This piece is dedicated to the memory of Professor Alice Amsden, who passed away last week.
Professor Amsden’s preoccupation was the analysis of the process by which some developing countries have managed to industrialize and accelerate their pace of economic development. The Republic of Korea, Taiwan Province of China and the so-called emerging economies (The Rest) were her main case studies. She was a visionary, and also believed in the need for tailor-made strategies for specific developing countries rather than one-size-fits-all economic policies. Nor did she believe in pure reliance on market forces as advocated by neo-liberals and reflected in an analysis of the question of “catch-up” in a recent issue of the Economist.
According to neo-liberals, and the followers of Washington Consensus, all low-income countries need to do to catch up is to let market forces operate freely and follow an open-door policy in foreign trade and foreign direct investment. They initially adopted the views expressed by Veblen (1915): as technology is embodied in machinery, the countries that purchase machinery can catch up with others without having to develop the technology themselves. Both Gerschenkron (1962) and Abramovitz (1986 and 1994), also emphasized the role of technology in industrialization and development and argued that the more backward a developing country, the greater its chances of rapidly catching up. However, their views on the role of the government and the market were different.
Drawing on the experience of Europe, Gerschenkron emphasized the need for active role of the government. The more backward a country, the larger its technological gap with the “leaders”; thus there will be a greater need for government intervention. Although not explicitly mentioned, he assumed, like neo-liberals, that technology was readily available and costless. So did Abramovitz who, unlike Gerschenkron, emphasized the role of market forces, not government. Further, like Gerschenkron, he argued that social backwardness inhibited the application of available technology; thus “social capability” (technical competence, education, management, organization, infrastructures, etc.) was required. In other words, a country should already be developed to be able to apply the technology used by “technology leaders”; i.e. to be able to develop, a country should be already developed!
In practice, a number of so-called “emerging economies”, particularly China and India, have been able to experience high rates of growth of GDP and MVA during the last couple of decades; but the least developed countries (LLDCs), particularly in Africa, have been falling behind them, in contrast to Gerschenkron and Abramovitz’s hypothesis. The real GDP per capita of African LLDCs (and Haiti) remained stagnant in 2000 compared to 1980, while those of China and India and developing Asian countries, as a whole, increased by about 10.6 and 5.5 per cent, respectively. During 2000-2010, the corresponding rate for the Africa LLDCs picked up to 4.1 per cent, as compared to 10.8, 7.9 and 7.2 per cent for China, India and Asian developing countries, respectively. Moreover, the figure of 4.1 per cent is inflated by the growth rate of oil exporting countries in the region (the simple average growth rate for them for the corresponding period was 7.7 per cent). The performance of African LLDCs has been even less satisfactory in MVA. As a result, their share of MVA in GDP declined from 12.1 per cent in 1980 to 6.6 in 2009, and in 27 cases out of 49, it fell.
What explains the differential performance of China, India and African LLDcs? The success of countries such as China and India is attributed, inter alia, to their pursuit of the developmentalism approach applied by the governments concerned; they have had some autonomy in the pursuit of their development strategies. By contrast, lower income/least developing countries have fallen behind mainly because of the restrictions imposed on their policy space by international financial institutions (IFIs) and bilateral donors based on the neo-liberal ideology. The process of industrialization and development requires, developing the supply capacity, making it efficient and upgrading. Such a process requires dynamic and flexible industrialization and development strategies where the relative role of government, market and enterprises changes over time, not what is imposed on them by the international financial institutions, or being proposed through EPA and NAMA as discussed in my previous contribution published in this blog and also discussed in depth by professor Amsden.
In the next brief I will outline what internal and international policies are required for catching up.
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