Kicking Away the Ladder – Ha-Joon Chang – The Dangers of Modern Day Economic Imperialism towards Developing Nations

Ha-Joon Chang’s “Kicking Away The Ladder” is a damning retaliation against the Now-Developed-Countries (NDCs) imposition of apparently “disadvantageous” policy and institutional standards onto developing countries. Chang argues that the practice of recommending blanket Anglo-American “good policies” and “good governance” is indeed counterproductive to the developing countries growth opportunities, and hypocritical seeing that the NDCs developed under institutions and policies that would be considered “bad policies and governance” by international organisations today.

Kicking aay the ladder

In order to understand the fundamental hypocrisy of the NDC’s economic imperialism, it is first important to understand the climate and situation of the NDC’s own development. Chang focuses on this in the first half of the book, by analysing the growth patterns of the developed countries and concluding that growth was actually achieved in a climate of protectionism and technological espionage. The stealing of patents, tariff wars, and mercantilism provided the basis for infant industry protection, which allowed for the development of Industry, Trade and Technology (ITT). However, Chang then uses this basis as a platform to promote his own heterodox approach to development economics, by defying the notion that free trade which encourages the Law of Comparative advantage is indispensable to promoting economic growth within developing nations. He argues instead that because the NDCs were able to develop economically under protectionist policies, they should not encourage the same level of globalism to nations who are currently at the equivalent stages of development.

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social disparity: wealthy minority and the 99 per cent

The second section of the book focuses on the institutional development of NDCs from a historic perspective. He argues that the level of institutional development in developing countries is much more advanced than when the NDCs (now developing countries) were at the equivalent levels of development.  In terms of “per capita income band”, the UK in 1750 was at a similar level level of economic development as India in 1992. However, in the UK in 1750, there was no male suffrage (1918), established central bank, Income Tax (1842), Modern Patent Law (1852) or Child Labour Regulation (1802). Whereas India, at the same level of economic development, had established all of these institutions over the last century. Could it be that institutions within developing countries are too advanced for the respective levels of development? Chang supports this theory by arguing that the capital used to maintain expensive WTO laws could instead be used to support issues more appropriate to the developing country’s specific needs, such as training teachers or subsidising new agricultural technologies.

WTO

However, it is important to understand that the NDC’s delayed adoption of “modern” inclusive institutions occurred as these institutions were a result of development, rather than a cause of initial development. Indeed, the evolutionary process of finding the optimum level of central banking intervention in Britain occurred over generations of trial and error. This level of intervention is different to that of Japan, due to differing economic culture and circumstance. However, Britain and America seem intent on imposing the “Anglo-American” standard of institutions on developing countries, whether or not this is simultaneous with their growth situation. Therefore, surely it would be beneficial if these developing nations were to develop their own unique brand of institutions, that fits their idiosyncrasies, as a result of their style of economic growth, rather than being encouraged to adopt concrete Anglo-American systems that may be completely incompatible with that country’s situation.  

US Flag Around the Earth --- Image by © Images.com/Corbis
US Flag Around the Earth — Image by © Images.com/Corbis

In a dramatic conclusion, Chang concludes that developed countries are indeed “kicking away the ladder” in terms of preventing developing countries from developing, due to a toxic cocktail of “unequal treaties”, and aid given on the condition of crippling hypocritical policies, such as free trade for infant industries. The external imposition of these “Neo-Liberal Policies” have done little to encourage sustainable growth, and therefore the developed countries are preventing the developing countries from following in the same path that they themselves developed in. The stark contrast between the path of growth of the UK, and that of say Kenya is extremely clear. Britain developed under very lax institutional and social standards (development occurred without centralised bank, child labour laws, patent law  etc.) , whilst utilising asymmetrically beneficial trade policies such as mercantilism (1700s-1830s), in order to protect its infant industries until it was firmly the technological centre of the world. On the other hand, Kenya does not have the same opportunity to develop in this fashion, because international bodies expect “world standard” institutions within Kenya (that may or may not be beneficial to Kenya’s idiosyncrasies), whilst the WTO places Kenya in a myriad of Free Trade agreements, that turn out to be disparaging to infant industries development.

The comparison between NDC’s development 200 years ago, and modern development today, shows the hypocrisy of modern nations in their neo-colonial economic intervention towards developing countries. The modern push for “good policies” and “good governance” from NDCs is the equivalent of “do as I say, not as I do.” As such, the gap between the majority of developing nations and NDCs is growing at an alarming rate, which amounts to effectively “kicking away the ladder” of economic development.

Although I thoroughly enjoyed the book and would recommend it to anyone interested in development economics from a historical context, the heretical nature of Chang’s claims leaves the book more susceptible to criticism. The frequent use of sweeping statements such as “As a result to this switch to protectionism, the Swedish economy performed extremely well in the following decades,” suggests that the correlation must imply causation, which often can give way to oversimplifying complex relationships, for the sake of moulding evidence to fit an argument.

I would disagree with Chang on certain aspects of his argument also- yes, it makes sense that infant industries are protected with high import tariffs to encourage domestic consumption of said product, but an increase in tariffs across the board would only encourage economic nationalism, and would do nothing to help the long term growth of said industry. Indeed, Chang seems to disregard the fact that these policies are working to encourage prosperity. During Britain’s Industrial Revolution, a growth average of 1-1.5% was achieved, whereas currently developing nations such as Brazil have achieved an average growth rate of 2.6% in the last 35 years. These policies, even if they are hypocritical and seemingly selfish from the NDCs, are working to encourage prosperity and growth.

Indeed, it is a grim fact of international economics that currently, it is the NDCs that possess the bargaining power and hence “call the shots”. If a richer country demands that a poorer country change their policies against their will, then often they must abide by these demands to receive increased aid or win more preferential trade deals. I would say that this modern day institutional imperialism of developed countries towards poorer countries is not a far cry from the European colonialism of the 16th and 17th centuries, and may well act to further hinder the growth potential of these stagnating nations.

Paul Collier’s “The Bottom Billion” – Synopsis and Review

In Paul Collier’s “The Bottom Billion” (2008) Collier advertises the text as a guide on how to design the most effective G8 agenda in terms of reducing global poverty. To do this, he splits the world’s economies into three categories. Developed, Developing, and the Bottom Billion. The book is unsurprisingly aimed predominantly at helping the latter category. The Bottom Billion refers to the combined population of the worlds so called “failing states”, that are caught in a cycle of political unrest, economic stagnation, and falling levels of prosperity. From this point, the Oxford University professor highlights the causation for economic failure, the potential for globalisation as a saviour for these states, and an evaluation of the effectiveness of potential instruments that may be able to alleviate the level of poverty within these nations.

The first half of the book focuses on the reasons for why the poorest countries are failing. These reasons are split into four categories : Conflict traps, natural resource traps, landlocked with bad neighbours, and poor governance. To me, this section of the book was the least personal. Collier laid out the statistics of how much a typical civil war costs a country ($64), as well as describing the economic phenomenon of “Dutch Disease” (the negative impact of an inflow of foreign currency into a domestic market), and the importance of protecting economic reformers within failing states. However, at this point the chapters seemed more like a text book, rather than the personal plea that was so passionately argued in the preface.

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The latter half of the book focuses on the plausibility of developed countries using instruments that may be able to create an economic climate more suited to growth within failing states. Unlike various other texts such as Jeffrey Sachs’ “The End of Poverty”, Collier does not take a clear political agenda that overshadows the book. He neither takes the left’s perspective of blindly throwing international aid at failing nations as a means of increasing social welfare regardless of its hinderance towards economic growth, nor the right’s perspective of aid being part of the problem of poverty as vehicle for “welfare payments to scroungers and crooks”.  Instead of choosing sides, Collier focuses on case studies of prior uses of instruments to reduce poverty, then evaluates their successes and relates these to their situation. For instance, the controversial instrument of military intervention within a failing state was analysed through two different case studies : the failure of Iraq, and the success of Sierra Leone, ultimately arguing that military intervention is an invaluable tool to maintaining post-conflict peace and therefore encouraging the economic security that is necessary to attracting private investment.

To me, the final chapter of the book was the most compelling. Here, Collier links the policy instruments described in the second half of the book, with their potential for effectiveness in alleviating the traps laid out in the first half of the book. The bringing together of the first and second halves of the book, culminated in the ultimate argument of the book – currently, governments are not fully utilising their whole arsenal of instruments that would be beneficial to encouraging development within the bottom billion. In other words, the over reliance on aid is a dangerous pit to fall into, as often blindly giving aid without conditions or targets does nothing to encourage domestic industry, as the injection is leaked out of the economy through imports. For the nations most in need of assistance such as Somalia, increased aid conditions, military and international organisation presence, and mutually beneficial trade deals will provide the ideal climate to encourage growth that will work to lift the nation out of disorder and into self-sufficiency. If governments want to see the level of change expected from the UN Millennium Development Goals, they should not measure the extent of their altruism by the GDP percentage dedicated to foreign aid, but rather measure their success by the actual progress that these countries are making. It is only then that these failing nations will begin to see true development.

Why Development Economics Should Be More Heavily Weighted In The A-Level Syllabus

The science of Economics is at its truest sense when its theories are used to help improve and sustain quality of life. To me therefore, the study of Development Economics is the single most important area of economics, that deserves more weighting in the A-Level syllabus. Currently, only the surface of Development Economics is scratched during A-Level, as development is either paired with globalisation, or “Ways of Measuring Development”. Neither of these provide sufficient depth to understand the essence and importance of Development Economics, as a vehicle to reduce international inequality and poverty within developing countries.

Over the last 30 years, there has been an unprecedented high level of growth within developing nations. Nations such as Botswana, China, and Brazil have seen their GDP per capita’s increase vastly, to the point where they have become self-sufficient, and not reliant on developed countries’ aid. These are the developing countries, but are not the countries that deserve the most attention in Development Economics. In Paul Collier’s “The Bottom Billion,” international economies are split into three categories : developed, developing, and the bottom billion. He argues that currently, there are a selection of economies that are stagnating, caught in a cycle of conflict, myopic policies, and resource deprivation. These “Bottom Billion” countries are in need of the most research and study to escape their vicious cycle; and in order to encourage the new generation of economists to develop theories on how to help these countries, it is vital that Development Economics is given increased significance on the A-Level syllabus.

Development EconomicsIndeed, as well as teaching Development Economics as a separate element to the course, it would also be important to implement aspects of Development Economics into pre-existing sections of the course. For instance, currently a great deal of the macro-economic section of the A-Level course focuses on different policy tools, and their usage and effectiveness. Perhaps when evaluating the effectiveness of said policy, the syllabus should also discuss its relative success when implemented in a developing economy, and the factors necessary for its potential benefit. This would allow the syllabus to become multidimensional, as students would learn about the necessary conditions for policy success through the lens of various economies and their various levels of development.

Therefore, the promotion of Development Economics is imperative to encouraging sustainable growth within the “bottom billion” countries, and thereby reducing international inequality and poverty. In order to encourage the next generation of economists to further deepen our understanding of Development Economics, it is vital that students are made aware of the challenges that developing countries face, as well as being receptive to discussion on how different economies may develop given their circumstance. If syllabi do not encourage this research, then the science of Economics will be poorly positioned to provide sufficient intellectual aid to developing countries, which may be detrimental to global efforts to help developing economies escape social stagnation.