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Jun 30, 2021
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Good chunk of post-Soviet countries adopted free market policies and most of them failed, so I do not agree that there were only a handful of 'free-market' developing countries. Also countries adopt 'free-market' policies often as the condition of getting IMF loans, so the list of such countries might be much higher.

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Jun 28, 2021
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To around two years ago*

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But what about the Middle Eastern countries who tried very similar policies in the 60s and 70s, and it didn't help them at all?

You can't just pick successful countries who all have X in common and write a Just-So story about how X is the cause. You have to look at all countries with X.

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Where can I learn more about the Middle Eastern side of things?

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I found "Egypt on the Brink: From the Rise of Nasser to the Fall of Mubarak" useful as a source on Egypt specifically, though it's more political history than it is economic.

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I feel like most Middle Eastern countries were not stable enough to keep the policies going. The most prominent example of socialist country trying to turn things around is probably Egypt. Egypt started with something similar in 1956 with Nasser, but by 1970s they were already deregulating their economy since they switch their side in Cold War.

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Don't most of the Arab countries still have a hereditary nobility of large landowners? And haven't they stayed focused on bananas, rather than manufacturing? (Well, oil, but it's the same sort of thing as bananas. Some of the Emirates have tried to do something different, I suppose.)

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I'm wondering how the small landowner thing should work when water is scarce and requires large-scale irrigation.

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Read Elinor Ostrom's book "Governing the Commons". There's lots of interesting stuff in here about how various traditional societies figured out non-state non-market ways of solving common pool goods problems, including water rights among small landholders in Spain, that involved a complicated system of ditch maintenance that made it easily verifiable by everyone that everyone was doing their part fairly.

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This article describes the system as applied in the US: https://craftsmanship.net/the-hydraulic-genius-of-shariah-law/

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And yet after the irrigation system was destroyed by the mongols, it was never rebuilt. Kinda hard to square that with some sort of cultural genius for hydrology.

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?? The article describes the use of the irrigation system in the US. I'm unaware of any Mongol invasion of the US — and the origin was Spain, and I don't believe the Mongols got that far. Could you clarify wrt to the article to which I linked?

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Must steal that book....

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I’m no expert, but didn’t Israel follow broadly similar policies to Korea, Taiwan etc and also succeed? My sense is that even (relatively) peaceful Turkey, Jordan etc have not been able to follow a similar path.

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Israel has almost no privately owned farms though.

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I wouldn't say that Israel followed a similar model: The early Kibbutzim were not privately owned, though being small and communal may have led to similar effects.

But Israel is something of a special case, having been built by immigrants. The earliest migrants were largely Eastern Europeans: Not quite American/British, but not Chinese either. There was also non-negligible immigration from Germany and either highly developed-European countries before WWII, and they would have brought substantial knowledge with them. That probably also explains at least part of the socioeconomic gap between European Jews and Middle Eastern and North African Jews and Arabs in Israel.

It's interesting that the most recent immigrant wave, of roughly one million often highly-educated immigrants from the USSR around 1990, actually had pretty low socioeconomic status, though it has since gone up. That may just reflect Israel's relatively high development by 1990 (to Soviet levels? IDK) plus some difficulty integrating.

I'd be interested in an analysis of the impact of each successive wave of immigration on Israel's economy and industrialization. https://en.wikipedia.org/wiki/Aliyah#Zionist_Aliyah_(1882_on)

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There's an econ paper analyzing the labor market impacts of the Soviet Aliyah. Let me know if you can't find it in Google Scholar and I'll dig it up.

I wouldn't say the USSR jews were low socio economic status, they were only low economic status in Israel because of frictions entering the labor market (language, specializations). They were high socio status (education, culture) and indeed this shows in the catch up a generation later.

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The counterexample I was thinking of was India, which implemented protective tariffs, manufactured their own crappy cars etc., and grew slower than Studwell's failure stories. At least in the Economist magazine version, the tech industry took off because the central planners didn't quite know what it was and left it alone, and India only achieved sustained fast growth post-liberalization.

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How many car companies were competing in India?

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Basically two, Ambassador and PAL, with the Suzuki-licensed Maruti introduced in the 80s. The argument would be that India did not enforce export discipline, and the “license Raj” bred complacency.

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Not Tata?

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Automobiles have been liberalized since, and their first passenger car was only in 1988. Tata used to make trucks, but not cars. They started making the Nano, but it's not a big success AFAIK.

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To what extent did their similar policies include real internal competition and export discipline, rather than the government subsidizing and/or owning designated champions of industry? My admittedly vague impression was that Nasser et al were Soviet-influenced socialists and much more friendly to SOEs than to entrepreneurs.

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The Middle East experienced the highest increase in the UN Human Development index at the time. Sure, oil wealth helped (although it also causes Dutch disease).

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Isn't the Dutch disease thing largely a myth? If you have 2 countries, one with $10bn of GDP and the other with $20bn, but $10bn is from commodities. Then if the non commodity part of the economy grows 7%, overall growth is only 3.5%. And for the country with no commodities, it would be 7%. Even though rate of development is the same.

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The idea is that commodities represent easy money, which drives out every other kind of investment. At the same time, commodity prices can be rather volatile, to put it mildly, especially if you are not the margin producer.

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I don't see why it would drive out other kind of investment. I think the risk is more that leaders can get rich from stealing those commodities, and use to resources to live large and opress the population. Whereas with no commodities they are forced to develop, opening Pandora's box (in a good way).

But for the most part, the non commodity economy often grows just as fast, it is just that the commodity part of the income distorts the growth %'s.

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As I understand it, the reason commodity investment drives out other investment is because the risk-weightes return is so much higher.

The other problem is that the risk doesn't go away, and is in fact quite severe and hard to diversify or hedge away, at least on a national scale. In other words, you're always at the mercy of oil prices.

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Agreed. Dutch disease or not, it's better to be Iran than Pakistan.

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A different version might be Africa where a variety of countries (most recently supposedly Zimbabwe in, say, the late 90s by appropriation, and still, to now, supposedly South Africa by buy and split white farmer land) have claimed to do this.

I’m unaware of any success stories. Did every one of these devolve into cronyism?

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Interested in your recommendation for the best first book to read that talks about the Middle Eastern 60s-70s development story!

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I read this in a French paper encyclopedia in the 90s, can’t remember which one, probably the Universalis annual supplemental volume, and in any case it would have been discontinued years ago.

Not sure about the details but I remember an Iraqi writing that Saddam Hussein was actually a pretty competent administrator when he was Vice-President before he staged his coup and power went to his head. Iraq certainly had the human capital: engineers, doctors and so on, not being burdened by the dead weight of Wahhabi indoctrination in schools.

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Iraq's lack of human capital is one reason why Greg Cochran was confident they wouldn't have any nukes. Other reasons were sanctions & that chunks of the country were too hostile to the regime to contribute.

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Most of those factors would also apply to North Korea, yet they managed to get nukes. It's a 1940s technology, well within the reach of most nation-states. It's only active measures to deny enrichment like those under the NPT that have prevented more widespread adoption of nukes by every tinpot dictator out there.

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That's part of Greg's argument: NK had better human capital, so they could get nukes despite their awful economic system keeping them impoverished.

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I think the frameowork of exisiting within a Theocracy is enough to outweigh all of the other changes. I mean it looks like many of those Middle Eastern countries were indeed in somewhat of a renaissance before religious factions came in and reorganized the entire game around a very different incentive structure that had little to do with maximizing economic growth.

And I think the author would claim that the set of circumstances he describes are situationally dependant semi-necessary but not sufficient.

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>These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?

The real reason is that they got drowned in American/Western investment for geopolitical purposes. Its as simple as that really. I find that you always seem to assume that a country's successes or failures are dependent on internal factors as opposed to external. Its a bad habit you have.

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Warning that you keep doing this thing where you keep being vaguely condescending to me for not realizing X, then not giving any evidence that X is true. If you keep doing this I will ban you.

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Sure thing - Here's an article as evidence of what I am saying ( https://www.jstor.org/stable/2642405 )

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This appears to be a 1965 article with no comparisons of American investment in Taiwan to American investments in Congo, Honduras, or anywhere else in Africa or the Americas, so I'm not sure that it supports your claim that the *difference* between these places is explained by a *difference* in American investment.

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The article outlines the disproportionate levels of investment/aid given to Taiwan.

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I'm just going to reiterate what Kenny is saying here - what you link to doesn't really support your thesis in the large. Plus, just linking to a JSTOR article without context comes off as moderately unhelpful. Personally - and I imagine this feeling is shared - I'm disinclined to go through the work of reading through random paywalled articles because there's a good chance it's a waste of time.

Also, just in general, making generalizations about people "I find that you always..." is really pretty unhelpful communication. Do you know this to be literally true? Take the second persian gulf war: do you think Scott blames internal factors in Iraq for the fallout from the second persian gulf war? My money's on Scott putting substantial responsibility on the military campaign and occupation. Even if he's like, fuck no, it was all the Iraqis fault for not having backup water treatment facilities, well, okay, then he's crazy. We just don't have enough information to know what Scott always does or doesn't do.

If you find yourself asserting generalizations about other people's beliefs that aren't literally true, then you're probably doing something wrong and should reevaluate strategies.

Unrelatedly, are you Chris Allen of haskell land? Think I had a pleasant dinner with you at lambda conf one year. Hope you're well.

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"Since rich country economists kept leading everyone astray, the only countries that developed properly were weird nationalist dictatorships and communist states that ignored the Western establishment out of spite."

Here you are making an assumption that communists are acting out of "spite". This is very uncharitable. Actually communists have a very good understanding of the economy and the goals they wish to achieve. I would suggest that you read some of Marx's work on this subject such as Capital Vol. 1

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I'll admit that I probably like Scott more than you do, but that read pretty clearly as tongue in cheek to me. "Leaders gave bad advice so the people ignoring the advice clearly were doing it out of spite" strikes me as a reasonably witty way to poke fun at the bad advice given and the success of the people who didn't follow it.

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It's not about "liking" Scott, it's about looking at his history of being able to analyse politics. We've seen previously that any political ideology that doesn't confirm to his ingroup seems to be beyond his understanding. Instead of charitably engaging with the outgroup he jumps to accusing them of "spite".

You can say this is "tongue-in-cheek" - but tongue-in-cheek in service of what? What follows is not an actual analysis of communist political analysis and goals.

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The sentence is about BOTH communist & non-communist regimes, so it doesn't have to be "an actual analysis of communist political analysis and goals".

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Communist regimes don't act out of spite, though. It's weird that Scott would write this, especially since Rationalists typically try to be charitable to the outgroup.

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>but tongue-in-cheek in service of what?

He did it for the lulz.

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I'd prefer if we were in favour of niceness, community and civilization. I don't think cheap jokes help with any of those categories.

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Would it not be correct to say those countries general world views suggested that those rich economists were basically self interested jerks or active facillitators of imperialist capitalism, so would not spite be a correct motivation as to why they were ignoring them?

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I am absolutely certainly not going to say that Chris Allen is right about anything, but you do seem to have a habit of adopting the first plausible seeming explanation of anything as The Real Truth and then turning around making a blog post about it. That can be a bit disappointing to see.

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Also, sometimes foreign investment really did spark entire industries. RCA in Taiwan. Singer, too. Then the plant employees start copycat firms, or small parts firms, etc. But that foreign investment did matter.

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This seems implausible. What geopolitical purposes were served by investing in East Asia rather than the Middle East? Even Latin America, Subsaharan Africa, and South Asia were also parts of the "third world" that the first and second world were fighting over for allegiance during the Cold War, but the Middle East was just as much the front lines as East Asia, and had the additional presence of a geopolitically important resource.

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Jun 28, 2021
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Surely the US also invested a great deal in the Phillipines, both when it was a literal colony and then as an independent state?

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Jun 29, 2021
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Subic Bay? That's where the US fleet was based.

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WWII also wreaked hella devastation on the Philippines, and the Philippines are much better positioned to cut off routes into or out of Mainland China.

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A big difference in postwar land reform in the Japan vs. the Philippines was due to the fact that the rich in Japan were the enemies of the U.S. in 1941-1945, while the rich in the Philippines were our heroic friends fighting our mutual enemy the Japanese behind enemy lines. So, expropriating the Japanese ruling class seemed a much more morally fitting policy to Americans than expropriating the Filipino ruling class, who had just gone through four years of occupation.

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South Sakhalin was seized by the USSR after WWII (and Manchuria/Korea were removed from Japan's control), so I'm not seeing where the USSR had a land border with postwar Japan.

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Given the giant US built port at Dharhan, the giant US built airbases at King Khalid, and the giant US built oil pipelines crisscrossing Saudi Arabia, I think you underestimate what Aramco was up to.

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What Aramco was not up to was a large scale rewrite of society ala MacArthur or Mao.

Another interesting case is Iran, which seemed (by numbers and cultural indicators) to be one of these success cases under Mosaddegh, who pushed the British out of ownership positions and passed a land reform act, until the 1953 coup, when the west installed the newly empowered Shah, who proceeded to run western friendly policies.

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His policies were "western-friendly" in that he opposed the communists, but my recollection is that they were also quite pro-development and included land reform.

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Iran bordered the Soviet Union and was in the US sphere until 1979. Pakistan was in the US sphere, borders China, and only 10 miles of Afghanistan separated it from the Soviet Union. This chain (Turkey-Iran-Pakistan) was extremely strategically important because it kept the Soviet Union from having access to the Indian Ocean.

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Jun 29, 2021
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The claim that started this subchain was that US strategic interests rather than the Asian development model are the cause of east Asian succes.

The fact that these other countries which are also of great strategic importance to the US didnt become rich is strong evidence against this claim. The lack if the Asian development model even more so.

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This is the nobody-has-agency-because-cia theory of FP.

The US isn’t responsible for any of it in SK. For a decade after the Korean War it was a complete shit show. It wasn’t until Park took over and while the US may have supported him (as they supported his predecesors), it wasn’t as though the cia parachuted in a bunch of marxist land reform economists to tell him what to do.

We were all over the Honduras at the time, and as always, we let their local rich run their show. As they would have without us.

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Jun 29, 2021
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I don't know where you got the many multiples of GDP for many years in a row claim from - it's not even in the post you linked to - but it is false. SK nominal GDP grew exponentially from some $3B in 1960 to $9B in 1970 and $67B in 1979 (https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=1979&locations=KR&start=1960&end=1979). The total nominal aid (ODA + OOF) to SK can be fetched from the OECD stats database (https://stats.oecd.org/Index.aspx?DataSetCode=Table2A#). It averaged $200M/y in 1960-1967, $500M/y in 1968-1974, and $1B from 1975 to 1982, then fell off to zero over the following couple of years. Note that this sum includes loans as well as grants. While I don't know how to fish this data out of the OECD website, Figure 4 in https://cdn.odi.org/media/documents/191203_republic_of_korea.pdf says that loans predominated after 1969. I.e. total aid (grants plus loans) never exceeded 10% of the GDP over this period. I should also remark that SK had to spend quite a lot of money on the military rather than on building its economy. World Bank data (https://data.worldbank.org/indicator/MS.MIL.XPND.CD?end=1979&locations=KR&start=1960&end=1979) shows that military expenditures amounted to about 2/3 of the foreign aid over this period. While this spending might not have been a total loss for the Korean economy, it is quite implausible that it could not have been invested more profitably elsewhere.

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Taking a rough look at the data (FDI as a % of GDP) this doesn't seem right. I don't know how to attach an image, but the link below has Malaysia having the most FDI followed by China, Philippines, then Korea, then Japan. https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=CN-JP-KR-MY-PH

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Where does Vietnam fit in this narrative?

It seems to be booming now and that uptick seems to start before increases to FDI.

Do you expect it not to follow the same tragectory becuase it isn't as geopolitically important?

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I mean, no one would be foolish enough to wage a war in such a geopolitically unimportant place.

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Also pure cope. Singapore was poor as dirt when it first broke with Malaysia and completely eschewed outside aid. Yes, foreign businesses *invested* in the country over time, but that's because of its strong rule of law and human capital - they could reasonably assume a return on invested capital.

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Singapore was poor but not as dirt. At independence it was already 1.5 times richer than Malaysia - relatively rich by developing nation standards. It's now three times richer. Also Singapore didn't exactly eschew outside aid - LKY kept flying commercial to international meetings to keep appearances up to keep receiving aid. They eventually caught on and stopped sending aid.

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>but that's because of its strong rule of law

Since when was rule of law a factor in investment? It certainly has not stopped people investing in China, Pinochet's Chile etc.

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I think you could fairly easily make the case that China would be far richer if it had more proper rule of law (see Taiwan as a nice counterfactual).

Was Pinochet's Chile known for weak business law? I thougth just the opposite? People need to be sure their capital won't be randomly taken by the state in order to invest.

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The Chinese economy is growing faster than any economy in history and will outpace the US eventually. I don't think the Western model is one that they should follow considering its causing stagnation in the West.

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Meh - a lot of that is catch-up growth which is what happens when you have a country with very high human capital that's been held back economically by a planned economy. Let's see if they can keep it going once they get to Western GDP per capita. I highly doubt it and would be willing to wager if someone wanted to take the other side.

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China's rise began under the planned economy of Mao and you could argue Post-Deng China is still in a more moderate sense a planned economy given the interventionist and guiding role the CCP plays. China's economic model is not just a copy and paste of Western neoliberalism

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The U.S. was actually quite protectionist against Japan, and mostly held it back (relative to the very similar Italy) rather than driving its economy forward.

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I beat up on American foreign policy as much as the next feline, but I am pretty sure that for much of its history, South Korea did not allow foreign investment.

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>Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong.

Scott you are so close to an important realisation. This is not a bug, it's a feature. The IMF/World Bank and all these other Western-centered/founded organizations are designed this way. The purpose is to keep the Third World in the dirt at the West's benefit. Its modern-day neo-colonialism.

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The longer I think about this, the more plausible this looks.

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What is the benefit to us of keeping Africa poor? Don't we get lots of benefits from trading with and offshoring too South East Asia, the area the conspiracy chose not to keep poor.

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So the intention is not to keep Africa poor. The intention is to keep the markets of Asia and Africa open for US products. In some countries, this thwarted growth and led to poverty

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Surely they'd be able to buy more U.S. products if they weren't poor? The U.S. isn't where you go to manufacture cheap-as-possible consumer goods that market to the poor.

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Yes but the world bank doesn't know that keeping the markets open for American products would keep these countries poor. This is a fairly new hypothesis that is proposed in this book, and I'd argue that it's majorly flawed (although it offers some interesting insight)

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That is... Not a new hypothesis at all. Heterodox economists have been proposing this idea since the 70s.

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The only way for them to get not poor is to make products, and then they can buy products from themselves instead of the US.

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This assumes "products" is just an interchangable category. Countries do not make Units Of Generic Universally Exchangeable Product and comparative advantage is a thing.

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... no?

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Africa will have 4 billion people by 2100. Nigeria alone is projected to have 800 million people - more people than all of North America. If their GDP/caps went up, where would the US and EU be?

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Much wealthier because there would be a bigger market for stuff that's heavily produced in the west (like software, movies, cars, etc.)

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If their wealth went up that much they would start to produce those things themselves, and meanwhile the prices of bananas are going through the roof. It turns out you now have to pay your banana farmers $15/hr wage.

Nevermind the geopolitical position of the United States. China already produces an increasing anxiety among westerners as is. This could be China x5

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There's an enormous gap between the current development level in Africa and being able to make their own high end tech goods. And they will be more profitable to the US as they get wealthier at least until they reach that point.

To make it concrete: if you triple the GDP of Nigeria, you'll get a big increase in the market for Avenger's movies, and zero increase in supply.

The same will hold true for cars, software, and pretty much any luxury or high-tech good you care to name.

It's far-fetched that all the elites in the west are coordinating against their own short and medium term interests in order to avert a possible super-long-term issue where Nigeria mostly catches up to us in development. People don't coordinate that well.

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Countries may not leap strait from coffee beans to avangers movies, but they can leap to other industires the US might want to keep domestic. I just read in this very reveiw that Cars seem to be the first line of attack for many of these prospective wealthy nations.

I also dont think there is much of an coordination going on here, just individual countries acting in self interest.

Britain had a policy of disallowing advanced industries in India during colonial times. It does not seem farfetched to me that the'd aspire to continue to persue that same objective in the present.

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Nigeria actually has a pretty developed local film industry, known by the *entirely original* name of Nollywood.

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Happier and healthier. Less environmental destruction. Less mass immigration and border crises. Richer.

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Yes, on an emissions front you are correct. Unfortunately the focus on global warming has obfuscated somewhat the myriad of ways that are not directly tied to CO2 emissions that human beings devastate their environments.

We know development dramatically reduces birth rates. This is the #1 way that development will result in less environmental desctruction.

Poaching and deforestation are best protected by strong institutions/rule of law. Poorer countries with rapid demographic expansion struggle to maintain these.

Look at the end of the day the question you have to ask yourself on this point is: (1) are you going to use violence and force to prevent development and maintain huge populations in pre-industrial lives or (2) are you going to invest and work with them to accelerate them more rapidly through the most damaging environmental phases of development and to a more sustainable future.

#2 we haven't really proven can be done yet, but I'm optimistic that as alternative energy sources develop we will enable today's 3rd world countries to "leap frog" over some middle stages in the same way they were able to with mobile phones.

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I find some people here tend to overvalue free trade. There is a lot more complexity to the global world, free trade isn't a positive thing a priori.

Also like, it's not a 'conspiracy', this is just the natural tendency of world leaders in developed nations. It's only a conspiracy if they're intentionally working together, but they don't even have to, it's just kind of obvious and in their best interest to keep small nations neo-colonised.

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It's certainly not obvious to me that it's in their best interest. I'm not sure it's obvious to them either.

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If you're the powerful one you can dictate the terms of free trade agreements and you can send your companies in to pillage the wealth.

If they thought it was not in their best interest then why don't they lift Africa out of poverty? Their aid is pauper and intended for the purposes of debt-trap diplomacy.

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I don't think there's a magic button that would lift Africa out of poverty. The world overall would surely be better off if Africa even had Latin American levels of GDP per capita. That would be highly beneficial to Western economies since it would mean more trading partners. There's no secret conspiracy to keep Africa poor.

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I'm aware there's no magic button but they're not even trying and that much is obvious.

How exactly would strong competitors who would challenge the West's hegemony be a good thing for the West?

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The essence of free trade agreements is that neither party can dictate the terms. Or, alternately, that both parties can - but the trade doesn't happen unless both parties agree to it. So you need an explanation as to why the African parties to this trade are agreeing to deals meant to pillage their wealth.

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Mostly because the people that negotiate the contracts benefit from the agreements. That does not mean that the country itself benefits. It's the same in the East Asian countries that are mentioned as failures. Thailand may not have the growth of South Korea, but King Vajiralongkorn sure isn't suffering.

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If somebody approaches you with a knife in an alleyway would you not do what they tell you to? Unequal power relationships often result in bad situations for the weak.

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One benefit for capitalists keeping a section of people poor is that the value of labor power is kept low too.

"How Europe Underdeveloped Africa" by Walter Rodney is the classic text here.

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Hmmm what's strange here is American and European capitalists made more money than at any point in modern history..... capitalizing off the labor of countries that didn't listen to the "consensus" - China, Japan.

The number of billionaires and millionaires minted off communist china vs those minted off Africa is comical. These capitalists must be terrible at their global conspiracy.

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I think you’re missing the individual incentives here. In the short run, foreign investors do better to keep commodities cheap and own more banana farms. Sure economic development might help investors in 30-50 years. But what incentive do today’s investors have to prioritize the profits of investors half a century from now over their profits today?

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Yes, capitalism is a contradictory system that doesn't work especially well. Marx showed this over a 100 years ago.

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And yet socialism keeps getting its ass handed to it by capitalism. Must be a really sucky system.

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Socialism is the next logical step, but I don't think it's so surprising that it's developing in fits and starts. Capitalism's early years were very shaky too. I'm not sure why you would be so dismissive of socialism. Have you read Marx?

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The single biggest way is farm subsidies and tariffs in the US and EU that prevent Africa from exploiting its comparative advantage. They don't benefit the US or EU globally since consumers who make up the bulk of the population pay higher prices, but they *do* benefit constituencies with disproportionate political power like farmers in rural states.

The UK realised that in the 1840s when it abolished the corn laws, and when I go shopping for groceries in the UK, I regularly see produce shipped from Kenya on the shelves. Maybe not great for the environment, but excellent for improving the lot of ordinary people in the cradle of humanity.

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Cheap labor providing cheap natural resources? A population of 1.2billion not providing any serious competition in any industry?

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