Extreme Economies – disaster zones with lessons for us all

7th January, 2020

In the 17th century, a boy named Hugh Montgomery fell from his horse and lost part of his rib cage; doctors replaced it with a metal plate and he survived — with a living heart that could be inspected by the pioneering doctor William Harvey. Phineas Gage survived a metal spike through his head in 1848, and the changes in his character inspired fresh understanding of how the brain works. If we can learn about the healthy human body by studying people who have suffered catastrophic injuries, might a similar trick work for economics?

That is the premise of Richard Davies’s book, in which he reports on economies that he views as unusually resilient, such as Aceh after the dreadful tsunami of 2004, or dysfunctional, such as Glasgow and Kinshasa, or otherwise extreme, such as Akita in Japan, where the average age is 53.

This is an unconventional approach. Economists and business journalists tend to focus on the same broad trends in the same major economies. But Davies suggests, plausibly, that many parts of the world will eventually have the demographics of Akita, the inequality of Santiago or the squandered environment of Darien, Panama, and so a journey to the extremes gives us a glimpse of our own future. Even when it does not, there is always the thrill of exploration.

I sympathise with the conceit. One of my own books, The Undercover Economist Strikes Back, lingers on RA Radford’s remarkable 1945 account of an economic system emerging in a prisoner-of-war camp. Quite apart from the grim fascination of the subject matter, a prison camp teaches us a surprising amount about how a real economy works.

Similarly, Davies studies the irrepressible markets inside the Louisiana State Penitentiary. There’s the mackerel economy — mackerel being light, standardised and durable, it makes a good currency — and the “dot” economy. In the outside world, Green Dot pre-paid plastic cards, as good as cash in most stores, can be loaded with value by purchasing a “MoneyPak”, which is essentially just a 14-digit code, the “dots”. Inside the prison, prisoners can bribe guards or pay each other large sums, untraceably; all they need is for an associate to pass them the “dots”.

Extreme Economies makes two promises: to give us a global tour of disaster and recovery, showing us places we would never see first-hand; and to teach us something about how ordinary economies work by studying extreme ones. Davies delivers impressively on the first promise, with crisp and sensitive reporting from an extraordinary range of inaccessible places.

The lessons, however, are more uneven. Davies notes, for example, that after the Aceh tsunami, the few survivors were able to sell their gold jewellery to local gold traders Harun and Sofi, who could access the international market price. That gold was always intended as saving for hard times, and Davies tells us it worked as intended, in “contrast with the western financial system”. Yet while gold bracelets worked, bank accounts would have worked better — it took three months for the gold traders to be up and running again. If there is a lesson for the reform of the western banks here, Davies does not tell us what it is.

While the post-1945 decline of Glasgow’s shipyards is well described, it is not fully explained: the yards on the Clyde did not invest in dry docks, says Davies, but he does not say why. And in the camp of Zaatari in Jordan, Davies praises the entrepreneurial spirit of Syrian refugees, noting that in 2016 the ratio of new to established firms was world-beating. He fails to acknowledge that since Zaatari was barely four years old at the time, it is surprising that the ratio wasn’t higher. One sure way to have a high ratio of start-ups is to live in a place that until recently did not exist.

That aside, the descriptions of Zaatari are a triumph. Davies takes us inside, introduces us to the residents and deftly sketches both their many struggles and some of the pleasures of life in the camp. The contrast with another camp, Azraq, is unforgettable: Azraq is better planned but much more tightly controlled. Life there is equitable but joyless. As a discussion of the strengths and weaknesses of markets versus planned economies, Extreme Economies is one of the most subtle and surprising I have read. Davies sets the austere modernism of Azraq against the messy improvisations of Zaatari. It’s not just about access to material goods, but the way Azraq is “desolate, empty and depressing”. The homes in Azraq are sturdier, the electricity supply more reliable — and yet few people wish to move from Zaatari to Azraq.

Davies returns to Zaatari, and sits on a rooftop sipping orange soda and eating grilled chicken, contemplating the camp’s joys and sorrows. Here he delivers on his promises, giving us a glimpse into a different world, and a lesson learnt about our own.

Written for and first published in the Financial Times on 6 December 2019.

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My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop.

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