Tuesday, November 6, 2007

What I'm Reading

I recently finished The Wealth and Poverty of Nations: Why Some Are So Rich and Some Are So Poor by David Landes. The book is almost 10 years old, having been originally published in 1998 and had languished on my "to read" pile for a while. Nevertheless, I'm glad I picked it up for a two reasons - the first being I enjoyed it.

Let me start by pointing out some aspects of the book that are controversial. Landes' critics focus primarily on two of his points: a Eurocentric focus, and a cultural bias. As to the Euro-centrism, that perhaps is too broad. I will point out that he frequently cites shortcomings among many European nations. He particularly points to the experiences of Spain and Portugal as early leaders in the Renaissance followed by disappointing participation in the era of the Industrial Revolution. He seems less harsh on Italy, France and the Netherlands. However, one could make a case for an Anglo-centric view in some parts of the book, as he does hold up Great Britain as having achieved a higher level of economic development, at least until the post-WWII era.

The second criticism, of cultural bias, many feel is almost racist. I certainly did not pick that up. And I would actually dismiss this charge, if only because of the nature of the book. Landes is addressing that area of economics many of us would label "institutional." Institutional economics deals with the rules (formal and informal) and organizations that economic, political and social systems put in place to help direct decisions. From laws and cultural traditions, to political, commercial and informal groups; societies erect barriers and doors to help direct our choices about resource use, whether it be money, time, talents, or even emotional attachments. It is these institutions, as much as the Industrial Revolution, that Landes points out as playing key roles in economic development across the world. Indeed, if one were to look at one of the key historians of the twentieth century, Fernand Braudel, much of what he brought to the historical profession was a greater understanding of the importance of institutions.

Now, this is not meant to discount the way 18th and 19th-century colonial powers used, abused and misused resources (natural, human, and capital) across the world. However, that indictment should not be used to provide a blanket excuse for the state of subject economies, and their respective rates of progress since achieving independence.

Indeed, the institutional approach was one of the aspects of the book I did enjoy (I also enjoy Braudel). I believe that when discussing comparative economics, or economic development - or even when attempting to make policy, institutional factors are frequently overlooked. There is a tendency to prescribe as if all economies or societies arrived at decisions in the same way. While the processes may be similar, the constraints on the process imposed by institutions (especially informal ones) create subtle nuances that take to time to work through or even change.

I found that Landes does an excellent job placing the economics in a historical context. His talents as a historian are exemplary. He tells a story that is understandable, provides explanation as well as anecdote. And his argument is potent, even if it does ruffle a few feathers. I will not and can not say that it provides the sole explanation for differences in economic development. But I think it does provide a good base for discussing how nations develop; including resource endowments (geographical influences) as well as institutional considerations. For ultimately, the story Landes tells is one of the importance of human capital. The systems and institutions that encouraged (or at the very least did not discourage) new knowledge and its application to practical use, were those that surpassed others. By creating an environment where new ideas could not only develop, but be borrowed and find practical use; certain countries encouraged risk, risk brought change, and change brought growth. To borrow from Landes, "...if the gains from trade in commodities are substantial, they are small compared to trade in ideas."

Now for the second reason I'm glad I picked up the book, and I hope it is an opportunity you will take advantage of. Part of my responsibilities call for me to teach a course in "Globalization" as an economics elective. I am not fond of the texts that have been used in the past, and I'm looking for another text or texts. Given the size of Landes' book, it would probably be the sole text; in which case it would be augmented by other articles.

If you've read the book, I would be interested in your thoughts and recommendation.

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