Last night I listened to a podcast of a lecture given at the London School of Economics by Justin Lin, former chief economist at the World Bank. He was using it as a platform to promote his recent book ‘Against the Consensus: Reflections on the Great Recession’. I will not go into the details of his hypotheses on the Great Recession and his proposed solutions here as I want to focus on the part of his lecture in which he expounded his view on national development strategies in a globalised economy.
Lin based his analysis of desirable development strategies around the ‘flying geese paradigm’, an idea first put forward in the 1960s, in which national economies find their place in a hierarchical global division of labour, with a lead country (goose) in terms of technological development and productivity levels, following a growth pattern of technical progress and continued industrial upgrading, and follower countries which are able to grow and develop in similar fashion, but by adopting the less technically sophisticated, lower productivity and more labour-intensive industries as the lead country’s production structure evolves away from the latter, creating space for the follower country to produce lower down in the division of labour. This theory was originally used to explain the division of labour and evolving production structures of East Asian economies in the post-war period, with Japan as industrial leader and South Korea, Taiwan, Singapore and Hong Kong, as first-tier followers, with Indonesian, Malaysia and Thailand as a second tier, and China and Vietnam as a third.
Lin suggested that governments should adopt an industrial policy which promotes their country’s latent comparative advantage in production. This would involve supporting low-wage, labour-intensive industries at the earlier stages of development, and more capital-intensive ones as productivity and wages rise over time.
Lin’s approach to development strategy and industrial policy, with the flying geese paradigm as part of it, offers an incomplete, limiting theory of industrial progress and ignores the historical lessons from the handful of nations that have used industrial policy to catch up with leading countries in the international division of labour. The flying geese paradigm seems to offer no space for countries ‘leap-frogging’ in terms of technological progress. History suggests that the latter is a difficult process in terms of getting the policies right in a particular country, but that it is possible, and also desirable if a nation does not want to be forever ‘following’ the technological leaders. South Korea, Taiwan and Singapore all adopted various forms of industrial policy aimed at rapid development and industrial upgrading over several decades. In this way, one might say that they did not respect the international division of labour and were highly successful with the development strategies they pursued over time. Their industrial policies varied, but went beyond the market-conforming kind promoted by the World Bank and deliberately promoted sectors which did not have latent comparative advantage. In this way, they created their comparative advantage, with successful sectors developing rapidly and eventually competing successfully in global markets dominated by the richest countries.
In sum, if poorer countries want to catch up economically with the club of rich countries, and not merely follow along behind as the latter move out of progressively higher productivity industries, thus maintaining the international hierarchy in the division of labour, the lessons of history suggest industrial policy is necessary to promote rapid technological upgrading and productivity growth. Lin’s proposals for national development strategies seem inadequate to this task.