Comment by barry-cotter | Hacker News Reader

Comment by barry-cotter | Hacker News Reader

Parent Full thread

Good economic policies make up for a multitude of mistakes and bad ones squander the best history, infrastructure and previous policies. Singapore is much wealthier than Malaysia, which is much wealthier than Indonesia. The differences in natural resources and infrastructure there do not account for the differences in wealth, policy does.

In 1954 Ghana was far richer than South Korea, which was a bombed out hellscape that had been the scene of a conflict between superpowers after WWII. Ghana is no longer richer than South Korea, to put it mildly.

Botswana and Equatorial Guinea are both blessed with abundant mineral resources, diamonds for the former, oil for the latter. Botswana is a prosperous middle income country; Equatorial Guinea’s people live in wretched poverty while the president and his cronies live in luxury.

If we look at Botswana’s neighbour, Zimbabwe, we can see what bad policy can do, turning the breadbasket of Africa into a basket case and a food importer. Or compare Venezuela and Colombia. Their colonial experiences were similar, they were once one country and Venezuela had the advantage of massive oil reserves. None of it matters if your policies are bad enough. Price controls, seizure of private property and general thuggish incompetence have turned Venezuela into a disaster.

Enough of the soft bigotry of low expectations; some countries have done much better than any plausible comparator because of good policy. We should praise those who did and decry those who didn’t. Ethiopia and Tanzania both started stupid campaigns of collectivisation leading to mass famine. Tanzania stopped, Ethiopia kept going. If we see idiocy we should call it out, good policy we should praise it.

Note: there is genuine uncertainty around what good economic policies are. For example, South Korea became rich by blatantly ignoring advices by world economists. Back then, everyone recommended ISI(import substitution industrialization), but South Korea tried ELI(export led industrialization) and succeeded.

Another example is land reform. US was against South Korea land reform because it reminded of communism, but recent research suggests land reform dismantling landowner class was critical to South Korea's success.

There’s uncertainty on the details of good economic policy. Hong Kong grew rich with a policy of unilateral free trade and no government growth or industrialisation policy to speak of. What isn’t in dispute is that secure private property and a functioning legal system work better than the alternatives. There’s no point in investing in anything if the government will be along shortly to take everything. Even where the government are less rapacious they can mess things up, see India’s Licence Raj, and the increase in growth rates after the repeal of most of the government controls of industry.

There is a lot of disagreement on the best economic policy, there’s very little on good economic policy, and that’s 80 or 90% of the way to the best.

http://en.wikipedia.org/wiki/Licence_Raj

Hong Kong is a super special exception that does not generalize. Approximately everyone became rich by using industrial policy: read Kicking Away the Ladder for detailed historical research. Our understanding of growth economics is not very good, so history is better guide than theory.

Experience of China and South Korea shows you can be very flexible about secure private property and functioning legal system. Or market capitalism and democracy for that matter. South Korea freely used eminent domain to build infrastructures like highway. It also declared everyone should trash all their electronics so that country can upgrade transmission voltage from 110V to 220V to reduce loss. Both decisions are considered good in retrospective.

What seems to be essential is investment in infrastructures like water, electricity, and transportation. You mentioned Ethiopia. It stopped stupid collectivization and is doing rather well recently. It's kind of mystifying why World Bank and like are against projects like Grand Ethiopian Renaissance Dam. World Bank was also against South Korea's Soyang Dam, so it had to borrow from Japan. (Ethiopia is borrowing from China.)

I see no reason why Hong Kong wouldn’t generalise or why I should dismiss growth theory. History shows that there are many different ways to successfully industrialise. It also shows us that some ways are terrible.

Your point on the legal system, especially regarding China, is well taken but I fail to see how eminent domain is against anything I’ve said. I’m not aware of a legal system without eminent domain though the circumstances under which the government can take your stuff and the compensation available for it vary markedly.

Changing voltage from 110 to 220 may have been a good decision but industrial policy has resulted in many disasters, from the backyard steel furnaces of Mao’s Great Leap Forward to Ghanaian cocoa farmer’s pulling up their crops because the price the state controlled cocoa board gave them for it made farming it not worth the labour. Industrial policy increases the variance of economic growth as bureaucrats make decisions for an entire country. Sometimes it works, sometimes it doesn’t.

Regarding investment in infrastructure I never said anything against it though the experience of the Soviet bloc and other communist countries does not lead me to believe it’s sufficient for good outcomes.

I do not believe democracy is necessary but I don’t see how market capitalism isn’t. Nothing else works anywhere near as well. Communism on the Soviet model seems sufficient to get to middle income and market socialism on Yugoslav lines might be superior but nothing approached capitalism’s record at lifting people out of poverty.

Okay, name one country which became rich by unilateral free trade except Hong Kong. I am waiting.

Singapore, UAE, Malaysia, Switzerland

> Approximately everyone became rich by using industrial policy: read Kicking Away the Ladder for detailed historical research.

You're confusing correlation with causality. The reason why many countries became rich while pursuing industrial policy is that in the past almost every country pursued industrial policy in some way. There are just as many cases where industrial policy has gone terribly wrong, for example Argentina.

Many economists argue that countries like Japan or Korea have become rich despite industrial policies. Compared to other countries, however, they had much lower import barriers at the time, and they could have been even more successful if they had not had them[1]. It is also worth mentioning that import restrictions mainly affect the poorest[2], both in rich and poor countries.

> Our understanding of growth economics is not very good, so history is better guide than theory.

You always need both theory and empirics, otherwise you cannot gain any insights.

[1] https://www.nber.org/papers/w1936 [2] https://www.nber.org/papers/w20331

>Price controls, seizure of private property and general thuggish incompetence have turned Venezuela into a disaster.

Price controls were used extensively by Truman to regulate steel in the postwar period with decent effect. Seizure of private property was also used extensively by China and Korea, both prosperous. Finally Venezuela also suffers from extensive targeted sanctions in the period of its greatest strife (complete with Trump threatening an invasion). I dont mean to suggest policy has no effect, but the outcomes are not simple, they are complex, and external factors matter a lot to the success of individual countries. See: 1997 in Asia.

> Singapore is much wealthier than Malaysia, which is much wealthier than Singapore.

?

I meant Indonesia. Thanks. Will edit.

Reply on news.ycombinator.com