Taking Away the Ladder

Industrialized countries advanced by means that have been impermissible to the developing world, write Anis Chowdhury and Jomo Kwame Sundaram.

By Anis Chowdhury in Sydney and
Jomo Kwame Sundaram in Kuala Lumpur
Inter Press Service

The notion of the BRICS (Brazil, Russia, India, China, and later, South Africa) was concocted by Goldman Sachs’ Jim O’Neill. His 2001 acronym was initially seen as a timely, if not belated acknowledgement of the rise of the South.

But if one takes China out of the BRICS, one is left with little more than RIBS. While the RIBS have undoubtedly grown in recent decades, their expansion has been quite uneven and much more modest than China’s, while the post-Soviet Russian economy contracted by half during Boris Yeltsin’s first three years of “shock therapy” during 1992-1994.

Unsurprisingly, Goldman Sachs quietly shut down its BRICS investment fund in October 2015 after years of losses, marking the end of an era, according to Bloomberg.

Growth spurts in South America’s southern cone and sub-Saharan Africa lasted over a decade until the Saudi-induced commodity price collapse from 2014. But the recently celebrated rise of the South and developing country convergence with the OECD has largely remained an East Asian story.

Preventing Emulation

Increasingly, that has involved China’s and South Korea’s continued ascendance after Japan’s financial “big bang” and ensuing stagnation three decades ago. They have progressed and grown rapidly for extended periods precisely because they have not followed rules set by the advanced economies.

Bukchon Hanok Village, Seoul, South Korea (Doug Sun Beams via Flickr)

Bukchon Hanok Village, Seoul, South Korea. (Doug Sun Beams via Flickr)

Industrial policy — involving state owned enterprises (SOEs), technology transfer agreements, government procurement, strict terms for foreign direct investment and other developmental interventions — was condemned by the Washington Consensus, promoting liberalization, privatization and deregulation favoring large transnational corporations.

Well-managed SOEs, government procurement practices and effective protection conditional on export promotion accelerated structural transformation. When foreign corporations were allowed to invest, they were typically required to transfer technology to the host economy.

Countries have only progressed by using industrial policy judiciously when sufficient policy space was available, as was the norm in most developed countries.

But such successful development practices have been denied to most developing countries in recent decades. The North now emphasizes the dangers of industrial policy, subsidies, SOEs and technology transfer agreements, to justify precluding their use by others.

IBM Bangalore (Wikimedia)

IBM Bangalore. (Wikimedia)

Instead, corporate-led globalization continues to be sold as the way to develop and progress. Major OECD economies appear intent on tightening international rules to further reduce developing countries’ policy space under the pretext of reforming the multilateral trading system in order to save it.

President Donald Trump and others who challenge this neoliberal narrative do not offer any better options for the South. Nevertheless, their nationalist and chauvinist rhetoric has undermined the pious claims and very legitimacy of their neoliberal “globalist” rivals on the right.

Infrastructure Finance

The 2018 Trade and Development Report,” by the U.N.’s Conference on Trade and Development, emphasizes the link between infrastructure and industrialization. It argues that successful industrialization since 19th century England has crucially depended on public infrastructure investment for economic growth and structural transformation.

The ascendance of the neoliberal Washington Consensus agenda has not only undermined public interventions generally, but also state revenue and spending in particular, especially in the developing world. But even the World Bank now admits that it had wrongly discouraged infrastructure financing, which it now advocates.

Most Western-controlled international financial institutions have recently advocated public-private partnerships to finance, manage and implement infrastructure projects. The presumption is that only the private sector has the expertise and capacity to be efficient and profitable. In practice, states borrowed and bore most of the risk, e.g., of contingent liabilities, while private partners reaped much profit, often with state guaranteed revenues.

African Finance Ministers at IMF press conference at IMF headquarters in Washington, D.C., 2007. From left to right: Christina Duarte of Cape Verde, Abou-Baker Traore of Mali, Shamsuddeen Usman of Nigeria, Zakia Meghji of Tanzania. (Thomas Dooley via Wikimedia)

African finance ministers at IMF press conference in Washington, D.C., 2007. From left to right: Christina Duarte of Cape Verde, Abou-Baker Traore of Mali, Shamsuddeen Usman of Nigeria, Zakia Meghji of Tanzania. (Thomas Dooley via Wikimedia)

Unexpected Policy Space

Infrastructure, including both its construction and financing, has been central, not only to China’s own progress, but also to its international development cooperation. China’s financial redeployment of its massive current account surplus has created an alternative to traditional sources of investment finance, both private and public.

The availability of Chinese infrastructure finance on preferential or concessionary terms has been enthusiastically taken up, not least by countries long starved of investible resources. Not surprisingly, this has resulted in over-investments in some infrastructure, resulting in underutilization and poor returns to investment.

The resulting debt burdens and related problems have been well publicized, if not exaggerated by critics with different motivations. Now threatened by China’s rise, Western governments and Japan have suddenly found additional resources to offer similar concessionary financing for their own infrastructure firms.

Thus, not unlike the U.S.-Soviet Cold War, the perceived new threat from China has created a new bipolar rivalry. That has inadvertently created policy space and concessions reminiscent of the post-Second World War “Golden Age” for Keynesian and development economics.

Anis Chowdhury is adjunct professor at Western Sydney University and the University of New South Wales (Australia). He has held senior United Nations positions in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations assistant secretary-general for economic development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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26 comments for “Taking Away the Ladder

  1. February 26, 2019 at 11:44 pm

    Sure wish I had seen this four days ago when it was posted! It is symptomatic of how wretched and misleading is both the professional teaching of economics, and public understanding of economics, that no one – not the original writer, nor any of the commentators – has noted that the nation-building policies countries actually used to develop, in opposition to the neoliberal Washington Consensus policies – were those of first USA treasury secretary Alexander Hamilton.

    Hamilton was the founder of the American economic system, and destroyed the then existing economic paradigm of feudalism by directly refuting Adam Smith and British empire economics, by having active government interests and investment in new and important economic enterprise. In his December 1791 Report to Congress on the Subject of Manufactures, Hamilton wrote:

    “Experience teaches, that men are often so much governed by what they are accustomed to see and practice, that the simplest and most obvious improvements, in the [most] ordinary occupations, are adopted with hesitation, reluctance and by slow gradations … To produce the desirable changes, as early as may be expedient, may therefore require the incitement and patronage of government… The apprehension of failing in new attempts is perhaps a more serious impediment…it is of importance that the confidence of cautious sagacious capitalists…should be excited… it is essential, that they should be made to see in any project, which is new, and for that reason alone, if, for no other, precarious, the prospect of such a degree of countenance and support from government, as may be capable of overcoming the obstacles, inseparable from first experiments.”

    Note that the left usually totally misses the importance of Hamilton. Rather than the marxist model of the means of production determining the political superstructure, what actually happens under Hamilton’s system is government support for new science and technology creates new means of production.

  2. Other
    February 26, 2019 at 1:26 pm

    Anyone who found this article interesting might enjoy Michael Hudson’s book “Trade, Development and Foreign Debt”. The thesis of that book was whether “free trade” regimes promote convergence (as claimed by its proponents) or polarization, and concludes that it is the latter. It’s a great illustration, on a theoretical level, of how “free trade” is disingenuously imposed by economies that have pulled ahead of others as a way to try to convince less advanced economies to remain uncompetitive. Some of Hudson’s other books like “Super Imperialism” and “America’s Protectionist Takeoff” might also be of interest.

    Though I really question the parts of this article that imply that the post-WWII “golden” age should be recreated (assuming it can be), given how closely tied the sorts of economic “growth” policies of that era are to impending planetary environmental collapse.

    • frank balzer
      March 2, 2019 at 5:43 pm

      The so-called post WWII “golden age” was a product of either the bankruptcy or destruction of all the other leading capitalist nations; only the US was unfazed by the war.

      Therefore, the only mass consumer market available was the US working class. This resulted in the US ruling class allowing “business” unions to be formed (with all Leftists purged) whose leadership would only negotiate on wages. There would be no attack on the elite’s power within and outside the workplace.

      This, of course, was when the average unionized worker’s wages rose in tandem with productivity growth.

      When the leading capitalist nations recovered both industrially and technologically, the US ruling class had to once again face a competitive world market; and these competitors rebuilt their economies upon newer technologies and innovative productive methods which the US elite could not replicate. They were invested in earlier methods of production.

      Also, when the leading capitalist economies started rapidly growing, a sizeable number of their workers had money to spend. Now, the US capitalists increasingly didn’t depend on the home market. Moreover, 3rd world rural farmers were flooding into their cities thus providing a huge cheap labor market…which stalled any innovative itch US power elite might have felt.

      Indeed, they did selectively use the latest technologies related to communication and transportation. There were repressed 3rd world workers to exploit!

      With the fall of the soviet-type command economies (except for the Pentagon), the capitalists didn’t even have to worry about workers seeking economic alternatives to capitalism…now, privatize, deregulate and let the crap hit the fan.

      Anyway, they found it was better to play in the casino economy of FIRE (finance, insurance and real estate) Hell, you didn’t have to work; your computer algorhythms did it for you.

  3. Robert Mayer
    February 25, 2019 at 11:36 pm

    If only Amer. States could recognise toxicity of pub/priv enterprise… Good 1st step perhaps N.Dak. style taxpayer funded bank.

  4. mbob
    February 24, 2019 at 11:26 am

    Ha-Joon Chang, a South Korean economist, currently at the University of Cambridge, wrote a 2002 book, Kicking Away the Ladder, which basically makes the same points. I read and recommend his later book, Bad Samaritans, which expands on the same themes.

    There is a long history of criticism of neoliberal and globalist thought. I appreciate the present authors, and Consortium News for continuing to stress the failures of neoliberalism and globalism.

    I recently learned that even Paul Krugman, once a forceful advocate of globalism, wrote a critique of it in A Protectionist Moment? where he wrote

    “It’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits …”

    See, for example, William Greider’s piece in The Nation, “Paul Krugman Raises the White Flag on Trade.”

    It follows that Trump’s much-derided imposition of tariffs is not unsound and may be necessary for a country such as the US in order to re-industrialize.

  5. Peter Loeb
    February 23, 2019 at 7:02 am

    Whatever these authors said, I did not bother. The first sentence has no verb.
    Suggest that they proofread their stuff. (A few other CNN writers have
    done like wise.) Caution if you want to be taken
    seriojusly.

  6. Jonathan Larson
    February 23, 2019 at 6:19 am

    This is a pretty good article. The story that EVERY country that successfully industrialized did so by breaking the holy rules of the “free traders” needs to be told again and again.

    Those of us who have worked in the enterprises that create the hardware that organizes the community’s necessary work—agriculture, construction, transport, manufacturer, etc.— could have told the rest of you that the economics taught in our most esteemed universities are either totally insane or just pure evil. I settle for calling them technologically or historically illiterate in polite circles. Just remember, this crackpot thinking resulted in the de-industrialization of the USA itself!

    Making anything is WAY harder than it looks. Making something REALLY well borders on magical. That’s why the people who don’t make things also make no effort to understand how they are made. Ask your average politician or banker how cell phones work (airplanes fly, steel is made, oil is found and refined. food is grown, etc.) and you will be rewarded with a dog-watching-a-ceiling fan blank stare. Useful work is so far from their experience that they take pride in their ignorance.

    Just remember, the economics of the neoliberals is mathematically certain to wreck things. Hard to have any other outcome when their core values are deception and theft.

    • February 23, 2019 at 1:12 pm

      Exactly!

      The elite in charge are remarkably ignorant of how real things are made. They have convinced themselves that things magically appear as a result of money and investment. They are completely oblivious to the fact that people actually have to do work, have to apply intelligent application of labor to achieve a useful end product.

      They live in a world of financial fantasy, their rules were fashioned by the people who create and distribute money, the central banksters. The financial wizards would have us believe that humanity would not advance, will not advance unless there is the promise of financial reward dangling in front of them.

      I suppose the harnessing of fire and the wheel only happened because some banksters or corporation was urging them on with the promise of financial affluence.

      Their world view is shaped by privilege and by being surrounded by other financial ignoramuses.

    • jadan
      February 24, 2019 at 9:13 am

      Excellent comment! Respectable (aka, academic) economics perpetuate the small government myth falsely attributed to Jefferson, “that government governs best that governs least”, in support of the oligarchical creation stories of the sovereign individual of heroic entrepreneurial skills and true gerit. University economics departments have become billionaire funded think tanks. What is desperately needed right now is a renewed faith in government. This can only come about if we have a transparent and accountable electoral system that finally allows democracy to push out the obstructionist republican electoral structure the founding oligarchs put in place. Government by the people and for the people, not by the oligarchs and for the oligarchs, is what we need for our continued survival. When I hear the phrase “public/private partnership” I reach for my revolver.

    • JD2027
      February 24, 2019 at 9:41 am

      In a nut-shell, great post

    • nietzsche1510
      February 25, 2019 at 3:10 am

      hi Jonathan. it all started effectively with the teachings of Milton Friedman in Chicago as a conceptual follow-up to 19th. century Ricardo: monetarism. it is a sort of “explanation” how to live at the expense of the productive economy.

  7. Frank
    February 22, 2019 at 4:30 pm

    We must remember that the “dragons” -Taiwan, S. Korea, Hong Kong, and Singapore- were invited to develop by the US foreign policy establishment. Why?

    Because the US power elite wanted to surround the Chi-coms with islands of successful capitalist development.

    Thus, these dragons had their landowners’ lands broken up and distributed to peasant farmers and viola! There was now an agricultural class of yeomen farmers. US government and investment capital was then directed toward the development of food processing industries. As a result, most of these nations exported a wide variety of foods to protected spaces within the US’ markets.

    After selling their export crops, these governments were allowed to plow this new foreign exchange currency back into their economies in order to develop higher levels of industrial development (No borrowing from US banks) This was all done under US approved protective tariffs and, again, a protected space for their industrial products within the US economy. (Tariff protection of infant industries)

    Of course, technological transfers from the US to these nations were heartily approved. And the youth of these nations were given both scholarships and openings to US universities. Much of this education trained them in high tech skills. But native industries had to be developed so these students could apply their new knowledge.

    Thus, industrial policies were directed by government planning and public enterprises in order to rapidly develop their own high-tech industries. Moreover, these governments were allowed to tightly control both their currencies and their currencies’ values. (i.e. no currency speculation via international speculators.) In fact, during the initial stages of industrial development, these nations were dominated by very repressive -and US supported- military dictatorships (though Singapore’s dictatorship was more benign.)

    The US also spent lots of US tax dollars on developing these nations’ infrastructures: roads, trains, schools, universities, and communication -all under centralized planning.

    Last, all of these nations gained a lot of foreign capital as money poured into them because of the Vietnam War. Spending for US military bases, R & R for soldiers, the huge drug trade, etc. gave all of those economies a tremendous boost. (Japan gained similar benefits because of the Korean War.)

    Wow! Isn’t “free enterprise” wunnerful.

    • TS
      February 23, 2019 at 12:41 pm

      All true — except it wasn’t only the USA that played this role.

      For example, the South Korean shipbuilding industry was established thanks, to a considerable extent, to aid and technology transfer from the British shipbuilding industry, which was flourishing at the time.

      Today, British shipbuilding is more-or-less dead, while the South Korean industry is still alive — although confronted today by more and more competition from China.

  8. Zenobia van Dongen
    February 22, 2019 at 2:23 pm

    The East Asians weren’t the only ones to try to industrialize. Latin American countries tried the same thing and at about the same time. But their ambition to export manufactures largely failed. Robert Wade’s “Governing the Market” (1990) explains why. Two clearly contrasting examples are those of Argentina and Taiwan, which set up import-substitution industrial policies at about the same time, in the 1950s. Their plan was firstly to supply the domestic market with manufactured goods and the, start exporting them. In Taiwan the policy worked, but in Argentina it didn’t.
    The Taiwanese government’s policy decisions were completely unaffected by the indigenous capitalist class, because the government was controlled by army officers from the Chinese mainland who had escaped to Taiwan after losing the civil war to the communists in 1949. So the government had no compunction in disciplining the capitalist manufacturers and forcing them to produce quality goods. They would hold large shaming events at which piles of substandard goods were crushed by bulldozers.
    In Argentina by contrast the capitalist class lobbied the government into perpetuating the protective customs tariffs that were supposed to be removed once domestic industry had managed to establish itself. Lacking foreign competition, local capitalists simply produced shoddy goods at inflated prices and naturally never managed to export any of their output.
    So strategy isn’t everything. The great theoretician of import-substituting industrialization, the Argentine Raúl Prebisch, was blamed for the poor performance. But it wasn’t his fault. If Argentina never became an exporter of manufactures, it wasn’t because the theory was faulty, but because the political system was incapable of resisting the influence of the manufacturers.

  9. Mark Thomason
    February 22, 2019 at 1:03 pm

    This description of the economics is true. However, I fail to see the connection to Trump. This was going on for decades before he came along, and he has been utterly ineffectual in his actual economic interventions.

  10. February 22, 2019 at 12:37 pm

    Of course another factor in this unequal development is that the West has spent roughly the last 500+ years pillaging the entire planet and stealing everything that wasn’t nailed down. A history unmentionable in polite company of course.

    The “old colonialism” justifications for this pillage included: “saving souls,” “bringing civilization,” “the white man’s burden,” “bringing Christianity to the ‘heathens,'” etc. The “new colonialism” (post-WWII variety) simply continues this pillage using “regime change invasions,” “assassination of foreign leaders,” “coups,” “humanitarian interventions,” “support for ‘death squad democracies,'” “duty to exploit – errr, rather ‘protect’,” etc. By claiming some “moral basis” for our exploitive mayhem under the rubric of “humanitarian interventions” we’ve entered Orwellian territory where now “we bomb and kill you, because we love you!” Somehow, amazingly, most of us who reside in the West seem as untroubled ethically by the “new colonialism” as earlier generations were untroubled by the “old” variety.

    • Zenobia van Dongen
      February 22, 2019 at 2:49 pm

      The term “colonialism” is always taken to mean European colonialism. Various European countries ruled non-European countries beginning in the 15th century and ending in the 20th century. That’s 500-odd years. Muslim countries established colonial empires in Europe starting in the 8th century with the conquest of Spain, from where they were not expelled until 8 centuries later. The Muslim Ottoman Empire started colonizing Christian southeast Europe in the 13th century and was not expelled until the beginning of the 20th century, 7 centuries later.
      So Muslim colonialism in Europe lasted far longer than European colonialism outside of Europe.
      And like European colonialism, Muslim colonialism was characterized by dominance, theft, exploitation, slavery and supercilious contempt for the natives.
      Somehow the prevailing political ideology manages to ignore everything that happened more than a few hundred years ago. I wonder why.

      • February 22, 2019 at 5:13 pm

        Zenobia van Dongen – “Somehow the prevailing political ideology manages to ignore everything that happened more than a few hundred years ago. I wonder why.”

        —– uhhhh, maybe because the European variety of neocolonialism continues unabated to this very day????

        I mean I guess I could critique the centuries old policies of Attila the Hun if I wanted to, but then again he’s not the one trying to simultaneously destroy the governments of Venezuela, Nicaragua, Iran and Syria as simply the latest examples of the Western neocolonial enterprise. But hey, maybe you can explain to the people in those nations, (and while your at it you could also add in Iraq, Libya, Honduras, and Afghanistan), just how bad those “Muslim colonialists” were a couple of hundred years ago. I’m sure they’d be absolutely riveted.

        • JD2027
          February 24, 2019 at 9:56 am

          Thumbs-up

      • frank balzer
        March 7, 2019 at 5:47 pm

        These pre-capitalist forms of imperial domination were very different than the Western European capitalist imperialism. Just as per-capitalist forms of slavery were very different than capitalist forms of slavery.

        Under the domination of capital, plunder is systematic and the essence of the system; under pre-capitalist forms of empire, plunder is not systematic (slavery, tribute, etc.) and it is politically-based…the way to riches is through the sword. In other words, the earlier successful empire builder can, later, become conquered and dominated. For the average peasant it did no make a difference.

        Under capitalist societies, the way to riches is through economic power. The Sword is directed by, and in the interest of the capitalist (economically powerful) class. The rich capitalist societies usually stay wealthy at the expense of the economically powerless (though they may drop in wealth and status as compared to other players). It is in the rich nations where the world’s financial and corporate HQs … there not in the economically powerless nations.

  11. February 22, 2019 at 11:43 am

    It has taken me a great deal of time and effort to learn how to speak about this subject and make any sense.

    Mainly because the powers that be intentionally degrade the language used in our public discourse to obfuscate their intentions and our ability to do anything meaningful to hinder them.

    What’s going on is this:

    On the way up, the oligarchs use the state to finance their operations. For example, Fred Trump got the federal government to finance the construction of NY apartments for him back in the day. So he got to be slum lord with no money down. He took capital from the state. This is neoliberalism. Privatize the theft of public capital.

    Then, a generation later, the real estate holdings are basically a monopoly for the Trump family in this NY area. So they no longer want the state to finance their competition. So then they advocate free market fundamentalism instead. This quasi-religion in America, now they call libertarianism.

    Which is no federal government at all except for the military and paramilitary law enforcement to protect oligarch property “rights.”

    The key between the two is this method of kicking away the ladder. The oligarchs love neoliberalism when it gives them free access to public capital. Obama and the Too Big to Fail bank bailouts, prime example.

    Yet now, when the corporate economy is going well, e.g. the stock market, the Kochs and Trumps and oligarchs in general would rather destroy the government all together.

    No state regulation, no state taxes, and no state to interfere with their monopoly through anti-trust. Sabotage the ladder they climbed upon to reach the top so we can’t use it.

    Once I understood this, it all became clear. However, the average American remains quite bamboozled by the termonology and how this relatively simple scam works. By design, like so:

    Hey! Look it this stupid wall over *here*!!! Never mind our hands in your pockets squeezing your junk. It was Mexicans I tell you!

    https://opensociet.org/2019/01/10/neoliberalism-free-market-fundamentalism-or-corporate-power/

  12. Jeff Harrison
    February 22, 2019 at 11:30 am

    To a large extent this should not be a surprise. Most of the money has, heretofore, been coming from the old colonial powers who stole the money from their colonies in the first place. The former colonial powers wanted to see the former colonies kept in check which they very effectively did by way of the World Bank and IMF keeping a strangle hold on the economies of developing nations. With the advent of China’s ascent especially with their Belt and Road initiative, alternatives to “The West” or the old colonial powers have appeared and The West is not happy about it. Good piece.

    • Michael
      February 24, 2019 at 8:13 pm

      I think a lot of these third world countries begging for infrastructure should read and study John Perkins’ “Confessions of an Economic Hit Man.” Those with exploitable resources will receive huge loans on infrastructure aimed at exploiting their resources (their people be damned), and through corruption and usury there will never be enough money to pay for improvements. Rounds of World Bank and IMF funding will drive the debt bigger and deeper and allow the resources to be stolen at pennies on the dollar, which has been the American model for dealing with resource-rich but cash-poor countries (the Libya Model seems to reflect dealing with cash-rich counties).

  13. Bob Van Noy
    February 22, 2019 at 9:56 am

    Many Thanks Consortiumnews for this rare international perspective on Economics. It seems that we’re entering a sort of new era of thinking, although certainly nothing is New. Sovereign Rights appears to be the “bottom line” and seems to me to be the best advice for local thinking. The limitations, as always, are Resourses but that is our fate as humans. Can we get along? It seems to me that, that is the key…

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