Economies: Extractive vs. Inclusive

Since BJ is also a bookworm, I'm only teased a little about enjoying DW's stories.

Recently "Why Nations Fail." by Daron Acemoglu & James A. Robinson was read. Other DW fans might find it of interest.

Comparing DW's fictional economies with the historical economies in WNF is interesting: Extractive; Harchong & Imperial China; Legislaturist Haven & pre-revolution France; OFS and the British and Dutch East Indies companies or Inclusive; Charis & post 1688 Britain; Manticore & Industrial Revolution Britain; Yeltsin & the United States. Many other historical examples are covered in WNF.

An extractive economy is top down, and an inclusive economy is bottom up. As a result, an extractive one can be accomplish much - see USSR from 1923 to 1973, but will not have the destructive creation that produces major changes. WNF also discusses the political pressures that cause most extractive economies to become more so, and those which help inclusive ones to stay that way.

The most interesting parts are the discussions of how some nations change and others don't.

While re-reading "Midst Toil & Tribulation" a bit from chapter XI connected with an item from the internet.

Specifically, an internet discussion of the Laffer Curve (Important, if you don't know about it, look it up) pointed out that the point of maximum long term growth and the point of maximum immediate government revenue are not identical. The point of maximum growth requires less government extraction. In the book, about three pages into that chapter, there is a discussion among Charisian leaders about why it is critical to set aside part of current production to increase future production. To put in in investment terms, usually a company with good dividend growth outperforms one with high current dividends later.

In an extractive economy, there is no incentive for most people to use part of current production to increase future production. In fact, that could summarize what "Why Nations Fail" is pointing out. Do you think a company (like Apple) could have started in a garage or spare room in, say, Stalinist USSR Or any other extractive economy

Do they make the distinction between primary and secondary economy?

Primary is basically anything that results in a tangible product: farming, mining, manufacturing and construction. These are the only activities that can create value, and are the essential foundation of any economy; they have to support everything else.

Unfortunately, in our society a wide variety of secondary functions tend to get all the money, leading most people to dismiss the importance of the primary economy. Encouraged by idiotic tax policies, they are busily breaking up the foundation of our economy and shipping it off to China, then wondering why we can't get out of this recession.
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It is not within the power of any government to increase the value of unskilled labor, only to raise its cost.

Imaginos1892
Do they make the distinction between primary and secondary economy?

Primary is basically anything that results in a tangible product: farming, mining, manufacturing and construction.

Their distinctions is between looters and innovators. Basically, they cover what is needed to have people actively looking for better (cost or quality) methods.

A few current innovations in primary:

Intensive gardening - if the figures are right a full nutrition vegetarian diet for over 5,000 people per square mile is possible. We've put part of our back yard into garden and it is the best return on investment we have - as long as it is for ourselves. Selling adds costs

In mining, - bioleaching to extract from low concentration ores. Robotic trucks hauling the ore out of the mine. Better methods of locating and removing the resource (fracking & horizontal drilling).

Manufacturing - maybe 3D printing. Good for prototypes, possible for production if the costs are brought down.

Construction - mostly the new efficient buildings. A building that is self-heating and cooling (no furnace or air conditioning) that stays comfortable can be built in the continental US (except near Seattle and part of New England where winters are too cloudy) for 5 to 10% LESS than the cost of a like quality and size standard building. They look odd. It is also possible to rework an existing building, which is lower cost but less results. We've chopped almost half from our (North Dakota) heating bills, and get cheap cooling in the summer.

In secondary:

Fast foods - a robot burger flipping machine and an automatic cashier. Guess the people who want to get high wages at fast food places instead of working up to a better skilled job elsewhere won't succeed.

Education - at least one person we know has gotten totally a college education on line. I add that skilled labor can't do that without practice using tools. But there is at least one distance education course which includes the cost of a set of shipped tools suitable for the subject.
Strong odds there will be much demand for those able to work well with robots in the next few decades Lego has a robot kit if I recall right - as a toy.


I like "It is not within the power of any government to increase the value of unskilled labor, only to raise its cost." Add to that, labor is a cost which only makes sense if the value produced is higher than its cost.

The extractive paradigm tends to look at the costs and problems of innovative methods. With an inclusive economy, so many people can try out new things that sometimes there is a quantum jump in capability.

Note that historically, inclusive economies are only able to last in the long run when responsible people who are near the bottom have enough political power to prevent big shot looting.

Thinking reminded me of a book read some years back by Hernando de Soto (not the explorer, the Peruvian economist), "The Mystery of Capitalism." This is not as broad as WNF, but worth reading. deSoto's research is in contemporary countries, rather than historical ones and primarily covers property right's effects.

BTW, an interesting quote. "Economic freedom and cultural are not identical, but tend to go together. If you expand government control in one area, don't be surprised that it expands in others also."

I recall a short story by Murray Leinster where a brass hat hindered the cure of a non-standard plague. At the end, it resulted in certain personality types, who prefer control to solving the issue, to be forbidden to be in any government position. Don't I wish !


Dumb mistakes are very irritating.
Smart mistakes go on forever,
Unless you test your assumptions.

Respectfully, I do not understand what is being discussed here. I kinda understand basic economics, but I do not understand this.

All wealth must either be grown as crops or mined from the earth. Anything and everything else is just trading hats back and forth.

Any other economic model is doomed from the get go. I also must say that I do not recognize some of the terms being used here.

HB of CJ (old coot) Just me. I say we have less than 5 years before the global catastrophic economic collapse. Too many bubbles.

It just boils down to whether you extract, make, or sell really. Primary sector is mining, fishing, dairy, meat etc, the collection of resources. secondary sector is manufacturing and refining of materials into products. tertiary is the selling of products, or the service industry. A country will tend to lean towards one sector in particular, eg china and japan are manufacturers, so secondary, while NZ and Aus create resources for the world, so primary. primary focused countries do worst in bad times, because when problems come, people cut back, so les resources are sold. secondary do better because they can just switch manufacturing to a still usable product, and tertiary fare worse than secondary but better than primary, as part of their income is still services without product based (hair cuts etc) but worse than secondary as secondary can still produce with cheaper costs from primaries going down the gurgler, and sell to those tertiary still up.


That help?

HB of CJ wrote:Respectfully, I do not understand what is being discussed here. I kinda understand basic economics, but I do not understand this.

All wealth must either be grown as crops or mined from the earth. Anything and everything else is just trading hats back and forth.

Any other economic model is doomed from the get go. I also must say that I do not recognize some of the terms being used here.

HB of CJ (old coot) Just me. I say we have less than 5 years before the global catastrophic economic collapse. Too many bubbles.

The Planned Obsolescence economy is a new phenomenon created in the 20th century.

The economics profession is pretending that it is not happening.

So quite possibly we have created a new way to crash and the only sci-fi story I know of that describes anything close is The Mote in God's Eye.

DDHv wrote:...

In an extractive economy, there is no incentive for most people to use part of current production to increase future production. In fact, that could summarize what "Why Nations Fail" is pointing out. Do you think a company (like Apple) could have started in a garage or spare room in, say, Stalinist USSR Or any other extractive economy

A better question, could someone today repeat what Apple did? The answer is a very clear NO, because noone today can on such a small scale compete with largescale production of computers.

There would also be extreme problems with software, as anyone homebuilding computers would have a hard time to keep up with others present hardware, making such frequent changes in their own hardware needed, that finding a reliable supply of chips, and chips that work the same with their software, it becomes a big mess of almost every computer being unique.

30 years ago, you could easily buy individual chips and components, solder them onto a circuit board to build your own computer, today? Not really.

When i was a kid, i helped my brother do some soldering for his company a few times, he could do good business at the time.
Today, anyone trying to start up a company like that would be insane, because it just wont work.


And in regards to USSR, the big problem there wasn´t lack of creativity, but rather the computer parts embargo. And there were still quite a large number of homebuilds.
As well as some commercially massproduced computers.

https://en.wikipedia.org/wiki/Electronika_BK
One of those with a cpu that was not a copy or near copy of nondomestic origin.

https://en.wikipedia.org/wiki/History_o ... _computers

You do realize that your argument in this section is basically "computers are so complex that it's hard for a small company to compete" right?

The fact is it's fairly easy to get the parts and chips. The hard part is the soldering due to the size of the chips. You can quickly and relatively inexpensively get a small number of custom circuit boards too. The challenge is that most components are surface mount, not through-hole which means it's difficult to hand solder them.

Reliable suppliers for components are fairly easy to find, especially if you can do things with off the shelf (FBGAs are a very powerful tool as long as you have the knowledge and skills to program them).

Tenshinai wrote:A better question, could someone today repeat what Apple did? The answer is a very clear NO, because noone today can on such a small scale compete with largescale production of computers.

There would also be extreme problems with software, as anyone homebuilding computers would have a hard time to keep up with others present hardware, making such frequent changes in their own hardware needed, that finding a reliable supply of chips, and chips that work the same with their software, it becomes a big mess of almost every computer being unique.

30 years ago, you could easily buy individual chips and components, solder them onto a circuit board to build your own computer, today? Not really.
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