Seminar to challenge conventional wisdom on "good" economic policies

The Netherlands and Switzerland are exceptions that prove the rule

MAASTRICHT, 1 februari 2005 -- Developing countries bombarded with prescriptions for achieving economic growth are well advised to take a fresh look at history. This is the central message of a seminar to be given by Cambridge based economist Ha-Joon Chang at the United Nations University (UNU-INTECH) in Maastricht, on Thursday 4th February 2005 at 1600 hrs. Dr. Chang will ask whether, under the guise of recommending "good" policies and institutions, rich countries are actually making it difficult for the developing world to develop economically.

The thesis of Dr. Chang's award-winning book, Kicking away the Ladder - Development Strategy in Historical Perspective (Anthem Press, 2002) is that contrary to conventional wisdom, "the historical fact is that the rich countries did not develop on the basis of the policies and institutions that they now recommend to, and often force upon, the developing countries".

"Unfortunately, this fact is little known these days because the 'official historians' of capitalism have been very successful in re-writing its history", he continues. To prove this, he provides a detailed historical survey of the experiences of the USA, the EU member states and the East Asian economies, showing that almost all of today's rich countries used tariff protection and subsidies to master cutting edge technologies and promote their industries. The long list of protective national policies adopted by developed countries includes limits on ownership; insistence on joint ventures with local firms; barriers to 'brownfield investments' through mergers and acquisitions; and performance requirements on exports, technology transfer or local procurement.

Even in the case of the Netherlands and Switzerland, two countries that have maintained free trade since the late 18th century, there have been important exceptions that only serve to prove the rule.

"Switzerland did not have a patent law until 1907, flying directly against the emphasis that today's orthodoxy puts on the protection of intellectual property rights. More interestingly, the Netherlands abolished its 1817 patent law in 1869 on the ground that patents are politically-created monopolies inconsistent with its free-market principles - a position that seems to elude most of today's free-market economists - and did not introduce another patent law until 1912".

He adds that "...even Sweden, which later came to represent the 'small open economy' to many economists, had also strategically used tariffs, subsidies, cartels, and state support for R&D to develop key industries, especially textile, steel, and engineering.

On the role of institutions, Dr. Chang notes that not only does it take time - decades, and even generations - to build up capable and effective institutions, but today's developed countries achieved growth with much lower levels of institutional development. He singles out 19th century Britain, which succeeded in making huge strides economically at a time when it did not have universal suffrage ("it did not even have universal male suffrage"), a central bank, income tax, or even minimal labour regulations - all of which are ubiquitous in many developing countries today.

"It is no coincidence that economic development has become more difficult during the last two decades when the developed countries started turning on the pressure on the developing countries to adopt the so-called 'global standard' policies and institutions".

Dr. Chang suggests ways in which developing countries can be supported to adopt policies and institutions that are more suited to their conditions, thus enabling them to develop faster. These include: (1) publicizing the historical experiences of developed countries, not only in the interest of "getting history right", but also to allow developing countries to make more informed policy and institutional choices; (2) accepting that "there can be no 'best practice' policies that everyone can use, and that the orthodox recipes are not working, as the basis for a radical overhaul of conditionalities to bilateral and multilateral financial assistance; (3) rewriting WTO rules to allow developing countries, to adopt less stringent patent and other intellectual property rights laws; and (4) encouraging structural improvements without imposing a fixed set of institutions on all countries.

Ha-Joon Chang teaches at the Faculty of Economics, University of Cambridge, United Kingdom. He is the author of several books, including The Political Economy of Industrial Policy (Macmillan, 1994), Restructuring Korea Inc. (RoutledgeCurzon, 2003, with Jang-Sup Shin), Globalisation, Economic Development, and the Role of the State (Zed Press, 2003), and Reclaiming Development - An Alternative Economic Policy Manual (Zed Press, 2004, together with Ilene Grabel), and has also edited several volumes. Ha-Joon Chang is also the winner, together with Richard Nelson of Columbia University, of the 2004 Leontief Prize for Advancing the Frontiers of Economic Thought, awarded by Tufts University in memory of the Nobel Laureate, Wassily Leontief. Previous winners of the Prize include Amartya Sen, John Kenneth Galbraith, Paul Streeten, Alice Amsden, and Dani Rodrik.

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