Role Models and Policy Rights

Article excerpt

Faster economic development was once associated with a good theory, but in the prosperous Golden Age that followed World War II, from roughly 1947 to 1980, poor countries tended to learn from each other, not from abstractions. They experimented with policies and institutions based on those of an outstanding role model.1 As this form of learning evolved, economic growth rates in nearly all Third World regions reached unprecedented heights. For the first time in modern history, Third World economies grew faster than First World economies, as seen in Table 1. Then, in the counter-age of "economic Liberalism," from 1981 to the 2000s, when developing country policymaking became tightly tied to theories of market behavior, growth rates in almost all regions fell.2 Intolerance of non-market provisions in the areas of trade, industry, ownership and employment became a hallmark of a new globalism, as the former colonial powers returned to their ideal of "universalism," a one-policy agenda for rich and poor countries alike no matter how many or diverse; this was the only cost-effective way to govern them. Yet the survival of role models depends on "policy rights," or the freedom, against possible foreign opposition, from Washington to the World Bank, to choose the policies that role models themselves once followed, towards foreign investment and capital controls or trade agreements and job formation. Given their thirst for diversity in a world celebrating one particular set of market policies for all, the question arises of whether or not role models have been left in limbo, and with them, an empirically grounded, deductive way of thinking about economic growth?

Today's global culture celebrates electoral rights, education rights, human rights, housing rights, health rights and women's rights-anything but country-specific "policy rights."

Developing countries discovered role models among their peers, in geographical proximity. This tendency gave rise to two regional clusters of role models, with pure theory left to influence mostly fiscal and monetary policies-even so, countries like Brazil, China and India tend to follow fiscal and monetary policies based on their own histories, not abstract theories.

The Organization of the Petroleum Exporting Countries (OPEC) is associated with a price cartel. But the OPEC development model also revolves around a professionally managed state-owned oil company, which was formerly a private multinational concession, nationalized after political independence. In East Asia, import-substitution industrialization (ISI) became the basis of a role model radiating from Japan, in which domestic markets were seized from foreign companies, and then exports were extracted from import substitutes to enter foreign markets. Latin America, with both oil wealth and manufacturing experience, combined the two models.3 Africa, without manufacturing experience or oil-until recent discoveries-could not break into either circle.

The shift in the cognitive approach to economic development, away from deductive market theories towards inductive role models, was an integral part of the de-colonization process that followed World War II, starting in 1947 with India's political independence. A culture of anti-imperialism pushed independence beyond politics into economics, in what became a novel "nationalist" approach to late development, with nationally owned and controlled companies (private or public) at its core.

The edge of the envelope was the Chinese Revolution (1927-1949) that expropriated not only foreign governments but also foreign firms, as did India using tamer tactics, such as acquiring British firms, exhausted from depression and war, at firesale prices. Korea and Taiwan inherited the investments of Japanese-owned zaibatsu when Tokyo conceded military defeat. Indonesia acquired Dutch companies when the Dutch government fled after a long nationalist struggle. In contrast, the Philippines was one of the first of its generation to gain political independence, from the United States, but never showed the door to U. …