How development has disappeared from today's 'development' discourse

welcome to this evening's lecture in the rough Miliband series of this year on the future of global capitalism it's a great pleasure this evening to welcome dr. hodgins chang who will speak on the intriguing title of Hamlet without the prince devout how development has disappeared from today's development discourse he is currently reader in political economy at the University of Cambridge where he's taught since 1990 he's also served as a member on the editorial board of the Cambridge Journal of economics since 1992 he was born in South Korea and earned his MPhil and PhD at the Faculty of economics in Cambridge where he's more or less lived over half your life or yes certainly a good he's the author of several very influential books including kicking away the ladder development strategy and historical perspectives which won a number of very prestigious prizes other books include globalization economic development to the role of state of state reclaiming development and alternative economic policy manual and bad Samaritans his new book just about to come out in this is tall it's called 20 see things they don't tell you about capitalism and it'll be published shortly from penguin we all want to know why 23 exactly it's a very peculiar peculiar number and it's certainly not a round number obviously published apart from these very well-known books numerous articles in many different kinds of journals on the state market and institutions on globalization on trade and industrial policies and on the East Asian economies apart from this he's worked as a consultant to many international organizations including the UN agencies the World Bank Asian Development Bank and his works the consultant for governments as diverse as Canada Japan South Africa the UK and Venezuela on development policies please join with me in giving him a very warm welcome right thank you David for that very generous introduction why 23 things I've entire since the subject has been raised actually I started with 20 and then I was sitting around with my literary agent and both of us told each other isn't 22 pouring so I said yeah I mean on the other hand I don't think I can write on 30 things or 29 things so I started at 25 and thought that was too obvious I don't like even numbers 21 was too close to 20 so 23 was born and later hearing this title people have called all kinds of our speculations which I hadn't imagined was possible I mean one theory was that I was a fan of Michael Jordan the famous American basketball player I mean I am a big fan of baseball but not possible so I didn't even know that he had number 23 some people pointed out that there was this movie with Jim Carrey called 23 which apparently in which 23 is the foundation of all conspiracy theories some people thought I picked it because 23 our prime number I mean I I mean of course our later realize it was a prime number but that wasn't the reason I mean it was one of those random things anyway so much for the advertisement that definition of development has of course always been a contentious issue income level is of course one of the most widely accepted single major development but most people agree that development is something more than providing high higher material standards of living so the most well-known in this respect is that the UNDP SR Human Development Index and its various variations this humanistic dimension of development if you like emphasized by these indicators is of course absolutely essential in making us remember that material progress is only the means and not the end of development and which is something that is unfortunately forgotten too frequently but this another dimension that used to be central to the definition of development in the early days of party-building economics 1950s and 60s but has become increasingly for button and it is the production side of development before the rise of neoliberalism since the late 1970s those are general consensus that development is largely about the transformation of the productive structure and of course transformation of the technological and organizational capabilities that support it and the resulting transformation of social structures such as urbanization dissolution of the traditional family changes in general relations rise in labor movement the advent of the welfare state and so on this was mainly although not exclude to be achieved through industrialization and even though they radically disagreed on how exactly this was to be done most people ranging from Walt Rostow on the right to the dependency theories on the Left share the view that development is something centered around a process of transformation in the productive structure and India most of us are still hold such view at the instinctive level why do we refuse to classify countries like Brunei which has very high per capita income as develop because we implicitly think that achieving high income growth through resource Bonanza is not development at the other extreme following the Second World War Germany's per capita income fell to the level but that of Peru and Mexico but no one suggested that Germany should be reclassified as a developing country because people do that Germany still had the you know despite billions of death still had the technologies and overall capabilities to regain his pre-war level of living standard quickly which it did in about ten years now this example show that we implicitly believed that in order to qualify as develop on economies high income should be based on essentially superior knowledge embodied in technologies and institutions rather than simple command over resources how about during the last quarter of a century development has come to mean something quite different it has come to mean poverty reduction provision of basic needs individual pétomane in the sense of providing better education and health and so on and sustenance of existing productive structure that is anything but development in the traditional sense and this is why I talk about Hamlet I mean the development discourse has turned into a hamlet without the Prince of Denmark I mean the central character is missing I'll try to that elaborate this point by looking at well critically looking at the use of term development in some of today's key development discourses and I thought basically look at three things the Millennium Development Goals the Doha Development Agenda of the WTO and the discourse on microfinance let's first look at the MDGs since the rise of neoliberalism many people in the rich countries have come to take the view that developing countries are what they are only because of their own in abilities and corruption and therefore that the rich countries do not have any moral obligation to help them fortunately these views are not well at least yet the mainstream view in most rich countries most people still believe that with the strong help from the rich countries the developing countries can pull themselves out of poverty and the most progressive and comprehensive of the mainstream discourse on development along this line is the Millennium Development Goals of the United Nations there are many different elements in the MDGs as they are known especially as each goal has a number of targets that span across different sub issues so for example that on the cold seven you have three four different targets call eight four five different targets hood that is that a lot more complex than what you see up here but looking at them you will realize that most of them are basically about reducing poverty and improving education and health and this is obvious four goals number one two six but even goal seven environmental sustainability if you look at the targets under that you see that a lot of it is actually about health because that one of the targets is improving access to safe drinking water another target is increasing access to improve sanitation now loadable these goals and targets may be in my view there's some total does not amount to development therefore the only explicitly developmental dimension in the MDGs is really in goal aid and the targets under this goal include the following so development of an open rule based predictable non-discriminatory trading system reduction or foreign debt increase in foreign aid from the rich countries provision of access to affordable essential drugs and the spread of new technologies mainly information and communications technologies now the two last items are I mean more marginal in the international development discourse are so essentially this vision of development is based on the Trinity of increased aid debt reduction and increased trade I mean this is at the mainstream agenda hippie Gleneagle what have you have now of course that unless they're on of very large scales debt reduction and increased aid are simply enabling conditions I mean the ones are saying that that countries can develop with reduction in debt and increase aid so the trading regime actually becomes the key in this vision this protip elemental trading system is in this vision essentially one where the rich countries reduce their tariffs and subsidies on agriculture textile clothing and other things that developing countries export especially in other least developed countries so the Agua initiative by the American government the European ap8 anything but arms agreement and so on so that that's the kind of trading regime that is central to this vision and unfortunately in this vision there is no notion that developing countries actually need to get out of those activities when you think about it does specializing in those activities after what keep them poor interestingly doing more of the same things that you are doing today is not how the rich countries became rich themselves I mean as I show in my previous books in slightly different ways kicking away the ladder and bad Samaritans is that this is probably the only book at least so far recommended post by Martin wolf and Noam Chomsky so there's got to be something there anyway that thought in these books I show how starting from 18th century Britain through to the 19th century United States Germany and Sweden down to 20 century Japan Korea Thailand Finland development has been achieved by upgrading our countries productive capabilities and moving into more difficult industries by using protection subsidies and many other means of market defying government intervention so actually a total rich countries are by recommending this route to development insofar as it can be really hold the route to development they're actually saying that today's developing countries should do something completely different from what they themselves did when they were developing countries you can call it historical amnesia or double standard but whatever it is that is not going to be good on now in saying this I do not mean that all forms of traditional activities such as agricultural textile are incompatible with development now this is an important point after all the Netherlands unbeknownst to most people is actually the third largest exporter of agriculture I mean can you believe it I mean this country has the fifth highest population density in the world I mean excluding city-states and islands like Hong Kong and Vanuatu huh so land is the last thing you have and Inter standard economy textbook you are always taught that in agriculture you need land and labor where's the land yeah I mean land is the last thing that the Netherlands has but the country still is the third largest exporter of agricultural production now is different but until the early 1990s Germany used to be the world's fifth largest exporter of textile and clothing so you can actually that that get quite rich on the basis of this so-called tradition activities only that these were possible because these countries applied advanced technologies to the transition activities and upgraded them so the Netherlands you don't have land ok you get rid of land in agricultural production process a lot of touch agriculture is done in water hydroponic agriculture when East Asian textile imports are threatened their textile industries the British reaction is well you know we are losing out because of our low wages in those countries so we should also compete in low wages let's the import workers from Bangladesh and Pakistan it might work for the first few years but after a while these workers also need to be paid a local rate the British textile industry completely collapsed the German reaction is there's no way we can compete in the heart low wages so we have to upgrade so we develop a speciality of textile we invest in that design industry huh you know I mean probably that if someone said that mentioned the phrase German fashion design in I don't know 1930s are probably thought do I mean that phrase would have been called or oxymoron but today I mean you know I mean that starting room car lava filter in the appease market to that Hugo Boss and so on I mean there are a lot of but German fashion designers I mean this is how they maintained the textile industry anyway the point is that you can have a thought-out point is that it's not that kind of activity that matters I mean this how you produce so at the other extreme if you look at the statistics on the expo structure Philippines has one of the highest Europe high tech export in the world yeah why do we not then call Philippines a developed country because their high tech export is organized by someone else using someone else's technology and it's a very little routine that the local economy so when that is foreign companies leave the Philippines will go back to primary commodity production anyway I meant that basically the point that I'm trying to make here is that it's not what our country has but how it gets it that determines whether our countries develop or not and without any vision of transformation in productive structure the vision of development beyond the MDGs can only be described as development without development now the non developmental nature of the MDGs is bad enough but the development is course becomes positively anti-development are when it comes to these Doha Development Agenda of the WTO talks now this agenda was our launched in the ministry all talk of the WTO in back in 2001 it said that got lots of different elements but essentially the idea is that you need to do what I call the agriculture industry swap so basically the idea is that the rich countries should reduce their agricultural protection and subsidies so that the poor countries can export what they are good at and also the textile and clothing in return the developing countries should lower industrial tariffs so that the rich countries can do what they are good at which is producing industrial products and the central element in this deal is done through the so called nama or known agricultural market access negotiations which is essentially about cutting industrial tariffs in developing countries now now the trouble with this vision is possible that this agriculture industry swap is not going to help development very much even in the anodyne MDG sense why is that because many developing countries actually net agriculture importers and many of them will actually get hurt in the short run because at the prices of their agriculture impost are going to go up if the rich countries that keep up subsidies on those products you may say that in the long run that's a good thing I'm not enough of an expert on agriculture to pass a judgement on that but it's very clear that in the short run this will hurt a lot of developing countries and then will have an impact on health and that hunger which are all part of the MDG agenda more about the main beneficiaries of this opening of of agricultural markets in the developed world are going to be developed countries with strong agriculture like the US Canada Australia New Zealand I mean they are going to get depending on the estimate seventy to seventy-five percent of the benefits the problem is that you know most developing countries specialize in exporting agricultural products but which are products that are usually known as tropical products cocoa coffee those kind of things where is that the protection and subsidies in the rich countries are concentrated in what are known as temperate products beef we theory yeah I which are European country is a protection against Coco for the simple reason that that there are no European cocoa farmers then I mean there are exceptions like sugar because that developing countries produce cane sugar but European countries produce peat sugar yeah so Finland has protection against sugar tobacco and cotton in the American South does another that said to be exceptions but essentially the protection and subsidies in the rich countries are focused on those temporary products and there are only even according to the World Bank which is a big fan of this idea there are only two developing countries that are going to benefit in a major way from this and Brazil and Argentina and when you think about this some of the main victims of Tata Steel are going to be poor farmers of course I mean which by international standard but poor by their national standard poor farmers in countries like Norway Japan and Switzerland and are we really willing to say that these farmers should go to hell so that some rich agricultural capitalists in Argentina can become even richer there's a serious problem here because we haven't solved this image or you notice that the dismantling of agricultural protection in the rich countries benefiting poor farmers in Ghana and Cambodia no they are not going to be the main beneficiaries yet the main beneficiaries are going to be the agro corporations of the United States and Australia and very rich landlords in Brazil and Argentina I have a problem with that more importantly in the long run this to hot development agenda is going to hinder development by making infant industry protection very difficult in return for liberalisation in agriculture and textile and clothing by the rich countries developing countries are demanded to reduce the industrial tariffs of course this will bring some benefits to the consumers of the developing countries you know because that they'll now be able to buy cheaper industrial products but these gains are unlikely to be more than 1.5 percent of GDP and that that are one-off gain and this is according to the World Bank once again a fan of this idea and this that benefit is soon going to be overwhelmed by the long term losses that come from the in ability to promote infant industries if the rich countries have their way in this nominalizations average industrial tariff rate in developing countries will go down to about five to seven percent and this is the lowest level of tariff since the days of colonialism and unequal treaties when developing countries were simply deprived of their right to set their own tariffs and with very few exceptions they will be also lower than the race that had prevailed in today's developed countries until the early 1970s moreover the context in which the industrial tariffs casas to be made magnifies their potential negative impacts because that in the last few decades through the IMF and World Bank structural adjustment programs the WTO various bilateral and regional free trade and investment agreements other tools of industrial promotion have become either impossible to use or very circumscribed subsidies quantitative restrictions which are completely banned in the WTO foreign investment regulations foreign exchange rationing and many other tools and this is they increased the relative importance of tariffs so tariff costs today are much more damaging to developing countries than in the 1967 days to make it even worse the tariff casa to be made in a manner that is much more stringent than before for example when the auto guy around the GATT talks which gave birth to the WTO was concluded in 1995 countries were made to cut average tariff now this time no it's going to be a cut line by line tariffs has to come down on every product and they are using this at a particular formula called the Swiss formula I don't know why so-called Swiss formula but Swiss formula we shot forces you to cut higher tariffs more steeply so until now countries have actually the freedom to kind of purchase certain industries yeah I mean the obligation is our own average so you can choose to although few countries actually do in theory at least you can choose to protect certain products very heavily while having a low tariff on other products now this time is not going to be allowed if this Annamma deal is struck according to the wishes of the rich countries so if you see it this way the to a development deal is not simply non developmental like the MDGs but it is deeply anti developmental in the sense that it not only encourages developing countries to stick to their current production structure but also makes it almost impossible for them to move away from it in the future now having said all these things I think it would be on to say that there is no consideration in this that currently dominant Regional Development no consideration about the increase in productive capabilities after all improvements in health and education emphasized by the MDGs should increase the productive capabilities of the individuals especially the poor people are however today's that mainstream development discourse sees these increases in productive capabilities as happening mainly true individual petomane so for example Tasigna if we go back six of the eight MDGs are about improving income health and education of individuals with the partial exception of called three which by definition is a relational thing because it's agenda agenda but it's all about individuals getting more education individuals that having lower chance of death individuals having access to health another important example is microfinance which is supposed to promote development by helping people lift themselves out of poverty through their own entrepreneurial efforts at one level there is nothing wrong with all this I mean entrepreneurship is important albeit is that although is not the only thing that matters when the capabilities of individuals in a country are enhanced the country's productive capabilities are likely to increase so at one level nothing to object to path there are only so many productive capabilities that can be developed through improvement at the individual level if you actually look at the process of technological development and economic growth in general I mean not in some abstract aggregated way but if you look at the real process you realize that development in productive capabilities actually mainly occur in productive enterprises happy they stayed on farms or the small private farms or large private forms or cooperatives however well-educated and healthy the individuals may be they they they cannot produce rapid lasting and sustainable productivity growth that makes our development possible unless they are employed by forms engaged in production activities with large scopes of productivity increase and even if the total number and the capabilities of the individuals involved are the same more and better ideas will be produced by individuals working together in a productive enterprise because they go through a process of cross fertilization moreover much of knowledge in productive enterprises is fired in a productive manner in the sense that they are created in the context of a complex division of labor rather than through the activities of isolated individuals and they are deposited in the form of organizational routines and institutional memories rather than purely in individuals and because of this our productivity growth is a collective process let me put it more graphically I mean this is that getting a bit abstract suppose that you have say 10 extra Street food stores or I saw it 1,000 extra food stores or 1000 one-man TV repair shops how much productivity are they going to enhance compared to one modern supermarket or one large electronics manufacturer each employing 600 workers and getting supplies from 20 small enterprises that employ 20 people each on average even if all those that 1000 owners of the food stores or 1000 TV repair shop owners have phd's in food technology or electronics and even if most of the 1,000 people working in modern enterprises have only primary education my views that are former are still unlikely to enhance the country's productive capabilities as much as the latter can you know we tend to think that that individual education and things like that is the main driver about economic development what is not I mean let me give you one simple example Switzerland one of the richest countries in the world has by far the lowest university enrollment ratio in the rich world actually is a university in Norman Grigio until recently it has been in the 30s 34 percent 37 percent of the relevant age cohort in the United States is around 80 percent in South Korea's are 90 percent even Latvia has are 60 percent so how come I mean that the Swiss have a much higher living standard and the Koreans and the Latvians despite having much less educated labor anyway I lived at statistic video so this emphasis on individual capabilities entrepreneur energies is a largely misplaced yes I mean toast things are important but that's not what development is about yeah I mean to put it differently what really distinguishes the US and Germany from say the Philippines or Nigeria are really their bones and Fox wagons it's not their PhDs in economics not their engineers not their medical doctors actually the Philippines and Nigeria happen to export those people here it's because they don't have enterprises like Boeing's and Fox wagons that they are poor what really distinguishes say Ecuador or Vietnam from the US or Japan is not the raw entrepreneurial energy of the people that the neoliberals are so often talked about but the abilities of the latter countries to establish and manage productive enterprises that can channel the individual energy into raising productivity you know people in rich countries often have this that are mistaken idea that are you know developing countries developed because that your people are not enterprising enough I mean they don't have enough go-getters and movers and shakers people would think like they haven't been to developing countries I know you go there and you see that the place is full of entrepreneur energy because people are desperate yeah so they sell everything that you can think of and everything that you couldn't think of you know really I mean in many developing countries you can actually buy places in q40 American Embassy huh there are professional cures yeah you know that there are people who will get money from you for watching your car which means that the refraining from damaging your car you know people have you know so much that entrepreneur initiative and energy partly because they are desperate but they don't add up too much because they lack this organization they lacked is institutional arrangements huh so I say that what little development that there is in the productive development in the currently dominant vision development is what I call a results development illusion huh the belief that if you educate people better and make them healthier and give them security of property rights all these are rational self seeking individuals will exercise their natural tendency to well to quote from Adams mr. truck and butter and somehow create a prosperous economy no country has actually developed in that kind of way in reality development requires a lot of collective and systemic efforts at the acquiring and accumulating better productive knowledge through the construction of pet organizations cross fertilization of ideas within those organizations and mechanisms to channel this individual entrepreneur energy into collective entrepreneurship and so to conclude the currently dominant development agenda has singularly failed to deliver any lasting development in the last few decades I mean don't have time to go into the statistics but basically growth has collapsed in developing countries in sub-saharan Africa and Latin America you know temple in the bad old days of import substitution per capita income in Latin America used to grow at about 3% in the last 30 years the growth rate has been barely 1% and to overcome this we need to go back to the what I call the production is tradition of all developing economics and put the transformation in productive capabilities that go beyond individuals back at the heart of development thinking of course a pie saying is I'm not saying that well we can toast off our Albert Hirschman and you know that I will have the answer no I mean there are lots of things that all development economics that didn't pay enough attention to partly I mean out of circumstance partly out of intellectual failings so there are all these that are due dimensions out that you need to bring in non material dimensions as embodied in human development approach and sense capability approaches the question of politics is so unfair to say that all school develop an economist that didn't think about politics but it is also true that they tended to assume that the government is basically well-intentioned and reasonably capable which said that often is not the case huh they didn't pay enough attention to institutions technological development process was that largely overlooked you just assume that some our technological development will happen of course that since the 80s there has been an explosion in the literature on how technology is actually developed so do you look at form organizations the labor process into form linkages global production networks so there there are things that can fill this gap but it is true that in the old days technological development was taken rather for granted and of course that the one could blame them for not thinking about environmental sustainability because people didn't simply realize that that could be a problem so we need to bring in these extra dimensions but at the heart of it I still think the production is prospective I should form the hall and of course that saying all this is a lot easier than done but unless we develop a new development this course basically development that will be reduced poverty reduction yeah I'm not against our poverty reduction of course but you know it's not the same and we have forgotten this very important point and therefore we believe that we can basically develop these countries by keeping them a bit more aid cancelling a bit more debt and buy a bit more fair trade coffee yeah no this is not going to happen believe me anyway I'll stop there and invite you to make questions and comments thank you okay well thank you very much a very engaging concise presentation with a very distinctive argument and I suspect there are questions so three or four in my cluster but I won't use up my position yet so if you could just raise your hand and then the gentleman with his hand up their house you just say who you are and can you put the mic closer to you where in your view of this new development ilysm do you see extractive industries and extractive industrialization fitting in yes Pascoe subido from the LSE do you see a shift in development discourse happening with a global shift in power perhaps from north to south or west to east or do you see the institutionalization of the WTO locking in these countries into neoliberal discourse and therefore even that might not bring it how important do you think infrastructure is for development and if so what kind of infrastructure for the this time for probably several rounds of questions so don't feel excluded yet when you said production is a heart of all the new development improvements that a country can take I'm from Pakistan and there's so many industries over there the thing is cheap labor and those companies and industries are earning a lot of money it's not trickling down in the economy when you say production ism do you just mean manufacturing and agriculture or do you also include services what about tourism is there a post manufacturing development yeah should we start with those yeah sure thank you for very good questions well I have nothing against extractive industries after all the US and Australia I have greatly benefited from very efficient and high-tech mining industry and Finland started with cutting down trees but it upgraded into making paper making machinery so yes I meant up extracted by industries can actually be a basis for productive development of course that kind of assumption is that you have to do it with your own technology and organization if you just kind of please your oilfield to someone else very little bit is going to lead to long term development so I mean once again not the physical nature of the product things like that but how you actually do it now global shifting power where I think you know we are really gazing into crystal balls here but it is happening but I think it's a highly exaggerated you know when people say things like oh the Chinese economy will be bigger than the US economy by year 2017 or 20 imeem they are forcible citing purchasing power parity figures which might be a better reflection of your living standard but that doesn't correctly reflect your economic power in the international economy and secondly you know purchasing power numbers vary a lot according to your method of estimate so when the World Bank decided to change the method of estimate in 2009 I think Chinese income was that I in purchasing power parity terms are reduced by 37 percent so actually that that the shift is happening but it's not happening to the extent that many people think it is happening and who says the Chinese and Indian growth sustainable depth a serious problem it a political sustainability before they even worry about environmental sustainability so I reserve my judgment there now having said that you know WTO is our man-made agreement if you want to change it we can change it so you know looking in yes I mean that because the powerful countries want it that way but if that power shifts we can rewrite the agreement so that to be seen infrastructure yes I mean infrastructure is absolutely essential but I think at our top problem at the moment is that people think of infrastructure in a way that is dead linked from industrial strategy you know I meant dietary status at the influential group thought which says yes government should to Industrial Policy but not of the kind of selective kind that intervenes at the industry level as the Japanese and the Koreans used but that they should do general industrial policy like infrastructure huh that's actually wrong because you know you do not build some abstract role yeah you do not build some abstract railway I mean you either build or do road linking you're do I don't know the airport with a region producing your top flour export or you build a railway linking your copper mine with your seaport yeah which one are going to build yeah you don't have unlimited amount of money so you need actually a good industrial strategy for good infrastructure development but without you know or close coordination between these two you will be wasting a lot of money huh you know that just imagine I mean your Ministry of production might be giving a lot of subsidies to your cup flour exporters while your Ministry of infrastructure is are building the railroad for the copper mines and the cobbler exporters are suffer from bad Road yeah yes I mean trickle down you know trickle down does happen but empirically speaking it happens very little if you leave things to the market so you have to do things to make things trickle down so if you want your income to trickle down you have to build a good welfare state yeah if you want your foreign investment to trickle down you need policies to making sure that there is a technology transfer there is a certain degree of power local procurement and of course the WTO trims or trade related investment measures agreement has made all these very difficult if not impossible so I mean we have a major problem there huh if example that people often think that countries like South Korea and Taiwan are the proof that foreign investment is good for you well a these countries actually didn't happen all that much foreign investment but as far as they had foreign investment they had very strict rules on technology transfer local procurement worker training cooperation with that suppliers you know so you need are those things services where services is actually a very difficult category to think about because it is a catch-all term so everyone from your doodle vendor on the street to your I mean software engineer is in the services industry so which bit are we talking about now and also that in most our services raising productivity is very difficult I mean can you imagine a way to raise productivity of a string quartet you know they could trot through 27 mini piece in nine minutes and declare that their productivity has treble but they have been the process that destroyed the product so actually that there are very few service industries where productivity growth is easy there are very few and they usually that entirely happen to be activities that are directly linked to the manufacturing industry so if you look at the tradable high productivity services they tend to be supplying to the manufacturing sector the financial industry the engineered engineering services the design services and so on software I mean till main customers are not actually ordinary consumers that they actually supply the manufacturing firms with this idea that somehow you can skip industrialization and the Builder which zombies economy is actually quite mistake I mean once again Switzerland comes in as a useful example you know people often think that the Swiss son lives on taking care of black money deposited by third-world dictators and selling cowbells and cuckoo clocks to Americans and the Japanese who actually thought you probably didn't well unless you read my bad Samaritans you didn't know that the Swiss land is literally the most industrialized country in the world it has the highest manufacturing output in the world per capita of course I we don't see many Swiss products so partly because the country's small but also because it tends to specialize in producer goods like industrial chemicals procedure machines yeah so you don't see them in the way you see Japanese or Korean or those products but actually it is per capita the most industrialized country in the world and that is a proposition that we can somehow build yeah skip industrialization and build sustainable development on the basis of services yes I mean if you are say shares you know with 85,000 people and fantastic natural endowment probably you can have decent standard of living on the basis of services but very few countries are that lucky I got my hand up I didn't choose myself for a mekin and I can only get away with that because we've got quite a lot of time to ask you questions I just want to follow that up by asking you this question it seems to me that there is a single counterfactual counter developmental model presupposed in your critique of development discourse which is something like infant industry protection sustained tariffs let economic organizations build productive capacity industrial policy or something like I mean is there really one in this day when you know the big models have hit the dust as it were like the Washington Consensus and the polls are you really arguing that there's one counter model which is generating we can just pull out of your critique or are there in fact a diversity of different kinds of models which are much more indexof leaning situationally bound to the context of offerings and we've had two people here recently make those kind of diverse arguments online Justin Lin but someone like Dani Rodrik who actually has a much more sustained model of the pluralist development would have a different take coming out of it just ask you one other question is there something missing I mean in a sense it seems to me China in Vietnam I mean they have made extraordinary gains in the last three to four decades Asia has lifted 600 million people out of poverty that is quite unprecedented in in historical time so they are getting something right yeah what is that how does that fit into your and how does that fit into your argument all right enough of me over to you guys again yes lady with hands up I was just wondering in terms of aid and assistance to what extent do you think the developed countries actually altruistic developed countries actually altruistic I traced it all right you mentioned environmental sustainable environment do you feel that the problem lies in the conception of neoliberal strategies or in their plantation implementation you know your question David really depends on at what level do you generally so if you want to reduce it to a few kind of general principles like you have to somehow protect and nurture your infant industries infrastructure investment have to be coordinated with your industrial strategy productive performs need to be built and so on yes then there's one model on the other and if you go into the details I mean I have always been notably that that there is no one type of capitalism there are many different types of capitalism and I mean we have to accept that countries have different conditions different objectives different political balances of power and therefore they will all pursue strategies that are very different from each other so you know if you are Denmark go Finland you know small countries with four five million people what you can do is very different from when you are the United States or China on the other hand even with a similar condition Denmark basically went for small farms organized into cooperatives agriculture exports small high-tech design forms Finland went for big things Nokia so you know even with similar conditions countries opposed to very different strategies but if you generalize enough I mean that you will get you know some kind of common principles now the real question is whether that particular generalized labor of general regions that you have chosen is the appropriate one for the question you are asking so for some things yes I mean you could talk about one model for some other things you cannot even talk about one model in one country because in some countries you have three four different regions all pursuing different things so I'll leave it at that how about China India via yeah because that they have been extremely successful but exactly because that a I mean why liberalizing followed essentially what today's rich countries did in the past rather than what they tell you to do today no really I mean that if you think about for example China I mean it does almost everything wrong yeah according to the autoloader yeah I mean huge public enterprise sector getting huge subsidies you know a lot of regulation on foreign investment tariffs was that the average tariff was about 40 percent until he joined the WTO even after joining the WTO and lowering the tariffs to below 20% there are still a lot of hidden quantitative restrictions rampant corruption no democracy how do you explain that once again I mean there are worries about these countries I mean I talked about political system to China India Vietnam has the same problem because about rising inequality and so on also Vietnam I think has a bigger problem in terms of the productive strategy because it has been fantastically good at doing things that are obvious so far so who's important in 1986 Vietnam didn't used to export a single coffee bean today is the second largest exporter of coffee after Brazil yeah you probably didn't notice you know so they have been very good at those things but they haven't really upgraded that much I was actually in Vietnam in December talking to the government people they are worried whether they'll somehow come up with a more coherent operating strategy as China has I don't know so there are all these worries but yes they have been extremely successful but my point is that they heaven followed neoliberal strategy they did liberalize but that that's not the same as following a neoliberal strategy in the same way that the Soviet Union allowing some private restaurants in the 1980s wasn't the same as the evolution of socialism a altruism yes I mean I think our there is an element of altruism there because that you see eight statistics and there's a big difference between different countries Sweden Norway take it something at one point two percent of their GDP as our foreign aid Americans Japanese they keep something at 0.3% so if I there wasn't an tourism why would I you know actually if it was entirely selfish the Americans would have given more aid because they have more political stake in developing countries what does that that no way get from giving aid to poor countries so there is our clearly an element of altruism but that's not to say that there is no other thing I mean there are often strategic considerations in keeping ADA environmental sustainable yes I meant that this is a major challenge because first of all we have this moral issue you know depending on the estimate between 70 and 85 percent of co2 gas in the atmosphere have been produced by today's rich countries so a lot of developing countries feel very angry about some of these countries not quite saying but implying that well you guys probably should stay poor so that the world wouldn't collapse you know so that the view is that if you want the world not to collapse you have to pay us here nowadays are no easy solution there is that there are quite a lot of interesting arguments in this area I am NOT an expert but in my view I think that technological solution has to be an important part of it and this means that developed countries actually will have to do it because most developing countries I mean there are some exceptions like China and Brazil but most developing countries simply do not have the capabilities to come up with environmentally more sustainable technologies and let's not underestimate the power of technical Eve in this second technological cure-all but technology is you know what I has been driving economic development and you know let me give you an example I mean in the nineteen seventies when I was a little schoolboy in South Korea I was very worried that because everywhere you read that they said the world will run out of oil around 2000 and I will have my I mean my 40s I'll be you know walking everywhere because we don't have any oil yeah well actually we have a run out of oil as defined by the technologies of 1970s huh but since then we have partible of all these technologies to get oil from unimaginable places so we have power more oil of course that that doesn't mean that it's not limitless but you know so that a large part of the solution will have to come from of course that are changing consumer behavior indeed rich countries and so on but unimportant part has to be in terms of coming up with technologies that are more environmentally sustainable and frankly it will have to be mostly done by the rich countries because poor countries simply do not have the capabilities now it's a neoliberal Theory wrong or the implementation wrong probably both but you know that to think about this problem let me give you an illustration in the 1980s when heterodox economists well I wasn't in the game here but like myself argue that this one size fits all strategy of the World Bank and the IMF will not work because countries have different institutions different history and so on the mainstream had economies actually laughed at us they said you know economics is a science there's only one science would you recommend that Ghana has different physics from that in the United States would you recommend the president's different chemistry from that of Germany of course not so this one white kind of economics and everyone has to do it now so you know really things like institutions and so on that are only for people who are not clever enough to do hard mathematical modeling now since the late 90s mainstream economists have become very interested in institutions geography history why because they had to explain away their policy failures this is our Towada in some of my people called a BP anything but policy so it's the corruption is the culture of laziness is that bad geography is climate is that bad institutions colonial history you name it but it's Nevada policy so well my view is that our top conception is wrong of course but implementation was also law wrong in the sense that you know I mean fortunately they have finally grown out of it but until the Asian crisis in the late 1990s IMF would I recommend 80% cotton that bread subsidy rice subsidy and that they get surprised when they have a rival yeah you know I mean this is a fundamentally naive Mia o evil-minded yeah I don't know which but I mean how can we implement a policy which are you know is are going to blow up so tightly so a serious problem with implementation but my view is that that what is more wrong is at the conception because this idea that somehow if you deregulate everything and open up everything sama hollow development will happen it hasn't happened if you keep your questions very short now we'll have as many as possible and then you give you in just a few moments to bring you didn't mention really ownership and I think in the context of production isn't it actually even the deeper deeper cause or root for a development production of ownership of production ownership of resources how does inequality inequality huh you mentioned that the Asian crisis caused do you think that the current crisis will eventually cause everything and no you see and your changes in vision behind you yeah I do developmental ISM at least in Latin America were faced with a bunch of military dictatorship reactions are we free of this kind of reaction to do we have to worry about communists again thank you when you look at the reaching the process of reaching countries getting rich the industrialization process comes with colonialism and also you have this second world war and civil wars wars do you think development comes with a price and what if there's a prize what are they price is that developing countries should pay in terms to get okay we'll just take one or two more yeah let's hear okay last year but with no conditionalities if you had to devise a structural adjustment program for the IMF what kind of policies would you suggest that's a great question okay there's two dice the back and in the middle there will take you both briefly and I'm afraid that will have to be it I was just wondering what your views on the traditional role of agriculture in industrial development was today you had the same question okay so we'll just take one more from down here yes come to comment on things that I really don't know about I'll do my best yeah ownership you know I take a very pragmatic view of this ownership question because if you look at various successful development cases you see many different forms of ownership and many different forms doing well I mean possible common perception is a state-owned enterprises inefficient but you know did you know that something like 22 percent of Singapore's GDP is produced by state-owned enterprises where the corresponding region in the Philippines is less than 2% so whatever it is he can't be state ownership that attack or lack of it that that can explain their performance difference China has come up with that some interesting hybrid forms of power ownership I mean famous TV is our Township and village enterprises which are legally owned by the local government or the town or the village but for all practical purposes run as if privately owned enterprises of the local political bosses I mean they have worked quite well so I take a pragmatic approach whatever works works huh inequality yes I mean inequality you know in the end this equity issue is one of the things that drive politics and the reason why you have good welfare state in Europe is because of the history of socialist movement trade union movement the Second World War and everything and I expressed my concern with the future of China and India because that inequalities are going through the roof especially China I mean China's income this region now in the lower division of Latin American League I mean that probably can be sustained in Latin America because they've had that for the last 500 years huh but in China this is new only 30 years old and how do you also justify that in officially socialist country they have a problem now this is okay for the moment because when income grows at 10% every year even if inequalities are going through the roof everyone's getting better off even kind of so-called losers but as soon as that is mega growth stops they'll have a huge problem India the same problem yeah so that I think I thought that this is something to watch her is the world going to change because of the current crisis well I mean telling from the report on Royal Bank of Scotland bonuses I don't think so you know how do you justify this that that Bank which has been bailed out with public money officially owned by the government making three point six billion pound losses handing out 1.4 billion pounds in bonuses and bonuses for what for failure my view is that there is simply too much power too much money and too much intellectual the prestigious take for things to change quickly huh and I mean I put myself in their shoes if you have spent last 30 years promoting efficient market hypothesis we are not certainly going to come out and say sorry I help up in mine for the last 30 years we will find all the excuse even if it comes down to saying that I don't know that though God is that against you who will find excuse that to save your theoria that brings me to this point about that you put it brilliantly that are bailing out of the IMF by the g20 I know conditionality no actually IMF was in real big trouble before the recent financial crisis for cop probe years before the financial crisis it actually couldn't balance its own budget on the institution that has made a job of telling everyone else to balance their budget couldn't balance its budget it was at you for 70% staff cut well God is on their side the financial crisis happens and suddenly they are showered with money and that the 40 no less than 48 structural adjustment agreement they are back in business yes I mean that they have to be given conditions yeah you know entity 60 that whole point of I mean my books like you know kicking her the letter and paths Samaritans I mean this always double standard yes so developing countries get into financial crisis if you are Indonesia IMF comes to you and says that you have to raise your interest rate to 80 percent the United States have financial crisis your interest rates that goes down to zero percent you borrow money from the IMF they put condition no to you I am a poor owes money they don't have any conditioner so we have to constantly expose these double standards but yes I think at the first condition for the IMF should be to own up to the fact that they have failed no seriously I mean if the IMF was a medical doctor it would have been sued for malpractice 75 times huh no I mean this is a really serious problem because you know I'm an economist but economists have ruined so many people's lives starting from the days of pursue biet central planning down to IMF structure adjustment we have blood on our hand you know I meant that Who I am F Economist that this number might be just one cell in their spreadsheet but it means millions of children going hungry at school because at the school can our food to keep them free lunch anymore you know because of the budget cut you know it means that hundreds of thousands of workers are losing their jobs and the family being ruined and so on yeah you don't need to put people in concentration camp to ruin their lives but then somehow economists that are immune to malpractice you know medical doctors have to live with this responsibility to all the time but economists can do anything and then if something goes wrong you can blame it on their geography huh how convenient Wow things like Latin America military dictatorship yeah I mean let's not make any assumptions I mean these are still relatively young democracies who knows that military can come back price of development my goddamn entities are too too big I mean yes I mean the only thing I can tell you is that development never is a pretty processor I mean some was slightly better than others but you know every country I mean you think that sort of nice little countries like Finland had a picnic and developed no I mean no seriously I mean Finland was Russia and colony for 600 years actually Swedish colony for 600 years and then it became wash young colony 400 years and and it when independent that at the time of the Russian Revolution and then they had a major civil war between the left and the right and in a country with a barely 3 million people at the time I mean it was a short war but something like 30,000 people were killed and the victorious that are right deprived are the former communists of voting right until 1944 and also when the second all what happened this country you know having been so fed up with anything Russian sided with the Germans very wrong choice and then the Russians made them paid through the nose after the end of the war through 10 years of very heavy repatriation you know everything you can think of you know and it was a country that had the last famine in Europe which was 1865 was something like that yeah I mean it was that hour that literally the poorest European country until the 1950s yeah yeah today you think my god I mean these guys had it easy I mean they had ethnic homogeneity and they had good geography I mean they didn't have too many natural resources no I mean development is always like that so if you look at that closely enough every country had three that kind of unfortunate things happening you can and shooter make these processes as painless as possible but I mean that they never will be any development process that's nice and easier urbanization I must confess that I have nothing to say on that on agriculture yes I mean agriculture you know as I gave you the setting the touch example I mean agriculture based on traditional technologies have never made anyone richer but that doesn't mean that you cannot become rich with agriculture if you combine it with the right technologies now you can import some of these technologies but even to know what technologies to import you probably need to have some industrial development and you probably need to have capabilities to produce certain agriculture inputs you have to have certain industrial capabilities to be able to provide technical extension services and so on so even if you predominantly rely on agriculture you will need some industrial development and also there are cases like when it depends on the country but cases like Germany Japan and South Korea where agriculture productivity growth has provided rising low income which then provided that bigger to mestan market for manufacturers so he can also play an important role in demand generation for the local industries although examples like Denmark show that probably some countries can develop on the basis of agriculture exporter but even there it wasn't free market it was basically cooperatives and state support that made Danish agriculture oh good I think I'll stop there well I want to just thank you for you know very compelling strong and powerful set of arguments which turn if I have to summarize it to someone on the phone I'd say which turn on sort of four points one ignore economists - you thought it was never policy but three it really is policy policy matters and matters profoundly in the way that you've you've argued and then finally you know watch for the what the rich countries did always and do but not what they say they did and do and of course you've written many compelling books precisely around these arguments thank you so we thank you not only for tonight but feel very sustained contribution

Channel: LSE

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Keywords: LSE, London School of Economics, Public, Lecture, Event, Seminar, Professor, Ha-Joon Chang

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Length: 88min 18sec (5298 seconds)

Published: Fri Dec 17 2010