In a number of previous posts on development and industrial policy, I have mentioned the concept of ‘catch-up’. I thought it might be useful to define it in some detail, so here is Akira Suehiro of the University of Tokyo, taken from his comprehensive work Catch-Up Industrialization (2008, p.3-4):
“Catch-up industrialization is a pattern of industrialization frequently, indeed necessarily, adopted by late-industrializing countries and late-starting industries. It is an essential aspect of any attempt to reduce the gap in national wealth between developing and developed countries.
The many varieties of catch-up industrialization generally have the following two points in common.
First, latecomers to industrialization enjoy the advantages of “economic backwardness”, or the advantage of being able to make use of technologies and knowledge systems developed by countries that have gone before. It is expensive and time-consuming for any country to independently develop new technologies and products, not to mention new industrial structures or management organizations. Latecomer countries can achieve great savings of time and capital by adopting the necessary technology and know-how from countries that have already industrialized.
It follows that an important challenge for governments and enterprises in latecomer countries is how to go about importing, adapting, and improving foreign technologies and systems as smoothly as possible. From this fact of life stem many of the most striking features of catch-up industrialization: strong government leadership, positive involvement by financial institutions (with corporate finance through commercial banks rather than stock-markets), development of information-sharing systems between government and private sector and between assemblers and suppliers (intermediate organizations, keiretsu, etc.), the continuation of family businesses such as zaibatsu in corporate management, and the development of distinctive production management control systems in the workplace (the kaizen and just-in-time systems, workers’ commitment to management, etc.).
The second common feature among latecomers to industrialization is that they have to start by importing most industrial products. For some time they have to earn the foreign currency to pay for these imports through exports of primary products such as mineral and agricultural products. In order to reduce imports, the latecomer countries launch a policy of domestic production and import substitution, starting with relatively low-tech, labor-intensive industries. Consider, for instance, the case of textile products. If a country has just commenced domestic production of synthetic fiber products, that necessitates imports of the chemical raw materials, plus the machinery and equipment to process them. The country has to export textile products to get the necessary foreign currency for these imports, while also commencing production of chemical products and machinery at home.
A cycle consequently develops: from importing to domestic production, then to exporting (or overseas production), then to re-importing. At the same time it is important to establish a trade policy centered on import substitution and export promotion, and an industrial policy aimed at the protection and fostering of domestic industries. In short, trade and industry are inextricably interlinked. It follows that under the conditions of this first phase, with its dependence on imports and its need to conserve limited supplies of foreign currency, an important challenge for those who would catch up is the effective distribution and control of available economic resources. This means that a set of policy structures – regulations on trade, tariffs and investment, export-led industrialization, tie-ups with foreign capital to foster export-oriented industries, etc. – constitute another feature of catch-up industrialization.”
The Political Economy of Development 
(1) I don’t like the third paragraph as the author seems to suggest that there is a net cost in moving first and a net benefit of being backward. Maybe I am misconstruing his wording. At any rate, I think, it is one thing to be backward (with the enormous costs associated with this) and another being in a position to take advantage of the achievements of first movers (saving costs and gaining benefits compared to reinventing the wheel). Also, the costs of moving first will almost certainly be lower than the costs of being backward and entail benefits clearly surpassing costs (early and long-lasting wealth). In short: it is always better to be advanced in terms of economic development rather than backward.
Of course, the author is right that backward nations ought to optimise the follower’s advantage (saving the costs of reinventing the wheel).
(2) Like the previous post, this post encourages me to think that exports play a pivotal role in successful development, a fact that belies the weird categorical MMT-proposition “imports = benefits”, “exports = costs”. It is wrong to dichotomise exports and imports as they are inextricably interlinked. Both involve benefits and costs.
Catch-up implies that growth of income per capita will be faster in poorer countries for a period, so those countries that have managed it illustrate the potentials involved. ‘Backwardness’ creates the potential for catch-up but as development history shows, it is difficult and dependent on a range of factors, not simply economic, that necessarily vary between countries. Those latecomer countries that have caught up economically and joined the rich country club surely show that in such cases, they were able to exploit the advantages of backwardness. Does this not make your first point context-dependent?
Can you expand on your point that ‘it is always better to be advanced in terms of economic development rather than backward’? Better in what way? By the simple virtue of being wealthier already, or in terms of growth potential? I can see how you might be right in a static sense, but not necessarily in a dynamic one. If a particular country does manage to catch-up, I think that this negates this point.
Regarding MMT, I haven’t come across this way of looking at imports and exports in its proponents, although it is similar to the orthodox view I was taught as a student: that the point of trade is imports not exports! But as you say they are inextricably linked.
[Bear with me, the text is a bit repetitive, I have written it spontaneously while trying to assure myself of the correctness of my thinking.]
Maybe this is only semantics: I refuse to accept the idea that there are advantages to being backward (relative to not being backward).
Backwardness is by definition disadvantageous. It is not an advantage to be poor, less healthy, to live a shorter live etc. There are advantages of being able to develop and catch up efficiently, but these advantages are not caused or effected by being backward, but rather by becoming more developed.
Is it an advantage to have a very low per capital income, low levels of productivity? Is it an advantage to be so poor as to show promise for strong growth some time in the future? My answer is no. It is the ability to climb out of poverty/backwardness that is advantageous — not poverty or backwardness per se. The elements making for progress are themselves not features of backwardness, but belong to the arsenal of development, progress, improvement that is not available from backwardness.
So it is the ability to copy or partake in other ways in the features of more advanced stages of development that are advantageous. A country can be as backward as it likes, it will not draw any advantage from that, to the contrary. The advantage of being able to catch up is derived (or “imported”, if you like) from more mature stages of development.
Is it better to be poor (backward) today than 500 years ago? Perhaps the right answer is: yes, because backward countries are liable to catch up faster (and have more access to the joys/benefits of the more developed world) today than in earlier times. But again, that does not make backwardness advantageous or the cause of substantial progress.
You write: “Can you expand on your point that ‘it is always better to be advanced in terms of economic development rather than backward’? Better in what way? By the simple virtue of being wealthier already, or in terms of growth potential?”
I would argue that a country on an advanced level of development (as opposed to a backward one) will be wealthier and have a sounder growth path, and combine both to reinforce one another. In fact, this is a possible definition of development, of being developed as a opposed to being backward.
You write:
“Those latecomer countries that have caught up economically and joined the rich country club surely show that in such cases, they were able to exploit the advantages of backwardness. Does this not make your first point context-dependent?”
These countries have not enjoyed the advantages of backwardness, they have enjoyed the advantages of the developed world, and have learned to make use of them to be able to escape from backwardness. The drivers of this escape are elements from the modern advanced world: technology, know-how, mores, experiences, proven practices of the developed world.
At the risk of becoming excessively repetitive: no one catches up “like hell” because they are backward; they catch up because they have found ways to partake in features that make advanced countries advanced: appropriately modern business practices, legal techniques, forms of business organisation, technological progress etc.
There’s not much for me to disagree with here! I think we are maybe jostling over the semantics of ‘backwardness’ and ‘development’. For me, a country can be both backward (a relative term) and exploiting and learning from advanced country technology etc as it catches up.
I agree with you.