There's nothing like a good invasion


The New York Times offers a new growth strategy for countries struggling with stagnant economies: invasion. After all, if you are just willing to lower the starting point enough, you too can enjoy 11% GDP growth! Having your country razed, villages pillaged, and women raped is a small price to pay for the holy grail of economic policy. Oh, the miracle of modern economic statistical analysis.

The premise behind the article’s optimistic spin is this: ‘There is nothing here. Therefore, there must be money to be made here.‘ Unfortunately history shows that the huge fortunes tend to be generated by the wealthy elite who alone have enough capital for the initial investments and start up costs. Furthermore, in this competitive vacuum, the elite can build secure their grasp on monopolies that will continue to restrict competition and distort the markets even after the country recovers.

Nevertheless, apart from the ‘hot-money cowboys’ (what’s Arabic for Abramovich?), there is no doubt that the lack of regulation and unsatisfied demand for goods and services could provide a ripe environment for small-scale entrepreneurship. However, the anecdote about the university students enquiring when American companies would begin hiring in Iraq illustrates the difficulty in fostering that innovative spirit.

Growth is often held as the overarching goal of economic policy. After all, Growth lifts the masses out of poverty, Growth allows future Growth, and Growth may even be able to make a rock that it cannot lift. But despite the benefits of growth in the abstract, a certain overall trajectory is desirable as well. Economic aggregates can be deceptive. Something tells me the Obama administration will not leap for this strategy. It shouldn't.