The Poverty of Nations by Grudem / Asmus: A Critical Review – Part 1 Economics

“We can win the fight against global poverty. We just need a better way forward.” So say Wayne Grudem and Barry Asmus in their recent book, The Poverty of Nations. And who would disagree? In a context where a billion people continue to live on around a dollar a day, and where the problem of poverty is not one of resource finitude, but resource allocation, the hope of Grudem and Asmus to end poverty is surely one to which we would all subscribe.

I began this book, then, with a great deal of optimism. Not only did it promise to describe “sustainable solutions” interwoven with “biblical values” it also had strong recommendations from a series of authors I admire: Rick Warren, Peter Heslam and Jay Richards to name just a few. I was, however, profoundly disappointed. And so, in this two part review, I want to show why I think Grudem and Asmus are deeply mistaken. In the first part, I shall address what I perceive to be the historical and economic deficiencies in the book. In the second, I shall deal with the biblical and theological issues. Of course, I have neither the theological expertise of Grudem nor the economic background of Asmus, but at the same time, the issues they address are precisely my issues of interest and if I’m wrong in my assessment of their book then I’m open to hearing why.

Let me begin though by providing a rough sketch of what the book is trying to argue. What we have in The Poverty of Nations is a sustained argument for neo-liberal economics as the solution to world poverty. As the title indicates, the focus of their work is the poverty of Nations. Their primary interest then is not global inequality as such and certainly not inequality within nations or the poverty of individuals. But they do have an interest in why some nations have grown in wealth and others have not, and it is to this problem that they direct their attention.

Their answer is free market economics. They write: “We are going to argue that a free market economic system is the best for bringing nations out of poverty…we define a free-market system as one in which economic production and consumption are determined by the free choices of individuals rather than by government, and this process is grounded in private ownership of the means of production.” They argue to this point by firstly making the case that national economic growth should be the main goal of any nation. Specifically, they say that this goal trumps that of reducing inequality. They then point out that though many other economic systems have been tried, the only one that has actually brought about national economic growth has been free-market economics. This then leads into a discussion of how such a system reflects a number of biblical principles, in particular those of private ownership, the value of hard work, personal responsibility, individual freedom, the goal of economic development and the provision of the earth and its resources for our benefit. They state that ending national poverty is indeed possible for any nation that follows their list of 35 recommendations: “To anyone in a leadership role in a poor country, the message of our book is this: there is a solution to poverty that really works. It has been proved again and again in world history. And it is supported by the moral teachings of the Bible. If this solution is put into place, we are confident it will lift entire nations out of poverty.”

As indicated, I have numerous misgivings about their proposals and in this first part I will simply indicate what I consider to be three of the more egregious economic and historical mistakes.

Economic Mistake #1: Countries that have transitioned from poverty to wealth did not do so by free-market principles alone.

Grudem and Asmus make a lot of this point, arguing that the only system that has been shown in practice to enable countries to escape poverty has been the free market. They point to Britain as an example, citing its mechanized production of cotton textiles and adoption of a free-market approach as the key driver of British economic prosperity. The problem with this argument is that it is not true. As numerous development economists have pointed out, long before Britain began the industrial revolution in cotton, India had a thriving textile industry. Far from advocating a free-market response to this challenge, British industrialists called for and were afforded a series of import tariffs on processed Indian cotton of up to 80%. Simultaneously, they used their political and military might to force Indian markets to accept British processed cotton. The result of this was that the Indian textile industry switched to exporting raw cotton to Britain and received in turn finished textiles from their colonial masters. This unequal trade made Britain wealthier and Indians poorer (or at least not as wealthy as they would have been without the import tariffs). My point is that while Grudem and Asmus try to suggest that this is a triumph of free-market economics, it represents in reality, the precise opposite. Only by protecting the nascent British textile industry was Britain able to turn it into a profitable venture. The same point could be made about the so-called East-Asian miracle economies. South Korea, in particular, did not grow because it adopted unconstrained free-market principles. It grew economically because it adopted a very judicious approach of infant industry protection, particularly in relation to high technology goods. Indeed, the US itself – apparently the epitome of free markets – also used some infant industry protection in its history of economic growth. The reason this matters is that Grudem and Asmus (and the WTO and some Western governments) continue to require developing economies to open up their young industries to global markets, arguing that free trade is the only route to economic prosperity. It wasn’t the route that those richer nations took so why it should be the path for other less prosperous countries today.

Economic Mistake #2: Communism and free-markets are not the only alternatives.

Throughout the book, one of the more frequent ways in which Grudem and Asmus pursue their argument is by pointing to the lack of economic development associated with communism and then stating that, therefore, a free-market economy is the only possible alternative. They quote with approval Milton Friedman who said, “Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion – the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals – the technique of the market place.” In a number of places, they conflate socialism and communism, and on at least one occasion, they specifically state that there is no “third way” of the modern welfare state. In saying this, they argue that the European welfare model is necessarily bankrupt and all we need to do is wait and watch its demise. Notwithstanding the fact that Europe certainly does have a sovereign debt crisis, it is also equally clear that the US has a major economic problem with national debt levels reaching record levels of some $17trillion in 2014. To suggest that the US neo-liberal model has ‘worked’ while the European ‘welfare’ model has failed is ridiculous. Grudem and Asmus suggest, for instance, that “Wherever a free-market system…is allowed to function, life, health, liberty and prosperity are all improved.” It is perhaps telling that despite costing substantially less (some say 96% less) than US healthcare, Cuba continues to achieve better infant and child mortality rates than the US and an equivalent life expectancy. My point is simply that our options are not limited to state communism or neoliberal economics. There are a range of ‘third ways’ that generate economic prosperity and positive outcomes (see Sedlacek and Ha-Joon Chang for a list of alternatives) and if the only argument they have for neoliberalism is that communism is worse (and this does seem to be the only economic argument) then their argument has incredibly fragile foundations.

Economic Mistake #3: Poor countries are not primarily responsible for their own poverty

Perhaps the worst argument that Grudem and Asmus give us is that the main reasons poor countries are poor is because of their own behaviours and practices. They list 70 factors that operate within poor countries that keep them poor. In making this argument, they mention the problem of trade tariffs, subsidies and debt, but their claim is that these represent secondary factors in ongoing poverty. “The important point is that poverty cannot be solved by blaming it on other factors or entities, even the nations that dump subsidized commodities on the world market.” However, as a recent report by the African Development Bank and Global Financial Integrity has indicated the net financial flow over the last 30 years has not been to Africa, but rather from Africa to the rest of the world to the tune of $1.4 trillion. In other words, we don’t give to Africa, we take from her. Moreover, the main driver of this financial flow has been illicit trade and tax practices that have stripped Africa of its sovereign wealth. Grudem and Asmus minimise this by suggesting that poor nations voluntarily sell their products to richer nations and that this is all part of a fair, free market system. What they fail to discuss is the rampant practice of trade mispricing in which export prices are artificially lowered in order to avoid paying higher tax revenues in the country of origin. The ADB / GFI report suggests that such practices may represent the biggest contributor to illicit financial flows from Africa. Yet, Grudem and Asmus do not even discuss this in any kind of detail, calling it Marxist ideology and thereby dismissing it without discussion. However, if the poorest countries in the world are net contributors to the rest of the world, and if the vast majority of that contribution is in the form of illicit financial flows then it is just plain wrong to say that poor countries are responsible for their own poverty. Trade mispricing (aka tax dodging) is not orchestrated by poor countries or their national governments, it is orchestrated by Western owned multinationals. National governments in poorer countries may collude with this practice, but to suggest that the West has no responsibility in it or that the resulting poverty has little to do with the practice of these multinationals is to ignore the reality that confronts us.

Space does not permit me also to critique their claims that lower taxes stimulate growth, that aid fosters corruption and doesn’t contribute to economic growth, that the West hasn’t contributed to famines in the third world or that nations don’t buy commodities, only a multitude of companies do. My point is that while this book might persuade those already steeped in the neo-liberal economic consensus, it is unlikely to persuade those who have some passing familiarity with alternative economic paradigms. My fear, however, is that because Grudem, in particular, is so well known in conservative evangelical circles that those who trust him theologically will also trust him economically, particularly if that is not their area of expertise. It is partly, for that reason, and partly because this book does make a series of somewhat strange biblical and theological claims that the second half of this review will be devoted to those issues. The purpose of this first part of the review was simply to state that on economic grounds alone, I find the arguments they present less than convincing.