Kicking Away the Ladder

Ha-Joon Chang. Kicking Away the Ladder: Developement Strategy in Historical Perspective. London: Anthem Press, 2002.

Note: The following are notes from the above book. I found the book seminal, eye-opening, life-changing. I recommend that you buy and read the entire book. Only by reading the entire book will you get the whole picture. The following quotes, I hope, will whet your appetite. --Colby Glass


"... the developed countries did not get where they are now through the policies and the institutions that they recommend to developing countries today (2)...

"...free trade is beneficial among countries at similar levels of industrial development... but not between those at different levels of development (4)...

"Americans firmly rejected [Adam] Smith's [free trade] analysis in favour of "common sense"... the USA remained the most ardent practitioner... of protectionism for a century after [Smith] but also became the world industrial leader by the end of that period (5)...

"My main conclusion [based on actual history] is that many of the [free trade] institutions that are these days regarded as necessary for economic development were actually in large part the outcome, rather than the cause, of economic development in the now-developed countries (11)...

"...the [historical] experiences of a range of NDCs (now-developed countries]--Britain, the USA, Germany, France, Sweden, Belgium, the Netherlands, Switzerland, Japan, Korea, and Taiwan... industrial trade and technology (ITT) policies they used when they themselves were developing countries... the policies that were used are almost the opposite of what the present orthodoxy says they employed and currently recommends that the currently developing countries should also use (19)...

"Britain had high tariffs and banned imports which threatened British industries. So did the U.S. and the other countries listed.

"[History] reveals that almost all NDCs had adopted some form of infant industry promotion strategy when they were in catching-up positions... Interestingly, it was the UK and the USA, the supposed homes of free trade policy, which used tariff protection most aggressively (59)...

"...Enclosure in Britain, which violated existing communal property rights by enclosing common land, but contributed to the development of [the] woollen industry by promoting sheep farming on the confiscated land...

"...the recognition of squatter rights in the violation of the rights of existing property owners was crucial in developing the American West... the famous Sanderson case in 1868, where the Pennsylvania Supreme Court overrode the existing rights of landowners to claim access to clean water in favour of the coal industry, which was one of the state's key industries at the time...

"Hence, what matters for economic development is not simply the protection of all existing property rights regardless of their nature, but which property rights are protected under which condition" (83).

"These days, we tend to take the principle of limited liability [corporate owners and managers are not held responsible for the crimes they commit] for granted. However, for a few centuries after its invention in the sixteenth century... it tended to be regarded with great suspicion...

"Adam Smith argued that limited liability would lead to shirking by managers... an important cause of financial speculation. Britain banned the formation of new limited liability companies on these grounds with the Bubble Act of 1720...

"...limited liability provides one of the most powerful mechanisms to "socialize risk" [read "steal from the common people"], which has made possible investments in unprecedented scale. That is why, despite its potential to creatte "moral hazard," all societies have come to accept limited liability as a cornerstone of modern corporate governance" (86)...

Anti-Trust Laws

"Contrary to what is assumed in much current literature on the subject, corporate governance is not simply a matter internal to the corporation in question. Actions by very large firms with significant market power can have consequences for the whole economy... In this context, corporate governance becomes a matter for society as a whole...

"...the most easily identifiable institution of "societal" corporate governance, namely, competition law (anti-monopoly and/or anti-trust legislation)...

"The USA was the pioneer in "modern" competition law... the Sherman Antitrust Act in 1890... it was in fact mainly used against labour unionsrather than against large corporations" (91).

Banks

"The USA permitted "wildcat banking," which was little different in principle from counterfeiting operations... As late as 1929, the US banking system was made up of thousands upon thousands of small, amateurishly managed, largely unsupervised banks.... even during the prosperity of the Coolidge presidency (1923-9), 600 banks a year failed" (94).

"Social welfare institutions are, however, much more than "safety nets;" if carefully designed and implemented they can enhance efficiency and productivity growth. Cost-effective public provision of health and education can bring about improvements in labour force quality that can, in turn, raise efficiency and accelerate productivity growth. Social welfare institutions reduce social tensions and enhance the legitimacy of the political system, thus providing a more stable environment for long-term investments. Inter-temporal smoothing of consumption through devices like unemployment benefit can even contribute to dampening the business cycle...

"...the fact that all NDCs have developed a common set of social welfare institutions over time (except for the persistent and disturbing absense of comprehensive health care in the USA) suggests that there are some common needs that have to be addressed across countries... necessary to guarantee social stability" (102).


Colby Glass, MLIS