Kicking Away the Ladder. Development Strategy in Historical Perspective

In general, Sweden’s tariff protection during its catch-up period was not extensive, despite the country’s economic backwardness. However, the Swedish state seems to have used tariff protection strategically – to promote textile industry in the early nineteenth century and to bolster the mechanical and electrical industries later In the nineteenth century. It is interesting to note that its tariff regime for the textile industry in the early nineteenth century was in fact a classic late twentieth-century ‘East Asian’ (and also an eighteenth-century British) promotional strategy, involving as it did high tariffs on final products and low tariffs on raw material imports.

Another point worth noting is that from an early stage Sweden also developed interesting forms of public-private cooperation In infrastructural development and in some key industries, especially iron. This collaboration is remarkably similar to that which we find in East Asia during the postwar period. The early emphasis it placed on education, skill formation and research is also notable.

G. State activism in early modern Japan was limited due to external constraints

When it first opened up and embarked on its modern industrial development, Japan could not use tariff protection to promote new industries because of the unequal treaties that it was forced to sign, which bound its tariff rate to below five per cent. Other means for industrial promotion had to be found, and so the Japanese state set up model factories in key industries (which were soon privatized for revenue and efficiency reasons), provided subsidies to key industries and invested in infrastructure and education. However, given the importance of tariffs as a tool for industrial promotion at the time (when other policy tools had not yet been invented and/or were considered ‘too radical’), its lack of tariff autonomy was a considerable handicap.

It was only in the early twentieth century, with the termination of the unequal treaties in 1911, that Japan was able to establish a more comprehensive industrial development strategy that included tariff protection as a key element. Japan’s vastly superior performance during the postwar period, when it came up with an impressive array of ‘innovations’ in ITT policy tools, also shows how the ability to use a wider range of policy tools can make state intervention more effective.

H. ‘Poachers turned gamekeepers’: policies shift with development

One important fact that has emerged from my discussion in this chapter is that the NDCs shifted their policy stances according to their relative position in the international competitive struggle. Part of this is deliberate ‘ladder-kicking’, but it also seems to be due to natural human tendency to reinterpret the past from the point of view of the present.

When they were in catching-up positions, the NDCs protected infant industries, poached skilled workers and smuggled contraband machines from more developed countries, engaged in industrial espionage, and willfully violated patents and trademarks. However, once they joined the league of the most developed nations, they began to advocate free trade and prevent the outflow of skilled workers and technologies; they also became strong protectors of patents and trademarks. In this way, the poachers appear to have turned gamekeepers with disturbing regularity.

Nineteenth-century Britain upset many countries, in particular Germany and the USA, which regarded Britain’s preaching of virtues of free trade as hypocrisy, given that during the eighteenth century Britain used infant industry protection measures more strongly than any other country. The same sentiment might be expressed today, when American trade negotiators preach the virtues of free trade to the developing countries, or when Swiss pharmaceutical firms argue for strong protection of intellectual property rights.

2.4.2. ‘Not by tariff alone’: diverse models of infant industry promotion

As has been shown above, virtually all successful NDCs used infant industry protection during their catching-up periods. Of course, this does not allow us to conclude that such policies therefore automatically guarantee economic success. We know of too many examples from history and contemporary experience that contradict such a naive proposition. However, there is a remarkably persistent historical pattern, stretching from eighteenth-century Britain to late twentieth-century Korea, in which successful economic development was achieved through infant industry protection measures. This pattern is simply too strong to be dismissed as a fluke. Therefore, those who believe in the virtues of free trade and laissez-faire ITT policies for currently developing countries need to explain why they believe this historical pattern is no longer relevant (more on this in chapter 4).