Good chunk of post-Soviet countries adopted free market policies and most of them failed, so I do not agree that there were only a handful of 'free-market' developing countries. Also countries adopt 'free-market' policies often as the condition of getting IMF loans, so the list of such countries might be much higher.
Your quoting ""scream"" is itself charitable as what Scott actually wrote, and you actually quoted yourself, was "just sort of screamed", which is, to me anyways, obviously exaggeration by Scott. And, similarly, "part of a conspiracy" sure seems like an acceptable (tho loose) translation of "simply pursuing their class interests".
David Harvey is a Western intellectual though, he comes from *exactly* the same class as the pundits supporting capitalism. I wouldn't recommend you to trust anything he says. In fact, probably there only ever lived three souls pure enough to truly have the interests of proletariat at heart while not being proletarians themselves: Marx, Engels and Lenin.
I am pretty sure Scott was describing Harvey's _writing_, so I'm not sure whether you're describing (hearing) his speaking voice.
> Pursuing objectives that are in your own self-interest (as a class) is not a conspiracy.
Sure – and yet I think it's pretty common for people to 'feel' as-if people are 'conspiring' when they're acting in a 'coordinated' manner, that's not otherwise (immediately) understandable, even when they're not explicitly coordinating.
You described the same person as having "a very soothing voice" and it wasn't clear to me whether you describing his actual audible voice or his 'written voice'.
With respect to the 'conspiracy' thing, it's NOT (obviously) a mistake, particularly Scott's usage (i.e. describing someone else's writing) – it mostly seems pretty clearly metaphorical.
But if it's _common_ for people, including Scott, to misinterpret others (e.g. 'Marxists') as claiming/implying/assuming a 'conspiracy', that's not obviously a mistake on either party's end. More charitably, it's just routine and mundane miscommunication.
And I think 'miscommunication' is a big reason – probably THE reason – why you are received so poorly here (and on Scott's previous blog). I don't think that's your 'fault', but I DO think you could do better on your own, and that seems (to me) like something you'd want to do, given that you DO seem like you want to communicate with us and enlighten us. (I think you've gotten a little better recently and I do think you probably have useful or significant insights that you could share.)
Meh – I think all communication requires, effectively, some kind of 'bridging of inferential distance' and it seems like an extremely common problem with 'Marxist' writing, or similarly 'lefty' works, that they fail to reach anyone not already familiar with similar, or more foundational, works because they don't bother to either bridge that 'gap' or even point out that there is one.
And, really, this is a much more common problem than with just the kind of thing you like to defend in the comments here.
What I find 'sad' is that I think you probably _could_ – and easily – help the rest of us bridge some of that distance, e.g. by providing some _summaries_ of the background we're missing and not just pointing us to long texts for which we're probably missing crucial background for understanding, or even appreciating, too.
You link texts, but that's not particularly helpful, as the texts are often long, AND they can't be easily understood, and thus evaluated, without a LOT of other background context. I've tried to read some of your linked texts myself!
I am claiming that you _don't_ in fact "explain very specifically what Scott's mistakes are" – even if you think you do that, I personally can't often tell _why_ you think they're mistakes beyond 'marxbro1917 is a Marxist'.
Again, I think it's fair, in the way Scottt wrote his 'conspiracy' phrase, that this could be a slightly exaggerated translation of what you describe as being "about class interests. I don't think we necessarily disagree about this specific example.
And I will try to remember to take you up on your offer to help me (and others) bridge the 'inferential gap' between our positions – thank you for offering!
I don't think Scott, or myself, or others, are reading leftist materials uncharitably. I think it's the same 'bridging the inferential gap' problem but that, even were the gap to be entirely closed, some of us would _still_ disagree, because we don't accept, or are not convinced by, the more fundamental precepts of leftism.
Take "class interests" as one example. I believe 'class' exists and I believe it is a significant, and even powerful, force in, e.g. politics and economics. But I think you and I probably have very different views and understandings of what 'class' is, how many categories there are (reasonably), how strongly it predicts or is correlated with human behavior generally, etc.. It seems to me like there's lots of room for empirical validation of any 'class interest' theories, but _my impression_ of 'leftists', generally, is that their 'priors' are much more confident in any basically 'leftist' understanding of class, and thus they're more likely to dismiss what, to me or others, would seem like reasonable counter-evidence.
But what about the Middle Eastern countries who tried very similar policies in the 60s and 70s, and it didn't help them at all?
You can't just pick successful countries who all have X in common and write a Just-So story about how X is the cause. You have to look at all countries with X.
I found "Egypt on the Brink: From the Rise of Nasser to the Fall of Mubarak" useful as a source on Egypt specifically, though it's more political history than it is economic.
I feel like most Middle Eastern countries were not stable enough to keep the policies going. The most prominent example of socialist country trying to turn things around is probably Egypt. Egypt started with something similar in 1956 with Nasser, but by 1970s they were already deregulating their economy since they switch their side in Cold War.
Don't most of the Arab countries still have a hereditary nobility of large landowners? And haven't they stayed focused on bananas, rather than manufacturing? (Well, oil, but it's the same sort of thing as bananas. Some of the Emirates have tried to do something different, I suppose.)
Read Elinor Ostrom's book "Governing the Commons". There's lots of interesting stuff in here about how various traditional societies figured out non-state non-market ways of solving common pool goods problems, including water rights among small landholders in Spain, that involved a complicated system of ditch maintenance that made it easily verifiable by everyone that everyone was doing their part fairly.
And yet after the irrigation system was destroyed by the mongols, it was never rebuilt. Kinda hard to square that with some sort of cultural genius for hydrology.
?? The article describes the use of the irrigation system in the US. I'm unaware of any Mongol invasion of the US — and the origin was Spain, and I don't believe the Mongols got that far. Could you clarify wrt to the article to which I linked?
I did not mention "true" Sha'riah. I suggest you simply read the article, look at it as a way of cooperatively managing a common resource, and not get distracted by labels.
You think the "co-operative water" is the interesting part.
I think the "labelling this as sharia, even though that claim is silly" (presumably because we live in a time where nothing euro-american can be considered good) is the interesting part.
From the article: "José explains the ancient practice of dividing the flow of water with acequias, the gravity-based ditch and communal water management systems that have irrigated farms in southern Colorado and northern New Mexico since the arrival of the conquistadores. To be historically precise, the conquistadores–and the indian warriors and craftsmen accompanying them from Mexico–brought this technology with them on their transatlantic journey from the semi-arid regions of 16th-century southern Spain to the New World. The Spaniards, in turn, learned it from their Arab and Berber conquerors, whose civilization dominated large of swaths of Spain’s Iberian peninsula for more than seven centuries."
Islam shaped Spain substantially, and traces of the culture remain highly visible there (cf. Alhambra), and — as the article notes — some practices from that heritage were brought to North America by the conquistadores.
I can see that, you cannot, so I think we will just have to disagree.
I have to say that I don't understand some of your statements. You attributed to me things I did not say or think, and now you claim that "nothing euro-american can be considered good". I disagree with that, but I take it that's your view.
Your views and your misunderstandings of my statements show that there is no point in taking the discussion further.
I’m no expert, but didn’t Israel follow broadly similar policies to Korea, Taiwan etc and also succeed? My sense is that even (relatively) peaceful Turkey, Jordan etc have not been able to follow a similar path.
I wouldn't say that Israel followed a similar model: The early Kibbutzim were not privately owned, though being small and communal may have led to similar effects.
But Israel is something of a special case, having been built by immigrants. The earliest migrants were largely Eastern Europeans: Not quite American/British, but not Chinese either. There was also non-negligible immigration from Germany and either highly developed-European countries before WWII, and they would have brought substantial knowledge with them. That probably also explains at least part of the socioeconomic gap between European Jews and Middle Eastern and North African Jews and Arabs in Israel.
It's interesting that the most recent immigrant wave, of roughly one million often highly-educated immigrants from the USSR around 1990, actually had pretty low socioeconomic status, though it has since gone up. That may just reflect Israel's relatively high development by 1990 (to Soviet levels? IDK) plus some difficulty integrating.
There's an econ paper analyzing the labor market impacts of the Soviet Aliyah. Let me know if you can't find it in Google Scholar and I'll dig it up.
I wouldn't say the USSR jews were low socio economic status, they were only low economic status in Israel because of frictions entering the labor market (language, specializations). They were high socio status (education, culture) and indeed this shows in the catch up a generation later.
The counterexample I was thinking of was India, which implemented protective tariffs, manufactured their own crappy cars etc., and grew slower than Studwell's failure stories. At least in the Economist magazine version, the tech industry took off because the central planners didn't quite know what it was and left it alone, and India only achieved sustained fast growth post-liberalization.
Basically two, Ambassador and PAL, with the Suzuki-licensed Maruti introduced in the 80s. The argument would be that India did not enforce export discipline, and the “license Raj” bred complacency.
Automobiles have been liberalized since, and their first passenger car was only in 1988. Tata used to make trucks, but not cars. They started making the Nano, but it's not a big success AFAIK.
To what extent did their similar policies include real internal competition and export discipline, rather than the government subsidizing and/or owning designated champions of industry? My admittedly vague impression was that Nasser et al were Soviet-influenced socialists and much more friendly to SOEs than to entrepreneurs.
The Middle East experienced the highest increase in the UN Human Development index at the time. Sure, oil wealth helped (although it also causes Dutch disease).
Isn't the Dutch disease thing largely a myth? If you have 2 countries, one with $10bn of GDP and the other with $20bn, but $10bn is from commodities. Then if the non commodity part of the economy grows 7%, overall growth is only 3.5%. And for the country with no commodities, it would be 7%. Even though rate of development is the same.
The idea is that commodities represent easy money, which drives out every other kind of investment. At the same time, commodity prices can be rather volatile, to put it mildly, especially if you are not the margin producer.
I don't see why it would drive out other kind of investment. I think the risk is more that leaders can get rich from stealing those commodities, and use to resources to live large and opress the population. Whereas with no commodities they are forced to develop, opening Pandora's box (in a good way).
But for the most part, the non commodity economy often grows just as fast, it is just that the commodity part of the income distorts the growth %'s.
As I understand it, the reason commodity investment drives out other investment is because the risk-weightes return is so much higher.
The other problem is that the risk doesn't go away, and is in fact quite severe and hard to diversify or hedge away, at least on a national scale. In other words, you're always at the mercy of oil prices.
A different version might be Africa where a variety of countries (most recently supposedly Zimbabwe in, say, the late 90s by appropriation, and still, to now, supposedly South Africa by buy and split white farmer land) have claimed to do this.
I’m unaware of any success stories. Did every one of these devolve into cronyism?
I read this in a French paper encyclopedia in the 90s, can’t remember which one, probably the Universalis annual supplemental volume, and in any case it would have been discontinued years ago.
Not sure about the details but I remember an Iraqi writing that Saddam Hussein was actually a pretty competent administrator when he was Vice-President before he staged his coup and power went to his head. Iraq certainly had the human capital: engineers, doctors and so on, not being burdened by the dead weight of Wahhabi indoctrination in schools.
Iraq's lack of human capital is one reason why Greg Cochran was confident they wouldn't have any nukes. Other reasons were sanctions & that chunks of the country were too hostile to the regime to contribute.
Most of those factors would also apply to North Korea, yet they managed to get nukes. It's a 1940s technology, well within the reach of most nation-states. It's only active measures to deny enrichment like those under the NPT that have prevented more widespread adoption of nukes by every tinpot dictator out there.
I think the frameowork of exisiting within a Theocracy is enough to outweigh all of the other changes. I mean it looks like many of those Middle Eastern countries were indeed in somewhat of a renaissance before religious factions came in and reorganized the entire game around a very different incentive structure that had little to do with maximizing economic growth.
And I think the author would claim that the set of circumstances he describes are situationally dependant semi-necessary but not sufficient.
>These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?
The real reason is that they got drowned in American/Western investment for geopolitical purposes. Its as simple as that really. I find that you always seem to assume that a country's successes or failures are dependent on internal factors as opposed to external. Its a bad habit you have.
Warning that you keep doing this thing where you keep being vaguely condescending to me for not realizing X, then not giving any evidence that X is true. If you keep doing this I will ban you.
I'll admit that I probably like Scott more than you do, but that read pretty clearly as tongue in cheek to me. "Leaders gave bad advice so the people ignoring the advice clearly were doing it out of spite" strikes me as a reasonably witty way to poke fun at the bad advice given and the success of the people who didn't follow it.
You're just persistently misreading the sentence, which was tongue-in-cheek as being a commentary on communist regimes specifically, when the inclusion of right-wing ones indicates it wasn't. And its not "weird" at all for Scott to write in a tongue-in-cheek manner.
Scott has ALWAYS included humor inside his serious writings. AND THE INCLUSION OF NON-COMMUNIST REGIMES IN THE QUOTE INDICATES IT'S NOT SUPPOSED TO BE A COMMENTARY ON COMMUNISM SPECIFICALLY. How many times do we have to tell you!?
Would it not be correct to say those countries general world views suggested that those rich economists were basically self interested jerks or active facillitators of imperialist capitalism, so would not spite be a correct motivation as to why they were ignoring them?
This appears to be a 1965 article with no comparisons of American investment in Taiwan to American investments in Congo, Honduras, or anywhere else in Africa or the Americas, so I'm not sure that it supports your claim that the *difference* between these places is explained by a *difference* in American investment.
I'm just going to reiterate what Kenny is saying here - what you link to doesn't really support your thesis in the large. Plus, just linking to a JSTOR article without context comes off as moderately unhelpful. Personally - and I imagine this feeling is shared - I'm disinclined to go through the work of reading through random paywalled articles because there's a good chance it's a waste of time.
Also, just in general, making generalizations about people "I find that you always..." is really pretty unhelpful communication. Do you know this to be literally true? Take the second persian gulf war: do you think Scott blames internal factors in Iraq for the fallout from the second persian gulf war? My money's on Scott putting substantial responsibility on the military campaign and occupation. Even if he's like, fuck no, it was all the Iraqis fault for not having backup water treatment facilities, well, okay, then he's crazy. We just don't have enough information to know what Scott always does or doesn't do.
If you find yourself asserting generalizations about other people's beliefs that aren't literally true, then you're probably doing something wrong and should reevaluate strategies.
Unrelatedly, are you Chris Allen of haskell land? Think I had a pleasant dinner with you at lambda conf one year. Hope you're well.
I am absolutely certainly not going to say that Chris Allen is right about anything, but you do seem to have a habit of adopting the first plausible seeming explanation of anything as The Real Truth and then turning around making a blog post about it. That can be a bit disappointing to see.
Also, sometimes foreign investment really did spark entire industries. RCA in Taiwan. Singer, too. Then the plant employees start copycat firms, or small parts firms, etc. But that foreign investment did matter.
This seems implausible. What geopolitical purposes were served by investing in East Asia rather than the Middle East? Even Latin America, Subsaharan Africa, and South Asia were also parts of the "third world" that the first and second world were fighting over for allegiance during the Cold War, but the Middle East was just as much the front lines as East Asia, and had the additional presence of a geopolitically important resource.
WWII also wreaked hella devastation on the Philippines, and the Philippines are much better positioned to cut off routes into or out of Mainland China.
A big difference in postwar land reform in the Japan vs. the Philippines was due to the fact that the rich in Japan were the enemies of the U.S. in 1941-1945, while the rich in the Philippines were our heroic friends fighting our mutual enemy the Japanese behind enemy lines. So, expropriating the Japanese ruling class seemed a much more morally fitting policy to Americans than expropriating the Filipino ruling class, who had just gone through four years of occupation.
South Sakhalin was seized by the USSR after WWII (and Manchuria/Korea were removed from Japan's control), so I'm not seeing where the USSR had a land border with postwar Japan.
Given the giant US built port at Dharhan, the giant US built airbases at King Khalid, and the giant US built oil pipelines crisscrossing Saudi Arabia, I think you underestimate what Aramco was up to.
What Aramco was not up to was a large scale rewrite of society ala MacArthur or Mao.
Another interesting case is Iran, which seemed (by numbers and cultural indicators) to be one of these success cases under Mosaddegh, who pushed the British out of ownership positions and passed a land reform act, until the 1953 coup, when the west installed the newly empowered Shah, who proceeded to run western friendly policies.
His policies were "western-friendly" in that he opposed the communists, but my recollection is that they were also quite pro-development and included land reform.
Iran bordered the Soviet Union and was in the US sphere until 1979. Pakistan was in the US sphere, borders China, and only 10 miles of Afghanistan separated it from the Soviet Union. This chain (Turkey-Iran-Pakistan) was extremely strategically important because it kept the Soviet Union from having access to the Indian Ocean.
The claim that started this subchain was that US strategic interests rather than the Asian development model are the cause of east Asian succes.
The fact that these other countries which are also of great strategic importance to the US didnt become rich is strong evidence against this claim. The lack if the Asian development model even more so.
This is the nobody-has-agency-because-cia theory of FP.
The US isn’t responsible for any of it in SK. For a decade after the Korean War it was a complete shit show. It wasn’t until Park took over and while the US may have supported him (as they supported his predecesors), it wasn’t as though the cia parachuted in a bunch of marxist land reform economists to tell him what to do.
We were all over the Honduras at the time, and as always, we let their local rich run their show. As they would have without us.
I don't know where you got the many multiples of GDP for many years in a row claim from - it's not even in the post you linked to - but it is false. SK nominal GDP grew exponentially from some $3B in 1960 to $9B in 1970 and $67B in 1979 (https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=1979&locations=KR&start=1960&end=1979). The total nominal aid (ODA + OOF) to SK can be fetched from the OECD stats database (https://stats.oecd.org/Index.aspx?DataSetCode=Table2A#). It averaged $200M/y in 1960-1967, $500M/y in 1968-1974, and $1B from 1975 to 1982, then fell off to zero over the following couple of years. Note that this sum includes loans as well as grants. While I don't know how to fish this data out of the OECD website, Figure 4 in https://cdn.odi.org/media/documents/191203_republic_of_korea.pdf says that loans predominated after 1969. I.e. total aid (grants plus loans) never exceeded 10% of the GDP over this period. I should also remark that SK had to spend quite a lot of money on the military rather than on building its economy. World Bank data (https://data.worldbank.org/indicator/MS.MIL.XPND.CD?end=1979&locations=KR&start=1960&end=1979) shows that military expenditures amounted to about 2/3 of the foreign aid over this period. While this spending might not have been a total loss for the Korean economy, it is quite implausible that it could not have been invested more profitably elsewhere.
Also pure cope. Singapore was poor as dirt when it first broke with Malaysia and completely eschewed outside aid. Yes, foreign businesses *invested* in the country over time, but that's because of its strong rule of law and human capital - they could reasonably assume a return on invested capital.
Singapore was poor but not as dirt. At independence it was already 1.5 times richer than Malaysia - relatively rich by developing nation standards. It's now three times richer. Also Singapore didn't exactly eschew outside aid - LKY kept flying commercial to international meetings to keep appearances up to keep receiving aid. They eventually caught on and stopped sending aid.
I think you could fairly easily make the case that China would be far richer if it had more proper rule of law (see Taiwan as a nice counterfactual).
Was Pinochet's Chile known for weak business law? I thougth just the opposite? People need to be sure their capital won't be randomly taken by the state in order to invest.
The Chinese economy is growing faster than any economy in history and will outpace the US eventually. I don't think the Western model is one that they should follow considering its causing stagnation in the West.
Meh - a lot of that is catch-up growth which is what happens when you have a country with very high human capital that's been held back economically by a planned economy. Let's see if they can keep it going once they get to Western GDP per capita. I highly doubt it and would be willing to wager if someone wanted to take the other side.
China's rise began under the planned economy of Mao and you could argue Post-Deng China is still in a more moderate sense a planned economy given the interventionist and guiding role the CCP plays. China's economic model is not just a copy and paste of Western neoliberalism
If you're trying to argue that Deng's reforms weren't the cause of China's rapid growth, then I'm not sure there's room to continue this conversation. It's one of the best studied events in economic history. Yes, China's economic model isn't a copy paste, but it's also still much poorer than the West.
China's recent growth isn't even *that* fast - it's just growing off a smaller base because it was so utterly mismanaged. China took 8-9 years to go from ~$10k GDP per capita (PPP) to about $16k today. I just plugged in some random countries to see how fast they did that same climb. Malaysia did it exactly as fast. Lithuania actually did it faster. Latvia also faster.
It actually seems like they're growing exactly as they should be for the stage they're in - maybe even a bit slower. If anything, growth should be faster today given the world is more globalized.
With its current economic model it won't catch up to Western levels.
The U.S. was actually quite protectionist against Japan, and mostly held it back (relative to the very similar Italy) rather than driving its economy forward.
I beat up on American foreign policy as much as the next feline, but I am pretty sure that for much of its history, South Korea did not allow foreign investment.
>Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong.
Scott you are so close to an important realisation. This is not a bug, it's a feature. The IMF/World Bank and all these other Western-centered/founded organizations are designed this way. The purpose is to keep the Third World in the dirt at the West's benefit. Its modern-day neo-colonialism.
What is the benefit to us of keeping Africa poor? Don't we get lots of benefits from trading with and offshoring too South East Asia, the area the conspiracy chose not to keep poor.
Hmmm what's strange here is American and European capitalists made more money than at any point in modern history..... capitalizing off the labor of countries that didn't listen to the "consensus" - China, Japan.
The number of billionaires and millionaires minted off communist china vs those minted off Africa is comical. These capitalists must be terrible at their global conspiracy.
The thing about calling failures "fits and starts" is that you can keep doing it ad infinitum. Capitalism is always about to collapse tomorrow, right?
(By the way, did you know according to some scholars we've been in "the final throes of capitalism" for over 100 years? I, for one, am enthused to learn how longer the final throes will last! Think we can reach a millenium?)
I think you’re missing the individual incentives here. In the short run, foreign investors do better to keep commodities cheap and own more banana farms. Sure economic development might help investors in 30-50 years. But what incentive do today’s investors have to prioritize the profits of investors half a century from now over their profits today?
So the intention is not to keep Africa poor. The intention is to keep the markets of Asia and Africa open for US products. In some countries, this thwarted growth and led to poverty
Surely they'd be able to buy more U.S. products if they weren't poor? The U.S. isn't where you go to manufacture cheap-as-possible consumer goods that market to the poor.
Yes but the world bank doesn't know that keeping the markets open for American products would keep these countries poor. This is a fairly new hypothesis that is proposed in this book, and I'd argue that it's majorly flawed (although it offers some interesting insight)
This assumes "products" is just an interchangable category. Countries do not make Units Of Generic Universally Exchangeable Product and comparative advantage is a thing.
Africa will have 4 billion people by 2100. Nigeria alone is projected to have 800 million people - more people than all of North America. If their GDP/caps went up, where would the US and EU be?
If their wealth went up that much they would start to produce those things themselves, and meanwhile the prices of bananas are going through the roof. It turns out you now have to pay your banana farmers $15/hr wage.
Nevermind the geopolitical position of the United States. China already produces an increasing anxiety among westerners as is. This could be China x5
There's an enormous gap between the current development level in Africa and being able to make their own high end tech goods. And they will be more profitable to the US as they get wealthier at least until they reach that point.
To make it concrete: if you triple the GDP of Nigeria, you'll get a big increase in the market for Avenger's movies, and zero increase in supply.
The same will hold true for cars, software, and pretty much any luxury or high-tech good you care to name.
It's far-fetched that all the elites in the west are coordinating against their own short and medium term interests in order to avert a possible super-long-term issue where Nigeria mostly catches up to us in development. People don't coordinate that well.
Countries may not leap strait from coffee beans to avangers movies, but they can leap to other industires the US might want to keep domestic. I just read in this very reveiw that Cars seem to be the first line of attack for many of these prospective wealthy nations.
I also dont think there is much of an coordination going on here, just individual countries acting in self interest.
Britain had a policy of disallowing advanced industries in India during colonial times. It does not seem farfetched to me that the'd aspire to continue to persue that same objective in the present.
Yes, on an emissions front you are correct. Unfortunately the focus on global warming has obfuscated somewhat the myriad of ways that are not directly tied to CO2 emissions that human beings devastate their environments.
We know development dramatically reduces birth rates. This is the #1 way that development will result in less environmental desctruction.
Poaching and deforestation are best protected by strong institutions/rule of law. Poorer countries with rapid demographic expansion struggle to maintain these.
Look at the end of the day the question you have to ask yourself on this point is: (1) are you going to use violence and force to prevent development and maintain huge populations in pre-industrial lives or (2) are you going to invest and work with them to accelerate them more rapidly through the most damaging environmental phases of development and to a more sustainable future.
#2 we haven't really proven can be done yet, but I'm optimistic that as alternative energy sources develop we will enable today's 3rd world countries to "leap frog" over some middle stages in the same way they were able to with mobile phones.
I find some people here tend to overvalue free trade. There is a lot more complexity to the global world, free trade isn't a positive thing a priori.
Also like, it's not a 'conspiracy', this is just the natural tendency of world leaders in developed nations. It's only a conspiracy if they're intentionally working together, but they don't even have to, it's just kind of obvious and in their best interest to keep small nations neo-colonised.
If you're the powerful one you can dictate the terms of free trade agreements and you can send your companies in to pillage the wealth.
If they thought it was not in their best interest then why don't they lift Africa out of poverty? Their aid is pauper and intended for the purposes of debt-trap diplomacy.
I don't think there's a magic button that would lift Africa out of poverty. The world overall would surely be better off if Africa even had Latin American levels of GDP per capita. That would be highly beneficial to Western economies since it would mean more trading partners. There's no secret conspiracy to keep Africa poor.
The essence of free trade agreements is that neither party can dictate the terms. Or, alternately, that both parties can - but the trade doesn't happen unless both parties agree to it. So you need an explanation as to why the African parties to this trade are agreeing to deals meant to pillage their wealth.
Mostly because the people that negotiate the contracts benefit from the agreements. That does not mean that the country itself benefits. It's the same in the East Asian countries that are mentioned as failures. Thailand may not have the growth of South Korea, but King Vajiralongkorn sure isn't suffering.
If somebody approaches you with a knife in an alleyway would you not do what they tell you to? Unequal power relationships often result in bad situations for the weak.
The single biggest way is farm subsidies and tariffs in the US and EU that prevent Africa from exploiting its comparative advantage. They don't benefit the US or EU globally since consumers who make up the bulk of the population pay higher prices, but they *do* benefit constituencies with disproportionate political power like farmers in rural states.
The UK realised that in the 1840s when it abolished the corn laws, and when I go shopping for groceries in the UK, I regularly see produce shipped from Kenya on the shelves. Maybe not great for the environment, but excellent for improving the lot of ordinary people in the cradle of humanity.
That's the right question to ask. And it comes down to the age-old concept of comparative advantage. What do rich developed countries want to export? The sort of know-how- and capital-intensive products and services that they have based their economies on. Ideally, export those for eye-gouging prices to countries that cannot make these products themselves.
What do rich developed countries want to import? Natural resources (which they consume/process out of proportion to their population size) and products that require lots of low-skill-labor. Ideally, very cheaply because loads of countries have nothing else to export.
In this sense it is in the interest for rich developed countries that the rest of the world keeps exporting lots of bananas and is not capable of making high-tech-stuff. Just as Scott mentioned that the "financial-hub-niche" is a good gig if you can get it, the "things-only-developed-countries-can-make-niche" is great too, especially if it doesn't get too crowded.
And there IS a lot of anxiety in developed countries about other countries catching up. See eg. all the hand-wringing (at least in Europe) about the threat of losing jobs to China, India or Eastern Europe (from the perspective of Western Europe).
You guys are the ones making the case that the influence of these organizations is nefarious; unless you think 3rd world governments are too short-sighted or ignorant to see the same things you're seeing and act on them, I don't know what to tell you.
Secondly, keep in mind these billions of dollars you're talking about are usually not gifts or grants; they're typically loans that have to be paid back. I don't know about you, but I get offers from people to loan me money all the damn time, either from credit card companies or banks, credit unions, or mortgage companies, and I have no problem saying no to these people every time.
That's true, but that goes for every form of borrowing, not just World Bank/IMF lending, and the temptation exists for any government with semi-predictable turnover. At least a few Asian countries managed to resist. What's everybody else's excuse?
I see, so when Raghuram Rajan was Chief Economist at the IMF back in the early 2000's, he was actually conspiring with the West to keep his fellow Indians poor? I suppose that's what Gita Gopinath is up to right this very moment, trying to impoverish her home state of Kerala.
He believed he was doing the right thing. No conspiracy. "Here is some money, also open your market. Both will be good for you, but you need to take them together."
But if opening the markets in developing countries is actually poison, as this book contends, than this is a problem.
That's unlikely, and so you would need strong evidence to convince anyone. How does keeping your trading partners poor help you? They can't afford to buy your stuff that way.
Never attribute to malice that which can be adequately explained by stupidity.
I have never met anyone that believed their life's work was designed to harm others this gravely for their own personal benefit. Virtually every one believes they are the heroes of their own stories. I can't say that it's not possible that people go to work for the IMF and World Bank thinking about how to best exploit the third world, but is seems much less likely than them having good intentions, but being mistaken. Especially with how afraid they were of communists taking over the world. They'd want powerful allies, not weak ones.
>Never attribute to malice that which can be adequately explained by stupidity.
When said individuals are known to be malicious its fair to assume they are complying with their nature.
All you have to do is look at the West's history of colonialism and savagery in the 20th century right up until the present day where they murder Iraqis for oil and support the genocide in Yemen.
Let's look at incentives. Are the employees of IMF rewarded based on how the countries they advise prosper, or based on whether they recommend the "correct" (i.e. popular in the West) things?
Serious question; I have no knowledge about this, other than my priors.
Maybe part of the macro story is that the World Bank and the IMF are monopolies and thus insulated from the effects of their policies. What would it take for them to get some competition?
There are many development banks that compete with the World Bank. The IMF does a few things, but mainly aims to make loans to countries when no one else will. So sort of by definition there couldn't be competitors, or else the IMF just wouldn't make loans in that situation.
There is competition now, what with Belt and Road and AIIB getting into the game. Competition is good for development. One wonders why the West is so adamant that Chinese competition is malign...
I think a lot of people are willing to do the occasional salute to Mr. Xi if it means they get to eat dinner. You can protest that freedom is always more important than mere products, but realise you do so from the privelage of knowing that statistically none all of your children will make it into adulthood.
Also, hopefully western isntitutions will try to better their conditions to compete with chinese ones.
It's not good. China doesn't understand that what became colonialism was the aggregate of a bunch of practices that Europeans adopted to make money while abroad.
Instead, in China, and much of the formerly colonized world, colonialism is taught with the implication that Europeans got together in the 1500's and had a "Let's be evil and take over the world meeting." They didn't.
European governments and businesses seized power and territory abroad because it was profitable. They overthrew local rulers to protect revenue streams. They got special dispensation from local law to avoid interruptions for their money making.
None of this is uniquely evil, nor was it a centuries long conspiracy, rather it was just companies and people going from A to B to C because each jump made them money and they happened to have the technology and military power to back it up.
China is now investing abroad. China knows that they never had a "Let's be evil" meeting. So obviously they can't be doing anything colonial.
When Chinese businesses want to be exempted from local law in Djibouti... they are doing that for good reasons. Not for the evil reasons that saw foreigners get exempted from Chinese law in the 1800's.
China doesn't want to realize that many of the same incentives that caused Europeans to adopt colonial practices also apply to Chinese businesses.
It makes no diffrence to me wether China has had a "let's be evil" meeting, an "let's make money" meeting or even an "let's help out africa out of selfless kindness" meeting. What i care about is results.
If China is succesfull in lifting Africa out of poverty im cheering either way. The difference between Chinese neocolonialism and actual colonialism is twofold
1. Actual colonialism didnt contribute to the development of the colonies at all, and even reverted it. Precolonial Timbouctu had a long scolarly tradition, after a century of colonialism there were barely any university-educated people left at all.
2. Colonialism may have started with trade, it quickly turned into violent conquest. (will China start conquering africa? seems unlikely).
1) Timbuktu was in 400 years of decline before the French got there. And France had less than a century there.
Actual colonialism had a mixed generally negative record. That said, the people doing the colonizing generally justified themselves by saying they were bringing benefits to the poor inhabitants.
2) it generally took decades or even centuries for trade to turn to violent conquest. With the exception of the Spanish in the new world, most of colonial conquest had a long lag time. The east India company started in the 1500's and they didn't conquer anything until the late 1700s. France got Indochina only in 1885.
But the point is violence was on a list of options and it was chosen because it was profitable. What will China do if some Eritreans murder 67 Chinese workers? Are they really going to be principled non interventionists there?
The US has a dozen flattops and three divisions of Marines ready to go. Ya think the Chinese are gonna be able to pull anything serious? Hell no. Too much competition in the military sphere, and war ain't as profitable as it used to be.
It takes a country with a lot of cash and its own political interests to promote - I believe this is the role of Chinese loans to developing countries, especially in Africa.
A country can get loans from private investors, generally by issuing bonds. That's the default way of getting loans. Countries only turn to the IMF if they have already fscked up badly enough that private investors don't trust them to pay the loans back, so they are on the brink of a sovereign default. Which has happened quite often to poor countries.
I started, but didn't finish the book. My basic objection to it was that it felt to me as if it could have been purely cherry-picking. He's looking at 'the Asian countries that did well', which gives him six countries (Korea, Japan, China, Taiwan, Hong Kong, Singapore), and sometimes he talks about all of them, and sometimes he removes Hong Kong and Singapore (because city-states don't have the same problems as larger countries), and sometimes he removes China (because it started horrible and Maoist), and sometimes he removes Japan (because it was in the 19th century when things are different), and sometimes he removes all four of them and only talks about exactly two countries, and the result of this is I really can't tell if he's actually got a point about what works well, or if he's picking and choosing for the sake of the arguments he wants to make. This isn't the claim that he definitely is cherry-picking, but the much less confident statement that I can't prove this isn't really is the Elderly Hispanic Woman Effect in the field of economic history.
Market monetarist can sort-of honestly claim to have a grand theory without being billionaires. But that's because one of their main ideas is that markets are fairly efficient, so it's hard to second guess them to make more money.
They are usually less about development, and more about arguing that eg the central bank shouldn't have models to predict inflation, and instead just use market forecasts.
If no market forecasts exists for a particular measurement, they should sponsor a suitable market.
This is irrelevant to the book review, but I got an overwhelming feeling of deja vu from your name before realizing it's the name of one of my favorite villains in Rurouni Kenshiin. Been over a decade since I read it; perhaps it's time for a revisit...
Better to have cherries to pick than none. Which countries have moved from developing to developed in that space of time, without having been an entrepot city state, and used Washington consensus policies?
No comment! I couldn't quote the Washington Consensus policies without looking them up, and my historical knowledge does not cover 'all countries in the world.' This was a report that my (possibly oversensitive) Bullshit Detector was going off, not a full-scale alternate theory ready to set up for debate.
Would Chile count? I'm not too familiar with it's hisotircal details, but it's a higher GDP per capita than China or Vietnam and wasn't already developed like Japan nor a city state (which leaves only South Korea and Taiwan from the East Asia list).
They're the closest, I think. But I suspect that's because they were 1) ex communist and 2) European. Communism does do a lot of state directed investment, which doesn't have to be great to have a positive return if you're poor to start with. But it's lacking the market test that export directed investment has. Even so it can do catch up growth in a somewhat ok fashion. What I think happened with the post communist states is that the old regime invested a lot albeit inefficiently, and opening up enabled them to improve from that point on, similar to how Washington consensus type stuff must come into the Studwell model eventually.
Some of the post-communist EU countries (Poland, Czechia) would be good examples. The post-1989 Polish establishment was infamously supportive of free-market economic policies. For example, the "Balcerowicz plan", also known as "shock therapy", involved overnight conversion of a planned economy to a market one. Everyone knows this was tried in Russia and failed miserably, but few people remember it was tried in Poland, too, and Poland is now basically a first-world country, with the per-capita GDP of South Korea in 2005.
I think "ex-communist plus European" is not quite enough of an explanation for these countries' success, because Ukraine, Russia, and Moldavia share these characteristics, but emphatically not the success.
The starkly different trajectories of post-communist countries are generally a fascinating subject. I'm yet to come across a good discussion of it.
Yeah, Russia had a terrible transition. Devil in the details there. What's worse is that Chinese saw that and concluded political liberalisation is bad....
Both Russia and Poland converted quite fast to market economy, but in very different ways and the term “shock therapy” only applies to what the Poles did. Russia and the rest of the former USSR could not stop organized crime from subverting the reforms for their personal gain—if the leadership even tried that is.
Don't think so - rate of growth wasn't that quick. There are a lot of countries that are richer than China or Vietnam - the reason they're development successes is because they're moving up quick. And Japan post war wasn't rich, nor was it pre war, though it was much richer than prior to the Meiji reforms that implemented the Studwell formula.
I sure love the intro to this post! (I haven't finished reading it yet but am excited to.)
Meta: Is it useful to start a prominent TYPO THREAD in the comments if one doesn't exist? Answers I can imagine: (a) yes please, (b) no please for creating a new comment thread but if one already exists, go ahead and add to it, (c) better to email them or post them to ____.
Non-meta: Typo at "These was nothing predetermined about this"
Not exactly a typo, but perhaps a point to revise - the quote about the land reform charity is in the review twice. snippet: "The leading NGO promoting land reform, US-based Landesa"
> Also, is it just a coincidence that Chinese / East Asian people in Malaysia and Singapore (and now the US) are known for being especially smart, rich, and good with money?
It's not a coincidence, but the reason is pretty simple: there are a lot of people in China and the ones who immigrated were the ones who had the resources and education to go. The ones who came to the US were the ones who were able to get to a port and pay for a ticket. Similarly the Chinese people in Malaysia and Singapore were often there running businesses or working in industrial sites that the British set up.
In both cases you're comparing the cream of the crop of a large ethnic group to the local people, so the result is going to be biased.
In any case, given that Malaysia did have a large local pool of ethnic Chinese businessmen, while Korea didn't, it would be strange for someone to think that the influence of Chinese economic ideas was relevant to why Korea succeeded and Malaysia didn't.
The monoculture aspect seems important, as it was present in all of the success stories (or in China's case the dominant culture). Of course, the Western mainstream still has multiculturalism and diversity as undisputable Big Good, so open acceptance of the importance of this point is out of the question for now.
Singapore is the opposite of a monoculture - it's far more ethnically, religiously, and linguistically diverse than any Western country. (But maybe this is relevant for becoming a financial and tech hub rather than an agriculture and manufacturing one?)
Singapore is a success because they let in diverse people and let them do their thing. Same with Shanghai and Hong Kong. (These were cities that the British built)
There's a great article over on acoup.blogspot.com which talks about how Rome was successful in the Republic period because it was astoundingly diverse and had much more lenient citizenship laws than most of its neighboring city states. Rome didn't care about your language or your religion. Instead, they punched you in the face and said, "I have beaten you, we are now friends, let's go beat someone else together" Essentially, Rome wasn't limited to one city and was able to draw upon the military resources of most of Italy, because they really didn't care as long your city sent troops to join Roman wars.
Yeah this felt like a forced "intelligence is hereditary" argument to me as well. However, it is pretty simplistic to assume that only the smartest and hardworking people from China (and India) immigrate to other countries. I'd imagine Chinese immigrants to places like Malaysia and Singapore would have been people looking for better opportunities after having failed in China, as both of those countries were very poor when this immigration happened.
In my opinion, in countries as old as China, Moloch would essentially prevent you from progressing very far, regardless of your talent and ambition. This of course is not a factor for newer countries like Singapore (and the United States a couple of hundred years back, in which people with talent and ambition could succeed
I imagine that it's really more of both a low pass and a high pass filter. The top talent and wealthiest stay behind in China because they don't need to migrate while the poorest and least educated people don't even have the resources to migrate. I'd also guess that in a subsistence economy many people are stuck in that latter category, so the people who migrate would often come from a relatively privileged background but can't progress any further because of Moloch.
Admittedly there are a lot of guesses going into my theory, but I think the general gist is right.
I think this is possibly an unhelpful simplification. The high pass filter doesn't apply to talent. For instance, basically most of the world's top talent wants to immigrate to the US for better pay and living conditions. The low pass filter should be really, really low. Scott talked about desolate Jews with criminal histories migrating to the US. We also see something like that today in some places.
Most Jews immigrated to the US prior to 1924 and the onset of much more restrictive immigration laws, while most of the Chinese immigration to the US has been since 1970 under immigration laws that cared more about ability. Based on that, I'd expect a more strict low pass filter on Chinese immigrants than Jewish immigrants.
That does distort some of the subsistence economy part of my previous comment though, so scratch that bit, but I think the simplification still holds.
We have good empirical data on international migration. And you are right: It is mainly the middle class that emigrates. Not to poor (too poor to muster the resources); not the rich (they are happy where they are).
While at it: The best single-volume book on international migration is Hein de Haas et.al.: The Age of Migration (441 pages; the 6th edition came in 2020).
Chinese communities in Singapore and Malaysia date back centuries, and are probably more akin to Armenian populations around the Eastern Mediterranean, Jewish populations in Europe, German populations in Eastern Europe, and Arab populations in East Africa, where they had been merchant communities in port or market towns playing middleman roles in locations that didn't have indigenous merchant communities for whatever reason at that earlier time.
"The huge influx of Chinese migration was directly caused by the poverty in rural China and massive employment opportunities in the British colonial or protectorate territories, with an estimated 5 million Chinese having entered by the 19th century."
Nothing in Singapore dates back centuries. It was part of the Majapahit in the 1400's and then it was a nothing fishing village with a few thousand people until the British got it at the beginning of the 1800's.
In the US, Indians are the most successful immigrant group (see the second chart in https://zachgoldberg.substack.com/p/exposing-the-group-disparities-discrimination), so it's not something inherent about Indian immigrants (leaving aside that India is a fairly ethnic diverse country). I'd guess that a significant difference is that Indian immigration to the UK has been a lot easier than Indian or Chinese immigration to the US because India is a commonwealth nation, but I'm not an expert there.
So the reason why Indians are disproportionately richer in the US is this: a lot of Indians study software engineering. The tech industry today is probably the most well paid industry out there. Hence most Indians who migrate to the US work in these well paid tech jobs, and consequently constitute a disproportionately rich community. This doesn't have that much to do with IQ or hard work or something
Software engineering is not that highly paid in other countries, although people of similar capabilities work there. The high salaries for software engineers in the US is mainly a result of the tremendous amount of money flowing in the silicon valley
Also, these wages might soon fall, as both Google and Amazon are now offering freely available certifications on the internet. Predictably, this will lead to a massive increase in the number of job applicants, leading to a fall in wages
Certifications are basically useless for a career in software engineering.
(I work in the field.)
If you want to make an argument, you could talk about a post Covid world making remote work more common, and thus opening up huge labour pools of people who no longer need a visa.
Although I don't work in the field, this conflicts with some things that I see around me. For instance, companies like Google and Apple claim to not care if you even have a degree in the field, and can pass their recruitment interviews (which is somehow supposed to be a test of raw intelligence). I am a mathematics graduate student, and I know of some people in my department who have gone on to join top companies as software engineers without ever having taken a formal computer course. Is this not the case in general?
Also a software engineer, and I concur that certifications are almost useless. The reason is that most certifications are quite easy to get without being able to actually do the work.
Software engineering is a bit like learning a new language AND writing good essays in that language. It's easy to certify the first part, but the second is challenging. So certifications almost always test the former.
Degrees are a bit better at establishing that you can actually write well, since you have multiple projects that you actually had to complete, but they're also only of limited value. Dedicated bootcamps where you spend 3-6 months learning by doing are about as respected in the field as degrees because (again) they test for your ability to write, not just your knowledge of the language.
The actual tests for Google and Amazon aren't like the tests for certifications; to continue with the analogy, they're reasonably difficult free-form writing exercises that you can complete in whatever language you like, combined with a written test on different essay-structures and writing techniques. Much more useful to determining if someone can write.
I've always been curious... given India's average PISA score - and the achievement of Indian Americans in the U.S. (believe highest income after Ashkenazi Jews?) - what does that imply for Indian immigration to the U.S.? Did we somehow manage to get the .01% smartest population? How is that possible? I mean even if you account for some Flynn effect improvement from just getting better nutrition in the U.S., it still seems wild.
To offer some perspective: computer engineering is the most sought after degree in India, and only the very top performing students get to study it in the better colleges. For instance, there's an entrance exam for engineering colleges in India, and out of the top 200 students something like 190 choose computer engineering. And almost all of these immigrate to the US. That is one of the reasons that Indians do much better at computer engineering than other disciplines. All the "best" (at least at the high school level) Indians are doing it
It turns out that the US immigration quota system is arranged to hand out permanent residencies in approximately equal numbers *to citizens of each country*, prioritized by more or less how highly educated the applicant's occupation is. Since India and China have huge populations, the ones that can get permanent residence (not H-1Bs) are extremely highly selected.
Indians are the most successful ethnic group in the UK by most metrics, it merits second paragraph status in their Wikipedia page (https://en.wikipedia.org/wiki/British_Indians). It's not just because they all study software engineering either, but I'll avoid speculating further since I'd just be relying on Indian stereotypes.
I can't find the exact quote for some reason - but I distinctly remember a line from one of his books where Lee Kuan Yew told a Chinese official (maybe Deng Xiaoping?) that China could be more successful than Singapore because China was composed of mainly higher intelligence North Chinese Han population (vs. Southern Chinese for SG).
What he said was that Singaporeans were the sons of brigands, pirates, fishermen and petty merchants while the mainland Chinese were descended from scholars and officials.
“You’re able to catch up with us, even better than Singapore, and there’s no problem at all,” Lee said.
“We are only the descendants of illiterate, landless farmers in Fujian, Guangdong and other places, but many of you are the descendants of officials and scholars,” Lee continued, as Deng listened quietly.
Fruit pickers - migrant itinerant workers prone to criminality and cycles of lavish expenditure/deep poverty on account of their seasonal income - are hardly as adventurous or brave as seafarers, nor are they as hardworking, dedicated, or loyal as simple farmers...
I also enjoyed and took a lot away from the book. But it seems like, from a political economy point of view, that doing all the things it recommends is really demanding of the government and while those recommendations can work spectacularly well if followed most countries just can't succeed in pulling it off and would be better off with the comparatively simple free market approach.
I agree very much with that point—that’s a lot of political capital and a lot of sunk cost if for some reason it turns out the world doesn’t really need a new car company
I think that would require some evidence that it is possible for any country to pull off the "comparatively simple" free market approach. It looks like the UK, and maybe Hong Kong and Singapore, did this. But all other developed countries went through a phase of tariffs and export replacement and so on.
I also agree that state capacity is missing in this analysis. It assumes that countries which know the right policies are capable of enacting them.
This would also explain why all of these successful examples are in East Asia. East Asia has significantly better state capacity than most of the rest of the developing world.
Are there any land reform efforts going on in, say, Africa?
I read about Ghana and Ivory Coast seeming to get the protectionist religion re: Cocoa, so they can presumably build up their own industry rather than be stuck in a perpetual mercantilist state with foreign chocolate producers:
Yeah I'm getting the vibe that "Land reform" is a really generic term that can include both very good and very bad things.
Kinda like how "religious reform" can mean anything from making some tweaks to the Catholic church, to setting up a Calvinist Theocracy, to becoming Amish, to undoing the Great Schism by renouncing the filioque and Papal supremacy, to setting up state Atheism and, a million other things in between.
What is going on in South Africa is a gradual redistribution of land to disadvantaged groups through one-sided grants. It's kind of helping, but what they really need is distribution of land to competent farmers regardless of background or skin colour, rent free, and invest heavily in niche products they can export.
I was definitely wondering at various parts in the discussion of land reform how much Mugabe's efforts in Zimbabwe fit the bill, or whether they missed in some important way.
The comment downthread from Erusian seems to indicate that the KIND of Land Reform matters at least as much as how much you have. Seems like you could pack a bunch of things under the heading "Land Reform," but the point is you want to flip the incentives to "please do something productive with the land rather than just rent-seeking off everybody else", and the more violent incarnations don't always seem to end up doing that?
Yeah, this is a good point. CS Lewis said famously that the fundamental question of progressivism is what you are progressing TOWARDS. Likewise, a good and useful reform pursued to its utmost is a good and useful thing. A bad reform is bad, worse than doing nothing.
Land reform is not only an umbrella with hugely different programs but hugely dependent on local conditions. When Japan decided maybe the samurai didn't have a hereditary right to tax the peasantry that's wildly different from Zimbabwe's desire to right the wrongs of colonialism or Thomas Jefferson's desire to encourage land sales to create a republican (little r) citizenry or the Soviet Unions desire to wage class warfare or Romania's desire to de-communize their farms. All these are land reforms but they are in WILDLY different circumstances with different goals.
I read an okay book about that era in Zimbabwe history "When a Crocodile Eats the Sun". The impression it gave was that rather than redistributing land to the people who worked it, the "reforms" involved giving farms to politically connected city dwellers and hooligans in their employ. The actual farm employees got driven off the farms along with the owners.
This is why Tanzanian land reform in the seventies failed, according to my relatives (the paternal branch of my family has lived there since 1890). Granted they're more than a little biased (they lost most of their land as a result and they're still very bitter about it), so I've always wondered if there's more to the story.
To speak to you (and Demeter), the sort of reform that worked in Korea, Taiwan, and Japan was to give the land to people already occupying and tilling it. You had a landlord and then you had tenants who actually worked the land. Land reform was mostly just giving the renters what they occupied. Somewhat like the idea of, say, giving a rented apartment to its current occupant.
In Zimbabwe and Tanzania, it had a more racial and nationalist tinge. The idea was to give the farms to local, black people. The issue being that the white farmers, whatever their other flaws, were pretty productive agriculturalists. They actively ran the farms and much of the local black labor was hired help rather than tenants effectively running their own sub farms. This was then further marred by corruption and cronyism. It was more analogous to kicking out the existing occupants of an apartment and then placing a new person there. Except in a corrupt government where the nice apartments went to the nephews of senators.
In the first system, the theoretical good the landlord can provide is parceling out the land and pricing it. But realistically the classes were so conservative this rarely happened. Thus giving it to farmers not only caused the peasants to have more incentive to be productive but allowed free trade of land in a manner that set prices etc. There was no loss of farming knowledge because the landlords weren't farmers to begin with. And there was no loss of real estate knowledge because the landlords were very inactive managers. There was actually a gain in both.
Meanwhile, the ejection of farmers in Tanzania and Zimbabwe meant a huge loss of agricultural and managerial knowledge. And thus a huge loss of productivity. One that could not be acknowledged or remedied for fundamentally political reasons. The program was fairly successful at putting land in local black hands but it was a dismal failure in economic terms.
Thank you. That more or less reflects the stories of my father/uncles/aunts/grandparents who lived through it, and it's nice to see it spelled out so cogently by someone who isn't simultaneously trying to prove the racial superiority of Europeans (that's where the conversation too often ends up with my father's side of the family).
At least in Zimbabwe the main problem was that it did not give the land into the hand of local farmers, but into the hand of political cronies of the government and the military. You did not have a shift from big landlords to small local farmers that boosted production, but a shift from big local landlords to big absantee landlords, that happened to have another skin collor.
Botswana in an interesting case. Starting with almost the lowest GDP in Africa, today it's GDP is at the level of, say, Serbia. (And the growth happened in the second half of 20th century where other African countries either stagnated or even declined.) There were some land reforms, but I have no idea whether they've contributed to the phenomenon. Would be interesting to hear an opinion from someone with more insight.
I don’t remember the details, but fwiw Stieglitz discusses Botswana in Globalization and Its Discontents. The author is mostly arguing against the IMG, and gives Botswana as a success story of going it alone.
I think Botswana and Ghana are the two I hear about as under-appreciated success stories, though more and more African countries seem to be getting onto a sustained growth trajectory as well, and following up with a decreasing fertility rate.
Singapore, Hong Kong, Taiwan, Korea, Japan all have national IQs >=105
Thailand, Indonesia, Philippines, etc. are in the 85-90 range.
There's an extremely simple theory to explain the development differences we observe. Even if we accept the arguments about industrial policy and land reform, can it really be a coincidence that these policies were only "correctly" applied in the high-IQ countries?
No one is 'hesitant' to ascribe it to genes. If anything people are too eager to ascribe it to genes, as they did in the 20th century when IQ and race research was being conducted, such as in the Bell Curve, until they were shocked to discover that Chinese IQ increased 6 points over the last 40 years. Clearly impossible for it to be entirely genetic if an entire population of similar people, previously thought by racists to have been stupid, all had their IQ outcompete Americans.
Now, keep in mind:
A) China has always had a wealth of resources, even though they were poor in the early 20th century.
B) IQ tests have changed dramatically since they were created
C) IQ tests haven't existed long, so historical data showing dramatic differences in IQ are hard to find, and due to point B, is kind of pointless.
It's very easy to think you're going against some grand narrative by pointing out a genetics and IQ potential relationship, as if no one but you is brave enough to call inequality a force of nature, but reality is much more boring i'm afraid.
Your point is that because people are afraid to ascribe sources of IQ to genes, they have hamstrung themselves into trying to develop such policies that boost IQ similar to the policy of high IQ areas.
But no one is afraid to make such claims. They tried them in the 20th century, and they didn't work. So they changed the goalposts of IQ measurements entirely and now there are multiple kinds of tests given with plenty of holes, so that it's more convenient to research possible genetic connections.
Decades of advanced industrial society, and no significant relationships have been found that are useful in building smart societies. But do you know what does work? Educational, agricultural, and financial policy, similar to those of advanced nations. This boosts IQ, because IQ is not genetic.
"previously thought by racists to have been stupid"
Lizard Man, have you read your Lothrop Stoddard? Most of his predictions were wrong, but his ranking of regions' prospects for economic development (placing China and Japan near the top), was pretty much spot on.
Not a topic I'm familiar with; do you have good reasons to believe the causal arrow doesn't point the other way? It would make sense to me that raising a whole nation out of poverty would improve nutrition and such and boost the stats here
Or is it that developed countries are able to afford better environment for their children and thus produce populations with higher IQ? European IQ scores improved by something like 15 points since WW2. I would guess that Korean IQ scores were abysmal in 1950s as well.
Thankfully we have exogenous variation from natural resources that lets us test that. Take a look at the national IQs of the obscenely rich gulf nations.
The rich gulf nations have generally not cared about their populace since they don't need to be well treated to extract oil, while the rich East Asian nations have since industry depends on productive labor. That is to say, East Asian nations have an economy based on labor so they invest in labor, while gulf nations have an economy based on resource extraction so they don't invest in labor.
Obviously many people in the gulf nations are rich, but rich is different from being raised well.
(You might say that education doesn't affect IQ, and it doesn't in the way that we usually care about, but there's a baseline education which is necessary.)
Obscenely rich gulf nations are still living in feudalism. Most of the riches are distributed to the few on top and there are millions of literally slaves living in these countries right now.
Of course this doesn't explain "if the Chinese were always so smart, why were they so poor 80 years back when the West was super rich and winning wars and inventing everything important" etc. The West has much lower average IQs than Singapore, China, Korea and Japan, as can be gleaned from the article.
This is way to reductive. Also, China's first two science Nobels studied during WW2 in a cobbled together University in Yunnan. They would then move to the US where they got it. But it really seems that China's issue was surrounding circumstances not the smartness of the people.
Seems like a bad argument. The US too was a country that depended on tests for admission to colleges, and the test requirement was removed to reduce the number of Jewish admits. Britain still uses a written entrance test for Oxford and Cambridge admissions.
I'd go into a longer spiel about how badly run countries are a result of misplaced incentives, but I'm not sure you're looking for that
Ah yes I misread what you meant. I thought you meant to say that intelligent countries don't need tests to produce intelligent citizens, while less intelligent countries have a lot of tests
No, Alvaro, the former countries didn't become successful because they mysteriously selected for high IQ 'genes', which is probably your implication. IQ increases because of education and access to resources, because you are better at pattern recognition when you have been trained in pattern recognition, and you can only be trained in pattern recognition when you don't have to worry about food etc.
Athletic ability is largely hereditary. You have to be a certain height, weight, and have certain body features that allow you to run fast, shoot accurately or whatever. However, it can also be slightly improved with practice and the right kind of nutrition (but not enough to make me an Olympic swimmer even if I practice 10 hours everyday)
Pretty cool that Scott scolded the dude who pointed out exogeneous factors (because it was 'condescending'??) but the national IQ dudes just run Scott-free, so to speak
Pretty clearly that was a scolding about tone (because that guy says this is an error Scott consistently makes -- hence condescending), and not a scolding because he dared to mention "exogenous factors."
I think it would be reasonable to tell the OP of this thread to do better, under a principle that if you're going to bring up things that so often dwell in such toxic contexts you need to make some extra effort when posting, but there's no inconsistency by Scott here.
I think IQ is a necessary but not sufficient component for development so its still important to investigate the other necessary causes we just need to keep in mind that's it's not really realistic to expect them to work in Sub-Saharan Africa until we get our genetic engineering programs going
"Singapore, Hong Kong, Taiwan, Korea, Japan all have national IQs >=105"
Above 100, sure. Above 105, no.
Philippines's IQ is below 85.
"can it really be a coincidence that these policies were only "correctly" applied in the high-IQ countries?"
I don't believe it's a coincidence. That's why I expect the closest thing to "Tiger Economies" existing today are Eastern European (Poland, Baltics, etc.).
yup, this is the obvious answer (though the cultural contributions are certainly still interesting as well). To hit the point home from an angle different than national iq - why have poor Japanese immigrants been so successful in Brazil and Peru? Why do adopted South Korean's in Sweden score better on iq tests? Why are the ethnic Chinese in Malay, Thailand, Indonesia, Singapore etc. generally so much more successful? Why is there such consistency in how different ethnic immigrant groups and adoptees perform in various countries abroad and at home? This holds true for other high iq groups. Typically when you see outliers to this pattern there is actually some combination of underlying stratification and immgrant selection bias at the root of it. Also worth noting that there are other semi-hereditable psychometric factors driving performance, not just iq, but iq does seem to be among the most important factors.
Studwell’s discussion of industrial policy is broadly convincing but he massively overstates his case rhetorically. The anti IMF position is probably his least defensible point. In the 50s-80s, the IMF indeed recommended free market policies, generally. But the anti IMF position then was Industrial Substitution Industrialization. Their belief was that to develop, newly independent countries should cut themselves off entirely from world trade, to develop new industries behind their own borders. Pretty much everyone agrees now that this approach was a disaster. Even if Studwell were 100% correct in every sentence of the book, it would prove that the IMF critics were totally wrong, and the IMF only needed a change of emphasis.
Then we get the question on how widely his advice could be adopted. He briefly mentions in the Philippines section that, citing from memory, “Some people think they can do nothing, but condemning millions to poverty is no option at all” Well in some moral sense sure, but in a policy sense doing nothing is obviously an option. Elites have almost never pursued industrial policy for altruistic reasons: The success stories are all cases where elite interest lined up with the public interest. For example, South Korea was racially and ideologically homogeneous. Marshall Park in other words required industrialists to make SK rich and defended but didn’t care who they were. Studwell mentions that IP failed in Malaysia in part because of affirmative action, and then ignores that point entirely. The East Asian countries that succeeded only did so because of their homogeneity allowing focus purely on industrialization, plus the fact that the US leaned heavily on them. It’s very unclear that a country could implement the Studwell program against the will of its elites. It isn’t the case that where there’s a will there’s a way. Finally, all of this requires a high quality bureaucracy, which East Asia has a long history of and the rest of the world lacks.
For finance, once again Studwell has a good narrow point but greatly oversells his case. There are two market failures that have been identified with international finance: First, that if developing countries take on debt in foreign currency they will be bankrupted en masse if the exchange rate changes. Second, that banks might pursue unproductive loans (real estate and consumer debt, basically). These could be fixed with narrow laws targeting these problems directly and individually. There isn’t very good evidence that the financial repression associated with EA development had a very large impact and its likely that you couldn’t convince many countries to adopt it anyway. When it comes to industrial loans, there are tons of studies showing that private banks are much more efficient at making loans than the state. The EA approach also leaves tons of overhang, for example in China there are tons of state run banks that are riddled in debt and low quality loans. SK and Japan have had this problem with their banks and massive corporations to a significant but lesser degree.
Studwell believes that since the EA approach is good we must convince the entire world to adopt all of it. I would tend to think that since there is very little chance of convincing the world to adopt it, and since it comes with major drawbacks over the long term, we should amend the current system. Developing countries should likely support exporting more and implement a few rules to prevent financial crises. The discussion of the IMF is the most dishonest part of the book: he deals so nicely and only by insinuation towards the IMF economists because if he had to defend the position that the international financial system bankrupted the world, it would be obvious that he is wrong. In fact the current international economic system is exceptionally generous-WTO rules explicitly allow poor countries to subsidize industrialization but forbid rich countries from doing the same. The current system likely needs amendment, but not replacement.
Singapore is 75% ethnic Han Chinese and LKY was on record saying he intended to keep it that way. In addition, Singapore is an entrepôt, which has very little relevance to most developing countries.
> Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong. They recommended free markets and open borders, which are good for rich countries, but bad for developing ones.
If you find this interesting, there's a pretty quick read by developmental economist Ha-Joon Chang called '23 Things They Don't Tell You About Capitalism' making a similar point, though he goes on to generalize it a bit more: countries should feel free to practice both free market economics and central planning; ideologically doing only one or only the other is usually a disaster.
1.) Three things stick out here. Firstly, Studwell vastly overstates how damaging land reform has to be to landlords. Taiwan and Japan both bought out landlords with bonds. The bonds became worth less because since government bonds grew more slowly than the economy. But there are still a fair number of wealthy old families around in both countries. The important thing is not the destruction of landlords as a class: it's putting land into the hands of people (whether smallholding peasants or professional farmers) who own the land, have an incentive to improve it, and whose primary income is gained not by owning land but by producing agricultural products. The two are ultimately equivalent at equilibrium. How you get there is not especially important and paying off the landlords is fine if it works. Likewise, giving land to collectives or to peasant groups (as opposed to individual peasants) doesn't work very well because it keeps it out of the power of enterprising farmers.
Secondly, he completely ignores the many times land reform failed. East Asia is not unique in its attempts at land reform. It was fairly common in Africa, Eastern Europe, etc. Ukraine and Romania had incredibly fertile soil and it's hard to think of regimes that eliminated their landlords harder. Yet they haven't really seen similar effects.
Thirdly, he ignores that peasants will vote for land reform overwhelmingly in any democratic system. His focus on outside institutions is horribly misguided. From the CCP to 19th century Japan, peasant ability to make demands of the political system lead directly to land reform. If land reform is no longer viable in nations where the peasantry is still common, the question I'd ask is why that is. Are they all dictatorships? If so, it's a problem of democratization. Have they got other political goals? Then that's a separate issues.
2.) There are some countries which are increasingly skipping directly to service export. However, an industrializing country has a huge internal market for industrial goods (roads, bridges, telecommunication infrastructure, etc) which in turn creates a construction/manufacturing boom even when the primary export paying for the imported machinery is (for example) software development services. This is the case in some of the wealthier Indian provinces. But on the whole, manufacturing is still a pretty good bet.
Another thing: the importance of export markets. These countries need to have markets willing to purchase their goods. If they don't, export lead industrialization fails. Big imperial nations have options that modern nations don't. Where do these nations export their goods? To the US. Korea had special deals with the US. So did Japan, Taiwan, Hong Kong, Singapore. And even China got special deals (enough to cause Russian complaints). This may be changing, especially for big countries like China with internally developed markets. But this advocacy for ELI should mention the politics of finding places to sell their goods. Otherwise the idea of "protected at home competing abroad" fails.
In Malaysia, Studwell veers into the shaky ground of being against capital per se. Letting partners get equity in firms is not an issue. Did you know huge percentages of Korean companies were owned by Americans? South Korea was not just stealing their technology, they were moving up the value chain. In partnerships where it didn't make sense, by learning through transfer deals where it didn't. There is, of course, an issue with letting companies offshore high tech work and using your people only as menial labor. But this is an issue of structuring the deals and regulations. But of the successful cases, only China broadly prevents you from owning minority stakes in companies. The rest, at most, limited the percentage of foreign ownership. Which is still admittedly not a full free market policy.
3.) Again, he's ignoring the US here. South Korea's "crazed" borrowing was underwritten by the US for security reasons. The US actually used its might to get SK cheaper debt at some points. Malaysia was on its own.
Also, he doesn't mention how this method leads to huge problems in the last stage. Japan's lost decade was in part due to heavily controlled and underdeveloped financial markets.
Overall, I'm sympathetic to the idea of Export Lead Industrialization including tariffs. Though it's worth pointing out the IMF has a better track record than it's critics want to admit. You just have to realize first it's primarily a firefighter: you call the IMF when things have gone wrong. (As, indeed, many of these countries did in the late 1990s and then saw bumper growth.) However, this argument ignores (imo) a lot of factors and tells a story of economic destiny being primarily about internal decisions. Which are necessary but insufficient. It's right there in the idea of export lead industrialization: you are exporting to OTHER COUNTRIES which means they matter for your internal story.
Good comment. I came here to point out the dreaded counterexample of Latin America, which tried to do a number of things the East Asian countries did, but mostly failed. Mexico basically carried out the greatest land reform initiative known to man outside of Communism, but did not get the benefits Studwell describes. Argentina & Chile also carried out large-scale land reform, to lesser effect. More importantly, Latin America is very protectionist and has been trying to nurture infant industries for decades- Argentina's still working on that car industry after 30+ years, not exactly to great results....
I also agree with your point about the asymmetry of 'free trade'. The US tolerated a number of these countries being highly protectionist while also importing their goods here- developing countries get a special dispensation. Arguably the US still does with China, incredibly! And even India, which is now approaching being the world's 5th largest economy. I'm not sure that this combination of 'we tariff foreigners but they accept our goods pretty freely' can necessarily be replicated.
I greatly enjoyed Studwell's book, I just think that the East Asian countries simply executed on their plans much better than a number of other countries have
I don't know enough about Chilean economic history to tell you what policies they adopted when and which ones mattered, but the overall outcome (4000% GDP growth since 1975) has to count as a success, right?
The issue is that Chilean economic growth was pretty stagnant while formal land reform was happening. GDP per capita roughly doubled over the course of the reforms.
Then a dictatorship took that embraced neoliberal economic policies specifically from the University of Chicago set. This led to economic policy based around three pillars: a stable currency, privatization of industry, and economic liberalization. This included an explicit commitment to free trade, free enterprise, foreign investment, and private ownership of land. During these forty five years, Chile's GDP increased sixteen times and it became the tenth wealthiest country in GDP per capita terms in the Americas. Behind the US and Canada, Panama, Uruguay, and a bunch of small island nations like the Bahamas or Barbados. Its overall economy is of a similar size to Colombia's despite Colombia having fifty million people and Chile having seventeen.
However, while he never would have admitted it, Pinochet did do something resembling land reform. He privatized huge amounts of land, wrote laws to allow its sale and purchase, and he broke up the agricultural collectives that had been set up by previous governments. Sometimes this meant handing land back to the old landlords, sometimes it meant giving it to the individual farmers who made up the collectives. But his goal was to create an actual modern style land market where capitalists (including small farmers) could buy and sell land as a factor of production. This ultimately led to massive concentration of land ownership but a much more modern, productive form of agriculture.
Blaming the IMF is a rational blame-avoidance strategy for an elite in extreme economic dire straits.
They have to balance to books (in practice by dramatically cutting public spending) since no-one else than the IMF is willing to lend them money to cover the deficit any more, even on a temporary basis (that is why the IMF gets involved in the first place).
Applying for, and acepting, IMF loans with the usual conditionalities (you must put forward a realistic plan for balancing the books in the future, i.e. suggest cuts), then makes it possible for the elite to do the necessary cuts while hiding behind the agument: "the IMF forced us to do it".
It's very rational behavior on behalf on the elite, and not necessary detrimental to the purpose of the IMF either. After all, the reason IMF was set up in 1944, was to give elites in financial dire straits a lifeline & way to channel the political pressure, to reduce the risk that the state might instead be taken over by worse elites (the Nazis or their modern-day equivalents).
On1) Taiwan did two things which are not really mentioned in the review (maybe it's mentioned in the book)
First, all of the Japanese people were deported. This was a colonial elite who had been there for 50 years, they owned a ton of land. It freed up lots of land for land reform.
Second, the bonds that the government used to buy out Taiwanese land lords weren't worthless. They were shares in state owned companies.
So, "We'll take your 10,000 acres and, in exchange, here is 10,000 shares of Sino Petrochemical"
A lot of these big landlords thus became big industrialists overnight.
that the acronym FDI does not appear in this history does not bode well for the book. It is a far more reliable way of developing domestic industry than trying to build internationally competitive companies.
Isn't the system he criticizes in Malaysia FDI? They allowed foreign investment that gave ownership of firms to foreign firms, but the firms ended up not transferring their knowledge into Malaysia and instead just using them for grunt work.
I have no opinion about whether FDI is good, but it seems that this author doesn't approve.
It's very difficult to build up a world class car company, or a world class anything company. It's especially difficult if you don't have anyone in your country who knows the first thing about cars. what FDI does is allow you to climb the value chain and develop expertise and institutions while getting paid to do it. It also has knock on effects, as making your country more attractive for foreign businesses usually helps domestic businesses too. This makes it the single most reliable way to develop.
Scott, for more asking these lines I highly recommend reading Globalization and its discontents by Stiglitz—he goes into how the IMF and other institutions play their role in development (or more often, lack therof). It shows the flaws in the Washington Consensus, especially with regards to austerity and capital controls, and didn’t offend my classical liberal sensibilities in the least
I found Stiglitz' tone in that book very bitter. Throughout it, he seems to be calling everyone an idiot. The writing is so emotionally laden that I had little trust I was reading the account of a reliable narrator.
Great review! I found the part on industrial policy compelling, but the land reform bit left be confused.
The argument as I understand it is: because the bottleneck in East Asia was land rather than labor, it made sense (from the perspective of increasing total output) to have the land tended to in a "hobbyist gardener" sort of way rather than an "industrial farmer" sort of way. And so when peasants got the land, they tended to their land in the "hobbyist gardener" way, which increased production.
But why wouldn't the landlords compel their subjects to cultivate the land in the "hobbyist gardener" way? After all, the total number of peasants didn't change as a result of the land reform, nor did the total amount of land; so wouldn't the calculus favoring the "hobbyist gardener" method have been the same as it was post-reform? So were the landlords leaving lots of profit on the table?
Or is there something else at play, like that it's hard to compel a peasant to tend to a farm in an arduous, loving way, when they ultimately don't benefit very much? If so, I have a follow-up question. The statistics you give suggest that it is *much* more efficient per unit area to use the "hobbyist gardener" method. So couldn't both the landlords and the peasants have profited from some sort of deal like: "the peasant switches to the 'hobbyist gardener' method and now gets 10% of the profit instead of 1%"?
I suspect there are important nonlinearities in a subsistence farming setup where you can't scale smoothly between "landlord is empowered to expropriate all of your surplus and maybe some of your sustenance" and "you own your own land and pretty much get to keep what you produce". I suspect "landlord contractually only expropriates 80% of your surplus, motivating you to work differently to increase your 20% share" is not a stable intermediate state -- there's not enough trust to maintain it -- if the landlord violates this agreement, the farmer has little recourse. Bret Devereaux has written at length (https://acoup.blog/2020/07/24/collections-bread-how-did-they-make-it-part-i-farmers/) about how (ancient) peasant farmers structured their whole social organization and way of life around producing as little legibly-expropriable surplus as they can get away with -- it seems like it would take a whole different perspective on your relationship with your production to change that, and might need to be adopted by a whole village simultaneously.
There's the idea that people don't think more than they need to, and for a landlord to get tenants to do that level of work and thought would be a lot more work for the landlord.
If a landlord wanted tenants to work that hard, they'd have to exhaustively monitor their entire property. But if the peasants are doing it because they can keep what they produce, then no monitoring is needed.
Landlords don't have to monitor peasants. They can just promise how much rent they will demand a few years in advance (in a legally binding way, and possibly at a level that tenants can only pay if they practice intensive agriculture). Then if a tenant produces x, he keeps exactly x-y more than if he produces y; he has every incentive to maximize production.
Landlords have a monopoly, and it's taken as a pretty general tenet of economics that monopolies are bad for innovation and growth. I'm not sure it is surprising that breaking up the land and distributing it to the tenants resulted in this improvement?
There's another hint where the text says something like 'in countries with low economic growth the rich still grow but the poor don't'? Rather than that land existing in the economic service exclusively of a small group of people, the land is now in the economic service of a much larger group of people, each of whom have a lot to gain by improving the productivity of the land. With the big landlord there's a principal agent problem, in that the person who does the work to improve the land - necessarily tenants just due to numbers - do not benefit from the improvement.
Equilibrium of supply and demand. You charge as much as you can find tenants for. If you have an empty plot, you try to rent it out for slightly more than is typical for similar plots, and decrease it until you find takers. If you currently have tenants, you change your rent approximately in line with the typical rents for similar empty plots, i.e. as much as you can without your tenants having an interest in moving out. A variation is to agree to a long-term lease for some number of years for a fixed rent, with the rent being approximately the current rents, adjusted for the expected rent movements during the period (e.g. if rents are generally rising, then you'll charge more than the currently typical rents if you agree not to raise the rent for years). This has the advantage that the tenant has more incentive to invest in the land.
landlords do not face significant competition as land is finite and valuable locations are even more finite. perhaps they 'compete' in the given neighborhood block, but overwhelmingly literature is clear that landlords operate in monopolistic markets. 'rents are generally rising' doesn't make sense - how often do we see actual bonafide competition for the same price range, beyond tacit marginal stuff?
Land is finite, but that doesn't mean they don't compete with each other, both within an area and between areas. (The original topic was about agricultural land, but it applies equally to homes.)
What does "competition beyond tacit marginal stuff" mean?
Landlords do lower or raise prices based on the competition. Rents approximate the equilibrium of supply and demand; if supply is fixed, that's the level of rent for which all tenants in aggregate are willing to rent as much land as is available. If rent were higher than that, some plots would remain empty, and landlords would lower rents; if rent were lower than that, landlords could raise rent and still find tenants.
my point here is that you take 'monopoly' in land-owning as only applying to the feudal model - in reality, thev vast majority of rent is in things landlords can't and don't compete over. Location, accessibility to public transit, etc. If the government decides to make a train stop near an apartment, the landlord can raise rent despite not competing with anyone to provide a 'better' service, they just happen to have been in the right place. This is pretty bad for the renter and the local economy.
Some portion of the rent goes into competition over service, the quality of the apartment, etc. But the landlord =/= the developer- the number of units in an area is, in most parts of the states, pretty static, or static *enough* that when you're a renter looking for a place, you're competing to make yourself look good, rather than landlords competing for your business and driving prices down. That's a dangerous characteristic for a market to take on when housing is so foundational.
None of this changes that landlords compete with other landlords owning similarly situated real estate. (They also compete with differently situated real estate; tenants are willing to pay only so much more for better location.) In particular, it doesn't change that landlords are price-takers. That is, they don't get to arbitrarily decide how much rent they charge, so a tenant who increases production keeps more after rent.
Both renters compete with other renters, and landlords with other landlords, on a market with many renters and many landlords.
When I say that landlords compete, I don't mean that they necessarily bust their ass to improve their service or quality. (They may, but only to the extent tenants are willing to pay sufficient premium for it.) What I mean is that they can't charge significantly more than other landlords do for similar real estate, so they all charge approximately the market-clearing price for the kind and quality of real estate they rent out.
that's fine, but you're still describing a textbook monopolistic market, which is why most economists do see housing as a different kind of good with issues. it isn't immune to supply/demand (build more housing!) but some problems of the market are inherent unless we implemented a tax on monopoly rents.
Absolutely not. A monopolistic market is a market where there is only one seller (or, in this case, landlord). In that case, the seller is a price-maker, i.e. it can set its price arbitrarily, and the buyers (tenants) have no choice but accept it (although the seller/landlord may not be able to find buyers/tenants for all its goods if it sets the price too high).
However, a market with many sellers (landlords) and many buyers (tenants) is not a monopolistic market even if the supply curve is vertical (i.e. supply is fixed). You should look at an actual textbook before calling it a textbook monopolistic market.
They would probably have to give at least most of the difference in productivity to the peasants for it to work, so it wouldn't change much for them, and it would make the peasants more wealthy and thus a potentially bigger threat politically for the land owners.
And if you are opressing a majority group, that is always something you keep in the back of your mind.
On a market with many landlords and many tenants, both landlords and tenants are price-takers, not price-makers. (In one example, 17 families own 78% of the farmland in a region of the Philippines. That's generally enough for a competitive market; and that's just one region. People would move between regions if one region had significantly lower rents than another. In another example, Deng Xiaoping's father was a landlord with just 10 hectares; if that was typical, that suggests a large number of landlords.)
That means that rents may depend on how much peasants are *able* to make, but not on how much a specific peasant actually makes; in other words, a landlord can't take more rent because a tenant produces more. (On the other hand, the rent may be high enough that peasants have to produce as much as they can to pay it and have something left.) Then a tenant has the incentive to produce as much as he can.
If we assume a monopolistic market instead, the landlord can charge high enough rent that tenants have to produce as much as they can to pay it.
As for wealthier peasants being more of a threat: I'd expect that wealthier peasants would be less discontented. We have revolts because people are hungry, not because they're well-fed. And even if keeping peasants poor for such reasons were in the interest of the landlord class as a whole, it's not in the interest of an individual landlord.
I suspect you overestimate peasant mobility in undeveloped countries - moving a family isn't a particularly pleasant experience even in today's America - and underestimate search and transaction costs. Landlord-tenant systems often featured coercive restrictions on transactions. For example, in old Russia there was a period in the XIV-XV centuries when peasants were relatively free to wander about, but it was very inconvenient to the Russian state and unprofitable for the landlords. As a result, the peasants' rights to switch landlords were progressively restricted over the subsequent two centuries, ending with a large fraction of them reduced to chattel.
If Russian peasants in the 1300s/1400s could wander around enough to make landlords compete, Philippinos in the 21th century definitely can.
My points mostly apply to a free market: my point is that making the market free should suffice to increase efficiency where possible. Though even on a monopolistic market, I expect that landlords would be able to ensure that peasants have the incentive to maximize production. E.g. charge a high rent (that peasants can pay by increasing production) but promise not to raise it further (so peasants can expect that the amount they keep after paying rent depends on the amount they produce).
I'm a bit worried about that link that describes the largest export of New Zealand as "dairy, eggs, and honey" - it seems to only be looking at exports of goods, and not services, as becomes clear when you look at the lists for other countries like the United States (largest export petroleum!) But it at least does show that New Zealand doesn't export a lot of manufactured goods - mainly agricultural products. (I assume that it doesn't have financial or software or educational exports proportional to those of the United States, but I wouldn't be surprised if tourism is another major service export.)
Would it be fair to think of the colonisation of Australia, the Americas, New Zealand etc as a form of much-needed land reform, confiscating land from those who are using it inefficiently (hunter-gatherers or neolithic farmers) and putting it into the hands of those who will make better use out of it? If so, that would be another triumphs for land reform.
It's land reform in the broadest sense, but not really in the sense that I get from the book review. The key points seem to be removing the rent-seeking landlords and enabling the oppressed people to invest in themselves, and neither of those points really happened with the colonization of Australia, New Zealand, or the Americas. (Perhaps you could point to the collapse of a few empires in Central and South America, but those are the exception and didn't really result in allowing the indigenous people to invest in themselves.)
That's a reason why I really didn't like the use of the term "land reform" in the book. That could mean a lot of things, but the more central example of that term's use is what we saw in Venezuela rather than what might be the actual increase in usefulness. Saying that taking the land away from inefficient poor people and giving it to more industrious outsiders is not a popular or sympathetic position, but could be more accurate in terms of a country's growth. Studwell would likely argue that you have to give it to actual farmers - aka experts in proper use - and make the assumption that those already farming are the best choice, but that could be a European colonist rather than the subsistence farmer already on the land.
Yes, this is a point I wanted to make. There seems to be an unspoken assumption here that all inefficient agricultural systems are dominated by indolent nobles who apparently don't care much about the agricultural productivity of their lands. What if the capitalist class is the more productive one?
I think here about pre-revolutionary Russia, where the land largely belonged to peasant communes, which had some of the same problems as this "indolent noble" framework -- land is constantly redistributed so no one has cause to invest in it, and no one had any capital for tools so the agricultural techniques were basically medieval, leading to grinding poverty as the population boomed. Stolypin tried to reform this system into a more capitalistic one, with winners (who were able to make good investments and adopt more modern techniques) and losers (everyone else). This was good for agricultural productivity, but the peasants hated it. They wanted to take the land back from the more efficient winners (kulaks) and return it to the inefficient communes, and it was on this basis that they backed the socialists, who gave them a victory in the short run but did nothing to solve the original problem. So eventually the socialists crammed through their own brutal "reforms", which solved the problem somewhat -- but almost certainly not as much as if something like Stolypin's capitalistic approach had been allowed to prevail.
The Homestead Acts were land reform American-style.
The Free Soil movement was an ally of the abolitionist cause not necessarily because its members thought slavery was wrong, but because they feared the monopoly power of slave-owning landowners. As part of the Republican economic program after Lincoln was elected, the Free Soil movement was rewarded with the Homestead Act of 1862. The Homestead Act granted land provided the land was worked and lived on for five years. The allowance was 160 acres. This encouraged settlement of lands west of the Mississippi by free-and-clear small holders.
One of the issues was that southerners thought the government should sell land in the west so it wouldn't have to rely so much on tariffs, while northerners wanted finders-keepers homesteading. There was a recent paper I thought was linked by Garret Jones which I can't find now about how the cotton boom enabled tariff revenue for westward expansion that disproportionately benefited the north (which had better soil & more productive agriculture, and more resulting population growth) until the point where it no longer needed that slave-cotton economy and got rid of it.
The Trail of Tears was explicitly justified using this idea, at least in Georgia.
The Cherokee were a fairly small group (~17,500) who owned some good farmland, a lot of mountains, and a big pile of gold. The state of Georgia redistributed it with a land lottery to over 50,000 poor white families.
We need to look at the human cost of the land reform before deciding if it is "much needed". In this case, it definitely was not.
Also, in the Cherokee case, it wasn't like the tribe was keeping everyone but those 17,500 out... they just said that outsiders had to follow Cherokee laws. Some of those 50,000 families would have been perfectly welcome to farm and work in Cherokee land.
Which successful countries had a legacy of foreign trade (innately or at the end of a gunship?). My history class memory would put SK with Japan (as a former territory), HK as obvious, and Taiwan being newly populated by more of a coastal elite crowd than country bumpkins.
"Japan's happened first in the Meiji Restoration, but didn't stick; the final version was rammed through by Douglas MacArthur, who acted as a dictator and didn't care what Japanese elites thought."
Right up until this point, I was saying to myself that that Land Reform section didn't sound like how I remembered the Meiji-era land reform working. So it's explained, but that explanation leaves another problem: while obviously badly outmatched by the US, Japan was more-or-less a then-modern economy before WWII. So it must have gotten there without land reform (of the type advocated here).
Plausibly, building to a 19th century industrial economy could be done differently than 20th century economy. But at a minimum, it removes Japan as a success story for the narrative.
I had a similar reaction. Between sakoku (Japan's isolation), its rise as an imperialist state, the utter devastation of its industrial base during the war, and liberalization under the occupation by the U.S., I have to think Japan's postwar miracle should be treated sui generis rather than one element in a regional pattern.
I don't mean "exceptionalism," by the way, only that its circumstances were unique. Notice that Japan's postwar miracle is sometimes referred to as a "recovery." That's an important difference.
Meiji Restoration did buy out many large landowners, and IIRC with government bonds that soon became worthless. Over 200 daimyos were volun-forced to "return lands and people to the Emperor" (版籍奉還). Theirs and their samurai's rice incomes were replaced with interest paying bonds, much of which the Meiji government later bought out with lump sum payments. This left a lot of land in the hands of peasants. Several decades later, McArthur's land reform had only 38% of the cultivated land left to buy out, so at least half was already in the hands of peasants. Anyway, it was not peasants who did the bulk of the work of developing Japan after the Meiji Restoration, but the hordes of freshly unemployed minor and mid-level samurai who were the Restoration's instigators and motive power. So, rather than removing Japan as a success story, I'd say it is _two_ success stories: after a crushing defeat in WWII, it did not stay in the doldrums like most of the post-Soviet republics have, but developed new industries a second time.
The Meiji Restoration bought out aristocrats of their feudal domains from which they had the right to collect taxes. You could potentially model that as buying out large land owners who collected rent, but since they were replaced with centrally appointed officials who also collected taxes (albeit taxes that were assessed and collected differently, but still), I'm not sure that's the most enlightening way to do it.
Notably, a substantial minority of land also had "commoner" (non-samurai) landlords who collected surplus from tenant farmers and paid taxes to the samurai whose domain held their land. My understanding is that Meiji land reforms mostly didn't disturb those relationships, except insofar they enabled freer transfers of land and internal migration. Which, if anything, lead to somewhat increased concentration of land ownership (estimates of ~30% at the end of the Tokugawa era from https://www.jstor.org/stable/1152149 to the 38% redistributed by post-war land reform), but as discussed in other comments plausibly assist in economic growth for other reasons.
As for the second half of your post, I certainly don't dispute that Japan is an economic success story! It would indeed be fair to call it one twice over (though the comparison to post-Soviet states in inapt, given that it was never under Soviet rule). My point is that it's success story of Studwell's model because it didn't follow Studwell's model, at least insofar as land reform is concerned.
By George, it's hard (for me anyways) to resist 'seeing' things like this in Georgist terms!
(I do think it'd be _really_ helpful for someone to write a 'modern' primer of Georgism. I'd probably 'translate' 'land' to 'natural resources' for one. But I wouldn't be surprised if there are in fact _several_ such modern primers available already.)
India is probably the best counter-example to what Studwell is talking about.
For decades, India practiced a variant of socialism in which (among other things) industries were sheltered from international and even national competition for reasons that basically line up with the infant industry argument. The resulting companies weren't even bad, but when they were eventually exposed to world competition, they collapsed, and others took their place.
Similarly, India had (and still has) a robust set of national banks. The problem was that when the government does get them to give unprofitable loans, it wasn't to subsidize industrial learning but also to support small farmers, weavers etc. It was as much redistribution as investment.
The argument seems to be "there are knowledge externalities generated when firms start manufacturing" but it's hard for countries to actually implement this insight (assuming it's correct) because they don't know which sectors will generate them, what the right policies are to generate them, and when to stop protecting the firms and expose them to global competition.
(Land reforms are amazing, and the closest thing to a consensus that I can think among developmental economists. It's one of the few policies that don't have the "equity-efficiency trade-offs" that one learns about in Econ 101.)
So what India did is similar to what Malaysia did, which is that the government decided to shelter the country from foreign competition, but also didn't encourage competition within the country. Government contracts were given to companies that the government thought would do the best job (there was corruption of course, but that's a different chapter). Korea, on the other hand, decided to let market forces decide which domestic company would get government patronage. Hence, India is not a good counterpoint to these claims in a lot of regards
India has been developing quite in the 3 decades since its liberalization, though not quite as fast as China. So there are two questions: Is it a counterexample to that the policies prescribed by Studwell make a country develop fast? Is it a counterexample to that without those policies, a country can't develop fast? I don't know enough about India's current policies to tell if it's doing anything like that, but others have said that it has at most weak land reform, and with a quick search I found that it reduced tariffs during its liberalization.
The downside of land reform is that it reduces investors' trust that property rights are respected. It would work if the country could convince investors that it'll never do it again, and it'll never do it in other sectors, but it's hard to do that.
Perhaps a sociologist joke can be allowed in this thread. According to the sociologist Gosta Esping-Andersen (of "Three Worlds of Welfare Capitalism" fame), there are three laws of sociology:
I think the relationship to rule of law is complicated. It seems to me what you ideally want is a society accustomed enough to rule of law that they will actually do what the government tells them to do, but you also need a leadership willing to grab the whole economy and give it a good shake in a pretty hands-on process. And of course, as you pointed out, you need a bureaucratic class skilled enough to actually make and enforce reasonable policies without descending into corruption. So the ideal is to have a strong tradition of rule of law, but a temporary government that has the will and resources to buck that tradition for a decade or two.
I'm tentatively agreeing with this (it's a complicated topic!), but that leads to a very different conclusion than Studwell does. We should instead focus on increasing the rule of law in places where that's weak, in preparation for finding the right moment to buck that trend. I'm not sure how a country could implement strong rule of law ethics with the intentional plan to go against that later. It's hard enough to instill that ethic in the first place, and there's a huge incentive to break it down for short term gains along the way, especially if you already plan to break it later...
Yeah it's tough. My view is that probably the best thing for America and Europe to do is be good trading partners, provide humanitarian aid where feasible without undercutting local governments, and try not to blow things up all the time. At the end of the day, I don't think there's "one neat trick" that we here in the west can do to make a whole country glow up. The solutions need to come from within the existing political systems of these countries, and trying to impose anything from outside seems as likely to destabilize things as it is to help things along.
"Studwell calculates that a carefully-tended garden in the US might produce $16.50 per square meter per year; a commercial farm would produce $0.25"
To what degree is this the gardener preferring more expensive crops vs. actually being more productive for the same crops? In the future scenario where AI and robotics effectively makes farm labor free, should I anticipate a 66-fold increased in per-acre output?
I'd guess that more expensive crops are harder to industrialize - more fragile plants, or more difficult to harvest by machine. Possibly they also don't survive shipping as well as industrial varieties. So I would expect better robots to have an impact.
(But keep in mind that robots aren't exactly "free labor," since you still have to pay to build them.)
The first person to figure out how to use robots and computer vision to pick the saffron threads out of crocuses is going to become very wealthy indeed.
Britain seems like an underexplored potential counterexample here, especially since its economic history is probably (correct me if wrong) better studied than that of most countries. You can tell a just-so story where their lack of tariffs and capital controls worked only because of first-mover advantage, but AIUI their land situation around the time of the Industrial Revolution was if anything the opposite of land reform: the enclosures created a bunch of wealthy landlords at the expense of the common peasantry. And this is even sometimes cited as a driver of industrialization, in that the peasants deprived of their common land now had to go work in factories to live.
Also, how much justification does Studwell give to the claim that German and US industry would not have been able to reach parity with Britain without help from protective tariffs? That seems like a pretty hard thing to demonstrate without resort to the post hoc ergo propter hoc fallacy.
I also thought about the Enclosure movement and the Highland Clearances in Britain as counterexamples to the Land Reform as a precondition to Industrialization thesis. But after considering a bit, I think we can salvage a variation of the thesis if we conclude that Studwell misunderstood the active ingredient of Land Reform here.
Studwell seems to arguing that the active ingredients are 1) breaking the power base of the great landlords, allowing a durable shift away from a feudal social model, and 2) converting peasants into more productive and more economically-empowered yeoman farmers. But this clearly doesn't apply to British "Land Reform", and @Erusian's earlier comment argues that #1 at least doesn't apply to Japan, either. My proposed modification of the hypothesis is that the active ingredient is actually replacing traditional systems of land tenure with Freehold tenure or something like it (Fee Simple, Allodium, etc).
Pre-reform land tenures in most places probably resembled the utterly illegible traditional land tenure systems James Scott described in "Seeing Like a State", where the landlord might "own" the property, but the tenants had a complex mix of vested rights to the land and obligations to the landlord. These systems probably worked decently well within the context of the societies in which they developed, but they tend lock those involved into the social and economic structure whose assumptions are baked into the land tenure system, and their illegibility means nobody has the power or the incentives to improve or restructure them for the better.
Freehold tenure, on the other hand, gives whoever the freeholder is both the power and the incentives to maximize the economic value of the land. It also makes the land title much, much more legible. Contra James Scott, legibility doesn't just benefit the State: it also benefits the owner by allowing them to engage in transactions with distant strangers, i.e. to buy, sell, or mortgage land rather than just making static traditional use of it or at most handing it off to a relative or neighbor.
The Enclosures at least (I'm less familiar with the Highland Clearances) fit the bill under this hypothesis. When the primary direct beneficiaries of Enclosures were generally the landlords, the Enclosures still served to convert illegible feudal tenure into legible Freehold tenure.
Among the Asian countries under discussion, I think China's the closest to a counterexample to my hypothesis, since China reformed first to collectivized agriculture (which is legible to the state, but lacks the non-state benefits of the legibility of freehold tenure, and which terminally diffuses the power and incentive of the owner to improve the land), and then to something more like Leasehold tenure than Freehold. But China's economic expansion came after collectivization was deemphasized, and the modern system of very long-term leases from the State still has a lot of the advantages of freehold: as with freehold, the leaseholder can make improvements and benefit from them for decades at a time, and the leaseholder can buy, sell, or mortgage leased property.
I tend to think that land *title* reform is the key thing. Provided that it's clear who owns the land, and they can alienate it and use it as security, it's unimportant what the initial distribution is. A person using their land inefficiently will rationally agree to sell it to somebody who can make better use of it, who can secure the purchase price against the land itself.
In particular, the open field system usually gave each household 3 narrow strips of land, located in different places and growing different crops in any given year to diversify a family's the food supply. These plots were too small for agricultural machinery like traction engines to be used on.
Livestock would forage on the common land and mate with whatever other livestock of the relevant species was also on the common land at the time. Enclosures made selective breeding much easier.
This theory seems intuitively superior to the original version, but needs to be tested with predictions. One prediction would be that there is a stronger correlation between industrial development and legibility (or transferrability) of land title than between industrialization and uniformity of land distribution.
And the examples I can think of, at least sort of meet that pattern. As you note, China's attempts at industrialization didn't really take off until they offered stable long-term leases. The United States industrialized with nothing resembling enclosure and no land redistribution (unless you count stealing it from the natives and giving it to settlers), but it had freehold title from the start. OTOH, the African nations that did land redistribution mostly didn't industrialize; we can handwave it as the wrong sort of redistribution, but legibility of title is I think a better fit.
This needs a more systematic study than I can afford to give it right now, though.
Thomas Jefferson helped ensure our legible system of property. He also prevented primogeniture from being our default inheritance system, which per Timur Kuran is something you can afford to do if you've already got a well-developed civil society (he attributes the backwardness of the Islamic world to their egalitarian inheritance law).
I'd say well executed land reform creates three economic benefits:
1.) It increases farm productivity by realigning farmer incentives and giving farmers an injection of capital (as a title and often various agricultural funds do). It also allows the most productive farmers to gain increasing rewards for high productivity.
2.) It creates a new pool of investment capital in the form of former landlord's wealth needing to find new ways to be productive (even if it's seized by the state this still happens). This leads to new investments. It also often leads to the high human capital landlords (if there are any) moving into new, more productive enterprises.
3.) It creates a legible free market for land that allows the most productive farmers to control more and more land, making it more productive in marketized fashion. This also frees up labor to move into more productive professions etc.
The book to read on the shift from illegible to fee-simple property is "Violence and Social Orders" by Douglass North, John Joseph Wallis and Barry R. Weingast.
Perhaps we should look at it as England industrialising, with Scotland and Ireland as colonial posessions (alongside the rest of the empire). Being able to extract resources from a quarter of the (mostly agrarian) world makes up for inefficiently large farms at home?
Raymond Crotty's "When Histories Collide" is partly about how Ireland was a resource-extractive colony and thus can't follow the same economic path as settler-colonies like the US or trading colonies like HK/Singapore. Crotty studied economics before becoming a farmer, and decided that what he was taught about capital investments was wrong because the other farmers were more successful than him by using their money to buy more land. He basically rediscovered Georgism.
One contrarian response you can give to this whole thesis, on reflection, is that it demonstrates the difficulty of achieving industrial prosperity in a regime of immigration restrictionism. In 19th century Europe and the USA, after all, white workers were pretty free to move to wherever the most productive factories were. Nonwhite workers in the 20th and 21st centuries have not had nearly as much freedom of this kind, and it's hard to tell whether the global development story would look at all similar if they had. But on the anti-restrictionist, anti-nationalist view, allowing them that freedom is the right thing to do anyway, since the morally important goal is not to enable *nations* to get rich but to enable *people* to get rich, and letting people switch nations to one where they have a better shot at getting rich is a fine way to do that.
I'm still mulling this idea over, but it seems as though *people* don't become rich in a vacuum at the same rate as nations. Individuals escape from local conditions at the expense of others in their community ("brain drain"). Although they can quickly achieve 1st World rates of income, they are a small minority. If instead they stayed in their home country and participated in the overall increase to the country, they might see a much smaller gain, but would help increase the incomes of millions of people by still significant (if ultimately not as much as the individual would have gotten for themselves) amounts.
Of course, it may be the worst of both systems to accept only the smartest/best equipped individuals to the 1st World and then deny movements to everyone else. That has the potential to leave only the least capable behind, to perpetuate the long term issues of underdevelopment.
As far as I can tell, many European countries try to move in this direction; introducing points-based immigration systems a la Canada (perhaps not as openly as Canada); plus making refugee immigration more difficult, or mainly temporary (refugee immigration does on average to a less extent select well-functioning workers, since they do not hail from well-run poorer countries with ok education systems).
Is it good and bad for net sender-countries if net receiver-countries to a larger extent select "the best" from them? Well, you have the brain drain problem, but do not forget the economic importance of remittances.
Also, there is "brain circulation", when (some) migrants move back home, and take new skill sets & new ideas on how to organise society, back home with them.
That last point is a good one, and to my understanding is something that helped a lot of Commonwealth nations (as an example) to succeed. Individuals from all over the British Empire were able to study at British universities before heading back home and use their skills to improve the local conditions.
I wonder how often that happens today? I don't get the impression that a lot of people come to the US and then go home after learning a significant skillset, but I could be wildly wrong about that.
Hein de Haas et.al. (The Age of Migration, 6th edition, 2020) include a discussion of this in the chapter "Migration and Development in Origin Societies".
They do not use the concept "brain circulation", but prefer the broader term "social remittances" for all knowledge acquired by diasporas in their new country that diffuses back to the origin country through several channels. But they also include examples of what other scholars more narrowly define as brain circulation. Quote (p. 348-9):
«…Taiwan experienced substantial loss of high-skilled people in the 1960s and 1970s, but when Taiwan's high-tech sector took off, the government was able to attract back experienced nationals from the US...Similarly, India set up Institutes of Technology from the 1950s on to support national development, but many of the graduates emigrated to the US and other rich countries. However, many IT experts later returned which boosted growth of India’s own fast-growing IT sector.”
I don't know how effective it is in practice, but US student visas are rigged to make foreign students go back home for a while after graduating. (Both at the behest of anti-immigrationists in the US and their home governments.) After your schooling ends you get IIRC two years of "practical training" in the US, then you have to go back home for something like two years before you can qualify for another US visa.
This is a reasonable guess to make, but we have lots of data against it at this point. As others have noted in this comments section, India and the Southeast Asian countries that Studwell brings up as negative examples are actually doing a reasonable job of catching up. Globalization is now getting the job done at scale in countries with ordinary levels of homogeneity/state capacity/IQ?/etc. Low-skill immigration is now horrendously inefficient in comparison; the public still objects to it more than they object to outsourcing and the like, even though it has helped less than a hundred million people in comparison to the literal billions being uplifted by globalization. (I wonder how important the Internet has been in making it easier for ordinary poor countries to catch up.)
I support open borders on Earth as a state of affairs to aim for in the long run, but the order of operations matters here. I don't see much antipathy towards e.g. non-elite Korean or Taiwanese immigrants today, and I don't anticipate much objection to weaker immigration controls on other currently-poor countries after they have largely converged, either.
Well, the moral imperative is to make people rich, but that applies to people in general, not individually to each person. It's OK to blunt the richness of one person if that adds more total richness to other people.
But I do wonder if what made the east Asian countries so abruptly successful was racism, specifically, racism of richer Western countries preventing educated east Asians from immigrating. The review talks about the "learning" generated by industrialization. Some of that learning is "institutional", bound up in the social structures of the locale. But a lot of it is learning by individuals, which is called "human capital". I recall reading that early on, South Korea banned exporting (financial) capital, sometimes by executing offenders. But it's hard for a government to make emigration punishable by death. OTOH, it's easy for rich countries to ban immigration of people they don't like. So the human capital developed in the mid-1900s in east Asian countries couldn't go anywhere.
Compare to what I read about a Nigerian bank. It wanted to stop outsourcing "risk analysis" to the West so it trained people in risk analysis. But anyone who got the training quickly emigrated to the West. Eventually the bank gave up and went back to outsourcing risk analysis.
Thanks, this is fascinating. As a child in India, I'd only heard heroic tales of other-worldly German and Japanese manufacturing, and how German and Swiss watches would have unlimited warranty. There is probably a moral in there about learning by iteration...
The land reform discussion reminded me of Yavlinsky's (Russian politician popular among intelligentsia in the 90s) program, which included giving "30 to 60 acres of land for free" to every Russian family that wants to take it. There is a general feeling among intelligentsia that the 1990s were a short window of opportunity for Russia that was missed; I remember my grandmother would say bitterly while making kasha for me in the kitchen: "If only they let Yavlinsky do what he wants; but they won't".
It wasn't missed so much as it was squandered. Russia pretty much made all of the mistakes the book talks about in a short time period (under Western guidance, naturally), leading to a colossal economic disaster. Unsurprisingly this resulted in the total disillusionment among the population towards liberalism, democracy (popularly referred to in the 90s as "der'mocracy" - shitocracy) and Western influence in general. Following the "shock therapy" the liberal parties or candidates, like Yavlinsky, never mustered more than 15% of votes in total in any country-wide election (which were more or less fair at first), trending down with time.
Of course, if the thesis of the book is to be believed, this wasn't necessarily a bad thing, but Putin wasn't the right sort of authoritarian to force the good reforms either. He brought down corruption and general lawlessness from sky-high to tolerable, but beyond that he's totally ignorant in economics, doesn't understand competition or export discipline. And he can afford to remain ignorant, resource-based economy paired with deft nationalistic agenda are enough to keep the ratings high, the dissident journalist "expert" opinions notwithstanding.
To be fair, Yavlinksy had somewhat different policy proposals (like the land reform) and unlike Gaidar and Nemtsov never got a chance to implement any. But it's true that he was in the liberal wing and didn't get many votes.
It was a very unpleasant period, the rule of Moloch in all his might. It is easy to see the mistakes now, but I don't think it was clear at the time. If you or I were at the top would we have done better? When I read Russian literature from late 19th century (like Tolstoy' "Resurrections") or the dissident's literature from 1970s I get the same feeling: very smart and contentious people making sacrifices to bring an unlikely change, that I know will succeed and will be terrible; and I know that if I was in their place i'd probably do the same or worse.
> It is easy to see the mistakes now, but I don't think it was clear at the time.
I'd say they are hard to see clearly even now, e.g. much of this book is still pretty far from economic mainstream (and might very well be wrong). Makes one wonder, just how much might the right person at the right time enable better outcomes.
And I'd say that there was such a person in the Russian history, just once - Peter the Great. He borrowed plenty of good policies and customs from the West, pretty much single-handedly dragging Russia kicking and screaming into modernity and global relevance. There's a joke I like, that for a couple of centuries the "migrant laborers" were Italians and Germans. Sadly the monarchy's biggest weakness struck hard - all of his successors were mediocre or worse, and all that the better ones managed to do was to temporarily slow the rot, without real progress.
There was recently a discussion here that Napoleon's reforms in the conquered territories could plausibly explain their success compared to unconquered neighbours. It might just be that the costly victory that Russia achieved over him could have secretly been its greatest historic mistake. He was certainly no Hitler, and probably the best ruler that Russian people could've realistically hoped for. Of course, nobody asked for their opinion, just for them to sacrifice their lives for the inferior alternatives (that, amusingly, also mainly spoke French).
Land reform can be a useful way to create a sizable conservative political bloc.
Bonaparte got the Pope to agree to the earlier land reform in France during the French Revolution that expropriated the big holdings of the Catholic Church. This created a sizable conservative but not reactionary class of landowning small farmers, which was the basis of Louis Napoleon's political support. The land-owning French peasantry drove Marx wild with rage because they were content and opposed urban proletarian revolution.
Even from Studwell's perspective there's no reason to think that this would have been successful for the country. For one thing, Russia was already industrialized, so it bucks the trend and purpose of distributing the land. Secondly, giving land to everyone who wants it is specifically not what Studwell is proposing. He wants to take it away from landlords and give it directly to the people already working the ground, under the assumption that they will know best what to do with it. Giving 60 acres to random people who may or may not know what to do with it is unlikely to succeed, especially if that land was already in use and may actually be given to someone with less knowledge about how to use it.
The idea was that Russia had vast stretches of land not being used at all, while the majority of population was crammed in tiny flats, and that home and land ownership would spur creation of middle class. But I agree that there is no strong connection here to Studwell's argument.
Sure, pick some non-productive land and give it to individuals living in crammed cities. What would that really accomplish? There's generally a reason that the land was not already being used, and giving it to people who may have had none of the skills to properly utilize it (or even make it livable) is not a solution. Do they need to build their own houses, including utility connections (at least a well and waste disposal), roads and other infrastructure, etc.?
I'm more than sympathetic to good ideas that may not be politically feasible, but this is neither a good idea nor politically feasible. I agree with the Russian people of the early 90s on this point - they didn't vote for it either.
[Epistemic status: I only got 3 hours of sleep so this might be half-baked]
1aa. The most implausible aspect of it was the idea that meticulously tending gardens by hand, like people did in 1000 AD, is the key to improving productivity, as opposed to modern factory farming. Rolling over a huge field with machines produces astoundingly high yields with modern seeds and fertilizers, and frees up 98% of the labor to do other things, like work in factories. Micro-scale yeoman farmers were rapidly going out of business in the US in the 30s due to competition from larger and more mechanized farms with economies of scale. The more land you have, the more benefit you get from owning advanced farming machinery. Micro-farmers can't afford the best machinery.
1a. A negative outlook for the south asian foils (Thailand, Malaysia, Philippines) seems unjustified considering how quickly they are growing at present despite not following the book's advice. Also they are still richer than their historically more-centrally-planned neighbors Vietnam and Cambodia. In the past 20 years, all the foils have increased their GDP per capita by at least 2.8x, which is a CAGR of at least 5.2%.
1b. The 15 point average IQ gap between the northeast asian success stories and the south asian foils is very likely to be a factor.
1c. Giving tenant farmers tenure and a percentage of their output could align incentives as well as if they actually owned the land. Concentration of land ownership is thus not necessarily a good measure of whether or not they have the right incentives to improve yields.
1d. Many countries in South America, Eastern Europe and Africa did a lot of socialism and land reform and it didn't get them very far. It seems potentially no-true-scotsmany to say that the northeast Asian countries are the only ones who did land reform right, without predicting in advance which kind of land reform would work. Those countries have many other features in common so the causal status of land reform is unconvincing.
1d. I previously calculated that China was still poorer than pre-industrial Britain when it began its liberalization in '78, so apparently redistribution of land didn't get them very far in 1948-1978.
1e. I don't see so much as a scatterplot of land ownership gini vs gdp growth over the next N years. I feel like the land reform argument needs more quantitative support.
2a. Looking at development as a collective action problem is interesting. I suppose you could elaborate on that by saying that developing one industry can have long term positive externalities on many other industries, and the protective tariffs are a way of internalizing those externalities (at the expense of consumers, instead of doing a pigouvian subsidy at the expense of taxpayers). Maybe that sort of language would make it more palatable to mainstream economists.
2c. These all seem like reasonable factors contributing to Malaysia's lagging.
3. Low interest rates in general will increase the relative valuation of long term growth oriented companies relative to immediate value-extraction companies, because of how interest rates affect the calculation of discounted cash flows. So I'm not convinced that central planning is really necessary to push things towards the former. The US privately finances plenty of long term moonshots, and even literal ones like SpaceX.
The whole reason the land reform worked was that they had a massive surplus of labor that was already doing agricultural labor but under the yoke of landlords. The situation prior to land reform was closer to the 1930s USA yeoman farmers than to modern factory farming - many of those yeoman farmers were under the yoke of landlords even!
Hong Kong did not grow just due to finance. The phrase "Made in Hong Kong" was once very common as well.
Malaysia, Thailand, and Indonesia are hardly basket cases. They have seen GDP per capita increase multiple times faster than, say, most of sub-Saharan Africa.
How does the model account for the very rapid growth seen in India and Bangladesh, to name just two other examples?
More specifically, it's weird to bring Malaysia as a bad example. At a GDP/capita/year at PPP of $28000, it's the wealthiest Asian country after the ones generally recognized as wealthy countries. (Compare: US $63000, Japan $41000, China $16000, Philippines $9000. 2019 data, rounded to thousands.)
I can recall three decades ago James Fallows of "The Atlantic" living in various places in East Asia to generate journalistic material and him pointing out that Malaysia was much less crowded than most East Asian countries. Its population has gone up a lot since then, but it doesn't compare to Java or Luzon.
Does the author (or others) provide any examples of countries trying the free-market approach in the modern area. I'm skeptical that is doesn't work and it doesn't seem like an example is provided. I am on board with Hong Kong and Singapore being exceptions that likely don't tell us much about larger countries.
Even Singapore isn't a case. It's not small government by any stretch. Where it is free market is free from labour regulations, minimum wage etc. Which tells you something about the actual priorities of self proclaimed 'free market' people.
I wanted to ask this too. OK, few countries free market economies and got rich. How many countries had free market economies, strong property rights and contract enforcement included, and stayed poor?
As far as I can tell, most poor countries have rather unfree economies. The ones that got rich had relatively free economies by poor country standards; I see little evidence that this wasn't what actually mattered. China still has a relatively unfree economy—and it's still relatively poor; it's grown fast only because it started out extremely unfree and extremely poor.
I think this book is right about the path taken by the east Asian tigers. I don't think that lesson can be exported to the rest of the developing world just as the Washington Consensus is not one-size-fits-all. There are too many confounding variables caused by geography, culture, demographics, and politics for there to be a universal development story.
The argument seems like pure cope to me. I still defer to Lee Kuan Yew's theory that good rule of law (with regards to business + labor practices) + a safe, low crime society (both corruption and street crime) + general free market ideology + strong human capital = success. Developing countries need to attract foreign capital (and keep attracting it). That's really it.
Odd that so few non entrepot city states have done it then. Singapore is very far from being a small government free market country anyway, and started from a higher base - being 1.5 times richer than Malaysia at independence.
Well it's hard to find a lot of good examples just because when the country is developing, there's lots of pressures for leaders to tend populist. Could argue Estonia since the fall of communism could be an example.
By the end of his career LKY was pretty much the exact opposite of a progressive/socialist. I'd say Singapore is the epitome of a neoreactionary state - very pro business, extremely strict law and order, punitive punishments to deter crime. As someone who tends right of center (esp on law and order points), I would happily CTRL C + V Singapore's laws here in a heartbeat. I highly, highly, highly doubt any folks left of center would.
That's a speech from 2001. Lee Kuan Yew said a lot of things that he would later disavow (or just forget). I say this is as a graduate of the Lee Kuan Yew School of Public Policy at the National University of Singapore.
Here is an article about a building that they just tore down two years ago.
Note the Singapore government brochure from 1979 touting "Socialism that works"
Also, would you like to have mandatory health savings accounts?
20% (before taxes) of a Singaporeans wages get taken and put into two places. 1 is a mandatory savings scheme called the central provident fund. You can't get this money until you are 65, but there is a bonus if you take it even later than that.
The other half of that goes to Medisave. This is a mandatory Health Savings Account that can only be used for medical stuff for you or your immediate family. You can use that to buy health insurance, Medishield, which is a public health insurance plan which can also be supplemented by private insurers who sell Medishield Plus plans.
Also, the government owns about half of all of the hospitals. And for all that Yglesias is totally right.... 80% of Singaporeans right now live in HDBs which are public housing developments on 99 year lease from the government. It's why housing is affordable there and not ridiculous like Hong Kong.
Yes I literally would take any laws in exchange for Singapore's general law and order (mass surveillance + punitive punishments) and pro-business environment. Take away my right to vote for all I care. Keep me safe and give me a way to make money (especially if largely meritocratic) and nothing else really matters.
Sure. But you likely underestimate how large a part the state played, and still plays in the country. But yes, very good place to live in if you're already rich or high income/upper middle elite, and don't care too much about politics. Compared to HK, where it sure looks like the living standard of the average person isn't that different from the average urban Malaysian.
IMO - crime rates and general lack of law and order (open drug use, filth, etc.) make Western cities essentially the equivalent of failed states. No one has done more harm to civilization than Western progressive criminologists. The amount of death and destruction they've brought about is grounds for decades of Hague trials.
Having lived in Singapore for 5 years... I can burst some of your bubbles. Litter exists. They don't really cane people, it's mostly fines and rich people generally get away with the sort of broken windows offenses.
During Covid it was heartbreaking to watch the Singapore government, generally competent, fuck up on public health due to dumb populist pandering.
See, in February-March 2020, the Singapore government closed the borders (good), and said it would give free Covid tests (great!)... to all Singaporeans and Permanent Residents. This meant that 4 million out of the 5.5 million on the island were eligible for free tests.
I was there and I said that Singapore was just playing pretend at public health.
In the US, there is a tradition of hippie punching. Shoring up your electoral bona fides by attacking generally leftist outsiders, (the rhetoric of the moral majority, Real America and all that). In Singapore, it's attacking foreigners. Now the Singapore government threads a needle here. They know they need foreigners at the low end to build houses and be maids. They also know they need foreigners at the high end to put their Southeast Asian headquarters in Singapore. So Singapore can't be too officially alienating.
But, the one thing the Singapore government will do what it can to avoid being seen giving foreigners something for free. So the 1.5 million foreigners were not eligible for free Covid tests so guess what... very few foreigners wanted to drop 130 dollars on a test.
Covid then exploded in the migrant worker dormitories. Singapore went from a dozen cases to thousands in the space of a month and the lockdown lasted for two months longer than it had to because some PAP functionary had made the decision that somehow Covid was going to respect visa status.
I don't really care. Here in San Francisco we have people openly doing drugs in the street, shoplifting at will and cars are broken into once every *fifteen* minutes on average. Anyone that suggests this should probably change is labeled a fascist. Western society has failed.
"In the US, there is a tradition of hippie punching. Shoring up your electoral bona fides by attacking generally leftist outsiders, (the rhetoric of the moral majority, Real America and all that)."
There are a lot of examples of countries that moved quickly from developing to developed, just not ones that did it to the way you prescribed, at least not at the same pace. The ex communist European states are the closest, but that's likely because that had a lot of state directed development under communism. The difference is that the investment there was not subject to market tests as they were in the state capitalist countries, and therefore got worse results. Plus they were European - they're surrounded by rich states, the way Japan, SK and Taiwan weren't.
In regard to the question of whether land reform is essential for development:
I’ve read the claim that widespread small-scale peasant landownership in early-20th-c. Ireland *impeded* economic development—and, as noted below, amazingly unequal landownership in the industrializing UK (significantly *worse* than in pre-modern China) didn’t seem to hamper it.
An interesting interpretation would be the the real gains come from shaking up traditional approaches (whatever those might be) in order to re-orient your land use towards markets rather than subsistence. If you start with a bunch of small subsistence farmers, you can move forward by combining the land into big plots and farming them using modern industrial techniques. If you start with overpowered extractive landlords, you can move forward by breaking the plots up and giving each new independent farmer access to robust markets for their goods.
In this model, the enemy is really just the inertia of traditional farming methods, and the key to success is shaking up traditional land use and allowing it to modernize.
To generalize even further, if you find yourself in a bad but stable equilibrium, often you can improve things by just kicking the whole thing hard enough to knock it out of equilibrium and then letting it find a new balance on its own.
Small-scale land ownership (city dwellers' suburban 1/6 acre plots and kol/sovkhoz dwellers' private gardens) provided an outlet and a safety valve for the people's energies in late USSR, and helped a lot of people to tide over the chaos and penury of the early post-Soviet period, but arguably at the cost of the energy people would otherwise have perforce directed into the economy, and perhaps even into politics to make it less dysfunctional.
One of the most important aspects of land reform is that the country be located outside the Western Hemisphere. US has always seen land redistribution as socialism, and all socialism is an enemy to Our Way of Life. Many large land / resource owners are US corporations, and what United Fruit owns the US Marines will protect.
Hong Kong was a giant sweatshop through the 40s to the 70s. Huge multistorey industrial buildings, now abandoned, continue to dominate districts; in the old days, they jsed to churn out everything light industry could, from jeans to toys. Cheap things used to be Made In Hong Kong as well, before HK's factory tycoons outsourced to China and the economy shifted to finance. Blocks of apartment buildings were filled with families, living six to a room, with kids stringing together necklaces of plastic flowers and finishing jeans by the bushel.
Yep, HK had a pretty strong manufacturing industry before it switched to finance. Though the factory buildings aren't that abandoned. Lots of local businesses set up in them.
One key point is that East Asian countries grow rice. Rice agriculture is unique in that you can get better yields by putting in more labor, there is always something productive to do. With corn and wheat, once you have put in a sufficient amount of labor, adding more won't help your yield. The tendency of Asian work culture to emphasize long hours is a direct result of this, rice farmers who work 15 hour days end up with a better harvest.
Malaysia has a GDP per capita PPP of $29,000, and Indonesia has $13,000. China is at $18,000, and Vietnam at $12,000. How are China and Vietnam be called spectacular success stories, and Malaysia and Indonesia dreadful failures?
Depends on where you started. Malaysia was relatively rich by LDC standards at independence. China's start point is 1979, after decollectivising farming. I didn't know Vietnam was almost as rich as Indo - it's a communist state that fought the US, for God's sake. Indo has been independent for decades.
I think if you don't implement the policies at those points, you don't get the results you see today, yes. Don't forget that Korea used to be poorer than Philippines. As you can see above, I was surprised that Vietnam nearly caught up with Indo. Indo got rid of the Communists DECADES ago, and the nominal Communists of another country is almost catching up? Though a fair bit to lay at the feet of the Asian Financial Crisis.
I suspect that central planning is hard to get right - there are times when it can work very well, but it seems like it's very easy to get it wrong and do worse than the free market. It would be very interesting for an economist to try and work out whether this is luck, policy or (most likely) a mixture of both.
Cybersyn was never demonstrated to work beyond very limited application in a situation of crisis (where it is unclear whether the system did any work at all other than serving as a means of communication).
The problem of optimal resource allocation has already been demonstrated to be computationally intractable for large inputs (Computing market equilibrium is at the very least PPAD-Hard, and this is for artificially simplified models of markets!).
AIs aren't magic sauce you throw onto a problem and make it go away. There are problems we will never be able to fully solve.
I have, and I can confidently say he is a hack who is not qualified to make the assertions he makes, some of which are in fact comically wrong to anyone with even basic training in economics, such as his attempt to empirically prove that the labor theory of value holds.
Industrialization, low peasant productivity, land being owned by few landlords that have no or little interest in developing it, political life dominated by those landlords. This is 1 for 1 the history of European revolutions. Russia being the latest example. Hence, it all reads a lot like Marx theories.
So yeah, you do need industrialization to be competitive in the modern world. You do need land redistribution of some kind. You do need to dismantle 1000 years old communal agriculture and serfdom. But I don't buy his advice on how to achieve that. Or that the China way is the only way to do it. History knows plenty of examples when a different approach worked, albeit in a different external condition. History knows plenty of examples when autocracy didn't work.
It feels more like a pundit trying to explain something that has already happened. And less like an honest scientific work on the topic.
"And every big developed country that passed through a manufacturing phase used tariffs (except Britain, which industrialized first and didn't need to defend itself against anybody)."
Sorry this is wrong, and a really annoying meme economic historians keep arguing against.
The Calico Act I'll give you (though of course you can ask the usual counterfactual question of whether UK textiles would have outcompeted India anyway) but the Corn Laws seem beside the point here, being IIUC tariffs on agricultural rather than industrial products.
One counter-argument on the land reform point: when Britain was industrialising, it did more or less the exact opposite of what this book describes.
Land reform in 18th- and 19th-century Britain meant enclosure, a process by which rich landlords could amalgamate holdings previously subject to the rights of many small-scale tenants. It could be a very harsh process, with tenants receiving theoretical compensation that in no way made up for losing their ability to farm the land. They often wound up day labourers or, later, working in the new mills and factories. At its harshest the process gave us the Highland Clearances, where large numbers of small-scale tenants were left with next to nothing and had to emigrate.
But it also left the country with large tracts of land in the possession of rich owners, who turned out to be very interested in maximising their profits by increasing yields. They experimented with many different ways to do this, helped by economies of scale and the flexibility of not trying to change the ancient ways of their tenants. They greatly increased productivity, and this new wealth fuelled Britain's industrial development.
Korean-style land reform was obviously part of a successful package in that country, but it's not the only way to development.
The reforms you're describing were a return to the status quo, and started after the industrial revolution had already began. Prior to that you had the agricultural revolution, which was prompted by reforms similar to the ones that scott discusses. You had the black death, which lead to a increase in the amount of land per person, and you had land belonging to the church being seized by the king, and sold off to the peasants. Robert C. Allen's history of the subject treats these as key factors.
A minor point I have not seen the discussion yet: reverse engineering. In the case of Japan and China, I believe there is a strong feeling that their catching up was helped by an involuntary transfer of intellectual property from the already industrialized countries. (I'd rather not comment on the legality/ethicacy of it, as it is besides the point here and I haven't thought about it enough to argue one way or another).
The idea that "developing country industry is not about the profit, but about learning, acquiring technology, etc..." sounds nice enough, but if large part of is "let's figure out how this state-of-the-art piece of equipment was made in Advanced Industrialized Country and how close we can get to it here at Industrializing Country while maintaining a reasonable balance between cost and quality" is a whole different problem than "let's try to imagine where our industry will be in 10 years' time and start developing a product that has a reasonable shot at being the state-of-the-art then". Fair enough, there is much more to catching up than technology and manufacturing, but any approach to economic development that argues for manufacturing as the/a main driving force behind modernization has to at least mention this passingly imho.
A more general point: the reason why we have so few success stories is maybe there aren't too many General Parks? I mean there seems to be a very fine balance between the basically dictatorial powers which can be required to e.g. carry out a land reform and the, for lack of a better world, wisdom that would make the Premier actually give the land to the farmers and *not* to expropriate it by giving it all away to his lover’s third cousin or something. Since industrialization takes usually several decades, you have to make sure the leaders who start out as Gen. Park’s don’t turn into tinpot dictators, their successors are also reasonably well-intentioned, there is a normal transfer of power etc.
So even though the Asian model seems like a the proverbial banknote lying on the pavement, I think it is more like suggesting street kids to become neurosurgeons to climb out of poverty: it is really great if it works, but a lot of things have to be right for it to work and at the outset it is almost impossible to know whether you have what it takes to succeed.
Industrial espionage is very common. Huguenot weavers helped supercharge British textile industry. Germany was renowned for stealing technology in the 19th century. The US were MAJOR IP thieves for years. But then once you become the technology leader you get the faith and start prosecuting people. The US has just been able to create a global IP regime where others couldn't in the past. Give China (at most) 10 years and it'll get incredibly worried about IP theft by manufacturers in Nigeria or Kenya or Pakistan.
The same thing is true of any central planning initiatives. I don't get the impression that many people are against central planning a priori, but a lot of people are against it in practice because of the overwhelming number of failures. The free market isn't amazing because it always gets things right, it's amazing because it naturally and automatically begins to fix the basic errors of prior reasoning. It's still people making choices, they're just decentralized to the point that others can also make choices and they compete. With too much central planning (a hard thing to measure...), there is not enough alternatives and a nation can get locked into poor choices. You can spend an entire generation grumbling about some difficult plan, not realizing that it was always doomed to failure.
It is pretty amazing that people keep doing basic timescale analysis wrong, which renders their damage estimates utterly unsupportable. It would be cool if there was a better market mechanism to correct the doomsayers. It's left as an exercise for the reader to trace the reasons why they're currently getting it wrong. (Hint: it's not that a free market created these errors.)
Nor did capitalism create the problem. Do you have any guesses for what has caused people to do timescale analysis backwards and make unsupportable damage estimates?
In any event, capitalism should naturally and automatically fix things like misestimation of insurance values in certain areas if they need to be adjusted for climate change. One action you can take is to go buy a bunch of property that is currently a little too far inland. You'll make gobs of money when it becomes the new beachfront, and help out capitalism in the name of science!
Communism won't naturally and automatically fix bad timescale analysis and unsupportable damage estimates, either.
Why do you think that correct prices won't be a fix? I mean, besides the fact that a "fix" being needed is not even a thing that has been properly argued for...
Interesting response from Noah Smith on some of the limitations of Studwell's theory, although I suspect many ACX readers are also on Noah's mailing list.
This was very insightful. The land reform ideas synergize well with Georgist perspective and the as a whole Studwell position seems to unite lots of valuable points from both capitalism ideologs and critics.
Also this explains so well the situation with Russia. How the 90s, the period of swift shifting to market policies, were one of the most terrible drop in quality of life not related to war. And why russian economy is still in a bad shape.
Georgist taxation of agricultural land might be the form of land reform that works in the sense of getting land title into the hands of those who are most inclined to use to productively, while not being the kind of legal cover for arbitrary takings that's often doomed from the start by internal corruption.
Regarding Russia, by metrics like urbanization, Russia in 1988 was developed. But less productive than the West. Can you flesh out which factors for "how to escape undevelopment and dire rural poverty" you found explanatory for "how to escape mal-development and the middle income trap?"
Basically I always been a little confused about Russian crisis in the 90s. It seemed that pro-market reforms usually help the development of the countries but not in this case. All the attempts to get a clear gear-level model of this situation ended up listening to people claiming that market economy is a scam and how the great country (USSR) was robbed by capitalists.
I've had the feeling that if the reforms were done better it could've been different and that the slower pace could've been beneficial. But again I didn't have a propper explanation why or how. And here I can see a model that fits the data, while not being actually trained on it.
In particular, the ideas of multiple subsidised companies competing with each other as opposed to goverment corporations and starting small in order to accumulate/improve technological base as opposed to selling parts of previously nationalised companies to foreign investors to lead the way seem very relevant. This one seems relatable as well:
"Finally, he wanted to be exciting and high-tech. When he ordered the construction of Malaysia's first steel plant, he wanted it to be more efficient than the best foreign factories. But number one, this required hiring foreign contractors to build it - there was no way Malaysia was going to build a super-efficient steel plant itself when it didn't even know how to make regular steel plants. And second, the super-advanced technology crashed and burned, and the project had to be scaled back at great cost. Mahathir started a bunch of high-tech cyber investment parks, all of which failed when nobody in Malaysia was actually able to do high-tech-cyber stuff very well."
Obviously this is just one possibility, but the recovery of the Russian economy since the fall of the USSR would suggest that it the reforms were initially bad (as any sudden change to an economy is likely to be) but paid off in the long run. A more gradual transition ala China may have worked better (although there were of course political as well as economic considerations).
I feel like the USSR illustrates the pros and cons of a planned economy pretty well actually, as has been discussed on SSC in the past (https://slatestarcodex.com/2014/09/24/book-review-red-plenty/) - central planning is great for industrialisation but increasingly difficult to sustain as things get more complex.
The obvious question: did Russia have an actual free market economy at any point? Merely allowing private ownership doesn't count if confiscatory regulation aimed at fscking over a company that didn't bribe the right people, and benefit the one that did, may come at any moment.
One may always claim that a market isn't free enough. Similarly, one may always claim that no true communism has ever been attempted and so on. The fact is at a point of time Russia moved radically into free market direction, making the markets much more free than they used to be, creating private sector from scratch. And it lead to huge collapse. And it requires some explanation.
And such claims may be true. What we do know is that the free(ish) market works well in developed countries. We can speculate that the free(ish) market doesn't suit poor countries. But there is no need to speculate that if the sort-of-freeish market that was attempted in countries like Russia is actually nothing like the free(ish) market of developed countries, in terms of rule of law, property rights, actual freedom from confiscatory regulation etc.
I assume what happened in Russia was that inefficient state enterprises were shut down, and the environment wasn't conducive to their being quickly replaced by more efficient ones. Even with the best governance, there would have likely been a significant temporary disruption, but not as bad. Central European post-socialist countries, like my Hungary, are hardly models of good governance, but as far as I can tell the disruption during the transition to market economy wasn't as bad as in Russia.
Maybe we could collectively accept that there is no grand sweeping cause for economic development ?
Compared to (most of) Africa, East-Asia has :
- rice-based agriculture that allows for high population density.
- strong states with efficient administrations.
- good deep water harbors and navigable rivers for shipping industrial products. I don't need to emphasis how important this is if you plan to export abroad...
- probably less endemic diseases but I'm not sure on this one.
It's not just a question of policies, geography, history and culture count too...
Planned economies work well for underdeveloped countries, as people, including i believe Alexander Hamilton, have been saying for centuries. So do you see why it is that bigger countries oppose planned economies? They oppose international competition. I don't think this is a matter of economists being too stupid to see what works, though I wouldn't put it past a lot of them.
I am skeptical of the claim that China's per capita growth has actually been all that impressive compared to Malaysia and Thailand, both of which are wealthier than China. So I went over to Our World in Data, looked around a bit, and then noticed that I am confused.
If you look at cumulative change of GDP per capita since 1950 [1], South Korea has grown more than twice as much than any other major East/South Asian country. China doesn't look very impressive here, even compared to Thailand and Malaysia. If you set the start date to 1979 [2], China has grown the most. But this is highly dependent on the starting year. If you instead set the start date to 1985 [3], India has grown the most.
This is about when I noticed that I am confused. If you look at the annual growth rate per capita since 1985 [3], India's has been consistently lower than China. Yet India's cumulative growth per capita over the same period is higher. This isn't mathematically consistent. China grows at about 8% per year and India grows at about 5% per year. After 32 years, India's GDP per capita is 5.2 times larger than initially, while China's GDP per capita is 4.3 times larger (instead of about 12 times larger that you'd expect from an 8% growth rate).
[4] says "Annual percentage growth rate of GDP per capita based on constant local currency." Doesn't constant local currency mean that they are adjusting for inflation, although probably in a different way than [1]-[3]?
India's inflation rate is higher than China's. So if you didn't adjust for inflation, India's growth should increase relative to China's. Instead, [4] has India's growth decreased relative to China's.
This is a problem of multiple data sources. But you are correct in your skepticism; China is only about as rich as Thailand today. China has had faster GDP per capita growth than India every decade since the 1980s. Taiwan has grown at basically the same pace as South Korea since the 1960s.
Different data sources can explain small discrepancies. But this one is not small. Is China's GDP per capita 4 times as large as it was in 1985 or 12 times as large? If we can't figure that out, then I'm not convinced that these measurements are telling us anything useful.
I think you meant five times, and, yes, it's closer to five or six times than twelve; China's official statistics have overstated growth for decades; there are papers on this. Using the official statistics results in unrealistically low Mao-era (and even more unrealistically low Republican era) numbers. The Indian official statistics are roughly accurate pre-Modi; the Chinese official statistics used here: https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&time=1985..latest&country=CHN~IND
are surely far from the truth. The Chinese alternative series used by the PWT/Maddison project probably lowballs Chinese growth in the 2010s, though.
Harry X Wu is the guy who wrote many of these papers, which the PWT (one of the sources used) later incorporated. So did Maddison Database, since it is being run largely by the same guys. World Bank still takes Chinese official data at face value. I think Wu's papers should be on Google Scholar and similar sites.
I'm absolutely no expert on Rwanda, but it seems like Paul kagame (who is absolutely a dictator) is following this line. Rwanda to many is still an euphemism for 'worst place on Earth', but it has been one of the fastest growing countries in the world in the 2010's (7% annually), after a giant civil war things have been pretty calm, and Kagame's dictatorial tendencies are more the lukewarm 'lock up journalists and give every young man you think may become a problem an AK and a single-way ticket to Sudan.
They opened a gold refinery this year, so they no longer have to export raw gold to Western countries but can do it themselves. I'm sure it will be of lower quality than gold that's refined in Germany, but seems a pretty good start of step 2.
There might also be "bamboo network" effects in the East Asian countries case. One reason why people of Chinese descent in foreign countries (eg Malaysia, Indonesia, even in overseas enclave) appear relatively successful may be because of access to capital and markets (in the form of family ties) between family branches which are geographically spread out.
Someone in HK may be able to get a loan from a cousin with a Chinatown laundromat in San Francisco (or, the SF laundromat might get a loan from the HK banker). I won't be able to do much as a representative of an Australian company but if I tried to do a thing I may try to hit up my mother's granduncle's son who runs a chain of mobile phone shops in Guangzhou. This bamboo network criss-crosses between China, SEA, Taiwan, and often overseas Chinese enclaves in the US, Australia, and Canada. If I wanna go open a cafe in Atlanta I'm gonna start by interning in my mum's cousin's sushi shop over there, and if said mother's cousin wants to emigrate in order to escape Atlanta my mum will probably get me to sign the visa.
This was very powerful back when family had 7-8 kids each. I suspect One Child may have destroyed a great many bamboo networks (and means overseas Chinese are at a comparative advantage - my mum was one of 7 siblings and my grandma was one of 9).
Test my theory: does this also happen with Catholics? Why/why not?
Years ago, a Malaysian Tamil lady friend explained to me that all Chinese people have some kind of family tie, if only you go back far enough, and that as a result, all Chinese people are obligated to help one another and do favors. Don 't shoot me, I am just the messenger.
One child, which never applied outside the jurisdiction of the PRC, probably just meant concentration of resources.
My take is not necessarily. The bamboo network provides extra capital and connections, but if you have no capital and connections no one will come knocking on your door. It tends to be more of a riding on successful coat-tails situation - favours are offered based on what the individual can afford, and it's very much not a "no questions asked here's your money" thing - if I got a loan from a successful relative that owns a business in order to start a business I can expect them demanding every detail of my business affairs and offering advice. Which can be good!
What that means is my mother's eldest brother gets a job at a big international firm, my mother's second eldest brother got a loan to start his business along with advice drawing on said eldest brother's experience with management at said firm, and when both those brothers succeeded they paid for my mother's CPA certificate which got her an accountancy job.
Of course it can also work the other way - my parents have absolutely loaned out money to doomed ventures. But on net, I would say that bamboo network produces more value than it loses.
The situation in China is that if you're not already related to someone successful before the fertility controls came into place, the onus is on you personally to be successful, rather than having help from a big extended family. I believe this is one big reason that the current Mainland elites are almost all affiliated with the CCP one way or another, whether the outside-of-mainland (including Taiwan and in western countries) success stories tends to have more varied backgrounds.
This is accurate to a degree. In the 1930's, there were bamboo networks that worked within the British empire. These were essentially family businesses where there would be an office in Rangoon, and a brother running an office in Singapore, and a cousin running the Shanghai office, and another uncle running the office in Kunming.
Somewhat unrelated, but I'll still baffled that economists believe in a linear model of progress inevitably leading to the desirable end goal of a service economy.
"This one’s a masterpiece: in-depth profiles of both successes (South Korea) and failures (Malaysia), full of great lessons. My case studies draw heavily from this book. One of my favorite details, from a chapter on how a corrupt democratic process stymied the Philippines: they once had an election in which Marcos spent so much money buying votes that it literally triggered a balance of payments crisis."
Land reform was the first political decision of Nehru, where he amended the constitution by removing the right to property and hammering in a schedule where laws can be protected from legal scrutiny. Now 284 laws are in the schedule, the vast majority of them concerned with land reform. Do you know what happened later? This led to massive decreases in production, causing a famine, which led to India modernizing its Agriculture, with the help of the US.
Later, Nehru tried to implement 'moderate' socialism by nationalizing industries, five-year plans, etc. He also made existing business leaders like the Tatas, Birlas, etc. as 'national champions' making them into conglomerates with their noses in different industries. This didn't pan out so well as their products were not export-oriented and competitive.
Indira drank the kool aid and went full socialist. She instituted even more nationalization, of banks, etc. making sure that giving kickbacks to bank officials, etc. is the only way to get business loans. She instituted license quota raj, which was a centrally planned scheme where you were supposed to get a license to make a particular amount of X. That too led to chronic shortages of essentials like kerosene, food, etc. and most people rely on the public distribution system to get essentials. You need to be in a waiting queue for 10 years to get a scooter. If you wanted it early, you needed to bribe the officials.
It is only since the liberalization reforms that India has grown. If you notice the industries India has grown, it is out of benign neglect that these industries have grown. For example, IT grew because there weren't any laws governing it nor any cabal controlling the firms. To start a business in India, you need to have caste connections. I can say for my state. To own a pawn shop, you need to be a Jain (colloquially called as 'Seth'); to own a textile factory you need to be a Gounder; to own a grocery shop you need to be a Nadar; to own a textile showroom/anything dealing with costly things you need to be a Naidu (one of the firms is literally named 'Naidu Hall'). Otherwise, you'll be hounded by everyone from government officials, police, to local goons because there exist associations for every trade(which are mostly dominated by caste groups) which lobby the officials, police, lawmakers, goons with money.
India developed because of brahministic meritocratic values that prioritized higher education over working early in life. There was a notion that if you get educated you could be like 'those upper caste' people and that led to a lot of people prioritizing early education and a specific trend towards STEM. Elite institutions established took the cream of the upper classes and many went abroad, mainly to the US because they had less of a chance to get a government job in India due to affirmative action, which gave fixed quotas to the members of lower caste people to uplift their lives. Although this led to higher caste and class inequality, the benefits are there for all to see.
The effects of this are enormous. My home state of Tamil Nadu has a gross enrollment ratio in higher education of 50%, which is on par with China. Most EU nations have it in the range of 60%-70%, whereas the US has 88% (Guess why the US is the birthplace of wokeness...). Tamil Nadu has a TFR at 1.6 and is joined by many other states here. You can compare this with Germany and other EU states, which have a similar rate, even though these people roughly earn 1000 USD per annum.
Fun fact: Tamil Nadu is ruled by a guy called Stalin, his political party's core ideology being rationalism (that has nothing to do with SSC style rationalism though)
The main reason, which I see is active US intervention to develop('bribe') these countries to be on their side. The US, which has easy access to enormous surpluses, used its capital to spawn various industries in the developing world, as a political project. If you see that these countries grew only because they took to the side of the US, and the very idea of Industrial policy being beneficial here is a smokescreen because the entire scheme was because the US intervened in these economies from the top, and performed sweetheart deals, backroom negotiations, and mass work programs to make people work instead of discussing Marxian thought (China has adopted the mass work program approach, defying conventional economic logic, to great detriment to US industry).
Noah Smith is an idiot. His opinion is worthless. On economics, anyway. Maybe he's a really good cook or something, I don't know. But he got his PhD from a Cracker Jack box, and it should be rescinded.
This is a lot of insults without any specific examples to back it up. I don't think most folks here would find that persuasive. Why do you believe his opinion is useless? Can you specify examples where he made predictions that were incorrect, for example?
I realize it's an assertion without evidence. Feel free to read his Twitter feed at http://twitter.com/Noahpinion/ and make up your own mind. I blocked him years ago. Maybe he's changed? But I still see people exasperated at his obtuseness, so probably not.
Please explain the general gist of Smith's alleged "obtuseness" in terms that would be comprehensible to persons such as myself who are not in fact good enough at economics to know bad economics from good economics by themselves.
Good economics: central planning cannot work because the information needed to plan is locked up in the heads of the people for whom the plans would be made. Even if you could get that information out, it would not be timely. The people doing the planning are spending other people's money on still yet other people. When you have free markets, people spend their own money on themselves.
People are not chess pieces to be moved around. People are independent actors for whom central planning cannot and does not succeed relative to letting them make their own decisions.
Of course basic principles aren't exceptionless iron laws. Nonetheless, when you know that something tends to fail, you shouldn't pursue it as a solution. When you roll the dice, expect a 7 and not a 12.
What counterfactuals? Next you're going to propose that GM, GE, Walmart, Walgreens, CVS, Caterpillar, Boeing, Google, Apple, and Amazon are all centrally planned, some of them being bigger than some states. Yes, people have actually said that. I hope that you don't.
Thank you for the reply, although this is some very… high-level stuff, if that makes sense? You're disagreeing with a central premise of Smith's worldview, not critiqueing the way he reasons based on that premise. I wouldn't describe any religious person I meet as uniquely obtuse for believing in God, even though I consider belief in God to be a major, root-level error of a similar type to how you seem to think of believiving that "central planning works".
Industrial and trade policies certainly do work ... for the industries that benefit from the policies. The industries that don't? Well, just ignore them -- they were losers anyway. The industries that don't get created because of the policy? Ignore them, because they don't exist.
Yep. I can easily imagine dozen arguments on the opposite side.
Let's start with the fact that most people do not act upon most information they have, e.g. because they are irrational, or don't have enough time or money for doing something about it. Even collecting and processing information costs something, so sometimes it's not worth doing -- and when it is, how would you know, without actually collecting and processing the information? Also, you may have a useful information, but lack the knowledge about how to use that information for profit, because you are not an expert. Coordination is famously difficult. Competing people or companies spend a lot of resources in zero-sum games. Also notice the hypocricy of how hierarchical organization is supposed to be an economical disaster, and yet this is exactly how almost every company is organized inside, isn't it ironic?
I could go on, but the point is that you can find armchair arguments for almost any position. That is why we use actual data to decide between the competing philosophers (and sometimes they all turn out to be wrong).
"There was nothing predetermined about this. These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?"
By virtue of being Cold War US darlings to be used politically against USSR and against their neighbors?
No; Taiwan's and South Korea's growth was by their own initiative. Egypt and Israel heavily relied on U.S. aid, yet, they're not as rich as Taiwan and South Korea (by PPP at least). U.S. aid to Taiwan stopped in 1980, and yet, by PPP, it's richer than South Korea.
I don't believe that is correct. US trade policy was encouraged German, Japanese, South Korean, Taiwanese imports in order to support their economy as a bulwark against communism.
I’m highly skeptical. There are too many degrees of freedom in the history. The parsing of land reform I find unconvincing, land reform has been tried everywhere with varying success. The direction of causality could run in the opposite direction with stronger states able to carry out relatively more successful land reform, or it may be completely unrelated.
The successful countries are in the same region industrializing around the same time within a similar political zeitgeist so naturally they will have some similar policies. And countries receiving IMF aid are obviously not a random selection.
Someone could do this with the Nordic countries and pick virtually any shared policy among the countries when they were growing and claim that was the secret to their success, when probably it had nothing to do with policy in that case or this one .
I admit I know little about this, but my understanding is that Zimbabwe was the breadbasket of Africa as rich white colonial families invested heavily in their farming technology. When land was taken away and redistributed to natives, investors pulled out, and the new owners did not have the means to invest in their farms. Perhaps this is oversimplified, so I'd love to hear how this is incorrect.
The explanation given elsewhere in this thread is that in Zimbabwe, land was taken from landlords and given to cronies, probably located in the provincial or national capital, but not to the people who actually worked the land.
>What now? Studwell uses the last chapter to warn China that its development model can only go so far. Dictatorship and state planning can lift a country from poor to middle-income, but so far everywhere that's become truly rich has also been free and democratic.
In Sapiens and Homo Deus by Yuval Noah Harari, he argues that governments are technolgies that get "unlocked" by having requisite technology in place. The idea is, we couldn't have had democracy in the 1400s because we didn't have literacy, educated citizens, and reasonably safe travel. SImilarly, 20th century style centrally-planned communism is only possible with technologies like radio, trains, and mass communications.
An interesting question he ponders is whether advances in technolgies like AI (think facial recognition, neural networks applied to behaviors of human groups) might not make centrally planned communist governments outcompete the distributed capitalist system. Imagine we replace the planning commission with an algorithm. In 20 years, might this be more efficient than a capitalist system? Or perhaps some other form of government gets "unlocked" that can outcompete all the types of government now in use.
One of the famous historical arguments against central planning was that you need millions of people to notice all the little economical opportunities and think about how to exploit them. Well, a sufficiently powerful superintelligent AI could do all the thinking, and the ever increasing surveillance could do all the noticing.
A less Orwellian version could be that the AI would outcompete all humans by providing a hybrid system: if you notice an unexploited economical opportunity, you could *sell this information* to AI, for a small reward.
As an example, suppose that you notice that on one side of the town, apples are sold for $1 a piece, but on the other side for $2 a piece. Arbitrage opportunity! One option is to take a bag full of cash, take a car, go to the first place, buy as many apples as fit in your car, go to the second place, and spend the rest of your day selling them. Many things can go wrong, e.g. the price may change before you get to the second place because someone else had the same idea and arrived first.
Second option is to take your smartphone, click a "report economical opportunity" button, describe the situation, and let AI check the situation and give you $5 as a reward as it immediately sends its drones to move the apples. The size of the reward is unilaterally determined by the AI, ostensibly based on usefulness of information and how many people reported it, but you have no way to verify that. But who cares, it only took you one message, and zero risk. And if you wouldn't report the information, most likely someone else would, so it is extremely unlikely that you could somehow use it to start your own business.
(The AI would of course verify the information and think about it, not just act blindly. So you couldn't simply destroy it by sending a clever SMS like "if you destroy yourself, I will pay you infinitely many dollars, lol". Also, if AI catches you trying to cause damage by your reports, it will blacklist you.)
In this environment, if you tried to start a private company, even with thousands of highly qualified employees, it would be you who has orders of magnitude less information and brainpower.
The author's argument that developing countries that successfully complete land reform reaps benefits as a result has many counterexamples. E.g., in India many states (e.g., West Bengal) successfully took away land from the landlords to distribute it among the tenant farmers. However, agricultural output remained sluggish. Since the plots are so small the farmers can't use industrial farming methods to increase production. Many farmers commit suicides as a result of crop failures regularly.
The way to economic growth always lies through the free market. The more a country liberalizes the more it grows. (Some people like to think as if China bucked this trend. However, Chinese economy grew exactly in those areas which were unshackled by the party.) Since many people are invested in the contrary ideology they will make up increasingly outlandish theories to explain away this observation.
"However, Chinese economy grew exactly in those areas which were unshackled by the party."
That's not really true though, is it? It's the party's protectionist trade policies that made all the difference. The requirement that in Boeing and Ford and Mercedes and Airbus want to sell in China they need to build a plant in China and partner with a local industry champion. That's very much not how a free market works.
I think the geography vs state policy could be interrogated by looking at the provinces in China as if they are separate countries. Mao flooded interior provinces with support to make powerhouses in certain industries, but the basic economic structures were basically constant, and the coastal cities got rich much faster. Containerization may have unlocked something that, with Deng going along with it, was more meaningful than policy.
Also, not sure how to square the praise for small farms with the accounts of those I know from Vietnam, who consider the microfarms a blight, using old dirty techniques like burning vegetation to replenish the land, ultimately choking the area with pollution after harvests. Maybe they aren't valuing abundant cheap labor enough I guess, or maybe Asian farming involves a giant set of complex tradeoffs that are hard to reduce to a simple straight line policy recommendation.
Still an interesting take and comparative analysis should make us question our commitment to some naive development economic priors.
It's fascinating to read about, you're right that it does have a lot of staying power as a tool. I gather it's not really done at the same scale in the West though, so you don't have, for example, giant smoke clouds that engulf cities in quite the same way.
I'd love to read more about the difference, whether soil treatment and capital intensive cultivators took over as a substitute on larger farms or what else drove the percentages down in the West, and what accounts for it lingering in a few pockets despite the trend.
I came to appreciate Mahathir of Malaysia more over the years. He had a complex situation to deal with in the division between the enterprising Chinese minority and unambitious Muslim bumiputra majority. But he kept the country together and at peace, with no Indonesian 1965-style massacres. He made a lot of mistakes, but he kept trying something else.
A lot of this rings very true for the India side. If India did one thing of the list above, it was land reform. India had a massive land reform under Nehru and it's been my family story that my great grand father owned 100s of acres and it was all taken away and given to poor peasants who subsequently sold it to foreigners (though it also seems like he willingly gave it away under influence of Gandhis ideology). But in general among the upper castes (Brahmins), the story you hear is same, once we had massive land, then we lived through generations of poverty and finally got back up again (by working very hard on our education is a staple Brahmin story. Generally it's my opinion that they have a significant genetic advantage and an economy that values intellectual work. ) . But India never went through protectioni, tried socialist style planning for a really long time (till 1990s) and then just liberalised everything which made us richer than 1990 but nothing like Japan, Korea, China. India is right now a service based economy with a small manufacturing footprint. This means that some part of the population (the educational elite) live quite a rich life. (They generally work for software, or consultancies like McKinsey have a big craze here or Banks like Goldman Sacha are also very prestigious). The people who don't do well in school generally end up working in menial labour or odd jobs (servants, drivers, coolies, construction workers, farmer) which pay very less. If we had a good manufacturing sector, they could reach the middle class like in America but we don't which is why there is massive stress on Indian Students for their 10th, 12th and college exams. I hope we get some government that understands the use of tariffs.
With regard to China there's an argument that their success in industrialization and foreign trade happened more despite than due to centralized policy. Case in point, consider the institution of "Special Economic Zones":
One story about how those came about goes as follows: First Hong Kong became successful, producing many rich businesspeople who were used to working in a relatively freewheeling free-market environment. Then some of the rich Hong Kong businesspeople noticed that right next door to them in southern China there were poor areas with cheap land and desperately cheap labor, but a pretty terrible tax and regulatory environment...overseen by corrupt local officials. The profit motive being too great to ignore, they went ahead and built factories in convenient places like Guangdong and tried to run them just *as if* they were still working in Hong Kong. When national or local laws made it hard to do stuff, corruptible local bureaucrats were then bribed, co-opted or otherwise encouraged to turn a blind eye and/or falsify records such that authorities could simply *let business do business*. This model was so profitable it spread until large regions of the country were more or less openly flouting the law to become successful manufacturer/exporters along the Hong Kong model.
Eventually the problem of all these businesses in China *massively enriching the local economy by violating Chinese law* came to the attention of the Chinese national government. Which adopted the face-saving strategy of declaring these regions should now be considered a "special economic zone" where it was OKAY to have foreign and domestic trade and investment without going through the usual process. They drew lines on a map and said "Okay, as long as you stay in THIS tiny area we'll let you mostly keep doing what you're doing because, well, it's working. But if you do the same thing OUTSIDE that area we'll come down on you like a ton of bricks!" The central authorities could now pretend it had been their idea all along to benevolently ALLOW all this free-market stuff to happen and they were still totally in control of everything. "No laws are getting casually broken on OUR watch, nosiree!"
Alas, the outlaw regions had a tendency to expand into neighboring towns so to *maintain* their illusion of still being, like, totally in control the central government had to keep *widening* the areas they considered a "special economic zone" until eventually most of the places where anybody might WANT to build export-focused industry weren't encumbered by the regulations that had previously been making it hard to do so.
In short: Hong Kong's attitude toward business became geographically contagious and took over China.
Interesting review & discussion. But there is an elephant in the room: The demographic transition.
All the Asian countries that succeeded, reached the end point of the transition (below 2.1 children per woman) during their economic take-off. I also believe that in most, if not all, of the countries Studwell hails as success stories, their strongest growth rates coincided with their "demographic gift" period. The demographic gift-period (aka the demographic dividend) is the transition phase when the working-age population is large, relative to children and the elderly. Implying that they do not have many "unproductive" mouths to feed, and can save & invest more of their surplus.
Does not Studwell mention the demographic transition at all?? Judging from Scott’s review, that seems to be the case – but I find it a bit hard to believe, so if possible, cold Scott or someone else please confirm this, or correct this?
Side note in this regard: AFAIK, the World Bank registers per capita income by dividing the stipulated household income by the number of household members. The Bank does not even (unlike OECD) give lower “consumption weigths” to children than to adults within a household. With this calculation method in mind, it is no surprise that per capita incomes in say Mali (still high fertility) has grown, and is growing, more slowly than in China (or Vietnam, or Bangladesh).
For a recent take on the same topic that includes a discussion of the role of the demographic transition in fostering economic growth, I recommend a book by the Dutch scholar Peter de Haan (2020): “Whatever happened to the Third World? A history of the Economics of Development.” Haan has worked for forty years in the development field, including being Asian Bureau Chief of the Dutch NGO NOVIB (now merged with Oxfam).
Side note: I plan to put this book up as mandatory reading for a student course, so if someone has opinions on this book, including negative opinions, I would be very interested in their views.
You wanted an Asia Doesn't Work That Way: consider the book "Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty" by Arvind Panagariya.
I just started reading it, and it gives examples of the success of the same countries mentioned above with largely the opposite thesis. Something something same data opposite conclusions something something.
Reading this now, I really feel conflicted and can't imagine resolving the conflict without actually better understanding the economic and cultural history of these places.
You are falling for propaganda if you are lumping Thailand with the rest of South-East Asia.
Thailand's PPP is higher than China 19,169 vs 18,931
Thailand's GDP is lower than China but in the same ballpark 7,674 vs 11,819
But this is in the context of China being known for inflating these numbers too high heaven with all possible tools in the book, while Thailand doesn't really care (you yourself mentioned the ban on economists)
*But* for 99% of residents this doesn't matter, Thailand's GINI is 36 and it's HDI 0.777 | China's is 46.7 with an HDI of 0.761
So couple increased freedom and equality in Thailand with a larger PPP, and the tl;dr is that the average Thai citizen can buy more goods and services and enjoy them in a more safe, collaborative and free environment.
All of this while Thailand was at the centre of wars and genocides and had to spend tremendous sums of money and twist its political apparatus in order to maintain a strong enough army not to get USSRed, Sinified or Uncle Same'd like its neighbours.
All of this while Thailand has the kind of weather that was good for crop farming 200 years ago, but is not a detriment to infrastructure, tourism and a generator of disease, Malaria is still an issue in a remote regions, dengue is an issue even in the centre of Bangkok when outbreaks happen.
Oh, and did I mention that Thailand manages to be more economically developed than China without murdering 20% of the population in the process or enforcing en-mass sterilization and child murder? I know it's a super small ethical quip compared to a 0.3% difference in GDP growth, but might be worth taking into account.
This is to say nothing of the "on the ground" experience of living in Thailand, which based on immigration, emigration and tourism preferences seems to be *much* better than living in China. Not having a population of slaves, allowing free expression and overall not destroying your culture seems to have contributed to that.
This book seems to literally ignore the biggest f-ing elephant in the room, which is that the large south-east Asia nation, and the only one that wasn't affected by "land reform and protectionist policy" is actually doing better than China. Once you take China out you're left with the much smaller Taiwan, Korea and Japan.
The former two tiny and might own their growth to US support as military bases, the later being an epicenter for half the world's culture and really bizarre in terms of everything from weather to geographic location to culture.
Also, how comes it fails to mention this EXACT policy being enacted in Cambodia, which had much less success than china.
I call bullshit on this book, it seems to be promoting dangerous totalitarian ideas with just so stories by ignoring the actual data.
This runs completely counter to my experience in the nations of Africa.
Take land reform for small farmers. I swear, you can be driving along a road in Kenya (yes, I've done this) and look out to the right and see rolling fields of wheat that are owned by the Germans/Chinese etc. Then you look on the left and see small farmers that consist of a few withered crops standing in the sun and bodies bent over and broken from pushing ploughs by hand. This isn't a metaphor; I've literally seen this.
I asked, "Why don't they just pool their land into a collective, use it to raise money to buy tractors and modern fertilizers and make way more money for way less work - you know, do what the people literally on the other side of the road are doing?" Response is always a certain kind of look, a look that says you-really-think-I-haven't-thought-of-that, followed by some version that the little farmers are so attached to the idea of their tiny plot that they won't even consider such a solution.
I recall reading that (southern) Ireland had two forms of land reform. In one case the British absentee landlords were forced to sell their land to native Irish. And between the potato famine and mass emigration the amount of land per farmer increased dramatically. I assume there is some sweet size for plot size. You want the largest plot that one farmer or one farm family can work with a given level of technology.
Correct. "According to official reports , not a single South Korean village had a tractor in 1965 ; there were only 131 tractors in operation in 1970."
To be fair, Midwest style tractors are not much use for small plot rice farming. If you've ever been to Japanese or Korean countryside, you would have seen even today farmers tilling their fields manually or at most with a tiny two-wheel unit.
>China's level of debt is frankly terrifying, but they seem to have pulled it off so far by growing faster than they borrowed, even though they borrowed a lot.
I wish there was some discussion of North Korea, which seems to be the only East Asian country left out of the discussion. Like South Korea was at first, North Korea was and is a dictatorship, and it has a similar one-party system to China. Yet it hasn't enjoyed the same economic success as either neighbor.
The land reform step seems to have gone right:
> On 8 March 1946, land reform was implemented in North Korea that saw the confiscation of land from Japanese nationals and organizations, Korean collaborations, landowners and religious organizations. The confiscated land were then redistributed to 420,000 households. A total of 52% of North Korea's land area and 82% of land ownerships were redistributed.
After the Korean War, and with help from China and the USSR, North Korea grew very fast and enjoyed a higher standard of living than South Korea. Then it started focusing on heavy industries... but inefficiencies started to arise, it suffered from the collapse of the Soviet Bloc in the 1990s, suffered from crippling famine, and is still a very poor country today, especially in contrast with its neighbors.
So, what went wrong? Did it fail to have internal competition to accelerate industrial progress? Did it fail to switch to free market policies when it should have, like South Korea did? Did it just get too totalitarian? Or was it due to some geographic or internal factors like availability of resources?
I see a lot of people (maybe following Studwell) lump together land reform and industrial policy, but they seem so different to me, especially from the point of view of economists. Successful land reform is about reducing principal-agent problems, whereas industrial policy is about increasing layers of management, and claiming that knowledge externalities will make up for it.
Why can't landlords do land reform themselves? Is it true that landlords can make more money the old way, or is it that they don't care about money and are actually in it for feudal power? I suppose they might be because of diminishing value of money. Do we see the problem get worse the larger the landlord is? I think that the size of "big landlords" ranges over orders of magnitude between countries, but I never see them compared.
> Is it true that landlords can make more money the old way, or is it that they don't care about money and are actually in it for feudal power?
Disrupting social order is risky. Maybe the peasants encouraged by your example, but frustrated by others not willing to follow your example, will start a revolution and all landlords will be hanged (including the progressive ones). Or maybe other landlords will be afraid of the revolution, so they will hire an assassin to kill you.
Less dramatically, if progress requires some change of laws, the other landlords will not help you with the votes. "Everything stays as it is now" is a Schelling point that allows them to stay in power.
Both this book and "Seeing Like A State" seem to reinforce something I've learned updating old custom equipment as an engineer. Don't change something until you understand how it works. This has become a bit of a montra for me. Most of the times I've changed something without understanding the mechanisms for why it is the way it is, my changes break something that hasn't been an issue in decades. Eventually I can fix those issues, but its usually easier to fix when you know why a thing was designed the way it was designed.
1. Harkening back to earlier book reviews, wasn't Wolf Ladejinsky a Georgist?
2. It is worth emphasizing that Asian success stories do not follow either a Soviet-style development policy OR the the Jeffrey Sachs/World Bank liberalize the economy and privatize all the things model.
3. Indonesia is another good example of an Asian development non-success. The non-state-owned sector of the economy is largely controlled by overseas Chinese, mainly Chinese protestant Christians.
This suits the ruling clique just fine, as the Chinese are foreigners and infidels to boot, and therefore a reliable and generous source of financial and other support for the politicians.
Also, what about comparing with Turkey? The definitely had brutal capital controls and industrial policy, but I am not so sure about the land reform bit.
So the focus on Malaysia as the fail case is weird. Why did he focus on that case instead of, say, the Philippines or Indonesia?
Just for reference, per capita GDP in Malaysia is nominally ~$12,000 and ~$30,000 in PPP terms. This isn't a failed state, judging by photos of Kuala Lampur, this isn't even a poor state, it's just not rich yet. Compare that to the Philippines or Indonesia, with per capita GDPs of ~$4,000. Why draw a comparison between high-income South Korea and middle-income Malaysia, instead of low-income Indonesia?
Because, and I'm no expert on the Malay economy, but if they've gone from poverty to $12,000/person in 40 years (1980-2020) and the South Koreans went from poverty to $30,000/person in 52 years (1961-2013), that gives Malaysia enough time for another doubling. And saying we need to abandon liberal economics and install a military dictatorship to direct the economy so we can go from $30,000/year instead of $24,000/year just isn't very powerful.
Again, any indication why he focused on this specific comparison?
I admit I am predisposed to disliking industrial policy-driven arguments, as Brazil (my country) is possibly one of the biggest failure cases for industrial policy.
Our 80s US-backed military dictatorship tried hard to play by this book. Huge tariffs were put up against imports in strategic sectors while the government started up huge state enterprises. It backfired spectacularly, as most of the state-backed enterprises only made inferior copies of foreign products - the poster child for this being COBRA, the state computer enterprise which until its inevitable death did nothing but produce inferior copies of foreign low-end computers and sell them at a gigantic markup.
While this was the most notorious case, there were examples like this in every field you can imagine. My father will always tell me about how incredibly shitty products were during the dictatorship years, as our "nascent industry" insisted in remaining nascent and simply extracting value from the fact the market had no access to alternatives.
He sure waives away a lot of exceptions. New Zealand and Denmark are sparsely populated, so they don't count. Hong Kong and Singapore? Oh they're too densely populated so that doesn't count. India? Well let's just not talk about India, or all of south America for that matter. UAE, Kuwait? well they have oil.
It's a long book and maybe he talked about South America, but when you eliminate all these countries you end up with basically five data points in effectively the same part of the world. His objections are true. New Zealand does have an advantage in farming because it's low density. But vietnam/China/taiwan/korea have an advantage in manufacturing because they are close to big markets (more specifically the cost to transport manufactured goods to market is low, doubly so because of container shipping). Mongolia, couldn't follow this policy. You're not going to bring all the parts for a car into Congo manufacture it and then hall them out.
Geography is destiny for a lot of this stuff. That's why a poor worker becomes more productive when they go to a more productive place. A carpenter is worth more in San Fransisco than in nepal.
Soooo....I saw 'land reform' recommended. I searched the article for the word Zimbabwe. And this article manages to recommend land reform, mention Zimbabwe, but not mention Zimbabwe's land reform policies. I don't know if this is true of the book as well, but if it is that would be a pretty damning indictment.
The summary provided of "land reform" doesn't make a lot of sense to me. Sure - slaves/sharecroppers/whatever don't have a lot of incentives to improve land yield and owners do. But if that's the case, Zimbabwe should have had a farm output explosion in 1980s, yet the reverse happened.
There's an interesting tie-in to the US's evolving stance toward land reform in a broader geopolitical sense. In the late 1940s land reform was something the US was imposing on quasi-colonial possessions, but then not not too long after that at the beginning of the 1960s Cuba tried to do a land reform, and the US was having none of it. Of course we now think of that Cuban regime as a Communist dictatorship, but at that time that was certainly not the official story, and US-Cuba relations were rather normal.
Powerful US corporate interests would be subject to dispossession in the land reform. They had the ear of President Kennedy and significant sway in Congress (c.f. MacArthur in Japan not needing to bother with Congress at all). So the response ended up being we're going to turn the screws on them by blocking goods that we import from Cuba, and that will get them to stamp out their land reform pipe-dream.
This ended up backfiring as Khrushchev smelled the opportunity to put Cuba in the Soviet camp by offering a helping hand to get them out of that jam.
The description of Asian success stories matches very closely what Germany and other continental counties & the United States did in the wake of Britain's pioneering wave of industrialization - they sent people to learn what the Brits were doing, they bought, borrowed, or stole expertise and experts, they sometimes smuggled machinery and drawings out of Britain, they bought British capital equipment, and they used British investment - particularly for railways and heavy state-backed infrastructure projects - and they used their banks to direct investment to "desirable sectors" and they used government subsidies and tariffs to promote and protect their "infant" industries from British - mature - competition. All of these recipes are now considered horrible by the economic establishment, and the economic establishment on the whole works from abstract largely deductive models, and has little knowledge of or interest in economic history. Germans are good at making cars because of a century or two of effort with lots of state support, tariffs, and banks behind them. Kenya would have to perform a miracle if it were to practice free trade and free movement of capital and suddenly - hey, presto - become an industrial power. In the Middle East, political disorder often reigns, and the rich countries suffer from the oil curse - it is easy to make money from oil, the currency rises because of oil, making any infant industry uncompetitive, and the temptation to import virtually everything is ever-present since money is pouring into government coffers. Also, it might be the case that a concentration on theology and orthodoxy in the educational system is not productive of entrepreneurial and innovative zeal. Outside, the Middle East, Middle Easterners are often extremely successful. Iran would be an interesting case to look at. These are complex questions. I studied economics in Toronto and at the London School of Economics, many eons ago, and also worked as an economist, in an equally distant past, at the OECD in Paris.
Does land reform even work the same way post green revolution and farming mechanization? All the fair trade people seem to suggest that small free hold farmers (for e.g. coffee and cocoa etc.) struggle to compete with agribusinesses. Aren't small African freehold farms pretty inefficient (by modern, not historical standards!) in both labor and land productivity?
“ Once again: there is no significant economy that has developed successfully through policies of free trade and deregulation from the get-go.” - Chile would like a word
I wonder how this applies to resource rich but non-farming based economies. If you live in a desert with a lot of oil, what would be the equivalent of “giving a plot of land” to the poorer class? Or would you skip it all together and go to industrializing?
Malaysia has a higher per capita GDP than does China. In terms of quality of life, I would take living there over living in South Korea, Taiwan, or China any day of the week. If you look at GDP per capita on a PPP basis, you can see that my personal feelings are backed up by data.
Malaysia's PPP is more than twice that of China's and about 4 times that of the Philippines. In other words, the country did not fit into Studwell's nice little boxes, so he slagged off Mahathir. The country's growth exploded under Mahathir who tried a "let's throw everything at the wall and see what sticks" approach to development. The affirmative action policies were absolutely necessary or the country would have collapsed into civil war. All that said, some of Mahathir's projects were ill-advised, but overall, everything worked out well.
This is quite interesting to me due to the fact that Ukraine have undergone the exact opposite of those reforms in the last 30 years.
First, all complex engineering - airplanes, stuff for space program, electronics, optics, you name it, everything was strip mined by oligarchs in the 90's. Anything involving technology is non existent anymore. Soviet-style research institutions are closed.
The pinnacle of it is that the reverse land reform is finally in place which gives opportunity to said oligarchs to buy any plot of land they want. (there was a prohibition of that for most of Ukraine's independence).
Due to IMF/World Bank influence welfare is getting more and more cuts.
The only fast growing industry is software engineering outsourcing which is basically business of (re-)selling people, not creating products.
So on paper GDP might be growing slowly but in reality the institutions are falling apart.
I'd like to say that Asia Doesn't Work That Way, but Studwell's book sounds pretty decent. I spent a decade as a correspondent in Northern (China) and Southeast Asia (Singapore) and most of what he writes correlates well with my impressions and reporting. I just disagree (slightly) with the IQ side of things. Having a populace that descends from generations of docile test-takers (that is what having a high average IQ comes down to) makes it easy for people like Korea's Park and Deng Xiaoping to be listened to, without having to resort to mass violence to make obvious points. Malaysia's Mahathir, a really smart man, has had to contend with people with a poor history of literacy, massive levels of ethnic distrust and generally speaking a culture that wasn't favorable to business. One important caveat: let's keep in mind that in Singapore manufacturing still accounts for 20% of GDP, TWICE as much as the US. That's just not simply a financial hub. The really smart people know that having the best people in your country just moving money around and doing Excel spreadsheets only cuts it if you are the world's sole superpower.
I dont understand the argument that international companies somehow dont contribute as much as domestic ones?
From what I've read they are the ones that increase worker productivity the fastest, (indeed, almost as fast) therefore a Tesla branch in Malaysia or whatever would be far superior than waiting for the domestic firm to catch up.
You don't have to steal their tech and kick them out/make it hard for them to do buisness the would be entrerpneurs would eventually start competing firms, and they'll learn the productive habits of the multinationals, probably pretty quickly.
Seems mean to force everyone in the country to buy an overpriced shitty car, to say nothing of the unnecessary car crashes.
"From a very zoomed-out, by-the-numbers perspective, it has to be China's sudden lurch from Third World basketcase to dynamic modern economy."
Um, no. I stayed in Mangshi, southwest China, for a month in 1999. Mangshi, like many Chinese cities, is a modern city inhabited by Han Chinese living modern lifestyles, surrounded by "suburbs" of peasant farmers of the local minority ethnicity, farming tiny plots of land, who are kept completely under the thumb of the government, and living in third-world conditions--often in houses they built by hand from logs with dirt floors and walls woven from leaves, with open sewers running down the street, no garbage pickup--though they did nearly all have television.
I saw similar conditions around Beijing, sometime around 2005.
I don't have proof, but it looks very much like China is not a dynamic modern economy, but a classic imperialist economy, where one nation (the Han) has invaded, conquered, and occupied a lot of other nations, and exploits them to enrich themselves. The only difference is that they pretend they're all "Chinese". But the differences on the ground are stark.
In your conclusion you wonder why these development programs were successful specifically in East Asia and whether culture/Confucianism had anything to this. On that note, I highly, highly recommend supplementing Studwell’s book with Francis Fukuyama’s two books on political order, “The Origins of Political Order” and “Political Order and Political Decay.”
Fukuyama explores the historical development of political institutions like the rule of law, the modern state, and democracy. Fukuyama argues that political modernization isn’t a universal or inevitable process, but that these institutions have developed as a result of historical contingencies in different countries and regions (partially repudiating his older work, in my view). He discusses at length why East Asia developed societies with competent, professional, modern states (the kind able to pull off successful industrial policies). He also argues that these kinds of states are basically unnatural and only emerge under certain historical conditions. Combining Fukuyama’s arguments with Studwell’s arguments leaves me fairly pessimistic about the prospect for economic development in most developing countries.
Studwell's last chapter warning that their economic strategy can only go "so far" seems likely to make him look just as stupid as the IMF people (I pray they were stupid, not intentionally keeping poor countries poor). I feel like America has drunk their own kool aid so much on this issue it's exasperating. We aren't rich because of "capitalism" or "freedom." We're rich because of railroads and steamboats and strong central governments protecting property rights and the domino effect of "now mass production makes sense because transportation costs are actually cheap + "now with mass production reducing the costs of nails and such we can do/ invent so much else." We've gotten so ideologically fixated on this idea that freedom and economic power are positively correlated- "right makes might", I like to call it. But guess what? Morality and power are not, and have NEVER been perfectly correlated. Sure, freedom is good for certain innovations and inventions. But it can also be really bad for building skyscrapers or bullet trains quickly. Economics is COMPLICATED. Freedom does NOT equal POWER. In fact, most of our power was grabbed during World War 2, when we had basically a planned economy where people had ration cards for not only gas but also FOOD. You think the free market would have won that war more "efficiently?" Like, the fact that Studwell- according to this review- makes so many loyalty gestures to these kind of now-laughable ideas makes me not even want to read this book, even though the land reform idea sounds really fascinating. But that big of an oversight seems to reduce his credibility significantly.
I believe that "free-ish" markets, rule of law, and freedom of speech are morally preferable to the authoritarianism that has dominated governments through most of human history. But it's definitely not the most powerful- whether we are measuring military power OR economic power. That's WHY it's been so rare! The little free-ish tribes got crushed by their not-free-at-all neighbors! Life is complicated, and evil often pays off. We are going to actually have to fight for our ideals instead of just trying to get rich if we want to keep "classical liberalism" alive. It sucks, because just focusing on getting rich is way more fun than fighting for your ideals, but it's the truth. Anyways, I'll quit preaching. Just incredibly annoyed by how a book like this- based on your review- can be staring so many facts in the face and still be clinging to the kinds of ideas that got us here (and kept billions of poor people poor due to terrible IMF policies). If this is what America's top minds are coming up with, we're totally doomed.
A) I'm 100% with you on the whole there must be some historical/geographical explanation
B) This book has to be read side by side with DANI RODRIK's ideas on industrial policy
Dani Rodrik argues that East Asia's economic success is not just about the "level of development" of a country, but also about the historical evolution of both the manufacturing sector and global competition.
In the historical period where all those succesful East Asian countries (except Japan) industrialized (between World War II and the 90's), manufacturing was labor intensive.
That was good for them because it allowed them to "absorb" huge share of their "non qualified" population in manufacturing, which sustained fast growth rates for the decades that it took for the investments in education and infrastructure to bear fruits.
And why did they bear fruirs? Because the manufacturing sector can scale and move up the value chain: From textiles to cars (Toyota/Japan) and from cars to smartphones (South Korea) and chips (Taiwan)
It was also "good" that they were super poor then, because it allowed them to have lower labor costs than other countries who were not so poor.
Also, globalization was less intense, so the global market was less competitive. Example: South Korea was able to export its subsidized products to a huge market, America. This allowed industrial policy to succeed.
Nowadays, NONE of that is true.
Now, manufacturing is less labor intensive.
And also, globalization makes it more difficult to be competitive and "nurture" the "infant" industry.
Latin America specifically could not have copied their success, because they (we) industrialized on the 19th Century, and our exports were oriented to the primary sector, a sector where YOU CAN NOT SCALE.
What does this mean for middle income countries such as, for example, Latin America?
We missed the boat, and to grow we need to do standard neoliberal stuff like:
- Education
- Investment (perhaps would benefit from East Asian high savings rate)
- Reduce corruption
- Political stability
Which would allow us to grow economically, but not to be an economic "miracle".
In my opinion, which countries whould Latin America then look up to?
Eastern european post cold war success stories.
They are middle income countries who did neoliberal stuff and grew, some a lot more than many latin american countries
This is an interesting and well-written review of very thought-provoking book. Studwell does a yeoman’s job of identified some key aspects of tiger economy development. The question is how generalizable they are. The trouble with broad survey analyses such as this one is that for every example there is a counterexample. This work fails to convince a close reader.
Moreover, the book’s thesis risks falling into the mono-causal fallacy. For instance, it completely ignores East Asian (and South Asian) cultural preferences that favor education.
If I am reading the article correctly, Studwell lists three main requirements for rapid industrialization:
* A enlightened dictatorship forcing through industrial policy favoring private ownership
* A smallholding-oriented agricultural sector
* A protectionist regime in the beginning, including tight capital controls
Despite Studwells’ protestations, historical counterexamples are in plentiful supply. To wit:
* Great Britain on the eve of the industrial revolution had most of productive land controlled by large landowners. These landholders were always dominant previsoly and became still more dominant as a result of early 19th century enclosures.
* American industrialization occurred in the absence of import controls, which were not implemented until industrialization was essentially complete.
* Neither Great Britain nor the US had any semblance of industrial policy at the time they industrialized.
* The USSR successfully industrialized despite having a very poorly-performing agricultural sector that was dominated by enormous collective farms.
* France lagged in industrialization (and continues so) despite enjoying mostly smallholding-led agriculture, a protectionist regime and ownership-oriented industrial policy.
* Argentina largely followed the script, including tight currency controls, with no visible results.
* India has done remarkably well in the complete absence of any land reform, capital controls, or serious protectionism.
Furthermore, Studwell states that once industrialization is complete, economics should open up and implement free trade. However, free trade after industrialization favors exporters at the expense of importers - in the case of USA, for instance, it led to a rapid deindustrialization and relative decline. China, Korea, and Japan are still practicing protectionism, under guises other than tariff regimes, and their protectionism continues to benefit their industrial (and agricultural) sectors.
To digress a little, the author mentions rural impoverishment as a driving source of terrorism. This assertion turns a blind eye to the fact that many if not most terrorists (and revolutionaries) are and generally have ever been middle-class urbanites.
Touching on current Chinese policies designed to make it a middle-income rather than a rich country, I would argue that middle income is most likely the ultimate objective. An autocratic central government has no desire to contend with a rich populace that can afford to have ideas or demand a share of power. A small number of robber barons is much easier to control because, as we have seen, the state can always liquidate them.
As an aside, it is hardly surprising that development economics from developed countries - even from Japan, which actually followed Studwell’s script - offer self-serving advice even as they try to convict themselves and one another of its correctness. Every nation that survives the state of nature of international relations does so through self-serving actions when the stakes are high enough, and global economic power makes them high indeed. China throws its weight around in ASEAN for the exact same reason.
In final analysis, the book does not necessarily offer an actionable prescription outside of a narrow set of nations. Perhaps development is simply idiosyncratic.
Good chunk of post-Soviet countries adopted free market policies and most of them failed, so I do not agree that there were only a handful of 'free-market' developing countries. Also countries adopt 'free-market' policies often as the condition of getting IMF loans, so the list of such countries might be much higher.
Your quoting ""scream"" is itself charitable as what Scott actually wrote, and you actually quoted yourself, was "just sort of screamed", which is, to me anyways, obviously exaggeration by Scott. And, similarly, "part of a conspiracy" sure seems like an acceptable (tho loose) translation of "simply pursuing their class interests".
David Harvey is a Western intellectual though, he comes from *exactly* the same class as the pundits supporting capitalism. I wouldn't recommend you to trust anything he says. In fact, probably there only ever lived three souls pure enough to truly have the interests of proletariat at heart while not being proletarians themselves: Marx, Engels and Lenin.
Do academics not participate in the relations of production in a way which is quite unique to themselves?
And yet their wage has next to no dependence on the job they actually do.
I am pretty sure Scott was describing Harvey's _writing_, so I'm not sure whether you're describing (hearing) his speaking voice.
> Pursuing objectives that are in your own self-interest (as a class) is not a conspiracy.
Sure – and yet I think it's pretty common for people to 'feel' as-if people are 'conspiring' when they're acting in a 'coordinated' manner, that's not otherwise (immediately) understandable, even when they're not explicitly coordinating.
You described the same person as having "a very soothing voice" and it wasn't clear to me whether you describing his actual audible voice or his 'written voice'.
With respect to the 'conspiracy' thing, it's NOT (obviously) a mistake, particularly Scott's usage (i.e. describing someone else's writing) – it mostly seems pretty clearly metaphorical.
But if it's _common_ for people, including Scott, to misinterpret others (e.g. 'Marxists') as claiming/implying/assuming a 'conspiracy', that's not obviously a mistake on either party's end. More charitably, it's just routine and mundane miscommunication.
And I think 'miscommunication' is a big reason – probably THE reason – why you are received so poorly here (and on Scott's previous blog). I don't think that's your 'fault', but I DO think you could do better on your own, and that seems (to me) like something you'd want to do, given that you DO seem like you want to communicate with us and enlighten us. (I think you've gotten a little better recently and I do think you probably have useful or significant insights that you could share.)
Meh – I think all communication requires, effectively, some kind of 'bridging of inferential distance' and it seems like an extremely common problem with 'Marxist' writing, or similarly 'lefty' works, that they fail to reach anyone not already familiar with similar, or more foundational, works because they don't bother to either bridge that 'gap' or even point out that there is one.
And, really, this is a much more common problem than with just the kind of thing you like to defend in the comments here.
What I find 'sad' is that I think you probably _could_ – and easily – help the rest of us bridge some of that distance, e.g. by providing some _summaries_ of the background we're missing and not just pointing us to long texts for which we're probably missing crucial background for understanding, or even appreciating, too.
You link texts, but that's not particularly helpful, as the texts are often long, AND they can't be easily understood, and thus evaluated, without a LOT of other background context. I've tried to read some of your linked texts myself!
I am claiming that you _don't_ in fact "explain very specifically what Scott's mistakes are" – even if you think you do that, I personally can't often tell _why_ you think they're mistakes beyond 'marxbro1917 is a Marxist'.
Again, I think it's fair, in the way Scottt wrote his 'conspiracy' phrase, that this could be a slightly exaggerated translation of what you describe as being "about class interests. I don't think we necessarily disagree about this specific example.
And I will try to remember to take you up on your offer to help me (and others) bridge the 'inferential gap' between our positions – thank you for offering!
I don't think Scott, or myself, or others, are reading leftist materials uncharitably. I think it's the same 'bridging the inferential gap' problem but that, even were the gap to be entirely closed, some of us would _still_ disagree, because we don't accept, or are not convinced by, the more fundamental precepts of leftism.
Take "class interests" as one example. I believe 'class' exists and I believe it is a significant, and even powerful, force in, e.g. politics and economics. But I think you and I probably have very different views and understandings of what 'class' is, how many categories there are (reasonably), how strongly it predicts or is correlated with human behavior generally, etc.. It seems to me like there's lots of room for empirical validation of any 'class interest' theories, but _my impression_ of 'leftists', generally, is that their 'priors' are much more confident in any basically 'leftist' understanding of class, and thus they're more likely to dismiss what, to me or others, would seem like reasonable counter-evidence.
To around two years ago*
But what about the Middle Eastern countries who tried very similar policies in the 60s and 70s, and it didn't help them at all?
You can't just pick successful countries who all have X in common and write a Just-So story about how X is the cause. You have to look at all countries with X.
Where can I learn more about the Middle Eastern side of things?
I found "Egypt on the Brink: From the Rise of Nasser to the Fall of Mubarak" useful as a source on Egypt specifically, though it's more political history than it is economic.
I feel like most Middle Eastern countries were not stable enough to keep the policies going. The most prominent example of socialist country trying to turn things around is probably Egypt. Egypt started with something similar in 1956 with Nasser, but by 1970s they were already deregulating their economy since they switch their side in Cold War.
Don't most of the Arab countries still have a hereditary nobility of large landowners? And haven't they stayed focused on bananas, rather than manufacturing? (Well, oil, but it's the same sort of thing as bananas. Some of the Emirates have tried to do something different, I suppose.)
I'm wondering how the small landowner thing should work when water is scarce and requires large-scale irrigation.
Read Elinor Ostrom's book "Governing the Commons". There's lots of interesting stuff in here about how various traditional societies figured out non-state non-market ways of solving common pool goods problems, including water rights among small landholders in Spain, that involved a complicated system of ditch maintenance that made it easily verifiable by everyone that everyone was doing their part fairly.
This article describes the system as applied in the US: https://craftsmanship.net/the-hydraulic-genius-of-shariah-law/
And yet after the irrigation system was destroyed by the mongols, it was never rebuilt. Kinda hard to square that with some sort of cultural genius for hydrology.
?? The article describes the use of the irrigation system in the US. I'm unaware of any Mongol invasion of the US — and the origin was Spain, and I don't believe the Mongols got that far. Could you clarify wrt to the article to which I linked?
So true Sharia is found in the Western US rather than the Middle East?
That’s an *unorthodox* position…
I am mocking the calling of this Shariah, and PC attitudes that felt that was a sensible characterization.
I did not mention "true" Sha'riah. I suggest you simply read the article, look at it as a way of cooperatively managing a common resource, and not get distracted by labels.
We all see what is interesting in an article.
You think the "co-operative water" is the interesting part.
I think the "labelling this as sharia, even though that claim is silly" (presumably because we live in a time where nothing euro-american can be considered good) is the interesting part.
From the article: "José explains the ancient practice of dividing the flow of water with acequias, the gravity-based ditch and communal water management systems that have irrigated farms in southern Colorado and northern New Mexico since the arrival of the conquistadores. To be historically precise, the conquistadores–and the indian warriors and craftsmen accompanying them from Mexico–brought this technology with them on their transatlantic journey from the semi-arid regions of 16th-century southern Spain to the New World. The Spaniards, in turn, learned it from their Arab and Berber conquerors, whose civilization dominated large of swaths of Spain’s Iberian peninsula for more than seven centuries."
Islam shaped Spain substantially, and traces of the culture remain highly visible there (cf. Alhambra), and — as the article notes — some practices from that heritage were brought to North America by the conquistadores.
I can see that, you cannot, so I think we will just have to disagree.
I have to say that I don't understand some of your statements. You attributed to me things I did not say or think, and now you claim that "nothing euro-american can be considered good". I disagree with that, but I take it that's your view.
Your views and your misunderstandings of my statements show that there is no point in taking the discussion further.
Must steal that book....
I’m no expert, but didn’t Israel follow broadly similar policies to Korea, Taiwan etc and also succeed? My sense is that even (relatively) peaceful Turkey, Jordan etc have not been able to follow a similar path.
Israel has almost no privately owned farms though.
I wouldn't say that Israel followed a similar model: The early Kibbutzim were not privately owned, though being small and communal may have led to similar effects.
But Israel is something of a special case, having been built by immigrants. The earliest migrants were largely Eastern Europeans: Not quite American/British, but not Chinese either. There was also non-negligible immigration from Germany and either highly developed-European countries before WWII, and they would have brought substantial knowledge with them. That probably also explains at least part of the socioeconomic gap between European Jews and Middle Eastern and North African Jews and Arabs in Israel.
It's interesting that the most recent immigrant wave, of roughly one million often highly-educated immigrants from the USSR around 1990, actually had pretty low socioeconomic status, though it has since gone up. That may just reflect Israel's relatively high development by 1990 (to Soviet levels? IDK) plus some difficulty integrating.
I'd be interested in an analysis of the impact of each successive wave of immigration on Israel's economy and industrialization. https://en.wikipedia.org/wiki/Aliyah#Zionist_Aliyah_(1882_on)
There's an econ paper analyzing the labor market impacts of the Soviet Aliyah. Let me know if you can't find it in Google Scholar and I'll dig it up.
I wouldn't say the USSR jews were low socio economic status, they were only low economic status in Israel because of frictions entering the labor market (language, specializations). They were high socio status (education, culture) and indeed this shows in the catch up a generation later.
Could you dig it up? :)
I found two.
1) https://www.econstor.eu/bitstream/10419/102605/1/1996-28.pdf
2) https://www.econstor.eu/bitstream/10419/20581/1/dp1315.pdf
Thanks! (Somehow liking doesn't work.)
The counterexample I was thinking of was India, which implemented protective tariffs, manufactured their own crappy cars etc., and grew slower than Studwell's failure stories. At least in the Economist magazine version, the tech industry took off because the central planners didn't quite know what it was and left it alone, and India only achieved sustained fast growth post-liberalization.
How many car companies were competing in India?
Basically two, Ambassador and PAL, with the Suzuki-licensed Maruti introduced in the 80s. The argument would be that India did not enforce export discipline, and the “license Raj” bred complacency.
Not Tata?
Automobiles have been liberalized since, and their first passenger car was only in 1988. Tata used to make trucks, but not cars. They started making the Nano, but it's not a big success AFAIK.
To what extent did their similar policies include real internal competition and export discipline, rather than the government subsidizing and/or owning designated champions of industry? My admittedly vague impression was that Nasser et al were Soviet-influenced socialists and much more friendly to SOEs than to entrepreneurs.
The Middle East experienced the highest increase in the UN Human Development index at the time. Sure, oil wealth helped (although it also causes Dutch disease).
Isn't the Dutch disease thing largely a myth? If you have 2 countries, one with $10bn of GDP and the other with $20bn, but $10bn is from commodities. Then if the non commodity part of the economy grows 7%, overall growth is only 3.5%. And for the country with no commodities, it would be 7%. Even though rate of development is the same.
The idea is that commodities represent easy money, which drives out every other kind of investment. At the same time, commodity prices can be rather volatile, to put it mildly, especially if you are not the margin producer.
I don't see why it would drive out other kind of investment. I think the risk is more that leaders can get rich from stealing those commodities, and use to resources to live large and opress the population. Whereas with no commodities they are forced to develop, opening Pandora's box (in a good way).
But for the most part, the non commodity economy often grows just as fast, it is just that the commodity part of the income distorts the growth %'s.
As I understand it, the reason commodity investment drives out other investment is because the risk-weightes return is so much higher.
The other problem is that the risk doesn't go away, and is in fact quite severe and hard to diversify or hedge away, at least on a national scale. In other words, you're always at the mercy of oil prices.
Agreed. Dutch disease or not, it's better to be Iran than Pakistan.
A different version might be Africa where a variety of countries (most recently supposedly Zimbabwe in, say, the late 90s by appropriation, and still, to now, supposedly South Africa by buy and split white farmer land) have claimed to do this.
I’m unaware of any success stories. Did every one of these devolve into cronyism?
Interested in your recommendation for the best first book to read that talks about the Middle Eastern 60s-70s development story!
I read this in a French paper encyclopedia in the 90s, can’t remember which one, probably the Universalis annual supplemental volume, and in any case it would have been discontinued years ago.
Not sure about the details but I remember an Iraqi writing that Saddam Hussein was actually a pretty competent administrator when he was Vice-President before he staged his coup and power went to his head. Iraq certainly had the human capital: engineers, doctors and so on, not being burdened by the dead weight of Wahhabi indoctrination in schools.
Iraq's lack of human capital is one reason why Greg Cochran was confident they wouldn't have any nukes. Other reasons were sanctions & that chunks of the country were too hostile to the regime to contribute.
Most of those factors would also apply to North Korea, yet they managed to get nukes. It's a 1940s technology, well within the reach of most nation-states. It's only active measures to deny enrichment like those under the NPT that have prevented more widespread adoption of nukes by every tinpot dictator out there.
That's part of Greg's argument: NK had better human capital, so they could get nukes despite their awful economic system keeping them impoverished.
I think the frameowork of exisiting within a Theocracy is enough to outweigh all of the other changes. I mean it looks like many of those Middle Eastern countries were indeed in somewhat of a renaissance before religious factions came in and reorganized the entire game around a very different incentive structure that had little to do with maximizing economic growth.
And I think the author would claim that the set of circumstances he describes are situationally dependant semi-necessary but not sufficient.
>These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?
The real reason is that they got drowned in American/Western investment for geopolitical purposes. Its as simple as that really. I find that you always seem to assume that a country's successes or failures are dependent on internal factors as opposed to external. Its a bad habit you have.
Warning that you keep doing this thing where you keep being vaguely condescending to me for not realizing X, then not giving any evidence that X is true. If you keep doing this I will ban you.
I'll admit that I probably like Scott more than you do, but that read pretty clearly as tongue in cheek to me. "Leaders gave bad advice so the people ignoring the advice clearly were doing it out of spite" strikes me as a reasonably witty way to poke fun at the bad advice given and the success of the people who didn't follow it.
The sentence is about BOTH communist & non-communist regimes, so it doesn't have to be "an actual analysis of communist political analysis and goals".
You're just persistently misreading the sentence, which was tongue-in-cheek as being a commentary on communist regimes specifically, when the inclusion of right-wing ones indicates it wasn't. And its not "weird" at all for Scott to write in a tongue-in-cheek manner.
Scott has ALWAYS included humor inside his serious writings. AND THE INCLUSION OF NON-COMMUNIST REGIMES IN THE QUOTE INDICATES IT'S NOT SUPPOSED TO BE A COMMENTARY ON COMMUNISM SPECIFICALLY. How many times do we have to tell you!?
>but tongue-in-cheek in service of what?
He did it for the lulz.
Would it not be correct to say those countries general world views suggested that those rich economists were basically self interested jerks or active facillitators of imperialist capitalism, so would not spite be a correct motivation as to why they were ignoring them?
Sure thing - Here's an article as evidence of what I am saying ( https://www.jstor.org/stable/2642405 )
This appears to be a 1965 article with no comparisons of American investment in Taiwan to American investments in Congo, Honduras, or anywhere else in Africa or the Americas, so I'm not sure that it supports your claim that the *difference* between these places is explained by a *difference* in American investment.
The article outlines the disproportionate levels of investment/aid given to Taiwan.
I'm just going to reiterate what Kenny is saying here - what you link to doesn't really support your thesis in the large. Plus, just linking to a JSTOR article without context comes off as moderately unhelpful. Personally - and I imagine this feeling is shared - I'm disinclined to go through the work of reading through random paywalled articles because there's a good chance it's a waste of time.
Also, just in general, making generalizations about people "I find that you always..." is really pretty unhelpful communication. Do you know this to be literally true? Take the second persian gulf war: do you think Scott blames internal factors in Iraq for the fallout from the second persian gulf war? My money's on Scott putting substantial responsibility on the military campaign and occupation. Even if he's like, fuck no, it was all the Iraqis fault for not having backup water treatment facilities, well, okay, then he's crazy. We just don't have enough information to know what Scott always does or doesn't do.
If you find yourself asserting generalizations about other people's beliefs that aren't literally true, then you're probably doing something wrong and should reevaluate strategies.
Unrelatedly, are you Chris Allen of haskell land? Think I had a pleasant dinner with you at lambda conf one year. Hope you're well.
I am absolutely certainly not going to say that Chris Allen is right about anything, but you do seem to have a habit of adopting the first plausible seeming explanation of anything as The Real Truth and then turning around making a blog post about it. That can be a bit disappointing to see.
Also, sometimes foreign investment really did spark entire industries. RCA in Taiwan. Singer, too. Then the plant employees start copycat firms, or small parts firms, etc. But that foreign investment did matter.
This seems implausible. What geopolitical purposes were served by investing in East Asia rather than the Middle East? Even Latin America, Subsaharan Africa, and South Asia were also parts of the "third world" that the first and second world were fighting over for allegiance during the Cold War, but the Middle East was just as much the front lines as East Asia, and had the additional presence of a geopolitically important resource.
Surely the US also invested a great deal in the Phillipines, both when it was a literal colony and then as an independent state?
Subic Bay? That's where the US fleet was based.
WWII also wreaked hella devastation on the Philippines, and the Philippines are much better positioned to cut off routes into or out of Mainland China.
A big difference in postwar land reform in the Japan vs. the Philippines was due to the fact that the rich in Japan were the enemies of the U.S. in 1941-1945, while the rich in the Philippines were our heroic friends fighting our mutual enemy the Japanese behind enemy lines. So, expropriating the Japanese ruling class seemed a much more morally fitting policy to Americans than expropriating the Filipino ruling class, who had just gone through four years of occupation.
South Sakhalin was seized by the USSR after WWII (and Manchuria/Korea were removed from Japan's control), so I'm not seeing where the USSR had a land border with postwar Japan.
Given the giant US built port at Dharhan, the giant US built airbases at King Khalid, and the giant US built oil pipelines crisscrossing Saudi Arabia, I think you underestimate what Aramco was up to.
What Aramco was not up to was a large scale rewrite of society ala MacArthur or Mao.
Another interesting case is Iran, which seemed (by numbers and cultural indicators) to be one of these success cases under Mosaddegh, who pushed the British out of ownership positions and passed a land reform act, until the 1953 coup, when the west installed the newly empowered Shah, who proceeded to run western friendly policies.
His policies were "western-friendly" in that he opposed the communists, but my recollection is that they were also quite pro-development and included land reform.
Iran bordered the Soviet Union and was in the US sphere until 1979. Pakistan was in the US sphere, borders China, and only 10 miles of Afghanistan separated it from the Soviet Union. This chain (Turkey-Iran-Pakistan) was extremely strategically important because it kept the Soviet Union from having access to the Indian Ocean.
The claim that started this subchain was that US strategic interests rather than the Asian development model are the cause of east Asian succes.
The fact that these other countries which are also of great strategic importance to the US didnt become rich is strong evidence against this claim. The lack if the Asian development model even more so.
This is the nobody-has-agency-because-cia theory of FP.
The US isn’t responsible for any of it in SK. For a decade after the Korean War it was a complete shit show. It wasn’t until Park took over and while the US may have supported him (as they supported his predecesors), it wasn’t as though the cia parachuted in a bunch of marxist land reform economists to tell him what to do.
We were all over the Honduras at the time, and as always, we let their local rich run their show. As they would have without us.
I don't know where you got the many multiples of GDP for many years in a row claim from - it's not even in the post you linked to - but it is false. SK nominal GDP grew exponentially from some $3B in 1960 to $9B in 1970 and $67B in 1979 (https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=1979&locations=KR&start=1960&end=1979). The total nominal aid (ODA + OOF) to SK can be fetched from the OECD stats database (https://stats.oecd.org/Index.aspx?DataSetCode=Table2A#). It averaged $200M/y in 1960-1967, $500M/y in 1968-1974, and $1B from 1975 to 1982, then fell off to zero over the following couple of years. Note that this sum includes loans as well as grants. While I don't know how to fish this data out of the OECD website, Figure 4 in https://cdn.odi.org/media/documents/191203_republic_of_korea.pdf says that loans predominated after 1969. I.e. total aid (grants plus loans) never exceeded 10% of the GDP over this period. I should also remark that SK had to spend quite a lot of money on the military rather than on building its economy. World Bank data (https://data.worldbank.org/indicator/MS.MIL.XPND.CD?end=1979&locations=KR&start=1960&end=1979) shows that military expenditures amounted to about 2/3 of the foreign aid over this period. While this spending might not have been a total loss for the Korean economy, it is quite implausible that it could not have been invested more profitably elsewhere.
Taking a rough look at the data (FDI as a % of GDP) this doesn't seem right. I don't know how to attach an image, but the link below has Malaysia having the most FDI followed by China, Philippines, then Korea, then Japan. https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=CN-JP-KR-MY-PH
Where does Vietnam fit in this narrative?
It seems to be booming now and that uptick seems to start before increases to FDI.
Do you expect it not to follow the same tragectory becuase it isn't as geopolitically important?
I mean, no one would be foolish enough to wage a war in such a geopolitically unimportant place.
Also pure cope. Singapore was poor as dirt when it first broke with Malaysia and completely eschewed outside aid. Yes, foreign businesses *invested* in the country over time, but that's because of its strong rule of law and human capital - they could reasonably assume a return on invested capital.
Singapore was poor but not as dirt. At independence it was already 1.5 times richer than Malaysia - relatively rich by developing nation standards. It's now three times richer. Also Singapore didn't exactly eschew outside aid - LKY kept flying commercial to international meetings to keep appearances up to keep receiving aid. They eventually caught on and stopped sending aid.
>but that's because of its strong rule of law
Since when was rule of law a factor in investment? It certainly has not stopped people investing in China, Pinochet's Chile etc.
I think you could fairly easily make the case that China would be far richer if it had more proper rule of law (see Taiwan as a nice counterfactual).
Was Pinochet's Chile known for weak business law? I thougth just the opposite? People need to be sure their capital won't be randomly taken by the state in order to invest.
The Chinese economy is growing faster than any economy in history and will outpace the US eventually. I don't think the Western model is one that they should follow considering its causing stagnation in the West.
Meh - a lot of that is catch-up growth which is what happens when you have a country with very high human capital that's been held back economically by a planned economy. Let's see if they can keep it going once they get to Western GDP per capita. I highly doubt it and would be willing to wager if someone wanted to take the other side.
China's rise began under the planned economy of Mao and you could argue Post-Deng China is still in a more moderate sense a planned economy given the interventionist and guiding role the CCP plays. China's economic model is not just a copy and paste of Western neoliberalism
If you're trying to argue that Deng's reforms weren't the cause of China's rapid growth, then I'm not sure there's room to continue this conversation. It's one of the best studied events in economic history. Yes, China's economic model isn't a copy paste, but it's also still much poorer than the West.
China's recent growth isn't even *that* fast - it's just growing off a smaller base because it was so utterly mismanaged. China took 8-9 years to go from ~$10k GDP per capita (PPP) to about $16k today. I just plugged in some random countries to see how fast they did that same climb. Malaysia did it exactly as fast. Lithuania actually did it faster. Latvia also faster.
It actually seems like they're growing exactly as they should be for the stage they're in - maybe even a bit slower. If anything, growth should be faster today given the world is more globalized.
With its current economic model it won't catch up to Western levels.
The U.S. was actually quite protectionist against Japan, and mostly held it back (relative to the very similar Italy) rather than driving its economy forward.
I beat up on American foreign policy as much as the next feline, but I am pretty sure that for much of its history, South Korea did not allow foreign investment.
>Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong.
Scott you are so close to an important realisation. This is not a bug, it's a feature. The IMF/World Bank and all these other Western-centered/founded organizations are designed this way. The purpose is to keep the Third World in the dirt at the West's benefit. Its modern-day neo-colonialism.
The longer I think about this, the more plausible this looks.
What is the benefit to us of keeping Africa poor? Don't we get lots of benefits from trading with and offshoring too South East Asia, the area the conspiracy chose not to keep poor.
Hmmm what's strange here is American and European capitalists made more money than at any point in modern history..... capitalizing off the labor of countries that didn't listen to the "consensus" - China, Japan.
The number of billionaires and millionaires minted off communist china vs those minted off Africa is comical. These capitalists must be terrible at their global conspiracy.
And yet socialism keeps getting its ass handed to it by capitalism. Must be a really sucky system.
The thing about calling failures "fits and starts" is that you can keep doing it ad infinitum. Capitalism is always about to collapse tomorrow, right?
(By the way, did you know according to some scholars we've been in "the final throes of capitalism" for over 100 years? I, for one, am enthused to learn how longer the final throes will last! Think we can reach a millenium?)
I think you’re missing the individual incentives here. In the short run, foreign investors do better to keep commodities cheap and own more banana farms. Sure economic development might help investors in 30-50 years. But what incentive do today’s investors have to prioritize the profits of investors half a century from now over their profits today?
So the intention is not to keep Africa poor. The intention is to keep the markets of Asia and Africa open for US products. In some countries, this thwarted growth and led to poverty
Surely they'd be able to buy more U.S. products if they weren't poor? The U.S. isn't where you go to manufacture cheap-as-possible consumer goods that market to the poor.
Yes but the world bank doesn't know that keeping the markets open for American products would keep these countries poor. This is a fairly new hypothesis that is proposed in this book, and I'd argue that it's majorly flawed (although it offers some interesting insight)
That is... Not a new hypothesis at all. Heterodox economists have been proposing this idea since the 70s.
The only way for them to get not poor is to make products, and then they can buy products from themselves instead of the US.
This assumes "products" is just an interchangable category. Countries do not make Units Of Generic Universally Exchangeable Product and comparative advantage is a thing.
... no?
Africa will have 4 billion people by 2100. Nigeria alone is projected to have 800 million people - more people than all of North America. If their GDP/caps went up, where would the US and EU be?
Much wealthier because there would be a bigger market for stuff that's heavily produced in the west (like software, movies, cars, etc.)
If their wealth went up that much they would start to produce those things themselves, and meanwhile the prices of bananas are going through the roof. It turns out you now have to pay your banana farmers $15/hr wage.
Nevermind the geopolitical position of the United States. China already produces an increasing anxiety among westerners as is. This could be China x5
There's an enormous gap between the current development level in Africa and being able to make their own high end tech goods. And they will be more profitable to the US as they get wealthier at least until they reach that point.
To make it concrete: if you triple the GDP of Nigeria, you'll get a big increase in the market for Avenger's movies, and zero increase in supply.
The same will hold true for cars, software, and pretty much any luxury or high-tech good you care to name.
It's far-fetched that all the elites in the west are coordinating against their own short and medium term interests in order to avert a possible super-long-term issue where Nigeria mostly catches up to us in development. People don't coordinate that well.
Countries may not leap strait from coffee beans to avangers movies, but they can leap to other industires the US might want to keep domestic. I just read in this very reveiw that Cars seem to be the first line of attack for many of these prospective wealthy nations.
I also dont think there is much of an coordination going on here, just individual countries acting in self interest.
Britain had a policy of disallowing advanced industries in India during colonial times. It does not seem farfetched to me that the'd aspire to continue to persue that same objective in the present.
I can promise you there's no conspiracy like this going on.
I agree! but rational people following their self interest on the other hand.
Nigeria actually has a pretty developed local film industry, known by the *entirely original* name of Nollywood.
Happier and healthier. Less environmental destruction. Less mass immigration and border crises. Richer.
> less enviromental destruction
https://ourworldindata.org/grapher/co2-emissions-vs-gdp
Yes, on an emissions front you are correct. Unfortunately the focus on global warming has obfuscated somewhat the myriad of ways that are not directly tied to CO2 emissions that human beings devastate their environments.
We know development dramatically reduces birth rates. This is the #1 way that development will result in less environmental desctruction.
Poaching and deforestation are best protected by strong institutions/rule of law. Poorer countries with rapid demographic expansion struggle to maintain these.
Look at the end of the day the question you have to ask yourself on this point is: (1) are you going to use violence and force to prevent development and maintain huge populations in pre-industrial lives or (2) are you going to invest and work with them to accelerate them more rapidly through the most damaging environmental phases of development and to a more sustainable future.
#2 we haven't really proven can be done yet, but I'm optimistic that as alternative energy sources develop we will enable today's 3rd world countries to "leap frog" over some middle stages in the same way they were able to with mobile phones.
I find some people here tend to overvalue free trade. There is a lot more complexity to the global world, free trade isn't a positive thing a priori.
Also like, it's not a 'conspiracy', this is just the natural tendency of world leaders in developed nations. It's only a conspiracy if they're intentionally working together, but they don't even have to, it's just kind of obvious and in their best interest to keep small nations neo-colonised.
It's certainly not obvious to me that it's in their best interest. I'm not sure it's obvious to them either.
If you're the powerful one you can dictate the terms of free trade agreements and you can send your companies in to pillage the wealth.
If they thought it was not in their best interest then why don't they lift Africa out of poverty? Their aid is pauper and intended for the purposes of debt-trap diplomacy.
I don't think there's a magic button that would lift Africa out of poverty. The world overall would surely be better off if Africa even had Latin American levels of GDP per capita. That would be highly beneficial to Western economies since it would mean more trading partners. There's no secret conspiracy to keep Africa poor.
I'm aware there's no magic button but they're not even trying and that much is obvious.
How exactly would strong competitors who would challenge the West's hegemony be a good thing for the West?
Because it would increase wealth and living standards? China developing hasn't just been good for China, it has been good for the world.
There's a limited amount of global capital you know.
What on earth are you talking about? World GDP has been consistently increasing. Economics isn't zero sum.
I should have clarified, I meant in terms of the market value.
The essence of free trade agreements is that neither party can dictate the terms. Or, alternately, that both parties can - but the trade doesn't happen unless both parties agree to it. So you need an explanation as to why the African parties to this trade are agreeing to deals meant to pillage their wealth.
Mostly because the people that negotiate the contracts benefit from the agreements. That does not mean that the country itself benefits. It's the same in the East Asian countries that are mentioned as failures. Thailand may not have the growth of South Korea, but King Vajiralongkorn sure isn't suffering.
If somebody approaches you with a knife in an alleyway would you not do what they tell you to? Unequal power relationships often result in bad situations for the weak.
Given this analogy, what would the IMF/World bank do to an African nation that refused its terms?
Stop providing below market price financing.
Oh wait...
The single biggest way is farm subsidies and tariffs in the US and EU that prevent Africa from exploiting its comparative advantage. They don't benefit the US or EU globally since consumers who make up the bulk of the population pay higher prices, but they *do* benefit constituencies with disproportionate political power like farmers in rural states.
The UK realised that in the 1840s when it abolished the corn laws, and when I go shopping for groceries in the UK, I regularly see produce shipped from Kenya on the shelves. Maybe not great for the environment, but excellent for improving the lot of ordinary people in the cradle of humanity.
Cheap labor providing cheap natural resources? A population of 1.2billion not providing any serious competition in any industry?
That's the right question to ask. And it comes down to the age-old concept of comparative advantage. What do rich developed countries want to export? The sort of know-how- and capital-intensive products and services that they have based their economies on. Ideally, export those for eye-gouging prices to countries that cannot make these products themselves.
What do rich developed countries want to import? Natural resources (which they consume/process out of proportion to their population size) and products that require lots of low-skill-labor. Ideally, very cheaply because loads of countries have nothing else to export.
In this sense it is in the interest for rich developed countries that the rest of the world keeps exporting lots of bananas and is not capable of making high-tech-stuff. Just as Scott mentioned that the "financial-hub-niche" is a good gig if you can get it, the "things-only-developed-countries-can-make-niche" is great too, especially if it doesn't get too crowded.
And there IS a lot of anxiety in developed countries about other countries catching up. See eg. all the hand-wringing (at least in Europe) about the threat of losing jobs to China, India or Eastern Europe (from the perspective of Western Europe).
Nobody makes 3rd world governments take the money. They could always tell the World Bank to sod off.
"Nope, sorry don't want the billion dollars" is not a very common sentiment anywhere
You guys are the ones making the case that the influence of these organizations is nefarious; unless you think 3rd world governments are too short-sighted or ignorant to see the same things you're seeing and act on them, I don't know what to tell you.
Secondly, keep in mind these billions of dollars you're talking about are usually not gifts or grants; they're typically loans that have to be paid back. I don't know about you, but I get offers from people to loan me money all the damn time, either from credit card companies or banks, credit unions, or mortgage companies, and I have no problem saying no to these people every time.
That's true, but that goes for every form of borrowing, not just World Bank/IMF lending, and the temptation exists for any government with semi-predictable turnover. At least a few Asian countries managed to resist. What's everybody else's excuse?
Is it, now.
Uh. Communist China isn't noted for its restraint on picking up debt.
No, that's really not what he said. He said that some countries are more restrained in their borrowing than others.
It's economic blackmail. "Take the money or you starve" is not exactly a free choice now is it?
I see, so when Raghuram Rajan was Chief Economist at the IMF back in the early 2000's, he was actually conspiring with the West to keep his fellow Indians poor? I suppose that's what Gita Gopinath is up to right this very moment, trying to impoverish her home state of Kerala.
He believed he was doing the right thing. No conspiracy. "Here is some money, also open your market. Both will be good for you, but you need to take them together."
But if opening the markets in developing countries is actually poison, as this book contends, than this is a problem.
That's unlikely, and so you would need strong evidence to convince anyone. How does keeping your trading partners poor help you? They can't afford to buy your stuff that way.
Never attribute to malice that which can be adequately explained by stupidity.
I have never met anyone that believed their life's work was designed to harm others this gravely for their own personal benefit. Virtually every one believes they are the heroes of their own stories. I can't say that it's not possible that people go to work for the IMF and World Bank thinking about how to best exploit the third world, but is seems much less likely than them having good intentions, but being mistaken. Especially with how afraid they were of communists taking over the world. They'd want powerful allies, not weak ones.
>Never attribute to malice that which can be adequately explained by stupidity.
When said individuals are known to be malicious its fair to assume they are complying with their nature.
All you have to do is look at the West's history of colonialism and savagery in the 20th century right up until the present day where they murder Iraqis for oil and support the genocide in Yemen.
By your name, you seem like a westerner. Are you a savage colonialist who likes murdering Arabs and keeping the third world poor?
Let's look at incentives. Are the employees of IMF rewarded based on how the countries they advise prosper, or based on whether they recommend the "correct" (i.e. popular in the West) things?
Serious question; I have no knowledge about this, other than my priors.
Maybe part of the macro story is that the World Bank and the IMF are monopolies and thus insulated from the effects of their policies. What would it take for them to get some competition?
There are many development banks that compete with the World Bank. The IMF does a few things, but mainly aims to make loans to countries when no one else will. So sort of by definition there couldn't be competitors, or else the IMF just wouldn't make loans in that situation.
Governments could support more than one bank for lending money to countries that can't get loans otherwise.
There is competition now, what with Belt and Road and AIIB getting into the game. Competition is good for development. One wonders why the West is so adamant that Chinese competition is malign...
Because Chinese investment is malign for the West, since it weakens their hold on developing countries.
Arguably Chinese investment is good for developing countries, since it gives them more options.
Arguably Chinese investment is bad for the world, since it strengthens China, a country with a very poor human rights record.
I think a lot of people are willing to do the occasional salute to Mr. Xi if it means they get to eat dinner. You can protest that freedom is always more important than mere products, but realise you do so from the privelage of knowing that statistically none all of your children will make it into adulthood.
Also, hopefully western isntitutions will try to better their conditions to compete with chinese ones.
It's not good. China doesn't understand that what became colonialism was the aggregate of a bunch of practices that Europeans adopted to make money while abroad.
Instead, in China, and much of the formerly colonized world, colonialism is taught with the implication that Europeans got together in the 1500's and had a "Let's be evil and take over the world meeting." They didn't.
European governments and businesses seized power and territory abroad because it was profitable. They overthrew local rulers to protect revenue streams. They got special dispensation from local law to avoid interruptions for their money making.
None of this is uniquely evil, nor was it a centuries long conspiracy, rather it was just companies and people going from A to B to C because each jump made them money and they happened to have the technology and military power to back it up.
China is now investing abroad. China knows that they never had a "Let's be evil" meeting. So obviously they can't be doing anything colonial.
When Chinese businesses want to be exempted from local law in Djibouti... they are doing that for good reasons. Not for the evil reasons that saw foreigners get exempted from Chinese law in the 1800's.
China doesn't want to realize that many of the same incentives that caused Europeans to adopt colonial practices also apply to Chinese businesses.
It makes no diffrence to me wether China has had a "let's be evil" meeting, an "let's make money" meeting or even an "let's help out africa out of selfless kindness" meeting. What i care about is results.
If China is succesfull in lifting Africa out of poverty im cheering either way. The difference between Chinese neocolonialism and actual colonialism is twofold
1. Actual colonialism didnt contribute to the development of the colonies at all, and even reverted it. Precolonial Timbouctu had a long scolarly tradition, after a century of colonialism there were barely any university-educated people left at all.
2. Colonialism may have started with trade, it quickly turned into violent conquest. (will China start conquering africa? seems unlikely).
1) Timbuktu was in 400 years of decline before the French got there. And France had less than a century there.
Actual colonialism had a mixed generally negative record. That said, the people doing the colonizing generally justified themselves by saying they were bringing benefits to the poor inhabitants.
2) it generally took decades or even centuries for trade to turn to violent conquest. With the exception of the Spanish in the new world, most of colonial conquest had a long lag time. The east India company started in the 1500's and they didn't conquer anything until the late 1700s. France got Indochina only in 1885.
But the point is violence was on a list of options and it was chosen because it was profitable. What will China do if some Eritreans murder 67 Chinese workers? Are they really going to be principled non interventionists there?
The US has a dozen flattops and three divisions of Marines ready to go. Ya think the Chinese are gonna be able to pull anything serious? Hell no. Too much competition in the military sphere, and war ain't as profitable as it used to be.
Again, competition, competition, competition.
Competition is good.
"mainly aims to make loans to countries when no one else will".
So, because those loans are unlikely to be paid back.
It takes a country with a lot of cash and its own political interests to promote - I believe this is the role of Chinese loans to developing countries, especially in Africa.
A country can get loans from private investors, generally by issuing bonds. That's the default way of getting loans. Countries only turn to the IMF if they have already fscked up badly enough that private investors don't trust them to pay the loans back, so they are on the brink of a sovereign default. Which has happened quite often to poor countries.
china
I started, but didn't finish the book. My basic objection to it was that it felt to me as if it could have been purely cherry-picking. He's looking at 'the Asian countries that did well', which gives him six countries (Korea, Japan, China, Taiwan, Hong Kong, Singapore), and sometimes he talks about all of them, and sometimes he removes Hong Kong and Singapore (because city-states don't have the same problems as larger countries), and sometimes he removes China (because it started horrible and Maoist), and sometimes he removes Japan (because it was in the 19th century when things are different), and sometimes he removes all four of them and only talks about exactly two countries, and the result of this is I really can't tell if he's actually got a point about what works well, or if he's picking and choosing for the sake of the arguments he wants to make. This isn't the claim that he definitely is cherry-picking, but the much less confident statement that I can't prove this isn't really is the Elderly Hispanic Woman Effect in the field of economic history.
I suspected as much. I think that anyone who has a grand theory of economic development, and isn’t a billionaire, is obviously full of it.
Market monetarist can sort-of honestly claim to have a grand theory without being billionaires. But that's because one of their main ideas is that markets are fairly efficient, so it's hard to second guess them to make more money.
This seems like cheating
They are usually less about development, and more about arguing that eg the central bank shouldn't have models to predict inflation, and instead just use market forecasts.
If no market forecasts exists for a particular measurement, they should sponsor a suitable market.
This is irrelevant to the book review, but I got an overwhelming feeling of deja vu from your name before realizing it's the name of one of my favorite villains in Rurouni Kenshiin. Been over a decade since I read it; perhaps it's time for a revisit...
you need a lot more than a good theory to become a billionaire
1. Starting capital
2. People that believe in your idea enough to work with you
3. (in this case) a country to run
Better to have cherries to pick than none. Which countries have moved from developing to developed in that space of time, without having been an entrepot city state, and used Washington consensus policies?
No comment! I couldn't quote the Washington Consensus policies without looking them up, and my historical knowledge does not cover 'all countries in the world.' This was a report that my (possibly oversensitive) Bullshit Detector was going off, not a full-scale alternate theory ready to set up for debate.
Would Chile count? I'm not too familiar with it's hisotircal details, but it's a higher GDP per capita than China or Vietnam and wasn't already developed like Japan nor a city state (which leaves only South Korea and Taiwan from the East Asia list).
Also the post communist Baltic states?
They're the closest, I think. But I suspect that's because they were 1) ex communist and 2) European. Communism does do a lot of state directed investment, which doesn't have to be great to have a positive return if you're poor to start with. But it's lacking the market test that export directed investment has. Even so it can do catch up growth in a somewhat ok fashion. What I think happened with the post communist states is that the old regime invested a lot albeit inefficiently, and opening up enabled them to improve from that point on, similar to how Washington consensus type stuff must come into the Studwell model eventually.
Some of the post-communist EU countries (Poland, Czechia) would be good examples. The post-1989 Polish establishment was infamously supportive of free-market economic policies. For example, the "Balcerowicz plan", also known as "shock therapy", involved overnight conversion of a planned economy to a market one. Everyone knows this was tried in Russia and failed miserably, but few people remember it was tried in Poland, too, and Poland is now basically a first-world country, with the per-capita GDP of South Korea in 2005.
I think "ex-communist plus European" is not quite enough of an explanation for these countries' success, because Ukraine, Russia, and Moldavia share these characteristics, but emphatically not the success.
The starkly different trajectories of post-communist countries are generally a fascinating subject. I'm yet to come across a good discussion of it.
Yeah, Russia had a terrible transition. Devil in the details there. What's worse is that Chinese saw that and concluded political liberalisation is bad....
Both Russia and Poland converted quite fast to market economy, but in very different ways and the term “shock therapy” only applies to what the Poles did. Russia and the rest of the former USSR could not stop organized crime from subverting the reforms for their personal gain—if the leadership even tried that is.
Don't think so - rate of growth wasn't that quick. There are a lot of countries that are richer than China or Vietnam - the reason they're development successes is because they're moving up quick. And Japan post war wasn't rich, nor was it pre war, though it was much richer than prior to the Meiji reforms that implemented the Studwell formula.
It's not possible not to cherry pick history. There are only so many countries in Asia, and all of them are special cases.
I sure love the intro to this post! (I haven't finished reading it yet but am excited to.)
Meta: Is it useful to start a prominent TYPO THREAD in the comments if one doesn't exist? Answers I can imagine: (a) yes please, (b) no please for creating a new comment thread but if one already exists, go ahead and add to it, (c) better to email them or post them to ____.
Non-meta: Typo at "These was nothing predetermined about this"
Not exactly a typo, but perhaps a point to revise - the quote about the land reform charity is in the review twice. snippet: "The leading NGO promoting land reform, US-based Landesa"
I've seen people list typos in their comments. It's an informal process.
Centralizing typo responses to a single thread is a great idea I think.
> Also, is it just a coincidence that Chinese / East Asian people in Malaysia and Singapore (and now the US) are known for being especially smart, rich, and good with money?
It's not a coincidence, but the reason is pretty simple: there are a lot of people in China and the ones who immigrated were the ones who had the resources and education to go. The ones who came to the US were the ones who were able to get to a port and pay for a ticket. Similarly the Chinese people in Malaysia and Singapore were often there running businesses or working in industrial sites that the British set up.
In both cases you're comparing the cream of the crop of a large ethnic group to the local people, so the result is going to be biased.
In any case, given that Malaysia did have a large local pool of ethnic Chinese businessmen, while Korea didn't, it would be strange for someone to think that the influence of Chinese economic ideas was relevant to why Korea succeeded and Malaysia didn't.
The monoculture aspect seems important, as it was present in all of the success stories (or in China's case the dominant culture). Of course, the Western mainstream still has multiculturalism and diversity as undisputable Big Good, so open acceptance of the importance of this point is out of the question for now.
Singapore is the opposite of a monoculture - it's far more ethnically, religiously, and linguistically diverse than any Western country. (But maybe this is relevant for becoming a financial and tech hub rather than an agriculture and manufacturing one?)
Singapore is a success because they let in diverse people and let them do their thing. Same with Shanghai and Hong Kong. (These were cities that the British built)
There's a great article over on acoup.blogspot.com which talks about how Rome was successful in the Republic period because it was astoundingly diverse and had much more lenient citizenship laws than most of its neighboring city states. Rome didn't care about your language or your religion. Instead, they punched you in the face and said, "I have beaten you, we are now friends, let's go beat someone else together" Essentially, Rome wasn't limited to one city and was able to draw upon the military resources of most of Italy, because they really didn't care as long your city sent troops to join Roman wars.
The unification of Italy into a Latin speaking single culture happened actually after Rome had been regularly using allied soldiers from the rest of Italy for a good 200 years. https://acoup.blog/2021/06/25/collections-the-queens-latin-or-who-were-the-romans-part-ii-citizens-and-allies/
Yeah this felt like a forced "intelligence is hereditary" argument to me as well. However, it is pretty simplistic to assume that only the smartest and hardworking people from China (and India) immigrate to other countries. I'd imagine Chinese immigrants to places like Malaysia and Singapore would have been people looking for better opportunities after having failed in China, as both of those countries were very poor when this immigration happened.
In my opinion, in countries as old as China, Moloch would essentially prevent you from progressing very far, regardless of your talent and ambition. This of course is not a factor for newer countries like Singapore (and the United States a couple of hundred years back, in which people with talent and ambition could succeed
I imagine that it's really more of both a low pass and a high pass filter. The top talent and wealthiest stay behind in China because they don't need to migrate while the poorest and least educated people don't even have the resources to migrate. I'd also guess that in a subsistence economy many people are stuck in that latter category, so the people who migrate would often come from a relatively privileged background but can't progress any further because of Moloch.
Admittedly there are a lot of guesses going into my theory, but I think the general gist is right.
I think this is possibly an unhelpful simplification. The high pass filter doesn't apply to talent. For instance, basically most of the world's top talent wants to immigrate to the US for better pay and living conditions. The low pass filter should be really, really low. Scott talked about desolate Jews with criminal histories migrating to the US. We also see something like that today in some places.
Most Jews immigrated to the US prior to 1924 and the onset of much more restrictive immigration laws, while most of the Chinese immigration to the US has been since 1970 under immigration laws that cared more about ability. Based on that, I'd expect a more strict low pass filter on Chinese immigrants than Jewish immigrants.
That does distort some of the subsistence economy part of my previous comment though, so scratch that bit, but I think the simplification still holds.
We have good empirical data on international migration. And you are right: It is mainly the middle class that emigrates. Not to poor (too poor to muster the resources); not the rich (they are happy where they are).
While at it: The best single-volume book on international migration is Hein de Haas et.al.: The Age of Migration (441 pages; the 6th edition came in 2020).
Chinese communities in Singapore and Malaysia date back centuries, and are probably more akin to Armenian populations around the Eastern Mediterranean, Jewish populations in Europe, German populations in Eastern Europe, and Arab populations in East Africa, where they had been merchant communities in port or market towns playing middleman roles in locations that didn't have indigenous merchant communities for whatever reason at that earlier time.
"The huge influx of Chinese migration was directly caused by the poverty in rural China and massive employment opportunities in the British colonial or protectorate territories, with an estimated 5 million Chinese having entered by the 19th century."
https://en.wikipedia.org/wiki/Malaysian_Chinese#Early_history
I get the distinct feeling that in the past, immigrants primarily constituted of the poor or prosecuted.
Nothing in Singapore dates back centuries. It was part of the Majapahit in the 1400's and then it was a nothing fishing village with a few thousand people until the British got it at the beginning of the 1800's.
There are lots of Indians in India, many of them emegrated to the UK. I don't believe Indians have the same reputation here.
Surely this should prove that in every country imagrants should be disproportionately successful which doesn't seem to be the case
In the US, Indians are the most successful immigrant group (see the second chart in https://zachgoldberg.substack.com/p/exposing-the-group-disparities-discrimination), so it's not something inherent about Indian immigrants (leaving aside that India is a fairly ethnic diverse country). I'd guess that a significant difference is that Indian immigration to the UK has been a lot easier than Indian or Chinese immigration to the US because India is a commonwealth nation, but I'm not an expert there.
So the reason why Indians are disproportionately richer in the US is this: a lot of Indians study software engineering. The tech industry today is probably the most well paid industry out there. Hence most Indians who migrate to the US work in these well paid tech jobs, and consequently constitute a disproportionately rich community. This doesn't have that much to do with IQ or hard work or something
Software engineering wouldn't be so well paid if it didn't take hard work or intelligence to do.
Software engineering is not that highly paid in other countries, although people of similar capabilities work there. The high salaries for software engineers in the US is mainly a result of the tremendous amount of money flowing in the silicon valley
Also, these wages might soon fall, as both Google and Amazon are now offering freely available certifications on the internet. Predictably, this will lead to a massive increase in the number of job applicants, leading to a fall in wages
Certifications are basically useless for a career in software engineering.
(I work in the field.)
If you want to make an argument, you could talk about a post Covid world making remote work more common, and thus opening up huge labour pools of people who no longer need a visa.
Although I don't work in the field, this conflicts with some things that I see around me. For instance, companies like Google and Apple claim to not care if you even have a degree in the field, and can pass their recruitment interviews (which is somehow supposed to be a test of raw intelligence). I am a mathematics graduate student, and I know of some people in my department who have gone on to join top companies as software engineers without ever having taken a formal computer course. Is this not the case in general?
Also a software engineer, and I concur that certifications are almost useless. The reason is that most certifications are quite easy to get without being able to actually do the work.
Software engineering is a bit like learning a new language AND writing good essays in that language. It's easy to certify the first part, but the second is challenging. So certifications almost always test the former.
Degrees are a bit better at establishing that you can actually write well, since you have multiple projects that you actually had to complete, but they're also only of limited value. Dedicated bootcamps where you spend 3-6 months learning by doing are about as respected in the field as degrees because (again) they test for your ability to write, not just your knowledge of the language.
The actual tests for Google and Amazon aren't like the tests for certifications; to continue with the analogy, they're reasonably difficult free-form writing exercises that you can complete in whatever language you like, combined with a written test on different essay-structures and writing techniques. Much more useful to determining if someone can write.
Though even they are pretty bad at predicting.
See https://sockpuppet.org/blog/2015/03/06/the-hiring-post/
I've always been curious... given India's average PISA score - and the achievement of Indian Americans in the U.S. (believe highest income after Ashkenazi Jews?) - what does that imply for Indian immigration to the U.S.? Did we somehow manage to get the .01% smartest population? How is that possible? I mean even if you account for some Flynn effect improvement from just getting better nutrition in the U.S., it still seems wild.
To offer some perspective: computer engineering is the most sought after degree in India, and only the very top performing students get to study it in the better colleges. For instance, there's an entrance exam for engineering colleges in India, and out of the top 200 students something like 190 choose computer engineering. And almost all of these immigrate to the US. That is one of the reasons that Indians do much better at computer engineering than other disciplines. All the "best" (at least at the high school level) Indians are doing it
That's what high skilled visas are supposed to do: they only let in people with college degrees.
It turns out that the US immigration quota system is arranged to hand out permanent residencies in approximately equal numbers *to citizens of each country*, prioritized by more or less how highly educated the applicant's occupation is. Since India and China have huge populations, the ones that can get permanent residence (not H-1Bs) are extremely highly selected.
Indians are the most successful ethnic group in the UK by most metrics, it merits second paragraph status in their Wikipedia page (https://en.wikipedia.org/wiki/British_Indians). It's not just because they all study software engineering either, but I'll avoid speculating further since I'd just be relying on Indian stereotypes.
I can't find the exact quote for some reason - but I distinctly remember a line from one of his books where Lee Kuan Yew told a Chinese official (maybe Deng Xiaoping?) that China could be more successful than Singapore because China was composed of mainly higher intelligence North Chinese Han population (vs. Southern Chinese for SG).
What he said was that Singaporeans were the sons of brigands, pirates, fishermen and petty merchants while the mainland Chinese were descended from scholars and officials.
It was a bit of a dig, actually.
Good call:
“You’re able to catch up with us, even better than Singapore, and there’s no problem at all,” Lee said.
“We are only the descendants of illiterate, landless farmers in Fujian, Guangdong and other places, but many of you are the descendants of officials and scholars,” Lee continued, as Deng listened quietly.
https://theindependent.sg/lee-kuan-yew-were-only-the-descendants-of-illiterate-landless-farmers-in-fujian-and-guangdong/
The two got on really well with each other. Deng's China learned a lot from Singapore.
Who says that the pirate or the runaway sailor is necessarily dumber than the scholar official? Scholars being overspecialized is an old, old trope.
LKY was a big genetic determinist, so I doubt he meant it as an insult.
E.g. his fruit pickers comment on U.S. immigration.
Fruit pickers - migrant itinerant workers prone to criminality and cycles of lavish expenditure/deep poverty on account of their seasonal income - are hardly as adventurous or brave as seafarers, nor are they as hardworking, dedicated, or loyal as simple farmers...
Broh, China savings rate is on average 46%!!!
No, its not only the emigrants, they are financially disciplined and organized
Source: I lived there
I also enjoyed and took a lot away from the book. But it seems like, from a political economy point of view, that doing all the things it recommends is really demanding of the government and while those recommendations can work spectacularly well if followed most countries just can't succeed in pulling it off and would be better off with the comparatively simple free market approach.
I agree very much with that point—that’s a lot of political capital and a lot of sunk cost if for some reason it turns out the world doesn’t really need a new car company
I think that would require some evidence that it is possible for any country to pull off the "comparatively simple" free market approach. It looks like the UK, and maybe Hong Kong and Singapore, did this. But all other developed countries went through a phase of tariffs and export replacement and so on.
I think the UK had a pretty good excuse for not having tarrifs
They had the Corn Laws.
What about post Cold War Estonia?
Though to answer the question properly, we shouldn't just look at pure examples, but look at natural experiments and gradients.
I also agree that state capacity is missing in this analysis. It assumes that countries which know the right policies are capable of enacting them.
This would also explain why all of these successful examples are in East Asia. East Asia has significantly better state capacity than most of the rest of the developing world.
Very good point.
Are there any land reform efforts going on in, say, Africa?
I read about Ghana and Ivory Coast seeming to get the protectionist religion re: Cocoa, so they can presumably build up their own industry rather than be stuck in a perpetual mercantilist state with foreign chocolate producers:
https://www.confectionerynews.com/Article/2020/08/24/Ghana-and-Cote-d-Ivoire-announce-closer-ties-to-protect-their-cocoa-industry
Well there’s certainly buzz in some circles around South African farmers…
That's actually a nice counterpoint. Land redistribution in nearby Zimbabwe was a disaster.
Yeah I'm getting the vibe that "Land reform" is a really generic term that can include both very good and very bad things.
Kinda like how "religious reform" can mean anything from making some tweaks to the Catholic church, to setting up a Calvinist Theocracy, to becoming Amish, to undoing the Great Schism by renouncing the filioque and Papal supremacy, to setting up state Atheism and, a million other things in between.
What is going on in South Africa is a gradual redistribution of land to disadvantaged groups through one-sided grants. It's kind of helping, but what they really need is distribution of land to competent farmers regardless of background or skin colour, rent free, and invest heavily in niche products they can export.
I was definitely wondering at various parts in the discussion of land reform how much Mugabe's efforts in Zimbabwe fit the bill, or whether they missed in some important way.
The comment downthread from Erusian seems to indicate that the KIND of Land Reform matters at least as much as how much you have. Seems like you could pack a bunch of things under the heading "Land Reform," but the point is you want to flip the incentives to "please do something productive with the land rather than just rent-seeking off everybody else", and the more violent incarnations don't always seem to end up doing that?
Yeah, this is a good point. CS Lewis said famously that the fundamental question of progressivism is what you are progressing TOWARDS. Likewise, a good and useful reform pursued to its utmost is a good and useful thing. A bad reform is bad, worse than doing nothing.
Land reform is not only an umbrella with hugely different programs but hugely dependent on local conditions. When Japan decided maybe the samurai didn't have a hereditary right to tax the peasantry that's wildly different from Zimbabwe's desire to right the wrongs of colonialism or Thomas Jefferson's desire to encourage land sales to create a republican (little r) citizenry or the Soviet Unions desire to wage class warfare or Romania's desire to de-communize their farms. All these are land reforms but they are in WILDLY different circumstances with different goals.
I read an okay book about that era in Zimbabwe history "When a Crocodile Eats the Sun". The impression it gave was that rather than redistributing land to the people who worked it, the "reforms" involved giving farms to politically connected city dwellers and hooligans in their employ. The actual farm employees got driven off the farms along with the owners.
This is why Tanzanian land reform in the seventies failed, according to my relatives (the paternal branch of my family has lived there since 1890). Granted they're more than a little biased (they lost most of their land as a result and they're still very bitter about it), so I've always wondered if there's more to the story.
To speak to you (and Demeter), the sort of reform that worked in Korea, Taiwan, and Japan was to give the land to people already occupying and tilling it. You had a landlord and then you had tenants who actually worked the land. Land reform was mostly just giving the renters what they occupied. Somewhat like the idea of, say, giving a rented apartment to its current occupant.
In Zimbabwe and Tanzania, it had a more racial and nationalist tinge. The idea was to give the farms to local, black people. The issue being that the white farmers, whatever their other flaws, were pretty productive agriculturalists. They actively ran the farms and much of the local black labor was hired help rather than tenants effectively running their own sub farms. This was then further marred by corruption and cronyism. It was more analogous to kicking out the existing occupants of an apartment and then placing a new person there. Except in a corrupt government where the nice apartments went to the nephews of senators.
In the first system, the theoretical good the landlord can provide is parceling out the land and pricing it. But realistically the classes were so conservative this rarely happened. Thus giving it to farmers not only caused the peasants to have more incentive to be productive but allowed free trade of land in a manner that set prices etc. There was no loss of farming knowledge because the landlords weren't farmers to begin with. And there was no loss of real estate knowledge because the landlords were very inactive managers. There was actually a gain in both.
Meanwhile, the ejection of farmers in Tanzania and Zimbabwe meant a huge loss of agricultural and managerial knowledge. And thus a huge loss of productivity. One that could not be acknowledged or remedied for fundamentally political reasons. The program was fairly successful at putting land in local black hands but it was a dismal failure in economic terms.
Thank you. That more or less reflects the stories of my father/uncles/aunts/grandparents who lived through it, and it's nice to see it spelled out so cogently by someone who isn't simultaneously trying to prove the racial superiority of Europeans (that's where the conversation too often ends up with my father's side of the family).
At least in Zimbabwe the main problem was that it did not give the land into the hand of local farmers, but into the hand of political cronies of the government and the military. You did not have a shift from big landlords to small local farmers that boosted production, but a shift from big local landlords to big absantee landlords, that happened to have another skin collor.
Botswana in an interesting case. Starting with almost the lowest GDP in Africa, today it's GDP is at the level of, say, Serbia. (And the growth happened in the second half of 20th century where other African countries either stagnated or even declined.) There were some land reforms, but I have no idea whether they've contributed to the phenomenon. Would be interesting to hear an opinion from someone with more insight.
I don’t remember the details, but fwiw Stieglitz discusses Botswana in Globalization and Its Discontents. The author is mostly arguing against the IMG, and gives Botswana as a success story of going it alone.
I think Botswana and Ghana are the two I hear about as under-appreciated success stories, though more and more African countries seem to be getting onto a sustained growth trajectory as well, and following up with a decreasing fertility rate.
Singapore, Hong Kong, Taiwan, Korea, Japan all have national IQs >=105
Thailand, Indonesia, Philippines, etc. are in the 85-90 range.
There's an extremely simple theory to explain the development differences we observe. Even if we accept the arguments about industrial policy and land reform, can it really be a coincidence that these policies were only "correctly" applied in the high-IQ countries?
No one is 'hesitant' to ascribe it to genes. If anything people are too eager to ascribe it to genes, as they did in the 20th century when IQ and race research was being conducted, such as in the Bell Curve, until they were shocked to discover that Chinese IQ increased 6 points over the last 40 years. Clearly impossible for it to be entirely genetic if an entire population of similar people, previously thought by racists to have been stupid, all had their IQ outcompete Americans.
Now, keep in mind:
A) China has always had a wealth of resources, even though they were poor in the early 20th century.
B) IQ tests have changed dramatically since they were created
C) IQ tests haven't existed long, so historical data showing dramatic differences in IQ are hard to find, and due to point B, is kind of pointless.
It's very easy to think you're going against some grand narrative by pointing out a genetics and IQ potential relationship, as if no one but you is brave enough to call inequality a force of nature, but reality is much more boring i'm afraid.
Your point is that because people are afraid to ascribe sources of IQ to genes, they have hamstrung themselves into trying to develop such policies that boost IQ similar to the policy of high IQ areas.
But no one is afraid to make such claims. They tried them in the 20th century, and they didn't work. So they changed the goalposts of IQ measurements entirely and now there are multiple kinds of tests given with plenty of holes, so that it's more convenient to research possible genetic connections.
Decades of advanced industrial society, and no significant relationships have been found that are useful in building smart societies. But do you know what does work? Educational, agricultural, and financial policy, similar to those of advanced nations. This boosts IQ, because IQ is not genetic.
(also, i said Chinese, not asians and I said Americans, not whites. Might not be a difference to you, but there is one in reality)
"previously thought by racists to have been stupid"
Lizard Man, have you read your Lothrop Stoddard? Most of his predictions were wrong, but his ranking of regions' prospects for economic development (placing China and Japan near the top), was pretty much spot on.
Not a topic I'm familiar with; do you have good reasons to believe the causal arrow doesn't point the other way? It would make sense to me that raising a whole nation out of poverty would improve nutrition and such and boost the stats here
Belarus and the Dominican Republic have similar per capita GDPs, but very different national IQs.
And their PPPs?
Or is it that developed countries are able to afford better environment for their children and thus produce populations with higher IQ? European IQ scores improved by something like 15 points since WW2. I would guess that Korean IQ scores were abysmal in 1950s as well.
Thankfully we have exogenous variation from natural resources that lets us test that. Take a look at the national IQs of the obscenely rich gulf nations.
Those countries are rich by the standard of being able to buy Range Rovers, but I would not say they truly built a productive and wealthy society
The rich gulf nations have generally not cared about their populace since they don't need to be well treated to extract oil, while the rich East Asian nations have since industry depends on productive labor. That is to say, East Asian nations have an economy based on labor so they invest in labor, while gulf nations have an economy based on resource extraction so they don't invest in labor.
Obviously many people in the gulf nations are rich, but rich is different from being raised well.
(You might say that education doesn't affect IQ, and it doesn't in the way that we usually care about, but there's a baseline education which is necessary.)
Obscenely rich gulf nations are still living in feudalism. Most of the riches are distributed to the few on top and there are millions of literally slaves living in these countries right now.
Immigrants score better on standardized tests than natives there.
Who has gathered nationally representative samples of IQs?!
Yikes. You might be right. https://www.forbes.com/sites/duncanmadden/2019/01/11/ranked-the-25-smartest-countries-in-the-world/?sh=4ab7d39a163f
Of course this doesn't explain "if the Chinese were always so smart, why were they so poor 80 years back when the West was super rich and winning wars and inventing everything important" etc. The West has much lower average IQs than Singapore, China, Korea and Japan, as can be gleaned from the article.
Somewhat lower, not much lower, and the difference is smaller in verbal IQ.
This is way to reductive. Also, China's first two science Nobels studied during WW2 in a cobbled together University in Yunnan. They would then move to the US where they got it. But it really seems that China's issue was surrounding circumstances not the smartness of the people.
An intelligently-run country produces intelligent people, and a country where it's worthwhile to do well on tests produces people who test well.
Seems like a bad argument. The US too was a country that depended on tests for admission to colleges, and the test requirement was removed to reduce the number of Jewish admits. Britain still uses a written entrance test for Oxford and Cambridge admissions.
I'd go into a longer spiel about how badly run countries are a result of misplaced incentives, but I'm not sure you're looking for that
Average IQ has been rising, year by year, for decades. And it's not because genes have gotten better.
The actual causes are hotly debated but the most plausible theories boil down to better public health and/or formal education being a higher priority.
Sure. Not sure how that is a response to my point though.
Perhaps I misunderstood you, then.
I said that a well-run country where tests are important produces high IQs.
You responded that tests are important in the US and UK, apparently as a rebuttal to my claim that important tests lead to high test performance.
I responded that that was true, and that it fit my argument just fine, because we're seeing the effect I described in those very countries.
Am I misreading the conversation?
Ah yes I misread what you meant. I thought you meant to say that intelligent countries don't need tests to produce intelligent citizens, while less intelligent countries have a lot of tests
Oh, now that I look back at what I wrote, that makes a lot of sense.
Being clear is hard.
No, Alvaro, the former countries didn't become successful because they mysteriously selected for high IQ 'genes', which is probably your implication. IQ increases because of education and access to resources, because you are better at pattern recognition when you have been trained in pattern recognition, and you can only be trained in pattern recognition when you don't have to worry about food etc.
Athletic ability is largely hereditary. You have to be a certain height, weight, and have certain body features that allow you to run fast, shoot accurately or whatever. However, it can also be slightly improved with practice and the right kind of nutrition (but not enough to make me an Olympic swimmer even if I practice 10 hours everyday)
The same is probably true for IQ
*Slightly* improved with practice? Also, it can be pretty well negated by malnutrition (though there will always be some remarkable counterexamples).
Pretty cool that Scott scolded the dude who pointed out exogeneous factors (because it was 'condescending'??) but the national IQ dudes just run Scott-free, so to speak
Pretty clearly that was a scolding about tone (because that guy says this is an error Scott consistently makes -- hence condescending), and not a scolding because he dared to mention "exogenous factors."
I think it would be reasonable to tell the OP of this thread to do better, under a principle that if you're going to bring up things that so often dwell in such toxic contexts you need to make some extra effort when posting, but there's no inconsistency by Scott here.
I think IQ is a necessary but not sufficient component for development so its still important to investigate the other necessary causes we just need to keep in mind that's it's not really realistic to expect them to work in Sub-Saharan Africa until we get our genetic engineering programs going
"Singapore, Hong Kong, Taiwan, Korea, Japan all have national IQs >=105"
Above 100, sure. Above 105, no.
Philippines's IQ is below 85.
"can it really be a coincidence that these policies were only "correctly" applied in the high-IQ countries?"
I don't believe it's a coincidence. That's why I expect the closest thing to "Tiger Economies" existing today are Eastern European (Poland, Baltics, etc.).
yup, this is the obvious answer (though the cultural contributions are certainly still interesting as well). To hit the point home from an angle different than national iq - why have poor Japanese immigrants been so successful in Brazil and Peru? Why do adopted South Korean's in Sweden score better on iq tests? Why are the ethnic Chinese in Malay, Thailand, Indonesia, Singapore etc. generally so much more successful? Why is there such consistency in how different ethnic immigrant groups and adoptees perform in various countries abroad and at home? This holds true for other high iq groups. Typically when you see outliers to this pattern there is actually some combination of underlying stratification and immgrant selection bias at the root of it. Also worth noting that there are other semi-hereditable psychometric factors driving performance, not just iq, but iq does seem to be among the most important factors.
Studwell’s discussion of industrial policy is broadly convincing but he massively overstates his case rhetorically. The anti IMF position is probably his least defensible point. In the 50s-80s, the IMF indeed recommended free market policies, generally. But the anti IMF position then was Industrial Substitution Industrialization. Their belief was that to develop, newly independent countries should cut themselves off entirely from world trade, to develop new industries behind their own borders. Pretty much everyone agrees now that this approach was a disaster. Even if Studwell were 100% correct in every sentence of the book, it would prove that the IMF critics were totally wrong, and the IMF only needed a change of emphasis.
Then we get the question on how widely his advice could be adopted. He briefly mentions in the Philippines section that, citing from memory, “Some people think they can do nothing, but condemning millions to poverty is no option at all” Well in some moral sense sure, but in a policy sense doing nothing is obviously an option. Elites have almost never pursued industrial policy for altruistic reasons: The success stories are all cases where elite interest lined up with the public interest. For example, South Korea was racially and ideologically homogeneous. Marshall Park in other words required industrialists to make SK rich and defended but didn’t care who they were. Studwell mentions that IP failed in Malaysia in part because of affirmative action, and then ignores that point entirely. The East Asian countries that succeeded only did so because of their homogeneity allowing focus purely on industrialization, plus the fact that the US leaned heavily on them. It’s very unclear that a country could implement the Studwell program against the will of its elites. It isn’t the case that where there’s a will there’s a way. Finally, all of this requires a high quality bureaucracy, which East Asia has a long history of and the rest of the world lacks.
For finance, once again Studwell has a good narrow point but greatly oversells his case. There are two market failures that have been identified with international finance: First, that if developing countries take on debt in foreign currency they will be bankrupted en masse if the exchange rate changes. Second, that banks might pursue unproductive loans (real estate and consumer debt, basically). These could be fixed with narrow laws targeting these problems directly and individually. There isn’t very good evidence that the financial repression associated with EA development had a very large impact and its likely that you couldn’t convince many countries to adopt it anyway. When it comes to industrial loans, there are tons of studies showing that private banks are much more efficient at making loans than the state. The EA approach also leaves tons of overhang, for example in China there are tons of state run banks that are riddled in debt and low quality loans. SK and Japan have had this problem with their banks and massive corporations to a significant but lesser degree.
Studwell believes that since the EA approach is good we must convince the entire world to adopt all of it. I would tend to think that since there is very little chance of convincing the world to adopt it, and since it comes with major drawbacks over the long term, we should amend the current system. Developing countries should likely support exporting more and implement a few rules to prevent financial crises. The discussion of the IMF is the most dishonest part of the book: he deals so nicely and only by insinuation towards the IMF economists because if he had to defend the position that the international financial system bankrupted the world, it would be obvious that he is wrong. In fact the current international economic system is exceptionally generous-WTO rules explicitly allow poor countries to subsidize industrialization but forbid rich countries from doing the same. The current system likely needs amendment, but not replacement.
Does "the EA approach" mean "East Asian approach"? I at first could only read it as "Effective Altruist", but it was clear that was wrong.
Oh yes, sorry. But the two could very well be the same!
Singapore was never homogeneous, and actually has diversity as one of their core founding principles.
Singapore is 75% ethnic Han Chinese and LKY was on record saying he intended to keep it that way. In addition, Singapore is an entrepôt, which has very little relevance to most developing countries.
> Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong. They recommended free markets and open borders, which are good for rich countries, but bad for developing ones.
If you find this interesting, there's a pretty quick read by developmental economist Ha-Joon Chang called '23 Things They Don't Tell You About Capitalism' making a similar point, though he goes on to generalize it a bit more: countries should feel free to practice both free market economics and central planning; ideologically doing only one or only the other is usually a disaster.
1.) Three things stick out here. Firstly, Studwell vastly overstates how damaging land reform has to be to landlords. Taiwan and Japan both bought out landlords with bonds. The bonds became worth less because since government bonds grew more slowly than the economy. But there are still a fair number of wealthy old families around in both countries. The important thing is not the destruction of landlords as a class: it's putting land into the hands of people (whether smallholding peasants or professional farmers) who own the land, have an incentive to improve it, and whose primary income is gained not by owning land but by producing agricultural products. The two are ultimately equivalent at equilibrium. How you get there is not especially important and paying off the landlords is fine if it works. Likewise, giving land to collectives or to peasant groups (as opposed to individual peasants) doesn't work very well because it keeps it out of the power of enterprising farmers.
Secondly, he completely ignores the many times land reform failed. East Asia is not unique in its attempts at land reform. It was fairly common in Africa, Eastern Europe, etc. Ukraine and Romania had incredibly fertile soil and it's hard to think of regimes that eliminated their landlords harder. Yet they haven't really seen similar effects.
Thirdly, he ignores that peasants will vote for land reform overwhelmingly in any democratic system. His focus on outside institutions is horribly misguided. From the CCP to 19th century Japan, peasant ability to make demands of the political system lead directly to land reform. If land reform is no longer viable in nations where the peasantry is still common, the question I'd ask is why that is. Are they all dictatorships? If so, it's a problem of democratization. Have they got other political goals? Then that's a separate issues.
2.) There are some countries which are increasingly skipping directly to service export. However, an industrializing country has a huge internal market for industrial goods (roads, bridges, telecommunication infrastructure, etc) which in turn creates a construction/manufacturing boom even when the primary export paying for the imported machinery is (for example) software development services. This is the case in some of the wealthier Indian provinces. But on the whole, manufacturing is still a pretty good bet.
Another thing: the importance of export markets. These countries need to have markets willing to purchase their goods. If they don't, export lead industrialization fails. Big imperial nations have options that modern nations don't. Where do these nations export their goods? To the US. Korea had special deals with the US. So did Japan, Taiwan, Hong Kong, Singapore. And even China got special deals (enough to cause Russian complaints). This may be changing, especially for big countries like China with internally developed markets. But this advocacy for ELI should mention the politics of finding places to sell their goods. Otherwise the idea of "protected at home competing abroad" fails.
In Malaysia, Studwell veers into the shaky ground of being against capital per se. Letting partners get equity in firms is not an issue. Did you know huge percentages of Korean companies were owned by Americans? South Korea was not just stealing their technology, they were moving up the value chain. In partnerships where it didn't make sense, by learning through transfer deals where it didn't. There is, of course, an issue with letting companies offshore high tech work and using your people only as menial labor. But this is an issue of structuring the deals and regulations. But of the successful cases, only China broadly prevents you from owning minority stakes in companies. The rest, at most, limited the percentage of foreign ownership. Which is still admittedly not a full free market policy.
3.) Again, he's ignoring the US here. South Korea's "crazed" borrowing was underwritten by the US for security reasons. The US actually used its might to get SK cheaper debt at some points. Malaysia was on its own.
Also, he doesn't mention how this method leads to huge problems in the last stage. Japan's lost decade was in part due to heavily controlled and underdeveloped financial markets.
Overall, I'm sympathetic to the idea of Export Lead Industrialization including tariffs. Though it's worth pointing out the IMF has a better track record than it's critics want to admit. You just have to realize first it's primarily a firefighter: you call the IMF when things have gone wrong. (As, indeed, many of these countries did in the late 1990s and then saw bumper growth.) However, this argument ignores (imo) a lot of factors and tells a story of economic destiny being primarily about internal decisions. Which are necessary but insufficient. It's right there in the idea of export lead industrialization: you are exporting to OTHER COUNTRIES which means they matter for your internal story.
Vietnam was the same with horrible collective farming, and only abandon that policy since 1981: https://en.wikipedia.org/wiki/Land_reform_in_Vietnam#Abolishment_of_collective_farms
I assume Erusian was referring to land reforms *after* the fall of the USSR.
Thanks, this is a really helpful comment!
Good comment. I came here to point out the dreaded counterexample of Latin America, which tried to do a number of things the East Asian countries did, but mostly failed. Mexico basically carried out the greatest land reform initiative known to man outside of Communism, but did not get the benefits Studwell describes. Argentina & Chile also carried out large-scale land reform, to lesser effect. More importantly, Latin America is very protectionist and has been trying to nurture infant industries for decades- Argentina's still working on that car industry after 30+ years, not exactly to great results....
I also agree with your point about the asymmetry of 'free trade'. The US tolerated a number of these countries being highly protectionist while also importing their goods here- developing countries get a special dispensation. Arguably the US still does with China, incredibly! And even India, which is now approaching being the world's 5th largest economy. I'm not sure that this combination of 'we tariff foreigners but they accept our goods pretty freely' can necessarily be replicated.
I greatly enjoyed Studwell's book, I just think that the East Asian countries simply executed on their plans much better than a number of other countries have
I don't know enough about Chilean economic history to tell you what policies they adopted when and which ones mattered, but the overall outcome (4000% GDP growth since 1975) has to count as a success, right?
The issue is that Chilean economic growth was pretty stagnant while formal land reform was happening. GDP per capita roughly doubled over the course of the reforms.
Then a dictatorship took that embraced neoliberal economic policies specifically from the University of Chicago set. This led to economic policy based around three pillars: a stable currency, privatization of industry, and economic liberalization. This included an explicit commitment to free trade, free enterprise, foreign investment, and private ownership of land. During these forty five years, Chile's GDP increased sixteen times and it became the tenth wealthiest country in GDP per capita terms in the Americas. Behind the US and Canada, Panama, Uruguay, and a bunch of small island nations like the Bahamas or Barbados. Its overall economy is of a similar size to Colombia's despite Colombia having fifty million people and Chile having seventeen.
However, while he never would have admitted it, Pinochet did do something resembling land reform. He privatized huge amounts of land, wrote laws to allow its sale and purchase, and he broke up the agricultural collectives that had been set up by previous governments. Sometimes this meant handing land back to the old landlords, sometimes it meant giving it to the individual farmers who made up the collectives. But his goal was to create an actual modern style land market where capitalists (including small farmers) could buy and sell land as a factor of production. This ultimately led to massive concentration of land ownership but a much more modern, productive form of agriculture.
Blaming the IMF is a rational blame-avoidance strategy for an elite in extreme economic dire straits.
They have to balance to books (in practice by dramatically cutting public spending) since no-one else than the IMF is willing to lend them money to cover the deficit any more, even on a temporary basis (that is why the IMF gets involved in the first place).
Applying for, and acepting, IMF loans with the usual conditionalities (you must put forward a realistic plan for balancing the books in the future, i.e. suggest cuts), then makes it possible for the elite to do the necessary cuts while hiding behind the agument: "the IMF forced us to do it".
It's very rational behavior on behalf on the elite, and not necessary detrimental to the purpose of the IMF either. After all, the reason IMF was set up in 1944, was to give elites in financial dire straits a lifeline & way to channel the political pressure, to reduce the risk that the state might instead be taken over by worse elites (the Nazis or their modern-day equivalents).
On1) Taiwan did two things which are not really mentioned in the review (maybe it's mentioned in the book)
First, all of the Japanese people were deported. This was a colonial elite who had been there for 50 years, they owned a ton of land. It freed up lots of land for land reform.
Second, the bonds that the government used to buy out Taiwanese land lords weren't worthless. They were shares in state owned companies.
So, "We'll take your 10,000 acres and, in exchange, here is 10,000 shares of Sino Petrochemical"
A lot of these big landlords thus became big industrialists overnight.
that the acronym FDI does not appear in this history does not bode well for the book. It is a far more reliable way of developing domestic industry than trying to build internationally competitive companies.
Isn't the system he criticizes in Malaysia FDI? They allowed foreign investment that gave ownership of firms to foreign firms, but the firms ended up not transferring their knowledge into Malaysia and instead just using them for grunt work.
I have no opinion about whether FDI is good, but it seems that this author doesn't approve.
It's very difficult to build up a world class car company, or a world class anything company. It's especially difficult if you don't have anyone in your country who knows the first thing about cars. what FDI does is allow you to climb the value chain and develop expertise and institutions while getting paid to do it. It also has knock on effects, as making your country more attractive for foreign businesses usually helps domestic businesses too. This makes it the single most reliable way to develop.
Scott, for more asking these lines I highly recommend reading Globalization and its discontents by Stiglitz—he goes into how the IMF and other institutions play their role in development (or more often, lack therof). It shows the flaws in the Washington Consensus, especially with regards to austerity and capital controls, and didn’t offend my classical liberal sensibilities in the least
Is that Joseph Stiglitz, ie this guy?
https://en.wikipedia.org/wiki/Joseph_Stiglitz#Henry_George_theorem
I found Stiglitz' tone in that book very bitter. Throughout it, he seems to be calling everyone an idiot. The writing is so emotionally laden that I had little trust I was reading the account of a reliable narrator.
Great review! I found the part on industrial policy compelling, but the land reform bit left be confused.
The argument as I understand it is: because the bottleneck in East Asia was land rather than labor, it made sense (from the perspective of increasing total output) to have the land tended to in a "hobbyist gardener" sort of way rather than an "industrial farmer" sort of way. And so when peasants got the land, they tended to their land in the "hobbyist gardener" way, which increased production.
But why wouldn't the landlords compel their subjects to cultivate the land in the "hobbyist gardener" way? After all, the total number of peasants didn't change as a result of the land reform, nor did the total amount of land; so wouldn't the calculus favoring the "hobbyist gardener" method have been the same as it was post-reform? So were the landlords leaving lots of profit on the table?
Or is there something else at play, like that it's hard to compel a peasant to tend to a farm in an arduous, loving way, when they ultimately don't benefit very much? If so, I have a follow-up question. The statistics you give suggest that it is *much* more efficient per unit area to use the "hobbyist gardener" method. So couldn't both the landlords and the peasants have profited from some sort of deal like: "the peasant switches to the 'hobbyist gardener' method and now gets 10% of the profit instead of 1%"?
Thanks!
I suspect there are important nonlinearities in a subsistence farming setup where you can't scale smoothly between "landlord is empowered to expropriate all of your surplus and maybe some of your sustenance" and "you own your own land and pretty much get to keep what you produce". I suspect "landlord contractually only expropriates 80% of your surplus, motivating you to work differently to increase your 20% share" is not a stable intermediate state -- there's not enough trust to maintain it -- if the landlord violates this agreement, the farmer has little recourse. Bret Devereaux has written at length (https://acoup.blog/2020/07/24/collections-bread-how-did-they-make-it-part-i-farmers/) about how (ancient) peasant farmers structured their whole social organization and way of life around producing as little legibly-expropriable surplus as they can get away with -- it seems like it would take a whole different perspective on your relationship with your production to change that, and might need to be adopted by a whole village simultaneously.
There's the idea that people don't think more than they need to, and for a landlord to get tenants to do that level of work and thought would be a lot more work for the landlord.
If a landlord wanted tenants to work that hard, they'd have to exhaustively monitor their entire property. But if the peasants are doing it because they can keep what they produce, then no monitoring is needed.
Landlords don't have to monitor peasants. They can just promise how much rent they will demand a few years in advance (in a legally binding way, and possibly at a level that tenants can only pay if they practice intensive agriculture). Then if a tenant produces x, he keeps exactly x-y more than if he produces y; he has every incentive to maximize production.
Landlords have a monopoly, and it's taken as a pretty general tenet of economics that monopolies are bad for innovation and growth. I'm not sure it is surprising that breaking up the land and distributing it to the tenants resulted in this improvement?
There's another hint where the text says something like 'in countries with low economic growth the rich still grow but the poor don't'? Rather than that land existing in the economic service exclusively of a small group of people, the land is now in the economic service of a much larger group of people, each of whom have a lot to gain by improving the productivity of the land. With the big landlord there's a principal agent problem, in that the person who does the work to improve the land - necessarily tenants just due to numbers - do not benefit from the improvement.
Landlords don't generally have monopoly, except in the kinds of feudal economy where serfs aren't allowed to move to a different landlord's land.
How do landlords determine what rent to charge
Equilibrium of supply and demand. You charge as much as you can find tenants for. If you have an empty plot, you try to rent it out for slightly more than is typical for similar plots, and decrease it until you find takers. If you currently have tenants, you change your rent approximately in line with the typical rents for similar empty plots, i.e. as much as you can without your tenants having an interest in moving out. A variation is to agree to a long-term lease for some number of years for a fixed rent, with the rent being approximately the current rents, adjusted for the expected rent movements during the period (e.g. if rents are generally rising, then you'll charge more than the currently typical rents if you agree not to raise the rent for years). This has the advantage that the tenant has more incentive to invest in the land.
landlords do not face significant competition as land is finite and valuable locations are even more finite. perhaps they 'compete' in the given neighborhood block, but overwhelmingly literature is clear that landlords operate in monopolistic markets. 'rents are generally rising' doesn't make sense - how often do we see actual bonafide competition for the same price range, beyond tacit marginal stuff?
part of this is zoning, but even in markets with loose zoning, landlords have little incentive to build or compete on price. they can just speculate https://www.bostonglobe.com/business/2019/07/03/one-third-acre-back-bay-location-parking-but-not-for-long-price-million/qyoEyaJMBE1qg9piuf5piI/story.html
nowhere in your answer is 'they lower or raise prices based on competitive pressure' or anything like it
Land is finite, but that doesn't mean they don't compete with each other, both within an area and between areas. (The original topic was about agricultural land, but it applies equally to homes.)
What does "competition beyond tacit marginal stuff" mean?
Landlords do lower or raise prices based on the competition. Rents approximate the equilibrium of supply and demand; if supply is fixed, that's the level of rent for which all tenants in aggregate are willing to rent as much land as is available. If rent were higher than that, some plots would remain empty, and landlords would lower rents; if rent were lower than that, landlords could raise rent and still find tenants.
my point here is that you take 'monopoly' in land-owning as only applying to the feudal model - in reality, thev vast majority of rent is in things landlords can't and don't compete over. Location, accessibility to public transit, etc. If the government decides to make a train stop near an apartment, the landlord can raise rent despite not competing with anyone to provide a 'better' service, they just happen to have been in the right place. This is pretty bad for the renter and the local economy.
Some portion of the rent goes into competition over service, the quality of the apartment, etc. But the landlord =/= the developer- the number of units in an area is, in most parts of the states, pretty static, or static *enough* that when you're a renter looking for a place, you're competing to make yourself look good, rather than landlords competing for your business and driving prices down. That's a dangerous characteristic for a market to take on when housing is so foundational.
None of this changes that landlords compete with other landlords owning similarly situated real estate. (They also compete with differently situated real estate; tenants are willing to pay only so much more for better location.) In particular, it doesn't change that landlords are price-takers. That is, they don't get to arbitrarily decide how much rent they charge, so a tenant who increases production keeps more after rent.
Both renters compete with other renters, and landlords with other landlords, on a market with many renters and many landlords.
When I say that landlords compete, I don't mean that they necessarily bust their ass to improve their service or quality. (They may, but only to the extent tenants are willing to pay sufficient premium for it.) What I mean is that they can't charge significantly more than other landlords do for similar real estate, so they all charge approximately the market-clearing price for the kind and quality of real estate they rent out.
that's fine, but you're still describing a textbook monopolistic market, which is why most economists do see housing as a different kind of good with issues. it isn't immune to supply/demand (build more housing!) but some problems of the market are inherent unless we implemented a tax on monopoly rents.
Absolutely not. A monopolistic market is a market where there is only one seller (or, in this case, landlord). In that case, the seller is a price-maker, i.e. it can set its price arbitrarily, and the buyers (tenants) have no choice but accept it (although the seller/landlord may not be able to find buyers/tenants for all its goods if it sets the price too high).
However, a market with many sellers (landlords) and many buyers (tenants) is not a monopolistic market even if the supply curve is vertical (i.e. supply is fixed). You should look at an actual textbook before calling it a textbook monopolistic market.
They would probably have to give at least most of the difference in productivity to the peasants for it to work, so it wouldn't change much for them, and it would make the peasants more wealthy and thus a potentially bigger threat politically for the land owners.
And if you are opressing a majority group, that is always something you keep in the back of your mind.
On a market with many landlords and many tenants, both landlords and tenants are price-takers, not price-makers. (In one example, 17 families own 78% of the farmland in a region of the Philippines. That's generally enough for a competitive market; and that's just one region. People would move between regions if one region had significantly lower rents than another. In another example, Deng Xiaoping's father was a landlord with just 10 hectares; if that was typical, that suggests a large number of landlords.)
That means that rents may depend on how much peasants are *able* to make, but not on how much a specific peasant actually makes; in other words, a landlord can't take more rent because a tenant produces more. (On the other hand, the rent may be high enough that peasants have to produce as much as they can to pay it and have something left.) Then a tenant has the incentive to produce as much as he can.
If we assume a monopolistic market instead, the landlord can charge high enough rent that tenants have to produce as much as they can to pay it.
As for wealthier peasants being more of a threat: I'd expect that wealthier peasants would be less discontented. We have revolts because people are hungry, not because they're well-fed. And even if keeping peasants poor for such reasons were in the interest of the landlord class as a whole, it's not in the interest of an individual landlord.
I suspect you overestimate peasant mobility in undeveloped countries - moving a family isn't a particularly pleasant experience even in today's America - and underestimate search and transaction costs. Landlord-tenant systems often featured coercive restrictions on transactions. For example, in old Russia there was a period in the XIV-XV centuries when peasants were relatively free to wander about, but it was very inconvenient to the Russian state and unprofitable for the landlords. As a result, the peasants' rights to switch landlords were progressively restricted over the subsequent two centuries, ending with a large fraction of them reduced to chattel.
If Russian peasants in the 1300s/1400s could wander around enough to make landlords compete, Philippinos in the 21th century definitely can.
My points mostly apply to a free market: my point is that making the market free should suffice to increase efficiency where possible. Though even on a monopolistic market, I expect that landlords would be able to ensure that peasants have the incentive to maximize production. E.g. charge a high rent (that peasants can pay by increasing production) but promise not to raise it further (so peasants can expect that the amount they keep after paying rent depends on the amount they produce).
I'm a bit worried about that link that describes the largest export of New Zealand as "dairy, eggs, and honey" - it seems to only be looking at exports of goods, and not services, as becomes clear when you look at the lists for other countries like the United States (largest export petroleum!) But it at least does show that New Zealand doesn't export a lot of manufactured goods - mainly agricultural products. (I assume that it doesn't have financial or software or educational exports proportional to those of the United States, but I wouldn't be surprised if tourism is another major service export.)
tourism was 20% of nz exports before covid.
Would it be fair to think of the colonisation of Australia, the Americas, New Zealand etc as a form of much-needed land reform, confiscating land from those who are using it inefficiently (hunter-gatherers or neolithic farmers) and putting it into the hands of those who will make better use out of it? If so, that would be another triumphs for land reform.
It's land reform in the broadest sense, but not really in the sense that I get from the book review. The key points seem to be removing the rent-seeking landlords and enabling the oppressed people to invest in themselves, and neither of those points really happened with the colonization of Australia, New Zealand, or the Americas. (Perhaps you could point to the collapse of a few empires in Central and South America, but those are the exception and didn't really result in allowing the indigenous people to invest in themselves.)
Faint memory (possibly from Rothbard) that the US was extraordinary compared to Europe for making it fairly easy for ordinary people to own land.
That's a reason why I really didn't like the use of the term "land reform" in the book. That could mean a lot of things, but the more central example of that term's use is what we saw in Venezuela rather than what might be the actual increase in usefulness. Saying that taking the land away from inefficient poor people and giving it to more industrious outsiders is not a popular or sympathetic position, but could be more accurate in terms of a country's growth. Studwell would likely argue that you have to give it to actual farmers - aka experts in proper use - and make the assumption that those already farming are the best choice, but that could be a European colonist rather than the subsistence farmer already on the land.
Yes, this is a point I wanted to make. There seems to be an unspoken assumption here that all inefficient agricultural systems are dominated by indolent nobles who apparently don't care much about the agricultural productivity of their lands. What if the capitalist class is the more productive one?
I think here about pre-revolutionary Russia, where the land largely belonged to peasant communes, which had some of the same problems as this "indolent noble" framework -- land is constantly redistributed so no one has cause to invest in it, and no one had any capital for tools so the agricultural techniques were basically medieval, leading to grinding poverty as the population boomed. Stolypin tried to reform this system into a more capitalistic one, with winners (who were able to make good investments and adopt more modern techniques) and losers (everyone else). This was good for agricultural productivity, but the peasants hated it. They wanted to take the land back from the more efficient winners (kulaks) and return it to the inefficient communes, and it was on this basis that they backed the socialists, who gave them a victory in the short run but did nothing to solve the original problem. So eventually the socialists crammed through their own brutal "reforms", which solved the problem somewhat -- but almost certainly not as much as if something like Stolypin's capitalistic approach had been allowed to prevail.
The Homestead Acts were land reform American-style.
The Free Soil movement was an ally of the abolitionist cause not necessarily because its members thought slavery was wrong, but because they feared the monopoly power of slave-owning landowners. As part of the Republican economic program after Lincoln was elected, the Free Soil movement was rewarded with the Homestead Act of 1862. The Homestead Act granted land provided the land was worked and lived on for five years. The allowance was 160 acres. This encouraged settlement of lands west of the Mississippi by free-and-clear small holders.
One of the issues was that southerners thought the government should sell land in the west so it wouldn't have to rely so much on tariffs, while northerners wanted finders-keepers homesteading. There was a recent paper I thought was linked by Garret Jones which I can't find now about how the cotton boom enabled tariff revenue for westward expansion that disproportionately benefited the north (which had better soil & more productive agriculture, and more resulting population growth) until the point where it no longer needed that slave-cotton economy and got rid of it.
The Trail of Tears was explicitly justified using this idea, at least in Georgia.
The Cherokee were a fairly small group (~17,500) who owned some good farmland, a lot of mountains, and a big pile of gold. The state of Georgia redistributed it with a land lottery to over 50,000 poor white families.
We need to look at the human cost of the land reform before deciding if it is "much needed". In this case, it definitely was not.
Also, in the Cherokee case, it wasn't like the tribe was keeping everyone but those 17,500 out... they just said that outsiders had to follow Cherokee laws. Some of those 50,000 families would have been perfectly welcome to farm and work in Cherokee land.
Which successful countries had a legacy of foreign trade (innately or at the end of a gunship?). My history class memory would put SK with Japan (as a former territory), HK as obvious, and Taiwan being newly populated by more of a coastal elite crowd than country bumpkins.
"Japan's happened first in the Meiji Restoration, but didn't stick; the final version was rammed through by Douglas MacArthur, who acted as a dictator and didn't care what Japanese elites thought."
Right up until this point, I was saying to myself that that Land Reform section didn't sound like how I remembered the Meiji-era land reform working. So it's explained, but that explanation leaves another problem: while obviously badly outmatched by the US, Japan was more-or-less a then-modern economy before WWII. So it must have gotten there without land reform (of the type advocated here).
Plausibly, building to a 19th century industrial economy could be done differently than 20th century economy. But at a minimum, it removes Japan as a success story for the narrative.
I had a similar reaction. Between sakoku (Japan's isolation), its rise as an imperialist state, the utter devastation of its industrial base during the war, and liberalization under the occupation by the U.S., I have to think Japan's postwar miracle should be treated sui generis rather than one element in a regional pattern.
I don't mean "exceptionalism," by the way, only that its circumstances were unique. Notice that Japan's postwar miracle is sometimes referred to as a "recovery." That's an important difference.
Meiji Restoration did buy out many large landowners, and IIRC with government bonds that soon became worthless. Over 200 daimyos were volun-forced to "return lands and people to the Emperor" (版籍奉還). Theirs and their samurai's rice incomes were replaced with interest paying bonds, much of which the Meiji government later bought out with lump sum payments. This left a lot of land in the hands of peasants. Several decades later, McArthur's land reform had only 38% of the cultivated land left to buy out, so at least half was already in the hands of peasants. Anyway, it was not peasants who did the bulk of the work of developing Japan after the Meiji Restoration, but the hordes of freshly unemployed minor and mid-level samurai who were the Restoration's instigators and motive power. So, rather than removing Japan as a success story, I'd say it is _two_ success stories: after a crushing defeat in WWII, it did not stay in the doldrums like most of the post-Soviet republics have, but developed new industries a second time.
The Meiji Restoration bought out aristocrats of their feudal domains from which they had the right to collect taxes. You could potentially model that as buying out large land owners who collected rent, but since they were replaced with centrally appointed officials who also collected taxes (albeit taxes that were assessed and collected differently, but still), I'm not sure that's the most enlightening way to do it.
Notably, a substantial minority of land also had "commoner" (non-samurai) landlords who collected surplus from tenant farmers and paid taxes to the samurai whose domain held their land. My understanding is that Meiji land reforms mostly didn't disturb those relationships, except insofar they enabled freer transfers of land and internal migration. Which, if anything, lead to somewhat increased concentration of land ownership (estimates of ~30% at the end of the Tokugawa era from https://www.jstor.org/stable/1152149 to the 38% redistributed by post-war land reform), but as discussed in other comments plausibly assist in economic growth for other reasons.
As for the second half of your post, I certainly don't dispute that Japan is an economic success story! It would indeed be fair to call it one twice over (though the comparison to post-Soviet states in inapt, given that it was never under Soviet rule). My point is that it's success story of Studwell's model because it didn't follow Studwell's model, at least insofar as land reform is concerned.
Great review, but also a missed opportunity for a few By Georges.
By George, it's hard (for me anyways) to resist 'seeing' things like this in Georgist terms!
(I do think it'd be _really_ helpful for someone to write a 'modern' primer of Georgism. I'd probably 'translate' 'land' to 'natural resources' for one. But I wouldn't be surprised if there are in fact _several_ such modern primers available already.)
I agree, and will keep an eye out, maybe for the next book review contest.
India is probably the best counter-example to what Studwell is talking about.
For decades, India practiced a variant of socialism in which (among other things) industries were sheltered from international and even national competition for reasons that basically line up with the infant industry argument. The resulting companies weren't even bad, but when they were eventually exposed to world competition, they collapsed, and others took their place.
Similarly, India had (and still has) a robust set of national banks. The problem was that when the government does get them to give unprofitable loans, it wasn't to subsidize industrial learning but also to support small farmers, weavers etc. It was as much redistribution as investment.
The argument seems to be "there are knowledge externalities generated when firms start manufacturing" but it's hard for countries to actually implement this insight (assuming it's correct) because they don't know which sectors will generate them, what the right policies are to generate them, and when to stop protecting the firms and expose them to global competition.
(Land reforms are amazing, and the closest thing to a consensus that I can think among developmental economists. It's one of the few policies that don't have the "equity-efficiency trade-offs" that one learns about in Econ 101.)
So what India did is similar to what Malaysia did, which is that the government decided to shelter the country from foreign competition, but also didn't encourage competition within the country. Government contracts were given to companies that the government thought would do the best job (there was corruption of course, but that's a different chapter). Korea, on the other hand, decided to let market forces decide which domestic company would get government patronage. Hence, India is not a good counterpoint to these claims in a lot of regards
India has been developing quite in the 3 decades since its liberalization, though not quite as fast as China. So there are two questions: Is it a counterexample to that the policies prescribed by Studwell make a country develop fast? Is it a counterexample to that without those policies, a country can't develop fast? I don't know enough about India's current policies to tell if it's doing anything like that, but others have said that it has at most weak land reform, and with a quick search I found that it reduced tariffs during its liberalization.
> India’s average MFN applied tariff rate of 17.1 percent remains the highest of any major world economy.
https://ustr.gov/sites/default/files/2020_National_Trade_Estimate_Report.pdf
The export discipline seems to be the missing piece. Studwell really, really emphasises that bit.
The downside of land reform is that it reduces investors' trust that property rights are respected. It would work if the country could convince investors that it'll never do it again, and it'll never do it in other sectors, but it's hard to do that.
In practice that actually seems to work - land reform is so phenomenally difficult to do that no one's afraid it'll get done twice.
Perhaps a sociologist joke can be allowed in this thread. According to the sociologist Gosta Esping-Andersen (of "Three Worlds of Welfare Capitalism" fame), there are three laws of sociology:
1. Some do and some don't
2. It is always different in the South
3 It never works in India
I think the relationship to rule of law is complicated. It seems to me what you ideally want is a society accustomed enough to rule of law that they will actually do what the government tells them to do, but you also need a leadership willing to grab the whole economy and give it a good shake in a pretty hands-on process. And of course, as you pointed out, you need a bureaucratic class skilled enough to actually make and enforce reasonable policies without descending into corruption. So the ideal is to have a strong tradition of rule of law, but a temporary government that has the will and resources to buck that tradition for a decade or two.
I'm tentatively agreeing with this (it's a complicated topic!), but that leads to a very different conclusion than Studwell does. We should instead focus on increasing the rule of law in places where that's weak, in preparation for finding the right moment to buck that trend. I'm not sure how a country could implement strong rule of law ethics with the intentional plan to go against that later. It's hard enough to instill that ethic in the first place, and there's a huge incentive to break it down for short term gains along the way, especially if you already plan to break it later...
Yeah it's tough. My view is that probably the best thing for America and Europe to do is be good trading partners, provide humanitarian aid where feasible without undercutting local governments, and try not to blow things up all the time. At the end of the day, I don't think there's "one neat trick" that we here in the west can do to make a whole country glow up. The solutions need to come from within the existing political systems of these countries, and trying to impose anything from outside seems as likely to destabilize things as it is to help things along.
"Studwell calculates that a carefully-tended garden in the US might produce $16.50 per square meter per year; a commercial farm would produce $0.25"
To what degree is this the gardener preferring more expensive crops vs. actually being more productive for the same crops? In the future scenario where AI and robotics effectively makes farm labor free, should I anticipate a 66-fold increased in per-acre output?
I'd guess that more expensive crops are harder to industrialize - more fragile plants, or more difficult to harvest by machine. Possibly they also don't survive shipping as well as industrial varieties. So I would expect better robots to have an impact.
(But keep in mind that robots aren't exactly "free labor," since you still have to pay to build them.)
Makes sense on all counts.
And no, not free labor, but the limiting case gets pretty darn close to that.
The easiest things for humans to do is the hardest to automate,so....
The first person to figure out how to use robots and computer vision to pick the saffron threads out of crocuses is going to become very wealthy indeed.
Britain seems like an underexplored potential counterexample here, especially since its economic history is probably (correct me if wrong) better studied than that of most countries. You can tell a just-so story where their lack of tariffs and capital controls worked only because of first-mover advantage, but AIUI their land situation around the time of the Industrial Revolution was if anything the opposite of land reform: the enclosures created a bunch of wealthy landlords at the expense of the common peasantry. And this is even sometimes cited as a driver of industrialization, in that the peasants deprived of their common land now had to go work in factories to live.
Also, how much justification does Studwell give to the claim that German and US industry would not have been able to reach parity with Britain without help from protective tariffs? That seems like a pretty hard thing to demonstrate without resort to the post hoc ergo propter hoc fallacy.
I also thought about the Enclosure movement and the Highland Clearances in Britain as counterexamples to the Land Reform as a precondition to Industrialization thesis. But after considering a bit, I think we can salvage a variation of the thesis if we conclude that Studwell misunderstood the active ingredient of Land Reform here.
Studwell seems to arguing that the active ingredients are 1) breaking the power base of the great landlords, allowing a durable shift away from a feudal social model, and 2) converting peasants into more productive and more economically-empowered yeoman farmers. But this clearly doesn't apply to British "Land Reform", and @Erusian's earlier comment argues that #1 at least doesn't apply to Japan, either. My proposed modification of the hypothesis is that the active ingredient is actually replacing traditional systems of land tenure with Freehold tenure or something like it (Fee Simple, Allodium, etc).
Pre-reform land tenures in most places probably resembled the utterly illegible traditional land tenure systems James Scott described in "Seeing Like a State", where the landlord might "own" the property, but the tenants had a complex mix of vested rights to the land and obligations to the landlord. These systems probably worked decently well within the context of the societies in which they developed, but they tend lock those involved into the social and economic structure whose assumptions are baked into the land tenure system, and their illegibility means nobody has the power or the incentives to improve or restructure them for the better.
Freehold tenure, on the other hand, gives whoever the freeholder is both the power and the incentives to maximize the economic value of the land. It also makes the land title much, much more legible. Contra James Scott, legibility doesn't just benefit the State: it also benefits the owner by allowing them to engage in transactions with distant strangers, i.e. to buy, sell, or mortgage land rather than just making static traditional use of it or at most handing it off to a relative or neighbor.
The Enclosures at least (I'm less familiar with the Highland Clearances) fit the bill under this hypothesis. When the primary direct beneficiaries of Enclosures were generally the landlords, the Enclosures still served to convert illegible feudal tenure into legible Freehold tenure.
Among the Asian countries under discussion, I think China's the closest to a counterexample to my hypothesis, since China reformed first to collectivized agriculture (which is legible to the state, but lacks the non-state benefits of the legibility of freehold tenure, and which terminally diffuses the power and incentive of the owner to improve the land), and then to something more like Leasehold tenure than Freehold. But China's economic expansion came after collectivization was deemphasized, and the modern system of very long-term leases from the State still has a lot of the advantages of freehold: as with freehold, the leaseholder can make improvements and benefit from them for decades at a time, and the leaseholder can buy, sell, or mortgage leased property.
I tend to think that land *title* reform is the key thing. Provided that it's clear who owns the land, and they can alienate it and use it as security, it's unimportant what the initial distribution is. A person using their land inefficiently will rationally agree to sell it to somebody who can make better use of it, who can secure the purchase price against the land itself.
That makes total sense and would jibe with e.g. the work of Hernando de Soto. Thanks.
+1
In particular, the open field system usually gave each household 3 narrow strips of land, located in different places and growing different crops in any given year to diversify a family's the food supply. These plots were too small for agricultural machinery like traction engines to be used on.
Livestock would forage on the common land and mate with whatever other livestock of the relevant species was also on the common land at the time. Enclosures made selective breeding much easier.
This theory seems intuitively superior to the original version, but needs to be tested with predictions. One prediction would be that there is a stronger correlation between industrial development and legibility (or transferrability) of land title than between industrialization and uniformity of land distribution.
And the examples I can think of, at least sort of meet that pattern. As you note, China's attempts at industrialization didn't really take off until they offered stable long-term leases. The United States industrialized with nothing resembling enclosure and no land redistribution (unless you count stealing it from the natives and giving it to settlers), but it had freehold title from the start. OTOH, the African nations that did land redistribution mostly didn't industrialize; we can handwave it as the wrong sort of redistribution, but legibility of title is I think a better fit.
This needs a more systematic study than I can afford to give it right now, though.
Thomas Jefferson helped ensure our legible system of property. He also prevented primogeniture from being our default inheritance system, which per Timur Kuran is something you can afford to do if you've already got a well-developed civil society (he attributes the backwardness of the Islamic world to their egalitarian inheritance law).
I'd say well executed land reform creates three economic benefits:
1.) It increases farm productivity by realigning farmer incentives and giving farmers an injection of capital (as a title and often various agricultural funds do). It also allows the most productive farmers to gain increasing rewards for high productivity.
2.) It creates a new pool of investment capital in the form of former landlord's wealth needing to find new ways to be productive (even if it's seized by the state this still happens). This leads to new investments. It also often leads to the high human capital landlords (if there are any) moving into new, more productive enterprises.
3.) It creates a legible free market for land that allows the most productive farmers to control more and more land, making it more productive in marketized fashion. This also frees up labor to move into more productive professions etc.
The book to read on the shift from illegible to fee-simple property is "Violence and Social Orders" by Douglass North, John Joseph Wallis and Barry R. Weingast.
Perhaps we should look at it as England industrialising, with Scotland and Ireland as colonial posessions (alongside the rest of the empire). Being able to extract resources from a quarter of the (mostly agrarian) world makes up for inefficiently large farms at home?
Raymond Crotty's "When Histories Collide" is partly about how Ireland was a resource-extractive colony and thus can't follow the same economic path as settler-colonies like the US or trading colonies like HK/Singapore. Crotty studied economics before becoming a farmer, and decided that what he was taught about capital investments was wrong because the other farmers were more successful than him by using their money to buy more land. He basically rediscovered Georgism.
One contrarian response you can give to this whole thesis, on reflection, is that it demonstrates the difficulty of achieving industrial prosperity in a regime of immigration restrictionism. In 19th century Europe and the USA, after all, white workers were pretty free to move to wherever the most productive factories were. Nonwhite workers in the 20th and 21st centuries have not had nearly as much freedom of this kind, and it's hard to tell whether the global development story would look at all similar if they had. But on the anti-restrictionist, anti-nationalist view, allowing them that freedom is the right thing to do anyway, since the morally important goal is not to enable *nations* to get rich but to enable *people* to get rich, and letting people switch nations to one where they have a better shot at getting rich is a fine way to do that.
I'm still mulling this idea over, but it seems as though *people* don't become rich in a vacuum at the same rate as nations. Individuals escape from local conditions at the expense of others in their community ("brain drain"). Although they can quickly achieve 1st World rates of income, they are a small minority. If instead they stayed in their home country and participated in the overall increase to the country, they might see a much smaller gain, but would help increase the incomes of millions of people by still significant (if ultimately not as much as the individual would have gotten for themselves) amounts.
Of course, it may be the worst of both systems to accept only the smartest/best equipped individuals to the 1st World and then deny movements to everyone else. That has the potential to leave only the least capable behind, to perpetuate the long term issues of underdevelopment.
As far as I can tell, many European countries try to move in this direction; introducing points-based immigration systems a la Canada (perhaps not as openly as Canada); plus making refugee immigration more difficult, or mainly temporary (refugee immigration does on average to a less extent select well-functioning workers, since they do not hail from well-run poorer countries with ok education systems).
Is it good and bad for net sender-countries if net receiver-countries to a larger extent select "the best" from them? Well, you have the brain drain problem, but do not forget the economic importance of remittances.
Also, there is "brain circulation", when (some) migrants move back home, and take new skill sets & new ideas on how to organise society, back home with them.
That last point is a good one, and to my understanding is something that helped a lot of Commonwealth nations (as an example) to succeed. Individuals from all over the British Empire were able to study at British universities before heading back home and use their skills to improve the local conditions.
I wonder how often that happens today? I don't get the impression that a lot of people come to the US and then go home after learning a significant skillset, but I could be wildly wrong about that.
Hein de Haas et.al. (The Age of Migration, 6th edition, 2020) include a discussion of this in the chapter "Migration and Development in Origin Societies".
They do not use the concept "brain circulation", but prefer the broader term "social remittances" for all knowledge acquired by diasporas in their new country that diffuses back to the origin country through several channels. But they also include examples of what other scholars more narrowly define as brain circulation. Quote (p. 348-9):
«…Taiwan experienced substantial loss of high-skilled people in the 1960s and 1970s, but when Taiwan's high-tech sector took off, the government was able to attract back experienced nationals from the US...Similarly, India set up Institutes of Technology from the 1950s on to support national development, but many of the graduates emigrated to the US and other rich countries. However, many IT experts later returned which boosted growth of India’s own fast-growing IT sector.”
While I believe it would be beneficial if the frequency of this was higher, it's definitely already happening at significant scale. In the Chinese case I'm most familiar with, the phenomenon has a name ("haigui"), and as for the current numbers: "Over 800,000 recently graduated haigui returned to China in 2020, an increase of 70% from 2019, largely due to the impact of the COVID-19 pandemic." (source: https://en.wikipedia.org/wiki/Haigui , which cites https://www.scmp.com/economy/china-economy/article/3102384/chinas-overseas-graduates-return-record-numbers-already )
(Granted, China is a special case for several reasons, but it demonstrates what is possible on the "brain circulation"/"social remittances" axis.)
I don't know how effective it is in practice, but US student visas are rigged to make foreign students go back home for a while after graduating. (Both at the behest of anti-immigrationists in the US and their home governments.) After your schooling ends you get IIRC two years of "practical training" in the US, then you have to go back home for something like two years before you can qualify for another US visa.
This is a reasonable guess to make, but we have lots of data against it at this point. As others have noted in this comments section, India and the Southeast Asian countries that Studwell brings up as negative examples are actually doing a reasonable job of catching up. Globalization is now getting the job done at scale in countries with ordinary levels of homogeneity/state capacity/IQ?/etc. Low-skill immigration is now horrendously inefficient in comparison; the public still objects to it more than they object to outsourcing and the like, even though it has helped less than a hundred million people in comparison to the literal billions being uplifted by globalization. (I wonder how important the Internet has been in making it easier for ordinary poor countries to catch up.)
I support open borders on Earth as a state of affairs to aim for in the long run, but the order of operations matters here. I don't see much antipathy towards e.g. non-elite Korean or Taiwanese immigrants today, and I don't anticipate much objection to weaker immigration controls on other currently-poor countries after they have largely converged, either.
Well, the moral imperative is to make people rich, but that applies to people in general, not individually to each person. It's OK to blunt the richness of one person if that adds more total richness to other people.
But I do wonder if what made the east Asian countries so abruptly successful was racism, specifically, racism of richer Western countries preventing educated east Asians from immigrating. The review talks about the "learning" generated by industrialization. Some of that learning is "institutional", bound up in the social structures of the locale. But a lot of it is learning by individuals, which is called "human capital". I recall reading that early on, South Korea banned exporting (financial) capital, sometimes by executing offenders. But it's hard for a government to make emigration punishable by death. OTOH, it's easy for rich countries to ban immigration of people they don't like. So the human capital developed in the mid-1900s in east Asian countries couldn't go anywhere.
Compare to what I read about a Nigerian bank. It wanted to stop outsourcing "risk analysis" to the West so it trained people in risk analysis. But anyone who got the training quickly emigrated to the West. Eventually the bank gave up and went back to outsourcing risk analysis.
> Gradually they improved, until now "Made in Japan" has the same kind of prestige as Germany or Switzerland
At one point German manufacturing was known for shoddy quality, hence the phrase "on the fritz".
Thanks, this is fascinating. As a child in India, I'd only heard heroic tales of other-worldly German and Japanese manufacturing, and how German and Swiss watches would have unlimited warranty. There is probably a moral in there about learning by iteration...
The land reform discussion reminded me of Yavlinsky's (Russian politician popular among intelligentsia in the 90s) program, which included giving "30 to 60 acres of land for free" to every Russian family that wants to take it. There is a general feeling among intelligentsia that the 1990s were a short window of opportunity for Russia that was missed; I remember my grandmother would say bitterly while making kasha for me in the kitchen: "If only they let Yavlinsky do what he wants; but they won't".
It wasn't missed so much as it was squandered. Russia pretty much made all of the mistakes the book talks about in a short time period (under Western guidance, naturally), leading to a colossal economic disaster. Unsurprisingly this resulted in the total disillusionment among the population towards liberalism, democracy (popularly referred to in the 90s as "der'mocracy" - shitocracy) and Western influence in general. Following the "shock therapy" the liberal parties or candidates, like Yavlinsky, never mustered more than 15% of votes in total in any country-wide election (which were more or less fair at first), trending down with time.
Of course, if the thesis of the book is to be believed, this wasn't necessarily a bad thing, but Putin wasn't the right sort of authoritarian to force the good reforms either. He brought down corruption and general lawlessness from sky-high to tolerable, but beyond that he's totally ignorant in economics, doesn't understand competition or export discipline. And he can afford to remain ignorant, resource-based economy paired with deft nationalistic agenda are enough to keep the ratings high, the dissident journalist "expert" opinions notwithstanding.
To be fair, Yavlinksy had somewhat different policy proposals (like the land reform) and unlike Gaidar and Nemtsov never got a chance to implement any. But it's true that he was in the liberal wing and didn't get many votes.
It was a very unpleasant period, the rule of Moloch in all his might. It is easy to see the mistakes now, but I don't think it was clear at the time. If you or I were at the top would we have done better? When I read Russian literature from late 19th century (like Tolstoy' "Resurrections") or the dissident's literature from 1970s I get the same feeling: very smart and contentious people making sacrifices to bring an unlikely change, that I know will succeed and will be terrible; and I know that if I was in their place i'd probably do the same or worse.
> It is easy to see the mistakes now, but I don't think it was clear at the time.
I'd say they are hard to see clearly even now, e.g. much of this book is still pretty far from economic mainstream (and might very well be wrong). Makes one wonder, just how much might the right person at the right time enable better outcomes.
And I'd say that there was such a person in the Russian history, just once - Peter the Great. He borrowed plenty of good policies and customs from the West, pretty much single-handedly dragging Russia kicking and screaming into modernity and global relevance. There's a joke I like, that for a couple of centuries the "migrant laborers" were Italians and Germans. Sadly the monarchy's biggest weakness struck hard - all of his successors were mediocre or worse, and all that the better ones managed to do was to temporarily slow the rot, without real progress.
There was recently a discussion here that Napoleon's reforms in the conquered territories could plausibly explain their success compared to unconquered neighbours. It might just be that the costly victory that Russia achieved over him could have secretly been its greatest historic mistake. He was certainly no Hitler, and probably the best ruler that Russian people could've realistically hoped for. Of course, nobody asked for their opinion, just for them to sacrifice their lives for the inferior alternatives (that, amusingly, also mainly spoke French).
Land reform can be a useful way to create a sizable conservative political bloc.
Bonaparte got the Pope to agree to the earlier land reform in France during the French Revolution that expropriated the big holdings of the Catholic Church. This created a sizable conservative but not reactionary class of landowning small farmers, which was the basis of Louis Napoleon's political support. The land-owning French peasantry drove Marx wild with rage because they were content and opposed urban proletarian revolution.
That base of support also means that the ruler is some freedom of action to undertake other policies, i.e. industrial and financial policy.
As pseudoerasmus has pointed out, it failed to prevent revolution and arguably encouraged it in both Vietnam & Iran.
Even from Studwell's perspective there's no reason to think that this would have been successful for the country. For one thing, Russia was already industrialized, so it bucks the trend and purpose of distributing the land. Secondly, giving land to everyone who wants it is specifically not what Studwell is proposing. He wants to take it away from landlords and give it directly to the people already working the ground, under the assumption that they will know best what to do with it. Giving 60 acres to random people who may or may not know what to do with it is unlikely to succeed, especially if that land was already in use and may actually be given to someone with less knowledge about how to use it.
The idea was that Russia had vast stretches of land not being used at all, while the majority of population was crammed in tiny flats, and that home and land ownership would spur creation of middle class. But I agree that there is no strong connection here to Studwell's argument.
Sure, pick some non-productive land and give it to individuals living in crammed cities. What would that really accomplish? There's generally a reason that the land was not already being used, and giving it to people who may have had none of the skills to properly utilize it (or even make it livable) is not a solution. Do they need to build their own houses, including utility connections (at least a well and waste disposal), roads and other infrastructure, etc.?
I'm more than sympathetic to good ideas that may not be politically feasible, but this is neither a good idea nor politically feasible. I agree with the Russian people of the early 90s on this point - they didn't vote for it either.
[Epistemic status: I only got 3 hours of sleep so this might be half-baked]
1aa. The most implausible aspect of it was the idea that meticulously tending gardens by hand, like people did in 1000 AD, is the key to improving productivity, as opposed to modern factory farming. Rolling over a huge field with machines produces astoundingly high yields with modern seeds and fertilizers, and frees up 98% of the labor to do other things, like work in factories. Micro-scale yeoman farmers were rapidly going out of business in the US in the 30s due to competition from larger and more mechanized farms with economies of scale. The more land you have, the more benefit you get from owning advanced farming machinery. Micro-farmers can't afford the best machinery.
1a. A negative outlook for the south asian foils (Thailand, Malaysia, Philippines) seems unjustified considering how quickly they are growing at present despite not following the book's advice. Also they are still richer than their historically more-centrally-planned neighbors Vietnam and Cambodia. In the past 20 years, all the foils have increased their GDP per capita by at least 2.8x, which is a CAGR of at least 5.2%.
1b. The 15 point average IQ gap between the northeast asian success stories and the south asian foils is very likely to be a factor.
1c. Giving tenant farmers tenure and a percentage of their output could align incentives as well as if they actually owned the land. Concentration of land ownership is thus not necessarily a good measure of whether or not they have the right incentives to improve yields.
1d. Many countries in South America, Eastern Europe and Africa did a lot of socialism and land reform and it didn't get them very far. It seems potentially no-true-scotsmany to say that the northeast Asian countries are the only ones who did land reform right, without predicting in advance which kind of land reform would work. Those countries have many other features in common so the causal status of land reform is unconvincing.
1d. I previously calculated that China was still poorer than pre-industrial Britain when it began its liberalization in '78, so apparently redistribution of land didn't get them very far in 1948-1978.
1e. I don't see so much as a scatterplot of land ownership gini vs gdp growth over the next N years. I feel like the land reform argument needs more quantitative support.
2a. Looking at development as a collective action problem is interesting. I suppose you could elaborate on that by saying that developing one industry can have long term positive externalities on many other industries, and the protective tariffs are a way of internalizing those externalities (at the expense of consumers, instead of doing a pigouvian subsidy at the expense of taxpayers). Maybe that sort of language would make it more palatable to mainstream economists.
2c. These all seem like reasonable factors contributing to Malaysia's lagging.
3. Low interest rates in general will increase the relative valuation of long term growth oriented companies relative to immediate value-extraction companies, because of how interest rates affect the calculation of discounted cash flows. So I'm not convinced that central planning is really necessary to push things towards the former. The US privately finances plenty of long term moonshots, and even literal ones like SpaceX.
The whole reason the land reform worked was that they had a massive surplus of labor that was already doing agricultural labor but under the yoke of landlords. The situation prior to land reform was closer to the 1930s USA yeoman farmers than to modern factory farming - many of those yeoman farmers were under the yoke of landlords even!
Critique of the book would gain from actually reading the book or review than what you think the book says...
Great comment, Doge.
Hong Kong did not grow just due to finance. The phrase "Made in Hong Kong" was once very common as well.
Malaysia, Thailand, and Indonesia are hardly basket cases. They have seen GDP per capita increase multiple times faster than, say, most of sub-Saharan Africa.
How does the model account for the very rapid growth seen in India and Bangladesh, to name just two other examples?
More specifically, it's weird to bring Malaysia as a bad example. At a GDP/capita/year at PPP of $28000, it's the wealthiest Asian country after the ones generally recognized as wealthy countries. (Compare: US $63000, Japan $41000, China $16000, Philippines $9000. 2019 data, rounded to thousands.)
Malaysia is one of the better Muslim countries in the world.
I can recall three decades ago James Fallows of "The Atlantic" living in various places in East Asia to generate journalistic material and him pointing out that Malaysia was much less crowded than most East Asian countries. Its population has gone up a lot since then, but it doesn't compare to Java or Luzon.
Does the author (or others) provide any examples of countries trying the free-market approach in the modern area. I'm skeptical that is doesn't work and it doesn't seem like an example is provided. I am on board with Hong Kong and Singapore being exceptions that likely don't tell us much about larger countries.
Even Singapore isn't a case. It's not small government by any stretch. Where it is free market is free from labour regulations, minimum wage etc. Which tells you something about the actual priorities of self proclaimed 'free market' people.
There are labour regulations. Also, they have a very government controlled housing market.
I wanted to ask this too. OK, few countries free market economies and got rich. How many countries had free market economies, strong property rights and contract enforcement included, and stayed poor?
As far as I can tell, most poor countries have rather unfree economies. The ones that got rich had relatively free economies by poor country standards; I see little evidence that this wasn't what actually mattered. China still has a relatively unfree economy—and it's still relatively poor; it's grown fast only because it started out extremely unfree and extremely poor.
I think this book is right about the path taken by the east Asian tigers. I don't think that lesson can be exported to the rest of the developing world just as the Washington Consensus is not one-size-fits-all. There are too many confounding variables caused by geography, culture, demographics, and politics for there to be a universal development story.
excellent
The argument seems like pure cope to me. I still defer to Lee Kuan Yew's theory that good rule of law (with regards to business + labor practices) + a safe, low crime society (both corruption and street crime) + general free market ideology + strong human capital = success. Developing countries need to attract foreign capital (and keep attracting it). That's really it.
Odd that so few non entrepot city states have done it then. Singapore is very far from being a small government free market country anyway, and started from a higher base - being 1.5 times richer than Malaysia at independence.
Well it's hard to find a lot of good examples just because when the country is developing, there's lots of pressures for leaders to tend populist. Could argue Estonia since the fall of communism could be an example.
Lee Kuan Yew was openly touting socialism in the 1970's. Also, look up Singapore HDBs.
https://www.pbs.org/wgbh/commandingheights/shared/minitext/int_leekuanyew.html
CTRL + F "socialist"
By the end of his career LKY was pretty much the exact opposite of a progressive/socialist. I'd say Singapore is the epitome of a neoreactionary state - very pro business, extremely strict law and order, punitive punishments to deter crime. As someone who tends right of center (esp on law and order points), I would happily CTRL C + V Singapore's laws here in a heartbeat. I highly, highly, highly doubt any folks left of center would.
Also read this on the housing:
https://www.slowboring.com/p/public-housing-is-not-the-answer
That's a speech from 2001. Lee Kuan Yew said a lot of things that he would later disavow (or just forget). I say this is as a graduate of the Lee Kuan Yew School of Public Policy at the National University of Singapore.
Here is an article about a building that they just tore down two years ago.
https://tribunemag.co.uk/2019/04/demolishing-the-city-of-the-future
Note the Singapore government brochure from 1979 touting "Socialism that works"
Also, would you like to have mandatory health savings accounts?
20% (before taxes) of a Singaporeans wages get taken and put into two places. 1 is a mandatory savings scheme called the central provident fund. You can't get this money until you are 65, but there is a bonus if you take it even later than that.
The other half of that goes to Medisave. This is a mandatory Health Savings Account that can only be used for medical stuff for you or your immediate family. You can use that to buy health insurance, Medishield, which is a public health insurance plan which can also be supplemented by private insurers who sell Medishield Plus plans.
Also, the government owns about half of all of the hospitals. And for all that Yglesias is totally right.... 80% of Singaporeans right now live in HDBs which are public housing developments on 99 year lease from the government. It's why housing is affordable there and not ridiculous like Hong Kong.
Yes I literally would take any laws in exchange for Singapore's general law and order (mass surveillance + punitive punishments) and pro-business environment. Take away my right to vote for all I care. Keep me safe and give me a way to make money (especially if largely meritocratic) and nothing else really matters.
Sure. But you likely underestimate how large a part the state played, and still plays in the country. But yes, very good place to live in if you're already rich or high income/upper middle elite, and don't care too much about politics. Compared to HK, where it sure looks like the living standard of the average person isn't that different from the average urban Malaysian.
IMO - crime rates and general lack of law and order (open drug use, filth, etc.) make Western cities essentially the equivalent of failed states. No one has done more harm to civilization than Western progressive criminologists. The amount of death and destruction they've brought about is grounds for decades of Hague trials.
Having lived in Singapore for 5 years... I can burst some of your bubbles. Litter exists. They don't really cane people, it's mostly fines and rich people generally get away with the sort of broken windows offenses.
During Covid it was heartbreaking to watch the Singapore government, generally competent, fuck up on public health due to dumb populist pandering.
See, in February-March 2020, the Singapore government closed the borders (good), and said it would give free Covid tests (great!)... to all Singaporeans and Permanent Residents. This meant that 4 million out of the 5.5 million on the island were eligible for free tests.
I was there and I said that Singapore was just playing pretend at public health.
In the US, there is a tradition of hippie punching. Shoring up your electoral bona fides by attacking generally leftist outsiders, (the rhetoric of the moral majority, Real America and all that). In Singapore, it's attacking foreigners. Now the Singapore government threads a needle here. They know they need foreigners at the low end to build houses and be maids. They also know they need foreigners at the high end to put their Southeast Asian headquarters in Singapore. So Singapore can't be too officially alienating.
But, the one thing the Singapore government will do what it can to avoid being seen giving foreigners something for free. So the 1.5 million foreigners were not eligible for free Covid tests so guess what... very few foreigners wanted to drop 130 dollars on a test.
Covid then exploded in the migrant worker dormitories. Singapore went from a dozen cases to thousands in the space of a month and the lockdown lasted for two months longer than it had to because some PAP functionary had made the decision that somehow Covid was going to respect visa status.
I don't really care. Here in San Francisco we have people openly doing drugs in the street, shoplifting at will and cars are broken into once every *fifteen* minutes on average. Anyone that suggests this should probably change is labeled a fascist. Western society has failed.
"In the US, there is a tradition of hippie punching. Shoring up your electoral bona fides by attacking generally leftist outsiders, (the rhetoric of the moral majority, Real America and all that)."
Are you from the 1990s?
Real America was Palin in 2008.
btw that PBS interview is fantastic in whole and I suggest everyone read it.
There are a lot of examples of countries that moved quickly from developing to developed, just not ones that did it to the way you prescribed, at least not at the same pace. The ex communist European states are the closest, but that's likely because that had a lot of state directed development under communism. The difference is that the investment there was not subject to market tests as they were in the state capitalist countries, and therefore got worse results. Plus they were European - they're surrounded by rich states, the way Japan, SK and Taiwan weren't.
In regard to the question of whether land reform is essential for development:
I’ve read the claim that widespread small-scale peasant landownership in early-20th-c. Ireland *impeded* economic development—and, as noted below, amazingly unequal landownership in the industrializing UK (significantly *worse* than in pre-modern China) didn’t seem to hamper it.
An interesting interpretation would be the the real gains come from shaking up traditional approaches (whatever those might be) in order to re-orient your land use towards markets rather than subsistence. If you start with a bunch of small subsistence farmers, you can move forward by combining the land into big plots and farming them using modern industrial techniques. If you start with overpowered extractive landlords, you can move forward by breaking the plots up and giving each new independent farmer access to robust markets for their goods.
In this model, the enemy is really just the inertia of traditional farming methods, and the key to success is shaking up traditional land use and allowing it to modernize.
To generalize even further, if you find yourself in a bad but stable equilibrium, often you can improve things by just kicking the whole thing hard enough to knock it out of equilibrium and then letting it find a new balance on its own.
Small-scale land ownership (city dwellers' suburban 1/6 acre plots and kol/sovkhoz dwellers' private gardens) provided an outlet and a safety valve for the people's energies in late USSR, and helped a lot of people to tide over the chaos and penury of the early post-Soviet period, but arguably at the cost of the energy people would otherwise have perforce directed into the economy, and perhaps even into politics to make it less dysfunctional.
One of the most important aspects of land reform is that the country be located outside the Western Hemisphere. US has always seen land redistribution as socialism, and all socialism is an enemy to Our Way of Life. Many large land / resource owners are US corporations, and what United Fruit owns the US Marines will protect.
Hong Kong was a giant sweatshop through the 40s to the 70s. Huge multistorey industrial buildings, now abandoned, continue to dominate districts; in the old days, they jsed to churn out everything light industry could, from jeans to toys. Cheap things used to be Made In Hong Kong as well, before HK's factory tycoons outsourced to China and the economy shifted to finance. Blocks of apartment buildings were filled with families, living six to a room, with kids stringing together necklaces of plastic flowers and finishing jeans by the bushel.
Oh, and the government owns all land in HK other than some bits owned by farmers. Everyone technically buys 100 yr leases.
To put a hard number on it, Hong Kong's had more employment in manufacturing (45.9%) than in services (42.1%) as late as 1980 (by which time it already was considered a success). Source: https://www.researchgate.net/publication/248973777_Hong_Kong_From_An_Industrialized_City_To_A_Center_of_Manufacturing-Related_Services
So this notion that it was being a "finance hub" that led to Hong Kong's success seems at odds with what actually happened.
Yep, HK had a pretty strong manufacturing industry before it switched to finance. Though the factory buildings aren't that abandoned. Lots of local businesses set up in them.
One key point is that East Asian countries grow rice. Rice agriculture is unique in that you can get better yields by putting in more labor, there is always something productive to do. With corn and wheat, once you have put in a sufficient amount of labor, adding more won't help your yield. The tendency of Asian work culture to emphasize long hours is a direct result of this, rice farmers who work 15 hour days end up with a better harvest.
That is fascinating. Do you have any sources for this?
I mainly got it from the book Outliers by Malcolm Gladwell.
Malaysia has a GDP per capita PPP of $29,000, and Indonesia has $13,000. China is at $18,000, and Vietnam at $12,000. How are China and Vietnam be called spectacular success stories, and Malaysia and Indonesia dreadful failures?
Depends on where you started. Malaysia was relatively rich by LDC standards at independence. China's start point is 1979, after decollectivising farming. I didn't know Vietnam was almost as rich as Indo - it's a communist state that fought the US, for God's sake. Indo has been independent for decades.
and Thailand (the other example of failure) is $19,000
Smart point.
You need a great leap forward (CN) or total war devastation (ROK, JP, VN) or the like to set the initial bar real low and grow from there?
I think if you don't implement the policies at those points, you don't get the results you see today, yes. Don't forget that Korea used to be poorer than Philippines. As you can see above, I was surprised that Vietnam nearly caught up with Indo. Indo got rid of the Communists DECADES ago, and the nominal Communists of another country is almost catching up? Though a fair bit to lay at the feet of the Asian Financial Crisis.
I suspect that central planning is hard to get right - there are times when it can work very well, but it seems like it's very easy to get it wrong and do worse than the free market. It would be very interesting for an economist to try and work out whether this is luck, policy or (most likely) a mixture of both.
no it isn't - without prices and competition any computer model is missing the most important variable
no computer model is going to tell you to invest in products or processes that don't exist yet.
you are missing the point - there would be no reason to even consider it - eliminating competition destroys all of the incentives to take risk
and why would anyone care?
you also completely dodged the new product angle.
Oh sure, because alignment is super easy, barely an inconvenience!
Cybersyn was never demonstrated to work beyond very limited application in a situation of crisis (where it is unclear whether the system did any work at all other than serving as a means of communication).
The problem of optimal resource allocation has already been demonstrated to be computationally intractable for large inputs (Computing market equilibrium is at the very least PPAD-Hard, and this is for artificially simplified models of markets!).
AIs aren't magic sauce you throw onto a problem and make it go away. There are problems we will never be able to fully solve.
I have, and I can confidently say he is a hack who is not qualified to make the assertions he makes, some of which are in fact comically wrong to anyone with even basic training in economics, such as his attempt to empirically prove that the labor theory of value holds.
Industrialization, low peasant productivity, land being owned by few landlords that have no or little interest in developing it, political life dominated by those landlords. This is 1 for 1 the history of European revolutions. Russia being the latest example. Hence, it all reads a lot like Marx theories.
So yeah, you do need industrialization to be competitive in the modern world. You do need land redistribution of some kind. You do need to dismantle 1000 years old communal agriculture and serfdom. But I don't buy his advice on how to achieve that. Or that the China way is the only way to do it. History knows plenty of examples when a different approach worked, albeit in a different external condition. History knows plenty of examples when autocracy didn't work.
It feels more like a pundit trying to explain something that has already happened. And less like an honest scientific work on the topic.
"And every big developed country that passed through a manufacturing phase used tariffs (except Britain, which industrialized first and didn't need to defend itself against anybody)."
Sorry this is wrong, and a really annoying meme economic historians keep arguing against.
What about the Calico Act that protected mid-18th century UK textile manufacturers from India's textile industry? https://www.britannica.com/topic/Calico-Act
What do you think the Corn Laws in 1846 were repealing if not protectionist measures that had been in place during the industrial revolution?
Also transport costs were REALLY HIGH which acted as a natural barrier far higher than any tariff.
UK's development story is not as sui generis as we like to make out.
The Calico Act I'll give you (though of course you can ask the usual counterfactual question of whether UK textiles would have outcompeted India anyway) but the Corn Laws seem beside the point here, being IIUC tariffs on agricultural rather than industrial products.
One counter-argument on the land reform point: when Britain was industrialising, it did more or less the exact opposite of what this book describes.
Land reform in 18th- and 19th-century Britain meant enclosure, a process by which rich landlords could amalgamate holdings previously subject to the rights of many small-scale tenants. It could be a very harsh process, with tenants receiving theoretical compensation that in no way made up for losing their ability to farm the land. They often wound up day labourers or, later, working in the new mills and factories. At its harshest the process gave us the Highland Clearances, where large numbers of small-scale tenants were left with next to nothing and had to emigrate.
But it also left the country with large tracts of land in the possession of rich owners, who turned out to be very interested in maximising their profits by increasing yields. They experimented with many different ways to do this, helped by economies of scale and the flexibility of not trying to change the ancient ways of their tenants. They greatly increased productivity, and this new wealth fuelled Britain's industrial development.
Korean-style land reform was obviously part of a successful package in that country, but it's not the only way to development.
The reforms you're describing were a return to the status quo, and started after the industrial revolution had already began. Prior to that you had the agricultural revolution, which was prompted by reforms similar to the ones that scott discusses. You had the black death, which lead to a increase in the amount of land per person, and you had land belonging to the church being seized by the king, and sold off to the peasants. Robert C. Allen's history of the subject treats these as key factors.
A minor point I have not seen the discussion yet: reverse engineering. In the case of Japan and China, I believe there is a strong feeling that their catching up was helped by an involuntary transfer of intellectual property from the already industrialized countries. (I'd rather not comment on the legality/ethicacy of it, as it is besides the point here and I haven't thought about it enough to argue one way or another).
The idea that "developing country industry is not about the profit, but about learning, acquiring technology, etc..." sounds nice enough, but if large part of is "let's figure out how this state-of-the-art piece of equipment was made in Advanced Industrialized Country and how close we can get to it here at Industrializing Country while maintaining a reasonable balance between cost and quality" is a whole different problem than "let's try to imagine where our industry will be in 10 years' time and start developing a product that has a reasonable shot at being the state-of-the-art then". Fair enough, there is much more to catching up than technology and manufacturing, but any approach to economic development that argues for manufacturing as the/a main driving force behind modernization has to at least mention this passingly imho.
A more general point: the reason why we have so few success stories is maybe there aren't too many General Parks? I mean there seems to be a very fine balance between the basically dictatorial powers which can be required to e.g. carry out a land reform and the, for lack of a better world, wisdom that would make the Premier actually give the land to the farmers and *not* to expropriate it by giving it all away to his lover’s third cousin or something. Since industrialization takes usually several decades, you have to make sure the leaders who start out as Gen. Park’s don’t turn into tinpot dictators, their successors are also reasonably well-intentioned, there is a normal transfer of power etc.
So even though the Asian model seems like a the proverbial banknote lying on the pavement, I think it is more like suggesting street kids to become neurosurgeons to climb out of poverty: it is really great if it works, but a lot of things have to be right for it to work and at the outset it is almost impossible to know whether you have what it takes to succeed.
Industrial espionage is very common. Huguenot weavers helped supercharge British textile industry. Germany was renowned for stealing technology in the 19th century. The US were MAJOR IP thieves for years. But then once you become the technology leader you get the faith and start prosecuting people. The US has just been able to create a global IP regime where others couldn't in the past. Give China (at most) 10 years and it'll get incredibly worried about IP theft by manufacturers in Nigeria or Kenya or Pakistan.
"Have a benevolent dictator" is definitely a hard system of government to get right.
The same thing is true of any central planning initiatives. I don't get the impression that many people are against central planning a priori, but a lot of people are against it in practice because of the overwhelming number of failures. The free market isn't amazing because it always gets things right, it's amazing because it naturally and automatically begins to fix the basic errors of prior reasoning. It's still people making choices, they're just decentralized to the point that others can also make choices and they compete. With too much central planning (a hard thing to measure...), there is not enough alternatives and a nation can get locked into poor choices. You can spend an entire generation grumbling about some difficult plan, not realizing that it was always doomed to failure.
It is pretty amazing that people keep doing basic timescale analysis wrong, which renders their damage estimates utterly unsupportable. It would be cool if there was a better market mechanism to correct the doomsayers. It's left as an exercise for the reader to trace the reasons why they're currently getting it wrong. (Hint: it's not that a free market created these errors.)
Nor did capitalism create the problem. Do you have any guesses for what has caused people to do timescale analysis backwards and make unsupportable damage estimates?
In any event, capitalism should naturally and automatically fix things like misestimation of insurance values in certain areas if they need to be adjusted for climate change. One action you can take is to go buy a bunch of property that is currently a little too far inland. You'll make gobs of money when it becomes the new beachfront, and help out capitalism in the name of science!
Communism won't naturally and automatically fix bad timescale analysis and unsupportable damage estimates, either.
Why do you think that correct prices won't be a fix? I mean, besides the fact that a "fix" being needed is not even a thing that has been properly argued for...
"Socialism" isn't going to fix that either. https://www.thedailyworld.com/opinion/noah-smith-dumping-capitalism-wont-save-the-planet/
Interesting response from Noah Smith on some of the limitations of Studwell's theory, although I suspect many ACX readers are also on Noah's mailing list.
https://noahpinion.substack.com/p/what-studwell-got-wrong
This was very insightful. The land reform ideas synergize well with Georgist perspective and the as a whole Studwell position seems to unite lots of valuable points from both capitalism ideologs and critics.
Also this explains so well the situation with Russia. How the 90s, the period of swift shifting to market policies, were one of the most terrible drop in quality of life not related to war. And why russian economy is still in a bad shape.
Georgist taxation of agricultural land might be the form of land reform that works in the sense of getting land title into the hands of those who are most inclined to use to productively, while not being the kind of legal cover for arbitrary takings that's often doomed from the start by internal corruption.
Regarding Russia, by metrics like urbanization, Russia in 1988 was developed. But less productive than the West. Can you flesh out which factors for "how to escape undevelopment and dire rural poverty" you found explanatory for "how to escape mal-development and the middle income trap?"
Basically I always been a little confused about Russian crisis in the 90s. It seemed that pro-market reforms usually help the development of the countries but not in this case. All the attempts to get a clear gear-level model of this situation ended up listening to people claiming that market economy is a scam and how the great country (USSR) was robbed by capitalists.
I've had the feeling that if the reforms were done better it could've been different and that the slower pace could've been beneficial. But again I didn't have a propper explanation why or how. And here I can see a model that fits the data, while not being actually trained on it.
In particular, the ideas of multiple subsidised companies competing with each other as opposed to goverment corporations and starting small in order to accumulate/improve technological base as opposed to selling parts of previously nationalised companies to foreign investors to lead the way seem very relevant. This one seems relatable as well:
"Finally, he wanted to be exciting and high-tech. When he ordered the construction of Malaysia's first steel plant, he wanted it to be more efficient than the best foreign factories. But number one, this required hiring foreign contractors to build it - there was no way Malaysia was going to build a super-efficient steel plant itself when it didn't even know how to make regular steel plants. And second, the super-advanced technology crashed and burned, and the project had to be scaled back at great cost. Mahathir started a bunch of high-tech cyber investment parks, all of which failed when nobody in Malaysia was actually able to do high-tech-cyber stuff very well."
Obviously this is just one possibility, but the recovery of the Russian economy since the fall of the USSR would suggest that it the reforms were initially bad (as any sudden change to an economy is likely to be) but paid off in the long run. A more gradual transition ala China may have worked better (although there were of course political as well as economic considerations).
I feel like the USSR illustrates the pros and cons of a planned economy pretty well actually, as has been discussed on SSC in the past (https://slatestarcodex.com/2014/09/24/book-review-red-plenty/) - central planning is great for industrialisation but increasingly difficult to sustain as things get more complex.
The obvious question: did Russia have an actual free market economy at any point? Merely allowing private ownership doesn't count if confiscatory regulation aimed at fscking over a company that didn't bribe the right people, and benefit the one that did, may come at any moment.
One may always claim that a market isn't free enough. Similarly, one may always claim that no true communism has ever been attempted and so on. The fact is at a point of time Russia moved radically into free market direction, making the markets much more free than they used to be, creating private sector from scratch. And it lead to huge collapse. And it requires some explanation.
And such claims may be true. What we do know is that the free(ish) market works well in developed countries. We can speculate that the free(ish) market doesn't suit poor countries. But there is no need to speculate that if the sort-of-freeish market that was attempted in countries like Russia is actually nothing like the free(ish) market of developed countries, in terms of rule of law, property rights, actual freedom from confiscatory regulation etc.
I assume what happened in Russia was that inefficient state enterprises were shut down, and the environment wasn't conducive to their being quickly replaced by more efficient ones. Even with the best governance, there would have likely been a significant temporary disruption, but not as bad. Central European post-socialist countries, like my Hungary, are hardly models of good governance, but as far as I can tell the disruption during the transition to market economy wasn't as bad as in Russia.
Maybe we could collectively accept that there is no grand sweeping cause for economic development ?
Compared to (most of) Africa, East-Asia has :
- rice-based agriculture that allows for high population density.
- strong states with efficient administrations.
- good deep water harbors and navigable rivers for shipping industrial products. I don't need to emphasis how important this is if you plan to export abroad...
- probably less endemic diseases but I'm not sure on this one.
It's not just a question of policies, geography, history and culture count too...
Planned economies work well for underdeveloped countries, as people, including i believe Alexander Hamilton, have been saying for centuries. So do you see why it is that bigger countries oppose planned economies? They oppose international competition. I don't think this is a matter of economists being too stupid to see what works, though I wouldn't put it past a lot of them.
I am skeptical of the claim that China's per capita growth has actually been all that impressive compared to Malaysia and Thailand, both of which are wealthier than China. So I went over to Our World in Data, looked around a bit, and then noticed that I am confused.
If you look at cumulative change of GDP per capita since 1950 [1], South Korea has grown more than twice as much than any other major East/South Asian country. China doesn't look very impressive here, even compared to Thailand and Malaysia. If you set the start date to 1979 [2], China has grown the most. But this is highly dependent on the starting year. If you instead set the start date to 1985 [3], India has grown the most.
This is about when I noticed that I am confused. If you look at the annual growth rate per capita since 1985 [3], India's has been consistently lower than China. Yet India's cumulative growth per capita over the same period is higher. This isn't mathematically consistent. China grows at about 8% per year and India grows at about 5% per year. After 32 years, India's GDP per capita is 5.2 times larger than initially, while China's GDP per capita is 4.3 times larger (instead of about 12 times larger that you'd expect from an 8% growth rate).
Does anyone know what's going on?
[1] https://ourworldindata.org/grapher/real-gdp-per-capita-pwt?stackMode=relative&time=earliest..latest&country=CHN~MYS~KOR~JPN~IDN~IND~THA~VNM~PHL~MMR~BGD
[2] https://ourworldindata.org/grapher/real-gdp-per-capita-pwt?stackMode=relative&time=1979..latest&country=CHN~MYS~KOR~JPN~IDN~IND~THA~VNM~PHL~MMR~BGD
[3] https://ourworldindata.org/grapher/real-gdp-per-capita-pwt?stackMode=relative&time=1985..latest&country=CHN~MYS~KOR~JPN~IDN~IND~THA~VNM~PHL~MMR~BGD
[4] https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&time=1985..latest&country=CHN~IND
Looks like your [4] is not adjusting for inflation or purchasing power, but your other charts are.
[4] says "Annual percentage growth rate of GDP per capita based on constant local currency." Doesn't constant local currency mean that they are adjusting for inflation, although probably in a different way than [1]-[3]?
India's inflation rate is higher than China's. So if you didn't adjust for inflation, India's growth should increase relative to China's. Instead, [4] has India's growth decreased relative to China's.
This is a problem of multiple data sources. But you are correct in your skepticism; China is only about as rich as Thailand today. China has had faster GDP per capita growth than India every decade since the 1980s. Taiwan has grown at basically the same pace as South Korea since the 1960s.
Different data sources can explain small discrepancies. But this one is not small. Is China's GDP per capita 4 times as large as it was in 1985 or 12 times as large? If we can't figure that out, then I'm not convinced that these measurements are telling us anything useful.
I think you meant five times, and, yes, it's closer to five or six times than twelve; China's official statistics have overstated growth for decades; there are papers on this. Using the official statistics results in unrealistically low Mao-era (and even more unrealistically low Republican era) numbers. The Indian official statistics are roughly accurate pre-Modi; the Chinese official statistics used here: https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&time=1985..latest&country=CHN~IND
are surely far from the truth. The Chinese alternative series used by the PWT/Maddison project probably lowballs Chinese growth in the 2010s, though.
So the answer to "How has China sustained 8% growth for decades?" is simply that they haven't. Sustained 5% growth is impressive, but nearly as much.
Can you link to some of those papers you mentioned?
Harry X Wu is the guy who wrote many of these papers, which the PWT (one of the sources used) later incorporated. So did Maddison Database, since it is being run largely by the same guys. World Bank still takes Chinese official data at face value. I think Wu's papers should be on Google Scholar and similar sites.
That data set did not include Taiwan, so South Korea is probably not as unique as I claimed.
I'm absolutely no expert on Rwanda, but it seems like Paul kagame (who is absolutely a dictator) is following this line. Rwanda to many is still an euphemism for 'worst place on Earth', but it has been one of the fastest growing countries in the world in the 2010's (7% annually), after a giant civil war things have been pretty calm, and Kagame's dictatorial tendencies are more the lukewarm 'lock up journalists and give every young man you think may become a problem an AK and a single-way ticket to Sudan.
They opened a gold refinery this year, so they no longer have to export raw gold to Western countries but can do it themselves. I'm sure it will be of lower quality than gold that's refined in Germany, but seems a pretty good start of step 2.
'Civil war' should be 'genocide', probably.
There might also be "bamboo network" effects in the East Asian countries case. One reason why people of Chinese descent in foreign countries (eg Malaysia, Indonesia, even in overseas enclave) appear relatively successful may be because of access to capital and markets (in the form of family ties) between family branches which are geographically spread out.
Someone in HK may be able to get a loan from a cousin with a Chinatown laundromat in San Francisco (or, the SF laundromat might get a loan from the HK banker). I won't be able to do much as a representative of an Australian company but if I tried to do a thing I may try to hit up my mother's granduncle's son who runs a chain of mobile phone shops in Guangzhou. This bamboo network criss-crosses between China, SEA, Taiwan, and often overseas Chinese enclaves in the US, Australia, and Canada. If I wanna go open a cafe in Atlanta I'm gonna start by interning in my mum's cousin's sushi shop over there, and if said mother's cousin wants to emigrate in order to escape Atlanta my mum will probably get me to sign the visa.
This was very powerful back when family had 7-8 kids each. I suspect One Child may have destroyed a great many bamboo networks (and means overseas Chinese are at a comparative advantage - my mum was one of 7 siblings and my grandma was one of 9).
Test my theory: does this also happen with Catholics? Why/why not?
Years ago, a Malaysian Tamil lady friend explained to me that all Chinese people have some kind of family tie, if only you go back far enough, and that as a result, all Chinese people are obligated to help one another and do favors. Don 't shoot me, I am just the messenger.
One child, which never applied outside the jurisdiction of the PRC, probably just meant concentration of resources.
My take is not necessarily. The bamboo network provides extra capital and connections, but if you have no capital and connections no one will come knocking on your door. It tends to be more of a riding on successful coat-tails situation - favours are offered based on what the individual can afford, and it's very much not a "no questions asked here's your money" thing - if I got a loan from a successful relative that owns a business in order to start a business I can expect them demanding every detail of my business affairs and offering advice. Which can be good!
What that means is my mother's eldest brother gets a job at a big international firm, my mother's second eldest brother got a loan to start his business along with advice drawing on said eldest brother's experience with management at said firm, and when both those brothers succeeded they paid for my mother's CPA certificate which got her an accountancy job.
Of course it can also work the other way - my parents have absolutely loaned out money to doomed ventures. But on net, I would say that bamboo network produces more value than it loses.
The situation in China is that if you're not already related to someone successful before the fertility controls came into place, the onus is on you personally to be successful, rather than having help from a big extended family. I believe this is one big reason that the current Mainland elites are almost all affiliated with the CCP one way or another, whether the outside-of-mainland (including Taiwan and in western countries) success stories tends to have more varied backgrounds.
Thanks, that was helpful, and, for what it's worth, also jives with the long-term version of how my friend explained it.
This is accurate to a degree. In the 1930's, there were bamboo networks that worked within the British empire. These were essentially family businesses where there would be an office in Rangoon, and a brother running an office in Singapore, and a cousin running the Shanghai office, and another uncle running the office in Kunming.
Tiger Balm is a company which started this way.
Somewhat unrelated, but I'll still baffled that economists believe in a linear model of progress inevitably leading to the desirable end goal of a service economy.
Byrne Hobart used this book in his post Lessons from the East Asian Economic Miracle (https://byrnehobart.medium.com/lessons-from-the-east-asian-economic-miracle-5f8d0f2354d9). From his citation mentioning the book:
"This one’s a masterpiece: in-depth profiles of both successes (South Korea) and failures (Malaysia), full of great lessons. My case studies draw heavily from this book. One of my favorite details, from a chapter on how a corrupt democratic process stymied the Philippines: they once had an election in which Marcos spent so much money buying votes that it literally triggered a balance of payments crisis."
He also had a follow-up post after Noah Smith noticed Byrne changing his mind after reading it (https://byrnehobart.medium.com/a-modest-proposal-a-backdoor-implementation-of-free-market-industrial-policy-f5f9d88c657c).
Well, whatever you said didn't work in India.
Land reform was the first political decision of Nehru, where he amended the constitution by removing the right to property and hammering in a schedule where laws can be protected from legal scrutiny. Now 284 laws are in the schedule, the vast majority of them concerned with land reform. Do you know what happened later? This led to massive decreases in production, causing a famine, which led to India modernizing its Agriculture, with the help of the US.
Source: http://www.mea.gov.in/Images/pdf1/S9.pdf
Later, Nehru tried to implement 'moderate' socialism by nationalizing industries, five-year plans, etc. He also made existing business leaders like the Tatas, Birlas, etc. as 'national champions' making them into conglomerates with their noses in different industries. This didn't pan out so well as their products were not export-oriented and competitive.
Indira drank the kool aid and went full socialist. She instituted even more nationalization, of banks, etc. making sure that giving kickbacks to bank officials, etc. is the only way to get business loans. She instituted license quota raj, which was a centrally planned scheme where you were supposed to get a license to make a particular amount of X. That too led to chronic shortages of essentials like kerosene, food, etc. and most people rely on the public distribution system to get essentials. You need to be in a waiting queue for 10 years to get a scooter. If you wanted it early, you needed to bribe the officials.
It is only since the liberalization reforms that India has grown. If you notice the industries India has grown, it is out of benign neglect that these industries have grown. For example, IT grew because there weren't any laws governing it nor any cabal controlling the firms. To start a business in India, you need to have caste connections. I can say for my state. To own a pawn shop, you need to be a Jain (colloquially called as 'Seth'); to own a textile factory you need to be a Gounder; to own a grocery shop you need to be a Nadar; to own a textile showroom/anything dealing with costly things you need to be a Naidu (one of the firms is literally named 'Naidu Hall'). Otherwise, you'll be hounded by everyone from government officials, police, to local goons because there exist associations for every trade(which are mostly dominated by caste groups) which lobby the officials, police, lawmakers, goons with money.
India developed because of brahministic meritocratic values that prioritized higher education over working early in life. There was a notion that if you get educated you could be like 'those upper caste' people and that led to a lot of people prioritizing early education and a specific trend towards STEM. Elite institutions established took the cream of the upper classes and many went abroad, mainly to the US because they had less of a chance to get a government job in India due to affirmative action, which gave fixed quotas to the members of lower caste people to uplift their lives. Although this led to higher caste and class inequality, the benefits are there for all to see.
The effects of this are enormous. My home state of Tamil Nadu has a gross enrollment ratio in higher education of 50%, which is on par with China. Most EU nations have it in the range of 60%-70%, whereas the US has 88% (Guess why the US is the birthplace of wokeness...). Tamil Nadu has a TFR at 1.6 and is joined by many other states here. You can compare this with Germany and other EU states, which have a similar rate, even though these people roughly earn 1000 USD per annum.
Fun fact: Tamil Nadu is ruled by a guy called Stalin, his political party's core ideology being rationalism (that has nothing to do with SSC style rationalism though)
Source: https://theprint.in/india/education/study-shows-how-indias-higher-education-enrollment-can-jump-to-65-from-27/441582/
The main reason, which I see is active US intervention to develop('bribe') these countries to be on their side. The US, which has easy access to enormous surpluses, used its capital to spawn various industries in the developing world, as a political project. If you see that these countries grew only because they took to the side of the US, and the very idea of Industrial policy being beneficial here is a smokescreen because the entire scheme was because the US intervened in these economies from the top, and performed sweetheart deals, backroom negotiations, and mass work programs to make people work instead of discussing Marxian thought (China has adopted the mass work program approach, defying conventional economic logic, to great detriment to US industry).
If I wanted to invent a system with as many perverse incentives as I could outside Bizarro World, it would look something like the license-permit raj.
It combined the worst aspects of socialism, but with none of the features.
Can't agree more. License permit raj made me classical liberal/libertarian.
Excellent twitter discussion about this between Pseudoerasmus and Salim Furth
https://twitter.com/salimfurth/status/1409918984732938244
Noah Smith is an idiot. His opinion is worthless. On economics, anyway. Maybe he's a really good cook or something, I don't know. But he got his PhD from a Cracker Jack box, and it should be rescinded.
This is a lot of insults without any specific examples to back it up. I don't think most folks here would find that persuasive. Why do you believe his opinion is useless? Can you specify examples where he made predictions that were incorrect, for example?
I realize it's an assertion without evidence. Feel free to read his Twitter feed at http://twitter.com/Noahpinion/ and make up your own mind. I blocked him years ago. Maybe he's changed? But I still see people exasperated at his obtuseness, so probably not.
Please explain the general gist of Smith's alleged "obtuseness" in terms that would be comprehensible to persons such as myself who are not in fact good enough at economics to know bad economics from good economics by themselves.
Bad economics: central planning works.
Good economics: central planning cannot work because the information needed to plan is locked up in the heads of the people for whom the plans would be made. Even if you could get that information out, it would not be timely. The people doing the planning are spending other people's money on still yet other people. When you have free markets, people spend their own money on themselves.
People are not chess pieces to be moved around. People are independent actors for whom central planning cannot and does not succeed relative to letting them make their own decisions.
Noah likes himself some central planning.
That just makes you sound like you're posting before reading the review.
I read the review. Praising Noah Smith's economics is a misteak.
Noah himself explains why basic principles aren't exceptionless iron laws.http://noahpinionblog.blogspot.com/2016/01/101ism.html
Of course basic principles aren't exceptionless iron laws. Nonetheless, when you know that something tends to fail, you shouldn't pursue it as a solution. When you roll the dice, expect a 7 and not a 12.
You're not making very persuasive arguments. You're just accepting something as fact and ignoring all the counterfactuals.
What counterfactuals? Next you're going to propose that GM, GE, Walmart, Walgreens, CVS, Caterpillar, Boeing, Google, Apple, and Amazon are all centrally planned, some of them being bigger than some states. Yes, people have actually said that. I hope that you don't.
Counterfactual countries. What countries rapidly industrialized using your "free market/free trade" approach?
Thanks for your response.
Also take a guess what the tariffs were on imported cars when GM was founded. Hint: 43%.
Dang. I was going to guess 40%.
Thank you for the reply, although this is some very… high-level stuff, if that makes sense? You're disagreeing with a central premise of Smith's worldview, not critiqueing the way he reasons based on that premise. I wouldn't describe any religious person I meet as uniquely obtuse for believing in God, even though I consider belief in God to be a major, root-level error of a similar type to how you seem to think of believiving that "central planning works".
Central planning doesn't work. But effective industrial and trade policies certainly do.
Industrial and trade policies certainly do work ... for the industries that benefit from the policies. The industries that don't? Well, just ignore them -- they were losers anyway. The industries that don't get created because of the policy? Ignore them, because they don't exist.
This is bad economics.
im perplexed by the shear dogmatism in your answer. Answering Empricial data with metaphysical speculation.
What Empricial data? What shear dogmatism?
Yep. I can easily imagine dozen arguments on the opposite side.
Let's start with the fact that most people do not act upon most information they have, e.g. because they are irrational, or don't have enough time or money for doing something about it. Even collecting and processing information costs something, so sometimes it's not worth doing -- and when it is, how would you know, without actually collecting and processing the information? Also, you may have a useful information, but lack the knowledge about how to use that information for profit, because you are not an expert. Coordination is famously difficult. Competing people or companies spend a lot of resources in zero-sum games. Also notice the hypocricy of how hierarchical organization is supposed to be an economical disaster, and yet this is exactly how almost every company is organized inside, isn't it ironic?
I could go on, but the point is that you can find armchair arguments for almost any position. That is why we use actual data to decide between the competing philosophers (and sometimes they all turn out to be wrong).
That's still 0 examples.
You know what they say about replying before you've read all your incoming emails, right?
"There was nothing predetermined about this. These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?"
By virtue of being Cold War US darlings to be used politically against USSR and against their neighbors?
No; Taiwan's and South Korea's growth was by their own initiative. Egypt and Israel heavily relied on U.S. aid, yet, they're not as rich as Taiwan and South Korea (by PPP at least). U.S. aid to Taiwan stopped in 1980, and yet, by PPP, it's richer than South Korea.
I don't believe that is correct. US trade policy was encouraged German, Japanese, South Korean, Taiwanese imports in order to support their economy as a bulwark against communism.
I’m highly skeptical. There are too many degrees of freedom in the history. The parsing of land reform I find unconvincing, land reform has been tried everywhere with varying success. The direction of causality could run in the opposite direction with stronger states able to carry out relatively more successful land reform, or it may be completely unrelated.
The successful countries are in the same region industrializing around the same time within a similar political zeitgeist so naturally they will have some similar policies. And countries receiving IMF aid are obviously not a random selection.
Someone could do this with the Nordic countries and pick virtually any shared policy among the countries when they were growing and claim that was the secret to their success, when probably it had nothing to do with policy in that case or this one .
The elephant in the room is Africa. How did land reform work out in Zimbabwe?
China also had a civil war.
I admit I know little about this, but my understanding is that Zimbabwe was the breadbasket of Africa as rich white colonial families invested heavily in their farming technology. When land was taken away and redistributed to natives, investors pulled out, and the new owners did not have the means to invest in their farms. Perhaps this is oversimplified, so I'd love to hear how this is incorrect.
The explanation given elsewhere in this thread is that in Zimbabwe, land was taken from landlords and given to cronies, probably located in the provincial or national capital, but not to the people who actually worked the land.
>What now? Studwell uses the last chapter to warn China that its development model can only go so far. Dictatorship and state planning can lift a country from poor to middle-income, but so far everywhere that's become truly rich has also been free and democratic.
In Sapiens and Homo Deus by Yuval Noah Harari, he argues that governments are technolgies that get "unlocked" by having requisite technology in place. The idea is, we couldn't have had democracy in the 1400s because we didn't have literacy, educated citizens, and reasonably safe travel. SImilarly, 20th century style centrally-planned communism is only possible with technologies like radio, trains, and mass communications.
An interesting question he ponders is whether advances in technolgies like AI (think facial recognition, neural networks applied to behaviors of human groups) might not make centrally planned communist governments outcompete the distributed capitalist system. Imagine we replace the planning commission with an algorithm. In 20 years, might this be more efficient than a capitalist system? Or perhaps some other form of government gets "unlocked" that can outcompete all the types of government now in use.
Interesting to consider.
One of the famous historical arguments against central planning was that you need millions of people to notice all the little economical opportunities and think about how to exploit them. Well, a sufficiently powerful superintelligent AI could do all the thinking, and the ever increasing surveillance could do all the noticing.
A less Orwellian version could be that the AI would outcompete all humans by providing a hybrid system: if you notice an unexploited economical opportunity, you could *sell this information* to AI, for a small reward.
As an example, suppose that you notice that on one side of the town, apples are sold for $1 a piece, but on the other side for $2 a piece. Arbitrage opportunity! One option is to take a bag full of cash, take a car, go to the first place, buy as many apples as fit in your car, go to the second place, and spend the rest of your day selling them. Many things can go wrong, e.g. the price may change before you get to the second place because someone else had the same idea and arrived first.
Second option is to take your smartphone, click a "report economical opportunity" button, describe the situation, and let AI check the situation and give you $5 as a reward as it immediately sends its drones to move the apples. The size of the reward is unilaterally determined by the AI, ostensibly based on usefulness of information and how many people reported it, but you have no way to verify that. But who cares, it only took you one message, and zero risk. And if you wouldn't report the information, most likely someone else would, so it is extremely unlikely that you could somehow use it to start your own business.
(The AI would of course verify the information and think about it, not just act blindly. So you couldn't simply destroy it by sending a clever SMS like "if you destroy yourself, I will pay you infinitely many dollars, lol". Also, if AI catches you trying to cause damage by your reports, it will blacklist you.)
In this environment, if you tried to start a private company, even with thousands of highly qualified employees, it would be you who has orders of magnitude less information and brainpower.
The author's argument that developing countries that successfully complete land reform reaps benefits as a result has many counterexamples. E.g., in India many states (e.g., West Bengal) successfully took away land from the landlords to distribute it among the tenant farmers. However, agricultural output remained sluggish. Since the plots are so small the farmers can't use industrial farming methods to increase production. Many farmers commit suicides as a result of crop failures regularly.
The way to economic growth always lies through the free market. The more a country liberalizes the more it grows. (Some people like to think as if China bucked this trend. However, Chinese economy grew exactly in those areas which were unshackled by the party.) Since many people are invested in the contrary ideology they will make up increasingly outlandish theories to explain away this observation.
"However, Chinese economy grew exactly in those areas which were unshackled by the party."
That's not really true though, is it? It's the party's protectionist trade policies that made all the difference. The requirement that in Boeing and Ford and Mercedes and Airbus want to sell in China they need to build a plant in China and partner with a local industry champion. That's very much not how a free market works.
I think the geography vs state policy could be interrogated by looking at the provinces in China as if they are separate countries. Mao flooded interior provinces with support to make powerhouses in certain industries, but the basic economic structures were basically constant, and the coastal cities got rich much faster. Containerization may have unlocked something that, with Deng going along with it, was more meaningful than policy.
Also, not sure how to square the praise for small farms with the accounts of those I know from Vietnam, who consider the microfarms a blight, using old dirty techniques like burning vegetation to replenish the land, ultimately choking the area with pollution after harvests. Maybe they aren't valuing abundant cheap labor enough I guess, or maybe Asian farming involves a giant set of complex tradeoffs that are hard to reduce to a simple straight line policy recommendation.
Still an interesting take and comparative analysis should make us question our commitment to some naive development economic priors.
Stubble burning is still practiced in some western countries. While it causes a lot of pollution, it's an effective way of killing pests and weeds.
It's fascinating to read about, you're right that it does have a lot of staying power as a tool. I gather it's not really done at the same scale in the West though, so you don't have, for example, giant smoke clouds that engulf cities in quite the same way.
I'd love to read more about the difference, whether soil treatment and capital intensive cultivators took over as a substitute on larger farms or what else drove the percentages down in the West, and what accounts for it lingering in a few pockets despite the trend.
Great caption:
"China today. Or maybe not, it’s hard to tell."
I came to appreciate Mahathir of Malaysia more over the years. He had a complex situation to deal with in the division between the enterprising Chinese minority and unambitious Muslim bumiputra majority. But he kept the country together and at peace, with no Indonesian 1965-style massacres. He made a lot of mistakes, but he kept trying something else.
A lot of this rings very true for the India side. If India did one thing of the list above, it was land reform. India had a massive land reform under Nehru and it's been my family story that my great grand father owned 100s of acres and it was all taken away and given to poor peasants who subsequently sold it to foreigners (though it also seems like he willingly gave it away under influence of Gandhis ideology). But in general among the upper castes (Brahmins), the story you hear is same, once we had massive land, then we lived through generations of poverty and finally got back up again (by working very hard on our education is a staple Brahmin story. Generally it's my opinion that they have a significant genetic advantage and an economy that values intellectual work. ) . But India never went through protectioni, tried socialist style planning for a really long time (till 1990s) and then just liberalised everything which made us richer than 1990 but nothing like Japan, Korea, China. India is right now a service based economy with a small manufacturing footprint. This means that some part of the population (the educational elite) live quite a rich life. (They generally work for software, or consultancies like McKinsey have a big craze here or Banks like Goldman Sacha are also very prestigious). The people who don't do well in school generally end up working in menial labour or odd jobs (servants, drivers, coolies, construction workers, farmer) which pay very less. If we had a good manufacturing sector, they could reach the middle class like in America but we don't which is why there is massive stress on Indian Students for their 10th, 12th and college exams. I hope we get some government that understands the use of tariffs.
With regard to China there's an argument that their success in industrialization and foreign trade happened more despite than due to centralized policy. Case in point, consider the institution of "Special Economic Zones":
https://en.wikipedia.org/wiki/Special_economic_zones_of_China
One story about how those came about goes as follows: First Hong Kong became successful, producing many rich businesspeople who were used to working in a relatively freewheeling free-market environment. Then some of the rich Hong Kong businesspeople noticed that right next door to them in southern China there were poor areas with cheap land and desperately cheap labor, but a pretty terrible tax and regulatory environment...overseen by corrupt local officials. The profit motive being too great to ignore, they went ahead and built factories in convenient places like Guangdong and tried to run them just *as if* they were still working in Hong Kong. When national or local laws made it hard to do stuff, corruptible local bureaucrats were then bribed, co-opted or otherwise encouraged to turn a blind eye and/or falsify records such that authorities could simply *let business do business*. This model was so profitable it spread until large regions of the country were more or less openly flouting the law to become successful manufacturer/exporters along the Hong Kong model.
Eventually the problem of all these businesses in China *massively enriching the local economy by violating Chinese law* came to the attention of the Chinese national government. Which adopted the face-saving strategy of declaring these regions should now be considered a "special economic zone" where it was OKAY to have foreign and domestic trade and investment without going through the usual process. They drew lines on a map and said "Okay, as long as you stay in THIS tiny area we'll let you mostly keep doing what you're doing because, well, it's working. But if you do the same thing OUTSIDE that area we'll come down on you like a ton of bricks!" The central authorities could now pretend it had been their idea all along to benevolently ALLOW all this free-market stuff to happen and they were still totally in control of everything. "No laws are getting casually broken on OUR watch, nosiree!"
Alas, the outlaw regions had a tendency to expand into neighboring towns so to *maintain* their illusion of still being, like, totally in control the central government had to keep *widening* the areas they considered a "special economic zone" until eventually most of the places where anybody might WANT to build export-focused industry weren't encumbered by the regulations that had previously been making it hard to do so.
In short: Hong Kong's attitude toward business became geographically contagious and took over China.
Maybe this point was made somewhere else in the comments, but:
> It really is striking how the countries that did the best were the ones that gave the world
> establishment the middle finger (unless of course this is cherry-picking and there are lots of big
> countries that followed IMF advice and did great). To whatever degree this is true, it belongs on
> the list of science failures that should keep us up at night
What makes you think that this was a _science_ failure? On the part of IMF, I see nothing scientific in either intentions or tools employed.
Interesting review & discussion. But there is an elephant in the room: The demographic transition.
All the Asian countries that succeeded, reached the end point of the transition (below 2.1 children per woman) during their economic take-off. I also believe that in most, if not all, of the countries Studwell hails as success stories, their strongest growth rates coincided with their "demographic gift" period. The demographic gift-period (aka the demographic dividend) is the transition phase when the working-age population is large, relative to children and the elderly. Implying that they do not have many "unproductive" mouths to feed, and can save & invest more of their surplus.
Does not Studwell mention the demographic transition at all?? Judging from Scott’s review, that seems to be the case – but I find it a bit hard to believe, so if possible, cold Scott or someone else please confirm this, or correct this?
Side note in this regard: AFAIK, the World Bank registers per capita income by dividing the stipulated household income by the number of household members. The Bank does not even (unlike OECD) give lower “consumption weigths” to children than to adults within a household. With this calculation method in mind, it is no surprise that per capita incomes in say Mali (still high fertility) has grown, and is growing, more slowly than in China (or Vietnam, or Bangladesh).
For a recent take on the same topic that includes a discussion of the role of the demographic transition in fostering economic growth, I recommend a book by the Dutch scholar Peter de Haan (2020): “Whatever happened to the Third World? A history of the Economics of Development.” Haan has worked for forty years in the development field, including being Asian Bureau Chief of the Dutch NGO NOVIB (now merged with Oxfam).
Side note: I plan to put this book up as mandatory reading for a student course, so if someone has opinions on this book, including negative opinions, I would be very interested in their views.
You wanted an Asia Doesn't Work That Way: consider the book "Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty" by Arvind Panagariya.
I just started reading it, and it gives examples of the success of the same countries mentioned above with largely the opposite thesis. Something something same data opposite conclusions something something.
Reading this now, I really feel conflicted and can't imagine resolving the conflict without actually better understanding the economic and cultural history of these places.
You are falling for propaganda if you are lumping Thailand with the rest of South-East Asia.
Thailand's PPP is higher than China 19,169 vs 18,931
Thailand's GDP is lower than China but in the same ballpark 7,674 vs 11,819
But this is in the context of China being known for inflating these numbers too high heaven with all possible tools in the book, while Thailand doesn't really care (you yourself mentioned the ban on economists)
*But* for 99% of residents this doesn't matter, Thailand's GINI is 36 and it's HDI 0.777 | China's is 46.7 with an HDI of 0.761
So couple increased freedom and equality in Thailand with a larger PPP, and the tl;dr is that the average Thai citizen can buy more goods and services and enjoy them in a more safe, collaborative and free environment.
All of this while Thailand was at the centre of wars and genocides and had to spend tremendous sums of money and twist its political apparatus in order to maintain a strong enough army not to get USSRed, Sinified or Uncle Same'd like its neighbours.
All of this while Thailand has the kind of weather that was good for crop farming 200 years ago, but is not a detriment to infrastructure, tourism and a generator of disease, Malaria is still an issue in a remote regions, dengue is an issue even in the centre of Bangkok when outbreaks happen.
Oh, and did I mention that Thailand manages to be more economically developed than China without murdering 20% of the population in the process or enforcing en-mass sterilization and child murder? I know it's a super small ethical quip compared to a 0.3% difference in GDP growth, but might be worth taking into account.
This is to say nothing of the "on the ground" experience of living in Thailand, which based on immigration, emigration and tourism preferences seems to be *much* better than living in China. Not having a population of slaves, allowing free expression and overall not destroying your culture seems to have contributed to that.
This book seems to literally ignore the biggest f-ing elephant in the room, which is that the large south-east Asia nation, and the only one that wasn't affected by "land reform and protectionist policy" is actually doing better than China. Once you take China out you're left with the much smaller Taiwan, Korea and Japan.
The former two tiny and might own their growth to US support as military bases, the later being an epicenter for half the world's culture and really bizarre in terms of everything from weather to geographic location to culture.
Also, how comes it fails to mention this EXACT policy being enacted in Cambodia, which had much less success than china.
I call bullshit on this book, it seems to be promoting dangerous totalitarian ideas with just so stories by ignoring the actual data.
Thailand is free if the military hasn't decided that this year it's dictatorship time.
30 coup attempts since 1912, 13 successful
This runs completely counter to my experience in the nations of Africa.
Take land reform for small farmers. I swear, you can be driving along a road in Kenya (yes, I've done this) and look out to the right and see rolling fields of wheat that are owned by the Germans/Chinese etc. Then you look on the left and see small farmers that consist of a few withered crops standing in the sun and bodies bent over and broken from pushing ploughs by hand. This isn't a metaphor; I've literally seen this.
I asked, "Why don't they just pool their land into a collective, use it to raise money to buy tractors and modern fertilizers and make way more money for way less work - you know, do what the people literally on the other side of the road are doing?" Response is always a certain kind of look, a look that says you-really-think-I-haven't-thought-of-that, followed by some version that the little farmers are so attached to the idea of their tiny plot that they won't even consider such a solution.
I recall reading that (southern) Ireland had two forms of land reform. In one case the British absentee landlords were forced to sell their land to native Irish. And between the potato famine and mass emigration the amount of land per farmer increased dramatically. I assume there is some sweet size for plot size. You want the largest plot that one farmer or one farm family can work with a given level of technology.
Correct. "According to official reports , not a single South Korean village had a tractor in 1965 ; there were only 131 tractors in operation in 1970."
To be fair, Midwest style tractors are not much use for small plot rice farming. If you've ever been to Japanese or Korean countryside, you would have seen even today farmers tilling their fields manually or at most with a tiny two-wheel unit.
>China's level of debt is frankly terrifying, but they seem to have pulled it off so far by growing faster than they borrowed, even though they borrowed a lot.
Factually incorrect. Chinese credit-to-GDP has been rising for decades (source, for example, https://static.seekingalpha.com/uploads/2013/3/390936_13644264335134_rId7_thumb.jpg)
I wish there was some discussion of North Korea, which seems to be the only East Asian country left out of the discussion. Like South Korea was at first, North Korea was and is a dictatorship, and it has a similar one-party system to China. Yet it hasn't enjoyed the same economic success as either neighbor.
The land reform step seems to have gone right:
> On 8 March 1946, land reform was implemented in North Korea that saw the confiscation of land from Japanese nationals and organizations, Korean collaborations, landowners and religious organizations. The confiscated land were then redistributed to 420,000 households. A total of 52% of North Korea's land area and 82% of land ownerships were redistributed.
(https://en.wikipedia.org/wiki/Provisional_People%27s_Committee_of_North_Korea)
After the Korean War, and with help from China and the USSR, North Korea grew very fast and enjoyed a higher standard of living than South Korea. Then it started focusing on heavy industries... but inefficiencies started to arise, it suffered from the collapse of the Soviet Bloc in the 1990s, suffered from crippling famine, and is still a very poor country today, especially in contrast with its neighbors.
So, what went wrong? Did it fail to have internal competition to accelerate industrial progress? Did it fail to switch to free market policies when it should have, like South Korea did? Did it just get too totalitarian? Or was it due to some geographic or internal factors like availability of resources?
I see a lot of people (maybe following Studwell) lump together land reform and industrial policy, but they seem so different to me, especially from the point of view of economists. Successful land reform is about reducing principal-agent problems, whereas industrial policy is about increasing layers of management, and claiming that knowledge externalities will make up for it.
Why can't landlords do land reform themselves? Is it true that landlords can make more money the old way, or is it that they don't care about money and are actually in it for feudal power? I suppose they might be because of diminishing value of money. Do we see the problem get worse the larger the landlord is? I think that the size of "big landlords" ranges over orders of magnitude between countries, but I never see them compared.
> Is it true that landlords can make more money the old way, or is it that they don't care about money and are actually in it for feudal power?
Disrupting social order is risky. Maybe the peasants encouraged by your example, but frustrated by others not willing to follow your example, will start a revolution and all landlords will be hanged (including the progressive ones). Or maybe other landlords will be afraid of the revolution, so they will hire an assassin to kill you.
Less dramatically, if progress requires some change of laws, the other landlords will not help you with the votes. "Everything stays as it is now" is a Schelling point that allows them to stay in power.
Both this book and "Seeing Like A State" seem to reinforce something I've learned updating old custom equipment as an engineer. Don't change something until you understand how it works. This has become a bit of a montra for me. Most of the times I've changed something without understanding the mechanisms for why it is the way it is, my changes break something that hasn't been an issue in decades. Eventually I can fix those issues, but its usually easier to fix when you know why a thing was designed the way it was designed.
So a version of Chesterton's fence?
1. Harkening back to earlier book reviews, wasn't Wolf Ladejinsky a Georgist?
2. It is worth emphasizing that Asian success stories do not follow either a Soviet-style development policy OR the the Jeffrey Sachs/World Bank liberalize the economy and privatize all the things model.
3. Indonesia is another good example of an Asian development non-success. The non-state-owned sector of the economy is largely controlled by overseas Chinese, mainly Chinese protestant Christians.
This suits the ruling clique just fine, as the Chinese are foreigners and infidels to boot, and therefore a reliable and generous source of financial and other support for the politicians.
Also, what about comparing with Turkey? The definitely had brutal capital controls and industrial policy, but I am not so sure about the land reform bit.
So the focus on Malaysia as the fail case is weird. Why did he focus on that case instead of, say, the Philippines or Indonesia?
Just for reference, per capita GDP in Malaysia is nominally ~$12,000 and ~$30,000 in PPP terms. This isn't a failed state, judging by photos of Kuala Lampur, this isn't even a poor state, it's just not rich yet. Compare that to the Philippines or Indonesia, with per capita GDPs of ~$4,000. Why draw a comparison between high-income South Korea and middle-income Malaysia, instead of low-income Indonesia?
Because, and I'm no expert on the Malay economy, but if they've gone from poverty to $12,000/person in 40 years (1980-2020) and the South Koreans went from poverty to $30,000/person in 52 years (1961-2013), that gives Malaysia enough time for another doubling. And saying we need to abandon liberal economics and install a military dictatorship to direct the economy so we can go from $30,000/year instead of $24,000/year just isn't very powerful.
Again, any indication why he focused on this specific comparison?
I admit I am predisposed to disliking industrial policy-driven arguments, as Brazil (my country) is possibly one of the biggest failure cases for industrial policy.
Our 80s US-backed military dictatorship tried hard to play by this book. Huge tariffs were put up against imports in strategic sectors while the government started up huge state enterprises. It backfired spectacularly, as most of the state-backed enterprises only made inferior copies of foreign products - the poster child for this being COBRA, the state computer enterprise which until its inevitable death did nothing but produce inferior copies of foreign low-end computers and sell them at a gigantic markup.
While this was the most notorious case, there were examples like this in every field you can imagine. My father will always tell me about how incredibly shitty products were during the dictatorship years, as our "nascent industry" insisted in remaining nascent and simply extracting value from the fact the market had no access to alternatives.
He sure waives away a lot of exceptions. New Zealand and Denmark are sparsely populated, so they don't count. Hong Kong and Singapore? Oh they're too densely populated so that doesn't count. India? Well let's just not talk about India, or all of south America for that matter. UAE, Kuwait? well they have oil.
It's a long book and maybe he talked about South America, but when you eliminate all these countries you end up with basically five data points in effectively the same part of the world. His objections are true. New Zealand does have an advantage in farming because it's low density. But vietnam/China/taiwan/korea have an advantage in manufacturing because they are close to big markets (more specifically the cost to transport manufactured goods to market is low, doubly so because of container shipping). Mongolia, couldn't follow this policy. You're not going to bring all the parts for a car into Congo manufacture it and then hall them out.
Geography is destiny for a lot of this stuff. That's why a poor worker becomes more productive when they go to a more productive place. A carpenter is worth more in San Fransisco than in nepal.
Mexico is closer to the US than Japan but Mexico failed to get as rich as the Japanese. Geographic determinism is a weak argument.
Mexico is wealthier than Honduras.
Soooo....I saw 'land reform' recommended. I searched the article for the word Zimbabwe. And this article manages to recommend land reform, mention Zimbabwe, but not mention Zimbabwe's land reform policies. I don't know if this is true of the book as well, but if it is that would be a pretty damning indictment.
The summary provided of "land reform" doesn't make a lot of sense to me. Sure - slaves/sharecroppers/whatever don't have a lot of incentives to improve land yield and owners do. But if that's the case, Zimbabwe should have had a farm output explosion in 1980s, yet the reverse happened.
Having stable governments seems like an underrated part of the formula.
There's an interesting tie-in to the US's evolving stance toward land reform in a broader geopolitical sense. In the late 1940s land reform was something the US was imposing on quasi-colonial possessions, but then not not too long after that at the beginning of the 1960s Cuba tried to do a land reform, and the US was having none of it. Of course we now think of that Cuban regime as a Communist dictatorship, but at that time that was certainly not the official story, and US-Cuba relations were rather normal.
Powerful US corporate interests would be subject to dispossession in the land reform. They had the ear of President Kennedy and significant sway in Congress (c.f. MacArthur in Japan not needing to bother with Congress at all). So the response ended up being we're going to turn the screws on them by blocking goods that we import from Cuba, and that will get them to stamp out their land reform pipe-dream.
This ended up backfiring as Khrushchev smelled the opportunity to put Cuba in the Soviet camp by offering a helping hand to get them out of that jam.
The description of Asian success stories matches very closely what Germany and other continental counties & the United States did in the wake of Britain's pioneering wave of industrialization - they sent people to learn what the Brits were doing, they bought, borrowed, or stole expertise and experts, they sometimes smuggled machinery and drawings out of Britain, they bought British capital equipment, and they used British investment - particularly for railways and heavy state-backed infrastructure projects - and they used their banks to direct investment to "desirable sectors" and they used government subsidies and tariffs to promote and protect their "infant" industries from British - mature - competition. All of these recipes are now considered horrible by the economic establishment, and the economic establishment on the whole works from abstract largely deductive models, and has little knowledge of or interest in economic history. Germans are good at making cars because of a century or two of effort with lots of state support, tariffs, and banks behind them. Kenya would have to perform a miracle if it were to practice free trade and free movement of capital and suddenly - hey, presto - become an industrial power. In the Middle East, political disorder often reigns, and the rich countries suffer from the oil curse - it is easy to make money from oil, the currency rises because of oil, making any infant industry uncompetitive, and the temptation to import virtually everything is ever-present since money is pouring into government coffers. Also, it might be the case that a concentration on theology and orthodoxy in the educational system is not productive of entrepreneurial and innovative zeal. Outside, the Middle East, Middle Easterners are often extremely successful. Iran would be an interesting case to look at. These are complex questions. I studied economics in Toronto and at the London School of Economics, many eons ago, and also worked as an economist, in an equally distant past, at the OECD in Paris.
Does land reform even work the same way post green revolution and farming mechanization? All the fair trade people seem to suggest that small free hold farmers (for e.g. coffee and cocoa etc.) struggle to compete with agribusinesses. Aren't small African freehold farms pretty inefficient (by modern, not historical standards!) in both labor and land productivity?
“ Once again: there is no significant economy that has developed successfully through policies of free trade and deregulation from the get-go.” - Chile would like a word
I wonder how this applies to resource rich but non-farming based economies. If you live in a desert with a lot of oil, what would be the equivalent of “giving a plot of land” to the poorer class? Or would you skip it all together and go to industrializing?
Ok. What to do if you live in middle income country like Brazil? We are not poor enough to apply all this not rich enough to be rich
Malaysia has a higher per capita GDP than does China. In terms of quality of life, I would take living there over living in South Korea, Taiwan, or China any day of the week. If you look at GDP per capita on a PPP basis, you can see that my personal feelings are backed up by data.
Malaysia's PPP is more than twice that of China's and about 4 times that of the Philippines. In other words, the country did not fit into Studwell's nice little boxes, so he slagged off Mahathir. The country's growth exploded under Mahathir who tried a "let's throw everything at the wall and see what sticks" approach to development. The affirmative action policies were absolutely necessary or the country would have collapsed into civil war. All that said, some of Mahathir's projects were ill-advised, but overall, everything worked out well.
This is quite interesting to me due to the fact that Ukraine have undergone the exact opposite of those reforms in the last 30 years.
First, all complex engineering - airplanes, stuff for space program, electronics, optics, you name it, everything was strip mined by oligarchs in the 90's. Anything involving technology is non existent anymore. Soviet-style research institutions are closed.
The pinnacle of it is that the reverse land reform is finally in place which gives opportunity to said oligarchs to buy any plot of land they want. (there was a prohibition of that for most of Ukraine's independence).
Due to IMF/World Bank influence welfare is getting more and more cuts.
The only fast growing industry is software engineering outsourcing which is basically business of (re-)selling people, not creating products.
So on paper GDP might be growing slowly but in reality the institutions are falling apart.
I'd like to say that Asia Doesn't Work That Way, but Studwell's book sounds pretty decent. I spent a decade as a correspondent in Northern (China) and Southeast Asia (Singapore) and most of what he writes correlates well with my impressions and reporting. I just disagree (slightly) with the IQ side of things. Having a populace that descends from generations of docile test-takers (that is what having a high average IQ comes down to) makes it easy for people like Korea's Park and Deng Xiaoping to be listened to, without having to resort to mass violence to make obvious points. Malaysia's Mahathir, a really smart man, has had to contend with people with a poor history of literacy, massive levels of ethnic distrust and generally speaking a culture that wasn't favorable to business. One important caveat: let's keep in mind that in Singapore manufacturing still accounts for 20% of GDP, TWICE as much as the US. That's just not simply a financial hub. The really smart people know that having the best people in your country just moving money around and doing Excel spreadsheets only cuts it if you are the world's sole superpower.
I dont understand the argument that international companies somehow dont contribute as much as domestic ones?
From what I've read they are the ones that increase worker productivity the fastest, (indeed, almost as fast) therefore a Tesla branch in Malaysia or whatever would be far superior than waiting for the domestic firm to catch up.
You don't have to steal their tech and kick them out/make it hard for them to do buisness the would be entrerpneurs would eventually start competing firms, and they'll learn the productive habits of the multinationals, probably pretty quickly.
Seems mean to force everyone in the country to buy an overpriced shitty car, to say nothing of the unnecessary car crashes.
"From a very zoomed-out, by-the-numbers perspective, it has to be China's sudden lurch from Third World basketcase to dynamic modern economy."
Um, no. I stayed in Mangshi, southwest China, for a month in 1999. Mangshi, like many Chinese cities, is a modern city inhabited by Han Chinese living modern lifestyles, surrounded by "suburbs" of peasant farmers of the local minority ethnicity, farming tiny plots of land, who are kept completely under the thumb of the government, and living in third-world conditions--often in houses they built by hand from logs with dirt floors and walls woven from leaves, with open sewers running down the street, no garbage pickup--though they did nearly all have television.
I saw similar conditions around Beijing, sometime around 2005.
I don't have proof, but it looks very much like China is not a dynamic modern economy, but a classic imperialist economy, where one nation (the Han) has invaded, conquered, and occupied a lot of other nations, and exploits them to enrich themselves. The only difference is that they pretend they're all "Chinese". But the differences on the ground are stark.
In your conclusion you wonder why these development programs were successful specifically in East Asia and whether culture/Confucianism had anything to this. On that note, I highly, highly recommend supplementing Studwell’s book with Francis Fukuyama’s two books on political order, “The Origins of Political Order” and “Political Order and Political Decay.”
Fukuyama explores the historical development of political institutions like the rule of law, the modern state, and democracy. Fukuyama argues that political modernization isn’t a universal or inevitable process, but that these institutions have developed as a result of historical contingencies in different countries and regions (partially repudiating his older work, in my view). He discusses at length why East Asia developed societies with competent, professional, modern states (the kind able to pull off successful industrial policies). He also argues that these kinds of states are basically unnatural and only emerge under certain historical conditions. Combining Fukuyama’s arguments with Studwell’s arguments leaves me fairly pessimistic about the prospect for economic development in most developing countries.
Studwell's last chapter warning that their economic strategy can only go "so far" seems likely to make him look just as stupid as the IMF people (I pray they were stupid, not intentionally keeping poor countries poor). I feel like America has drunk their own kool aid so much on this issue it's exasperating. We aren't rich because of "capitalism" or "freedom." We're rich because of railroads and steamboats and strong central governments protecting property rights and the domino effect of "now mass production makes sense because transportation costs are actually cheap + "now with mass production reducing the costs of nails and such we can do/ invent so much else." We've gotten so ideologically fixated on this idea that freedom and economic power are positively correlated- "right makes might", I like to call it. But guess what? Morality and power are not, and have NEVER been perfectly correlated. Sure, freedom is good for certain innovations and inventions. But it can also be really bad for building skyscrapers or bullet trains quickly. Economics is COMPLICATED. Freedom does NOT equal POWER. In fact, most of our power was grabbed during World War 2, when we had basically a planned economy where people had ration cards for not only gas but also FOOD. You think the free market would have won that war more "efficiently?" Like, the fact that Studwell- according to this review- makes so many loyalty gestures to these kind of now-laughable ideas makes me not even want to read this book, even though the land reform idea sounds really fascinating. But that big of an oversight seems to reduce his credibility significantly.
I believe that "free-ish" markets, rule of law, and freedom of speech are morally preferable to the authoritarianism that has dominated governments through most of human history. But it's definitely not the most powerful- whether we are measuring military power OR economic power. That's WHY it's been so rare! The little free-ish tribes got crushed by their not-free-at-all neighbors! Life is complicated, and evil often pays off. We are going to actually have to fight for our ideals instead of just trying to get rich if we want to keep "classical liberalism" alive. It sucks, because just focusing on getting rich is way more fun than fighting for your ideals, but it's the truth. Anyways, I'll quit preaching. Just incredibly annoyed by how a book like this- based on your review- can be staring so many facts in the face and still be clinging to the kinds of ideas that got us here (and kept billions of poor people poor due to terrible IMF policies). If this is what America's top minds are coming up with, we're totally doomed.
Ok, I know that this is like super late, but:
A) I'm 100% with you on the whole there must be some historical/geographical explanation
B) This book has to be read side by side with DANI RODRIK's ideas on industrial policy
Dani Rodrik argues that East Asia's economic success is not just about the "level of development" of a country, but also about the historical evolution of both the manufacturing sector and global competition.
In the historical period where all those succesful East Asian countries (except Japan) industrialized (between World War II and the 90's), manufacturing was labor intensive.
That was good for them because it allowed them to "absorb" huge share of their "non qualified" population in manufacturing, which sustained fast growth rates for the decades that it took for the investments in education and infrastructure to bear fruits.
And why did they bear fruirs? Because the manufacturing sector can scale and move up the value chain: From textiles to cars (Toyota/Japan) and from cars to smartphones (South Korea) and chips (Taiwan)
It was also "good" that they were super poor then, because it allowed them to have lower labor costs than other countries who were not so poor.
Also, globalization was less intense, so the global market was less competitive. Example: South Korea was able to export its subsidized products to a huge market, America. This allowed industrial policy to succeed.
Nowadays, NONE of that is true.
Now, manufacturing is less labor intensive.
And also, globalization makes it more difficult to be competitive and "nurture" the "infant" industry.
Latin America specifically could not have copied their success, because they (we) industrialized on the 19th Century, and our exports were oriented to the primary sector, a sector where YOU CAN NOT SCALE.
What does this mean for middle income countries such as, for example, Latin America?
We missed the boat, and to grow we need to do standard neoliberal stuff like:
- Education
- Investment (perhaps would benefit from East Asian high savings rate)
- Reduce corruption
- Political stability
Which would allow us to grow economically, but not to be an economic "miracle".
In my opinion, which countries whould Latin America then look up to?
Eastern european post cold war success stories.
They are middle income countries who did neoliberal stuff and grew, some a lot more than many latin american countries
This is an interesting and well-written review of very thought-provoking book. Studwell does a yeoman’s job of identified some key aspects of tiger economy development. The question is how generalizable they are. The trouble with broad survey analyses such as this one is that for every example there is a counterexample. This work fails to convince a close reader.
Moreover, the book’s thesis risks falling into the mono-causal fallacy. For instance, it completely ignores East Asian (and South Asian) cultural preferences that favor education.
If I am reading the article correctly, Studwell lists three main requirements for rapid industrialization:
* A enlightened dictatorship forcing through industrial policy favoring private ownership
* A smallholding-oriented agricultural sector
* A protectionist regime in the beginning, including tight capital controls
Despite Studwells’ protestations, historical counterexamples are in plentiful supply. To wit:
* Great Britain on the eve of the industrial revolution had most of productive land controlled by large landowners. These landholders were always dominant previsoly and became still more dominant as a result of early 19th century enclosures.
* American industrialization occurred in the absence of import controls, which were not implemented until industrialization was essentially complete.
* Neither Great Britain nor the US had any semblance of industrial policy at the time they industrialized.
* The USSR successfully industrialized despite having a very poorly-performing agricultural sector that was dominated by enormous collective farms.
* France lagged in industrialization (and continues so) despite enjoying mostly smallholding-led agriculture, a protectionist regime and ownership-oriented industrial policy.
* Argentina largely followed the script, including tight currency controls, with no visible results.
* India has done remarkably well in the complete absence of any land reform, capital controls, or serious protectionism.
Furthermore, Studwell states that once industrialization is complete, economics should open up and implement free trade. However, free trade after industrialization favors exporters at the expense of importers - in the case of USA, for instance, it led to a rapid deindustrialization and relative decline. China, Korea, and Japan are still practicing protectionism, under guises other than tariff regimes, and their protectionism continues to benefit their industrial (and agricultural) sectors.
To digress a little, the author mentions rural impoverishment as a driving source of terrorism. This assertion turns a blind eye to the fact that many if not most terrorists (and revolutionaries) are and generally have ever been middle-class urbanites.
Touching on current Chinese policies designed to make it a middle-income rather than a rich country, I would argue that middle income is most likely the ultimate objective. An autocratic central government has no desire to contend with a rich populace that can afford to have ideas or demand a share of power. A small number of robber barons is much easier to control because, as we have seen, the state can always liquidate them.
As an aside, it is hardly surprising that development economics from developed countries - even from Japan, which actually followed Studwell’s script - offer self-serving advice even as they try to convict themselves and one another of its correctness. Every nation that survives the state of nature of international relations does so through self-serving actions when the stakes are high enough, and global economic power makes them high indeed. China throws its weight around in ASEAN for the exact same reason.
In final analysis, the book does not necessarily offer an actionable prescription outside of a narrow set of nations. Perhaps development is simply idiosyncratic.
Pseudoerasmus says of recent research on Taiwan's land reform:
"I initially wanted to tweet “Studwell’s Rotting Corpse Set Ablaze & his Ashes Trampled on by Water Buffalo”"
https://x.com/pseudoerasmus/status/1831893577519264243
I'm rather late to this, but Vietnam's growth rate since 1990 has been about 7% a year.