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Truly Creative Destruction

from Foreign Affairs, What Kills Inequality- Redistribution’s Violent History By Timur Kuran

In his 1982 book, The Rise and Decline of Nations, the economist Mancur Olson answered that question by arguing that rather than handicapping the economies of the Axis powers, catastrophic defeat actually benefited them, by opening up space for competition and innovation. In both Germany and Japan, he observed, the war destroyed special-interest groups, including economic cartels, labor unions, and professional associations. Gone were Germany’s partisan unions and Japan’s family-controlled conglomerates; the U.S. Teamsters, the United Kingdom’s Society of Engineers, and France’s Federation of Building Industries all survived. A generation after the war, only a quarter of West Germany’s professional associations dated back to the prewar era, whereas a full half of the United Kingdom’s did. Olson’s findings had a disturbing implication: in politically stable countries, narrow coalitions of business lobbies hold back economic growth through self-serving policies, and only a major military defeat or a grisly revolution can overcome the resulting inefficiencies. 

HKO

An interesting counter to the myth of destruction being productive.  What was also destroyed in Europe was growth limiting cronyism and central power.  Krugmanites will argue that the destruction  caused a demand driven economy, but one only has to compare the difference in the results between East and West Germany and Europe to see the shallowness of that analysis.

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Category: Economics

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