A few weeks ago, I quoted Ha-Joon Chang of the University of Cambridge writing the following in the Independent:
Both the history of rich countries and the recent records of developing countries point to the same conclusion. Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help their producers accumulate productive capabilities.
This article was based on a book he wrote, which The Economist has just reviewed. I think the review makes two good criticisms of the argument for "industrial policy" as necessary for economic development:
- Many countries have tried this approach with very negative results: "many poor countries turned their back on trade with tragi-comic results. Cosseted industries turned out finished goods that were worth less than the imported materials from which they were made. Thomas Jefferson had warned the Hamiltonians that “the use of [subsidies] has been found almost inseparable from abuse.” In post-war Africa, Latin America and South Asia, he was proved right."
- In those countries where development was achieved, factors other than industrial policy may have been the cause: "... South Korea was blessed with a young, literate and biddable workforce; it also lacked large tracts of arable land or rich deposits of natural resources. Even without the visible hand of government to guide it, the country's future clearly lay in making stuff, rather than drilling, mining or growing it. Once its military government devalued the currency and loosened restrictions on imported materials, South Korea was free to fulfil its destiny. It began with light manufacturing, using simple technologies that did not require a long apprenticeship to master. Its growth was certainly impressive. But a country that saves and invests as heavily as South Korea did can arguably transform itself even without recourse to any Hamiltonian magic."
This debate has been going on for a long time now, and there is a good chance these same issues will continue to be debated into the next century. Part of the problem, I think, is that there are few "pure" interventionist and neo-liberal models to look at. Almost every country is a mix of both. As a result, it's very easy for political economists on both sides to focus on the particular policies that they favor as the cause of development in specific countries.