Why did Indonesia prosper under a crooked ruler and Tanzania stay poor under an honest one?
Indonesia under Suharto had an efficient, streamlined form of corruption, where you knew what you had to pay and what you were going to get in return. Suharto allowed his cronies to enrich themselves, but only within reason and not at the expense of the economy as a whole. If corruption becomes predictable and stable enough, it essentially just becomes a tax. In Tanzania under Julius Nyerere, although Nyerere himself was widely regarded as honest, he set up a system of state control which gave thousands of state bureaucrats the power to extort bribes from the people they were trying to serve. Because Nyerere did not have the same control over his bureaucrats as did Suharto, he was unable to stop them from destroying the economy.
There is a somewhat similar contrast, perhaps not as acute, between China and India.
Some years ago, a very senior official(now a very senior official) in the Indian government said to me that the advantage of doing business in China was that there was only one party to bribe. Pay off the local Communist Party boss and you get what you want. In India, what with opposition parties, coalitions, politicians as well as civil servants, national, state and local governments, you can end up having to pay off lots of people before finding the one you need.
Of course, this isn’t to say that dictatorship is better than democracy. It isn’t. It is just that corruption in a decentralised democracy can take a particularly damaging form.
Does religion followed in a country have an impact on its economic progress?
Lots of analyses have been made in the past about this or that religion or philosophy being inimical to growth, and they generally turned out to be wrong. People used to argue that East Asian countries would never grow because they were steeped in the static ordered philosophy of Confucianism, and that turned out to be completely wrong. People argued that Catholic countries underperformed Protestant countries, and then there were enormous spurts of growth in nations like Ireland and Spain. If you look closely there really isn’t much correlation.
Why don’t Islamic countries get rich?
Actually, they do, or at least they can. It’s a bit of a myth to suggest that Islamic countries are any less likely to get rich than those of any other religion. I don’t think that being of any particular religion is particularly a bar to economic growth —- it is more a question of how those religious beliefs can be exploited by particular groups to their own interest. Hence, Islamic empires were highly successful for a long time, the Mughals and the Ottomans among them, but their flaw was not to allow ideas in from the outside. They tended to be top-down, authoritarian societies who used Islamic beliefs where necessary to buttress their own power.
I think the Indian caste system has a similar origin —- in theory, of course, it is based on Hinduism, but it’s an extremely long stretch from the ancient varnas to the modern system of hundreds of sub-classifications, jatis and so on. As far as I can see, what happened in practice was that elites got hold of the varna system and made it more rigid and complex to suit their own ends, and then the practice of handing out jobs, benefits and so on according to caste made it yet more ossified. I don’t think many people would doubt that caste has held back India’s progress, and yet at the same time, I don’t think it is fair to point at Hinduism and say: there’s the culprit. It’s the way those ideas are used rather than the ideas themselves.
Why does a country like Egypt, which used to be the bread basket of the world, and has extremely fertile land on the banks of the Nile, import half its staple food?
In ancient times, Egypt was the breadbasket of the Roman Empire, supplying Rome with wheat. Back then, the Mediterranean was the effective limit of Roman trade in wheat, given the technology of the time, and Egypt had more water than anywhere else, thanks to the Nile. These days, the grain market is global, and with a much larger population putting pressure on water supply, Egypt is by no means the most efficient producer of wheat - so now it imports wheat from Ukraine, Canada, the US, Australia.
Actually, since growing wheat is largely a question of water, what Egypt is implicitly doing is importing the water used to grow the grain —- not directly but “embedded” in the wheat itself. It could physically import fresh water and use it to irrigate wheat fields, but it is more efficient to buy the grain grown with it. Vast amounts of so-called embedded water are actually traded around the world economy via the crops and other products that the water is used to make.
Over the last few years, warnings about future wars being fought for water and not oil have become common place. Do you believe in such a scenario?
I don’t they think they are inevitable at all. People have actually been warning about water wars in the Middle East since the 1960s, and countries like Israel and Jordan have long since passed the point where they could not be self-sufficient in water if they needed to. But in fact there have been very few conflicts over water (though plenty over other things) around there in the past 30 years, because those countries’ ability to import food and other products that require a lot of water has relaxed that particular constraint.
The world has lately seen some sort of a food crisis, with the price of most agricultural commodities going through the roof. Governments around the world are trying to tackle this by trying to grow everything themselves or following a self-sufficient strategy, so to say. How do you see this working out?
Not very well. The history of self-sufficiency drives is that they are either expensive as they require growing food in places not very well suited to it, or they actually make a country more vulnerable because it relies on the single national harvest being a good one. If it isn’t, you are in trouble. In countries in the Middle East, it has caused them to defy the logic of embedded water and try to grow low-value water-intensive crops in a dry region, which achieves little but wasting water. The same is likely to happen in countries like the Philippines, which announced its desire to become self-sufficient in rice despite being a heavily populated nation with a shortage of good growing terrain.
Time and again, we have seen countries across the world use import substitution as a strategy to grow. Why does it rarely work?
Many countries just aren’t big enough to support industrialisation behind tariff walls because the domestic market isn’t big enough for producers to benefit from economies of scale. The idea that lots of small countries in Africa are each going to build up their own car industries from nothing is wildly unrealistic.
Even in larger countries, it often fails because such industries become entrenched interests with powerful lobbying capability. So when the time comes that they are supposed to have their temporary protection taken away and face the full rigour of international competition, they are able to block it politically. Infant industries often never grow up.
One of the classic examples is the Brazilian computer industry —- Brazil put a lot of money and gave a lot of protection back in the 1970s and 1980s to its domestic IT industry to try to build it up. Unfortunately, it ended up with a lot of expensive and clunky computers, which held back the rest of the economy. When that protection was lifted, the domestic companies’ market share shrank rapidly and yet the Brazilian economy was a lot better off for it, as cheaper and faster computing could be imported from abroad.
What are the basic economic ideas that you could say stand true, after writing this book?
Don’t cut yourself off from the rest of the world. Look for small interest groups who are looking to skew the economy to their own advantage. Look for crises and other moments of great opportunity to shift the direction of your country if it needs it. And above all, be prepared to learn as you go along.
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