“This is a scenario for a new Bolivia”

Professor Erik Reinert – whose chief claim to fame is his work How Rich Countries Got Rich... and Why Poor Countries Stay Poor, which the World Economic Association has put on the Top 50 list of books that have had the greatest impact on the world economy over the past 100 years – has stated that he is preparing for publication another book. This time, Ukraine is also a subject of the scholar’s study. The economist told The Day in an exclusive interview what questions he was going to answer this time. 

This is the professor’s fourth interview for this newspaper. The three previous ones can be found on our web page. In them, the world-renowned scholar systematically opposed the classical economic theory of free trade, since he has established that such trade between economically unequal countries leads to the enrichment of industrially developed countries and further impoverishment of commodity-based economies (“They want to keep Ukrainians down on the farm,” The Day, March 16, 2017). In addition, the economist advises the governments of the poor countries against treating demands of the EU, the International Monetary Fund or the World Bank as if they were the Holy Bible (“Today’s Ukraine is where Peru was in 1979,” The Day, October 20, 2016). As a remedy for poverty in Ukraine, Reinert recommends “healthy nationalism” and barring libertarians from power: “Healthy nationalism is ‘let’s build this country,’ vile nationalism is ‘let’s invade the neighbors.’ What I’m afraid of is that the neoliberal policies stand in the way of this healthy nationalism, because they only think of the market. So, I think what this country needs is a vision, where we want to be. Neoliberals don’t have a vision, they just want to go where the wind blows.” (“Ukraine today is like Germany after World War Two,” The Day, October 27, 2015).

“WHEN I WENT TO SCHOOL IN OSLO, SOMALIA WAS RICHER THAN SOUTH KOREA...” 

Professor, so what will your new book be about? Can you provide a short, exclusive teaser for our readers? 

“I want to compare the former Soviet sphere countries, because some of them have done very well or reasonably well, and some have done poor. 

“So, we are trying to look at that and compare strategies: what was it about Poland that made Poland so successful? I think one very important thing, answer to everything, is that Poland never collectivized its agriculture. So Poland still has thousands upon thousands of small farmers, which is a very important stabilizing factor in society. 

“We are looking now at nineteen case stories. Estonia was high-tech country, and did very well. Georgia was also high-tech country, and Ukraine also has high-tech companies. So, why is it that one high-tech country did well, but two others did not? I think here, it’s geography: because the Estonians had been watching Finnish TV for thirty years, they knew the language, so they could sell their high-tech technology, you had entrepreneurs coming from Sweden, and Finland, and Denmark, and buying that technology. 

“Another example is the country that has grown fastest – South Korea. When I went to school in Oslo, Somalia was richer than South Korea. And then something happened. Well, what happened? And I think that the very important thing that happened was that the West wanted to create a zone of rich countries around Communism. Therefore they allowed low tariffs, they had to allow a lot of things which they don’t allow for Ukraine. So the question is, why, at one point you wanted to make Turkey rich, you wanted to make South Korea rich, you had to allow them some things. Why don’t you allow Ukraine the same things? Don’t you want us to be a buffer zone against Russia? 

“This is the idea of the book.”

“THIS POLITICAL SITUATION IS TYPICAL OF A SOCIETY WITHOUT MANUFACTURING” 

Your examples and observations are interesting. Where do you get information about Ukraine, in particular about our history? Who advises you? For example, had you read the works of James Mace, who was one of the most productive researchers of the Ukrainian issue in the days of the USSR, Den/The Day’s contributor, and the author of Your Dead Have Chosen Me, a unique journalistic collection on the Holodomor history in our lands, then you would find the definition of our society as a “post-genocidal” one. I would like to hear your opinion about whether or not the fact that the Stalinist totalitarian machine was perhaps at its most deadly as it attacked Ukrainians may be seen as the most powerful reason for our current economic freefall. 

“I think that can definitely be a factor. If you look at Latin American countries, the situation there is not that different. 

“This political situation is typical of a society without manufacturing. Because manufacturing creates a big middle class. And your society suffers from the problem of the lack of stability that would come from a strong middle class. So in a sense, we are back to the economic strategy here. 

“Clearly, the trauma is at play also. In Latin America, they have the word for it, fracasomania, which means ‘cultivating disasters.’ They go, ‘Oh, it’s a disaster.’ 

“I found it also in Russia, more than even in Ukraine. This mentality, ‘Oh, you know, everything here is bad, and we can’t improve.’ And then you get elites fighting for resources, which is exactly Latin American history. 

“North America and South America had a lot of resources. And North America had a civil war: the North, which wanted to industrialize, and the South, which wanted to keep selling tobacco, shipping sugar, etc. But in the United States, the North won the Civil War, and they industrialized. So, my short version of the history of Latin America is that Latin America is a country where the South won the Civil War. And I’m afraid that Ukraine will also become a country where the South wins the Civil War. 

“I heard your colleagues to say that you need to sell land and get rid of the state companies. That’s a formula for being a new Bolivia*.”

“YOU MADE A MISTAKE WHEN YOU BELIEVED THE WEST’S PROPAGANDA” 

I still want to return to the story that you tell in your new book, and specifically the study of Ukraine. Can you tell me where and when we made a mistake? After all, we left the USSR with a great many factories, the world’s third-largest nuclear potential, as a space-capable nation whose scientists had designed the world’s largest transport aircraft, and suddenly we, as you said during your speech at the Kyiv International Economic Forum, became almost the last in the world chain of wage labor**. Why did it happen? 

“I think, you are not unique. Look at Georgia, which was also an advanced country, they are in a very similar situation.” 

Professor, I apologize, but do you seriously consider Georgia as an example which is relevant to us? It is such a small country... 

“But they were fairly advanced. And now Georgia and Ukraine are countries where everyone was richer in 1989 than they are now. 

“That’s not an argument for Communism, that’s an argument for having a good economic strategy. That’s something that Communism and Western capitalism had in common: we thought they were different, and yes, they were different, but they had that common core. You know, Stalin was steel and electricity, Stalin was building industry, just like the West, so they were similar.”

“WE ARE BACK IN 1848.” A COUP IN RUSSIA IS 70 YEARS AWAY 

“I think you believed the West’s propaganda. Many people believed that propaganda. I think what we now are waking to, what we are now experiencing, is like 1848. Up to 1848, the market was supposed to solve everything, as said by David Ricardo in 1817. And then, there were big problems in the 1840s, they were called ‘the hungry forties.’ In 1848, there were revolutions in all the European countries except Russia and England. 

“So, I think we are now in an 1848 moment, when the things are changing. Look at the United States: both Mister Trump and Mister Sanders were saying, ‘free trade is no longer in the interest of the United States.’ 

“Karl Marx was ardently in favor of free trade, because free trade would create so much poverty and allow for a revolution. 

“The opposite political extreme, John Stuart Mill, in England, also in 1848, wrote in his book The Principles of Economics, and he also understands that free trade would bring poverty, he suggests something called ‘infant industry protection.’ You don’t send your child to the labor market when he is seven, and a nation is like a child.” 

Well, if we are really back in 1848 now, then a coup in Russia is 70 years away. Am I right? 

“Yes. And of course, the reason why Russia did not have a revolution in 1848, it was because it wasn’t industrialized, it was still a farming society. 

“So, I think this is the only good thing about Donald Trump: in fact, Donald Trump should inspire Ukraine. But not to protect the coal industry, I mean, that’s crazy, you should protect the solar energy. 

“So, Trump has the right instinct when it comes to protecting, but the wrong instinct when it comes to what to protect.”

ABOUT VISA-FREE TRAVEL AND FTA: “LEAVE THE BORDERS OPEN TO PEOPLE, BUT CLOSE THEM TO GOODS” 

Since our last meeting, which happened in late February this year, the authorities in Ukraine managed to take a number of measures, with perhaps the most notable of them being achieving visa-free travel to the EU. How do you assess its impact on the Ukrainian economy? 

“That Ukrainians can travel to the EU visa-free, as a matter of principle, it’s much better that people are free to travel, not goods. I think it’s crazy if goods can travel free but not people. 

“But there is a problem also in that normally, when people could leave the country, normally, it is the wrong people. Like they tell me in Latvia, ‘the people who leave Latvia and put up businesses elsewhere, are the best and the brightest. So the people who we would like to stay in Latvia and put up businesses here, they are the ones to leave.’ And we saw that Norway lost a lot of people to the United States in the late 1980s, and they were the best. People who become migrants, they are free from social setting and become very entrepreneurial. So I would say, if they come back again, it’s fine! 

“Leave the borders open to people, but close them to goods, and they will then come back, because they will have jobs. Like in my spaghetti example, don’t export wheat at the price of one and buy spaghetti at one hundred. Produce the spaghetti here. You should do more of that.” 

* Bolivia is one of the poorest countries in South America. Although it is rich in natural resources (first of all, tin, oil, natural gas, as well as zinc, antimony, tungsten, silver, lead, copper, gold), but high production costs, lack of investment, problems with inland transport and the lack of access to the sea have hampered its development. At the end of the 20th century, the Bolivian economy experienced enormous upheavals, as falling tin prices, bad harvests and debt repayments to the World Bank led to terrible inflation. Although Bolivia received very large amounts of foreign aid, technical support and loans from the World Bank over many years, its government still faces enormous problems that do not lend themselves to a quick and easy solution.   

** To quote verbatim from Reinert’s speech during the debate “Sustainable and Inclusive Growth Strategy,” which was held within the framework of the Kyiv International Economic Forum: “There are German labor migrants in Norway, because the pay is better there, and conditions are better too. For the same reason, Poles migrate to Germany. Ukrainians replace Poles. But who migrates to Ukraine? Unfortunately, but you are currently effectively at the bottom of the labor ‘value chain’ in Europe... It’s very unprofitable.”