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on 30 January 2009
This brilliant book by the Professor of Political Economy at the Massachusetts Institute of Technology charts the developing countries' relations with what Amsden calls the two postwar US empires. The first was from 1950 to 1980, the second "arose in 1980, with the elections of Ronald Reagan and Margaret Thatcher." The second worshipped the holy trinity of liberalisation, deregulation and privatisation. In the first, the developing countries grew by 5% per year, in the second, by 3%.

Only twelve of more than a hundred countries under colonial rule gained any manufacturing experience. As Amsden notes, "unlike Britain, Japan promoted colonial manufacturing." Some of the twelve, especially China and India, have become economic powers. But as she writes, "global absolute power has become a relic of the past. Absolutism cannot be preserved by the United States, nor can it be acquired by China." And yet still, as the International Labour Organisation reports, half the world's workers - 1.4 billion people, the highest number ever recorded - earn less than $2 a day.

Developed countries' states import low-paid immigrant labour, to keep wages low, rob developing countries of their skilled labour and stop rival producers emerging. At home, they promote the interests of finance capitalists, whose incomes depend on mergers and privatisations not on developing manufacturing. Abroad, they promote palliative economics and oppose the development of manufacturing. They sponsor NGOs, `small is beautiful' and petty-bourgeois trade, not production.

Countries need to defend their manufacturing industries against economic aggression. As Amsden observes, contrary to the prevailing wisdom, "Keynes believed that in times of depression and world strife, haggling over tariffs might inflame hostilities, whereas leaving tariffs in place might lead to peace. Contrary to popular belief, protection might increase trade, not decrease it. Industrialization needed raw materials, manufactured parts, components, and machinery. Some of these inputs would be purchased locally, others would be imported. If an industrializing country grew faster than under free trade by virtue of tariffs, it might import more of these inputs, not less. Trade would boom." Tariffs are a useful defence against economic aggression. States should attach performance standards to state subsidies.

She concludes, "To break the chains of static comparative advantage that for centuries bound them to mining minerals and manufacturing miniature dolls, developing countries must again be free to choose their own model."
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