A book about why modern economic theory and the policies of the powerful based on it are bad, as well as why rich countries are rich “Today’s collective understanding of the world is mired in economic delusions born of the Cold War, when there were economic theories based on an illusory system of David Ricardo, and each painted its own utopia - a utopia of a planned economy and a utopia of a free market." This quote expresses one of the main ideas of Eric Reinert's book.

Probably, many readers will not remember who David Ricardo is. Unless they say that he is a famous economist who wrote before Karl Marx and influenced him. But it is at Ricardo that the bulk of Reinert’s theoretical arrows are directed. Also goes to Adam Smith, Paul Samuelson and Paul Krugman. At the same time, the author knows what he is talking about: he carefully read the works of those under attack. So carefully that he undertakes to assert: the “invisible hand of the market” in Smith’s most famous work, An Inquiry into the Nature and Causes of the Wealth of Nations, is mentioned only once and not entirely in the current context.

So what are the founding fathers of modern economics to blame for? In short, they, according to the author of the book, proposed the concept of “comparative advantage” - when each subject specializes in what he does best, then in a free market everyone exchanges the results of their labor, and eventually equilibrium occurs. It is precisely these ideas - free markets and specialization - that current advisers from the International Monetary Fund (IMF) and the World Bank offer to developing countries.

In real life, Reinert argues, wealthy states grew rich in completely different ways. For example, Great Britain began to grow rich under Henry VII, who, upon ascending the throne in 1485, introduced a tax on the export of unprocessed wool, undermining the raw material base of Florentine woolen fabric producers. And he exempted their English competitors from taxes and gave them a temporary monopoly on trade in certain regions. The British followed the example of the Dutch. But Spain, into which gold poured in during the Conquest, took a different path. As a result, she ruined her own economy (prices soared sharply), and could not retain her wealth - all the gold went to Venice and Holland, where industry was concentrated. Then the States, freed from the tutelage of the British crown, which had not previously been allowed to develop their production, followed the English path. And even in post-war Europe the pattern was the same.

According to Reinert, it is better for a country to have an inefficient industry of its own than to have none at all. And we must first let it develop (by covering the market with the help of certain forms of government intervention), and only then begin free trade. For it is industry that creates wealth. Because this is, as a rule, an activity with increasing returns or, in other words, with the possibility of economies of scale (as production volume increases, each new unit of production costs less). But in agriculture or mining it’s the other way around. With an increase in demand, for example, for grain, less and less fertile areas have to be developed.

In post-war Europe, a harsh experiment was carried out. The rulers of that time perfectly understood the importance of industry and tried to deindustrialize Germany (Morgenthau Plan). They even tried to fill the mines with water and cement. And then they realized that this could end badly.

“There is a misconception that the new Germany... can be turned into a rural country. This cannot be done without destroying or removing 25 million inhabitants,” former US President Henry Hoover said in 1947. As a result, the Marshall Plan was launched, on the contrary, which boosted the industry of post-war Europe.

As a result, today, as Reinert argues, rich countries specialize in activities with increasing returns, and poor countries specialize in activities with diminishing returns, in fact, in poverty. This is the main mistake of classical economists: they focused on trade, on exchange, losing sight of production, qualitative differences in activities and the emergence of innovations that change the economic structure.

With all this, the author is not an armchair scientist at all. He traveled to 49 countries, studying the economic situation there - from Peru to Mongolia, from Estonia to Tanzania. And, judging by his observations, following the IMF recommendations everywhere led to disastrous consequences.

In Mongolia, which Reinert calls the World Bank's top performer among former communist countries, 90% of its industry was destroyed in just two to three years. The production of bread decreased by 71%, books and newspapers - by 79. Only the production of alcohol and the collection of bird down increased. And then Jeffrey Sachs (one of the authors of the concept of shock therapy, once an adviser to the Ukrainian and Russian governments, and since 2000 a special adviser to the UN Secretary-General on poverty reduction) suggested that the Mongols from the pages of The Economist specialize in the production of computer programs. However, they overlooked the fact that outside the capital Ulaanbaatar, only four percent of households in the country have electricity.

And the first consultants from the World Bank who arrived in Estonia advised it to close its universities. “In the future,” they explained, “Estonia will have a comparative advantage in economic activities for which a university education is not required.” The Estonians were offended: the University of Tartu was founded back in 1632. And although the World Bank emissaries have not given such recommendations since then, as the author of the book proves, they have not fundamentally changed their positions.

How rich countries got rich, and why poor countries stay poor

How Rich Countries Got Rich… and Why Poor Countries Stay Poor

by Erik S. Reinert).

In this book, renowned Norwegian economist Erik Reinert shows that rich countries became rich through a combination of government intervention, protectionism, and strategic investment, not through free trade. According to the author, it was precisely this policy that was the key to successful economic development, from Renaissance Italy to today's countries of Southeast Asia. Showing that modern economists ignore this approach while insisting on the importance of free trade, Reinert explains this by the split in economics between the continental European tradition, oriented towards comprehensive public policy, on the one hand, and the Anglo-American tradition, oriented towards free trade. - with another.

Written in accessible language, the book is of interest not only to specialists in economic history and theory, but also to a wide range of readers.

HOW RICH COUNTRIES BECAME RICH,

and why poor countries stay poor

PREFACE

When people first took to the streets of Seattle in 1999 to protest the actions of the World Trade Organization and its associated international financial institutions, and subsequently as these protests were repeated many times in different places, the demonstrators were specifically against traditional thinking - the economic orthodoxy that legitimized and analytically substantiated the policies and recommendations of these organizations. At the risk of becoming a joke, for the last 20 years this theory has insisted that self-regulating markets will lead to economic growth for all countries if the role of the state is reduced to a minimum.

This orthodoxy spread in the 1970s with the birth of stagflation

When Keynesian and development economics began to come under intellectual attack. Fiscal crises in welfare states beginning in the 1970s and the subsequent failure of centrally planned economies provided further support for the young orthodoxy, despite the apparent failure of monetarist experiments in the early 1980s. Today, only extreme fundamentalists advocate an economy that is either completely self-regulating or completely government-run.

This book talks about the major economic and technological forces that must be harnessed so as not to interfere with economic development. In the course of his analysis, Reinert concludes that “developmental underdevelopment” is the result of the underdevelopment and unpopularity of economic activities characterized by increasing returns to scale and improved human resources and production capacity. Reinert brings historical economic examples into new context.

The book argues that important economic lessons can be learned from history, as long as historical facts are not distorted. Reinert suggests that for today's poor countries, the history of the United States is of greatest economic interest. The year 1776 was not only the year of the first publication of Adam Smith's Wealth of Nations, but also the year of the beginning of the first modern war of national liberation - the war against British imperialism. The Boston Tea Party, after all, was a purely mercantilist act. The economic theorist of the American Revolution was none other than the famous Secretary of the Treasury Alexander Hamilton, recognized today as a pioneer of the phenomenon commonly called “industrial policy.”

Let's imagine what the US economy would have been like if the Southern Confederacy had defeated the Northern Allies, if the US economy had not rapidly industrialized at the end of the 19th century. According to the curators of the Smithsonian American History Museum, the United States would not have been able to overcome the technological backwardness that American participants demonstrated during the 1851 World's Fair. The United States might not have become a world economic leader at the beginning of the 20th century.

How rich countries got rich, and why poor countries stay poor Eric Reinert

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Title: How Rich Countries Got Rich, and Why Poor Countries Stay Poor
Author: Eric Reinert
Year: 2007
Genre: Foreign economic activity, Foreign business literature, Foreign educational literature, Economics

About the book “How Rich Countries Got Rich, and Why Poor Countries Stay Poor” by Eric Reinert

In this book, renowned Norwegian economist Erik Reinert shows that rich countries became rich through a combination of government intervention, protectionism, and strategic investment, not through free trade. According to the author, it was precisely this policy that was the key to successful economic development, from Renaissance Italy to today's countries of Southeast Asia. Showing that modern economists ignore this approach while also insisting on the importance of free trade, Reinert explains this by the long-standing split in economics between the continental European tradition, oriented towards comprehensive public policy, on the one hand, and the Anglo-American, free trade oriented tradition. - with another.

Written in accessible language, the book is of interest not only to specialists in economic history and theory, but also to a wide range of readers.

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Quotes from the book “How Rich Countries Got Rich, and Why Poor Countries Stay Poor” by Eric Reinert

Thanks to the diversity of production that comes with wealth, small rich countries (like Sweden or Norway) have something to trade with each other.

Poverty is based on a vicious circle of lack of purchasing power, and therefore of demand for products and large-scale production.

The country needs to tax activities with diminishing returns (commodity production) and pay premiums (subsidies) to activities with increasing returns.

The existence of an alternative faith eliminates fear and other factors that contribute to the development of fanaticism, and the country develops a favorable tolerance towards the diversity of crafts and the composition of the population.

Another blind spot of modern economics is the inability to understand how important diversity is for economic growth.

As long as development aid to poor countries remains palliative rather than stimulating real development, this deceptively generous and well-intentioned aid will inevitably end up resulting in powerful control by rich countries over the poor.

As the world economy grows and many commodities become strategic resources, poor countries are preventing rich countries from gaining access to these commodities in much the same way that the native North American Indians once prevented early settlers from using the land.

The country needs to tax activities with diminishing returns (commodity production) and pay premiums (subsidies) to activities with increasing returns. This is how middle-income countries emerged.

A book about economics, but about politics.
If it were up to me, I would increase the circulation of this book and distribute it in every possible way. The author is capable of what Ivan Ilyin called “the path to obviousness.” He writes clearly about the important.
Mainstream economic theory is wrong. Globalization, trade and the removal of barriers make the rich richer, and the poor are prevented from rising. Wealth comes from innovation, advanced manufacturing, and protecting your own market until it matures. In agriculture, returns are diminishing, but in advanced industry they are increasing. It is necessary to protect both, industry - for active economic expansion, agriculture for defense.
Famine is the fate of countries that specialize in food production and products that are difficult to automate. D. Ricardo proposed beautiful, but not working models. F. List, J. Schumpeter and their predecessors were right, building their approach to economics on sound thinking and experience, and not on the liberal dogmas of the “Chicago boys”.
True capitalism is about innovative entrepreneurs, synergies and new discoveries. A shepherd will not become B. Gates, education without production is brains for export, modern institutions and democracy will not develop in conditions of deindustrialization, without its own industry, not even the most advanced one, there will be poverty in the country.
Everyone has heard about the Marshall Plan, but few know about the Morgenthau Plan, which provided for the deindustrialization of defeated Germany and would have led to the destruction of another 30-40 million Germans. For the sake of the fight against socialism, it was abandoned; similar reasons led to the rise of the Asian “tigers”, who were allowed to create their own industrial production. However, after the Cold War, the winners decided not to produce any more competitors.
The Norwegian rarely mentions Russia, but assesses “shock therapy” and deindustrialization as a disaster. There are no words to express complete agreement and come up with the torture that “our” demodernizers - thieves, idiots and traitors - deserve.
Exporting crude oil, metal and caviar will never allow us to become rich. We are at the mercy of those who determine oil prices. And there are various competing groups. Some benefit from relative stability in the post-Soviet space, while others benefit from chaos here. We are no longer the masters of our destiny. What kind of “getting up from your knees” is that! Machine gun Avtomatych writes in his blog that the Russian Federation in 2011 did not reach the GDP of the RSFSR in 1989. And how could it achieve this figure if less oil is produced than in 1989, if construction volumes after 1991 NEVER exceeded 80 % from 1989, if the output of mechanical engineering products in the Russian Federation compared to the RSFSR fell several times, and according to a number of indicators - tens of times? If the Russian Federation has never collected 120 million tons of grain, like the RSFSR, and meat production in the Russian Federation is one and a half times lower than in the RSFSR-89? If 25 million hectares of arable land are abandoned, if the Russian Federation has not yet reached Soviet levels either in terms of fish catch or in the tonnage of the merchant fleet? I have more faith in those economists who estimate the Russian Federation’s GDP now at approximately 75% of the RSFSR in 1989.
And on this I agree with him, as well as the fact that dragging the country into the WTO will finish off our weak economy, and the “furniture” degradation of the armed forces will make the Russian Federation completely defenseless. The wait won't be long.
At the last conference I attended, a report was presented on the model of the Russian crisis. Calculations point to 2015 and 2018 as critical points. I myself don’t really believe in this quantum phrenia.” Forecasts are usually erroneous, since not everything is taken into account and there are many accidents. “2015” in the scientific model is no better than 2012” from the “Mayan calendar”. But it's not that. The current Russian mess is unreformable and cannot end well. In the foreseeable future, disaster is inevitable. The trajectory leading straight to the inferno is associated with the mutual acceleration of various factors. The degradation of production makes education and science unnecessary. The outflow of personnel leads to savagery, bureaucratization and imitation of activities not needed by society spoil morals and increase crime, the degradation of power and security forces destroys society, etc., etc.
Reikert explains the reasons for our catastrophe very well, although, we repeat, without special reference to the case of the Russian Federation.
You can agree with us 50%%. Not half because M. Friedman and the Gaidaroschubais have the truth. But the Norwegian economist’s book analyzes mainly non-shadow sectors of the economy. It is clear that electronics and software lead to wealth. However, drugs, weapons and the trade in human bodies are just as enriching. Basically, “when the oil runs out” (that is, its production becomes too expensive), dear Russians will be left with nothing but a black hole of a criminal economy and the prospect of new dark ages. And what will happen to others?
But this no longer depends on us.

The International Monetary Fund conducted a study in October 2017 and identified countries with the highest levels of GDP per capita.

Many of the countries that are among the richest in the world have oil and gas reserves on their territory, which has a beneficial effect on the development of their economies.

Investment and a strong banking system are factors that also play an important role in the economies of the richest countries.

"Vesti.Ekonomika" presents the 15 richest countries in the world.

15. Iceland

GDP per capita: $52,150

Iceland is an island country located in western Northern Europe.

The Icelandic government has announced a large-scale program to build aluminum smelters.

Biotechnology, tourism, banking, and information technology are also actively developing.

In terms of employment structure, Iceland looks like an industrialized country: 7.8% of the working population is employed in agriculture, 22.6% in industry, and 69.6% of the working population in the service sector. Tourism is the sector that accounts for the main growth of the country's GDP.

14. Netherlands

GDP per capita: $53,580

The Netherlands is a highly developed country economically. The service sector accounts for 73% of GDP, industry and construction - 24.5%, agriculture and fishing - 2.5%.

Among the most important sectors of service provision are transport and communications, the credit and financial system, research and development (R&D), education, international tourism, and a range of business services.

13. Saudi Arabia

GDP per capita: $55,260

Saudi Arabia, with its colossal oil reserves, is the main state of the Organization of the Petroleum Exporting Countries (OPEC). Oil exports account for 95% of exports and 75% of the country's income.

12. USA

GDP per capita: $59,500

The United States is a highly developed country with the world's first economy in terms of nominal GDP and second in terms of GDP (PPP).

Although the country's population makes up only 4.3% of the world's total, Americans own about 40% of the world's total wealth.

The United States leads the world in a number of socioeconomic indicators, including average wages, HDI, GDP per capita, and labor productivity.

While the US economy is post-industrial, dominated by services and a knowledge economy, the country's manufacturing sector remains the second largest in the world.

11. San Marino

GDP per capita: $60,360

San Marino is one of the smallest states in the world. Located in Southern Europe, surrounded on all sides by Italy.

Inbound tourism plays a significant role in the country's economy; up to 2 million people are involved in the tourism industry in the state every year, and more than 3 million tourists visit the country every year.

10. Hong Kong

GDP per capita: $61,020

The territory's economy is based on a free market, low taxation and non-intervention by the state in the economy. Hong Kong is not an offshore territory, it is a free port and it does not levy customs duties on imports, there is no value added tax or its equivalent. Excise taxes are levied on only four types of goods, regardless of whether they are imported or locally produced.

Hong Kong is an important center for international finance and trade, and the concentration of headquarters is the highest in the Asia-Pacific region. In terms of per capita gross domestic product and gross urban product, Hong Kong is the richest city in the PRC.

9. Switzerland

GDP per capita: $61,360

The Swiss economy is one of the most stable in the world. A policy of long-term monetary support and banking secrecy has made Switzerland the place where investors are most confident in the safety of their funds, resulting in the country's economy becoming increasingly dependent on constant inflows of foreign investment.

Due to the country's small territory and high specialization of labor, the key economic resources for Switzerland are industry and trade. Switzerland is a world leader in gold refining, refining two-thirds of the world's output.

8. UAE

GDP per capita: $68,250

The basis of the UAE economy is the re-export, trade, production and export of crude oil and gas. Oil production is approximately 2.2 million barrels per day, most of it produced in the emirate of Abu Dhabi. Other oil producers in importance are Dubai, Sharjah and Ras Al Khaimah.

Oil fueled the rapid growth of the UAE's economy in just a few decades, but other sectors of the economy also developed quite quickly, especially foreign trade.

7. Kuwait

GDP per capita: $69,670

Kuwait is a state (sheikhdom) in South-West Asia. Important oil exporter, member of OPEC.

According to Kuwait's own estimates, it has large oil reserves - about 102 billion barrels, that is, 9% of world oil reserves.

Oil provides Kuwait with about 50% of GDP, 95% of export earnings and 95% of government budget revenue.

6. Norway

GDP per capita: $70,590

Norway is the largest oil and gas producer in Northern Europe. Hydropower supplies most of the energy needs, allowing most of the oil to be exported.

Oil funds serve for the development of future generations. The country has significant mineral reserves and a large merchant fleet.

Low inflation (3%) and unemployment (3%) compared to the rest of Europe.

5. Ireland

GDP per capita: $72,630

The economy of the Republic of Ireland is a modern, relatively small, trade-dependent economy.

While exports remain the main driver of Ireland's economic growth, growth is also supported by higher consumer spending and a recovery in both construction and business investment.

4. Brunei

GDP per capita: $76,740

Brunei is one of the richest and most prosperous countries in the world. Due to the wealth of its inhabitants and the Sultan, the country is called the “Islamic Disneyland”.

Thanks to its rich oil and gas reserves, Brunei ranks among the first in Asia in terms of living standards.

The basis of the state's economy is the production and processing of oil (over 10 million tons per year) and gas (over 12 billion cubic meters), the export of which provides more than 90% of foreign exchange earnings (60% of GNP).

3. Singapore

GDP per capita: $90,530

Singapore is a highly developed country with a market economy and low taxation, in which multinational corporations play an important role.

Singapore is attractive to investors due to its low tax rates.

There are a total of 5 taxes in Singapore, of which one is an income tax and one is a payroll tax.

The total tax rate is 27.1%. Singapore is considered one of the East Asian tigers for its rapid economic growth to the level of developed countries. The country has developed electronics production, shipbuilding, and the financial services sector. One of the largest manufacturers of CD drives. Large-scale research is underway in the field of biotechnology.

2. Luxembourg

GDP per capita: $109,190

Luxembourg is one of the richest countries in Europe with the highest standard of living. Luxembourg City is home to many EU organizations.

Thanks to favorable conditions and an offshore zone, about 1 thousand investment funds and more than 200 banks are located in the capital - more than in any other city in the world.

GDP per capita: $124,930

Qatar is one of the richest countries in the world, according to the IMF. Over the past few years, this country has been leading the world by a wide margin in terms of GDP per capita.

Qatar is the 3rd largest natural gas reserves in the world, the 6th largest exporter of natural gas in the world and a major exporter of oil and petroleum products (21st in the world). Member of the Organization of Petroleum Exporting Countries.