not centuries, to develop institutions, and that there were frequent setbacks and reversals during the course of the process. Seen from this perspective, the 5 to 10-year transition periods currently being given to the developing countries to bring their institutions up to ‘global standards’ are highly inadequate. Moreover, given that today’s developing countries are already institutionally more advanced than were the NDCs at comparable stages of development, asking these countries to install a whole range of new ‘global standard’ institutions in short periods of time seems unrealistic. This, of course, should not mean that developing countries should adopt institutional standards of the last century. Nor should it make developed countries accept any ‘we-are-not-ready-yet’ argument put forward by governments of developing nations (more on this point later in section 4.4). However, it is clear that there should be a keener recognition of the speed – or lack of it – with which institutional development can be achieved in developing countries.
The second qualification I wish to make is that ‘good’ institutions produce growth only when they are combined with ‘good’ policies. As the reader can probably guess, when I say ‘good’ policies here, I mean the policies that most NDCs were using when they were developing, rather than the ones that they are now recommending to the developing countries. The fact is that, despite the continuous, and presumably accelerating, improvements in the quality of their institutions, today’s developing countries have experienced marked slowdowns in growth during the last two decades (see section 4.2). In my view, this was because the ability of these countries to pursue the ‘(genuinely) good’ policies was significantly curtailed as a result of the ‘policy reforms’ implemented during this period.
Table 4.3 shows that the average per capita growth rate among developing countries has fallen from around three per cent p.a. during the period 1960-1980 (see table 4.1) to 1.5 per cent p.a. for 1980-1999.[12] The latter is basically the rate of growth that the NDCs achieved during the late nineteenth and early twentieth centuries (1875-1913) when they were hampered by less favourable institutional conditions than those experienced by the developing countries of today (see table 4.2). The only sub- groups which achieved growth rates above that level during this period were East Asia (and Pacific) and South Asia, whose growth rates are dominated by those of China and India respectively. The interesting thing to note is that both these countries are frequent lambasted by the IDPE for the poor quality of their institutions and policies. If we had excluded these two countries from our calculation of developing country average, we would have ended up with a much lower growth rate still.[13]
| Table 4.3 | |||
|---|---|---|---|
| Per capita annual GDP growth rates (per cent) in developing countries during the ‘Age of Institutional Reform’ | |||
| 1980-1990 | 1990-1999 | 1980-1999 | |
| Developing Countries | 1.4 | 1.7 | 1.5 |
| --East Asia and Pacific | 6.4 | 6.1 | 6.3 |
| --Europe and Central Asia | 1.5 | -2.9 | -0.6 |
| --Latin America and the Caribbean | -0.3 | 1.7 | 0.6 |
| --Middle East and North Africa | -1.1 | 0.8 | -0.2 |
| --South Asia | 3.5 | 3.8 | 3.6 |
| --Sub-Saharan Africa | -1.2 | -0.2 | -0.7 |
| Developed Countries | 2.5 | 1.8 | 2.2 |
Notes: The data is from World Bank 2001. The figures are only approximate, as they were constructed by subtracting the population growth rates from GOP growth rates. This had to be done because the World Bank stopped publishing IO-year per capita GOP growth rates from its 1998 World Development Report. For country classification, see the table in p. 334 of the report.
It therefore seems quite plausible to argue that, during the period 1960-1980, partly thanks to their better institutional foundations compared to those possessed by the NDCs at comparable stages of development, the currently developing countries grew much faster than the NDCs had done, because they were being allowed to pursue ‘bad policies’. However, when such policies were discontinued in the 1980s, better – and presumably improving – institutions were not enough to allow them to notch up better performances than those of the NDCs in the early days of their development, not to mention letting them improve over their own performance of the 1960- 1980 period.[14]
What do all these mean for the ‘kicking away the ladder’ argument? I would agree that, if done in a realistic way and if combined with the right policies, international pressures for institutional improvements can play a positive role in the developmental process. However, the current push for institutional improvements in developing countries is not done in this way and is likely to end up as another ‘ladder-kicking’ exercise.
By demanding from developing countries institutional standards that they themselves had never attained at comparable levels of development, the NDCs are effectively adopting double standards, and hurting the developing countries by imposing on them many institutions that they neither need nor can afford.[15] For example, maintaining ‘global standard’ property rights and corporate governance institutions would require the developing countries to train (or even worse, to hire from abroad) a large army of world-class lawyers and accountants. This means that they will inevitably have less money (their own or donors’) to spend on, say, the training of schoolteachers or of industrial engineers, which may be more necessary given their stages of development. In this sense, the NDCs are ‘kicking away the ladder’, not only in the area of policies but also in the area of institutions.
However, the picture in relation to institutions is more complicated than that in relation to policies. Unlike in the case of policies, many of the institutions that are recommended can bring benefits to the developing countries, although their exact forms do matter. However, these potential benefits can only be fully realized when combined with the ‘right’ policies. There are, too, genuine costs to institutional improvements. Therefore, whether the campaign for ‘good institutions’ will in effect turn into an act of ‘kicking away the ladder’ greatly depends on the exact forms and quality of the institutions demanded, and.on the speed with which such demands are expected to be met. On both accounts, the current push for institutional reform does not look very positive for the developing countries.
4.4. Possible Objections
There are at least three objections that could be raised against my argument in this book. The first, and most obvious, is the argument that developing countries need to adopt the policies and institutions recommended by developed countries whether they like them or not, because that is how the world works – the strong calling the shots and the weak following orders.
At one level, it is difficult to deny the force of this argument. Indeed, my discussion in section 2.3 of Chapter 2 on the ‘pulling away’ tactics used by the NDCs in earlier times (e.g., colonialism, unequal treaties, bans on machinery exports) provides ample support for this argument. There is, too, plenty of evidence that even in the present age, when colonialism and unequal treaties are no longer acceptable, the developed countries can ·exercise enormous influence on developing ones. The NDCs exercise direct bilateral influence through their aid budgets and trade policies; they also maintain collective influence on developing countries through their control of the international financial institutions, on which developing countries are dependent. And they have disproportionate
