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| Kicking
Away the Ladder - Development Strategy in Historical
Perspective |
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| Author
: Ha-Joon Chang (Faculty of Economics and Politics,
University of Cambridge) |
Published
by: Anthem Press, London. |
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| Price
: £14.95 (US$ 22.50, approx.) |
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Click to Enlarge
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There is currently
great pressure on developing countries to adopt
a set of "good policies" and "good
institutions" to foster their economic development.
Naturally, there have been heated debates on whether
these recommended policies and institutions are
appropriate for developing countries. However,
curiously, even many of those who are sceptical
of the applicability of these policies and institutions
to the developing countries take it for granted
that these were the policies and the institutions
that were used by the developed countries when
they themselves were developing countries.The
book, on the basis of a detailed and careful review
of historical evidence, |
argues that this
cannot be further from the truth – the developed
countries did not get where they are now through
the policies and the institutions that they recommend
to the developing countries today. Most of them
actively used "bad" trade and industrial
policies, such as infant industry protection and
export subsidies – practices that are frowned
upon, if not actively banned, by the WTO these
days. Very interestingly, the UK and the USA,
which most of us think as the paragons of free-trade
and free-market policies, were the most ardent
users of such policies in the earlier stages of
their development. In terms of institutional development,
until they were quite developed (say, until the
early 20th century), the developed countries had
very few of the institutions deemed essential
for developing countries today, such as democratic
political institutions, a professional bureaucracy,
and the central bank. Indeed, when they were developing
countries themselves, the developed countries
had much lower-quality institutions than today's
developing countries at comparable levels of development.
If this is the case, aren't the developed countries,
under the guise of recommending "good"
policies and institutions, actually making it
difficult for the developing countries to use
policies and institutions that had allowed them
to develop economically in earlier times? Friedrich
List, the mid-19th-century German economist who
perfected the theory of infant industry protection
(which interestingly was first systematically
developed by the first US Secretary of Treasury,
Alexander Hamilton), certainly thought so. He
criticised the British preaching of the virtues
of free trade to countries like Germany and the
USA as an attempt to “kick away the
ladder”, with which Britain climbed to the
top.
Pointing out that the allegedly "good"
policies and institutions recommended by the Bretton
Woods institutions and the developed country governments
have not been able to generate the promised growth
dynamism in the developing countries during the
last two decades or so, the book calls for a radical
re-thinking on development strategy.
The book argues that, first of all, the above-mentioned
historical facts about the developmental experiences
of the developed countries should be more widely
publicised so that the developing countries can
make more informed choices about policies and
institutions. Second, it argues, policy-related
conditionalities attached to financial assistance
from the IMF and the World Bank or from the donor
governments should be radically changed, on the
recognition that many of the policies that are
these days considered "bad" are in fact
not, and that there can be no “best practice”
policy that everyone should use. Third, the WTO
rules and other multilateral trade agreements
should be re-written in such a way that a more
active use of infant industry promotion tools
(e.g., tariffs, subsidies) is allowed. Fourth,
improvements in institutions should be encouraged,
but this should not be equated with imposing a
fixed set of (in practice, today's – not
even yesterday's – Anglo-American) institutions
on all countries. Special care has to be taken
in order not to demand excessively rapid upgrading
of institutions that are not really essential
in the earlier stages of economic development
(such as strong intellectual property rights),
when these countries already have relatively high-quality
institutions by historical standards and when
institutional upgrading can divert resources away
from other crucial sectors such as education,
health, and infrastructure.
The book argues that by adopting policies and
institutions that are more suitable to their stages
of development and to other conditions they face,
the developing countries will be able to grow
faster. This will benefit not only the developing
countries but also the developed countries in
the long run, as it will increase the trade and
investment opportunities available to the developed
countries in the developing countries.
Review by Ronald P.
Dore
Cavanazza,
Italy.
The thesis that the advanced industrial countries,
including the United States, made full use of
protectionist policies which the Washington consensus
condemns in developing countries today is brilliantly
argued by Ha-Joon Chang in his Kicking away the
Ladder: Development Strategy in Historical Perspective.
He takes the title from Friedrich List, whose
arguments for infant industry protection (against
the free trade ideology propagated by a Britain
that had by then climbed the ladder to dominance)
are well known. What is less well known is that
List got his ideas from people like Alexander
Hamilton during his exile in that present-day
home of the Washington consensus, the United States.
Chang begins by setting out what one might call
the Whig version of economic history - beggar-my-neighbour
mercantilism gradually giving way to free trade
enlightenment once Britain had got rid of the
Corn Laws; a gradual worldwide liberalisation
until the First World War; much backsliding thereafter
culminating in the Great Depression; significant
progress after the Second World War but a lot
of dirigisme in the rich countries and predominant
protectionism and interventionism in the developing
countries until the collapse of the communist
bloc sealed the world triumph of progress and
righteousness in the neo-liberal Washington consensus.
The historical detail with which he rebuts the
story divides into two parts. The first, on what
he calls ITT policies (industrial, trade and technology),
looks not just at tariffs but at the whole gamut
of industrial policy as well. His demonstration
that such policies were widely used, even by Britain
in earlier centuries, and much more generally
by later 'catchers-up' (and his explanation
of why countries like Switzerland could be successful
exceptions), is fascinating and convincing, especially
the more modern cases of full use of state activism
like Japan and Korea. That part of the argument
addresses what has hitherto been the predominant
focus of Washington consensualist preaching to
the developing countries. The second part concentrates
on the more recent emphasis - in loan conditionalities,
for instance -on building or adopting 'good'
institutions. He considers in turn democracy,
the bureaucracy, the judiciary, property rights,
corporate governance, financial institutions,
labour and welfare.
Here it is not so much a matter of kicking away
ladders as asking whether the apples that those
already up in the tree are offering to throw down
have got worms in them, whether they suit the
tastes or powers of digestion of those still on
the ground, or will distract them from the prime
task of looking for ladders. Here we are in the
familiar 'is democracy or authoritarianism
better for development' debate, which, as
Chang says, is much more complex than can be dealt
with by the simple 'catchers-up advantage'
point that late-developing countries do not have
to reinvent all the institutional devices of competition
policy any more than they have to reinvent the
steam engine.
Chang's succinct demonstration of how far
the now-developed countries fell short of their
present prescriptions when they too were poor
is highly germane to the 'can they adopt'
question. That still leaves open a lot of 'if
they can should they' questions -
particularly on the finance and governance issues
that preoccupy Stiglitz.
The
book has been chosen as the winner of the 2003
Gunnar Myrdal Prize awarded by the European Association
for Evolutionary Political Economy on behalf of
the Gunnar Myrdal Foundation. |
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| May 13, 2002. |
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