Why exports matter more than imports — and the tendency towards corruption

From this week’s Economist: “The rise and rise of the cognitive elite: Brains bring ever larger rewards:”

Inequality jars less if the rich have earned their fortunes. Steve Jobs is a billionaire because people love Apple’s products; J.K. Rowling’s vault is stuffed with gold galleons because millions have bought her Harry Potter books. But people are more resentful when bankers are rewarded for failure, or when fortunes are made by rent-seeking rather than enterprise.

In the most corrupt countries the rulers simply help themselves to public money. In mature democracies power is abused in more subtle ways. In Japan, for example, retiring bureaucrats often take lucrative jobs at firms they used to regulate, a practice known as amakudari (literally “descent from heaven”). The Kyodo news agency reported last year that all 43 past and present heads of six non-profit organisations funded by government-run lottery revenues secured their jobs this way.

In America, too, ex-politicians often walk into cushy directorships when they retire. This may be because they are talented, driven individuals. But a study by Amy Hillman of Arizona State University finds that American firms in heavily regulated industries such as telecoms, drugs or gambling hire more ex-politicians as directors than firms in lightly regulated ones.

This sounds a lot like what I read in Tyler Cowen’s The Great Stagnation:

Have you ever wondered why so many developing economies—the successful ones, I mean—rise to prosperity through exports and tradable goods? There are a few reasons for this, but one is that the external world market provides a real measure of value. If you are exporting successfully, it’s not based on privilege, connections, corruption, or fakery. Someone who has no stake in your country and no concern for your welfare is spending his or her own money to buy your product. Trying to export is putting your economy to the test with measurable results. If you can pass this test, it is a sign of better things to come.

When possible, look for real measures of whether someone (or some country) is making the world a better place by making something / doing things, or whether that person is merely trying to take things from others (investment bankers appear to increasingly fall into this category).

Inequality also might “jar” more if a society has a history of instability, which the United States mostly doesn’t. Tony Judt mentions this in Reappraisals: Reflections on the Forgotten Twentieth Century:

The welfare states [in Europe] were […] prophylactic states. They were designed quite consciously to meet the widespread yearning for security and stability that John Maynard Keynes and others foresaw long before the end of World War II, and they succeeded beyond anyone’s expectations. Thanks to half a century of prosperity and safety, we in the West have forgotten the political and social traumas of mass insecurity. And thus we have forgotten why we have inherited those welfare states and what brought them about.

But, as Cowen says, they were prophylactic states enabled by technological advancement and diffusion combined with rapidly expanding education. Whether that can continue in an environment with lower all-round growth remains to be seen.

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