books economics

Book review: Extreme Economies, by Richard Davies

Extreme Economies is a book with an intriguing premise: extremes can pare things back to basic principles and allow us to look at them in new ways. So Davies travels to a series of inhospitable locations to see for himself how people survive, trade, and make a living for themselves in extraordinary circumstances.

The book features three different sets of extremes. In part one it looks at survival, visiting places that are under pressure and where life is fragile. We visit Aceh, in recovery from the tsunami in 2004; the world’s largest refugee camp, Zaatari in Jordan; and Louisiana State Penitentiary, the biggest maximum security prison in America. Each of these has very different things to teach us, and Davies combines history, economics lessons and reportage from each location as he meets ordinary people and listens to their perspectives.

Louisiana’s prison is an object lesson in currency. Aceh is a good place to study resilience and the informal savings systems that helped people to rebuild. In Zaatari we see the importance of markets and entrepreneurship, how trading is a basic human instinct. Syrian refugees have started so many businesses that the camp would out-perform almost anywhere else in the world for start-up rates – even though many of them rely on smuggling and have little legal basis. By contrast, a more planned ‘model’ refugee camp down the road that takes a tougher line on contraband has a moribund market street and miserable residents.

Part two looks at extreme failures, beginning with the Darien Gap – a lawless region of banditry and deforestation in central America where development has proved more or less impossible (and where hopes of an independent Scottish empire died.) If Zaatari shows the potential of free markets, Darien provides a warning about the opposite – how “markets cannot be relied on: they can be damaging, fiendishly hard to correct and can fail to emerge when needed most.”

The second extreme failure is Kinshasa, the world’s poorest large city and one held back by a corrupt and malign government. The last of the failures is Glasgow, at which I raised an eyebrow, I have to say. The reason for its inclusion as an extreme is that “no other city in the twentieth century experienced a decline as severe.”

The final section takes three important trends that are visible in many parts of the world and finds the places furthest along that arc – the economics of an aging population in Akita, Japan; high-tech cities in Talinn, Estonia; and inequality in the world’s most unequal city, Chile’s Santiago. These are frontrunners we can learn from, because current trends lead in that direction. From Santiago, for example, it’s worth hearing the message that “just as free markets do not always create value, strong growth does not always deliver the development it seems to promise.”

Extreme Economies is a bold and refreshing take on basic economic questions. I like the way Davies combines theory with practical observations from ordinary people, and the book is full of the voices of shop keepers, taxi drivers, charcoal sellers, refugees, prisoners. Without ever banging a political drum, there’s a lot about justice in the book too, from the slavery conditions of Louisiana’s prisons, to the lack of safe migration routes in central America, to the disconnected elites of Santiago.

On the economics front, Davies is not a radical. He’s the former economics editor for The Economist, and the book is widely praised by mainstream voices. He doesn’t challenge his profession or its core principles much, though there are plenty of insights and some blind spots are highlighted.

If I had a complaint, it would be that there was a bit of a contradiction on GDP. On the one hand, “I left Aceh thinking that economists’ lens on a growing economy, GDP, is the right one,” writes Davies. That’s not unreasonable, given that GDP was initially formulated to measure recovery and that’s exactly what we see in Aceh. Outside of that context, GDP fails to capture real progress because it leaves so much out. Later in the book, Davies writes that “we are missing huge chunks of the economy” by failing to measure social capital and informal networks – and these are overlooked because they’re invisible to GDP.

Still, kudos to Davies for taking a courageous series of journeys, presenting them in such a readable form, and for raising the question posed by the book’s subtitle in the first place: what life at the world’s margins can teach us about our own future.

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