Kicking Away the Ladder-- Development Strategy in Historical Perspective By Ha-Joon Chang

 

 

Down the ages, the wise have insisted that we learn the lessons of history, as ignoring them is risky business. In order to make sense of the present and plan effectively for the future, it is essential to study and understand the past. For this, however, we have to get history right, separate the myths from the realities, and check what was done right and what wrong.   

In ‘Kicking Away the Ladder’ Ha-Joon Chang, who teaches Political Economy of Development at Cambridge University, has argued that the policies the developed countries of the West used to climb the ladder of economic prosperity are not those they recommend to the developing nations of today. What they advise as ‘correct’ and ‘good’ and insist on as preconditions for any assistance from them and the international institutions they control, are not, in fact, what they themselves used to grow. They are, in effect, kicking away the ladder they used to climb up and thereby are adversely impacting the developing world’s efforts to follow in their footsteps.

Before you conclude that these are the rants of a nutty conspiracy theorist, it is essential to read the book. It is a slim volume, just 140 pages of argument, and with hard data the author dispels a number of myths and brings surprising and disturbing facts to light.

Consider the case of Great Britain, where the Industrial Revolution started in the 18^th century and established the nation’s economic supremacy for a time. Active intervention to encourage domestic manufacturing and discourage manufacturing imports through tariffs and subsidies characterized the British state’s economic policies till overwhelming technical superiority was achieved by the mid 19^th century and British manufacturing became confident enough to ask for ‘free’ trade. Free trade then became the instrument for growth in a world where British manufactures held a dominant position. Besides, British liberalization was also very state controlled, not a free operation of the famous ‘invisible hand’, not laisse faire. And when Britain lost its technical lead around the early 20^th century, tariffs came back!

The USA, too, grew to economic dominance under the umbrella of ‘infant industry’ protection that included not just tariff measures but also other active state interventions. From the late 18^th century till the mid-20^th century (World War II), high tariff walls protected US industry. Liberalization began only later, when dominance had been achieved and ‘free’ trade became necessary for growth. In addition to tariff protection, direct state action to promote agricultural research, public education and transport infrastructure also contributed significantly to growth. Laisse Faire, minimal government and the ‘invisible hand’ were not the driving forces behind the USA’s rise to world economic dominance. And even after the War, defence procurement and R&D financing remain very significant drivers of US growth. For example, a critical chunk of Research and Development in pharmaceuticals is funded by the US government. The lesson is, that despite what the Washington Consensus says -- liberalize, liberalize, liberalize -- development requires considerable protection and assistance from a proactive state!

The history of Intellectual Property Rights is also revealing! Everyone was ‘borrowing’ and nobody was protecting IPR till they had, by generally dubious means, established technical dominance. Then, of course, it became imperative -- in their national i.e. commercial interest -- to insist on protection for Intellectual Property. As illustration consider the following:

·       In the US, before 1836, patents were granted without any proof of originality; thus enabling patenting of imported technologies. Till 1891 the US did not acknowledge foreigners’ copyrights!

·       Switzerland did not have a patent system till 1907 and in the late 19^th century Germany was complaining of theft, by the Swiss, of IPR in the chemical industry, while the British were complaining of IPR theft by the Germans!

 

The author then discusses the issue of institutions and development. Extant economic wisdom insists that ‘good’ institutions -- liberal democracy, efficient bureaucracies, transparent and market oriented corporate governance and financial institutions, amongst others -- are necessary conditions for growth. History, however, teaches that so called ‘good’ institutions were more a consequence of sustained growth over a long period of time in the developed nations of the world. They were not growth drivers. It may be contended that some of these are ‘good’ in themselves -- of absolute value -- but the point is that they are not necessary conditions for growth. At least, they have not appeared to be so in the history of the advanced countries of today.

The above is just indicative of the food for thought that the book provides.  It is, in addition, simply and convincingly written and short, to boot.

Like all ‘good’ books, Kicking Away the Ladder makes one question preconceived notions and established wisdom. It is both educative and thought provoking. It teaches us some lessons from history that are hard to forget.

Happy reading.