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ESSAY QUESTION: Can Developing Countries Ever Catch Up With Developed Countries?
Catching Up in Economy, Technology and Welfare
This paper would like to argue that developing countries can catch up with developed countries in economic, welfare and technological dimensions. Discussing this topic require us to firstly define what development is and what it means to catch up. This will be covered in the first part of the essay. Catching up is measured by comparison of available statistical data. This essay s focus is in the lines of developmental state approach, in which development strategy lay mainly in domestic/internal factors. I will see development achievements separately: catching up in economic terms, catching up in levels of welfare, and catching up in knowledge/technology capabilities. I would argue that developing countries can catch up if the state fulfills three conditions: active executive government, insulation from interest groups (for both economic and social policies), and capacity building through technology transfer. Examples will be derived from various cases in Asia and Eastern Europe. Using a static definition, the goal of development in general can be listed into the achievement of: 1) economic growth to ensure access to basic needs (i.e. food, housing), 2) redistributive framework to solve inequalities, 3) inclusion in the workforce as economic means and self-actualization, 4) civil and political involvement, and 5) independence from domination (Kuhnen, 1987:23). Development strategy and focus today are geared towards achieving national economic growth and improvements in people s lives (Thomas, 2008: 411). Although there is agreement to what development goals are, priorities on which goal to pursue is a political discourse. What states, markets and society prioritise and achieve depend highly on how the state play its role, as it is the only institution that has 1
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enforcing authority through legislative and executive functions. As Krasner (2000:35) argues, “... once policies have been adopted, they are pursued until new crisis demonstrates that they are no longer feasible. States become locked in by the impact of prior choices on their domestic political structures�. Successes and failures in development have sparked debates over what would be the best way to catch up, and what to prioritise. Economic development and growth theorist (i.e. Adam Smith, David Ricardo) proposes to solve under-development through establishment of market mechanism as well as comparative and competitive advantages. Economic development is then defined through growth, productivity and competitiveness. Structuralist and dependency theorists would argue that there should be reform or alternatives to the current global power structure (ibid, 2008:418), and critical thinkers argue that development undermines plurality if focused on economic development. Both arguments seem to take flight from LDCs that lack comparative/competitive advantages against the developed countries. If the argument is about past colonialists and imperialists maintaining status quo in the world economy, or about endowments, I argue that evidence reflects Schumpeterian ideas of adaptive entrepreneurship. Competitive advantage can be created and the current structure can be used for the benefit of developing countries. Britain was one of the most powerful colonising countries ini 1900, but today, many of Britain s businesses are taken over by foreign companies (Economist 2010, http:// www.economist.com). Some of the former British colonies were once classified as developing countries such as Singapore and India. Today, Singapore is one of centres for the world s finance and capital market. The Singaporean Government owns world-class enterprises such as Singapore Airlines and Singapore Telecom (Singtel). Indian based Tata Steel now owns Britain s Jaguar Land Rover. Colonial legacies are not an excuse for underdevelopment. 2
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The counterpoint would question whether the former colonies managed to develop because of their priviledged position. Again, evidence says otherwise. Other “ex�developing countries also managed to develop their economies, now being major economic powers proven by ownership of companies that were once owned by developed countries. Mexico s Cemex took over Britain s RMC. France, German and Spain, who were economically troubled after World War II now own British electricity and water companies. British Pilkington was a leader in world glass industry, but was taken over by Japanese owned Nippon Sheet Glass. Even South African breweries are now listed in London s stock market. Another proof that developing countries have now developed their economy is China s Zhejiang Geely ability to takeover Ford s Volvo (Business Week 2010, http://www.businessweek.com). The list of emerging economies catch up can go on. The point I am making is that change in power structures is not necessary for economic development. It is not necessary because even within the current power structure, developing countries have proven to be able to grow and develop their economies, matching or even growing bigger than developed countries. Development in other areas (i.e. health, education) do not rely upon the change of structure either. Post 1945, developments were state-led, with industrialisation as means to catch up. Problems that rise from this period were not because of the design, but more on the implementation. Failures of nations that led them to massive debts in 1980s were mainly caused by states being captured by preferences of interest groups. Indonesia for example, was heavily infiltrated by military business groups that were tied to Suharto s family and friends. in Eastern European countries after the fall of Soviet Union, there were no legitimate government in place or were heavily corrupt. Failures were not because of externalities, but domestic political structures.
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Even if there are views that the story of Asian success is anomalous, another case that proves that developing countries can catch up is the case of Eastern Europe. Eastern European countries were also once laggards in development, especially after the fall of The Soviet Union. However, they have managed to catch up in their economic development. At the beginning of Eastern European development effort, multinationals played significant role in the region by absorbing people into the workforce, rebuilding the banking system to be able to secure pensioners savings, built infrastructure and focused on investments and exports. No legal protection for investment were in place, businesses were able to manipulate the regulatory systems as long as they have good political connections (Lewis, 2008: 5). It may have looked like the states were weak at that time because institutions were destroyed by communism. However, state has checks and balances system that constrain behaviour of multinationals as their strength, even if it was not in a regulatory/constitutional form. For example, tax breaks for foreign investment were granted by governments but on conditions that layoffs were prohibited for five years. Another example of strong state role even though IMF and EU set rules for austerity, local interests were disregarded by the opening of domestic markets to foreign investment, and this in turn reduces rent seeking behaviour which made states stronger. Increase in productivity and creation of better redistribution framework at national level is key to their development. Critiques against the developmentalists object to the dependence of development towards western modernity and history (Escobar, 1992:21). For critical thinkers, development that limit goals to meeting basic needs heavily undermine plurality, difference and autonomy. However, the basic foundation of preference to nationalism in developmentalists view is that once independent, the state has sovereignty to shape their own destinies. When basic needs are met, it is the freedom of the people to pursue forms
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of identities and pluralities. The means to achieve development have also reflected plurality as nations re-adjust policies to fit their domestic characteristics. For economic growth to work for a broader development goal, there has to be a proper division of responsibilities between the state and the market. Failures in development is not the responsibility of external environment, but to the responsibility of poor domestic policies (Summers and Thomas, 1995). In terms of knowledge and technology, developing countries have caught up as well. Nations who only rely on abundance of natural resources without building technological capacity will not be able to catch up as fast as those who do. Singapore and Indonesia for instance. Both had outward oriented strategies to interact with the global economy. The difference is that while Singapore invests in human capital, Indonesia relied on exploitation of natural resources. Reliance solely on natural resources is not enough (Sachs and Warner, 1995:31). Singapore started as a centre for branch operations by Western multinationals, enabling transfer of knowledge. Japan, China, South Korea, Taiwan, even Finland also started out by building their scientific and technological capabilities; today they are among the top knowledge generators. Japanese electrical industries learned from American and European knowledge. South Korea had Japanese colonisation lineage, giving South Korea bureaucratic knowledge and managerial skills. Finland s now giant multinational Nokia started from industrial espionage for wood-pulp process knowledge from Germany in mid 1800 (Agar, 2004:113-121), and then changed their focus to communications technology. State leadership in knowledge leverage can also be seen in China and India, where governments negotiated local content laws and technology transfers in industrialisation policies. Even though until early 2000s the top 5 users of international patent system were USA, Japan, Germany, France and United Kingdom (WIPO 2005: 3), 5
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in less than a decade China, Mexico and the Republic of Korea s ownership over patents increase by double digits as shown in Figure 1 below. By 2010, the top 5 users are USA, Japan, Germany, Republic of Korea and China. Again, developing countries have proven itself to be able to catch up if states have the will and commitment.
Figure 1. Top 15 Countries of Origin for Patent International Application (WIPO 2010, http:// www.wipo.int)
It does not mean that all knowledge from abroad suits local needs, nor does it foster further innovation. This is where states and a focused public sector play its role again. Governments that foster local research in areas where foreign knowledge does not suit, will have adaptive capabilities. One of the most common use of local research is in implementation of new technologies in farming, social knowledge and cultural integration. Government policies should put effort into areas where private sector fails (Stiglitz and Squire, 2000:388). 6
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Krasner (2000) described that state action is generally to attain political power, increase national income, maintain economic growth and social stability. The actions toward these goals are influenced by non-state actors from both national and international environment. With globalisation, external systemic influence increases because of increased openness and mobility of factors of production. However, domestic factors determine whether the state has sufficient strength to plan and implement development policies, both economic and social policies. Among the three dimensions of development and catching up with developed countries, the most difficult would perhaps fall into the development of quality of life. Globalisation have made it possible for mobility of ideas and innovation, including approaches in health and education as part of basic human development. Even though developing countries successfully increased productivity and capacity, these achievements do not automatically translate to better living conditions. Some countries have successfully balanced their policies, trickling down effects of economic growth to other dimensions of development. But regardless of the speed and the focus of different country policies, they all show increases in literacy and life expectancy, some even to a point where they exceed performance of developed countries. If we look at life expectancy numbers and comparing them between 1999 and 2009, by 2009 China, Brazil and Indonesia have reached what USA, UK and France had in 1999. Increase in USA, UK and France Life expectancy shows that even developed countries keep developing, especially with advancements in medical research. By 2009, Singapore have caught up with France has in the same year. Singapore s life expectancy is at the same level as France, USA and UK. The low achievers in this table is South Africa and India. But in the African region, the biggest obstacle to development overall is malaria: “The results show that malaria matters the most and all other factors are statistically insignificant� (Bhattacharyya, 2009:1). 7
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Literacy
Literacy
Life Exp.
Life Exp.
1990
2009
1999
2009
USA
95%
99%
70
78
UK
n/a
99%
71
79
France
n/a
99%
73
81
China
91%
91%
62
73
Brazil
n/a
89%
59
71
Singapore
89%
93%
69
82
S. Africa
82%
86%
39
50
Indonesia
82%
90%
59
71
India
48%
61%
53
66
Source: (CIA WorldFact 2010, www.cia.gov), (World Health Report, 2001:1688),
Efforts to relieve Malaria from the international community have become even more pronounced since 2002. The establishment of The Global Fund (in 2002), The World Bank Malaria Booster Program (2005), and the US President s Malaria Initiative (2005) would indefinitely speed up successes achieved between 2000-2006 where Malaria deaths were successfully cut by 50% in Africa (Gates Foundation, 2009). So even Africa has a good outlook to catch up. Literacy rates have also significantly increased in two decades (1990-2009). Most apparent in this table is the increase in India, which I would argue is in support with the rise of India s IT industry. Innovation requires education. Even though they have a significantly lower rate than other countries, it does not mean they are not catching up. If we tie this to the economic achievements that India enjoys, it is apparent that India prioritises in economic development and get people educated along the way. There is no
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right or wrong priorities. The central issue is whether they can catch up, and apparently they can. In conclusion, if the question is whether developing countries can ever catch up, then the answer is yes, given that the indicators for development is static. Through evidence, developing countries have proven that they have indeed caught up in terms of economic achievement, knowledge generation, and general welfare (life expectancy and literacy). By using economic development as the priority focus in many countries, there is possibility that economic development tickles down to other dimensions. China and Singapore are two strong cases of economic development as starting point. Although different in approach, both China and Singapore have effective states, focused policies and technological leverage. Eastern Europe case also showed that even if formal institutions were not in place, the state plays a role in controlling market behaviour. As a closing note, perhaps development debates between developmentalist and critical thinkers are more about distribution of power rather than catching up in economic and living standards. Catching up is one thing, having power over the other is another.
References Agar, Jon (2003) Constant Touch: A Global History of The Mobile Phone. Cambridge: Icon Books. pp.113-121 Bhattacharyya, Sambit (2009) “Root Causes of African Underdevelopment”, Journal of African Economies Escobar, Arturo (1992) “Imagining a Post-Development Era? Critical Thought, Development and Social Movements”, Third World and Post Colonial Issues. pp 20-56
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Gates Foundation (2009), “Progress Against malaria: Winning The Fight Against a Deadly Disease” Gilpin, Robert (1987) The Political Economy of International Relations. Princeton: Princeton University Press. pp 171-190 Krasner, Stephen D (2000) “State Power and The Structure of International Trade”, in Lake, David A (ed.) International Political Economy: Perspectives of Global Power and Wealth. London: Routledge. pp.19-36 Kuhnen, Frithjof (1987) “Causes for Underdevelopment and Concepts for Development: An Introduction to Development Theories”, The Journal of Institute of Development Studies. pp 11-25 Rogowski, Ronald (2000) “Commerce and Coalitions: How Trade Affects Domestic Political Alignments”, in Lake, David A (ed.) International Political Economy: Perspectives of Global Power and Wealth. London: Routledge. pp.318-326 Sachs, Jeffrey D. & Andrew M. Warner, 1995. "Economic Convergence and Economic Policies," Harvard Institute of Economic Research Working Papers 1715, Harvard - Institute of Economic Research. Stiglitz, Joseph E and Lyn Squire (2000) “International Development: Is It Possible?”, in Lake, David A (ed.) International Political Economy: Perspectives of Global Power and Wealth. London: Routledge. pp.383-391 Summers, Lawrence H and Vinod Thomas (1995) “Recent Lessons of Development”, in Jeffrey A Frieden and David Lake (eds.) International Political Economy. London: Routledge Tarzi, Shah M (2000) “Third World Governments and Multinational Corporations: Dynamics of Hosts s Bargaining Power”, in Lake, David A (ed.) International Political 10
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