Attention growth fatalists – you don’t get rich (or poor) by accident

As well as the Kiwi growth sceptic, there’s a group I call the growth fatalists – those who believe that if we go down the economic gurgler, “well, you know there’s not much we could have done about it.

“We’ve got no mineral wealth, we’re thousands of ks away from our markets, the government can’t fight its way out of a wet paper bag, blah, blah…”

But all is not lost for the economic basket cases of the world (and future ones).You don’t have to be poor losers.

That’s pretty much the message of False economy – A surprising economic history of the world, a book I’m reading at the moment and have blogged on before (see “Don’t cry for me Argentina”).

The book’s author, Financial Times trade editor Alan Beattie, attacks the idea that a country’s economic future is “predestined and that we are helplessly borne by huge, uncontrollable, impersonal forces.”

BigCake suspects this school of thought is stronger in New Zealand than many other countries thanks to the fact that as a piece of economic jetsam at the bottom of the world, we often feel shoved around. Well more so than larger countries.

Beattie’s list of fatalistic myths includes:
• The US and Western Europe were always going to be rich
• Other regions such as Africa were always going to stay poor
• Market forces and globalisation are unstoppable.

His book points out that countries have choices and those choices have “substantially determined whether they succeeded or failed.

“You don’t get rich by accident.”

Same for becoming poor.

“There are plenty of reasons why countries have made mistakes. Often their decisions are driven by a particular interest group, or a coalition of groups, whose short-term gains stand at odds with the nation’s longer term benefits.

“But such interests can be overcome.

“Countries that succeed are those that are flexible enough to learn from experience and which do not come to be captured by groups whose interests are sharply at odds with those of the country as a whole,” Beattie says.

Argentina is country that has failed on both counts. Ireland is probably a country that has succeeded along with the Asian tiger countries (Hong Kong, Singapore, South Korea and Taiwan).

How does New Zealand stack up to Beattie’s test? (BigCake’s ratings):
• Flexible enough to learn from experience – poor. Flexibility only extends to the extremities of the political, social and commercial corpuses
• Not captured by interest groups – hah! Where to start: monopolists and semi monopolists, antediluvian farmers, oldies, banks and anyone else opposed to change only because it threatens some “right” they have been given at the expense of the rest of the country.

Don’t cry for me Argentina

Financial Times trade editor Alan Beattie doesn’t focus on New Zealand in his book False economy – A surprising economic history of the world but there’s a lot of scary analogies for New Zealand in a chapter where Beattie looks at Argentina’s fall from economic grace.

As a read, the book feels like it should be more interesting than it is, but it has got some thought provoking stuff.

Like New Zealand, Argentina boomed during the early 20th century on the back of the first wave of globalisation and fertile farmlands.

By the Great Depression, like the US (and New Zealand) it was one of the 10 most wealthy countries in the world. Now, Argentina is a basket case.

The US and Argentina were dealt similar hands, Beattie says but played them quite differently.

“Perfect hindsight encourages us…to imagine [the US and Argentina] were fated to diverge in the way they did, that one was bound to fly and the other destined to stall.”

Trying to nail down a single turning point is almost as unhelpful as fatalism, Beattie says. There was no single event where Argentina’s fate was sealed, “but there was a series of mistakes and missteps that fit a general pattern”.

Critical differences in the way the US and Argentina grew include:
• Argentina’s reinforcement of privilege (particularly of the small number of wealthy and powerful landowners).
• America’s more “democratic” expansion (for example encouraging small family holdings).
• Immigrants to America were pulled by the American dream; those to Argentina pushed out by poverty.
• Argentina was dependent on imported capital and technology (and debt).

If Argentina had managed to wisely use the benefits of the early 20th century agricultural export boom, Beattie says it could have kept up with the pack chasing the US.

But he says its precarious growth rested on farm prices continuing to hold their own against the rising prices of manufactured goods and on global markets remaining open.

This last bit is horribly familiar. New Zealand has (so far) managed to avoid the total economic collapse that took place in Argentina because the way we grew was more like the US than Argentina.

This has, till the last 30 or 40 years, enabled our farmers through innovation, good management and hard work to hold their own against the world’s manufacturers.

But as economist Ganesh Nana from economic researchers BERL says, we’re just “running to stand still…”

“That (big) bale of wool that bought the car just after the war would only get two-thirds of the car in 1985.

“Conversely, that bale of wool would need to be one-and-a-half times as big in 1985 to get the whole car.”

Hate to think how big it’d need to be in 2010.