Economics

The Lexus and the Olive Tree by Thomas L. Friedman

This book explains globalization and why it's good for developing nations, from the perspective of a liberal who understands the value of free markets. I bought it expecting an anti-globalization rant - liberals typically view globalization as being a homogenizing force that destroys native cultures in the name of capitalistic greed. But Friedman is a "neoliberal," meaning that he wants to help the poor and downtrodden of the world, but realizes that helping them help themselves through free markets, commerce, and healthy capitalism is the best way to accomplish that goal.

The writing is not quite my style (very down to earth, focused on the human element at play in each situation, with lots of interviews with heads of state in developing nations), the concepts explored are extremely interesting.

One is the "electronic herd" - the mass of decentralized investors consisteing middle-class people in 1st world countries investing in foreign markets through online day trading. The herd knows that developing nations can give a wonderful return on investment, so they are eager to invest in dirt-poor nations potentially on their way up. But they demand good government institutions such as minimal tariffs, freedom from oppressive regulation, wise currency managment, and above all transparency in government and business. The last bit is incompatible with the highly corrupt regimes which are in place in most poor nations. Oppressive dictators find themselves in the position of trying to liberalize their government practices and root out corruption, all in the name of pleasing the herd - the source of investment capital that is an important element in leading their nation to prosperity.

Another one is what Friedman calls the Golden Arches theory. He points out that no two nations that have a McDonald's have ever been to war. This doesn't have anything to do with McDonald's, specifically. It's that once a nation reaches a level of prosperity that McDonald's is willing to open a franchise there, it means that its residents would rather negotiate and trade with their neighbors than they would fight, kill, or conquer them. This is a powerful encapsulation of a complex concept: that prosperity and free markets are the cause of peace, not a symptom. Peace on earth, surprising as it may seem, is a matter of economics.

Rating: 3 of 5
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