“Rich Nation, Poor Nation” (“The Book”) is an unashamed paean to free market evangelists in general and the apostle of free market principles, Milton Friedman, in particular. If every Chapter does not at the very beginning ’embellish’ the Economist by reproducing a quote of his, the contents and arguments proposed all pay reverential homage to the policies advocated by him.
Robert Genetski argues that the path to economic prosperity for every nation is unencumbered economic freedom, minimal Government interventions, lower percentage of taxes on income and capital gains, and a controlled lower degree of Government spending. Producing graphs and data for around 40 countries, Genetski emphasises that in all cases during the periods where the economies were influenced by ‘free market policies’, there was an increase in growth in direct contradiction to those periods where ‘progressive policies’ were ruling the roost.
Even though I am not an economist, and with due respect to the credentials of Genetski, I feel that the book falls short on various parameters:
1. Two benchmark countries chosen as glowing paragons vindicating free market reforms are Singapore and Hong Kong. Both are low tax jurisdictions (if not tax havens) whose economy is dependent upon foreign investment as well as intellectual capital considering their size (or the lack of it). Hong Kong, moreover is closely overseen and monitored by the People’s Republic of China and to say that the country has an extremely liberated set of rules would not be right. Further Hong Kong also enjoys an enviable status as the financial gateway bridging the East and the West, a hegemony not available to many countries;
2. China, Japan, Korea and Taiwan have all been exemplary models of economies where in spite of a strict and enforced Government control, prosperity and progress have attained incredible results. A high tariff regime, protectionist policies combined with mandated export targets, financial assistance for the agrarian and manufacturing sectors contrived to expand the economy and not contract it. Genetski will do well to study both Joe Studwell and Ha Joon Chang on this!
3. To say that Government does not create wealth or that nationalisation is the preserve and prerogative of socialist or communist nations would be a conclusion far fetched and sweeping. Some of China’s biggest conglomerates and profit generators are State owned oil and gas majors and technology companies;
4. Mimicking free market policies by developing countries is not an apparent route to success (as is spectacularly evidenced by the Asian Financial crisis, the Financial Recession of 2008 and the resulting austerity drives that almost ruined nations like Greece);
5. It was untrammeled free market policies such as the repeal of the Glass-Steagall legislation that led to the creation of complex derivatives, and esoteric instruments such as credit swaps, CDOs and its myriad cousins. Should developing countries also follow in these lines to self destruct?
Being an ardent fan of Milton Friedman and Adam Smith is one thing, but insisting that it is their policies that would be the singular tide that would lift all the global boats towards progress is another thing altogether!