C.P. Chandrasekhar, discussing the so called middle income trap, where developing countries stall out at a slightly improved standard of living.

Why did places like Hong Kong, Korea, Singapore, and Taiwan become prosperous, while newer partners to the dance don’t.

Money quote is at the end:

And there are many who argue that growth in Asia stalled not before they liberalized but after they did. This is based in particular on the evidence that dynamism in Asian economies other than China, and to an extent India, faltered after the 1997 crisis. That crisis, we must recall, was related to the financial liberalisation many of these countries were forced to adopt, either as a quid pro quo for continued access to the export markets on which they were excessively dependent, or because waning manufacturing export competitiveness as a result of rising wage costs and appreciating currencies, pushed them into liberalisation of financial policies in the hope of making financial services the new engine of growth. The result was vulnerability to boom-bust cycles of various kinds that led to the synchronised downturn in many countries (with Thailand, Korea, Malaysia and Indonesia, among them) in 1997-98.

This should possibly lead to two conclusions. The first is that, beyond a point export-driven growth has a way of running into internally generated constraints. Second, that among the factors that can undermine a country’s growth prospects, even at relatively higher income levels, is excessive liberalisation, especially financial liberalisation. Possibly most countries, whether poor, rich or in some ‘middle income’ range, find their growth has stalled for reasons such as these.

(Emphasis mine)

Hong Kong, Korea, Singapore, and Taiwan experienced their growths during the 1960s and 1970s, before we had “liberalization” (deregulation) and expanding inequality.

I tend to come from this from a more sociological perspective than a classical economic one, and I would argue that a liberalized economic policies, and in particular financial liberalization, is analogous to the colonial regimes in the 1800s.

The expanded financial services industries suck the marrow out of, well basically everyone in an orgy of non productive rent sinking, much like the colonial Satraps in the time of Victoria.

Basically, the banksters are f%$#ing the rest of us like a drunk sorority girl.

It shows that Timothy Geithner’s, and Wall Street’s creepy vision of the future:

Geithner hunched his shoulders, pressed his knees together, and lifted his heels up off the ground—an almost childlike expression of glee. “We’re going, like, existential,” he said. He told me he subscribes to the view that the world is on the cusp of a major “financial deepening”: As developing economies in the most populous countries mature, they will demand more and increasingly sophisticated financial services, the same way they demand cars for their growing middle classes and information technology for their corporations. If that’s true, then we should want U.S. banks positioned to compete abroad.

Is a disaster for the rest of us.