Kicking Away the Ladder. Development Strategy in Historical Perspective

So we have an apparent ‘paradox’ here – at least if you are a Neo-Liberal economist. All countries, but especially developing countries, grew much faster when they used ‘bad’ policies during the 1960-1980 period than when they used ‘good’ ones during the following two decades. The obvious answer to this paradox is to accept that the supposedly ‘good’ policies are in fact not beneficial for the developing countries, but rather that the ‘bad’ policies are actually likely to do them good if effectively implemented.

Now, the interesting thing is that these ‘bad’ policies are basically those that the NDCs had pursued when they were developing countries themselves. Given this, we can only conclude that, in recommending the allegedly ‘good’ policies, the NDCs are in effect ‘kicking away the ladder’ by which they have climbed to the top.

4.3 Rethinking Institutional Development

The process of institutional development, and the role that it plays in overall economic development, is still a poorly understood subject. While we need further research on the role of institutions in economic development in order to arrive at more definite conclusions – something beyond the scope of this book – the following points emerge from our discussion in Chapter 3.

Most of the institutions that are currently recommended to the developing countries as parts of the ‘good governance’ package were in fact the results, rather than the causes, of economic development of the NDCs. In this sense, it is not clear how many of them are indeed ‘necessary’ for today’s developing countries – are they so necessary that; according to the view of the IDPE, they have to be imposed on these countries through strong bilateral and multilateral external pressures?

Moreover, even when we agree that certain institutions are ‘good’ or even ‘necessary’, we have to be careful in specifying their exact shapes. In Chapter 3, I have shown that for just about every institution, there is a debate on what exact form it should take. What type of bureaucracy is good for development? How strongly should property rights regimes protect existing property rights? How debtor-friendly should a bankruptcy law be? How independent should the central bank be? The questions could go on. Deciding exactly which variety of which institution is necessary for which type of country is beyond the scope of this book. However, I hope my discussion in Chapter 3 has shown that the currently dominant view that there is only one set of ‘best practice’ institutions (which usually mean Anglo-American institutions) which everyone has to adopt is highly problematic.

However, arguing that many of the institutions currently recommended by the ‘good governance’ discourse may not be necessary or even beneficial for the currently developing countries should not be interpreted as saying that institutions do not matter, or that developing countries do not need improvements to their institutions. On the contrary, improvements to the quality of institutions seem historically to have been associated with better growth performance, an observation that we can easily support with historical and contemporary evidence.

As we can see from table 4.1, annual per capita income growth rates among the 11 NDCs for which data are available during the 1820-75 period ranged between 0.6 per cent (Italy) and 2 per cent (Australia), with the unweighted average and the median values both at 1.1 per cent. The table also shows that, between 1875 and 1913, per capita income growth rates ranged between 0.6 per cent (Australia) and 2.4 per cent (Canada), with the unweighted average at 1.7 per cent and the median at 1.4 per cent. Given that the NDCs had seen a significant development in their institutions since the mid-nineteenth century (see section 3.3.1 of Chapter 3), it is very plausible that at least a part of this growth acceleration was due to the improvements in the quality of their institutions.