Kicking Away the Ladder. Development Strategy in Historical Perspective

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

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

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

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

The short answer to this question is that the developed countries did not get where they are now through the policies and the institutions that they recommend to developing countries today. Most of them actively used ‘bad’ trade and industrial policies, such as infant industry protection and export subsidies – practices that these days are frowned upon, if not actively banned, by the WTO (World Trade Organisation). Until they were quite developed (that is, until the late nineteenth to early twentieth century), they had very few of the institutions deemed essential by developing countries today, including such ‘basic’ institutions as central banks and limited liability companies.

If this is the case, aren’t the developed countries, under the guise of recommending ‘good’ policies and institutions, actually making it difficult for the developing countries to use policies and institutions which they themselves had used in order to develop economically in earlier times? This is the question that this book hopes to address.

1.2. Some Methodological Issues: Drawing Lessons from History

The nineteenth-century German economist Friedrich List (1789-1846) is commonly known as the father of the infant industry argument, namely, the view that in the presence of more developed countries, backward countries cannot develop new industries without state intervention, especially tariff protection. His masterpiece, The National System of Political Economy, was originally published in 1841.[5]