But what about the Middle Eastern countries who tried very similar policies in the 60s and 70s, and it didn't help them at all?
You can't just pick successful countries who all have X in common and write a Just-So story about how X is the cause. You have to look at all countries with X.
>These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?
The real reason is that they got drowned in American/Western investment for geopolitical purposes. Its as simple as that really. I find that you always seem to assume that a country's successes or failures are dependent on internal factors as opposed to external. Its a bad habit you have.
>Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong.
Scott you are so close to an important realisation. This is not a bug, it's a feature. The IMF/World Bank and all these other Western-centered/founded organizations are designed this way. The purpose is to keep the Third World in the dirt at the West's benefit. Its modern-day neo-colonialism.
Maybe part of the macro story is that the World Bank and the IMF are monopolies and thus insulated from the effects of their policies. What would it take for them to get some competition?
I started, but didn't finish the book. My basic objection to it was that it felt to me as if it could have been purely cherry-picking. He's looking at 'the Asian countries that did well', which gives him six countries (Korea, Japan, China, Taiwan, Hong Kong, Singapore), and sometimes he talks about all of them, and sometimes he removes Hong Kong and Singapore (because city-states don't have the same problems as larger countries), and sometimes he removes China (because it started horrible and Maoist), and sometimes he removes Japan (because it was in the 19th century when things are different), and sometimes he removes all four of them and only talks about exactly two countries, and the result of this is I really can't tell if he's actually got a point about what works well, or if he's picking and choosing for the sake of the arguments he wants to make. This isn't the claim that he definitely is cherry-picking, but the much less confident statement that I can't prove this isn't really is the Elderly Hispanic Woman Effect in the field of economic history.
I sure love the intro to this post! (I haven't finished reading it yet but am excited to.)
Meta: Is it useful to start a prominent TYPO THREAD in the comments if one doesn't exist? Answers I can imagine: (a) yes please, (b) no please for creating a new comment thread but if one already exists, go ahead and add to it, (c) better to email them or post them to ____.
Non-meta: Typo at "These was nothing predetermined about this"
> Also, is it just a coincidence that Chinese / East Asian people in Malaysia and Singapore (and now the US) are known for being especially smart, rich, and good with money?
It's not a coincidence, but the reason is pretty simple: there are a lot of people in China and the ones who immigrated were the ones who had the resources and education to go. The ones who came to the US were the ones who were able to get to a port and pay for a ticket. Similarly the Chinese people in Malaysia and Singapore were often there running businesses or working in industrial sites that the British set up.
In both cases you're comparing the cream of the crop of a large ethnic group to the local people, so the result is going to be biased.
I also enjoyed and took a lot away from the book. But it seems like, from a political economy point of view, that doing all the things it recommends is really demanding of the government and while those recommendations can work spectacularly well if followed most countries just can't succeed in pulling it off and would be better off with the comparatively simple free market approach.
Are there any land reform efforts going on in, say, Africa?
I read about Ghana and Ivory Coast seeming to get the protectionist religion re: Cocoa, so they can presumably build up their own industry rather than be stuck in a perpetual mercantilist state with foreign chocolate producers:
Singapore, Hong Kong, Taiwan, Korea, Japan all have national IQs >=105
Thailand, Indonesia, Philippines, etc. are in the 85-90 range.
There's an extremely simple theory to explain the development differences we observe. Even if we accept the arguments about industrial policy and land reform, can it really be a coincidence that these policies were only "correctly" applied in the high-IQ countries?
Studwell’s discussion of industrial policy is broadly convincing but he massively overstates his case rhetorically. The anti IMF position is probably his least defensible point. In the 50s-80s, the IMF indeed recommended free market policies, generally. But the anti IMF position then was Industrial Substitution Industrialization. Their belief was that to develop, newly independent countries should cut themselves off entirely from world trade, to develop new industries behind their own borders. Pretty much everyone agrees now that this approach was a disaster. Even if Studwell were 100% correct in every sentence of the book, it would prove that the IMF critics were totally wrong, and the IMF only needed a change of emphasis.
Then we get the question on how widely his advice could be adopted. He briefly mentions in the Philippines section that, citing from memory, “Some people think they can do nothing, but condemning millions to poverty is no option at all” Well in some moral sense sure, but in a policy sense doing nothing is obviously an option. Elites have almost never pursued industrial policy for altruistic reasons: The success stories are all cases where elite interest lined up with the public interest. For example, South Korea was racially and ideologically homogeneous. Marshall Park in other words required industrialists to make SK rich and defended but didn’t care who they were. Studwell mentions that IP failed in Malaysia in part because of affirmative action, and then ignores that point entirely. The East Asian countries that succeeded only did so because of their homogeneity allowing focus purely on industrialization, plus the fact that the US leaned heavily on them. It’s very unclear that a country could implement the Studwell program against the will of its elites. It isn’t the case that where there’s a will there’s a way. Finally, all of this requires a high quality bureaucracy, which East Asia has a long history of and the rest of the world lacks.
For finance, once again Studwell has a good narrow point but greatly oversells his case. There are two market failures that have been identified with international finance: First, that if developing countries take on debt in foreign currency they will be bankrupted en masse if the exchange rate changes. Second, that banks might pursue unproductive loans (real estate and consumer debt, basically). These could be fixed with narrow laws targeting these problems directly and individually. There isn’t very good evidence that the financial repression associated with EA development had a very large impact and its likely that you couldn’t convince many countries to adopt it anyway. When it comes to industrial loans, there are tons of studies showing that private banks are much more efficient at making loans than the state. The EA approach also leaves tons of overhang, for example in China there are tons of state run banks that are riddled in debt and low quality loans. SK and Japan have had this problem with their banks and massive corporations to a significant but lesser degree.
Studwell believes that since the EA approach is good we must convince the entire world to adopt all of it. I would tend to think that since there is very little chance of convincing the world to adopt it, and since it comes with major drawbacks over the long term, we should amend the current system. Developing countries should likely support exporting more and implement a few rules to prevent financial crises. The discussion of the IMF is the most dishonest part of the book: he deals so nicely and only by insinuation towards the IMF economists because if he had to defend the position that the international financial system bankrupted the world, it would be obvious that he is wrong. In fact the current international economic system is exceptionally generous-WTO rules explicitly allow poor countries to subsidize industrialization but forbid rich countries from doing the same. The current system likely needs amendment, but not replacement.
> Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong. They recommended free markets and open borders, which are good for rich countries, but bad for developing ones.
If you find this interesting, there's a pretty quick read by developmental economist Ha-Joon Chang called '23 Things They Don't Tell You About Capitalism' making a similar point, though he goes on to generalize it a bit more: countries should feel free to practice both free market economics and central planning; ideologically doing only one or only the other is usually a disaster.
1.) Three things stick out here. Firstly, Studwell vastly overstates how damaging land reform has to be to landlords. Taiwan and Japan both bought out landlords with bonds. The bonds became worth less because since government bonds grew more slowly than the economy. But there are still a fair number of wealthy old families around in both countries. The important thing is not the destruction of landlords as a class: it's putting land into the hands of people (whether smallholding peasants or professional farmers) who own the land, have an incentive to improve it, and whose primary income is gained not by owning land but by producing agricultural products. The two are ultimately equivalent at equilibrium. How you get there is not especially important and paying off the landlords is fine if it works. Likewise, giving land to collectives or to peasant groups (as opposed to individual peasants) doesn't work very well because it keeps it out of the power of enterprising farmers.
Secondly, he completely ignores the many times land reform failed. East Asia is not unique in its attempts at land reform. It was fairly common in Africa, Eastern Europe, etc. Ukraine and Romania had incredibly fertile soil and it's hard to think of regimes that eliminated their landlords harder. Yet they haven't really seen similar effects.
Thirdly, he ignores that peasants will vote for land reform overwhelmingly in any democratic system. His focus on outside institutions is horribly misguided. From the CCP to 19th century Japan, peasant ability to make demands of the political system lead directly to land reform. If land reform is no longer viable in nations where the peasantry is still common, the question I'd ask is why that is. Are they all dictatorships? If so, it's a problem of democratization. Have they got other political goals? Then that's a separate issues.
2.) There are some countries which are increasingly skipping directly to service export. However, an industrializing country has a huge internal market for industrial goods (roads, bridges, telecommunication infrastructure, etc) which in turn creates a construction/manufacturing boom even when the primary export paying for the imported machinery is (for example) software development services. This is the case in some of the wealthier Indian provinces. But on the whole, manufacturing is still a pretty good bet.
Another thing: the importance of export markets. These countries need to have markets willing to purchase their goods. If they don't, export lead industrialization fails. Big imperial nations have options that modern nations don't. Where do these nations export their goods? To the US. Korea had special deals with the US. So did Japan, Taiwan, Hong Kong, Singapore. And even China got special deals (enough to cause Russian complaints). This may be changing, especially for big countries like China with internally developed markets. But this advocacy for ELI should mention the politics of finding places to sell their goods. Otherwise the idea of "protected at home competing abroad" fails.
In Malaysia, Studwell veers into the shaky ground of being against capital per se. Letting partners get equity in firms is not an issue. Did you know huge percentages of Korean companies were owned by Americans? South Korea was not just stealing their technology, they were moving up the value chain. In partnerships where it didn't make sense, by learning through transfer deals where it didn't. There is, of course, an issue with letting companies offshore high tech work and using your people only as menial labor. But this is an issue of structuring the deals and regulations. But of the successful cases, only China broadly prevents you from owning minority stakes in companies. The rest, at most, limited the percentage of foreign ownership. Which is still admittedly not a full free market policy.
3.) Again, he's ignoring the US here. South Korea's "crazed" borrowing was underwritten by the US for security reasons. The US actually used its might to get SK cheaper debt at some points. Malaysia was on its own.
Also, he doesn't mention how this method leads to huge problems in the last stage. Japan's lost decade was in part due to heavily controlled and underdeveloped financial markets.
Overall, I'm sympathetic to the idea of Export Lead Industrialization including tariffs. Though it's worth pointing out the IMF has a better track record than it's critics want to admit. You just have to realize first it's primarily a firefighter: you call the IMF when things have gone wrong. (As, indeed, many of these countries did in the late 1990s and then saw bumper growth.) However, this argument ignores (imo) a lot of factors and tells a story of economic destiny being primarily about internal decisions. Which are necessary but insufficient. It's right there in the idea of export lead industrialization: you are exporting to OTHER COUNTRIES which means they matter for your internal story.
that the acronym FDI does not appear in this history does not bode well for the book. It is a far more reliable way of developing domestic industry than trying to build internationally competitive companies.
Scott, for more asking these lines I highly recommend reading Globalization and its discontents by Stiglitz—he goes into how the IMF and other institutions play their role in development (or more often, lack therof). It shows the flaws in the Washington Consensus, especially with regards to austerity and capital controls, and didn’t offend my classical liberal sensibilities in the least
Great review! I found the part on industrial policy compelling, but the land reform bit left be confused.
The argument as I understand it is: because the bottleneck in East Asia was land rather than labor, it made sense (from the perspective of increasing total output) to have the land tended to in a "hobbyist gardener" sort of way rather than an "industrial farmer" sort of way. And so when peasants got the land, they tended to their land in the "hobbyist gardener" way, which increased production.
But why wouldn't the landlords compel their subjects to cultivate the land in the "hobbyist gardener" way? After all, the total number of peasants didn't change as a result of the land reform, nor did the total amount of land; so wouldn't the calculus favoring the "hobbyist gardener" method have been the same as it was post-reform? So were the landlords leaving lots of profit on the table?
Or is there something else at play, like that it's hard to compel a peasant to tend to a farm in an arduous, loving way, when they ultimately don't benefit very much? If so, I have a follow-up question. The statistics you give suggest that it is *much* more efficient per unit area to use the "hobbyist gardener" method. So couldn't both the landlords and the peasants have profited from some sort of deal like: "the peasant switches to the 'hobbyist gardener' method and now gets 10% of the profit instead of 1%"?
I'm a bit worried about that link that describes the largest export of New Zealand as "dairy, eggs, and honey" - it seems to only be looking at exports of goods, and not services, as becomes clear when you look at the lists for other countries like the United States (largest export petroleum!) But it at least does show that New Zealand doesn't export a lot of manufactured goods - mainly agricultural products. (I assume that it doesn't have financial or software or educational exports proportional to those of the United States, but I wouldn't be surprised if tourism is another major service export.)
Would it be fair to think of the colonisation of Australia, the Americas, New Zealand etc as a form of much-needed land reform, confiscating land from those who are using it inefficiently (hunter-gatherers or neolithic farmers) and putting it into the hands of those who will make better use out of it? If so, that would be another triumphs for land reform.
Which successful countries had a legacy of foreign trade (innately or at the end of a gunship?). My history class memory would put SK with Japan (as a former territory), HK as obvious, and Taiwan being newly populated by more of a coastal elite crowd than country bumpkins.
"Japan's happened first in the Meiji Restoration, but didn't stick; the final version was rammed through by Douglas MacArthur, who acted as a dictator and didn't care what Japanese elites thought."
Right up until this point, I was saying to myself that that Land Reform section didn't sound like how I remembered the Meiji-era land reform working. So it's explained, but that explanation leaves another problem: while obviously badly outmatched by the US, Japan was more-or-less a then-modern economy before WWII. So it must have gotten there without land reform (of the type advocated here).
Plausibly, building to a 19th century industrial economy could be done differently than 20th century economy. But at a minimum, it removes Japan as a success story for the narrative.
India is probably the best counter-example to what Studwell is talking about.
For decades, India practiced a variant of socialism in which (among other things) industries were sheltered from international and even national competition for reasons that basically line up with the infant industry argument. The resulting companies weren't even bad, but when they were eventually exposed to world competition, they collapsed, and others took their place.
Similarly, India had (and still has) a robust set of national banks. The problem was that when the government does get them to give unprofitable loans, it wasn't to subsidize industrial learning but also to support small farmers, weavers etc. It was as much redistribution as investment.
The argument seems to be "there are knowledge externalities generated when firms start manufacturing" but it's hard for countries to actually implement this insight (assuming it's correct) because they don't know which sectors will generate them, what the right policies are to generate them, and when to stop protecting the firms and expose them to global competition.
(Land reforms are amazing, and the closest thing to a consensus that I can think among developmental economists. It's one of the few policies that don't have the "equity-efficiency trade-offs" that one learns about in Econ 101.)
I think the relationship to rule of law is complicated. It seems to me what you ideally want is a society accustomed enough to rule of law that they will actually do what the government tells them to do, but you also need a leadership willing to grab the whole economy and give it a good shake in a pretty hands-on process. And of course, as you pointed out, you need a bureaucratic class skilled enough to actually make and enforce reasonable policies without descending into corruption. So the ideal is to have a strong tradition of rule of law, but a temporary government that has the will and resources to buck that tradition for a decade or two.
"Studwell calculates that a carefully-tended garden in the US might produce $16.50 per square meter per year; a commercial farm would produce $0.25"
To what degree is this the gardener preferring more expensive crops vs. actually being more productive for the same crops? In the future scenario where AI and robotics effectively makes farm labor free, should I anticipate a 66-fold increased in per-acre output?
Britain seems like an underexplored potential counterexample here, especially since its economic history is probably (correct me if wrong) better studied than that of most countries. You can tell a just-so story where their lack of tariffs and capital controls worked only because of first-mover advantage, but AIUI their land situation around the time of the Industrial Revolution was if anything the opposite of land reform: the enclosures created a bunch of wealthy landlords at the expense of the common peasantry. And this is even sometimes cited as a driver of industrialization, in that the peasants deprived of their common land now had to go work in factories to live.
Also, how much justification does Studwell give to the claim that German and US industry would not have been able to reach parity with Britain without help from protective tariffs? That seems like a pretty hard thing to demonstrate without resort to the post hoc ergo propter hoc fallacy.
One contrarian response you can give to this whole thesis, on reflection, is that it demonstrates the difficulty of achieving industrial prosperity in a regime of immigration restrictionism. In 19th century Europe and the USA, after all, white workers were pretty free to move to wherever the most productive factories were. Nonwhite workers in the 20th and 21st centuries have not had nearly as much freedom of this kind, and it's hard to tell whether the global development story would look at all similar if they had. But on the anti-restrictionist, anti-nationalist view, allowing them that freedom is the right thing to do anyway, since the morally important goal is not to enable *nations* to get rich but to enable *people* to get rich, and letting people switch nations to one where they have a better shot at getting rich is a fine way to do that.
The land reform discussion reminded me of Yavlinsky's (Russian politician popular among intelligentsia in the 90s) program, which included giving "30 to 60 acres of land for free" to every Russian family that wants to take it. There is a general feeling among intelligentsia that the 1990s were a short window of opportunity for Russia that was missed; I remember my grandmother would say bitterly while making kasha for me in the kitchen: "If only they let Yavlinsky do what he wants; but they won't".
[Epistemic status: I only got 3 hours of sleep so this might be half-baked]
1aa. The most implausible aspect of it was the idea that meticulously tending gardens by hand, like people did in 1000 AD, is the key to improving productivity, as opposed to modern factory farming. Rolling over a huge field with machines produces astoundingly high yields with modern seeds and fertilizers, and frees up 98% of the labor to do other things, like work in factories. Micro-scale yeoman farmers were rapidly going out of business in the US in the 30s due to competition from larger and more mechanized farms with economies of scale. The more land you have, the more benefit you get from owning advanced farming machinery. Micro-farmers can't afford the best machinery.
1a. A negative outlook for the south asian foils (Thailand, Malaysia, Philippines) seems unjustified considering how quickly they are growing at present despite not following the book's advice. Also they are still richer than their historically more-centrally-planned neighbors Vietnam and Cambodia. In the past 20 years, all the foils have increased their GDP per capita by at least 2.8x, which is a CAGR of at least 5.2%.
1b. The 15 point average IQ gap between the northeast asian success stories and the south asian foils is very likely to be a factor.
1c. Giving tenant farmers tenure and a percentage of their output could align incentives as well as if they actually owned the land. Concentration of land ownership is thus not necessarily a good measure of whether or not they have the right incentives to improve yields.
1d. Many countries in South America, Eastern Europe and Africa did a lot of socialism and land reform and it didn't get them very far. It seems potentially no-true-scotsmany to say that the northeast Asian countries are the only ones who did land reform right, without predicting in advance which kind of land reform would work. Those countries have many other features in common so the causal status of land reform is unconvincing.
1d. I previously calculated that China was still poorer than pre-industrial Britain when it began its liberalization in '78, so apparently redistribution of land didn't get them very far in 1948-1978.
1e. I don't see so much as a scatterplot of land ownership gini vs gdp growth over the next N years. I feel like the land reform argument needs more quantitative support.
2a. Looking at development as a collective action problem is interesting. I suppose you could elaborate on that by saying that developing one industry can have long term positive externalities on many other industries, and the protective tariffs are a way of internalizing those externalities (at the expense of consumers, instead of doing a pigouvian subsidy at the expense of taxpayers). Maybe that sort of language would make it more palatable to mainstream economists.
2c. These all seem like reasonable factors contributing to Malaysia's lagging.
3. Low interest rates in general will increase the relative valuation of long term growth oriented companies relative to immediate value-extraction companies, because of how interest rates affect the calculation of discounted cash flows. So I'm not convinced that central planning is really necessary to push things towards the former. The US privately finances plenty of long term moonshots, and even literal ones like SpaceX.
Hong Kong did not grow just due to finance. The phrase "Made in Hong Kong" was once very common as well.
Malaysia, Thailand, and Indonesia are hardly basket cases. They have seen GDP per capita increase multiple times faster than, say, most of sub-Saharan Africa.
How does the model account for the very rapid growth seen in India and Bangladesh, to name just two other examples?
Does the author (or others) provide any examples of countries trying the free-market approach in the modern area. I'm skeptical that is doesn't work and it doesn't seem like an example is provided. I am on board with Hong Kong and Singapore being exceptions that likely don't tell us much about larger countries.
I think this book is right about the path taken by the east Asian tigers. I don't think that lesson can be exported to the rest of the developing world just as the Washington Consensus is not one-size-fits-all. There are too many confounding variables caused by geography, culture, demographics, and politics for there to be a universal development story.
"So although both he and David Harvey make some of the same points about how the Washington Consensus in favor of free market reforms harmed developing countries, I felt like Studwell effectively explained where it went wrong and how to do better, whereas Harvey just sort of screamed that anyone who supported it was part of a conspiracy."
David Harvey doesn't "scream" that anyone who supports capitalism is part of a "conspiracy" - he argues that they are simply pursuing their class interests. I get the feeling that you let your emotions get in the way of reading of this book charitably.
The argument seems like pure cope to me. I still defer to Lee Kuan Yew's theory that good rule of law (with regards to business + labor practices) + a safe, low crime society (both corruption and street crime) + general free market ideology + strong human capital = success. Developing countries need to attract foreign capital (and keep attracting it). That's really it.
In regard to the question of whether land reform is essential for development:
I’ve read the claim that widespread small-scale peasant landownership in early-20th-c. Ireland *impeded* economic development—and, as noted below, amazingly unequal landownership in the industrializing UK (significantly *worse* than in pre-modern China) didn’t seem to hamper it.
One of the most important aspects of land reform is that the country be located outside the Western Hemisphere. US has always seen land redistribution as socialism, and all socialism is an enemy to Our Way of Life. Many large land / resource owners are US corporations, and what United Fruit owns the US Marines will protect.
Hong Kong was a giant sweatshop through the 40s to the 70s. Huge multistorey industrial buildings, now abandoned, continue to dominate districts; in the old days, they jsed to churn out everything light industry could, from jeans to toys. Cheap things used to be Made In Hong Kong as well, before HK's factory tycoons outsourced to China and the economy shifted to finance. Blocks of apartment buildings were filled with families, living six to a room, with kids stringing together necklaces of plastic flowers and finishing jeans by the bushel.
One key point is that East Asian countries grow rice. Rice agriculture is unique in that you can get better yields by putting in more labor, there is always something productive to do. With corn and wheat, once you have put in a sufficient amount of labor, adding more won't help your yield. The tendency of Asian work culture to emphasize long hours is a direct result of this, rice farmers who work 15 hour days end up with a better harvest.
Malaysia has a GDP per capita PPP of $29,000, and Indonesia has $13,000. China is at $18,000, and Vietnam at $12,000. How are China and Vietnam be called spectacular success stories, and Malaysia and Indonesia dreadful failures?
I suspect that central planning is hard to get right - there are times when it can work very well, but it seems like it's very easy to get it wrong and do worse than the free market. It would be very interesting for an economist to try and work out whether this is luck, policy or (most likely) a mixture of both.
Industrialization, low peasant productivity, land being owned by few landlords that have no or little interest in developing it, political life dominated by those landlords. This is 1 for 1 the history of European revolutions. Russia being the latest example. Hence, it all reads a lot like Marx theories.
So yeah, you do need industrialization to be competitive in the modern world. You do need land redistribution of some kind. You do need to dismantle 1000 years old communal agriculture and serfdom. But I don't buy his advice on how to achieve that. Or that the China way is the only way to do it. History knows plenty of examples when a different approach worked, albeit in a different external condition. History knows plenty of examples when autocracy didn't work.
It feels more like a pundit trying to explain something that has already happened. And less like an honest scientific work on the topic.
"And every big developed country that passed through a manufacturing phase used tariffs (except Britain, which industrialized first and didn't need to defend itself against anybody)."
Sorry this is wrong, and a really annoying meme economic historians keep arguing against.
One counter-argument on the land reform point: when Britain was industrialising, it did more or less the exact opposite of what this book describes.
Land reform in 18th- and 19th-century Britain meant enclosure, a process by which rich landlords could amalgamate holdings previously subject to the rights of many small-scale tenants. It could be a very harsh process, with tenants receiving theoretical compensation that in no way made up for losing their ability to farm the land. They often wound up day labourers or, later, working in the new mills and factories. At its harshest the process gave us the Highland Clearances, where large numbers of small-scale tenants were left with next to nothing and had to emigrate.
But it also left the country with large tracts of land in the possession of rich owners, who turned out to be very interested in maximising their profits by increasing yields. They experimented with many different ways to do this, helped by economies of scale and the flexibility of not trying to change the ancient ways of their tenants. They greatly increased productivity, and this new wealth fuelled Britain's industrial development.
Korean-style land reform was obviously part of a successful package in that country, but it's not the only way to development.
A minor point I have not seen the discussion yet: reverse engineering. In the case of Japan and China, I believe there is a strong feeling that their catching up was helped by an involuntary transfer of intellectual property from the already industrialized countries. (I'd rather not comment on the legality/ethicacy of it, as it is besides the point here and I haven't thought about it enough to argue one way or another).
The idea that "developing country industry is not about the profit, but about learning, acquiring technology, etc..." sounds nice enough, but if large part of is "let's figure out how this state-of-the-art piece of equipment was made in Advanced Industrialized Country and how close we can get to it here at Industrializing Country while maintaining a reasonable balance between cost and quality" is a whole different problem than "let's try to imagine where our industry will be in 10 years' time and start developing a product that has a reasonable shot at being the state-of-the-art then". Fair enough, there is much more to catching up than technology and manufacturing, but any approach to economic development that argues for manufacturing as the/a main driving force behind modernization has to at least mention this passingly imho.
A more general point: the reason why we have so few success stories is maybe there aren't too many General Parks? I mean there seems to be a very fine balance between the basically dictatorial powers which can be required to e.g. carry out a land reform and the, for lack of a better world, wisdom that would make the Premier actually give the land to the farmers and *not* to expropriate it by giving it all away to his lover’s third cousin or something. Since industrialization takes usually several decades, you have to make sure the leaders who start out as Gen. Park’s don’t turn into tinpot dictators, their successors are also reasonably well-intentioned, there is a normal transfer of power etc.
So even though the Asian model seems like a the proverbial banknote lying on the pavement, I think it is more like suggesting street kids to become neurosurgeons to climb out of poverty: it is really great if it works, but a lot of things have to be right for it to work and at the outset it is almost impossible to know whether you have what it takes to succeed.
Interesting response from Noah Smith on some of the limitations of Studwell's theory, although I suspect many ACX readers are also on Noah's mailing list.
This was very insightful. The land reform ideas synergize well with Georgist perspective and the as a whole Studwell position seems to unite lots of valuable points from both capitalism ideologs and critics.
Also this explains so well the situation with Russia. How the 90s, the period of swift shifting to market policies, were one of the most terrible drop in quality of life not related to war. And why russian economy is still in a bad shape.
Maybe we could collectively accept that there is no grand sweeping cause for economic development ?
Compared to (most of) Africa, East-Asia has :
- rice-based agriculture that allows for high population density.
- strong states with efficient administrations.
- good deep water harbors and navigable rivers for shipping industrial products. I don't need to emphasis how important this is if you plan to export abroad...
- probably less endemic diseases but I'm not sure on this one.
It's not just a question of policies, geography, history and culture count too...
Planned economies work well for underdeveloped countries, as people, including i believe Alexander Hamilton, have been saying for centuries. So do you see why it is that bigger countries oppose planned economies? They oppose international competition. I don't think this is a matter of economists being too stupid to see what works, though I wouldn't put it past a lot of them.
I am skeptical of the claim that China's per capita growth has actually been all that impressive compared to Malaysia and Thailand, both of which are wealthier than China. So I went over to Our World in Data, looked around a bit, and then noticed that I am confused.
If you look at cumulative change of GDP per capita since 1950 [1], South Korea has grown more than twice as much than any other major East/South Asian country. China doesn't look very impressive here, even compared to Thailand and Malaysia. If you set the start date to 1979 [2], China has grown the most. But this is highly dependent on the starting year. If you instead set the start date to 1985 [3], India has grown the most.
This is about when I noticed that I am confused. If you look at the annual growth rate per capita since 1985 [3], India's has been consistently lower than China. Yet India's cumulative growth per capita over the same period is higher. This isn't mathematically consistent. China grows at about 8% per year and India grows at about 5% per year. After 32 years, India's GDP per capita is 5.2 times larger than initially, while China's GDP per capita is 4.3 times larger (instead of about 12 times larger that you'd expect from an 8% growth rate).
I'm absolutely no expert on Rwanda, but it seems like Paul kagame (who is absolutely a dictator) is following this line. Rwanda to many is still an euphemism for 'worst place on Earth', but it has been one of the fastest growing countries in the world in the 2010's (7% annually), after a giant civil war things have been pretty calm, and Kagame's dictatorial tendencies are more the lukewarm 'lock up journalists and give every young man you think may become a problem an AK and a single-way ticket to Sudan.
They opened a gold refinery this year, so they no longer have to export raw gold to Western countries but can do it themselves. I'm sure it will be of lower quality than gold that's refined in Germany, but seems a pretty good start of step 2.
There might also be "bamboo network" effects in the East Asian countries case. One reason why people of Chinese descent in foreign countries (eg Malaysia, Indonesia, even in overseas enclave) appear relatively successful may be because of access to capital and markets (in the form of family ties) between family branches which are geographically spread out.
Someone in HK may be able to get a loan from a cousin with a Chinatown laundromat in San Francisco (or, the SF laundromat might get a loan from the HK banker). I won't be able to do much as a representative of an Australian company but if I tried to do a thing I may try to hit up my mother's granduncle's son who runs a chain of mobile phone shops in Guangzhou. This bamboo network criss-crosses between China, SEA, Taiwan, and often overseas Chinese enclaves in the US, Australia, and Canada. If I wanna go open a cafe in Atlanta I'm gonna start by interning in my mum's cousin's sushi shop over there, and if said mother's cousin wants to emigrate in order to escape Atlanta my mum will probably get me to sign the visa.
This was very powerful back when family had 7-8 kids each. I suspect One Child may have destroyed a great many bamboo networks (and means overseas Chinese are at a comparative advantage - my mum was one of 7 siblings and my grandma was one of 9).
Test my theory: does this also happen with Catholics? Why/why not?
Somewhat unrelated, but I'll still baffled that economists believe in a linear model of progress inevitably leading to the desirable end goal of a service economy.
"This one’s a masterpiece: in-depth profiles of both successes (South Korea) and failures (Malaysia), full of great lessons. My case studies draw heavily from this book. One of my favorite details, from a chapter on how a corrupt democratic process stymied the Philippines: they once had an election in which Marcos spent so much money buying votes that it literally triggered a balance of payments crisis."
Land reform was the first political decision of Nehru, where he amended the constitution by removing the right to property and hammering in a schedule where laws can be protected from legal scrutiny. Now 284 laws are in the schedule, the vast majority of them concerned with land reform. Do you know what happened later? This led to massive decreases in production, causing a famine, which led to India modernizing its Agriculture, with the help of the US.
Later, Nehru tried to implement 'moderate' socialism by nationalizing industries, five-year plans, etc. He also made existing business leaders like the Tatas, Birlas, etc. as 'national champions' making them into conglomerates with their noses in different industries. This didn't pan out so well as their products were not export-oriented and competitive.
Indira drank the kool aid and went full socialist. She instituted even more nationalization, of banks, etc. making sure that giving kickbacks to bank officials, etc. is the only way to get business loans. She instituted license quota raj, which was a centrally planned scheme where you were supposed to get a license to make a particular amount of X. That too led to chronic shortages of essentials like kerosene, food, etc. and most people rely on the public distribution system to get essentials. You need to be in a waiting queue for 10 years to get a scooter. If you wanted it early, you needed to bribe the officials.
It is only since the liberalization reforms that India has grown. If you notice the industries India has grown, it is out of benign neglect that these industries have grown. For example, IT grew because there weren't any laws governing it nor any cabal controlling the firms. To start a business in India, you need to have caste connections. I can say for my state. To own a pawn shop, you need to be a Jain (colloquially called as 'Seth'); to own a textile factory you need to be a Gounder; to own a grocery shop you need to be a Nadar; to own a textile showroom/anything dealing with costly things you need to be a Naidu (one of the firms is literally named 'Naidu Hall'). Otherwise, you'll be hounded by everyone from government officials, police, to local goons because there exist associations for every trade(which are mostly dominated by caste groups) which lobby the officials, police, lawmakers, goons with money.
India developed because of brahministic meritocratic values that prioritized higher education over working early in life. There was a notion that if you get educated you could be like 'those upper caste' people and that led to a lot of people prioritizing early education and a specific trend towards STEM. Elite institutions established took the cream of the upper classes and many went abroad, mainly to the US because they had less of a chance to get a government job in India due to affirmative action, which gave fixed quotas to the members of lower caste people to uplift their lives. Although this led to higher caste and class inequality, the benefits are there for all to see.
The effects of this are enormous. My home state of Tamil Nadu has a gross enrollment ratio in higher education of 50%, which is on par with China. Most EU nations have it in the range of 60%-70%, whereas the US has 88% (Guess why the US is the birthplace of wokeness...). Tamil Nadu has a TFR at 1.6 and is joined by many other states here. You can compare this with Germany and other EU states, which have a similar rate, even though these people roughly earn 1000 USD per annum.
Fun fact: Tamil Nadu is ruled by a guy called Stalin, his political party's core ideology being rationalism (that has nothing to do with SSC style rationalism though)
The main reason, which I see is active US intervention to develop('bribe') these countries to be on their side. The US, which has easy access to enormous surpluses, used its capital to spawn various industries in the developing world, as a political project. If you see that these countries grew only because they took to the side of the US, and the very idea of Industrial policy being beneficial here is a smokescreen because the entire scheme was because the US intervened in these economies from the top, and performed sweetheart deals, backroom negotiations, and mass work programs to make people work instead of discussing Marxian thought (China has adopted the mass work program approach, defying conventional economic logic, to great detriment to US industry).
Noah Smith is an idiot. His opinion is worthless. On economics, anyway. Maybe he's a really good cook or something, I don't know. But he got his PhD from a Cracker Jack box, and it should be rescinded.
"There was nothing predetermined about this. These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?"
By virtue of being Cold War US darlings to be used politically against USSR and against their neighbors?
I’m highly skeptical. There are too many degrees of freedom in the history. The parsing of land reform I find unconvincing, land reform has been tried everywhere with varying success. The direction of causality could run in the opposite direction with stronger states able to carry out relatively more successful land reform, or it may be completely unrelated.
The successful countries are in the same region industrializing around the same time within a similar political zeitgeist so naturally they will have some similar policies. And countries receiving IMF aid are obviously not a random selection.
Someone could do this with the Nordic countries and pick virtually any shared policy among the countries when they were growing and claim that was the secret to their success, when probably it had nothing to do with policy in that case or this one .
>What now? Studwell uses the last chapter to warn China that its development model can only go so far. Dictatorship and state planning can lift a country from poor to middle-income, but so far everywhere that's become truly rich has also been free and democratic.
In Sapiens and Homo Deus by Yuval Noah Harari, he argues that governments are technolgies that get "unlocked" by having requisite technology in place. The idea is, we couldn't have had democracy in the 1400s because we didn't have literacy, educated citizens, and reasonably safe travel. SImilarly, 20th century style centrally-planned communism is only possible with technologies like radio, trains, and mass communications.
An interesting question he ponders is whether advances in technolgies like AI (think facial recognition, neural networks applied to behaviors of human groups) might not make centrally planned communist governments outcompete the distributed capitalist system. Imagine we replace the planning commission with an algorithm. In 20 years, might this be more efficient than a capitalist system? Or perhaps some other form of government gets "unlocked" that can outcompete all the types of government now in use.
The author's argument that developing countries that successfully complete land reform reaps benefits as a result has many counterexamples. E.g., in India many states (e.g., West Bengal) successfully took away land from the landlords to distribute it among the tenant farmers. However, agricultural output remained sluggish. Since the plots are so small the farmers can't use industrial farming methods to increase production. Many farmers commit suicides as a result of crop failures regularly.
The way to economic growth always lies through the free market. The more a country liberalizes the more it grows. (Some people like to think as if China bucked this trend. However, Chinese economy grew exactly in those areas which were unshackled by the party.) Since many people are invested in the contrary ideology they will make up increasingly outlandish theories to explain away this observation.
I think the geography vs state policy could be interrogated by looking at the provinces in China as if they are separate countries. Mao flooded interior provinces with support to make powerhouses in certain industries, but the basic economic structures were basically constant, and the coastal cities got rich much faster. Containerization may have unlocked something that, with Deng going along with it, was more meaningful than policy.
Also, not sure how to square the praise for small farms with the accounts of those I know from Vietnam, who consider the microfarms a blight, using old dirty techniques like burning vegetation to replenish the land, ultimately choking the area with pollution after harvests. Maybe they aren't valuing abundant cheap labor enough I guess, or maybe Asian farming involves a giant set of complex tradeoffs that are hard to reduce to a simple straight line policy recommendation.
Still an interesting take and comparative analysis should make us question our commitment to some naive development economic priors.
I came to appreciate Mahathir of Malaysia more over the years. He had a complex situation to deal with in the division between the enterprising Chinese minority and unambitious Muslim bumiputra majority. But he kept the country together and at peace, with no Indonesian 1965-style massacres. He made a lot of mistakes, but he kept trying something else.
A lot of this rings very true for the India side. If India did one thing of the list above, it was land reform. India had a massive land reform under Nehru and it's been my family story that my great grand father owned 100s of acres and it was all taken away and given to poor peasants who subsequently sold it to foreigners (though it also seems like he willingly gave it away under influence of Gandhis ideology). But in general among the upper castes (Brahmins), the story you hear is same, once we had massive land, then we lived through generations of poverty and finally got back up again (by working very hard on our education is a staple Brahmin story. Generally it's my opinion that they have a significant genetic advantage and an economy that values intellectual work. ) . But India never went through protectioni, tried socialist style planning for a really long time (till 1990s) and then just liberalised everything which made us richer than 1990 but nothing like Japan, Korea, China. India is right now a service based economy with a small manufacturing footprint. This means that some part of the population (the educational elite) live quite a rich life. (They generally work for software, or consultancies like McKinsey have a big craze here or Banks like Goldman Sacha are also very prestigious). The people who don't do well in school generally end up working in menial labour or odd jobs (servants, drivers, coolies, construction workers, farmer) which pay very less. If we had a good manufacturing sector, they could reach the middle class like in America but we don't which is why there is massive stress on Indian Students for their 10th, 12th and college exams. I hope we get some government that understands the use of tariffs.
With regard to China there's an argument that their success in industrialization and foreign trade happened more despite than due to centralized policy. Case in point, consider the institution of "Special Economic Zones":
One story about how those came about goes as follows: First Hong Kong became successful, producing many rich businesspeople who were used to working in a relatively freewheeling free-market environment. Then some of the rich Hong Kong businesspeople noticed that right next door to them in southern China there were poor areas with cheap land and desperately cheap labor, but a pretty terrible tax and regulatory environment...overseen by corrupt local officials. The profit motive being too great to ignore, they went ahead and built factories in convenient places like Guangdong and tried to run them just *as if* they were still working in Hong Kong. When national or local laws made it hard to do stuff, corruptible local bureaucrats were then bribed, co-opted or otherwise encouraged to turn a blind eye and/or falsify records such that authorities could simply *let business do business*. This model was so profitable it spread until large regions of the country were more or less openly flouting the law to become successful manufacturer/exporters along the Hong Kong model.
Eventually the problem of all these businesses in China *massively enriching the local economy by violating Chinese law* came to the attention of the Chinese national government. Which adopted the face-saving strategy of declaring these regions should now be considered a "special economic zone" where it was OKAY to have foreign and domestic trade and investment without going through the usual process. They drew lines on a map and said "Okay, as long as you stay in THIS tiny area we'll let you mostly keep doing what you're doing because, well, it's working. But if you do the same thing OUTSIDE that area we'll come down on you like a ton of bricks!" The central authorities could now pretend it had been their idea all along to benevolently ALLOW all this free-market stuff to happen and they were still totally in control of everything. "No laws are getting casually broken on OUR watch, nosiree!"
Alas, the outlaw regions had a tendency to expand into neighboring towns so to *maintain* their illusion of still being, like, totally in control the central government had to keep *widening* the areas they considered a "special economic zone" until eventually most of the places where anybody might WANT to build export-focused industry weren't encumbered by the regulations that had previously been making it hard to do so.
In short: Hong Kong's attitude toward business became geographically contagious and took over China.
Interesting review & discussion. But there is an elephant in the room: The demographic transition.
All the Asian countries that succeeded, reached the end point of the transition (below 2.1 children per woman) during their economic take-off. I also believe that in most, if not all, of the countries Studwell hails as success stories, their strongest growth rates coincided with their "demographic gift" period. The demographic gift-period (aka the demographic dividend) is the transition phase when the working-age population is large, relative to children and the elderly. Implying that they do not have many "unproductive" mouths to feed, and can save & invest more of their surplus.
Does not Studwell mention the demographic transition at all?? Judging from Scott’s review, that seems to be the case – but I find it a bit hard to believe, so if possible, cold Scott or someone else please confirm this, or correct this?
Side note in this regard: AFAIK, the World Bank registers per capita income by dividing the stipulated household income by the number of household members. The Bank does not even (unlike OECD) give lower “consumption weigths” to children than to adults within a household. With this calculation method in mind, it is no surprise that per capita incomes in say Mali (still high fertility) has grown, and is growing, more slowly than in China (or Vietnam, or Bangladesh).
For a recent take on the same topic that includes a discussion of the role of the demographic transition in fostering economic growth, I recommend a book by the Dutch scholar Peter de Haan (2020): “Whatever happened to the Third World? A history of the Economics of Development.” Haan has worked for forty years in the development field, including being Asian Bureau Chief of the Dutch NGO NOVIB (now merged with Oxfam).
Side note: I plan to put this book up as mandatory reading for a student course, so if someone has opinions on this book, including negative opinions, I would be very interested in their views.
You wanted an Asia Doesn't Work That Way: consider the book "Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty" by Arvind Panagariya.
I just started reading it, and it gives examples of the success of the same countries mentioned above with largely the opposite thesis. Something something same data opposite conclusions something something.
Reading this now, I really feel conflicted and can't imagine resolving the conflict without actually better understanding the economic and cultural history of these places.
You are falling for propaganda if you are lumping Thailand with the rest of South-East Asia.
Thailand's PPP is higher than China 19,169 vs 18,931
Thailand's GDP is lower than China but in the same ballpark 7,674 vs 11,819
But this is in the context of China being known for inflating these numbers too high heaven with all possible tools in the book, while Thailand doesn't really care (you yourself mentioned the ban on economists)
*But* for 99% of residents this doesn't matter, Thailand's GINI is 36 and it's HDI 0.777 | China's is 46.7 with an HDI of 0.761
So couple increased freedom and equality in Thailand with a larger PPP, and the tl;dr is that the average Thai citizen can buy more goods and services and enjoy them in a more safe, collaborative and free environment.
All of this while Thailand was at the centre of wars and genocides and had to spend tremendous sums of money and twist its political apparatus in order to maintain a strong enough army not to get USSRed, Sinified or Uncle Same'd like its neighbours.
All of this while Thailand has the kind of weather that was good for crop farming 200 years ago, but is not a detriment to infrastructure, tourism and a generator of disease, Malaria is still an issue in a remote regions, dengue is an issue even in the centre of Bangkok when outbreaks happen.
Oh, and did I mention that Thailand manages to be more economically developed than China without murdering 20% of the population in the process or enforcing en-mass sterilization and child murder? I know it's a super small ethical quip compared to a 0.3% difference in GDP growth, but might be worth taking into account.
This is to say nothing of the "on the ground" experience of living in Thailand, which based on immigration, emigration and tourism preferences seems to be *much* better than living in China. Not having a population of slaves, allowing free expression and overall not destroying your culture seems to have contributed to that.
This book seems to literally ignore the biggest f-ing elephant in the room, which is that the large south-east Asia nation, and the only one that wasn't affected by "land reform and protectionist policy" is actually doing better than China. Once you take China out you're left with the much smaller Taiwan, Korea and Japan.
The former two tiny and might own their growth to US support as military bases, the later being an epicenter for half the world's culture and really bizarre in terms of everything from weather to geographic location to culture.
Also, how comes it fails to mention this EXACT policy being enacted in Cambodia, which had much less success than china.
I call bullshit on this book, it seems to be promoting dangerous totalitarian ideas with just so stories by ignoring the actual data.
This runs completely counter to my experience in the nations of Africa.
Take land reform for small farmers. I swear, you can be driving along a road in Kenya (yes, I've done this) and look out to the right and see rolling fields of wheat that are owned by the Germans/Chinese etc. Then you look on the left and see small farmers that consist of a few withered crops standing in the sun and bodies bent over and broken from pushing ploughs by hand. This isn't a metaphor; I've literally seen this.
I asked, "Why don't they just pool their land into a collective, use it to raise money to buy tractors and modern fertilizers and make way more money for way less work - you know, do what the people literally on the other side of the road are doing?" Response is always a certain kind of look, a look that says you-really-think-I-haven't-thought-of-that, followed by some version that the little farmers are so attached to the idea of their tiny plot that they won't even consider such a solution.
>China's level of debt is frankly terrifying, but they seem to have pulled it off so far by growing faster than they borrowed, even though they borrowed a lot.
I wish there was some discussion of North Korea, which seems to be the only East Asian country left out of the discussion. Like South Korea was at first, North Korea was and is a dictatorship, and it has a similar one-party system to China. Yet it hasn't enjoyed the same economic success as either neighbor.
The land reform step seems to have gone right:
> On 8 March 1946, land reform was implemented in North Korea that saw the confiscation of land from Japanese nationals and organizations, Korean collaborations, landowners and religious organizations. The confiscated land were then redistributed to 420,000 households. A total of 52% of North Korea's land area and 82% of land ownerships were redistributed.
After the Korean War, and with help from China and the USSR, North Korea grew very fast and enjoyed a higher standard of living than South Korea. Then it started focusing on heavy industries... but inefficiencies started to arise, it suffered from the collapse of the Soviet Bloc in the 1990s, suffered from crippling famine, and is still a very poor country today, especially in contrast with its neighbors.
So, what went wrong? Did it fail to have internal competition to accelerate industrial progress? Did it fail to switch to free market policies when it should have, like South Korea did? Did it just get too totalitarian? Or was it due to some geographic or internal factors like availability of resources?
I see a lot of people (maybe following Studwell) lump together land reform and industrial policy, but they seem so different to me, especially from the point of view of economists. Successful land reform is about reducing principal-agent problems, whereas industrial policy is about increasing layers of management, and claiming that knowledge externalities will make up for it.
Why can't landlords do land reform themselves? Is it true that landlords can make more money the old way, or is it that they don't care about money and are actually in it for feudal power? I suppose they might be because of diminishing value of money. Do we see the problem get worse the larger the landlord is? I think that the size of "big landlords" ranges over orders of magnitude between countries, but I never see them compared.
Both this book and "Seeing Like A State" seem to reinforce something I've learned updating old custom equipment as an engineer. Don't change something until you understand how it works. This has become a bit of a montra for me. Most of the times I've changed something without understanding the mechanisms for why it is the way it is, my changes break something that hasn't been an issue in decades. Eventually I can fix those issues, but its usually easier to fix when you know why a thing was designed the way it was designed.
1. Harkening back to earlier book reviews, wasn't Wolf Ladejinsky a Georgist?
2. It is worth emphasizing that Asian success stories do not follow either a Soviet-style development policy OR the the Jeffrey Sachs/World Bank liberalize the economy and privatize all the things model.
3. Indonesia is another good example of an Asian development non-success. The non-state-owned sector of the economy is largely controlled by overseas Chinese, mainly Chinese protestant Christians.
This suits the ruling clique just fine, as the Chinese are foreigners and infidels to boot, and therefore a reliable and generous source of financial and other support for the politicians.
Also, what about comparing with Turkey? The definitely had brutal capital controls and industrial policy, but I am not so sure about the land reform bit.
So the focus on Malaysia as the fail case is weird. Why did he focus on that case instead of, say, the Philippines or Indonesia?
Just for reference, per capita GDP in Malaysia is nominally ~$12,000 and ~$30,000 in PPP terms. This isn't a failed state, judging by photos of Kuala Lampur, this isn't even a poor state, it's just not rich yet. Compare that to the Philippines or Indonesia, with per capita GDPs of ~$4,000. Why draw a comparison between high-income South Korea and middle-income Malaysia, instead of low-income Indonesia?
Because, and I'm no expert on the Malay economy, but if they've gone from poverty to $12,000/person in 40 years (1980-2020) and the South Koreans went from poverty to $30,000/person in 52 years (1961-2013), that gives Malaysia enough time for another doubling. And saying we need to abandon liberal economics and install a military dictatorship to direct the economy so we can go from $30,000/year instead of $24,000/year just isn't very powerful.
Again, any indication why he focused on this specific comparison?
I admit I am predisposed to disliking industrial policy-driven arguments, as Brazil (my country) is possibly one of the biggest failure cases for industrial policy.
Our 80s US-backed military dictatorship tried hard to play by this book. Huge tariffs were put up against imports in strategic sectors while the government started up huge state enterprises. It backfired spectacularly, as most of the state-backed enterprises only made inferior copies of foreign products - the poster child for this being COBRA, the state computer enterprise which until its inevitable death did nothing but produce inferior copies of foreign low-end computers and sell them at a gigantic markup.
While this was the most notorious case, there were examples like this in every field you can imagine. My father will always tell me about how incredibly shitty products were during the dictatorship years, as our "nascent industry" insisted in remaining nascent and simply extracting value from the fact the market had no access to alternatives.
He sure waives away a lot of exceptions. New Zealand and Denmark are sparsely populated, so they don't count. Hong Kong and Singapore? Oh they're too densely populated so that doesn't count. India? Well let's just not talk about India, or all of south America for that matter. UAE, Kuwait? well they have oil.
It's a long book and maybe he talked about South America, but when you eliminate all these countries you end up with basically five data points in effectively the same part of the world. His objections are true. New Zealand does have an advantage in farming because it's low density. But vietnam/China/taiwan/korea have an advantage in manufacturing because they are close to big markets (more specifically the cost to transport manufactured goods to market is low, doubly so because of container shipping). Mongolia, couldn't follow this policy. You're not going to bring all the parts for a car into Congo manufacture it and then hall them out.
Geography is destiny for a lot of this stuff. That's why a poor worker becomes more productive when they go to a more productive place. A carpenter is worth more in San Fransisco than in nepal.
Soooo....I saw 'land reform' recommended. I searched the article for the word Zimbabwe. And this article manages to recommend land reform, mention Zimbabwe, but not mention Zimbabwe's land reform policies. I don't know if this is true of the book as well, but if it is that would be a pretty damning indictment.
The summary provided of "land reform" doesn't make a lot of sense to me. Sure - slaves/sharecroppers/whatever don't have a lot of incentives to improve land yield and owners do. But if that's the case, Zimbabwe should have had a farm output explosion in 1980s, yet the reverse happened.
There's an interesting tie-in to the US's evolving stance toward land reform in a broader geopolitical sense. In the late 1940s land reform was something the US was imposing on quasi-colonial possessions, but then not not too long after that at the beginning of the 1960s Cuba tried to do a land reform, and the US was having none of it. Of course we now think of that Cuban regime as a Communist dictatorship, but at that time that was certainly not the official story, and US-Cuba relations were rather normal.
Powerful US corporate interests would be subject to dispossession in the land reform. They had the ear of President Kennedy and significant sway in Congress (c.f. MacArthur in Japan not needing to bother with Congress at all). So the response ended up being we're going to turn the screws on them by blocking goods that we import from Cuba, and that will get them to stamp out their land reform pipe-dream.
This ended up backfiring as Khrushchev smelled the opportunity to put Cuba in the Soviet camp by offering a helping hand to get them out of that jam.
The description of Asian success stories matches very closely what Germany and other continental counties & the United States did in the wake of Britain's pioneering wave of industrialization - they sent people to learn what the Brits were doing, they bought, borrowed, or stole expertise and experts, they sometimes smuggled machinery and drawings out of Britain, they bought British capital equipment, and they used British investment - particularly for railways and heavy state-backed infrastructure projects - and they used their banks to direct investment to "desirable sectors" and they used government subsidies and tariffs to promote and protect their "infant" industries from British - mature - competition. All of these recipes are now considered horrible by the economic establishment, and the economic establishment on the whole works from abstract largely deductive models, and has little knowledge of or interest in economic history. Germans are good at making cars because of a century or two of effort with lots of state support, tariffs, and banks behind them. Kenya would have to perform a miracle if it were to practice free trade and free movement of capital and suddenly - hey, presto - become an industrial power. In the Middle East, political disorder often reigns, and the rich countries suffer from the oil curse - it is easy to make money from oil, the currency rises because of oil, making any infant industry uncompetitive, and the temptation to import virtually everything is ever-present since money is pouring into government coffers. Also, it might be the case that a concentration on theology and orthodoxy in the educational system is not productive of entrepreneurial and innovative zeal. Outside, the Middle East, Middle Easterners are often extremely successful. Iran would be an interesting case to look at. These are complex questions. I studied economics in Toronto and at the London School of Economics, many eons ago, and also worked as an economist, in an equally distant past, at the OECD in Paris.
Does land reform even work the same way post green revolution and farming mechanization? All the fair trade people seem to suggest that small free hold farmers (for e.g. coffee and cocoa etc.) struggle to compete with agribusinesses. Aren't small African freehold farms pretty inefficient (by modern, not historical standards!) in both labor and land productivity?
“ Once again: there is no significant economy that has developed successfully through policies of free trade and deregulation from the get-go.” - Chile would like a word
I wonder how this applies to resource rich but non-farming based economies. If you live in a desert with a lot of oil, what would be the equivalent of “giving a plot of land” to the poorer class? Or would you skip it all together and go to industrializing?
Malaysia has a higher per capita GDP than does China. In terms of quality of life, I would take living there over living in South Korea, Taiwan, or China any day of the week. If you look at GDP per capita on a PPP basis, you can see that my personal feelings are backed up by data.
Malaysia's PPP is more than twice that of China's and about 4 times that of the Philippines. In other words, the country did not fit into Studwell's nice little boxes, so he slagged off Mahathir. The country's growth exploded under Mahathir who tried a "let's throw everything at the wall and see what sticks" approach to development. The affirmative action policies were absolutely necessary or the country would have collapsed into civil war. All that said, some of Mahathir's projects were ill-advised, but overall, everything worked out well.
This is quite interesting to me due to the fact that Ukraine have undergone the exact opposite of those reforms in the last 30 years.
First, all complex engineering - airplanes, stuff for space program, electronics, optics, you name it, everything was strip mined by oligarchs in the 90's. Anything involving technology is non existent anymore. Soviet-style research institutions are closed.
The pinnacle of it is that the reverse land reform is finally in place which gives opportunity to said oligarchs to buy any plot of land they want. (there was a prohibition of that for most of Ukraine's independence).
Due to IMF/World Bank influence welfare is getting more and more cuts.
The only fast growing industry is software engineering outsourcing which is basically business of (re-)selling people, not creating products.
So on paper GDP might be growing slowly but in reality the institutions are falling apart.
I'd like to say that Asia Doesn't Work That Way, but Studwell's book sounds pretty decent. I spent a decade as a correspondent in Northern (China) and Southeast Asia (Singapore) and most of what he writes correlates well with my impressions and reporting. I just disagree (slightly) with the IQ side of things. Having a populace that descends from generations of docile test-takers (that is what having a high average IQ comes down to) makes it easy for people like Korea's Park and Deng Xiaoping to be listened to, without having to resort to mass violence to make obvious points. Malaysia's Mahathir, a really smart man, has had to contend with people with a poor history of literacy, massive levels of ethnic distrust and generally speaking a culture that wasn't favorable to business. One important caveat: let's keep in mind that in Singapore manufacturing still accounts for 20% of GDP, TWICE as much as the US. That's just not simply a financial hub. The really smart people know that having the best people in your country just moving money around and doing Excel spreadsheets only cuts it if you are the world's sole superpower.
I dont understand the argument that international companies somehow dont contribute as much as domestic ones?
From what I've read they are the ones that increase worker productivity the fastest, (indeed, almost as fast) therefore a Tesla branch in Malaysia or whatever would be far superior than waiting for the domestic firm to catch up.
You don't have to steal their tech and kick them out/make it hard for them to do buisness the would be entrerpneurs would eventually start competing firms, and they'll learn the productive habits of the multinationals, probably pretty quickly.
Seems mean to force everyone in the country to buy an overpriced shitty car, to say nothing of the unnecessary car crashes.
"From a very zoomed-out, by-the-numbers perspective, it has to be China's sudden lurch from Third World basketcase to dynamic modern economy."
Um, no. I stayed in Mangshi, southwest China, for a month in 1999. Mangshi, like many Chinese cities, is a modern city inhabited by Han Chinese living modern lifestyles, surrounded by "suburbs" of peasant farmers of the local minority ethnicity, farming tiny plots of land, who are kept completely under the thumb of the government, and living in third-world conditions--often in houses they built by hand from logs with dirt floors and walls woven from leaves, with open sewers running down the street, no garbage pickup--though they did nearly all have television.
I saw similar conditions around Beijing, sometime around 2005.
I don't have proof, but it looks very much like China is not a dynamic modern economy, but a classic imperialist economy, where one nation (the Han) has invaded, conquered, and occupied a lot of other nations, and exploits them to enrich themselves. The only difference is that they pretend they're all "Chinese". But the differences on the ground are stark.
In your conclusion you wonder why these development programs were successful specifically in East Asia and whether culture/Confucianism had anything to this. On that note, I highly, highly recommend supplementing Studwell’s book with Francis Fukuyama’s two books on political order, “The Origins of Political Order” and “Political Order and Political Decay.”
Fukuyama explores the historical development of political institutions like the rule of law, the modern state, and democracy. Fukuyama argues that political modernization isn’t a universal or inevitable process, but that these institutions have developed as a result of historical contingencies in different countries and regions (partially repudiating his older work, in my view). He discusses at length why East Asia developed societies with competent, professional, modern states (the kind able to pull off successful industrial policies). He also argues that these kinds of states are basically unnatural and only emerge under certain historical conditions. Combining Fukuyama’s arguments with Studwell’s arguments leaves me fairly pessimistic about the prospect for economic development in most developing countries.
Studwell's last chapter warning that their economic strategy can only go "so far" seems likely to make him look just as stupid as the IMF people (I pray they were stupid, not intentionally keeping poor countries poor). I feel like America has drunk their own kool aid so much on this issue it's exasperating. We aren't rich because of "capitalism" or "freedom." We're rich because of railroads and steamboats and strong central governments protecting property rights and the domino effect of "now mass production makes sense because transportation costs are actually cheap + "now with mass production reducing the costs of nails and such we can do/ invent so much else." We've gotten so ideologically fixated on this idea that freedom and economic power are positively correlated- "right makes might", I like to call it. But guess what? Morality and power are not, and have NEVER been perfectly correlated. Sure, freedom is good for certain innovations and inventions. But it can also be really bad for building skyscrapers or bullet trains quickly. Economics is COMPLICATED. Freedom does NOT equal POWER. In fact, most of our power was grabbed during World War 2, when we had basically a planned economy where people had ration cards for not only gas but also FOOD. You think the free market would have won that war more "efficiently?" Like, the fact that Studwell- according to this review- makes so many loyalty gestures to these kind of now-laughable ideas makes me not even want to read this book, even though the land reform idea sounds really fascinating. But that big of an oversight seems to reduce his credibility significantly.
I believe that "free-ish" markets, rule of law, and freedom of speech are morally preferable to the authoritarianism that has dominated governments through most of human history. But it's definitely not the most powerful- whether we are measuring military power OR economic power. That's WHY it's been so rare! The little free-ish tribes got crushed by their not-free-at-all neighbors! Life is complicated, and evil often pays off. We are going to actually have to fight for our ideals instead of just trying to get rich if we want to keep "classical liberalism" alive. It sucks, because just focusing on getting rich is way more fun than fighting for your ideals, but it's the truth. Anyways, I'll quit preaching. Just incredibly annoyed by how a book like this- based on your review- can be staring so many facts in the face and still be clinging to the kinds of ideas that got us here (and kept billions of poor people poor due to terrible IMF policies). If this is what America's top minds are coming up with, we're totally doomed.
A) I'm 100% with you on the whole there must be some historical/geographical explanation
B) This book has to be read side by side with DANI RODRIK's ideas on industrial policy
Dani Rodrik argues that East Asia's economic success is not just about the "level of development" of a country, but also about the historical evolution of both the manufacturing sector and global competition.
In the historical period where all those succesful East Asian countries (except Japan) industrialized (between World War II and the 90's), manufacturing was labor intensive.
That was good for them because it allowed them to "absorb" huge share of their "non qualified" population in manufacturing, which sustained fast growth rates for the decades that it took for the investments in education and infrastructure to bear fruits.
And why did they bear fruirs? Because the manufacturing sector can scale and move up the value chain: From textiles to cars (Toyota/Japan) and from cars to smartphones (South Korea) and chips (Taiwan)
It was also "good" that they were super poor then, because it allowed them to have lower labor costs than other countries who were not so poor.
Also, globalization was less intense, so the global market was less competitive. Example: South Korea was able to export its subsidized products to a huge market, America. This allowed industrial policy to succeed.
Nowadays, NONE of that is true.
Now, manufacturing is less labor intensive.
And also, globalization makes it more difficult to be competitive and "nurture" the "infant" industry.
Latin America specifically could not have copied their success, because they (we) industrialized on the 19th Century, and our exports were oriented to the primary sector, a sector where YOU CAN NOT SCALE.
What does this mean for middle income countries such as, for example, Latin America?
We missed the boat, and to grow we need to do standard neoliberal stuff like:
- Education
- Investment (perhaps would benefit from East Asian high savings rate)
- Reduce corruption
- Political stability
Which would allow us to grow economically, but not to be an economic "miracle".
In my opinion, which countries whould Latin America then look up to?
Eastern european post cold war success stories.
They are middle income countries who did neoliberal stuff and grew, some a lot more than many latin american countries
This is an interesting and well-written review of very thought-provoking book. Studwell does a yeoman’s job of identified some key aspects of tiger economy development. The question is how generalizable they are. The trouble with broad survey analyses such as this one is that for every example there is a counterexample. This work fails to convince a close reader.
Moreover, the book’s thesis risks falling into the mono-causal fallacy. For instance, it completely ignores East Asian (and South Asian) cultural preferences that favor education.
If I am reading the article correctly, Studwell lists three main requirements for rapid industrialization:
* A enlightened dictatorship forcing through industrial policy favoring private ownership
* A smallholding-oriented agricultural sector
* A protectionist regime in the beginning, including tight capital controls
Despite Studwells’ protestations, historical counterexamples are in plentiful supply. To wit:
* Great Britain on the eve of the industrial revolution had most of productive land controlled by large landowners. These landholders were always dominant previsoly and became still more dominant as a result of early 19th century enclosures.
* American industrialization occurred in the absence of import controls, which were not implemented until industrialization was essentially complete.
* Neither Great Britain nor the US had any semblance of industrial policy at the time they industrialized.
* The USSR successfully industrialized despite having a very poorly-performing agricultural sector that was dominated by enormous collective farms.
* France lagged in industrialization (and continues so) despite enjoying mostly smallholding-led agriculture, a protectionist regime and ownership-oriented industrial policy.
* Argentina largely followed the script, including tight currency controls, with no visible results.
* India has done remarkably well in the complete absence of any land reform, capital controls, or serious protectionism.
Furthermore, Studwell states that once industrialization is complete, economics should open up and implement free trade. However, free trade after industrialization favors exporters at the expense of importers - in the case of USA, for instance, it led to a rapid deindustrialization and relative decline. China, Korea, and Japan are still practicing protectionism, under guises other than tariff regimes, and their protectionism continues to benefit their industrial (and agricultural) sectors.
To digress a little, the author mentions rural impoverishment as a driving source of terrorism. This assertion turns a blind eye to the fact that many if not most terrorists (and revolutionaries) are and generally have ever been middle-class urbanites.
Touching on current Chinese policies designed to make it a middle-income rather than a rich country, I would argue that middle income is most likely the ultimate objective. An autocratic central government has no desire to contend with a rich populace that can afford to have ideas or demand a share of power. A small number of robber barons is much easier to control because, as we have seen, the state can always liquidate them.
As an aside, it is hardly surprising that development economics from developed countries - even from Japan, which actually followed Studwell’s script - offer self-serving advice even as they try to convict themselves and one another of its correctness. Every nation that survives the state of nature of international relations does so through self-serving actions when the stakes are high enough, and global economic power makes them high indeed. China throws its weight around in ASEAN for the exact same reason.
In final analysis, the book does not necessarily offer an actionable prescription outside of a narrow set of nations. Perhaps development is simply idiosyncratic.
But what about the Middle Eastern countries who tried very similar policies in the 60s and 70s, and it didn't help them at all?
You can't just pick successful countries who all have X in common and write a Just-So story about how X is the cause. You have to look at all countries with X.
>These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?
The real reason is that they got drowned in American/Western investment for geopolitical purposes. Its as simple as that really. I find that you always seem to assume that a country's successes or failures are dependent on internal factors as opposed to external. Its a bad habit you have.
>Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong.
Scott you are so close to an important realisation. This is not a bug, it's a feature. The IMF/World Bank and all these other Western-centered/founded organizations are designed this way. The purpose is to keep the Third World in the dirt at the West's benefit. Its modern-day neo-colonialism.
Maybe part of the macro story is that the World Bank and the IMF are monopolies and thus insulated from the effects of their policies. What would it take for them to get some competition?
I started, but didn't finish the book. My basic objection to it was that it felt to me as if it could have been purely cherry-picking. He's looking at 'the Asian countries that did well', which gives him six countries (Korea, Japan, China, Taiwan, Hong Kong, Singapore), and sometimes he talks about all of them, and sometimes he removes Hong Kong and Singapore (because city-states don't have the same problems as larger countries), and sometimes he removes China (because it started horrible and Maoist), and sometimes he removes Japan (because it was in the 19th century when things are different), and sometimes he removes all four of them and only talks about exactly two countries, and the result of this is I really can't tell if he's actually got a point about what works well, or if he's picking and choosing for the sake of the arguments he wants to make. This isn't the claim that he definitely is cherry-picking, but the much less confident statement that I can't prove this isn't really is the Elderly Hispanic Woman Effect in the field of economic history.
I sure love the intro to this post! (I haven't finished reading it yet but am excited to.)
Meta: Is it useful to start a prominent TYPO THREAD in the comments if one doesn't exist? Answers I can imagine: (a) yes please, (b) no please for creating a new comment thread but if one already exists, go ahead and add to it, (c) better to email them or post them to ____.
Non-meta: Typo at "These was nothing predetermined about this"
> Also, is it just a coincidence that Chinese / East Asian people in Malaysia and Singapore (and now the US) are known for being especially smart, rich, and good with money?
It's not a coincidence, but the reason is pretty simple: there are a lot of people in China and the ones who immigrated were the ones who had the resources and education to go. The ones who came to the US were the ones who were able to get to a port and pay for a ticket. Similarly the Chinese people in Malaysia and Singapore were often there running businesses or working in industrial sites that the British set up.
In both cases you're comparing the cream of the crop of a large ethnic group to the local people, so the result is going to be biased.
I also enjoyed and took a lot away from the book. But it seems like, from a political economy point of view, that doing all the things it recommends is really demanding of the government and while those recommendations can work spectacularly well if followed most countries just can't succeed in pulling it off and would be better off with the comparatively simple free market approach.
Are there any land reform efforts going on in, say, Africa?
I read about Ghana and Ivory Coast seeming to get the protectionist religion re: Cocoa, so they can presumably build up their own industry rather than be stuck in a perpetual mercantilist state with foreign chocolate producers:
https://www.confectionerynews.com/Article/2020/08/24/Ghana-and-Cote-d-Ivoire-announce-closer-ties-to-protect-their-cocoa-industry
Singapore, Hong Kong, Taiwan, Korea, Japan all have national IQs >=105
Thailand, Indonesia, Philippines, etc. are in the 85-90 range.
There's an extremely simple theory to explain the development differences we observe. Even if we accept the arguments about industrial policy and land reform, can it really be a coincidence that these policies were only "correctly" applied in the high-IQ countries?
Studwell’s discussion of industrial policy is broadly convincing but he massively overstates his case rhetorically. The anti IMF position is probably his least defensible point. In the 50s-80s, the IMF indeed recommended free market policies, generally. But the anti IMF position then was Industrial Substitution Industrialization. Their belief was that to develop, newly independent countries should cut themselves off entirely from world trade, to develop new industries behind their own borders. Pretty much everyone agrees now that this approach was a disaster. Even if Studwell were 100% correct in every sentence of the book, it would prove that the IMF critics were totally wrong, and the IMF only needed a change of emphasis.
Then we get the question on how widely his advice could be adopted. He briefly mentions in the Philippines section that, citing from memory, “Some people think they can do nothing, but condemning millions to poverty is no option at all” Well in some moral sense sure, but in a policy sense doing nothing is obviously an option. Elites have almost never pursued industrial policy for altruistic reasons: The success stories are all cases where elite interest lined up with the public interest. For example, South Korea was racially and ideologically homogeneous. Marshall Park in other words required industrialists to make SK rich and defended but didn’t care who they were. Studwell mentions that IP failed in Malaysia in part because of affirmative action, and then ignores that point entirely. The East Asian countries that succeeded only did so because of their homogeneity allowing focus purely on industrialization, plus the fact that the US leaned heavily on them. It’s very unclear that a country could implement the Studwell program against the will of its elites. It isn’t the case that where there’s a will there’s a way. Finally, all of this requires a high quality bureaucracy, which East Asia has a long history of and the rest of the world lacks.
For finance, once again Studwell has a good narrow point but greatly oversells his case. There are two market failures that have been identified with international finance: First, that if developing countries take on debt in foreign currency they will be bankrupted en masse if the exchange rate changes. Second, that banks might pursue unproductive loans (real estate and consumer debt, basically). These could be fixed with narrow laws targeting these problems directly and individually. There isn’t very good evidence that the financial repression associated with EA development had a very large impact and its likely that you couldn’t convince many countries to adopt it anyway. When it comes to industrial loans, there are tons of studies showing that private banks are much more efficient at making loans than the state. The EA approach also leaves tons of overhang, for example in China there are tons of state run banks that are riddled in debt and low quality loans. SK and Japan have had this problem with their banks and massive corporations to a significant but lesser degree.
Studwell believes that since the EA approach is good we must convince the entire world to adopt all of it. I would tend to think that since there is very little chance of convincing the world to adopt it, and since it comes with major drawbacks over the long term, we should amend the current system. Developing countries should likely support exporting more and implement a few rules to prevent financial crises. The discussion of the IMF is the most dishonest part of the book: he deals so nicely and only by insinuation towards the IMF economists because if he had to defend the position that the international financial system bankrupted the world, it would be obvious that he is wrong. In fact the current international economic system is exceptionally generous-WTO rules explicitly allow poor countries to subsidize industrialization but forbid rich countries from doing the same. The current system likely needs amendment, but not replacement.
> Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong. They recommended free markets and open borders, which are good for rich countries, but bad for developing ones.
If you find this interesting, there's a pretty quick read by developmental economist Ha-Joon Chang called '23 Things They Don't Tell You About Capitalism' making a similar point, though he goes on to generalize it a bit more: countries should feel free to practice both free market economics and central planning; ideologically doing only one or only the other is usually a disaster.
1.) Three things stick out here. Firstly, Studwell vastly overstates how damaging land reform has to be to landlords. Taiwan and Japan both bought out landlords with bonds. The bonds became worth less because since government bonds grew more slowly than the economy. But there are still a fair number of wealthy old families around in both countries. The important thing is not the destruction of landlords as a class: it's putting land into the hands of people (whether smallholding peasants or professional farmers) who own the land, have an incentive to improve it, and whose primary income is gained not by owning land but by producing agricultural products. The two are ultimately equivalent at equilibrium. How you get there is not especially important and paying off the landlords is fine if it works. Likewise, giving land to collectives or to peasant groups (as opposed to individual peasants) doesn't work very well because it keeps it out of the power of enterprising farmers.
Secondly, he completely ignores the many times land reform failed. East Asia is not unique in its attempts at land reform. It was fairly common in Africa, Eastern Europe, etc. Ukraine and Romania had incredibly fertile soil and it's hard to think of regimes that eliminated their landlords harder. Yet they haven't really seen similar effects.
Thirdly, he ignores that peasants will vote for land reform overwhelmingly in any democratic system. His focus on outside institutions is horribly misguided. From the CCP to 19th century Japan, peasant ability to make demands of the political system lead directly to land reform. If land reform is no longer viable in nations where the peasantry is still common, the question I'd ask is why that is. Are they all dictatorships? If so, it's a problem of democratization. Have they got other political goals? Then that's a separate issues.
2.) There are some countries which are increasingly skipping directly to service export. However, an industrializing country has a huge internal market for industrial goods (roads, bridges, telecommunication infrastructure, etc) which in turn creates a construction/manufacturing boom even when the primary export paying for the imported machinery is (for example) software development services. This is the case in some of the wealthier Indian provinces. But on the whole, manufacturing is still a pretty good bet.
Another thing: the importance of export markets. These countries need to have markets willing to purchase their goods. If they don't, export lead industrialization fails. Big imperial nations have options that modern nations don't. Where do these nations export their goods? To the US. Korea had special deals with the US. So did Japan, Taiwan, Hong Kong, Singapore. And even China got special deals (enough to cause Russian complaints). This may be changing, especially for big countries like China with internally developed markets. But this advocacy for ELI should mention the politics of finding places to sell their goods. Otherwise the idea of "protected at home competing abroad" fails.
In Malaysia, Studwell veers into the shaky ground of being against capital per se. Letting partners get equity in firms is not an issue. Did you know huge percentages of Korean companies were owned by Americans? South Korea was not just stealing their technology, they were moving up the value chain. In partnerships where it didn't make sense, by learning through transfer deals where it didn't. There is, of course, an issue with letting companies offshore high tech work and using your people only as menial labor. But this is an issue of structuring the deals and regulations. But of the successful cases, only China broadly prevents you from owning minority stakes in companies. The rest, at most, limited the percentage of foreign ownership. Which is still admittedly not a full free market policy.
3.) Again, he's ignoring the US here. South Korea's "crazed" borrowing was underwritten by the US for security reasons. The US actually used its might to get SK cheaper debt at some points. Malaysia was on its own.
Also, he doesn't mention how this method leads to huge problems in the last stage. Japan's lost decade was in part due to heavily controlled and underdeveloped financial markets.
Overall, I'm sympathetic to the idea of Export Lead Industrialization including tariffs. Though it's worth pointing out the IMF has a better track record than it's critics want to admit. You just have to realize first it's primarily a firefighter: you call the IMF when things have gone wrong. (As, indeed, many of these countries did in the late 1990s and then saw bumper growth.) However, this argument ignores (imo) a lot of factors and tells a story of economic destiny being primarily about internal decisions. Which are necessary but insufficient. It's right there in the idea of export lead industrialization: you are exporting to OTHER COUNTRIES which means they matter for your internal story.
that the acronym FDI does not appear in this history does not bode well for the book. It is a far more reliable way of developing domestic industry than trying to build internationally competitive companies.
Scott, for more asking these lines I highly recommend reading Globalization and its discontents by Stiglitz—he goes into how the IMF and other institutions play their role in development (or more often, lack therof). It shows the flaws in the Washington Consensus, especially with regards to austerity and capital controls, and didn’t offend my classical liberal sensibilities in the least
Great review! I found the part on industrial policy compelling, but the land reform bit left be confused.
The argument as I understand it is: because the bottleneck in East Asia was land rather than labor, it made sense (from the perspective of increasing total output) to have the land tended to in a "hobbyist gardener" sort of way rather than an "industrial farmer" sort of way. And so when peasants got the land, they tended to their land in the "hobbyist gardener" way, which increased production.
But why wouldn't the landlords compel their subjects to cultivate the land in the "hobbyist gardener" way? After all, the total number of peasants didn't change as a result of the land reform, nor did the total amount of land; so wouldn't the calculus favoring the "hobbyist gardener" method have been the same as it was post-reform? So were the landlords leaving lots of profit on the table?
Or is there something else at play, like that it's hard to compel a peasant to tend to a farm in an arduous, loving way, when they ultimately don't benefit very much? If so, I have a follow-up question. The statistics you give suggest that it is *much* more efficient per unit area to use the "hobbyist gardener" method. So couldn't both the landlords and the peasants have profited from some sort of deal like: "the peasant switches to the 'hobbyist gardener' method and now gets 10% of the profit instead of 1%"?
Thanks!
I'm a bit worried about that link that describes the largest export of New Zealand as "dairy, eggs, and honey" - it seems to only be looking at exports of goods, and not services, as becomes clear when you look at the lists for other countries like the United States (largest export petroleum!) But it at least does show that New Zealand doesn't export a lot of manufactured goods - mainly agricultural products. (I assume that it doesn't have financial or software or educational exports proportional to those of the United States, but I wouldn't be surprised if tourism is another major service export.)
Would it be fair to think of the colonisation of Australia, the Americas, New Zealand etc as a form of much-needed land reform, confiscating land from those who are using it inefficiently (hunter-gatherers or neolithic farmers) and putting it into the hands of those who will make better use out of it? If so, that would be another triumphs for land reform.
Which successful countries had a legacy of foreign trade (innately or at the end of a gunship?). My history class memory would put SK with Japan (as a former territory), HK as obvious, and Taiwan being newly populated by more of a coastal elite crowd than country bumpkins.
"Japan's happened first in the Meiji Restoration, but didn't stick; the final version was rammed through by Douglas MacArthur, who acted as a dictator and didn't care what Japanese elites thought."
Right up until this point, I was saying to myself that that Land Reform section didn't sound like how I remembered the Meiji-era land reform working. So it's explained, but that explanation leaves another problem: while obviously badly outmatched by the US, Japan was more-or-less a then-modern economy before WWII. So it must have gotten there without land reform (of the type advocated here).
Plausibly, building to a 19th century industrial economy could be done differently than 20th century economy. But at a minimum, it removes Japan as a success story for the narrative.
Great review, but also a missed opportunity for a few By Georges.
India is probably the best counter-example to what Studwell is talking about.
For decades, India practiced a variant of socialism in which (among other things) industries were sheltered from international and even national competition for reasons that basically line up with the infant industry argument. The resulting companies weren't even bad, but when they were eventually exposed to world competition, they collapsed, and others took their place.
Similarly, India had (and still has) a robust set of national banks. The problem was that when the government does get them to give unprofitable loans, it wasn't to subsidize industrial learning but also to support small farmers, weavers etc. It was as much redistribution as investment.
The argument seems to be "there are knowledge externalities generated when firms start manufacturing" but it's hard for countries to actually implement this insight (assuming it's correct) because they don't know which sectors will generate them, what the right policies are to generate them, and when to stop protecting the firms and expose them to global competition.
(Land reforms are amazing, and the closest thing to a consensus that I can think among developmental economists. It's one of the few policies that don't have the "equity-efficiency trade-offs" that one learns about in Econ 101.)
I think the relationship to rule of law is complicated. It seems to me what you ideally want is a society accustomed enough to rule of law that they will actually do what the government tells them to do, but you also need a leadership willing to grab the whole economy and give it a good shake in a pretty hands-on process. And of course, as you pointed out, you need a bureaucratic class skilled enough to actually make and enforce reasonable policies without descending into corruption. So the ideal is to have a strong tradition of rule of law, but a temporary government that has the will and resources to buck that tradition for a decade or two.
"Studwell calculates that a carefully-tended garden in the US might produce $16.50 per square meter per year; a commercial farm would produce $0.25"
To what degree is this the gardener preferring more expensive crops vs. actually being more productive for the same crops? In the future scenario where AI and robotics effectively makes farm labor free, should I anticipate a 66-fold increased in per-acre output?
Britain seems like an underexplored potential counterexample here, especially since its economic history is probably (correct me if wrong) better studied than that of most countries. You can tell a just-so story where their lack of tariffs and capital controls worked only because of first-mover advantage, but AIUI their land situation around the time of the Industrial Revolution was if anything the opposite of land reform: the enclosures created a bunch of wealthy landlords at the expense of the common peasantry. And this is even sometimes cited as a driver of industrialization, in that the peasants deprived of their common land now had to go work in factories to live.
Also, how much justification does Studwell give to the claim that German and US industry would not have been able to reach parity with Britain without help from protective tariffs? That seems like a pretty hard thing to demonstrate without resort to the post hoc ergo propter hoc fallacy.
One contrarian response you can give to this whole thesis, on reflection, is that it demonstrates the difficulty of achieving industrial prosperity in a regime of immigration restrictionism. In 19th century Europe and the USA, after all, white workers were pretty free to move to wherever the most productive factories were. Nonwhite workers in the 20th and 21st centuries have not had nearly as much freedom of this kind, and it's hard to tell whether the global development story would look at all similar if they had. But on the anti-restrictionist, anti-nationalist view, allowing them that freedom is the right thing to do anyway, since the morally important goal is not to enable *nations* to get rich but to enable *people* to get rich, and letting people switch nations to one where they have a better shot at getting rich is a fine way to do that.
> Gradually they improved, until now "Made in Japan" has the same kind of prestige as Germany or Switzerland
At one point German manufacturing was known for shoddy quality, hence the phrase "on the fritz".
The land reform discussion reminded me of Yavlinsky's (Russian politician popular among intelligentsia in the 90s) program, which included giving "30 to 60 acres of land for free" to every Russian family that wants to take it. There is a general feeling among intelligentsia that the 1990s were a short window of opportunity for Russia that was missed; I remember my grandmother would say bitterly while making kasha for me in the kitchen: "If only they let Yavlinsky do what he wants; but they won't".
[Epistemic status: I only got 3 hours of sleep so this might be half-baked]
1aa. The most implausible aspect of it was the idea that meticulously tending gardens by hand, like people did in 1000 AD, is the key to improving productivity, as opposed to modern factory farming. Rolling over a huge field with machines produces astoundingly high yields with modern seeds and fertilizers, and frees up 98% of the labor to do other things, like work in factories. Micro-scale yeoman farmers were rapidly going out of business in the US in the 30s due to competition from larger and more mechanized farms with economies of scale. The more land you have, the more benefit you get from owning advanced farming machinery. Micro-farmers can't afford the best machinery.
1a. A negative outlook for the south asian foils (Thailand, Malaysia, Philippines) seems unjustified considering how quickly they are growing at present despite not following the book's advice. Also they are still richer than their historically more-centrally-planned neighbors Vietnam and Cambodia. In the past 20 years, all the foils have increased their GDP per capita by at least 2.8x, which is a CAGR of at least 5.2%.
1b. The 15 point average IQ gap between the northeast asian success stories and the south asian foils is very likely to be a factor.
1c. Giving tenant farmers tenure and a percentage of their output could align incentives as well as if they actually owned the land. Concentration of land ownership is thus not necessarily a good measure of whether or not they have the right incentives to improve yields.
1d. Many countries in South America, Eastern Europe and Africa did a lot of socialism and land reform and it didn't get them very far. It seems potentially no-true-scotsmany to say that the northeast Asian countries are the only ones who did land reform right, without predicting in advance which kind of land reform would work. Those countries have many other features in common so the causal status of land reform is unconvincing.
1d. I previously calculated that China was still poorer than pre-industrial Britain when it began its liberalization in '78, so apparently redistribution of land didn't get them very far in 1948-1978.
1e. I don't see so much as a scatterplot of land ownership gini vs gdp growth over the next N years. I feel like the land reform argument needs more quantitative support.
2a. Looking at development as a collective action problem is interesting. I suppose you could elaborate on that by saying that developing one industry can have long term positive externalities on many other industries, and the protective tariffs are a way of internalizing those externalities (at the expense of consumers, instead of doing a pigouvian subsidy at the expense of taxpayers). Maybe that sort of language would make it more palatable to mainstream economists.
2c. These all seem like reasonable factors contributing to Malaysia's lagging.
3. Low interest rates in general will increase the relative valuation of long term growth oriented companies relative to immediate value-extraction companies, because of how interest rates affect the calculation of discounted cash flows. So I'm not convinced that central planning is really necessary to push things towards the former. The US privately finances plenty of long term moonshots, and even literal ones like SpaceX.
Hong Kong did not grow just due to finance. The phrase "Made in Hong Kong" was once very common as well.
Malaysia, Thailand, and Indonesia are hardly basket cases. They have seen GDP per capita increase multiple times faster than, say, most of sub-Saharan Africa.
How does the model account for the very rapid growth seen in India and Bangladesh, to name just two other examples?
Does the author (or others) provide any examples of countries trying the free-market approach in the modern area. I'm skeptical that is doesn't work and it doesn't seem like an example is provided. I am on board with Hong Kong and Singapore being exceptions that likely don't tell us much about larger countries.
I think this book is right about the path taken by the east Asian tigers. I don't think that lesson can be exported to the rest of the developing world just as the Washington Consensus is not one-size-fits-all. There are too many confounding variables caused by geography, culture, demographics, and politics for there to be a universal development story.
"So although both he and David Harvey make some of the same points about how the Washington Consensus in favor of free market reforms harmed developing countries, I felt like Studwell effectively explained where it went wrong and how to do better, whereas Harvey just sort of screamed that anyone who supported it was part of a conspiracy."
David Harvey doesn't "scream" that anyone who supports capitalism is part of a "conspiracy" - he argues that they are simply pursuing their class interests. I get the feeling that you let your emotions get in the way of reading of this book charitably.
excellent
The argument seems like pure cope to me. I still defer to Lee Kuan Yew's theory that good rule of law (with regards to business + labor practices) + a safe, low crime society (both corruption and street crime) + general free market ideology + strong human capital = success. Developing countries need to attract foreign capital (and keep attracting it). That's really it.
In regard to the question of whether land reform is essential for development:
I’ve read the claim that widespread small-scale peasant landownership in early-20th-c. Ireland *impeded* economic development—and, as noted below, amazingly unequal landownership in the industrializing UK (significantly *worse* than in pre-modern China) didn’t seem to hamper it.
One of the most important aspects of land reform is that the country be located outside the Western Hemisphere. US has always seen land redistribution as socialism, and all socialism is an enemy to Our Way of Life. Many large land / resource owners are US corporations, and what United Fruit owns the US Marines will protect.
Hong Kong was a giant sweatshop through the 40s to the 70s. Huge multistorey industrial buildings, now abandoned, continue to dominate districts; in the old days, they jsed to churn out everything light industry could, from jeans to toys. Cheap things used to be Made In Hong Kong as well, before HK's factory tycoons outsourced to China and the economy shifted to finance. Blocks of apartment buildings were filled with families, living six to a room, with kids stringing together necklaces of plastic flowers and finishing jeans by the bushel.
One key point is that East Asian countries grow rice. Rice agriculture is unique in that you can get better yields by putting in more labor, there is always something productive to do. With corn and wheat, once you have put in a sufficient amount of labor, adding more won't help your yield. The tendency of Asian work culture to emphasize long hours is a direct result of this, rice farmers who work 15 hour days end up with a better harvest.
Malaysia has a GDP per capita PPP of $29,000, and Indonesia has $13,000. China is at $18,000, and Vietnam at $12,000. How are China and Vietnam be called spectacular success stories, and Malaysia and Indonesia dreadful failures?
I suspect that central planning is hard to get right - there are times when it can work very well, but it seems like it's very easy to get it wrong and do worse than the free market. It would be very interesting for an economist to try and work out whether this is luck, policy or (most likely) a mixture of both.
Industrialization, low peasant productivity, land being owned by few landlords that have no or little interest in developing it, political life dominated by those landlords. This is 1 for 1 the history of European revolutions. Russia being the latest example. Hence, it all reads a lot like Marx theories.
So yeah, you do need industrialization to be competitive in the modern world. You do need land redistribution of some kind. You do need to dismantle 1000 years old communal agriculture and serfdom. But I don't buy his advice on how to achieve that. Or that the China way is the only way to do it. History knows plenty of examples when a different approach worked, albeit in a different external condition. History knows plenty of examples when autocracy didn't work.
It feels more like a pundit trying to explain something that has already happened. And less like an honest scientific work on the topic.
"And every big developed country that passed through a manufacturing phase used tariffs (except Britain, which industrialized first and didn't need to defend itself against anybody)."
Sorry this is wrong, and a really annoying meme economic historians keep arguing against.
What about the Calico Act that protected mid-18th century UK textile manufacturers from India's textile industry? https://www.britannica.com/topic/Calico-Act
What do you think the Corn Laws in 1846 were repealing if not protectionist measures that had been in place during the industrial revolution?
Also transport costs were REALLY HIGH which acted as a natural barrier far higher than any tariff.
UK's development story is not as sui generis as we like to make out.
One counter-argument on the land reform point: when Britain was industrialising, it did more or less the exact opposite of what this book describes.
Land reform in 18th- and 19th-century Britain meant enclosure, a process by which rich landlords could amalgamate holdings previously subject to the rights of many small-scale tenants. It could be a very harsh process, with tenants receiving theoretical compensation that in no way made up for losing their ability to farm the land. They often wound up day labourers or, later, working in the new mills and factories. At its harshest the process gave us the Highland Clearances, where large numbers of small-scale tenants were left with next to nothing and had to emigrate.
But it also left the country with large tracts of land in the possession of rich owners, who turned out to be very interested in maximising their profits by increasing yields. They experimented with many different ways to do this, helped by economies of scale and the flexibility of not trying to change the ancient ways of their tenants. They greatly increased productivity, and this new wealth fuelled Britain's industrial development.
Korean-style land reform was obviously part of a successful package in that country, but it's not the only way to development.
A minor point I have not seen the discussion yet: reverse engineering. In the case of Japan and China, I believe there is a strong feeling that their catching up was helped by an involuntary transfer of intellectual property from the already industrialized countries. (I'd rather not comment on the legality/ethicacy of it, as it is besides the point here and I haven't thought about it enough to argue one way or another).
The idea that "developing country industry is not about the profit, but about learning, acquiring technology, etc..." sounds nice enough, but if large part of is "let's figure out how this state-of-the-art piece of equipment was made in Advanced Industrialized Country and how close we can get to it here at Industrializing Country while maintaining a reasonable balance between cost and quality" is a whole different problem than "let's try to imagine where our industry will be in 10 years' time and start developing a product that has a reasonable shot at being the state-of-the-art then". Fair enough, there is much more to catching up than technology and manufacturing, but any approach to economic development that argues for manufacturing as the/a main driving force behind modernization has to at least mention this passingly imho.
A more general point: the reason why we have so few success stories is maybe there aren't too many General Parks? I mean there seems to be a very fine balance between the basically dictatorial powers which can be required to e.g. carry out a land reform and the, for lack of a better world, wisdom that would make the Premier actually give the land to the farmers and *not* to expropriate it by giving it all away to his lover’s third cousin or something. Since industrialization takes usually several decades, you have to make sure the leaders who start out as Gen. Park’s don’t turn into tinpot dictators, their successors are also reasonably well-intentioned, there is a normal transfer of power etc.
So even though the Asian model seems like a the proverbial banknote lying on the pavement, I think it is more like suggesting street kids to become neurosurgeons to climb out of poverty: it is really great if it works, but a lot of things have to be right for it to work and at the outset it is almost impossible to know whether you have what it takes to succeed.
Interesting response from Noah Smith on some of the limitations of Studwell's theory, although I suspect many ACX readers are also on Noah's mailing list.
https://noahpinion.substack.com/p/what-studwell-got-wrong
This was very insightful. The land reform ideas synergize well with Georgist perspective and the as a whole Studwell position seems to unite lots of valuable points from both capitalism ideologs and critics.
Also this explains so well the situation with Russia. How the 90s, the period of swift shifting to market policies, were one of the most terrible drop in quality of life not related to war. And why russian economy is still in a bad shape.
Maybe we could collectively accept that there is no grand sweeping cause for economic development ?
Compared to (most of) Africa, East-Asia has :
- rice-based agriculture that allows for high population density.
- strong states with efficient administrations.
- good deep water harbors and navigable rivers for shipping industrial products. I don't need to emphasis how important this is if you plan to export abroad...
- probably less endemic diseases but I'm not sure on this one.
It's not just a question of policies, geography, history and culture count too...
Planned economies work well for underdeveloped countries, as people, including i believe Alexander Hamilton, have been saying for centuries. So do you see why it is that bigger countries oppose planned economies? They oppose international competition. I don't think this is a matter of economists being too stupid to see what works, though I wouldn't put it past a lot of them.
I am skeptical of the claim that China's per capita growth has actually been all that impressive compared to Malaysia and Thailand, both of which are wealthier than China. So I went over to Our World in Data, looked around a bit, and then noticed that I am confused.
If you look at cumulative change of GDP per capita since 1950 [1], South Korea has grown more than twice as much than any other major East/South Asian country. China doesn't look very impressive here, even compared to Thailand and Malaysia. If you set the start date to 1979 [2], China has grown the most. But this is highly dependent on the starting year. If you instead set the start date to 1985 [3], India has grown the most.
This is about when I noticed that I am confused. If you look at the annual growth rate per capita since 1985 [3], India's has been consistently lower than China. Yet India's cumulative growth per capita over the same period is higher. This isn't mathematically consistent. China grows at about 8% per year and India grows at about 5% per year. After 32 years, India's GDP per capita is 5.2 times larger than initially, while China's GDP per capita is 4.3 times larger (instead of about 12 times larger that you'd expect from an 8% growth rate).
Does anyone know what's going on?
[1] https://ourworldindata.org/grapher/real-gdp-per-capita-pwt?stackMode=relative&time=earliest..latest&country=CHN~MYS~KOR~JPN~IDN~IND~THA~VNM~PHL~MMR~BGD
[2] https://ourworldindata.org/grapher/real-gdp-per-capita-pwt?stackMode=relative&time=1979..latest&country=CHN~MYS~KOR~JPN~IDN~IND~THA~VNM~PHL~MMR~BGD
[3] https://ourworldindata.org/grapher/real-gdp-per-capita-pwt?stackMode=relative&time=1985..latest&country=CHN~MYS~KOR~JPN~IDN~IND~THA~VNM~PHL~MMR~BGD
[4] https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&time=1985..latest&country=CHN~IND
I'm absolutely no expert on Rwanda, but it seems like Paul kagame (who is absolutely a dictator) is following this line. Rwanda to many is still an euphemism for 'worst place on Earth', but it has been one of the fastest growing countries in the world in the 2010's (7% annually), after a giant civil war things have been pretty calm, and Kagame's dictatorial tendencies are more the lukewarm 'lock up journalists and give every young man you think may become a problem an AK and a single-way ticket to Sudan.
They opened a gold refinery this year, so they no longer have to export raw gold to Western countries but can do it themselves. I'm sure it will be of lower quality than gold that's refined in Germany, but seems a pretty good start of step 2.
There might also be "bamboo network" effects in the East Asian countries case. One reason why people of Chinese descent in foreign countries (eg Malaysia, Indonesia, even in overseas enclave) appear relatively successful may be because of access to capital and markets (in the form of family ties) between family branches which are geographically spread out.
Someone in HK may be able to get a loan from a cousin with a Chinatown laundromat in San Francisco (or, the SF laundromat might get a loan from the HK banker). I won't be able to do much as a representative of an Australian company but if I tried to do a thing I may try to hit up my mother's granduncle's son who runs a chain of mobile phone shops in Guangzhou. This bamboo network criss-crosses between China, SEA, Taiwan, and often overseas Chinese enclaves in the US, Australia, and Canada. If I wanna go open a cafe in Atlanta I'm gonna start by interning in my mum's cousin's sushi shop over there, and if said mother's cousin wants to emigrate in order to escape Atlanta my mum will probably get me to sign the visa.
This was very powerful back when family had 7-8 kids each. I suspect One Child may have destroyed a great many bamboo networks (and means overseas Chinese are at a comparative advantage - my mum was one of 7 siblings and my grandma was one of 9).
Test my theory: does this also happen with Catholics? Why/why not?
Somewhat unrelated, but I'll still baffled that economists believe in a linear model of progress inevitably leading to the desirable end goal of a service economy.
Byrne Hobart used this book in his post Lessons from the East Asian Economic Miracle (https://byrnehobart.medium.com/lessons-from-the-east-asian-economic-miracle-5f8d0f2354d9). From his citation mentioning the book:
"This one’s a masterpiece: in-depth profiles of both successes (South Korea) and failures (Malaysia), full of great lessons. My case studies draw heavily from this book. One of my favorite details, from a chapter on how a corrupt democratic process stymied the Philippines: they once had an election in which Marcos spent so much money buying votes that it literally triggered a balance of payments crisis."
He also had a follow-up post after Noah Smith noticed Byrne changing his mind after reading it (https://byrnehobart.medium.com/a-modest-proposal-a-backdoor-implementation-of-free-market-industrial-policy-f5f9d88c657c).
Well, whatever you said didn't work in India.
Land reform was the first political decision of Nehru, where he amended the constitution by removing the right to property and hammering in a schedule where laws can be protected from legal scrutiny. Now 284 laws are in the schedule, the vast majority of them concerned with land reform. Do you know what happened later? This led to massive decreases in production, causing a famine, which led to India modernizing its Agriculture, with the help of the US.
Source: http://www.mea.gov.in/Images/pdf1/S9.pdf
Later, Nehru tried to implement 'moderate' socialism by nationalizing industries, five-year plans, etc. He also made existing business leaders like the Tatas, Birlas, etc. as 'national champions' making them into conglomerates with their noses in different industries. This didn't pan out so well as their products were not export-oriented and competitive.
Indira drank the kool aid and went full socialist. She instituted even more nationalization, of banks, etc. making sure that giving kickbacks to bank officials, etc. is the only way to get business loans. She instituted license quota raj, which was a centrally planned scheme where you were supposed to get a license to make a particular amount of X. That too led to chronic shortages of essentials like kerosene, food, etc. and most people rely on the public distribution system to get essentials. You need to be in a waiting queue for 10 years to get a scooter. If you wanted it early, you needed to bribe the officials.
It is only since the liberalization reforms that India has grown. If you notice the industries India has grown, it is out of benign neglect that these industries have grown. For example, IT grew because there weren't any laws governing it nor any cabal controlling the firms. To start a business in India, you need to have caste connections. I can say for my state. To own a pawn shop, you need to be a Jain (colloquially called as 'Seth'); to own a textile factory you need to be a Gounder; to own a grocery shop you need to be a Nadar; to own a textile showroom/anything dealing with costly things you need to be a Naidu (one of the firms is literally named 'Naidu Hall'). Otherwise, you'll be hounded by everyone from government officials, police, to local goons because there exist associations for every trade(which are mostly dominated by caste groups) which lobby the officials, police, lawmakers, goons with money.
India developed because of brahministic meritocratic values that prioritized higher education over working early in life. There was a notion that if you get educated you could be like 'those upper caste' people and that led to a lot of people prioritizing early education and a specific trend towards STEM. Elite institutions established took the cream of the upper classes and many went abroad, mainly to the US because they had less of a chance to get a government job in India due to affirmative action, which gave fixed quotas to the members of lower caste people to uplift their lives. Although this led to higher caste and class inequality, the benefits are there for all to see.
The effects of this are enormous. My home state of Tamil Nadu has a gross enrollment ratio in higher education of 50%, which is on par with China. Most EU nations have it in the range of 60%-70%, whereas the US has 88% (Guess why the US is the birthplace of wokeness...). Tamil Nadu has a TFR at 1.6 and is joined by many other states here. You can compare this with Germany and other EU states, which have a similar rate, even though these people roughly earn 1000 USD per annum.
Fun fact: Tamil Nadu is ruled by a guy called Stalin, his political party's core ideology being rationalism (that has nothing to do with SSC style rationalism though)
Source: https://theprint.in/india/education/study-shows-how-indias-higher-education-enrollment-can-jump-to-65-from-27/441582/
The main reason, which I see is active US intervention to develop('bribe') these countries to be on their side. The US, which has easy access to enormous surpluses, used its capital to spawn various industries in the developing world, as a political project. If you see that these countries grew only because they took to the side of the US, and the very idea of Industrial policy being beneficial here is a smokescreen because the entire scheme was because the US intervened in these economies from the top, and performed sweetheart deals, backroom negotiations, and mass work programs to make people work instead of discussing Marxian thought (China has adopted the mass work program approach, defying conventional economic logic, to great detriment to US industry).
Excellent twitter discussion about this between Pseudoerasmus and Salim Furth
https://twitter.com/salimfurth/status/1409918984732938244
Noah Smith is an idiot. His opinion is worthless. On economics, anyway. Maybe he's a really good cook or something, I don't know. But he got his PhD from a Cracker Jack box, and it should be rescinded.
"There was nothing predetermined about this. These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?"
By virtue of being Cold War US darlings to be used politically against USSR and against their neighbors?
I’m highly skeptical. There are too many degrees of freedom in the history. The parsing of land reform I find unconvincing, land reform has been tried everywhere with varying success. The direction of causality could run in the opposite direction with stronger states able to carry out relatively more successful land reform, or it may be completely unrelated.
The successful countries are in the same region industrializing around the same time within a similar political zeitgeist so naturally they will have some similar policies. And countries receiving IMF aid are obviously not a random selection.
Someone could do this with the Nordic countries and pick virtually any shared policy among the countries when they were growing and claim that was the secret to their success, when probably it had nothing to do with policy in that case or this one .
The elephant in the room is Africa. How did land reform work out in Zimbabwe?
>What now? Studwell uses the last chapter to warn China that its development model can only go so far. Dictatorship and state planning can lift a country from poor to middle-income, but so far everywhere that's become truly rich has also been free and democratic.
In Sapiens and Homo Deus by Yuval Noah Harari, he argues that governments are technolgies that get "unlocked" by having requisite technology in place. The idea is, we couldn't have had democracy in the 1400s because we didn't have literacy, educated citizens, and reasonably safe travel. SImilarly, 20th century style centrally-planned communism is only possible with technologies like radio, trains, and mass communications.
An interesting question he ponders is whether advances in technolgies like AI (think facial recognition, neural networks applied to behaviors of human groups) might not make centrally planned communist governments outcompete the distributed capitalist system. Imagine we replace the planning commission with an algorithm. In 20 years, might this be more efficient than a capitalist system? Or perhaps some other form of government gets "unlocked" that can outcompete all the types of government now in use.
Interesting to consider.
The author's argument that developing countries that successfully complete land reform reaps benefits as a result has many counterexamples. E.g., in India many states (e.g., West Bengal) successfully took away land from the landlords to distribute it among the tenant farmers. However, agricultural output remained sluggish. Since the plots are so small the farmers can't use industrial farming methods to increase production. Many farmers commit suicides as a result of crop failures regularly.
The way to economic growth always lies through the free market. The more a country liberalizes the more it grows. (Some people like to think as if China bucked this trend. However, Chinese economy grew exactly in those areas which were unshackled by the party.) Since many people are invested in the contrary ideology they will make up increasingly outlandish theories to explain away this observation.
I think the geography vs state policy could be interrogated by looking at the provinces in China as if they are separate countries. Mao flooded interior provinces with support to make powerhouses in certain industries, but the basic economic structures were basically constant, and the coastal cities got rich much faster. Containerization may have unlocked something that, with Deng going along with it, was more meaningful than policy.
Also, not sure how to square the praise for small farms with the accounts of those I know from Vietnam, who consider the microfarms a blight, using old dirty techniques like burning vegetation to replenish the land, ultimately choking the area with pollution after harvests. Maybe they aren't valuing abundant cheap labor enough I guess, or maybe Asian farming involves a giant set of complex tradeoffs that are hard to reduce to a simple straight line policy recommendation.
Still an interesting take and comparative analysis should make us question our commitment to some naive development economic priors.
Great caption:
"China today. Or maybe not, it’s hard to tell."
I came to appreciate Mahathir of Malaysia more over the years. He had a complex situation to deal with in the division between the enterprising Chinese minority and unambitious Muslim bumiputra majority. But he kept the country together and at peace, with no Indonesian 1965-style massacres. He made a lot of mistakes, but he kept trying something else.
A lot of this rings very true for the India side. If India did one thing of the list above, it was land reform. India had a massive land reform under Nehru and it's been my family story that my great grand father owned 100s of acres and it was all taken away and given to poor peasants who subsequently sold it to foreigners (though it also seems like he willingly gave it away under influence of Gandhis ideology). But in general among the upper castes (Brahmins), the story you hear is same, once we had massive land, then we lived through generations of poverty and finally got back up again (by working very hard on our education is a staple Brahmin story. Generally it's my opinion that they have a significant genetic advantage and an economy that values intellectual work. ) . But India never went through protectioni, tried socialist style planning for a really long time (till 1990s) and then just liberalised everything which made us richer than 1990 but nothing like Japan, Korea, China. India is right now a service based economy with a small manufacturing footprint. This means that some part of the population (the educational elite) live quite a rich life. (They generally work for software, or consultancies like McKinsey have a big craze here or Banks like Goldman Sacha are also very prestigious). The people who don't do well in school generally end up working in menial labour or odd jobs (servants, drivers, coolies, construction workers, farmer) which pay very less. If we had a good manufacturing sector, they could reach the middle class like in America but we don't which is why there is massive stress on Indian Students for their 10th, 12th and college exams. I hope we get some government that understands the use of tariffs.
With regard to China there's an argument that their success in industrialization and foreign trade happened more despite than due to centralized policy. Case in point, consider the institution of "Special Economic Zones":
https://en.wikipedia.org/wiki/Special_economic_zones_of_China
One story about how those came about goes as follows: First Hong Kong became successful, producing many rich businesspeople who were used to working in a relatively freewheeling free-market environment. Then some of the rich Hong Kong businesspeople noticed that right next door to them in southern China there were poor areas with cheap land and desperately cheap labor, but a pretty terrible tax and regulatory environment...overseen by corrupt local officials. The profit motive being too great to ignore, they went ahead and built factories in convenient places like Guangdong and tried to run them just *as if* they were still working in Hong Kong. When national or local laws made it hard to do stuff, corruptible local bureaucrats were then bribed, co-opted or otherwise encouraged to turn a blind eye and/or falsify records such that authorities could simply *let business do business*. This model was so profitable it spread until large regions of the country were more or less openly flouting the law to become successful manufacturer/exporters along the Hong Kong model.
Eventually the problem of all these businesses in China *massively enriching the local economy by violating Chinese law* came to the attention of the Chinese national government. Which adopted the face-saving strategy of declaring these regions should now be considered a "special economic zone" where it was OKAY to have foreign and domestic trade and investment without going through the usual process. They drew lines on a map and said "Okay, as long as you stay in THIS tiny area we'll let you mostly keep doing what you're doing because, well, it's working. But if you do the same thing OUTSIDE that area we'll come down on you like a ton of bricks!" The central authorities could now pretend it had been their idea all along to benevolently ALLOW all this free-market stuff to happen and they were still totally in control of everything. "No laws are getting casually broken on OUR watch, nosiree!"
Alas, the outlaw regions had a tendency to expand into neighboring towns so to *maintain* their illusion of still being, like, totally in control the central government had to keep *widening* the areas they considered a "special economic zone" until eventually most of the places where anybody might WANT to build export-focused industry weren't encumbered by the regulations that had previously been making it hard to do so.
In short: Hong Kong's attitude toward business became geographically contagious and took over China.
Maybe this point was made somewhere else in the comments, but:
> It really is striking how the countries that did the best were the ones that gave the world
> establishment the middle finger (unless of course this is cherry-picking and there are lots of big
> countries that followed IMF advice and did great). To whatever degree this is true, it belongs on
> the list of science failures that should keep us up at night
What makes you think that this was a _science_ failure? On the part of IMF, I see nothing scientific in either intentions or tools employed.
Interesting review & discussion. But there is an elephant in the room: The demographic transition.
All the Asian countries that succeeded, reached the end point of the transition (below 2.1 children per woman) during their economic take-off. I also believe that in most, if not all, of the countries Studwell hails as success stories, their strongest growth rates coincided with their "demographic gift" period. The demographic gift-period (aka the demographic dividend) is the transition phase when the working-age population is large, relative to children and the elderly. Implying that they do not have many "unproductive" mouths to feed, and can save & invest more of their surplus.
Does not Studwell mention the demographic transition at all?? Judging from Scott’s review, that seems to be the case – but I find it a bit hard to believe, so if possible, cold Scott or someone else please confirm this, or correct this?
Side note in this regard: AFAIK, the World Bank registers per capita income by dividing the stipulated household income by the number of household members. The Bank does not even (unlike OECD) give lower “consumption weigths” to children than to adults within a household. With this calculation method in mind, it is no surprise that per capita incomes in say Mali (still high fertility) has grown, and is growing, more slowly than in China (or Vietnam, or Bangladesh).
For a recent take on the same topic that includes a discussion of the role of the demographic transition in fostering economic growth, I recommend a book by the Dutch scholar Peter de Haan (2020): “Whatever happened to the Third World? A history of the Economics of Development.” Haan has worked for forty years in the development field, including being Asian Bureau Chief of the Dutch NGO NOVIB (now merged with Oxfam).
Side note: I plan to put this book up as mandatory reading for a student course, so if someone has opinions on this book, including negative opinions, I would be very interested in their views.
You wanted an Asia Doesn't Work That Way: consider the book "Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty" by Arvind Panagariya.
I just started reading it, and it gives examples of the success of the same countries mentioned above with largely the opposite thesis. Something something same data opposite conclusions something something.
Reading this now, I really feel conflicted and can't imagine resolving the conflict without actually better understanding the economic and cultural history of these places.
You are falling for propaganda if you are lumping Thailand with the rest of South-East Asia.
Thailand's PPP is higher than China 19,169 vs 18,931
Thailand's GDP is lower than China but in the same ballpark 7,674 vs 11,819
But this is in the context of China being known for inflating these numbers too high heaven with all possible tools in the book, while Thailand doesn't really care (you yourself mentioned the ban on economists)
*But* for 99% of residents this doesn't matter, Thailand's GINI is 36 and it's HDI 0.777 | China's is 46.7 with an HDI of 0.761
So couple increased freedom and equality in Thailand with a larger PPP, and the tl;dr is that the average Thai citizen can buy more goods and services and enjoy them in a more safe, collaborative and free environment.
All of this while Thailand was at the centre of wars and genocides and had to spend tremendous sums of money and twist its political apparatus in order to maintain a strong enough army not to get USSRed, Sinified or Uncle Same'd like its neighbours.
All of this while Thailand has the kind of weather that was good for crop farming 200 years ago, but is not a detriment to infrastructure, tourism and a generator of disease, Malaria is still an issue in a remote regions, dengue is an issue even in the centre of Bangkok when outbreaks happen.
Oh, and did I mention that Thailand manages to be more economically developed than China without murdering 20% of the population in the process or enforcing en-mass sterilization and child murder? I know it's a super small ethical quip compared to a 0.3% difference in GDP growth, but might be worth taking into account.
This is to say nothing of the "on the ground" experience of living in Thailand, which based on immigration, emigration and tourism preferences seems to be *much* better than living in China. Not having a population of slaves, allowing free expression and overall not destroying your culture seems to have contributed to that.
This book seems to literally ignore the biggest f-ing elephant in the room, which is that the large south-east Asia nation, and the only one that wasn't affected by "land reform and protectionist policy" is actually doing better than China. Once you take China out you're left with the much smaller Taiwan, Korea and Japan.
The former two tiny and might own their growth to US support as military bases, the later being an epicenter for half the world's culture and really bizarre in terms of everything from weather to geographic location to culture.
Also, how comes it fails to mention this EXACT policy being enacted in Cambodia, which had much less success than china.
I call bullshit on this book, it seems to be promoting dangerous totalitarian ideas with just so stories by ignoring the actual data.
This runs completely counter to my experience in the nations of Africa.
Take land reform for small farmers. I swear, you can be driving along a road in Kenya (yes, I've done this) and look out to the right and see rolling fields of wheat that are owned by the Germans/Chinese etc. Then you look on the left and see small farmers that consist of a few withered crops standing in the sun and bodies bent over and broken from pushing ploughs by hand. This isn't a metaphor; I've literally seen this.
I asked, "Why don't they just pool their land into a collective, use it to raise money to buy tractors and modern fertilizers and make way more money for way less work - you know, do what the people literally on the other side of the road are doing?" Response is always a certain kind of look, a look that says you-really-think-I-haven't-thought-of-that, followed by some version that the little farmers are so attached to the idea of their tiny plot that they won't even consider such a solution.
>China's level of debt is frankly terrifying, but they seem to have pulled it off so far by growing faster than they borrowed, even though they borrowed a lot.
Factually incorrect. Chinese credit-to-GDP has been rising for decades (source, for example, https://static.seekingalpha.com/uploads/2013/3/390936_13644264335134_rId7_thumb.jpg)
I wish there was some discussion of North Korea, which seems to be the only East Asian country left out of the discussion. Like South Korea was at first, North Korea was and is a dictatorship, and it has a similar one-party system to China. Yet it hasn't enjoyed the same economic success as either neighbor.
The land reform step seems to have gone right:
> On 8 March 1946, land reform was implemented in North Korea that saw the confiscation of land from Japanese nationals and organizations, Korean collaborations, landowners and religious organizations. The confiscated land were then redistributed to 420,000 households. A total of 52% of North Korea's land area and 82% of land ownerships were redistributed.
(https://en.wikipedia.org/wiki/Provisional_People%27s_Committee_of_North_Korea)
After the Korean War, and with help from China and the USSR, North Korea grew very fast and enjoyed a higher standard of living than South Korea. Then it started focusing on heavy industries... but inefficiencies started to arise, it suffered from the collapse of the Soviet Bloc in the 1990s, suffered from crippling famine, and is still a very poor country today, especially in contrast with its neighbors.
So, what went wrong? Did it fail to have internal competition to accelerate industrial progress? Did it fail to switch to free market policies when it should have, like South Korea did? Did it just get too totalitarian? Or was it due to some geographic or internal factors like availability of resources?
I see a lot of people (maybe following Studwell) lump together land reform and industrial policy, but they seem so different to me, especially from the point of view of economists. Successful land reform is about reducing principal-agent problems, whereas industrial policy is about increasing layers of management, and claiming that knowledge externalities will make up for it.
Why can't landlords do land reform themselves? Is it true that landlords can make more money the old way, or is it that they don't care about money and are actually in it for feudal power? I suppose they might be because of diminishing value of money. Do we see the problem get worse the larger the landlord is? I think that the size of "big landlords" ranges over orders of magnitude between countries, but I never see them compared.
Both this book and "Seeing Like A State" seem to reinforce something I've learned updating old custom equipment as an engineer. Don't change something until you understand how it works. This has become a bit of a montra for me. Most of the times I've changed something without understanding the mechanisms for why it is the way it is, my changes break something that hasn't been an issue in decades. Eventually I can fix those issues, but its usually easier to fix when you know why a thing was designed the way it was designed.
1. Harkening back to earlier book reviews, wasn't Wolf Ladejinsky a Georgist?
2. It is worth emphasizing that Asian success stories do not follow either a Soviet-style development policy OR the the Jeffrey Sachs/World Bank liberalize the economy and privatize all the things model.
3. Indonesia is another good example of an Asian development non-success. The non-state-owned sector of the economy is largely controlled by overseas Chinese, mainly Chinese protestant Christians.
This suits the ruling clique just fine, as the Chinese are foreigners and infidels to boot, and therefore a reliable and generous source of financial and other support for the politicians.
Also, what about comparing with Turkey? The definitely had brutal capital controls and industrial policy, but I am not so sure about the land reform bit.
So the focus on Malaysia as the fail case is weird. Why did he focus on that case instead of, say, the Philippines or Indonesia?
Just for reference, per capita GDP in Malaysia is nominally ~$12,000 and ~$30,000 in PPP terms. This isn't a failed state, judging by photos of Kuala Lampur, this isn't even a poor state, it's just not rich yet. Compare that to the Philippines or Indonesia, with per capita GDPs of ~$4,000. Why draw a comparison between high-income South Korea and middle-income Malaysia, instead of low-income Indonesia?
Because, and I'm no expert on the Malay economy, but if they've gone from poverty to $12,000/person in 40 years (1980-2020) and the South Koreans went from poverty to $30,000/person in 52 years (1961-2013), that gives Malaysia enough time for another doubling. And saying we need to abandon liberal economics and install a military dictatorship to direct the economy so we can go from $30,000/year instead of $24,000/year just isn't very powerful.
Again, any indication why he focused on this specific comparison?
I admit I am predisposed to disliking industrial policy-driven arguments, as Brazil (my country) is possibly one of the biggest failure cases for industrial policy.
Our 80s US-backed military dictatorship tried hard to play by this book. Huge tariffs were put up against imports in strategic sectors while the government started up huge state enterprises. It backfired spectacularly, as most of the state-backed enterprises only made inferior copies of foreign products - the poster child for this being COBRA, the state computer enterprise which until its inevitable death did nothing but produce inferior copies of foreign low-end computers and sell them at a gigantic markup.
While this was the most notorious case, there were examples like this in every field you can imagine. My father will always tell me about how incredibly shitty products were during the dictatorship years, as our "nascent industry" insisted in remaining nascent and simply extracting value from the fact the market had no access to alternatives.
He sure waives away a lot of exceptions. New Zealand and Denmark are sparsely populated, so they don't count. Hong Kong and Singapore? Oh they're too densely populated so that doesn't count. India? Well let's just not talk about India, or all of south America for that matter. UAE, Kuwait? well they have oil.
It's a long book and maybe he talked about South America, but when you eliminate all these countries you end up with basically five data points in effectively the same part of the world. His objections are true. New Zealand does have an advantage in farming because it's low density. But vietnam/China/taiwan/korea have an advantage in manufacturing because they are close to big markets (more specifically the cost to transport manufactured goods to market is low, doubly so because of container shipping). Mongolia, couldn't follow this policy. You're not going to bring all the parts for a car into Congo manufacture it and then hall them out.
Geography is destiny for a lot of this stuff. That's why a poor worker becomes more productive when they go to a more productive place. A carpenter is worth more in San Fransisco than in nepal.
Soooo....I saw 'land reform' recommended. I searched the article for the word Zimbabwe. And this article manages to recommend land reform, mention Zimbabwe, but not mention Zimbabwe's land reform policies. I don't know if this is true of the book as well, but if it is that would be a pretty damning indictment.
The summary provided of "land reform" doesn't make a lot of sense to me. Sure - slaves/sharecroppers/whatever don't have a lot of incentives to improve land yield and owners do. But if that's the case, Zimbabwe should have had a farm output explosion in 1980s, yet the reverse happened.
Having stable governments seems like an underrated part of the formula.
There's an interesting tie-in to the US's evolving stance toward land reform in a broader geopolitical sense. In the late 1940s land reform was something the US was imposing on quasi-colonial possessions, but then not not too long after that at the beginning of the 1960s Cuba tried to do a land reform, and the US was having none of it. Of course we now think of that Cuban regime as a Communist dictatorship, but at that time that was certainly not the official story, and US-Cuba relations were rather normal.
Powerful US corporate interests would be subject to dispossession in the land reform. They had the ear of President Kennedy and significant sway in Congress (c.f. MacArthur in Japan not needing to bother with Congress at all). So the response ended up being we're going to turn the screws on them by blocking goods that we import from Cuba, and that will get them to stamp out their land reform pipe-dream.
This ended up backfiring as Khrushchev smelled the opportunity to put Cuba in the Soviet camp by offering a helping hand to get them out of that jam.
The description of Asian success stories matches very closely what Germany and other continental counties & the United States did in the wake of Britain's pioneering wave of industrialization - they sent people to learn what the Brits were doing, they bought, borrowed, or stole expertise and experts, they sometimes smuggled machinery and drawings out of Britain, they bought British capital equipment, and they used British investment - particularly for railways and heavy state-backed infrastructure projects - and they used their banks to direct investment to "desirable sectors" and they used government subsidies and tariffs to promote and protect their "infant" industries from British - mature - competition. All of these recipes are now considered horrible by the economic establishment, and the economic establishment on the whole works from abstract largely deductive models, and has little knowledge of or interest in economic history. Germans are good at making cars because of a century or two of effort with lots of state support, tariffs, and banks behind them. Kenya would have to perform a miracle if it were to practice free trade and free movement of capital and suddenly - hey, presto - become an industrial power. In the Middle East, political disorder often reigns, and the rich countries suffer from the oil curse - it is easy to make money from oil, the currency rises because of oil, making any infant industry uncompetitive, and the temptation to import virtually everything is ever-present since money is pouring into government coffers. Also, it might be the case that a concentration on theology and orthodoxy in the educational system is not productive of entrepreneurial and innovative zeal. Outside, the Middle East, Middle Easterners are often extremely successful. Iran would be an interesting case to look at. These are complex questions. I studied economics in Toronto and at the London School of Economics, many eons ago, and also worked as an economist, in an equally distant past, at the OECD in Paris.
Does land reform even work the same way post green revolution and farming mechanization? All the fair trade people seem to suggest that small free hold farmers (for e.g. coffee and cocoa etc.) struggle to compete with agribusinesses. Aren't small African freehold farms pretty inefficient (by modern, not historical standards!) in both labor and land productivity?
“ Once again: there is no significant economy that has developed successfully through policies of free trade and deregulation from the get-go.” - Chile would like a word
I wonder how this applies to resource rich but non-farming based economies. If you live in a desert with a lot of oil, what would be the equivalent of “giving a plot of land” to the poorer class? Or would you skip it all together and go to industrializing?
Ok. What to do if you live in middle income country like Brazil? We are not poor enough to apply all this not rich enough to be rich
Malaysia has a higher per capita GDP than does China. In terms of quality of life, I would take living there over living in South Korea, Taiwan, or China any day of the week. If you look at GDP per capita on a PPP basis, you can see that my personal feelings are backed up by data.
Malaysia's PPP is more than twice that of China's and about 4 times that of the Philippines. In other words, the country did not fit into Studwell's nice little boxes, so he slagged off Mahathir. The country's growth exploded under Mahathir who tried a "let's throw everything at the wall and see what sticks" approach to development. The affirmative action policies were absolutely necessary or the country would have collapsed into civil war. All that said, some of Mahathir's projects were ill-advised, but overall, everything worked out well.
This is quite interesting to me due to the fact that Ukraine have undergone the exact opposite of those reforms in the last 30 years.
First, all complex engineering - airplanes, stuff for space program, electronics, optics, you name it, everything was strip mined by oligarchs in the 90's. Anything involving technology is non existent anymore. Soviet-style research institutions are closed.
The pinnacle of it is that the reverse land reform is finally in place which gives opportunity to said oligarchs to buy any plot of land they want. (there was a prohibition of that for most of Ukraine's independence).
Due to IMF/World Bank influence welfare is getting more and more cuts.
The only fast growing industry is software engineering outsourcing which is basically business of (re-)selling people, not creating products.
So on paper GDP might be growing slowly but in reality the institutions are falling apart.
I'd like to say that Asia Doesn't Work That Way, but Studwell's book sounds pretty decent. I spent a decade as a correspondent in Northern (China) and Southeast Asia (Singapore) and most of what he writes correlates well with my impressions and reporting. I just disagree (slightly) with the IQ side of things. Having a populace that descends from generations of docile test-takers (that is what having a high average IQ comes down to) makes it easy for people like Korea's Park and Deng Xiaoping to be listened to, without having to resort to mass violence to make obvious points. Malaysia's Mahathir, a really smart man, has had to contend with people with a poor history of literacy, massive levels of ethnic distrust and generally speaking a culture that wasn't favorable to business. One important caveat: let's keep in mind that in Singapore manufacturing still accounts for 20% of GDP, TWICE as much as the US. That's just not simply a financial hub. The really smart people know that having the best people in your country just moving money around and doing Excel spreadsheets only cuts it if you are the world's sole superpower.
I dont understand the argument that international companies somehow dont contribute as much as domestic ones?
From what I've read they are the ones that increase worker productivity the fastest, (indeed, almost as fast) therefore a Tesla branch in Malaysia or whatever would be far superior than waiting for the domestic firm to catch up.
You don't have to steal their tech and kick them out/make it hard for them to do buisness the would be entrerpneurs would eventually start competing firms, and they'll learn the productive habits of the multinationals, probably pretty quickly.
Seems mean to force everyone in the country to buy an overpriced shitty car, to say nothing of the unnecessary car crashes.
"From a very zoomed-out, by-the-numbers perspective, it has to be China's sudden lurch from Third World basketcase to dynamic modern economy."
Um, no. I stayed in Mangshi, southwest China, for a month in 1999. Mangshi, like many Chinese cities, is a modern city inhabited by Han Chinese living modern lifestyles, surrounded by "suburbs" of peasant farmers of the local minority ethnicity, farming tiny plots of land, who are kept completely under the thumb of the government, and living in third-world conditions--often in houses they built by hand from logs with dirt floors and walls woven from leaves, with open sewers running down the street, no garbage pickup--though they did nearly all have television.
I saw similar conditions around Beijing, sometime around 2005.
I don't have proof, but it looks very much like China is not a dynamic modern economy, but a classic imperialist economy, where one nation (the Han) has invaded, conquered, and occupied a lot of other nations, and exploits them to enrich themselves. The only difference is that they pretend they're all "Chinese". But the differences on the ground are stark.
In your conclusion you wonder why these development programs were successful specifically in East Asia and whether culture/Confucianism had anything to this. On that note, I highly, highly recommend supplementing Studwell’s book with Francis Fukuyama’s two books on political order, “The Origins of Political Order” and “Political Order and Political Decay.”
Fukuyama explores the historical development of political institutions like the rule of law, the modern state, and democracy. Fukuyama argues that political modernization isn’t a universal or inevitable process, but that these institutions have developed as a result of historical contingencies in different countries and regions (partially repudiating his older work, in my view). He discusses at length why East Asia developed societies with competent, professional, modern states (the kind able to pull off successful industrial policies). He also argues that these kinds of states are basically unnatural and only emerge under certain historical conditions. Combining Fukuyama’s arguments with Studwell’s arguments leaves me fairly pessimistic about the prospect for economic development in most developing countries.
Studwell's last chapter warning that their economic strategy can only go "so far" seems likely to make him look just as stupid as the IMF people (I pray they were stupid, not intentionally keeping poor countries poor). I feel like America has drunk their own kool aid so much on this issue it's exasperating. We aren't rich because of "capitalism" or "freedom." We're rich because of railroads and steamboats and strong central governments protecting property rights and the domino effect of "now mass production makes sense because transportation costs are actually cheap + "now with mass production reducing the costs of nails and such we can do/ invent so much else." We've gotten so ideologically fixated on this idea that freedom and economic power are positively correlated- "right makes might", I like to call it. But guess what? Morality and power are not, and have NEVER been perfectly correlated. Sure, freedom is good for certain innovations and inventions. But it can also be really bad for building skyscrapers or bullet trains quickly. Economics is COMPLICATED. Freedom does NOT equal POWER. In fact, most of our power was grabbed during World War 2, when we had basically a planned economy where people had ration cards for not only gas but also FOOD. You think the free market would have won that war more "efficiently?" Like, the fact that Studwell- according to this review- makes so many loyalty gestures to these kind of now-laughable ideas makes me not even want to read this book, even though the land reform idea sounds really fascinating. But that big of an oversight seems to reduce his credibility significantly.
I believe that "free-ish" markets, rule of law, and freedom of speech are morally preferable to the authoritarianism that has dominated governments through most of human history. But it's definitely not the most powerful- whether we are measuring military power OR economic power. That's WHY it's been so rare! The little free-ish tribes got crushed by their not-free-at-all neighbors! Life is complicated, and evil often pays off. We are going to actually have to fight for our ideals instead of just trying to get rich if we want to keep "classical liberalism" alive. It sucks, because just focusing on getting rich is way more fun than fighting for your ideals, but it's the truth. Anyways, I'll quit preaching. Just incredibly annoyed by how a book like this- based on your review- can be staring so many facts in the face and still be clinging to the kinds of ideas that got us here (and kept billions of poor people poor due to terrible IMF policies). If this is what America's top minds are coming up with, we're totally doomed.
Ok, I know that this is like super late, but:
A) I'm 100% with you on the whole there must be some historical/geographical explanation
B) This book has to be read side by side with DANI RODRIK's ideas on industrial policy
Dani Rodrik argues that East Asia's economic success is not just about the "level of development" of a country, but also about the historical evolution of both the manufacturing sector and global competition.
In the historical period where all those succesful East Asian countries (except Japan) industrialized (between World War II and the 90's), manufacturing was labor intensive.
That was good for them because it allowed them to "absorb" huge share of their "non qualified" population in manufacturing, which sustained fast growth rates for the decades that it took for the investments in education and infrastructure to bear fruits.
And why did they bear fruirs? Because the manufacturing sector can scale and move up the value chain: From textiles to cars (Toyota/Japan) and from cars to smartphones (South Korea) and chips (Taiwan)
It was also "good" that they were super poor then, because it allowed them to have lower labor costs than other countries who were not so poor.
Also, globalization was less intense, so the global market was less competitive. Example: South Korea was able to export its subsidized products to a huge market, America. This allowed industrial policy to succeed.
Nowadays, NONE of that is true.
Now, manufacturing is less labor intensive.
And also, globalization makes it more difficult to be competitive and "nurture" the "infant" industry.
Latin America specifically could not have copied their success, because they (we) industrialized on the 19th Century, and our exports were oriented to the primary sector, a sector where YOU CAN NOT SCALE.
What does this mean for middle income countries such as, for example, Latin America?
We missed the boat, and to grow we need to do standard neoliberal stuff like:
- Education
- Investment (perhaps would benefit from East Asian high savings rate)
- Reduce corruption
- Political stability
Which would allow us to grow economically, but not to be an economic "miracle".
In my opinion, which countries whould Latin America then look up to?
Eastern european post cold war success stories.
They are middle income countries who did neoliberal stuff and grew, some a lot more than many latin american countries
This is an interesting and well-written review of very thought-provoking book. Studwell does a yeoman’s job of identified some key aspects of tiger economy development. The question is how generalizable they are. The trouble with broad survey analyses such as this one is that for every example there is a counterexample. This work fails to convince a close reader.
Moreover, the book’s thesis risks falling into the mono-causal fallacy. For instance, it completely ignores East Asian (and South Asian) cultural preferences that favor education.
If I am reading the article correctly, Studwell lists three main requirements for rapid industrialization:
* A enlightened dictatorship forcing through industrial policy favoring private ownership
* A smallholding-oriented agricultural sector
* A protectionist regime in the beginning, including tight capital controls
Despite Studwells’ protestations, historical counterexamples are in plentiful supply. To wit:
* Great Britain on the eve of the industrial revolution had most of productive land controlled by large landowners. These landholders were always dominant previsoly and became still more dominant as a result of early 19th century enclosures.
* American industrialization occurred in the absence of import controls, which were not implemented until industrialization was essentially complete.
* Neither Great Britain nor the US had any semblance of industrial policy at the time they industrialized.
* The USSR successfully industrialized despite having a very poorly-performing agricultural sector that was dominated by enormous collective farms.
* France lagged in industrialization (and continues so) despite enjoying mostly smallholding-led agriculture, a protectionist regime and ownership-oriented industrial policy.
* Argentina largely followed the script, including tight currency controls, with no visible results.
* India has done remarkably well in the complete absence of any land reform, capital controls, or serious protectionism.
Furthermore, Studwell states that once industrialization is complete, economics should open up and implement free trade. However, free trade after industrialization favors exporters at the expense of importers - in the case of USA, for instance, it led to a rapid deindustrialization and relative decline. China, Korea, and Japan are still practicing protectionism, under guises other than tariff regimes, and their protectionism continues to benefit their industrial (and agricultural) sectors.
To digress a little, the author mentions rural impoverishment as a driving source of terrorism. This assertion turns a blind eye to the fact that many if not most terrorists (and revolutionaries) are and generally have ever been middle-class urbanites.
Touching on current Chinese policies designed to make it a middle-income rather than a rich country, I would argue that middle income is most likely the ultimate objective. An autocratic central government has no desire to contend with a rich populace that can afford to have ideas or demand a share of power. A small number of robber barons is much easier to control because, as we have seen, the state can always liquidate them.
As an aside, it is hardly surprising that development economics from developed countries - even from Japan, which actually followed Studwell’s script - offer self-serving advice even as they try to convict themselves and one another of its correctness. Every nation that survives the state of nature of international relations does so through self-serving actions when the stakes are high enough, and global economic power makes them high indeed. China throws its weight around in ASEAN for the exact same reason.
In final analysis, the book does not necessarily offer an actionable prescription outside of a narrow set of nations. Perhaps development is simply idiosyncratic.