties.

India has severe internal problems with rural leftovers of the caste system (that spread into towns with urbanization), mysoginistic religion, feudalist thinking, corrective rape, honour killings, ethnic tension, violent religious movements (Christian, Muslim, Hinduist). Of course corruption of the government is also a severe problem for India.

Brief occupation is more damaging. Evil Brits wiped out Hamburg, Cologne, Dresen and a dozen other cities. Meanwhile they built Kolkatta and Mumbai. Japan and Germany were made un-states (there is still question in international law whether Germany and Japan have any legal continuity at all with the pre-1945 states that inhabited part of their territory), while right up to Independence huge tracts of India were ruled in traditional manner by native client states from before Britain's arrival.

This is simply wrong. Brief occupation destroys a share of the industrial potential which is then rebuilt with the pre-accumulated tools and knowledge. Long-term occupation precludes the development of industrial potential and renders the nation an agrarian backwater. Japan and Germany had their sovereignity restored and were allowed to enter a variety of mutually beneficial trade alliances on good (sometimes preferential) terms, as well as freely receive (in case of Germany) or steal (in case of Japan) technology and expertise from the supporting nations. Brief occupation of the USSR, even though it was extremely damaging in terms of human potential with over 10% of population dead, could not stop the industrialization of the country and the Soviet Union in the 1970s became an industrial nation. However, long-term occupation of the Philippines by Spain and later United States of America have not brought the nation any wealth or useful industrial potential; it was left one of the world's paupers despite being managed by foreign powers for decades. The idea that long-term occupation by a colonial metropole that sees the colony as an agrarian backwater and a market for industrial goods is beneficial is moronic and nonsensical.

This plan would have failed because it was invented by people like Stas Bush who think that one can "not invest" in country and "dismantle its industry" and it will stay poor forever.

The British kept India poor and starving for a century, while their own industry boomed (also exterminating all nascent attempts at Indian industry-building in the process). Nothing is impossible. Not forever, oh no. But for 50 years or so? Easily. And yes, one can make a country poor. However, in case of Germany, an industrial nation, that would require the starvation of 25 000 000 people. Of course, such plans were never carried out, since America was not as brutal - in that instance - as the British masters. After all, it was a former colony itself and perhaps it helped the USA to recognize that genocide is wrong (took a while, in the 1900s America was still commiting genocide despite signing the Hague convention, but...).

US and UK could be causing non-development of countries if they force them to abandon free markets

Direct management of the Philippines by the US was done in accordance to conventional, market-oriented economics that the US always supported (except for some real crazies like the radical islamists, or folks like the Duvalier regime, which the US supported as nothing but genocidal human weapons against the reds).

So give me examples where the US and UK are forcing countries to abandon market policies and I will concede that US and UK are in some way responsible for failure to develop

So why did India's per capita GDP not grow under the British Raj? Why did the Philippines grow very slightly and still remain a poor nation even though for a long time they were directly administered by the US as a colony, later ruled by allied dictators who mirrored US' economic policy and were a lot more faithful to running markets properly than unlikely Latin American allies like the Duvaliers or the Brazilian junta?

it's that markets cause countries to develop!

Why nations with mixed economies and ergo, markets, failed to develop even to the level Eastern Europe developed with pure planned economies, much less to the level of the imperial-colonial metropoles?

[K. A. Pital]

If a country has a very small GDP it doesn't need to set up a huge factory to grow by 10%. Just increasing agricultural efficiency (for instance) would do it. That is the point.

Agricultural productivity has a highly limited growth potential. Argentine's highly productive cattle industry was the only thing they had. Despite enjoying nigh parity with Europe in the late XIX century and the highest GDP/capita growth rates in the world, Argentina declined relative to Europe (and well before Peron came to power).

USSR didn't outpace Western countries. In fact it ended up about the same place relative to the Western countries as the Russian Empire had been (despite that we expect poor countries to grow faster, all else equal.).

If that's your basis for comparison (maintaining the level is not good enough for a nation), Pinochet's Chile was even more mismanaged than the USSR:

As one can see, Chile's GDP was at 100% of World average in 1820, however, later it grew to almost 150%. The nation could not maintain this, but in Pinochet's period, the GDP fell to 100% of average. The GDP started exceeding world average again only after the dictator has been ousted. Not to mention that many leading European nations GDP/capita fell relative to the US one in the latter half of the XX century. However, this did not mean that European nations are less comfortable to live in than the US; the exact opposite in fact. The US had a higher productive capacity, which was reflected in the GDP, but being more industrious does not necessarily signal a good life level. Funny enough, but the USSR exceeded world average GDP by 1,4-1,5 times during the post-war period. Russian Empire was at around 100%.

[Guardsman Bass]

If a country has a very small GDP it doesn't need to set up a huge factory to grow by 10%. Just increasing agricultural efficiency (for instance) would do it. That is the point. If you think this is something that is recognised by scientific economics feel free to post a journal paper; I can access them.

Burma is an example of that. Just moving from purely dysfunctional government in the late 2000s to merely corrupt, somewhat inept government with some improvements in trade and agriculture status boosted its real GDP growth back up to the 5% range. It's easier for poor and/or destroyed countries to get great growth rates in the rebuilding period.

It's also often enough for market institutions to be "good enough" for growth. Just look at the growth rates of Italy and Greece. Pretty solid growth for years, even despite the issues with the labor market, corruption, and tax evasion.

Agricultural productivity has a highly limited growth potential. Argentine's highly productive cattle industry was the only thing they had. Despite enjoying nigh parity with Europe in the late XIX century and the highest GDP/capita growth rates in the world, Argentina declined relative to Europe (and well before Peron came to power).

That had more to do with the country's rampant political instability in the early to mid twentieth century, plus the same problems that plagued other Latin American countries in that time period (high inflation, dysfunctional financial system, etc). With even moderately competent institutions, lower inflation, and some political stability for most of the period in question, they could have cycled their agricultural exporting earnings into domestic industrial investment alongside foreign investment, and then taken advantage of the massive European immigration to bring in both skilled people and technology to industrialize.

Compare that to Mexico post-World War 2. When the regime became relatively stable after the 1930s, with Presidents succeeding one another in crooked elections instead of assassinations and tolerable levels of inflation, Mexico had a long boom period until the early 1970s.

[Surlethe]

Ironically, US imperialism intended to install "economically friendly" governments contributed to economic stagnation! Uncertainty kills investment; better to have a stable regime which is left-wing but open to immigration, capital flows, and FDI, than a military coup every 10 years upsetting property rights and clouding the business climate. Oh, but wait! Better dead than red!

[K. A. Pital]

Mexico had a long boom period until the early 1970s.

And yet, it is still a hellhole with an ongoing drugwar and the largest slum in the world with a population of over 4 million. All of which indicate far more important factors than mere stability and/or GDP growth. After all, Venezuela's GDP reached that of West Germany in the late 1950s. Oil, oil and oil. But in the 1980s it collapsed brutally, turning into an impoverished, nigh-failed state, because the oil price decline was extremely severe, the size of the economy was not enough to maintain a high GDP/capita on internal consumption alone, and there was no diversified industry.

I would say that very few nations reliably succeed at industrial diversification, and fewer yet manage to do it without outside help and leniency in trade and information exchange relations.

The few nations that were not industrial metropoles at some point but still succeeded... hmm... South Korea comes to mind. It was heavily dependent on a fascist order to accomplish that, though, and it did follow a Japan-type path, but with greater and stricter controls on capital flows. The chaebols were hand-picked by a dictator for loyalty and readiness to invest in Korea, which was at the time about the only way to stop capital flight. This type of nationalism, more common for fascism and neo-fascism, was then dismantled in the 1990s, even though extreme exploitation of labour coupled with priority heavy industry investments by loyal oligarchs gave S. Korea a very high rate of growth in the 1960s-1980s, and now it is a nation with diverse heavy industries, as well as a high-tech industry.

There is also the matter of priority foreign investments. For many nations the train is simply long gone, as the volume of foreign investments available each year can't grow as fast as the demands of their population. Therefore the investments go to nations which have stable government and cheap labour, but do not go to nations with a history of labour unrest.

In effect, the market punishes opposition to itself. Oligarchs do not invest in nations where labour activists bomb factories, because they do not want to lose their investments. The expansion of capital requires a docile, subservient labour force, but also an educated one. The nations that managed to combine the two traits - especially in Asia - enjoy high GDP growth, since despite the exploitation a Confucian narrative of class order keeps the people calm and unlikely to stir unrest. The idea of passing through slavery to richness is exemplified by both the left- and right-wing autoritarian rule, which seeks to amass a vast capital surplus and quickly industrialize the nation by working the workers, often literally, to their death.

I can't really say energiewende is completely wrong. He's right on some points, albeit in a sense that I find horrific and cruel.

US imperialism intended to install "economically friendly" governments contributed to economic stagnation!

Actually, I can't remember any of the US-sponsored Latin American dictators who would've been remotely capable at managing a nation (all of Latin America massively declined during the period of US meddling in LA in the 1980s), whereas the left-wing, but democratic and stable government of Uruguay, which is in power for nigh a decade, has been hailed as a great success, and not without reasons.

[energiewende]

Stas Bush has degenerated completely to conspiracy theories; we seem to 'mostly agree' except he thinks it is Shadowy Forces who mean countries with policies that make investing in long term improvements not to pay off do not develop, rather than the material impracticality of such a system. Indeed we should feel sorry for people who build bombs not for those whose property is destroyed by them. I am not really interested debating economics with someone who thinks price mechanism is a rigged game controlled by "Capitalists" rather than a self-regulating feedback mechanism. Such a person has economics stuck in 1880s; it would be like discussing evolution with someone who refuses to accept any new biological or geological knowledge that has emerged since 1600. Unless I am being paid to teach a receptive student, a waste of time. If he can summarise his arguments into just a few points, I may reply, but certainly not to a wall of text.

Burma is an example of that. Just moving from purely dysfunctional government in the late 2000s to merely corrupt, somewhat inept government with some improvements in trade and agriculture status boosted its real GDP growth back up to the 5% range. It's easier for poor and/or destroyed countries to get great growth rates in the rebuilding period.

It's also often enough for market institutions to be "good enough" for growth. Just look at the growth rates of Italy and Greece. Pretty solid growth for years, even despite the issues with the labor market, corruption, and tax evasion.

Italy and Greece don't have third world institutions. This is problem of "qualitative" comparisons rather than quantitative ones. You hear on the news that these places have bad institutions... relative to US, UK, Germany, etc. which have the best institutions in the world.

I agree that it is much easier for poor countries to grow ceteris paribus.

[Guardsman Bass]

And yet, it is still a hellhole with an ongoing drugwar and the largest slum in the world with a population of over 4 million. All of which indicate far more important factors than mere stability and/or GDP growth. After all, Venezuela's GDP reached that of West Germany in the late 1950s. Oil, oil and oil. But in the 1980s it collapsed brutally, turning into an impoverished, nigh-failed state, because the oil price decline was extremely severe, the size of the economy was not enough to maintain a high GDP/capita on internal consumption alone, and there was no diversified industry.

Mexico is hardly a "hellhole", although its growth rate has only been okay over most of the past two decades - most of the drug violence tends to be concentrated in certain areas, and in the mean-time it's just a corrupt, middle-income country (they could be doing a lot worse if you look at Latin America). And during the period in question (the 1940s to early 1970s), it was very prosperous, to the point where the period is called the "Mexican Miracle". That was a period of Mexican urbanization and industrialization, as well as income growth that was unfortunately outpaced by population growth.

I would say that very few nations reliably succeed at industrial diversification, and fewer yet manage to do it without outside help and leniency in trade and information exchange relations.

I would say that quite a few countries have pulled that off, and it was with investors being as concerned about returns as they usually are (and with opposition to the spread of technology). Look at the European countries who industrialized - Great Britain was not being lenient with the spread of industrial technology and trade secrets. They often bribed British engineers and artisans to come into countries and build this stuff, before gradually shifting over to domestic employees.

And the mere fact that a country's exports are largely commodities doesn't mean they haven't diversified economically. Mexico's economy is quite diverse in what it produces, even if the biggest part of its exports is oil. Canada is a diverse economy, even if its main exports are oil and natural resources.

There is also the matter of priority foreign investments. For many nations the train is simply long gone, as the volume of foreign investments available each year can't grow as fast as the demands of their population. Therefore the investments go to nations which have stable government and cheap labour, but do not go to nations with a history of labour unrest.

So then they need to push for greater savings at home. Japan did this with high savings rates, the US did this along with foreign capital (although the British-origin share of capital formation in the 19th century US never got beyond 20%), and so forth. If you can't do that, and you're not stable enough to get foreign investment, then your country is in no shape to industrialize. Any investment in such a country's industry would just be pissing the money away.

In effect, the market punishes opposition to itself. Oligarchs do not invest in nations where labour activists bomb factories, because they do not want to lose their investments. The expansion of capital requires a docile, subservient labour force, but also an educated one. The nations that managed to combine the two traits - especially in Asia - enjoy high GDP growth, since despite the exploitation a Confucian narrative of class order keeps the people calm and unlikely to stir unrest. The idea of passing through slavery to richness is exemplified by both the left- and right-wing autoritarian rule, which seeks to amass a vast capital surplus and quickly industrialize the nation by working the workers, often literally, to their death.

China has plenty of labor unrest despite its Confucian heritage.

[Dr. Trainwreck]

The most I can grant to the conspiracy theory argument: US and UK could be causing non-development of countries if they force them to abandon free markets. But they do not have this sort of power outside own borders, and anyway both have had as policy to promote free markets. So give me examples where the US and UK are forcing countries to abandon market policies and I will concede that US and UK are in some way responsible for failure to develop - but, remember my argument isn't that US and UK cause countries to develop, it's that markets cause countries to develop!

I'll leave the rest for you to argue with other posters, but this is rich. You mean the only thing you can grant me is to drop the strawmen, well I'm impressed.

Why don't you go back to my original point and reread it, asswipe? I don't think I argued that the US and UK are still doing their old tricks right now. I don't think I argued anything beyond the effect of colonialism on economic growth, as colonialism both distorted your precious markets and, when it ended, left these countries without the centuries of growth Europe enjoyed in the meantime. The bullshit about Germany is entirely your attempt to dodge the point (which you managed, I guess, so you're smarter less stupid than I thought).

[Simon_Jester]

Stas Bush has degenerated completely to conspiracy theories; we seem to 'mostly agree' except he thinks it is Shadowy Forces who mean countries with policies that make investing in long term improvements not to pay off do not develop, rather than the material impracticality of such a system.

Actually, I think you do agree, with two key differences. One is that what you see as forces of nature, he sees as the products of a certain social class which pursues its interests in certain ways.

To me that's just common sense. Market forces are not on par with gravity, or even evolution- they are products of the way our society is organized, and a lot of them would work very differently if we happened to be organized differently. And it is common sense also that people with power will act to control and preserve an organized system that keeps them on top. That's just Darwinian; can you imagine a powerful elite that doesn't act in ways that preserve their power? If one existed, how would it manage to stay in charge without being toppled?


Rich people (i.e. the capitalists) who control capital will tend to change the organization of society in ways that favor the preservation of the power of capital. Some of those ways are intentional: rich people pay lobbyists to make the laws they want. Some are not: no one with any sense invests in a country where industries are being nationalized, which automatically puts the nationalizers at a disadvantage even if they're every bit as good at running the industry as the old private company way. This is not an active conspiracy of investors- but it sure matches Stas's description of how "the market punishes opposition to itself. Oligarchs do not invest in nations where labour activists bomb factories, because they do not want to lose their investments..."

There is no conscious conspiracy here, and it's disingenuous to suggest one.


Although that ties into the other difference between you and Stas is sharper: he perceives many bad things associated with the status quo, and therefore treats the people who have power to change it as bad, due to their sins of omission and commission. At which point you naturally see him as having accused capitalists of conspiracy.

That doesn't seem to be the problem of concern in my reading of Stas. Rather, Stas sees the capitalists as an impersonal body of people, no conspiracy required, and nevertheless thinks they are bad because of the direct effects of their actions.

Indeed we should feel sorry for people who build bombs not for those whose property is destroyed by them.

When the bombs fall on the Third World, we often do...

[Spoonist]

China is also ethnically homogeneous (99% Han). This is true of the other economic success stories as well: Scandinavian countries, UK, Germany, Japan. Even the US, at its economic best, was governed largely by an ethnically homogeneous landed elite. Perhaps this is because social trust is higher, hence institutions are stronger, in an ethnically homogeneous society.

I'd disagree rather strongly to this sentiment. It has very little basis in research nor in predictability. Instead I'd propose that countries/empires which have accepted cultural diversity have prospered at a stronger rate, than those who didn't. This because it is usually tied to embracing new ideas and to meritocray tendencies. While when countries/empires stagnate is when they are trying to become less culturally diverse.

Also if you are going to stick those countries into ethnically homogeneous I'd pretty much have a problem with all of them except for Japan. But it would depend on what you'd consider homogeneous, and if you'd be that loose in your definition then a big majority of all countries would qualify.

Take Switzerland or Belgium for example, would you call them homogeneous? If not, to what degree do you seperate them from countries like UK, Germany and Sweden?

[K. A. Pital]

If he can summarise his arguments into just a few points, I may reply, but certainly not to a wall of text.

Nice concession there. Now answer the following:

Ghana is near Mongolia based on the Heritage index (which I assume you use), also started at a very low base, but does not exhibit double-digit growth rates. Ghana receives only half the aid Mongolia does, incidentally. Uganda, another Economic Freedom Index neighbor, is growing slower yet, but started at a base which is much, much lower than Mongolia. All neighbors of Mongolia in the Economic Freedom Index, despite a low starting base (often lower than or equal to that of Mongolia itself) exhibit far lower growth rates. Croatia has a negative GDP growth rate (recession), Sri Lanka and Madagascar growth stands at 7%. Paraguay, another low-base neighbor, has a recession.

Your explanation of that is?

And seriously, if I'm a person from the 1880s, you're just a creationist. You have not provided a single falsifiable hypothesis here, instead you just ramble about how mean Stas puts a wall of text which you can't reply to.