Kicking Away the Ladder. Development Strategy in Historical Perspective

When combined with the establishment of new global governance institutions represented by the WTO, these policy changes at the national level have created a new global economic system, which is comparable in its potential prosperity only to the earlier ‘golden age’ of Liberalism (1870-1914).[8] Renato Ruggiero, the first Director-General of the WTO, argues that thanks to this new world order we now have ‘the potential for eradicating global poverty in the early part of the next [21st] century – a utopian notion even a few decades ago, but a real possibility today’.[9]

As we shall see later, this story paints a powerful but fundamentally misleading picture. Indeed, it should be accepted that there are also some senses in which the late nineteenth century can indeed be described as an era of laissez-faire.

To begin with, as we can see in table 2.1, there was a period in the late nineteenth century, albeit a brief one, when liberal trade regimes prevailed in large parts of the world economy. Starting in 1846 with the repeal of the Corn Laws, Britain made a decided shift to a unilateral free trade regime (which was accomplished by the 1860s), although this move was based on its then unchallenged economic superiority and was intricately linked with its imperial policy. Between 1860 and 1880, many European countries reduced tariff protection substantially. At the same time, most of the rest of the world was forced to practice free trade through colonialism (see section 2.3.1) and, in the cases of a few nominally ‘independent’ countries (such as the Latin American countries, China, Thailand (then Siam), Iran (then Persia) and Turkey (then the Ottoman Empire)), unequal treaties (see section 2.3.2). Of course, the obvious exception to this was the USA, which maintained a very high tariff barrier even during this period. However, given that the USA was still a relatively small part of the world economy, it may not be totally unreasonable to say that this is as close to free trade as the world has ever got (or probably ever will).

More importantly, the scope of state intervention before the First World War (and maybe even up to the Second World War) was quite limited by modern standards. For example, before the 1930s, both the hegemony of the doctrine of balanced budget and the limited scope for taxation (given, among other things, the absence of personal and corporate income taxes in most countries) severely limited the scope for active budgetary policy. The narrow tax base restricted government budgets, so large fiscal outlays for developmental purposes were difficult, even if the government had the intention to make them – railways being an obvious exception in a number of countries. In most countries, fully-fledged central banking did not exist until the early twentieth century, so the scope for monetary policy was also very limited. On the whole, banks were privately-owned and little regulated by the state, so the scope for using ‘directed credit programmes’, which were so widely and successfully used in countries like Japan, Korea, Taiwan and France during the postwar period, was extremely limited. Measures like the nationalization of industry and indicative investment planning, practices that served many European countries, especially France, Austria and Norway, well in the early postwar years, were regarded as unthinkable outside wartime before the Second World War. One somewhat paradoxical consequence of all these limitations was that tariff protection was far more important as a policy tool in the nineteenth century than it is in our time.

Table 2.1
Average Tariff Rates on Manufactured Products for Selected Developed Countries in Their Early Stages of Development
(weighted average; in percentages of value) [1]
	1820[2]	1875[3]	1913	1925	1931	1950
Austria[3]	R	15-20	18	16	24	18
Belgium[4]	6-8	9-10	9	15	14	11
Denmark	25-35	15-20	14	10	n.a.	3
France	R	12-15	20	21	30	18
Germany[5]	8-12	4-6	13	20	21	26
Italy	n.a.	8-10	18	22	46	25
Japan[6]	R	5	30	n.a.	n.a.	n.a.
Netherlands[4]	6-8	3-5	4	6	n.a.	11
Russia	R	15-20	84	R	R	R
Spain	R	15-20	41	41	63	n.a.
Sweden	R	3-5	20	16	21	9
Switzerland	8-12	4-6	9	14	19	n.a.
United Kingdom	45-55	0	0	5	n.a.	23
United States	35-45	40-50	44	37	48	14