Kicking away the Ladder: Development Strategy in Historical Perspective

Jan Emblemsvåg (Stokke Gruppen AS, Håhjem, Norway)

On the Horizon

ISSN: 1074-8121

Article publication date: 1 September 2005

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Keywords

Citation

Emblemsvåg, J. (2005), "Kicking away the Ladder: Development Strategy in Historical Perspective", On the Horizon, Vol. 13 No. 3, pp. 186-191. https://doi.org/10.1108/10748120510618222

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Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited


1. Background and concepts

Kicking away the Ladder is the main title of a book on economic development in historical perspectives published by Anthem Press in 2002 authored by Ha‐Joon Chang, the assistant director of Development Studies at the University of Cambridge and a consultant for numerous international organizations including various UN agencies. The term, “kicking away the ladder”, however, is borrowed from an earlier work on economic development of the German economist Friedrich List (1789‐1846).

List, commonly known as the father of “the infant industry argument”, argued in his The National System of Political Economy, first published in 1841, that Britain was the first country to perfect the art of infant industry promotion (List, 1885, p. 111):

[H]aving attained to a certain grade of development by means of free trade, the great monarchies [of Britain] perceived that the highest degree of civilization, power, and wealth can only be attained by a combination of manufacturers and commerce with agriculture. They perceived that their newly established native manufacturers could never hope to succeed in free competition with the old and long‐established manufacturers of foreigners [the Italians, the Hansards, the Belgians, and the Dutch] … Hence they sought, by a system of restrictions, privileges, and encouragements, to transplant on to their native soil the wealth, the talents, and the spirit of enterprise of foreigners.

According to Chang (p. 1), this description is very different from the generally accepted truth that Britain became the world's first industrial superpower because of its laissez‐faire policy, while France fell behind as a result of its interventionist policies. According to List, at some point when economic greatness was secured, Britain turned around and became a strong advocate for free trade. List agrees that free trade is beneficial – but only between states at similar level of industrial development, which is why he according to Chang (p. 2) strongly supported the customs union between the German states. The change in British policy was according to List (1885, pp. 295‐6)) done of nationalistic purposes:

It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive other of the means of climbing up after him. In this lies the secret of the cosmopolitan doctrine of Adam Smith, and of the cosmopolitan tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations. Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefit of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of errors, and has now for the first time succeeded in discovering the truth.

From this background, Chang aims to “discuss a contemporary problem [how developing countries should develop further] with the help of history” (p. 8) using the same “concrete and inductive” approach that List did. Chang is essentially asking whether “the developed countries are somehow trying to hide the ‘secrets of their success’”, and “how did the rich countries really become rich?” (his italics, p. 2).

He reaches similar conclusions as List stating for example that “When its [US] industrial supremacy became absolute clear after the Second World War, the USA was no different from nineteenth‐century Britain in promoting free trade, despite the fact that it acquired such supremacy through the nationalistic use of heavy protectionism” (p. 5). Thus, the “good” policies, such as restrictive macroeconomic policy, liberalization of international trade and investment, privatization and deregulation prescribed by the so called Washington Consensus, and the “good” key institutions including democracy, “good” bureaucracy, an independent judiciary, strongly protected private property rights (including intellectual property rights) and transparent and market‐oriented corporate governance and financial institutions (including a politically independent central bank) advocated strongly today by the now developed countries (NDC) were essentially not applied by the NDCs themselves. Furthermore, many of these “good” policies and institutions are basically inappropriate for the developing world today.

To support his arguments further, Chang also argues that the concrete and inductive approach of the German Historical School, which is the one he himself uses, has been much more influential than acknowledged and more useful in addressing many economic development issues. Notably, Alfred Marshall, the founding father of Neoclassical economics, was impressed by the German Historical School, but as Chang contends: ”Unfortunately, during the last couple of decades, even development economics and economic history – two sub‐fields of economics for which the historical approach is most relevant – have been dominated by mainstream neoclassical economics, which categorically rejects this sort of inductive reasoning. The unfortunate result of this has been that the contemporary discussion on economic development policy‐making has been peculiarly ahistorical”.

Chang ends Chapter 1 by providing an overview of the book and a “health warning”: “What this book is about to say will undoubtedly disturb many people both intellectually and morally” (p. 12). The remainder of this review is divided into two parts. First, in Section 2, a more in‐depth review of the points Chang makes in his Chapters 2 through 4 is provided. Then, in Section 3 a critical review of his findings and analysis is performed and expanded as deemed useful.

2. More on the case

In Chapter 2, Chang discusses many of the leading economies at the time – Britain, the USA, Germany, France, Sweden, Belgium, The Netherlands, Switzerland and Japan – as well as their colonies when applicable. The arguments are supported and substantiated with numerous details and references, which brings the needed thoroughness to make claims of the sort that “… it was the UK and the USA, the supposed homes of free trade policy, which used tariff protection most aggressively” (p. 59). The discussions in Chapter 2 are thorough and present numerous, interesting arguments, particularly about the industrial, trade and technology policies in the eighteenth and nineteenth century, from the aforementioned countries.

The controversies spoke of in Chapter 1, however, are mostly limited to our understanding of the USA and to Britain that have historically been much more protectionistic than believed today. Interestingly, the reputation of both Germany and France is today worse than deserved – in fact, it turns out that List, commonly known as the father of “the infant industry argument”, was not the father of “the infant industry argument” after all – he learned about it in the USA while being in exile from 1825 to 1830 from Alexander Hamilton, the first Secretary of the Treasury (1789‐1795). For brevity, some excerpts from the discussions on Britain and the US suffice here.

Britain was “… the only country that can claim to have practiced total free trade at one stage in history  … ” (p. 19), but it did not last long. Through colonization and the Navigation Acts, which required that trade with Britain had to be conducted in British ships, Britain managed to increasingly capture trade prior to 1721. However, after 1721 policies were deliberately aimed at promoting manufacturing industries. In the words of (Brisco, 1907): “[manufacturers] had to be protected at home from competition with foreign finished products; free exportation of finished articles had to be secured; and where possible, encouragement had to be given by bounty and allowance”. Not until 1846, were major changes introduced – but arguably as “… an act of ‘free trade imperialism’” (p. 23).

The USA is commonly seen as a strong supporter of free trade, but “It was only after Second World War that the USA – with its industrial supremacy unchallenged – finally liberalized its trade and started championing the cause of free trade. However, it should be noted that the USA never practiced free trade to the same degree as Britain did during its free‐trade period (1860 to 1932)” (p. 29). In fact, the USA during the nineteenth century “… was not only the strongest bastion of protectionist policies, but also their intellectual home” (p. 31). Even more disturbingly, “… the importance of the tariff issue in causing the secession [the civil war] cannot be over‐emphasized”. Indeed, “… Lincoln made it clear that he was quite willing to allow slavery in the Southern states in order to keep the union together. He enacted slave emancipation in the autumn of 1862 as a strategic move to win the war rather than out of moral conviction” (Garraty and Carnes, 2000).

Chang makes undoubtedly the case clear and convincing on the “good” policy level by ending Chapter 2 in a rather typical way stating that “… today's developing countries are actually less protectionist than the NDCs [now developed countries] used to be” (p. 68). In Chapter 3 he proceeds to discuss the “good” institutions.

The discussion on institutional development is less clear than the discussion on policies because the actual historical traces of what took place are less clear and it is difficult to assess how well the institutions actually worked. From his discussion on democracy Chang concludes that “This shows that the idea, if not necessarily the practice, of universal suffrage is much more widely accepted in today's developing countries than it was in the NDCs when they were at similar stages of development” (p. 76). The same turn out to be the case for bureaucracy, intellectual property rights and public finance institutions. For institutions such as the judiciary, limited liability, bankruptcy law, audit, financial reporting, information disclosure, competition law, banking, banking regulation, central banking, securities regulation, social welfare institutions, institutions regulating child labor, and institutions regulating adult working hours and conditions, however, the discussion is relatively unclear as to how well today's developing countries are doing compared to the NDCs at a comparable level of development. But overall, Chang concludes that “contemporary developing countries have much higher levels of institutional development than the NDCs did at comparable stages of development” (p. 111).

More importantly, however, is the fact that “… many of the institutions that are these days regarded as a necessary condition for economic development were actually in large part the outcome, rather than the cause, of economic development in the now‐developed countries. This is not to say that developing countries should not adopt the institutions which currently prevail in developed countries” (his italics, pp. 10‐11). Another important fact is that “… it took the NDCs decades, if not centuries, to develop institutions from the time when the need for them began to be perceived” (p. 115). Hence, “… the currently popular demand that developing countries should adopt ‘world standard’ institutions right away, or at least within the next 5 to 10 years, or face punishments for not doing so, seems to be at odds with the historical experiences of the NDCs that are making these very demands” (p. 117).

In his final chapter, Chang presents the lessons for the present – what should history teach us? Concerning ‘good’ policies he identifies an apparent paradox stating that “All countries, but especially the developing countries, grew much faster when they used ‘bad’ policies during the 1960‐1980 period than when they used ‘good’ ones during the following two decades” (p. 129). From this, and all the other arguments presented earlier in the book, he concludes that interventionist policies – and not the ‘good’ policies – are more attuned to the historical record. Hence, “… in recommending the allegedly ‘good’ policies, the NDCs are in effect ‘kicking away the ladder’ by which they have climbed to the top” (p. 129).

While he agrees that “good” institutions have “helped the NDCs to grow quickly by providing them with greater macroeconomic and financial stability, better resource allocation and grater social peace” (Armstrong et al., 1991, p. 352), he claims that “By demanding from developing countries institutional standards that they, themselves had never attained at comparable levels of development, the NDCs are effectively adopting double standards, and hurting the developing countries by imposing on them many institutions that they neither need nor can afford” (p. 135). Thus, “… the NDCs are ‘kicking away the ladder’, not only in the area of policy, but also in the area of institutions”. These conclusions also stand after discussing some possible objections to his analysis and conclusions.

The historical research Chang has assembled is thorough, but like Marx – after making an excellence historical analysis he draws some erroneous conclusions. The only possible objection Chang accepts to his arguments is if it can be shown that “things” are different today than when the NDCs developed, and that is what I am trying to do in the next section.

3. Why the present is different from the history

There are many differences between the eighteenth and nineteenth century and today, but the most important difference is that the world is much more peaceful and orderly among the great nations. For Britain, France, USA and others at the time, policy and economics were the intertwined with warfare, which is evident from (von Clausewitz, 1997, p. 373). Due to the relatively rapidly developing technologies, many goods were “strategic” and hence keeping manufacturing within the borders of the nation‐state and protect infant industries became matters of possible survival. This is still an argument today, but to a much lesser extent.

Furthermore, due to the poorly developed institutions at the time – particularly central banking and various financial institutions – free flow of capital, labor and goods like today was impossible or at least highly impractical. Even if it had been possible, I believe that it would not have been adopted due to the many periods of war between the great nations at the time. Anyway, with the free flow of capital today and the associated globalization process, the growth rate of the world economy is much quicker than centuries ago although the NDCs are not necessarily growing faster. While Chang interprets the slow growth of NDCs as a sign that their policies do not work, I believe the opposite. The reason the NDCs are growing relatively slowly is threefold. First, these economies are mature, and their companies outsource much work to the developing world due to the cost advantage offered by the developing countries. Being the recipient of outsourcing is very beneficial as both China and India are good examples of, and such outsourcing will over decades also lead to a massive knowledge transfer to developing countries that may otherwise take developing countries “ages” to obtain. Once this knowledge transfer occurs, infant industries can prosper without any protection because the knowledge level is comparable to the NDCs. Second, in modern nation‐states it is the corporations, and many of them are multi‐nationals, that are the central unit of trade and economic transactions. When these corporations outsource and move production around the globe, economic growth is not confined to a single nation‐state but to a global economy. Third, these economies cannot grow independently of the rest of the world economy because all economies are interconnected to a much higher extent than before due to the globalization process.

Another important difference is that in lieu of markets abroad due to high tariffs, the colonies and large‐scale immigration played the role as export markets for the NDCs in those days. Today, this is impossible unless the NDCs accept that the developing countries should be allowed to protect themselves, export and receive massive outsourcing. I believe that this is not an acceptable course of action because it could lead to widespread social unrest in the NDCs. An important part of helping the developing countries, however, will be that the NDCs open their borders for trade with the developing countries that want to transform. The NDCs cannot expect the developing countries to open more than the NDCs are willing open to the developing countries.

In summary, I believe Chang makes a mistake by largely ignoring the importance of warfare. In a way, his study material is a bit too narrow to provide correct answers for the most controversial questions he proposes. For example, the correlation between warlike situations and attempts to protect infant industries would be interesting to investigate. Furthermore, while Chang acknowledges and describes in great length how the NDCs tried to get skilled workers from the leading countries at the time, the fact that knowledge is even more important to economic development today than in those days seems to be ignored. The reason it took the NDCs so long time to develop was that they had to learn to live in peace, they had to learn how to build institutions and they had to learn how to run corporations and so forth. All this knowledge is now readily available, more or less, for those developing countries that want to learn. I believe that the interventionist policies the NDCs used were chosen because in warlike or unstable circumstances such policies were the most reliable and safe – not because they were the ideal solution for creating wealth.

This said, I agree with Chang that it is wrong for the NDCs to demand so many “good” institutions in such a short period of time. Particularly, I believe the strong push to eliminate child labor is damaging for the developing countries. We have to remember that the mental framework of the vast majority of people in these countries tell them that they need many children to support themselves, because it has always been like that – we had the same problem in Europe too, 100 or so years ago – changing mindset may take generations. If child labor is banned altogether, children suddenly become only a cost and not a source of income. For the poor people in these countries that will be disastrous because they have very large families to support. The NDCs should demand regulations on child labor, but not ban it. Similar arguments also go for several other institutions as Chang points out – the NDCs should not demand too expensive institutions too quickly. I believe the NDCs should first focus on the most critical economic institutions, because once economic development is secured the other “good” institutions will arise naturally when needed and when they are affordable.

4. Some final comments

In the end, I would like to point out that the book is well‐researched and it is a must‐read for anybody who is interested in understanding the historical perspectives of economic development. While I do not agree with many of the conclusions concerning the present time that Chang draws from his excellent historic analysis, see Section 3, I think the book is an important piece of work, and that “… the historical facts about the developmental experiences of the developed countries should be more widely publicized” (p. 140).

References

Armstrong, P., Glyn, A. and Harrison, J. (1991), Capitalism Since 1945, Blackwell PublishersOxford.

Brisco, N. (1907), The Economic Policy of Robert Walpole, The Columbia University PressNew York, NY.

Garraty, J.A. and Carnes, M.C. (2000), The American Nation:A History of the United States, Addison Wesley LongmanNew York, NY.

List, F. (1885), The National System of Political Economy, Longmans, Green and CompanyLondon.

von Clausewitz, C.M. (1997), On War, Wordsworth EditionsWare.

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