1. Inclusive Growth Erik S. Reinert (Norway) Professor of Development Strategies Tallinn University of Technology, Estonia Maputo, October 14, 2015.

2. In the beginning there were traditional societies…. Traditional pre-capitalist societies everywhere were inclusive, but there was little or no growth. The key economic principle is reciprocity, that the members of the clan/society helped each other mutually. Instead of trade there was barter.

3. Pre-Capitalist Societies. These were characterised by the absence of Karl Polanyi’s three «fictitious commodities»: Money Labour as a commodity Private ownership of land Karl Polanyi: «The Great Transformation» (1944)

4. Transition to Capitalism: In (most of) Europe the transition from traditional societies to modern capitalism was characterised by enormous inequalities under feudalism. In feudal societies «1 per cent» of the people owned «99 per cent» of the land. Only 3 European countries – Switzerland, Iceland and Norway – had virtually no feudalism, but instead had independent farmers.

5. The Role of the Cities. Economic equality grew out of the handicraft and industrial activities in the cities. The cities were a safe-haven from feudalism and it was here seriuos growth, and inclusive growth, started.

6. Antonio Serra (1613). Explained why city activities are needed to create wealth.

7. The Nordic Experience Sweden: Industrialization started very early. The country had the world’s first company with limited liability – Stora Kopparberg – and the world’s first Central Bank (1660s). Sweden also had great economists who understood why they needed industries (1700s). Denmark followed in the 1700s, emphasizing the synergies between agriculture and manufacturing. The latecomers were the two former «colonies», Norway and Finland which only had serious industrialization after 1850.

8. Some nations just take off… Source: original data extracted from Angus Maddison, The World Economy, Paris, 2003

9. The Heritage of Colonialism: ‘ That all Negroes shall be prohibited from weaving either Linnen or Woollen, or spinning or combing of Wooll, or working at any Manufacture of Iron, further than making it into Pig or Bar iron: That they be also prohibited from manufacturing of Hats, Stockings, or Leather of any Kind … Indeed, if they set up Manufactures, and the Government afterwards shall be under a Necessity of stopping their Progress, we must not expect that it will be done with the same Ease that now it may ’. Joshua Gee, Trade and Navigation of Great Britain Considered, London, 1729.

10. The Heritage of Colonialism: Economic structure and population carrying capacity Hunting and gathering soc. 1-2 persons / km2 Agricultural societies 40 persons / km2 Industrial soc (ex. Holland)400 persons / km2 Only nations with a large manufacturing sector (rather: a large sector with activities subject to increasing returns) are able to feed a large population. Famines are normally only found in nations specialising in agriculture.

11. An idea that united capitalism and communism: wealth cannot be created without manufacturing

12. The World Bank confirms Friedrich List: “Except for a few oil-exporting countries, no countries have ever gotten rich without industrialization first’ Justin Yifu Lin. World Bank Chief Economist, New Structural Economics: A Framework for Rethinking Development and Policy, Washington DC: World Bank Publications, 2012, p. 350.

14. Warning from a Venezuelan Minister of Petroleum and a Founder of OPEC:

15. The Virtuous Circles of Economic Development: Marshall Plans Source: Reinert (1980), p. 39. Productivity Increases (Activity-Specific) Large Scale of Production Highly Diversified Economy Systemic Synergies Higher Investments Higher Profits Under- development Higher Capital Labour Ratio Exit from System Economies of Scale and Scope Children as inferior goods. Less population, attracts migrants Higher Real Wages Lowering Export Prices at the same rate as Productivity Increases Higher Demand Higher Savings Higher Possibility for Taxation (better Health, Education, etc.) Labour Saving Technology Pays Off No Increase in Real Wages

16. The Vicious Circles of Poverty: Morgenthau Plans Engaged in Production of Technologically Mature Products and Products Subject to Diminishing returns Little Productivity Increase Perfect International Competition Reversible Wages Productivity Increases Taken Out As Lowered Prices No Increase in Real Wages Investment in Labor Saving Technology Unprofitable Demand Low Savings Low Low Possibility for Taxation - (Poor Health, Education, etc.) Balance of Payment Problems Break-down of the Capacity to Import Low Capital, Labor Ratio Many children as an asset. Population grows Small Scale of Production (Imports Cheaper Due to Scale Economies) No Diversity of Production Low Investments Low Wages vs. Other Nations Comparative Advantages in Labor-Intensive Activities