Why are the biggest winners in the past decade of trade globalization mostly in South and East Asia, whereas the biggest losers are mostly in the former Soviet bloc and sub-Saharan Africa? History is a partial guide: East Asia has a millennia-old trading tradition, lately reinvigorated by the Chinese adoption of market economics. The Soviet Union, on the other hand, was sheltered from free-market forces for more than 70 years. In Africa, civil strife or inadequate infrastructure, which results in high transport costs, has hobbled a number of economies. Some are disadvantaged because they are landlocked; many have little to trade but commodities, prices of which have fallen in recent years.
In some regions, certain countries have suffered by adopting misguided policies, often under pressure from international institutions such as the International Monetary Fund. First among these is Russia, which in the early 1990s tried to embrace capitalism before first building the institutions that make capitalism work, such as an independent banking system, a system of business law, and an adequate method for collecting taxes. Encouraged by the IMF, the World Bank and the U.S. Department of the Treasury, President Boris Yeltsin's regime privatized the state-owned industrial sector, creating a class of oligarchs, who, knowing how unstable conditions were at home, sent their money abroad instead of investing it at home. Under IMF pressure, Russia imposed an overvalued exchange rate, a boon to those who imported luxury goods but a depressant for exporting industries. The result was a disaster for employees, who were frequently not paid or paid in goods, not rubles.
This article was originally published with the title Winners and Losers.