Professional Documents
Culture Documents
Professor
Massachusetts Institute of Technology
FASTER ECONOMIC DEVELOPMENT WAS ONCE associated with a good theory, but in the
prosperous Golden Age that followed World War II, from roughly 1947 to 1980, poor
countries tended to learn from each other, not from abstractions. They experimented
with policies and institutions based on those of an outstanding role model.' As this form
of learning evolved, economic growth rates in nearly all Third World regions reached
unprecedented heights. For the first time in modern history, Third World economies
grew faster than First World economies, as seen in Table 1. Then, in the counter-age of
"economic Liberalism," from 1981 to the 2000s, when developing country policymaking
became tightly tied to theories of market behavior, growth rates in almost all regions
fell.2 Intolerance of non-market provisions in the areas of trade, industry, ownership
and employment became a hallmark of a new globalism, as the former colonial powers returned to their ideal of "universalism," a one-policy agenda for rich and poor
countries alike no matter how many or diverse; this was the only cost-effective way to
govern them. Yet the survival of role models depends on "policy rights," or the freedom,
against possible foreign opposition, from Washington to the World Bank, to choose
the policies that role models themselves once followed, towards foreign investment and
capital controls or trade agreements and job formation. Given their thirst for diversity
in a world celebrating one particular set of market policies for all, the question arises
of whether or not role models have been left in limbo, and with them, an empirically
grounded, deductive way of thinking about economic growth?
ALICE AMSDEN is the Barton L. Weller Professor of Political Economy in the Department of Urban Studies and Planning at the Massachusetts Institute of Technology. She was recently appointed by the United
Nations secretary-general to a three-year seat on the UN Committee on Development Policy. Her work
focuses on issues of development and poverty eradication.
Copyright @ 2009 by the Brown JournalofWorldAffairs
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ALICE AMSDEN
Today's global culture celebrates electoral rights, education rights, human rights,
housing rights, health rights and women's rights-anything but country-specific "policy
rights."
Developing countries discovered role models among their peers, in geographical
proximity. This tendency gave rise to two regional clusters of role models, with pure
theory left to influence mostly fiscal and monetary policies-even so, countries like
Brazil, China and India tend to follow fiscal and monetary policies based on their own
histories, not abstract theories.
The Organization of the Petroleum Exporting Countries (OPEC) is associated
with a price cartel. But the OPEC development model also revolves around a professionally managed state-owned oil company, which was formerly a private multinational
concession, nationalized after political independence. In East Asia, import-substitution
industrialization (ISI) became the basis of a role model radiating from Japan, in which
domestic markets were seized from foreign companies, and then exports were extracted
from import substitutes to enter foreign markets. Latin America, with both oil wealth
and manufacturing experience, combined the two models. Africa, without manufacturing experience or oil-until recent discoveries-could not break into either circle.
The shift in the cognitive approach to economic development, away from de204
ductive market theories towards inductive role models, was an integral part of the decolonization process that followed World War II, starting in 1947 with India's political
independence. A culture of anti-imperialism pushed independence beyond politics into
economics, in what became a novel "nationalist" approach to late development, with
nationally owned and controlled companies (private or public) at its core.
The edge of the envelope was the
Latin America missed the cathartic effectb Chinese Revolution (1927-1949) that exof twentieth-century decolonization. propriated not only foreign governments but
also foreign firms, as did India using tamer
tactics, such as acquiring British firms, exhausted from depression and war, at firesale
prices. Korea and Taiwan inherited the investments of Japanese-owned zaibatsu when
Tokyo conceded military defeat. Indonesia acquired Dutch companies when the Dutch
government fled after a long nationalist struggle. In contrast, the Philippines was one
of the first of its generation to gain political independence, from the United States, but
never showed the door to U.S.-owned firms. A large stock of inward foreign investment
was also true of Latin America, which missed the cathartic effect of twentieth-century
decolonization. Multinationals that arrived in Latin America before World War Two
simply remained, although some electric power industries and railroads were nationalized.4 With implacable foreign firms, there was "crowding out" of private nationally
owned companies in industries like automobiles.' By this account, fast-growing East
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ALICE AMSDEN
The first generation of post-Independence leaders was able to enjoy nearly unrestrained
policy rights because, as Richard Nixon observed, "nobody gave a damn."" The developing economies were less interesting to Wall Street or Washington than Western
Europe, the target in the 1950s of American multinationals, just as Meiji Japan was
less interesting to investors than Reconstruction profiteering after the American Civil
War. But as Japan recovered from military defeat and its exports boomed, and as competition from the whole Japanese role model aureole commenced, everything changed.
Suddenly the United States gave a big damn. Today's regional trade agreements signal
the tensions of universalism, of a shoe that is too tight for too many feet.
THE DEMIMONDE
Poor countries were divided over the WTO's formation in 1994-some gained, some
lost, so no consensus emerged over what to do." Instead, dissatisfied countries sought
autonomy with subterfuges.14 As they descended into a demimonde, the habituees they
rubbed shoulders with were none other than the advocates of open markets. Hypocrisy
in any demimonde is rank.
One American subterfuge was the military industrial complex-a term in President
Eisenhower's 1961 farewell address.' The United States Department of Defense and
National Institute of Health are mainstays of U.S. private manufacturing, subsidizing
industries ranging from batteries and aerospace to bio-tech and agriculture. Manufacturers and the military bonded after the American Revolution. Ironically, "modern factory
management had its genesis in the United States (the most pro-market country in the
world) in the Government Springfield Armory in Massachusetts." Defense industries are
not adjudicated under WTO rules, and so governments are free to promote them.
Despite big armies in Russia, India and China, developing countries invented
different subterfuges. They used both piecemeal artifices as well as multi-billion dollar
science parks to undertake the technological and organizational experimentation necessary to move into higher skilled industries. The difference between the military-industrial complex model and the science park model is that the former builds technologies,
while the latter builds technologies with, inter-connectedly, specific nationally owned
firms. R&D is also not adjudicated by the WTO, so science parks can promote new
industries and firms so long as there is money.
Piecemeal policies in the demimonde may have failed in droves, but some were
highly effective in raising skilled employment. The Indian government allowed the Indian-owned pharmaceutical industry to violate foreign product patents, but not process
patents, which contributed to efficient manufacturing and cheap drugs (the adjudication of healthcare industries under the WTO is ambiguous). Besides pharmaceuticals,
developing countries have called for the relaxation of intellectual property rights on
climate friendly technologies under the United Nations Framework Convention on
Climate Change-all industries related to the environment can be state-supported.
Regarding foreign capital flows, while financial liberalization was the primary factor
behind East Asia's 1997 financial crash, Korea was forced to keep its financial markets
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ALICE AMSDEN
open after an IMF bailout. The Finance Ministry responded by using modern technology
to monitor every financial flow on a minute-to-minute basis to reduce risk and quicken
government response, in effect, closing markets after hitting a ceiling. To reduce export
dependence on the U.S. market, Korea offered subsidies to companies that exported to
other destinations (in distress, countries can protect their balance of payments).
Thus, WTO members are themselves responsible for weakening their own ban
on subsidies by agreeing not to adjudicate large chunks of what was once called industrial policy. One of the fastest growing sectors in the world economy is energy and the
environment, and any country with money can vigorously promote them without being
taken to court for violating WTO provisions. Chinese government research subsidies
are increasing rapidly for electric car designs, for example; and tax credits are planned
for consumption of alternative energy vehicles. The world over, states and municipalities can offer perks to businesses to influence their location decisions. Poor regions in
Thailand use subsidies to attract automobile assemblers. The U.S. state of Massachusetts
bankrolls the movie business and the life sciences, and allows not-yet-profitable start-ups
to convert tax credits into cash. Subsidies can flow to science parks, R&D institutes,
high-tech industries, and small-scale enterprise-without these exceptions, probably
no developed country would have joined the WTO. Planners can use land grants to
208
promote regional development, and government procurement officers can attach conditions on firms that compete for public contracts: when Korea built a high-speed rail,
it insisted that every bidder transfer enough technology to enable Korean companies
in their own right to bid on overseas high speed rail projects. Hyundai Rotem, Korea's
premier high-speed rail manufacturer now has contracts to build commuter rail systems
in Canada, Turkey, and the United States.
American trade officials viewed China's export tax rebates as a form of protection,
but, surprisingly, "tax rebates did not violate World Trade Organization provisions."'6
To avoid a clash, both giants agreed to offer developing economies S20 billion in subsidized export credits to help them buy more Chinese and American goods, flagrantly
violating the WTO equal treatment principle for all other countries."
If anyone says "neo-liberalism lives," they are right insofar as that is the law. If
they say, "neo-liberalism is dead," that is right, in a sense, as well-the law is increasingly evaded.
NATIONAL BUREAUCRATS
If a country pursues free market policies, its chief economic bureaucrats must be
trained in a U.S. or British economics department. If, by contrast, a country's policies
are role model driven, then its bureaucrats must be experienced in building heterodox
209
tion is about three-times that of Koreas, but since at least 1970, Koreans outnumber
Japanese earning economic Ph.Ds in the United States: in 2000, the ratio of "A-TKFs"
(American-trained Korean economists) to "A-TJEs" (American-trained Japanese
economists) was 39 to 16.1) Nearly 100 percent of the tenured faculty in the economics departments of the best Korean universities is U.S.-trained, and about 97 percent
of economists in a leading macroeconomic think-tank, Korea Development Institute,
hold U.S. degrees. Nevertheless, unlike Koreas
typical pattern of foreign and local degrees was evident in Korea's Ministry of Strategy
and Finance: the Minister and two Vice Ministers all held higher degrees from both
foreign and local universities, suggesting a mixture of influences.
In Brazil, nearly all high-level officials in the Ministry of Finance and Ministry
of Planning hold Brazilian Ph.Ds; the one U.S. degree is from a radical U.S. university
(New School for Social Research). In Russia, not only do the economics ministries
not have foreign-trained economists, they probably do not have any economists. Explains one researcher, "most senior officials would actually be engineers, scientists, and
mathematicians, with degrees from the Soviet's best universities."20 India's economic
ALICE AMSDEN
ministries, like Russias, have a high ratio of domestic to foreign degrees, although this
is changing, as more money is available for study abroad. Despite China's rapid Westernization, its finance ministry and National Development and Reform Commission
are almost totally run by elites from China's own best universities.
There is thus a well-educated national civil service in the BRICKs (including
Korea) to coordinate a later stage of development policies, those that have gone underground.
THE UNDERGROUND AND THE GRASSROOTS
Amidst the paroxysms that accompanied de-colonization after World War II, independent countries extended their newly won political freedoms into the economic realm.
They exited the market model and entered a deductive world where they learned from
role models (the OPEC group in the hydrocarbon industries and Japan in electronics
and automobiles). They experimented with novel policies and institutions to escape
past failures and to develop, which at the time meant increasing productivity, raising
the number of paid jobs to near full employment, and achieving balance of payments
stability. As role models advanced, economic growth in income and per capita income
soared to unprecedented heights (see Table 1).
To implement a role model rather than a market theory is to be pragmatic,
and pragmatism necessitates policy rights, or the freedom to implement a range of
development provisions that may face foreign opposition on the grounds that they
deviate from market theory. Yet today's global culture celebrates property rights, electoral rights, education rights, human rights, housing rights, health rights and women's
rights-anything but country-specific policy rights, which the de-colonized generation
struggled long and hard to achieve.
Does this mean that the role model is ruined as a cognitive form of development,
and civilization is returning to the colonial age, when Britain adopted a "universalist"
economic approach to govern its large and diverse empire? Can heterogeneous role
models survive in today's ideological straightjacket?
The answer to this question is empirically grounded, like role models themselves. Powerful developing countries, the BRICs and other emerging economies con-
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ALICE AMSDEN
212
1. GDP
Region
GDP
1980-2000
1950-2000
3.2 %
1980-2000
2.0 6 %
Western Europe
4.20%
2.20%
United States
3.47%
3.45%
1.79%
1.93%
Japan
7.10%
2.65%
5.50%
2.12%
Developed
Countries
Average
4.12%
2.46%
3.0 6 %
1.97%
Eastern Europe
5.46%
0.41%
4.31%
-0.85%
4.75%
2.32%
2 15%
0.55%
East Asia
6.90%
5.83%
4.11%
3.43%
South Asia
3.98%
5.05%
1.21%
2.49%
8.04%
2.03%
3.01%
0.47%
North Africa
5.32%
3.56%
2.30%
1.25%
Africa, South of
Sahara
3.70%
2.61%
1.20%
-0.12%
Developing
Countries
Average
5.06%
3.02%
2.04%
0.75%
and USSR
Latin America
Asia
Middle East
Africa
Source: World Tables, Johns Hopkins University (1980, 1994) and WorldDevelopmentIndicdtors,World
Bank (2002), http://www.worldbank.org.
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ALICE AMSDEN
TABLE
2.
1981-2005
214
Region
1981
1990
1999
2005
35.5
18.2
10.7
39.3
20.7
11.1
0.4
0.6
1.6
1.1
3.6
4.2
3.2
1.6
0.9
0.8
0.8
19.6
15.2
11.7
10.3
19.6
14.6
11.7
10.5
22.9
26.6
25.7
21.1
Total (I)
21.3
14.2
10.9
7.6
1981
1990
1999
2005
77.7
54.7
35.5
16.8
84
60.2
35.6
15.9
1.7
5.1
3.7
11.5
9.8
10.8
8.4
7.9
4.3
4.2
3.6
59.4
51.7
44.1
40.3
59.8
51.3
44.8
41.6
53.7
57.9
58.2
51.2
Total (I)
51.8
41.6
33.7
25.2
Source: Shaohua Chen and Martin Ravallion, "Policy Research Working Paper 4703: The Developing
World Is Poorer Than We Thought, But No Less Successful in the Fight against Poverty," Policy Research
Working Paper, no. 4703 (August 2008), World Bank Development Research Group, http://go.wxorldbank.
org/BXEZCODA10.
215
ALICE AMSDEN
production will all be bought, without any unsold inventory.
25. Sen.
26. ILO LABORSTA, http://laborsta.ilo.org.
27. Alice H. Arnsden, "Says Law, Poverty Persistence and Employment Ne glect,"
Development and Capabilities11, no. 1 (2010).
216
fournal ofHuman