How did the Rich Countries Really Become Rich?

Aim of the Book

 In development economics and economic history - two sub-fields of economics for which the historical
approach is most relevant - have been dominated by mainstream neoclassical economics for which the result
has been ahistorical.
 The development literature is certainly full of theoretically-based propositions (e.g., free trade benefits all
countries) and may also draw extensively on contemporary experiences (e.g., the literature on the East Asian
'developmental state'). However, we rarely now see discussions that are based on the historical experiences
of the now-developed countries (hereafter NDCs). To be sure, there are some scattered historical references,
but these are often based on highly-stylized characterizations of historical experiences, and moreover tend to
refer only to Britain and the USA.
 there have been few serious studies over the last few decades which deploy the historical approach in the
study of economic development. This is why one of the aims of this book is to reaffirm the usefulness of the
historical approach by applying it to the critique of the current popular discourses on 'good policies' and 'good
governance’
 The book will naturally focus on the nineteenth and the early twentieth centuries, roughly between the end of
the Napoleonic Wars (1815) and the beginning of the First World War (1914)

Exceptions:
1. Britain, for example, deserves attention from the fourteenth century onwards, given its pioneer status
in many areas of economic policy and of institutional development.
2. Eighteenth-century Prussia is another special case that deserves attention, given its bureaucratic
reforms and development of new methods of state-led industrial promotion.
3. The post-Second World War experiences of countries like Japan and France, who were able to
generate impressive economic growth on the basis of radical institutional transformation following the
war

Policy v. Institution, is there an actual difference??

In common-sense usage, we might say that institutions are more permanent arrangements while policies are more
easily changeable. For example,

raising tariffs for certain industries would constitute a 'policy', whereas the tariff itself could be regarded as an
'institution'.

However, such simple distinctions quickly break down. For example, patent law might be regarded as an 'institution',
but a country could adopt a 'policy' of not recognizing patents - as indeed Switzerland and the Netherlands did until
the early twentieth century.

Policies for Economic Development: Industrial, Trade and Technology Policies in Historical Perspective

Late 19th century: ‘Golden Age’ of Liberalism

Free trade flourished

 From the eighteenth century onward, the industrial success of laissez faire Britain proved the superiority of
free-market and free-trade policies. Through such policies, which unleashed the entrepreneurial energy of the
nation, it overtook interventionist France, its main competitor at the time, establishing itself as the supreme
world economic power. Britain was then able to play the role of the architect and hegemon of a new 'Liberal'
world economic order in 1846 as per classical economists such as Adam Smith and David Ricardo, who
theoretically proved the superiority of laissez-faire policy, in particular free trade
 this made other countries realize the limitations of their mercantilist policies and start to adopt free (or at least
freer) trade from around 1860

Early 20th century:

Post WW I

countries once again started to erect trade barriers – end of free trade by 1932

 In 1930, the USA abandoned free trade and enacted the infamous Smoot-Hawley tariff. According to de
Clercq, this tariff 'had disastrous effects on international trade and after a while . . . on American economic
growth and employment
  Germany and Japan erected high trade barriers and also started creating powerful cartels, which were closely
linked with fascism and these countries' external aggression in the following decades.
 The world free trade system finally ended in 1932, when Britain, hitherto its champion, succumbed to
temptation and reintroduced tariffs

Late 20th century

Post WW II

 some significant progress was made in trade liberalization through the early GATT (General Agreement on
Trade and Tariffs) talks
 since the 1980s with the rise of Neo-Liberalism, which emphasizes the virtues of small government, laissez-
faire policies and international openness. By the late 1970s economic growth had begun to falter in most
countries in the developing world, with the exception of those in East and Southeast Asia, which were already
pursuing 'good' policies. This growth failure, which often manifested itself in the economic crises of the early
1980s, exposed the limitations of old-style interventionism and protectionism.
1. Brazil's embrace of Neo-Liberal doctrine under the presidency of Fernando Henrique Cardoso, a
leading Dependency theorist until the 1980
2. the entry of traditionally anti-US Mexico into the NAFTA (North American Free Trade Agreement
3. the move towards an open, liberal economy by India, once the bastion of protectionism and regulation
4. The crowning glory of this trend towards liberalization and opening-up was the fall of Communism in
1989, which finally ended the 'historical anomaly' of a closed world trading system that had prevailed
in the early postwar years.

tariff protection was far more important as a policy tool in the nineteenth century than it is in our for the
NDCs.- exceptions being Switzerland and the Netherlands were countries that were either at or very near the
technological frontier and thus did not, by definition, need much infant industry promotion

Examination of ITT (Industrial, trade and technology) policies of a range of NDCs - Britain, the USA, Germany,
France, Sweden, Belgium, the Netherlands, Switzerland, Japan, Korea and Taiwan.

Britain
the misconception that Britain developed as a laissez-faire, free-trade economy without significant state intervention.
It argues that this is not true and provides historical evidence to support its claim.

The passage begins by stating that

1. Early stages of Britain's economy:

 Dates: Prior to the 14th century

 Description: Britain had a relatively backward economy and relied on importing technology. It primarily
exported raw wool and low-value wool cloth.

2. Efforts to develop the wool cloth manufacturing industry:

 Dates: 14th to 16th centuries (specifically mentioned: the reigns of Edward III and the Tudor
monarchs)

 Description: British monarchs implemented policies to promote the domestic wool manufacturing
industry, such as bringing in Flemish weavers, centralizing raw wool trade, and banning the import of
woollen cloth.

3. Role of Henry VII and Elizabeth I in promoting wool manufacturing:

 Dates: Late 15th to early 17th centuries (specifically mentioned: Henry VII and Elizabeth I)

 Description: Henry VII and Elizabeth I played a significant role in transforming England into a major
wool-manufacturing nation. They implemented policies to promote wool manufacturing, identified
suitable locations, attracted skilled workers, and increased duties on raw wool.

4. Reforms under Robert Walpole:

 Dates: 1721 (specifically mentioned)

 Description: Robert Walpole, the first British Prime Minister, introduced reforms to promote
manufacturing industries. These reforms included reducing import duties on raw materials,
increasing duty drawbacks on exported manufactures, abolishing export duties, raising tariffs
on imported foreign goods, and introducing regulations for product quality.

5. Industrial Revolution and technological lead:

 Dates: Late 18th century to early 19th century (generally accepted period for the Industrial Revolution)

 Description: The Industrial Revolution widened Britain's technological lead, which was achieved
behind high tariff barriers and supported by state policies.

6. Free trade and trade liberalization:

 Dates: Mid-19th century (specifically mentioned: repeal of the Corn Law in 1846)

 Description: Calls for free trade led to the repeal of the Corn Law in 1846 and subsequent trade
liberalization. This marked a shift towards a more open trade regime.

7. Return to protectionism:

 Dates: Early 20th century

 Description: Britain reintroduced protectionist measures in the early 20th century as it started losing its
manufacturing advantage to other countries

In summary, the passage challenges the perception that Britain developed as a free-trade economy without state
intervention and highlights the historical evidence of deliberate state policies and tariff protection that played a
significant role in Britain's economic development.

18th and 19th century policies of Britain to pull ahead

The main key points from the provided information can be organized as follows:
1. Britain's Policies of Economic Dominance:

- Britain used its economic and political power to maintain and extend its lead over other countries.

- The policies pursued by Britain in the 18th and 19th centuries serve as examples of this approach.

- These policies have parallels with the strategies employed by developed countries towards developing nations in
modern times.

2. Policies to Restrict Manufacturing in the Colonies:

- Britain implemented policies to prevent the development of manufacturing in its colonies, particularly in America.

- William Pitt the Elder expressed concerns about manufacturing attempts in the colonies and advocated for
restricting their manufacturing capabilities.

- Commercial and industrial regulations were imposed to limit the colonies to producing raw materials for England,
discourage competing manufactures, and confine their markets to British traders and manufacturers.

3. Encouragement of Primary Production in the Colonies:

- Britain incentivized primary production in the colonies by providing export subsidies and abolishing import duties on
raw materials.

- The belief behind this strategy was that promoting raw material production would divert the colonies from engaging
in manufacturing activities that could compete with England.

4. Outlawing and Restricting Manufacturing Activities in the Colonies:

- Britain outlawed certain manufacturing activities in the colonies, such as the construction of rolling and slitting steel
mills in America.

- This restriction forced the colonies to focus on low-value-added pig and bar iron instead of high-value-added steel
products.

- Although these policies might not have significantly damaged the US economy at the time, they could have
hindered industrial development if the colonies had remained under British rule during later stages of development.

5. Bans on Colonial Exports Competing with British Products:

- Britain imposed bans on colonial exports that competed with its own products.

- Examples include the ban on cotton textile imports from India, even when Indian products were superior to British
ones, and the Wool Act that destroyed the Irish woollen industry and hindered woollen manufacturing in the American
colonies.

- Laws were introduced to prohibit exports of hats and other goods from colonies to foreign countries or other
colonies.

6. Restrictions on Tariffs in the Colonies:

- Colonial authorities were banned from using tariffs, or if necessary for revenue, they were countered in various
ways.

- When the British colonial government imposed import duties on textile goods in India for fiscal reasons, local
producers were taxed to maintain a "level playing field."

- Pressure from British cotton manufacturers led to the repeal of import duties in India.

- Attempts to impose tariffs on cotton products in India for protectionist reasons were thwarted by cotton textile
pressure groups.

These key points illustrate how Britain's policies aimed to restrict manufacturing in its colonies, promote
primary production, ban competing colonial exports, and control tariffs to maintain its economic dominance.

USA
 1. "Infant industry promotion" strategy used by Britain and the USA - Occurred in the past, before the USA was
established.

2. Alexander Hamilton's proposal for protecting new industries - Late 18th century (around the 1790s).

3. Implementation of high tariffs in the USA - 19th century (early 1800s).

4. Disagreements over tariffs leading to the Civil War in the USA - 1861-1865.

5. Continuation of tariff policies in the USA with occasional reductions - Late 19th to early 20th century (1800s-
1900s).

6. Shift towards supporting free trade after World War II - Mid-20th century (1940s onwards).

So, in summary, the countries used "infant industry promotion" to protect their industries. The USA used high tariffs,
had disagreements about them, which contributed to the Civil War, and later adjusted the tariffs. After the Second
World War, the USA started supporting free trade more.

Germany

while Germany is now known for its protection of infant industries, historically, tariff protection played a less significant
role in its economic development compared to countries like the UK and the USA. The author emphasizes that the
German state's involvement in industrial development was not primarily through tariff protection, but rather
through a range of policies, including direct involvement in

 key industries,
 promotion of new industries,
 government financing of infrastructure,
 educational reforms, and
 support for skilled workers and entrepreneurs.

The author suggests that these interventions, combined with other factors such as technological advancements
and social policies, contributed to Germany's industrial growth and catch-up with more developed countries.

France

1. Pre-Revolutionary period (before the French Revolution):

- French economic policy was highly interventionist, influenced by Colbertism.

- The French state recruited skilled workers from Britain to bridge the technological gap.

- Industrial espionage was encouraged, with bounties offered for obtaining target technologies.

- These government efforts helped France close the technology gap with Britain and become industrialized.

2. Post-Revolutionary period:

- The French Revolution brought a shift in economic policy towards a more laissez-faire system.

- Some efforts to promote industry and technological development were made, particularly under Napoleon's
government.

- Industrial exhibitions, competitions for inventions, and business associations were created to support industrial
development.

3. Laissez-faire policy regime:

- After Napoleon's rule, a laissez-faire policy regime was firmly established and lasted until the Second World War.

- This policy regime limited France's industrial growth during the 19th century.

- Contrary to the conventional wisdom, France's trade regime was more liberal than Britain's for most of the 19th
century.

4. Napoleon III's rule (1848-1870):

- Napoleon III encouraged infrastructural developments and modernization of the financial sector.

- The famous Anglo-French trade treaty of 1860 reduced French tariffs and promoted trade liberalism.
 - Despite this treaty, the level of protectionism in France was already low, and the reduction in protectionism was
relatively minor.

5. Tariff increases and limited industrial upgrading strategy:

- The treaty lapsed in 1892, and tariff rates, especially on manufacturing, were subsequently raised.

- The new tariff regime lacked a coherent industrial upgrading strategy.

- The French politician Jules Méline, responsible for the tariff regime, opposed large-scale industrialization and
favored independent farming and small workshops.

6. Laissez-faire attitude during the Third Republic:

- The French government, particularly during the Third Republic, adopted a laissez-faire attitude toward economic
matters.

- The Ministry of Commerce and Industry, created in 1886, had limited influence and focused on promoting exports
and setting tariffs.

- Tariffs primarily protected existing industries and did not aim at proactive industrial upgrading.

7. Post-World War II restructuring:

- After World War II, the French state reorganized its machinery to address the country's industrial backwardness.

- Indicative planning, state-owned enterprises, and East Asian-style industrial policies were implemented.

- France underwent a successful structural transformation, surpassing Britain in terms of output and technology.

The main argument of the author is that the popular view of France as a state-led economy throughout its history is
inaccurate. While interventionist policies were present in certain periods like pre-Revolutionary times and post-World
War II, France also experienced significant periods of laissez-faire policies, especially during the 19th century, which
contributed to relative industrial stagnation. The author challenges the notion of protectionist France versus free-trade
Britain, highlighting that France had a more liberal trade regime for most of the 19th century.

Sweden

The main argument presented by the author is that Sweden, despite its reputation as a "small open economy," did
not initially adopt a free trade regime during the post-war period. Instead, it enacted protective tariffs in the early
19th century to stimulate domestic cotton cloth production. While Sweden briefly embraced free trade in the late 19th
century, it later shifted back to protectionism to safeguard its agricultural and industrial sectors. The author highlights
the success of this protectionist approach, which contributed to Sweden's rapid economic growth. Additionally, the
author emphasizes the significance of public-private cooperation and government support for technological
capabilities, education, and research in driving industrial development. The post-World War II period saw the
implementation of policies such as the Rehn-Meidner Plan, which aimed to equalize wages across industries and
promote industrial upgrading. The author suggests that Sweden's unique combination of protectionist policies,
public-private collaboration, and strategic economic interventions played a crucial role in the country's
economic prosperity.

Timeline

- 1816: Sweden enacts a protective tariff law, banning the import and export of certain items and implementing high
tariffs.

- 1830: Sweden begins progressively reducing protectionist measures, lowering tariffs.

- 1857: Sweden abolishes tariffs on foodstuffs, raw materials, and machines, maintaining a very low tariff regime.

- Around 1880: Sweden shifts back to protectionism, using tariffs to protect its agricultural sector from American
competition.

- 1892: Sweden starts providing tariff protection and subsidies to the industrial sector, particularly the engineering
sector.

- 1913: Sweden has one of the highest average tariff rates on manufactured products in Europe.

- Late 19th century: The Swedish economy experiences rapid growth due to tariff protection, subsidies, and support
for R&D.
- Development of public-private cooperation:

- 1850s: The government builds trunk lines for railways, while the private sector constructs branch lines.

- 1882: The government imposes price control on branch lines.

- 1913: The state-owned railway company accounts for 33% of railway mileage and 60% of goods transported.

- Development of other infrastructures, such as telegraph, telephone, and hydroelectric energy, through public-
private collaboration.

- 1747: Semi-autonomous Iron Office is created, collaborating with the government to promote better technical
standards and higher skills in the iron industry.

- Emphasis on technological capabilities and education:

- 1809: Ministry of Education is established.

- 1840s: Primary education becomes compulsory.

- 1860s: People's High Schools are established.

- 1878: Six-year compulsory education is introduced.

- Support for technological research institutes, including the Chalmers Institute of Technology.

- 1932: Socialist Party wins the election in Sweden, leading to a change in economic policy.

- 1936: The 'historical pact' (Saltsjobaden agreement) is signed between unions and the employers' association,
focusing on financing a generous welfare state and high investment in return for wage moderation.

- Post-World War II: Implementation of the Rehn-Meidner Plan, aiming to equalize wages across industries and
promote industrial upgrading.

- 1950s-1960s: The Rehn-Meidner Plan and active labor market policy contribute to successful industrial upgrading in
Sweden.

Japan

1. State-led Industrialization: The Japanese government played a crucial role in promoting industrialization and
modernization. After the Meiji Restoration in 1868, the government established state-owned model factories and
supported industries through subsidies. It also invested in infrastructure development, such as railways and telegraph
systems.

2. Importation and Adaptation of Foreign Technologies and Institutions: Japan actively sought to acquire advanced
foreign technologies and institutions to facilitate industrial development. It hired foreign technical advisers, established
educational institutions, and imported legal and institutional frameworks from various countries, including France,
Germany, Britain, and the United States.

3. Active Industrial Policy: The Japanese government implemented a range of industrial, trade, and technology
(ITT) policies to foster economic growth. These policies included

 tariff reforms to protect infant industries,

The aim was to encourage competition, upgrade technology, and promote exports.

Overall, the argument highlights the significant role of the Japanese state in driving industrialization, adopting foreign
technologies and institutions, and implementing active industrial policies to fuel economic growth and transform Japan
into a developed nation.

‘The author emphasizes the importance of tariff protection in the economic development of NDCs and
highlight the productivity gap between developed and developing countries, which necessitates higher tariff
rates for developing countries to achieve similar levels of protection.’

1. Importance of Tariff Protection in Economic Development:

- Some argue that historical evidence of tariff levels in NDCs is dismissed by pointing out that current developing
countries have lower tariff levels than in the past.

2. Comparison of Tariff Levels:

- Historical comparisons show that tariff levels in the first quarter of the 20th century in most countries, excluding a
few like Russia, the United States, Spain, and Portugal, were not substantially higher than those in today's developing
countries.

- The argument is made that even for the poorest countries, the justifiable degrees of promotion for industry through
tariffs should not exceed 20%, and for more advanced developing countries, it should be virtually zero.

- The average tariff on manufactures in developing countries is reported to be 34% compared to lower average
tariffs ranging from 11% to 32% for industrial countries from 1820 to 1980.

3. Productivity Gap and Tariff Levels:

- The productivity gap between today's developed countries and developing countries is much greater than the gap
that existed between more developed and less developed NDCs in the past.

- Consequently, today's developing countries require higher tariff rates than those used by NDCs in earlier times to
achieve the same level of actual protection for their industries.

- The per capita income differences in purchasing power parity (PPP) terms between developed and developing
countries are much larger than the income ratios between the richest and poorest NDCs in the past.

4. Examples of Tariff Levels:

- Examples are provided to highlight the differences in tariff levels and per capita income between historical NDCs
and present-day developing countries.

- Despite having significantly lower per capita incomes, today's developing countries often have lower average tariff
rates compared to historical NDCs.

- Even after extensive trade liberalization, today's developing countries may be considered less protectionist than
NDCs were in the past.

These key points emphasize the importance of tariff protection in the economic development of NDCs and highlight
the productivity gap between developed and developing countries, which necessitates higher tariff rates for developing
countries to achieve similar levels of protection.

Institutions and Economic Development: 'Good Governance' in Historical Perspective

the author discusses the shift in development policy debate towards the importance of institutional development and
good governance.

The concept of "good institutions" varies across recommendations, but it typically includes

 democracy, Is democracy as advocated by the NDCs really a precondition for economic development
or is it a consequence of economic development? Lets study the history

It was not until the mid-19th to early 20th century that limited forms of democracy, such as universal male
suffrage, began to appear in developed countries. However, even during this period, there were instances of
reversals in the expansion of democratic rights. Look at the below data
The purpose of highlighting this historical experience is to urge caution before accepting the current orthodoxy that
democracy is a precondition for development. The historical evidence demonstrates that democratic institutions
were not initially widespread in developed countries, and the expansion of suffrage occurred gradually over time
with setbacks along the way

 efficient bureaucracy and

discusses the contrasting views of traditional Weberian bureaucracy (The traditional view, influenced by Max
Weber, emphasizes meritocratic recruitment, long-term career paths, and rule-bound management.) and the
more recent NPM approach. (However, the "New Public Management" (NPM) literature challenges this view,
advocating for short-term, specialist career paths, monetary incentives, and a more business-like management
style.)

historical context of bureaucratic reforms in certain countries: Weberian reforms:

1. Prussia: Prussia, under the rule of Frederick William I in the early 18th century, implemented extensive
bureaucratic reforms. These reforms centralized authorities, transformed bureaucrats into servants of the state,
introduced cash payments for salaries, and established strict supervision systems. These measures, along with
additional reforms by Frederick the Great, laid the foundation for a modern Weberian bureaucracy in Prussia.

2. Britain: In Britain, reforms took place between 1780 and 1834 to eliminate sinecures (offices with salaries but no
responsibilities). Bureaucratic remuneration shifted from a fee-based to a salary system in the first half of the 19th
century. The status of government ministries transitioned from private establishments to government ministries in
the modern sense. Substantial modernization of the British Civil Service occurred after 1860.

3. United States: The United States made progress in the professionalization of its bureaucracy in the late 19th
century. The Pendleton Act of 1883 marked an important milestone by introducing competitive recruitment for
federal government jobs. Over time, the proportion of federal government jobs subject to competitive recruitment
increased from 10% in 1883 to nearly 50% by 1897.

4. Other German states: Apart from Prussia, other German states such as Bavaria, Baden, and Hesse also made
significant progress in bureaucratic reform during the early 19th century. They followed similar paths by
introducing entrance examinations, hierarchical organizations, pension systems, disciplinary procedures, and
security of tenure.
 These historical contexts highlight the specific periods and reforms that contributed to the development of
Weberian bureaucracies in these countries. They mark the transition from practices like office sales, nepotism,
and the spoils system to more meritocratic recruitment, professionalization, and institutional reforms.

 judiciary,

the author highlights the historical issues faced by many developing countries and other nations like the UK,
Germany, the USA, and France during the late nineteenth century. These issues include excessive political
influence, corruption in appointments or elections, bias, and unprofessionalism within the judiciary.

In summary, the author argues for a nuanced understanding of the judiciary, considering factors beyond political
independence, and highlighting the importance of professionalism

 protection of property rights, Do stronger property rights mean more development?

The author provides several historical examples to support their argument. Some of the examples mentioned
include:

1. Enclosure in Britain: The author cites the example of Enclosure in Britain, where existing communal property
rights were violated by enclosing common land. While this violated existing property rights, it contributed to the
development of the woollen industry by promoting sheep farming on the confiscated land.

2. Squatter rights in the American West: The recognition of squatter rights in the violation of existing property
owners' rights played a crucial role in developing the American West, as documented by De Soto.

3. Sanderson case in Pennsylvania: The Pennsylvania Supreme Court overrode the existing right of landowners
to claim access to clean water in favor of the coal industry, which was a key industry in the state at the time.

4. Land reform in Japan, Korea, and Taiwan: After the Second World War, land reforms violated the existing
property rights of landlords but contributed to the subsequent development of these countries.

5. Nationalization of industrial enterprises in Austria and France: The nationalization of industrial enterprises after
the Second World War in countries like Austria and France transferred certain industrial properties from a
conservative and non-dynamic industrial capitalist class to professional public-sector managers, which contributed
to their industrial development.

These examples highlight situations where the violation or restructuring of existing property rights was beneficial
for economic development, challenging the notion that stronger protection of all existing property rights always
leads to economic growth.

 corporate governance,
 well-developed financial institutions, and
 social welfare and labor institutions.

However, critics argue that these institutions may be demanding in terms of financial and human resources for
developing countries and may not align with their social norms and cultural values. They caution against
imposing a common institutional standard on diverse countries and emphasize the difficulty of
institutional transplantation.

The author presents three alternative approaches.

 The first involves directly transplanting "best practice" institutions to developing countries, but this has often
proven ineffective and costly, as seen in failed structural adjustment programs.
 The second approach suggests waiting for spontaneous institutional evolution, which occurred in developed
countries during their own development. However, this process can be lengthy and does not guarantee the
best possible institutions.
 The author advocates for the third approach, which involves learning from historical experiences. By
examining how institutions evolved in developed countries during their own development, developing
countries can draw valuable lessons without incurring all the costs. This historical perspective can also help
donors evaluate the readiness of recipient countries to adopt specific institutions.

The author argues that the NDCs (Newly Developed Countries) in the past had much less developed institutional
structures compared to the developing countries of today at similar stages of development. They provide historical
income comparisons between the NDCs in the nineteenth and early twentieth centuries and the developing countries
of 1992. The income comparisons show that the NDCs were at levels of development comparable to today's middle-
income developing countries.

By comparing the income levels and institutional development, the author demonstrates that the NDCs of the past,
such as the UK, Italy, and the USA, lacked many basic institutions that exist in today's developing countries. Examples
include universal suffrage, central banks, income tax systems, modern bankruptcy laws, professional bureaucracies,
and meaningful securities regulations. The NDCs were operating with much less developed institutional structures
than what is expected of today's developing countries, which are being urged to conform to higher global standards of
institutional development.

In summary, the author contends that the historical experience of the NDCs indicates that developing countries today
are expected to meet higher institutional standards compared to the NDCs of the past, despite the latter having
operated with less developed institutional structures at comparable stages of development.

Lessons for the Present (My script)

The author questions the commonly recommended "good policies" and "good governance" guidelines for developing
countries, suggesting that they may be ineffective or even harmful.

In Chapter 2, the author examines the policies employed by now-developed countries throughout history, from
fourteenth-century England to the late twentieth century East Asian Newly Industrialized Countries (NICs). The author
finds that successful catching-up economies have used activist industrial, trade, and technology (ITT) policies, rather
than solely relying on tariff protection. These policies, tailored to each country's specific circumstances, were
instrumental in promoting economic development.

The author argues that the shift to higher-value-added activities, which is crucial for economic development, does not
happen naturally. There are discrepancies between social and individual returns on investments in high-value-added
activities or infant industries in catch-up economies. Therefore, mechanisms must be established to socialize the risks
associated with these investments. While institutions can play a role in socializing risk, they have limitations and may
not effectively address industry-specific problems or respond quickly to new challenges. In many cases, direct policy
intervention may be preferable.

The author points out that the recommended "good policies" of free trade and laissez-faire ITT policies seem at odds
with historical evidence. The now-developed countries did not achieve their current status by following such policies.
Instead, they actively used activist ITT policies during their own development, which are now discouraged for
developing countries.

The author challenges the notion that the current "good policies" are no longer beneficial because times have
changed. The data from the past two decades show that the implementation of "good" neoliberal policies did not
deliver the promised economic growth. In contrast, countries experienced faster growth during the period when so-
called "bad" policies prevailed.

Regarding institutional development, the author suggests that many of the institutions currently recommended to
developing countries were the results, rather than the causes, of economic development in the now-developed
countries. The necessity of imposing these institutions on developing countries through external pressures is
questioned. Additionally, the author emphasizes the need to carefully consider the specific shapes and forms of
institutions, as there is a wide range of debate and variation on what constitutes effective institutions.

However, the author acknowledges the importance of institutions for economic development, as improvements in
institutional quality have historically been associated with better growth performance. The author cites the superior
economic performance of now-developed countries during the "Golden Age of Capitalism" (1950-1973) as evidence of
the positive impact of institutional improvements.

In conclusion, the author argues that the current push for "good policies" and "good governance" by developed
countries may be contradictory to historical experiences. The policies and institutions employed by now-developed
countries during their own development differed from the recommendations given to developing countries today. The
author suggests that the developed countries may be "kicking away the ladder" by recommending policies that they
themselves did not follow during their development.
Counterarguments:

1. Objection: Developing countries should adopt the policies and institutions recommended by developed
countries, as the strong dictate terms to the weak.

- Supporting evidence: Developed countries exercise significant influence through aid budgets, trade policies,
control of international financial institutions, and disproportionate power in international organizations.

- Counterargument: The argument that developing countries should blindly follow the "new rules" imposed by
developed countries is beside the point. The focus should be on changing these rules if they are deemed unfavorable.
The chance of change may be small, but discussing and debating alternatives is still worthwhile.

2. Objection: Developing countries should adopt policies and institutions favored by international investors.

- Supporting evidence: China has attracted significant foreign investment despite not adhering strictly to
recommended policies and institutions. Empirical studies show that factors like market size and growth have a greater
impact on investment decisions than institutional variables.

- Counterargument: Foreign investment should not be the sole determinant of policy and institutional choices. The
internal development and benefits to the country should be prioritized over investor preferences. Many recommended
institutions may not be necessary or beneficial for development, and their costs may outweigh potential gains.

3. Objection: Developing countries should strive for the current global standard in institutions, as it has risen
over time.

- Counterargument: While it is essential for developing countries to achieve higher levels of institutional
development, expecting them to rapidly reach the highest global standard may be unreasonable. Latecomer countries
do not need to spend as much time as pioneers did, and they already have relatively high standards compared to
previous developing countries.

- Counterargument: The focus should be on promoting informed choices and understanding the historical
development experiences of successful countries. Developing countries should be allowed to make their own choices
regarding policies and institutions, taking into account their specific economic, political, and cultural contexts.

Concluding remarks:

- The international development policy establishment and developed countries should reconsider their approach to
development and promote a more informed and flexible perspective.

- Historical facts about successful development experiences should be widely publicized to allow developing countries
to make informed choices.

- Policies should be revised to allow for the use of previously effective "bad policies" if they prove beneficial for specific
contexts.

- Trade agreements and rules should be rewritten to permit a more active use of tools like tariffs and subsidies for
infant industry promotion.

- Institutional improvement should be encouraged, but not through the imposition of a fixed set of contemporary
institutions. Context-specific exploration of necessary and beneficial institutions is crucial.

- Allowing developing countries to adopt policies and institutions suitable to their stages of development will benefit
both developing and developed nations in the long term, increasing trade and investment opportunities.