Book Notes: From Poverty to Prosperity

From Poverty to Prosperity: Intangible Assets, Hidden Liabilities, and the Lasting Triumph Over Scarcity by Arnold Kling and Nick Schulz sketches out “Economics 2.0” — economic models to understand a world driven by the positive forces of creativity, innovation, and advancing technology. A theme that runs throughout is the centrality of entrepreneurship and innovation to economic growth. The authors explore it themselves and via transcript-interviews with several of the most prominent living economists.

This is a book for people interested in economics first, entrepreneurship second, and globalization third. It’s a book for people looking for contemporary insight on the ideas of people like Hayek, Drucker, Schumpter, and Smith.

Entrepreneurship still gets short shrift in economics textbooks. I recently flipped through an international economics textbook and looked up the word “entrepreneur” in the index. It appeared three times in a 300 page book. On each page, it was referenced only in passing and the one definition of “entrepreneur” read: “Someone who takes risks and makes decisions.” Yikes.

Also, besides the entrepreneurship theme, Kling and Schulz discuss Masonomics principles such as “Markets fail, use markets” (instead of “Markets fail, use government”).

For more academic / economic readers who can mine insights from interviews (ie, it’s not spoon-fed in bullet points), this is a great read. Here were my favorite bits:

Robert Solow: “It is far from obvious to me that the way to foster competition is to leave the private sector alone. The private sector does not much like competition; it has its own ways of creating monopoly power, restricting access to wealth (and therefore to political rights), and preserving vested interests. It is no easy matter for a society to get the benefits of competition without the disadvantages of oligarchy, and there is no reason to believe that laissez-faire will do the trick.”

Paul Romer: “Everyone wants growth but nobody wants change. You’ve got to have both or you’ve got to have neither.”

Paul Romer on American culture: “It’s the kind of culture that can tolerate rap music and extreme sports that can also create space for guys like Page and Brin and Google.”

Arnold and Nick: “The three ideal elements of a prosperous society would be self-reliant families, effective institutions of civil society, including business firms; and good government. These elements are more likely to be present together than individually, because they are mutually reinforcing.”

Douglass North: “The natural state is a mixture of mutually interdependent economic and political interests that reinforce each other. The economic interests are the elites that produce economic activity. But they tend to support political groups that in turn will protect them from too much competition. The interplay is the elites in the political world protecting the economic elites from too much competition and giving them monopolies, while on the other hand the economic elites provide the funds that support the political elites.”

Amar Bhide on what a government can do to promote entrepreneurship: make the basic governmental functions work. Property rights, provision of roads, water, electricity. (BC: Simple, but so true. Screw incentives, tax breaks, etc. Just do the basics.)

William Lewis: Education level of the labor force isn’t as important to the overall economic performance of a nation as commonly thought. Processes, culture, etc can be imparted even on uneducated people. One example showed that uneducated people in the U.S. did a task four times as fast as people in Sao Paolo of the same level of education people.

(Full Disclosure: Nick is a friend of mine and Arnold has been generous over email and blogging the past few years.)