Published by EH.NET (August 2007)

Richard H. K. Vietor, How Countries Compete: Strategy, Structure, and Government in the Global Economy. Boston: Harvard Business School Press, 2007. vi + 308 pp. $35 (hardcover), ISBN: 978-1-4221-1035-5.

Reviewed for EH.NET by Jari Eloranta, Department of History, Appalachian State University.

Richard Vietor, a prominent Harvard scholar who is comfortable in many fields including business history, economics, and management, has written a comprehensive and rich survey of the “unique social, economic, cultural, and historical forces that shape individual governments’ approach to economic growth.” The book builds from his extensive research and consulting experience, providing in essence a thesis of why government can serve a crucial role in the economic development of nations. Vietor argues that government can do this in a variety of ways in order to advance the performance of business, namely by inducing savings and offering low interest rates, guaranteeing property rights and other necessary institutions, providing an educated workforce, and maintaining low inflation. The main thrust of the book is to posit that institutions are the central building blocks of any economy, and that “good” institutions are vital for sustained economic development. This argument is not very new, albeit his emphasis on the role of the government is a bit more novel. He wants the book to serve as sort of a manual for business managers, so that they can learn from the past and the present, as well as to be able to handle future challenges.

This volume is divided into three sections. The first focuses on the Asian high growth experience, in particular on Japan, Singapore, China, and India. Vietor’s reason for this is that he wants to reel in the casual reader by discussing the cases that are the most visible examples of his arguments. The spectacular growth performances of these nations are discussed at length in the book, usually preceded by rather skimpy historical introductions. By and large, he emphasizes the role of government policies and institutions in producing high savings and investment, low inflation and wages, and the transitions toward export-led development strategies. The second part discusses cases in which institutional transitions have been less successful, such as Russia and Mexico. Vietor argues that the main difference between for example Latin America and Asia has been the lack of institutional progress and stability. The third, and final, section of the book analyzes the role played by deficits, debt patterns, and persistent stagnation in the development of the biggest economies in the world. His main focus is on comparative analysis of the development paths of the European Union, Japan, and the United States. The main message of this section appears to be that having a strong governmental presence in the economy does not necessarily have adverse effects for economic growth, a message that is obviously aimed at American policymakers.

While this volume is certainly well researched and fluently written, even appealing for lay readers too, it has some weaknesses. The first is that it is written for a general audience and mostly lacks theoretical depth, for example in its treatment of institutions. Vietor does not address some of the major developments in the field of institutional economics and history, in particular the common division between formal and informal institutions. For him institutions seem to mainly consist of the former kind, produced by various governmental organizations. The analysis would have been enriched by a comparative analysis of the evolution of particular informal institutions and cultural development patterns, as done before by Douglass North and Avner Greif, among others. My second point of criticism, or curiosity, pertains to the selection of the country cases. For example, why focus so heavily on the European Union as a uniform entity and then select Italy as an illustrative case study of its problems? Vietor’s treatment of the integration process itself, and its history, is superficial at best. Moreover, if the author wanted to make a point about government-business relations and the beneficial role of the state, why not choose the Nordic countries as cases, given the performance of their welfare states and corporatist institutions? Third, the book is very light in terms of quantitative evidence to support the main arguments, mostly because the book is meant for a broader audience. Specialists, however, will be clamoring for more evidence to prove some of the causal linkages inferred by the author. For instance, the link between military spending and economic growth, as Vietor intimates in the case of Japan, is not necessarily that straightforward and the so-called peace dividend is often hard to come by.

All in all, it is very difficult to do justice to such a broad, proficient, and comparative analysis of today’s global economy in such a brief review. It is certainly a worthwhile read for anyone interested in the issues of institutional and economic development, role of the state in the current era of globalization, and comparative analysis of economic processes. If the reader is interested in detailed economic history and analysis of the countries covered in the book, then perhaps it would be useful to refer to more specific studies on those polities. While this book lacks some of the explanatory power and evidence of the usual academic tomes, it more than makes up for this in its powerful narrative. It is also very well written and should appeal to policymakers, business managers, and other informed readers both domestically and abroad.

Jari Eloranta is Assistant Professor in the Department of History, Appalachian State University in Boone, North Carolina. His research interests include corporate political action in the long run, defense economics and the financing of wars, as well as the analysis of government spending in the nineteenth and twentieth centuries. His publications include: “The Evolution of Corporate Political Action: A Framework for Processual Analysis” (with Juha-Antti Lamberg, Mika Skippari, and Saku M?kinen) Business and Society (2004); “Rent Seeking and Collusion in the Military Allocation Decisions of Finland, Sweden, and the UK, 1920-1938” (forthcoming, 2008) Economic History Review; and “Struggle for Leadership? Military Spending Behavior of the Great Powers, 1870-1913” (2007) European Review of Economic History.