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"No Reality Please, We're Neo-Classical Economists"
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.