The Capability Ratchet

Every few decades, a commodity boom convinces a country that it has found its path to prosperity. Copper, oil, nitrate, nickel, soy, or gas pours foreign currency into the economy. Governments expand, wages rise, the currency strengthens, and imports become cheap. For a while, the boom looks like development. Then prices fall, and the country discovers how little of the prosperity was anchored in anything it could keep.
This book is about what a country can keep. Its starting point is a simple observation from the research on economic complexity, developed over the past two decades by Ricardo Hausmann, César Hidalgo, and their colleagues: the long-run wealth of nations is closely tied to the variety and sophistication of the things they know how to make. A country that exports electronics, machinery, chemicals, and medical instruments has accumulated productive knowledge, spread across firms, workers, and institutions, that is hard to build and hard to lose. A country that exports mainly raw materials may be rich for a time, but its knowledge base is narrower, and its income rises and falls with prices it does not control.