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What's A Poor Country To Do?


Books

WHAT'S A POOR COUNTRY TO DO?

PLOWING THE SEA

By Michael Fairbanks and Stace Lindsay

Harvard Business School 289pp $29.95

DETERMINANTS OF ECONOMIC GROWTH

By Robert J. Barro

MIT Press 145pp $22.50

THE MARKETING OF NATIONS

By Philip Kotler, Somkid Jatusripitak, and Suvit Maesincee Free Press 451pp $40

Ask the average economist how a country can lift itself out of poverty, and the answer will be simple: Educate your populace, squelch inflation, open your economy to free trade and investment, and then sit back and watch gross domestic product soar.

But as still-poor people from Bangkok to Barranquilla can attest, it's not so easy in practice. In Southeast Asia, Thailand took off like a rocket when it opened its economy, only to come up against huge trade deficits, a currency devaluation, and a clampdown by the International Monetary Fund. In Peru, with unemployment high and economic disparities widening, the inflation-cutting policies of President Alberto Fujimori are falling into disfavor. In Argentina, which has also cast its lot with free-market capitalism, frustration mounts: Earlier this year, 11,000 people vied for 800 jobs at a supermarket outside Buenos Aires.

What's a country to do? Three new books try to answer that question in different ways. In order of merit, they are Plowing the Sea: Nurturing the Hidden Sources of Growth in the Developing World by Michael Fairbanks and Stace Lindsay; Determinants of Economic Growth: A Cross-Country Empirical Study by Robert J. Barro; and The Marketing of Nations: A Strategic Approach to Building National Wealth by Philip Kotler, Somkid Jatusripitak, and Suvit Maesincee.

Plowing the Sea is the best of the three because it is the most practical. Its authors advise developing South American nations for Monitor Co., a Cambridge (Mass.) consulting firm. Fairbanks worked in Africa as a U.S. Peace Corps teacher, a diplomat, and a merchant banker before joining Monitor. Lindsay used to be a grassroots development worker in Central America and the Caribbean. Their book is full of firsthand reports from Andean countries, ranging from the rose growers of Colombia's highlands to the leather industry of Bolivia.

Plowing the Sea argues that for these developing countries, economists' macroeconomic prescriptions for growth are necessary but insufficient. What's needed, they say, is radical change at the microeconomic level. Down in the bowels of the economy, they suggest, company managers and government bureaucrats remain imprisoned by old-fashioned thinking: overreliance on cheap labor and abundant natural resources, and ignorance of the demands of a sophisticated world marketplace.

As a result, Andean companies are trapped into being suppliers of inexpensive commodities. It's a pattern that's repeated in many poor countries around the world. Because companies compete on price instead of quality and innovation, they pay slim wages and living standards remain low. Meanwhile, they sell natural resources to countries that use them to make higher-margin goods. For all of Andean leaders' brave talk about industrialization, the dependence on exports of natural resources has been rising, not falling. "The fundamental dynamic of what it takes to create and sustain wealth...does not appear to have stuck with the leaders of the developing world," the authors write.

Plowing the Sea's title comes from the epitaph of South American revolutionary Simon Bolivar, who said--probably in a moment of exasperation--"America is ungovernable. Whomsoever has worked for a revolution has plowed the sea." The authors who copped his phrase are more hopeful. What's required, they say, is a revolution in worldview. They would have executives in Lima, Peru, go through the same process as executives in Lima, Ohio: understand the strengths and weaknesses of their own companies and competitors; study the needs of the marketplace; then figure out how to provide extra value and earn a return on it.

Defeatists say that climbing the so-called value chain requires skilled workers and money--and it does, eventually. But often, all that's required to make a start is to think afresh. For instance, they say, Peru's asparagus growers stop selling to the U.S. each year right when competition from U.S. growers subsides--instead of trying to build a taste for winter asparagus among American consumers. Also in Peru, an ugly new state hotel in Arequipa completely missed the luxury-travel market it was intended to serve. While it had breathtaking scenery, the authors write, it "was created from prefabricated metal housing that had been used years before to house irrigation project workers."

In contrast to Plowing the Sea, the focus of Barro's Determinants of Economic Growth is unabashedly macroeconomic. The slim volume is based on lectures that Barro, a Harvard University economist, delivered last year at the London School of Economics. His method is to compare the performance of about 100 countries--not just developing ones--and ferret out the factors that account for the differences among them using statistical techniques.

Barro's main findings from his computer runs are mainstream: Governments should maintain the rule of law, cut spending, and lower inflation. But he also concludes, controversially, that democracy may not be great for growth. "Increases in political rights initially increase growth but tend to retard growth once a moderate level of democracy has been attained," he writes. That message should be popular in, say, Singapore. Barro's retrospective analysis has its advantages, but it's not clear how well he fares on prediction. Consider his year-and-a-half-old list of the five countries likely to have the strongest growth from 1996 to 2000: South Korea, the Philippines, the Dominican Republic, India, and Poland. Most of them have since suffered setbacks that make it unlikely they will indeed top the world in growth.

The Marketing of Nations argues that countries need to use strategic planning just as companies do. "There is typically a large gap," the book's authors write, "between what government officials set as policies at the national level and the actual workings of the business system at the local level." But The Marketing of Nations lacks freshness. It relies on secondary sources, including several popular books published around 1990. The authors seem to be fans of interventionist industrial policy. In keeping with that, one table lists the competitiveness of Japan and Germany as "strong" and that of the U.S. as "weak." They also extol a U.N. report from 1993 that advises developing countries to invest in labor-intensive industries--a message at odds with that of Plowing the Sea. The book's main value is as a detailed catalog of various national growth strategies.

In an era of enormous wealth-creation, the persistence of widespread poverty in many countries is scandalous. These books--particularly Plowing the Sea--point the way to change.By Peter CoyReturn to top


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