The Richest Get Richer

Card-carrying neo-liberals like me, who pushed for opening capital flows wide in the early 1990's, had a particular vision in mind. But the future that we hoped for did not come to pass.

We looked at how extraordinarily strongly the world's system of relative prices was tilted against the poor: how cheap were the products they exported, and how expensive were the capital goods that they needed to import in order to industrialize and develop.

"Why not free up capital flows and so encourage large-scale lending from the rich to the poor?" we asked. Such large-scale lending might cut a generation off the time it would take economies where people were poor to converge with the industrial structures and living standards of rich countries.

Certainly such large-scale borrowing and lending had played a key role in the late-19th century. Canada, the western United States, Australia, New Zealand, Chile, Argentina, Uruguay, and South Africa: all were developed due to imported capital a century ago.