Friday, October 26, 2007

Culture and Prosperity

At the airport in Chicago Culture and Prosperity: Why some nations are rich but most remain poor grabbed my attention. I was off to Indonesia, a developing country and this issue is on my mind. John Kay, an economist who writes for the Financial Times wrote it. His style is quite readable and its not weighted down my jargon or insiders' terminology. He clearly wants people to understand.

I was disappointed because the book spends a lot more time (pages) explaining concepts that economists use like Pareto improvement, a change that makes some people better off and no one worse off, and felicity calculous, the attempt to quantify happiness (not yet done well). I did come away with a better understanding of current economic work and a greater interest in the field. Yet I wish I knew "why some nations are rich but most remain poor."

He does provide a few insights. For example, on corruption: many countries with high rates of corruption do so because it's tolerated socially. Members of the culture expect it and feel helpless fighting it. These countries actually do have some of the strictest laws on bribery, but people think it's inevitable.

The inability to provide services like electricity (FYI so far in Makassar I've experienced 4 power outages - in 6 weeks) is not only an effect of poverty, it's a cause. Again, in many places people expect the electricity to go out and the phone not to work and . . . on and on.

Kay asserts that planned economies don't work. He uses the supermarket line as and example. At the supermarket line there's no one telling you where to stand. Everyone decides on their own what is optimal. Some people are a little bit better at guessing the best line and they help everyone get out sooner. The free system works fine. Thus more planning isn't the answer for developing countries, more freedom is Kay believes.

Right, but if a country has say 50% of its population with a third grade education they don't have many choices for which "career line" enter. How does a country like Indonesia with few educated people move up? I do wish Kay examined how Korea and Japan went from high poverty rates in the 60's or 70's to post-industrial economies. They had outside help and strong internal drive and big national corporations. What do the economists say about that that I haven't heard?

It is unusal for a book to not keep it's promise and still have me like and recommend it. Yet that's the case for Culture and Prosperity. I am still looking for more answers.

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