In this pioneering book, Ha-Joon Chang, Assistant Director of Development Studies at Cambridge University, explores development strategies in theory and practice. First, he studies how the developed countries became developed using active industrial, trade and technological (ITT) policies. Then he looks at the role that social institutions play in economic development. Finally, he proposes some lessons for the present.
He shows how Britain was the first country to perfect the art of infant industry promotion. Then he looks at the USA, which still has subsidies for its farmers, quotas for textiles, huge state spending on military R&D, trade sanctions against many other nations, and state funding for R&D in the pharmaceutical and biotechnology industries - all protectionist measures.
All the developed economies used active ITT policies, yet they now promote free trade for all, claiming that it will benefit all. Renato Ruggiero, the first Director of the World Trade Organisation [WTO], said in 1998 that this world order has `the potential for eradicating global poverty in the early part of the next century'.
But free trade policies have failed: they haven't delivered the promised growth. Free trade harms the less developed countries' national manufacturers and thus their prosperity in the long run.
A study of 116 countries showed that their GDP per head grew 3.1% a year with 1960-80's interventionist policies, but only 1.4% with the post-1979 Thatcherite policies. This study also proved that the quality of a society's institutions is not the key to growth; so does the similar slowdown in the developed countries since 1979. The World Bank and the IMF impose conditions that they say will ensure that `good governance' aids economic growth, but good institutions are the result, not the cause, of economic development.
Chang shows how the developed countries' states have vested interests in keeping poor countries as providers of cheap raw material and labour, in preventing them from emerging as rivals. The WTO restricts developing countries' ability to pursue active ITT policies. The WTO is a modern version of the unequal treaties that Britain and others imposed on China and other semi-independent countries in the 19th century.
The developed countries' states are indeed kicking away the ladder to stop others climbing up after them. They say, `Do as I say, not do as I did'. But today we too need active ITT policies to get us out of the slump.