By: Dr Štefan Šumah
I occasionally read Jože P. Damijan’s blog (even though I have a very poor opinion of his understanding of economics). That is how I came across an interesting post about how colonialism became a system for extracting rents. (Quoting JPD:) Western countries, through rigged rules in their favour, established an extractive global institutional system through which they siphoned wealth from the Global South and enriched themselves, while leaving the countries of the Global South in poverty. In doing so, JPD refers to the research of T. Piketty, who is a demonstrably left-leaning, socialist-oriented economist and recommends only more state intervention as a solution.
However, all left-leaning economists forget one essential thing: colonialism has long been gone! Colonialism in its classic form has not existed for over 50 years! So why were Asian countries, which at the beginning of the 20th century were poorer than most African countries, able to make such a breakthrough? Take Vietnam, for instance, which in the 1970s was the poorest country in the world. What American bombs did not destroy (incidentally, the U.S. dropped more bombs on Vietnam than all the Allies combined dropped on Germany in WWII), was ruined by a planned communist economy. Yet today, Vietnam has steady economic growth and is a relatively industrialised country where more and more people are escaping the grip of poverty. Why? Or China, which after the horrifying poverty of the Great Leap Forward, has been consistently developing and has become an economic superpower. Why? Then there is India, which only relatively recently broke away from a strange form of quasi-socialist thinking and is now becoming an important player on the global market. Why? And let’s not forget Singapore.
Vietnam, Singapore, and India were all “exploited” colonies as well. So why such a stark difference in development between Asian and African countries? Some became economic tigers (Asian countries), others remain economic patients (Africa).
The answer can be found within Africa itself. Just look at the difference between neighbouring countries Burundi and Rwanda. In 1994, they were roughly at the same level in terms of economy and poverty. And where are they now? Burundi is one of the poorest, if not the poorest, countries in the world, while Rwanda is Africa’s economic “tiger.” Poverty has decreased dramatically, the country is industrialising, and it has become attractive for foreign investment and tourism. Its level of corruption is even lower than in Slovenia. Why?
The answer is simple. But leftist economists will never admit it. The invisible hand of Adam Smith works! The market works! All these countries started growing economically when they began liberalising their markets and allowing freedom for private initiative. As a result, corruption also decreased, because the freer the market and the fewer the senseless restrictions and planning, the fewer opportunities for corruption. So yes, an economic breakthrough is possible even in former colonies. But instead of liberalising the market and lowering corruption, the governments of these countries find it easier, more than 50 years after independence, to cry to the developed West: You exploited us, now give us money! How many billions of dollars in aid have already poured into Africa?
And who are the biggest recipients of international financial aid? The most corrupt regimes! The developed world, through its aid, is propping up these regimes. For example, Hamas, which was effectively financed by international humanitarian aid; regimes in Yemen, Sudan… and in Asia, the Taliban. These countries have no free markets, but they do have plenty of corruption. And leftist economists want more aid, more negotiations… in short, more state.
In this blog, JPD also refers to Dani Rodrik from Harvard, who already long ago showed in his book One Economics, Many Recipes, based on empirical analysis, that there is no universal recipe for development, each country has its own specific set of policies that helped it grow. And on this point, he is right: there is no one-size-fits-all solution. What works in one country might not work in another. Invaluable. And to paraphrase the second part of Mastercard’s slogan: For everything else, there is the free market!
