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on 3 November 2009
Erik Reinert hits the nail on the head in this well written, historically aware criticism of the Neo-Liberal Washington Consensus that has become the global orthodoxy over the last 40 odd years. In short free trade between nations at different stages of development is a form of "asymmetrical warfare" that attends to the interests of those already developed. Countries who have developed do so by protecting their economies and only gradually opening them to international trade as and when they are ready.

His arguments are buttressed by a keen awareness of the experience of nations that have developed, or are developing, from Britain in the 16th to 19th century to the more recent experiences of the Asian tigers and China. These are compared with those countries that have become mired in poverty and "diminishing returns" economic activities - essentially those who have specialised in being poor. The reader will also discover accounts of the theories of Economists from continental Europe and the United States going back centuries who are explicit about the role that protection plays in creating a wealthy nation that - at least theoretically - can improve the welfare and lives of its people. In the post WW2 period this understanding formed the basis of what was known as "Developmental Economics" - in the post Bretton Woods period all that experience became marginalised not least through the efforts of those Institutions that were at the centre of the Washington Consensus (World Bank, IMF and WTO).

Some of the other issues that Reinart covers include the Millennium Development Goals promoted by those such as Jeffrey Sachs (along with the ever present and somewhat vacuous Bono). These he characterise as a dole, and moreover one which will allow the rich countries who will pay it to exert control of the countries that receive it (the term he uses is "Welfare Colonialism"). A persistent theme of the text is the comparative advantage theory of the early 19th century British economist Ricardo which is at the centre of the free trade ideology and which Reinart describes as simplistic and along with some of Adam Smiths writings as the first economic policies that made colonialism appear morally acceptable. It is no surprise that Ricardo was British and that when he came up with this theory Britain was the worlds single industrialising nation; it appears to be a prime example of self interested theorising.

Totally recommended, chuck your Friedman onto the fire and enlighten yourself upon some of the crucial reasons for the global division of rich and poor nations.
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on 31 July 2009
This book was a great eye opener for me. As a non economist, I was able to follow the argument quite easily. Until I read this book, I wasn't aware of the economic history of the rich countries. The book taught me a number of lessons.

Lesson 1. Sustainable wealth is created by manufacturing industry. This was realised by the Tudor monarchs of England in the 16th century. They set about to create an enabling environment to foster manufacturing.

Countries which base their economies on agriculture and the exploitation of minerals do not become rich. They may attain the status of middle income countries if they are lucky.

Lesson 2. All rich countries, without exception, got rich by practising activist and interventionist policies. They put up barriers to the importation of foreign manufactured goods. They banned the export of raw materials needed by their own manufacturers. They made the import of foreign raw materials as easy as possible. They banned the export of technologically advanced machinery.

The state would invest in areas of the economy which were either too risky or too difficult for the private sector. In some cases the state would co-invest with the private sector.

In the 19th century, the leading nations of the West forced the weak independent nations of the world, such as China, Japan, Siam (Thailand) and the South American nations, to open their markets. These nations were forced to lower or even to remove their tarriffs against the West's manufactured goods. The Western nations, of course, kept their barriers up against foreign manufactures.

During the colonial period, the colonial powers banned their colonies from engaging in manufacturing. The purpose of the colonies was to produce raw materials for manufacturing industry in the colonists home country. The colonies also provided a captive market for the colonists manufactures.

The ban on colonial manufacturing was the main reason why the English colonies of North America decided to break away from the English crown.

Lesson 3. All countries, once they become industrialised, put all kinds of obstacles in the path of less developed countries to stop them from becoming industrialised. They don't like the competition that would arise. Thus, almost all industrialised countries champion free trade. They know that the nascent industries of the less developed countries cannot compete with their industries on a level playing field.

Today, the West uses its aid programmes to force poor nations to adopt policies that lead to the decimation of poor countries' industries. These countries are forced to rely more and more on agriculture and the extraction of minerals. They are forced into a "comparative advantage" of supplying commodities to the rich world.

Today, poor countries are forced to sign unequal treaties by donor pressure. In the 19th century weak nations were forced to sign unequal treaties at the point of the gun.

Lesson 4. Corruption is nothing new. In the 18th and 19th centuries, today's rich countries were as corrupt as today's most corrupt countries. With increasing wealth, corruption steadily declined in the rich countries. Corruption did not stop rich countries from becoming rich.

Lesson 5. Institutions arise to answer a need. Western institutions arose to answer particular needs in each particular country. The USA did not have a central bank until 1913. Presumably, before 1913 there was no need for a central bank.

Today, Western institutions are transplanted to poor countries without adaptation to local conditions. The World Bank, the IMF and the WTO force poor countries to adopt institutions and policies which are inimical to their national interests. These policies are favourable to the donors.

Lesson 6. If the West is genuine in its efforts to help the poor, then it must allow the poor to use the same tools it used to get rich. The poor must be allowed to protect their nascent industry with all the tools today's rich countries used to get rich.
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on 31 October 2008
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?
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TOP 1000 REVIEWERon 22 July 2009
In this book Erich Reinert questions the current Anglo-American consensus of free-market economics.

He looks at the line of economic thinking from Adam Smith, David Ricardo to Keynes as adopted by neo-classical thinkers such as Paul Samuelson, suggesting their thinking bear little relationship to reality. In particular he questions the theory of comparative advantages which states that countries should concentrate on what they produce best. In advising this, he argues, institutions like the IMF are in fact suggesting that poorer countries concentrate on on producing poverty.

His solution is a more flexible approach based on ideas on an alternative tradition of economics which he describes as reality based. This includes figures such as the great German economist, Friedrich List, Joseph Schumpeter and again Keynes (who fits into both traditions).

The book makes an interesting comparison with Joseph Stiglitz's Globalization and Its Discontents. A fascinating glimpse of an alternative view of economics to the one in current textbooks. One that could well change assumptions.
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on 24 April 2012
Adam Smith's book, the wealth of Nations, told America not to protect her manufacturing and to trade freely with Europe but history tells us that America is the most protected country for over two centuries. This is the difference between 'History of Economic thought' and 'history of economic policy'. The former is just thought - never happened while the latter is practical tested policy that worked.

This book is a must read for anyone who is confused about the creation of wealth and poverty. Poverty can be created; it is activity specific just as wealth is activity specific. It is expected that the Microsoft engineer in the United States will appear richer than the dish washer in Ghana, so obvious but still a missing ingredient in standard economics. There is no qualitative difference between activities in economic text books - labor and capital equals production with no attempt to define the producing activity. This explained why some economists happen to believe, through calculation, that globalization will lead to factor price equalization. I.e the dish washer in Ghana will be on par with the Microsoft engineer in the States- this is what the mathematics based economic theory said - a Nobel prize came out of that. If one agrees that economic activities varies and some activities are superior than others then the comparative advantage argument, that backs free trade, is crushed because nations will attempt to gain production advantage in those activities that are more superior. This is where emulation comes in.

Emulation is when one country tries to copy the superior economic activities of foreigners. This is now England became rich copying from Venice and the Netherlands. . A recent example of this is Japan copying the auto technology of the United States and Europe - China just now are being accused of copying America technology, YES this is how nations become rich not by sticking to your comparative advantage regardless of its inferiority.

I don't want to give much away . . .
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on 21 January 2011
This is one of my favourite books. The main theme of this book is to explain why the free market ideology policies pushed onto many developing countries by the Washington Institutions etc over the last few decades have not worked. No other book I have read provides such a wealth of penetrating and revealing anecdotes, analogies and real life examples from Reinert's own professional life. Reinert also brings his knowledge of "other canon" ideas and thinkers of the past (and distant past) to this book, which gives it that extra dimension that I have not seen in other similar books.

If you are new to this subject, or a student in search of inspiration, you may start this book with a few doubts about the success of the "Washington Consensus" economic experiment, but by the time you finish reading you will almost certainly be converted into a true disbeliever, after this relentless assault of 1000 cuts has left their economic credibility in tatters.

Readers educated in this subject may find it covers the same ground more than once, but it is done so well that you probably will not mind. I agree whole heartedly that economic activities matter, and that small poor countries should join together to create intermediate sized free trade zones, but personally I am unsure about his complete implied faith in the idea that the answer for all poor and developing countries is for them to all pile into producing certain "good economic activities". Plenty to think about, but I can think of no better book to start you thinking.
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on 18 August 2014
I read this book when I was in Sweden and I could see how a lot of the policies described in it had value. It was very interesting that, I feel, the book described a process of calibrating policies to the issue. This meant that whilst some things might be good for one industry, product or nation, the policy should not be sweeping. The ideas that defended the benefits behind protectionism and basic paradigm of "Why is it better to be a taxi driver in Norway than Peru?" were very enlightening. It gives reasons for things that people know but can't explain. In short nations need a container for their wealth accumulation that stays within their borders, and if their income is dispersed in dribs and drabs outsourcing services/products, or things are done for them that they should do themselves, they will always be dependent. I would recommend this book to anyone who wants to work against poverty or be inspired to change their own life circumstances.
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on 16 June 2007
The previous review of this book is hard to fathom, unless the author wrote it himself. This book is far from a classic. For a start it is conceptually chaotic - the key terms are undefined, and their use floats around all over the place. The author does not seem to understand the basic economic concept of returns to scale, which is the only real bit of economics he uses. There is no use of evidence at all - at best the book's big claims rest on anecdotes and examples, which rarely seem to support the big arguments he is trying to make. There is no use of statistical material, or or any case study material tht might support the author's case. The author never considers counter examples (which in the economic history literature are abundant). He simply asserts things, and seems to think that assertion is equal to argument. A bizarre book, nowhere near worth the money.
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on 15 July 2010
This book would be dull if it wasn't so annoying. I agree with the comment that says that he provides no statistical evidence. He simply asserts things or refers you to a partisan source of questionable scientific merit despite his many PhDs and assorted qualifications. He also gives off rather an anti-European feeling and gives me the impression that he would prefer an African or Asian dominated New World Order.
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on 30 October 2017
A very interesting book.
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