Development theories and economic miracles
By Vladimir Popov
Development thinking in the second half of the twentieth century can hardly be credited for “manufacturing” development success stories. It is difficult, if not impossible, to claim that either the early structuralist models of the Big Push (financing gap and basic needs of the 1950-70s), or neoliberal ideas of Washington consensus (that dominated the field since the 1980s), have provided crucial inputs to economic miracles in East Asia or elsewhere. On the contrary, it appears that development ideas, either misinterpreted or not, contributed to a number of development failures. The USSR and Latin America of the 1960s-80s demonstrated the inadequacy of import-substitutions model. Later every region of developing world that became the experimental ground for Washington consensus type theories, from Latin America to Sub-Sahara Africa to former Soviet Union and Eastern Europe, revealed the flaws of neoliberal doctrine by experiencing a slowdown, a recession or even a severe depression in the 1980s-90s.
Neither development theories nor policies of multilateral institutions can be held responsible for engineering development successes. Japan, Hong Kong, Taiwan, Singapore, South Korea, South East Asia, and China achieved high growth rates without much advise and credits from International Monetary Fund (IMF) and the World Bank. Economic miracles were manufactured in East Asia without much reliance on development thinking and theoretical background — just by experimentation of the strong hand politicians. The 1993 World Development Report “East Asian Miracle” admitted that non-selective industrial policy aimed at providing better business environment (education, infrastructure, coordination, etc.) can promote growth, but the issue is still controversial. Structuralists claim that industrial policy in East Asia was much more than creating better business environment, whereas neoliberals believe that liberalization and deregulation should be largely credited for the success.
It is said that failure is always an orphan, whereas success has many parents. No wonder, both neoclassical and structuralist economists claimed that East Asian success stories prove what they were saying all along, but it is obvious that both schools of thought cannot be right at the same time. There is a lack of understanding why government intervention sometimes results in spectacular failures and what particular kind of government intervention is needed for manufacturing fast growth (2000 – onwards).
Why did a gap emerge between development thinking and development practice? Why were development successes engineered without development theories? Why did development theoreticians fail to learn from real successes and failures in the global South? It appears that development thinking in the postwar period went through a full evolutionary cycle — from dirigiste theories of Big Push, to neoliberal deregulation wisdom of “Washington consensus” (1980-90s), to the understanding that catch up development does not happen by itself in a free market environment.
The confusion in development thinking of the past decade may be a starting point for the formation of new paradigm. Without mobilization of domestic savings and industrial policies there may be no successful catch up development. National development strategies for countries at a lower level of development should not copy economic policies used by developed countries; in fact, it was shown more than once that Western countries themselves did not use liberal policies that they are advocating today for less developed countries when they were at similar stages of development.
Most development economists share the general principle that good policies are context dependent and there is no universal set of policy prescriptions for all countries at all stages of development. But when it comes to particular policies, there is no consensus. The future of development economics may be a theory, explaining why at particular stages of development (depending on per capita GDP, institutional capacity, human capital, resource abundance, etc.) one set of policies (tariff protectionism, accumulation of reserves, control over capital flows, nationalization of resource enterprises, etc.) is superior to another. The art of the policymakers then is to switch the gears at the appropriate time not to get into the development trap. The art of the development theoretician is to fill the cells of “periodic table of economic policies” at different stages of development.
The emerging theory of stages of development would hopefully put the pieces of our knowledge together and will reveal the interaction and subordination of growth ingredients. A successful export-oriented growth model à la East Asian tigers seems to include, but is not limited to:
- Building strong state institutions capable of delivering public goods (law and order, education, infrastructure, health care) needed for development
- Mobilization of domestic savings for increased investment
- Gradual market type reforms
- Export-oriented industrial policy, including such tools as tariff protectionism and subsidies
- Appropriate macroeconomic policy – not only in traditional sense (prudent, but not excessively restrictive fiscal and monetary policy), but also exchange rate policy (undervaluation of the exchange rate via rapid accumulation of foreign exchange reserves).
If this interpretation of development experience is correct, the next large regions of successful catch up development would be MENA Islamic countries and South Asia – these regions seem to be most prepared to accept the Chinese model. Eventually Latin America, Sub-Sahara Africa and Russia would be catching up as well. If so, it would become obvious in the process of successful catch up development that the previous policies that the West recommended and prescribed to the South (deregulation, downsizing the state, privatization, free trade and capital movements) were in fact hindering rather than promoting their development.
Vladimir Popov is an adviser in the Department of Economic and Social Affairs of the United Nations and professor emeritus at the New Economic School in Moscow. He is the author and editor of 12 books and numerous articles that have been published in the Journal of Comparative Economics, Comparative Economic Studies, World Development, Post-Communist Economies, New Left Review, and other academic journals, as well as many essays in the media. His most recent book is Mixed Fortunes: An Economic History of China, Russia, and the West.
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