Kicking Away the Ladder. Development Strategy in Historical Perspective

Kicking Away the Ladder Development Strategy in Historical Perspective

Acknowledgments

Three names deserve special mention as key catalysts for the birth of this book. The first is Erik Reinert, who, through his incredible knowledge of economic history and history of economic thoughts, has directed me to many sources which I would not otherwise have even known about. The second is James Putzel; through his support for my undertaking a project on the history of institutional development, which forms the basis of the second of the main chapters (chapter 3), he provided the critical impetus to’ get this book going. Last but not least, I must mention Charles Kindleberger, who, despite his disagreements, provided me with exceptionally detailed and knowledgeable critical comment on an earlier version of the manuscript. He also drew my attention to the passage from Friedrich List, from which the phrase that forms the title of this book is taken.

I owe special thanks to Wolfgang Drechsler, Michael Ellman, Stanley Engerman, Peter Evans, Ben Fine, Ilene Grabel, William Milberg, Eyiip Ozveren, Peter Nolan, Howard Stein, Lance Taylor and Larry Westphal, who read various earlier versions of the book with great care and provided many important comments, not all of which I was able to incorporate into the final version of the book. Van Anantha-Nageswaran, Ashwini Deshpande, Jacob Gulman, SunMok Ha, Irfan ul Haque, John Grieve Smith, Haider Khan, Tony Miller, Leon Montes, Gabriel Palma, John Sender, Jang-Sup Shin, Judith Tendler, John Toye and Tianbiao Zhu also made many helpful suggestions. Jonathan Pincus gave me not only important intellectual comments but also provided me with a lot of useful editorial advice. Duncan Green, Jonathan di John, Richard Kozul-Wright, Sandra Pepera, Bob Rowthorn, Peter Temin and Roger Wilson all provided useful comments on the paper that eventually became chapter 3. The financial support for the research behind chapter 3 from the UK Government's Department for International Development is gratefully acknowledged.

The research for the book would have not been possible with the help of three extremely able and dedicated research assistants. Elaine Tan provided brilliant research assistance for chapter 3 and also made helpful comments on various parts of an early draft. Bente Molenaar was a very creative and careful assistant for all parts of the book, and also translated sources in Scandinavian languages for me. Edna Armendariz located and translated sources in Spanish, Portuguese and French. I must also thank Daniel Hahn, my personal editor, who has done a wonderful editorial job.

Kamaljit Sood, Noel McPherson and their team at Anthem Press have allowed an experience of publication which is beyond expectation in today’s sluggish and impersonal publishing world. Tom Penn, my editor at Anthem, gave me not only valuable editorial inputs but also important advice on substantive matters, especially on Tudor History.

The concentrated effort that was required for writing the book would not have been possible without a stable and loving family life. My parents and parents-in-law have always been the bedrock for our little English outpost. I finally wish to thank the members of this outpost, my wife, Hee-Jeong, daughter Yuna and son Jin-Gyu for their love and affection, in particular for putting up with my mad bouts of writing at irregular hours and my neglect of family duties.

Chapter 1 Introduction: How did the Rich Countries Really Become Rich?

1.1. Introduction

There is currently great pressure on developing countries from the developed world, and the international development policy establishment that it controls, to adopt a set of ‘good policies’ and ‘good institutions’ to foster their economic development.[1] According to this agenda, ‘good policies’ are broadly those prescribed by the so-called Washington Consensus. They include restrictive macroeconomic policy, liberalization of international trade and investment, privatization and deregulation.[2] The ‘good institutions’ are essentially those that are to be found in developed countries, especially the Anglo-American ones: The key institutions include: democracy; ‘good’ bureaucracy; an independent judiciary; strongly protected private property rights (including intellectual property rights); and transparent and market-oriented corporate governance and financial institutions (including a politically independent central bank).

As we shall see later in the book, there have been heated debates on whether or not these recommended policies and institutions are in fact appropriate for today’s developing countries. Curiously, however, many of those critics who question the applicability of these recommendations nevertheless take it for granted that these ‘good’ policies and institutions were used by the developed countries when they themselves were in the process of developing.

For example, it is generally accepted that Britain became the world’s first industrial superpower because of its laissez-faire policy, while France fell behind as a result of its interventionist policies. Similarly, it is widely believed that that the USA’s abandonment of free trade in favour of the protectionist Smoot- Hawley Tariff at the outset of the Great Depression (1930) was, in the words of the famous free-trade economist Bhagwati, ‘the most visible and dramatic act of anti-trade folly’.[3] Yet another example of the belief that developed countries attained their economic status through ‘good’ policies and institutions is the frequent claim that, without patents and other private intellectual property rights, these countries would not have been able to generate the technologies that made them prosperous. The US-based National Law Center for Inter-American Free Trade claims that ‘[t]he historical record in the industrialized countries, which began as developing countries, demonstrates that intellectual property protection has been one of the most powerful instruments for economic development, export growth, and the diffusion of new technologies, art and culture’.[4] And so on.

But is it really true that the policies and institutions currently recommended to the developing countries are those that were adopted by the developed countries when they themselves were developing? Even at a superficial level, there seem to be bits and pieces of historical evidence that suggest otherwise. Some of us may know that, in contrast to its eighteenth or twentieth-century nature, the French state in the nineteenth century was quite conservative and non-interventionist. We may also have read about the high tariffs in the USA, at least after the Civil War. A few of us have heard somewhere that the US central bank, the Federal Reserve Board, was set up as late as 1913. One or two of us may even know that Switzerland became one of the world’s technological leaders in the nineteenth century without a patent law.

In light of such counter-evidence to the orthodox view of capitalism's history, it is fair to ask whether the developed countries are somehow trying to hide the ‘secrets of their success’. This book pieces together various elements of historical information which contradict the orthodox view of the history of capitalism, and provides a comprehensive but concise picture of the policies and institutions that the developed countries used when they themselves were developing countries. In other words, what this book is asking is: ‘How did the rich countries really become rich?’

The short answer to this question is that the developed countries did not get where they are now through the policies and the institutions that they recommend to developing countries today. Most of them actively used