Kicking Away the Ladder. Development Strategy in Historical Perspective

The vastly superior economic performance of the NDCs during the so-called ‘Golden Age of Capitalism’ (1950-1973), when compared to that of the periods before and after, also highlights the importance of institutions in generating economic growth and stability. During the Golden Age, the NDCs typically grew at 3-4 per cent p.a. in per capita terms, in contrast to the 1-2 per cent rate that had prevailed before it (see table 4.1) and also in contrast to the 2-2.5 per cent rate that has been typical since its end (see table 4.3 – more on this later). According to the estimate by Maddison (1989), per capita income in the 16 largest NDCs grew at 3.8 per cent p.a. during this period, with countries like Japan (eight per cent), Germany, Austria (both at 4.9 per cent) and Italy (4.8 per cent), notching up previously unimaginable growth rates.[9] Most commentators attribute the Golden Age in the NDCs to the introduction of better institutions following Second World War, such as activist (Keynesian) budgetary institutions, fully-fledged welfare states, stricter financial market regulations, corporatist wage-bargaining institutions, institutions of investment coordination and in some cases nationalized industries (especially in France and Austria). It is widely agreed that these institutions helped the NDCs to grow quickly by providing them with greater macroeconomic and financial stability, better resource allocation and greater social peace.[10]

Table 4.1
Per capita annual growth performance among the NDCs in earlier times
	1820-1875 (per cent)	1875-1913 (per cent)
Australia	2.0	0.6
Austria	0.8	1.5
Belgium	1.4	1.0
Canada	1.2	2.4
Denmark	0.9	1.6
Finland	0.8	1.5
France	1.1	1.2
Germany	1.2	1.5
Italy	0.6	1.3
Netherlands	1.1	0.9
Norway	0.7	1.2
Sweden	0.8	1.4
UK	1.3	1.0
USA	1.3	1.9
Unweighted Average	1.1	1.7
Median	1.1	1.4

Source: Calculated from Maddison 1995.

The comparison of growth performance in the NDCs in earlier times with that of the developing countries during the postwar period also provides us with some important insights into the relationship between policies, institutions and economic growth.

I would argue that the developing countries were able to grow faster in the early postwar period (1960-1980) than the NDCs had done at comparable stages of development, partly because they had much better institutions than the latter countries had had (see section 3.3.3 in chapter 3),[11] Table 4.2 shows that, during the period 1960-1980, today’s developing countries grew at about three per cent p.a. in per capita terms. This is a far superior growth performance to that which the NDCs managed during their ‘century of development’ (1820-1913), shown in table 4.1, when the average growth rates in the NDCs were around 1-1.5 per cent p.a ..

Table 4.2
Per capita GNP growth performance of the developing countries, 1960-1980
	1960-1970 (per cent)	1970-1980 (per cent)	1960-1980 (per cent)
Low-income countries	1.8	1.7	1.8
--Sub-Saharan Africa	1.7	0.2	1.0
--Asia	1.8	2.0	1.9
Middle-income countries	3.5	3.1	3.3
--East Asia and Pacific	4.9	5.7	5.3
--Latin America and the Caribbean	2.9	3.2	3.1
--Middle East and North Africa	1.1	3.8	2.5
--Sub-Saharan Africa	2.3	1.6	2.0
--Southern Europe	5.6	3.2	4.4
All Developing Countries	3.1	2.8	3.0
Industrialised Countries	3.9	2.4	3.2

Source: World Bank 1980. appendix table to part I.

Note: The 1979 and 1980 figures used are not final. but World Bank estimates. Given that the estimates were supposed to be on the optimistic side. the actual growth figures for 1970-1980 and 1960-1980 would have been slightly lower than those reported in this table.

All the above figures suggest that improving the quality of their institutions is an important task for developing countries wanting to accelerate their economic growth and development. However, two significant qualifications need to be made.