Saturday, July 9, 2016

Erik S. Reinert on Heterodox Development Economics

The Norwegian heterodox economist Erik S. Reinert, author of the excellent book How Rich Countries Got Rich, and Why Poor Countries Stay Poor (New York, 2007), talks about his career and about heterodox development economics in the videos below. Informal but very enjoyable discussion.

One point, however: in the first video Reinert says that Ricardo’s comparative advantage argument assumes diminishing returns. Surely, he made a slight mistake here: the argument assumes constant returns.

Note the very important point that Reinert makes at the beginning of this second video: Ricardo’s comparative advantage argument for free trade actually uses a naive labour theory of value assumption in its argument! (see also Reinert 2007: 301–304 for discussion).

You can also download Alexander Hamilton’s famous Report on the Subject of Manufactures here:
Hamilton, Alexander. 1827. Alexander Hamilton’s Report on the Subject of Manufactures: Made in His Capacity of Secretary of Treasury on the Fifth of December, 1791. (6th edn.). William Brown, Philadelphia.
I’ve been reading it, and it is simply amazing how much Alexander Hamilton understood.

See also these studies of the role of the state in industrialisation:
Reinert, Erik S. 1999. “The Role of the State in Economic Growth,” Journal of Economic Studies 26.4–5: 268–321.

de Vries, P. H. H. 2002. “Governing Growth: A Comparative Analysis of the Role of the State in the Rise of the West,” Journal of World History 13.1: 67–138.

Parthasarathi, Prasannan. 2011. Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600–1850. Cambridge University Press, Cambridge.
Reinert, Erik S. 2007. How Rich Countries Got Rich, and Why Poor Countries Stay Poor. Carroll & Graf, New York.


  1. It's sad but its true that the modern advocacy of simple liberalizations is wrong headed. As a historical rule of thumb the vast, vast majority of all developed nations did not get to be rich and powerful through liberalization.

    The Soviet Union and Eastern Europe, were , after Japan, the most successful countries in the developing world in the 20th century. How id they do it? Very intentional state policies of building manufacturing and essentially forcing modernization on the populations. Until the early/mid 70's that actually worked surprisingly well.

    China, Japan, South Korea, and even Singapore also followed very similar policies of state driven development. There are very intentional efforts to ensure universal education, access to healthcare, and build up some type of industrial clusters. According to Ha Joon Chang, about 20% of Singapore's output comes from the state linked/partially owned corporations. Once again, like the Soviet Union we see intentional capital accumulation asa source of wealth, however in Asia there is a veneer of liberalism because of the large private sectors.

    Paul Krugman's "Myth of the East Asian Miracle" does a good job summarizing it. I have a few minor problems with his paper(Soviet consumption actually did increase, even in the 30's). But otherwise, excellent paper.

    Then there is the west, it would be hard to ignore the role of colonialism and conquest played in its development. In the 1600's The Netherlands became Europe's richest country, not through free trade, but through the creation of the Dutch East India company, a corporation with its own private army. It made huge monopoly profits brining back resources from the far eat. Britain, France, Spain, Portugal, Sweden, Germany, Austria and the Belgians all established or had their own empires from then on. Who were Europe's poorest? The Italians, the Greeks, the people in easter Europe whose nations got gobbled up by Russia, Germany, Austria and the Ottoman's and were therefore unable to build their own emirs abroad.

    Yes, in 1848 Britain dropped all its tariffs(the rest of Europe, including Switzerland, did not). But cloning 1/4 of the planet and fighting wars to force the Chinese government to allow the sale of opium doesn't sound like free market capitalism to me.

    LK already covered the USA in his post. Tariffs, taking land, infrastructure projects, patents for manufacturers, the first US bank.

    Ultimately there are few countries that tried liberalism, and fewer that made it work. The best examples I can think of would be Hong Kong, Chile and Taiwan. Maybe Switzerland. but they were right at the center of numerous world powers, so it would be hard not to benefit from that. Australia, Canada, S. Africa and New Zealand all also fall somewhere in that middle of the road area as well with Switzerland. I don;t know quit enough abut them to say.

    1. Just small fix Taiwan been protectionist like japan and south korea.

  2. "The Soviet Union and Eastern Europe, were , after Japan, the most successful countries in the developing world in the 20th century. How id they do it?"

    This is how the Soviet Union 'did it'?

    “In a few words: there is no such thing as Soviet technology. Almost all — perhaps 90-95 percent — came directly or indirectly from the United States and its allies. In effect the United States and the NATO countries have built the Soviet Union. Its industrial and its military capabilities. This massive construction job has taken 50 years. Since the Revolution in 1917. It has been carried out through trade and the sale of plants, equipment and technical assistance.
    . . . Because 50 years of dealings with the Soviets has been an economic success for the USSR and a political failure for the United States. It has not stopped war, it has not given us peace.
    The United States is spending $80 billion a year on defense against an enemy built by the United States and West Europe.
    Even stranger, the U.S. apparently wants to make sure this enemy remains in the business of being an enemy.“
    “Taken together, these four volumes constitute an extraordinary commentary on a basic weakness in the Soviet system
    The Soviets are heavily dependent on Western technology and innovation not only in their civilian industries, but also in their military programs.
    An inevitable conclusion from the evidence in this book is that we have totally ignored a policy that would enable us to neutralize Soviet global ambitions while simultaneously reducing the defense budget and the tax load on American citizens.”

    1. That's interesting. But I've seen this stuff before and its from a conspiracy theorist. It's really hard to take seriously and I was hoping for something factual.