Ha-Joon Chang

Since the rise of neo-liberalism in the late 1970s and the early 1980s, many people in the rich countries, both inside and outside the academia, have come to take the view that the developing countries are what they are only because of their own inabilities and corruption and that the rich countries have no moral obligations to help them. Indeed, there is a growing view that helping the developing countries is actually bad for them because it will only encourage dependency mentality.

Fortunately, the above view is not the mainstream view in all rich countries. Most people still believe that, with a strong help from the rich countries, the developing countries can pull themselves out of poverty. The most ‘progressive’ and comprehensive of the mainstream discourses on development along this line is arguably embodied in the United Nation’s Millennium Development Goals (MDGs).

According to the UN, the MDGs’ eight goals are:
Goal 1: Eradicate extreme poverty and hunger.
Goal 2: Achieve universal primary education.
Goal 3: Promote gender equality and empower women.
Goal 4: Reduce child mortality.
Goal 5: Improve maternal health.
Goal 6: Combat HIV/AIDS, malaria, and other diseases.
Goal 7: Ensure environmental sustainability.
Goal 8: Develop a global partnership for development.

There are many different elements in the MDGs, especially as each goal has a number of ‘targets’ that span across different sub-issues, but most of them relate to reducing poverty and improving education and health in poor countries. This is obvious for the case of goals 1-6, but telling from the targets under its heading, even goal 7 (environmental sustainability) is partly about health (improving access to safe drinking water and increasing access to improved sanitation).

Laudable these goals and targets may be, their sum total does not amount to development in the sense we are talking about, as they pay no serious attention to the transformation of productive structure and capabilities.

The only explicit ‘development’ dimension in the MDGs is embodied in Goal 8. The targets under this heading include: development of an ‘open, rule-based, predictable, nondiscriminatory trading system’; reduction or even writing-off of developing country foreign debt; increase in foreign aid from rich countries, including trade-related technical assistance; provision of access to affordable essential drugs for developing countries; and the spread of new technologies, mainly information and communications technologies.

The emphasis in this vision is very much on the trinity of increased aid, debt reduction, and increased trade. Debt reduction and increased aid (unless they are on very large scales, which they are not going to be) are simply enabling conditions (and in which the developing countries are mere recipients rather than originators), rather than those that determine the contents of development. Thus seen, the view on the relationship between trade and development is the key to understanding the vision of development underlying the MDGs. So what are the contents of an ‘open, rule-based, predictable, non-discriminatory trading system’ that the MDG agenda talks about here?

Telling from the concrete indicators that measure the ‘developmental’ contribution of the world trading system in the MDG discourse, we see that the ‘pro-developmental’ trading system boils down to one where the rich countries reduce their tariffs and subsidies on agriculture, textile, and clothing exports from developing countries, especially the least developed countries (LDCs).

However, the understanding of the relationship between trade and development implicit in this vision is non-developmental. In this vision, the best way to make trade help development is by liberalizing the rich country markets so that the developing countries can sell more of what they are already selling – or ‘trade their way out of poverty’, as a popular slogan puts it. There is no notion that developing countries need to get out of what they are doing now (the specialization in which is after all what keeps them poor) and move into higher-productivity activities, if they are to achieve development.

Thus seen, the MDG envisages ‘development without development’. Most of what it takes as ‘development’ is really provision of basic needs and poverty reduction. What little attention it pays to the question of production is based on the view that development can be achieved by specializing more in the products in which a country has comparative advantage (supported by the rich countries reducing debts and giving more aids).

However, doing more of the same thing in terms of one’s productive activities is not how today’s developed countries have become developed. Starting from 18th century Britain through to 19th century USA, Germany, and Sweden, down to 20th century Japan, Korea, and Taiwan, history has repeatedly shown that development is achieved by upgrading a country’s productive capabilities and moving into more ‘difficult’ industries before they acquire comparative advantages in those new activities, by using protection, subsidies, and other means of market-defying government intervention (Chang, 2002a, 2007a). Let me give some prominent examples.

In 1960, when Nokia entered the electronics industry, per capita income of Finland was only 41% that of the US, the frontier country in electronics and overall ($1,172 vs. $2,881). It was thus not a big surprise that the electronics subsidiary of Nokia ran losses for 17 years and remained in business mainly because of cross-subsidization from mature firms in the same business group (helped by government procurement programmes).

In 1961, per capita income of Japan was a mere 19% that of the US ($563 vs. $2,934), but Japan was then protecting and promoting all sorts of ‘wrong’ industries through high tariffs, government subsidies, and ban on foreign direct investment – automobile, steel, shipbuilding, and so on.

To take an even more dramatic example, take the case of South Korea. Its (then) state-owned steel mill, POSCO, which had been set up in 1968, started production in 1972, when its per capita income was a mere 5.5% of the US income ($322 vs. $5,838). To make it worse, in the same year, South Korea decided to deviate even further from its comparative advantage by launching its ambitious Heavy and Chemical Industrialization programme, which promoted shipbuilding, (home-designed) automobile, machinery, and many other ‘wrong’ industries. Even as late as 1983, when Samsung decided to design its own semiconductors, Korea’s income was only 14% that of the US ($2,118 vs. $15,008).

By discussing these examples of countries defying the market and entering activities where they do not have comparative advantage, I do not mean that all forms of ‘traditional’ activities, such as agriculture or textile/clothing, are incompatible with development. After all, the Netherlands is still the world’s third largest exporter of agriculture despite not having much land (it has the fifth highest population density in the world, excluding city states or island states with territories less than, and including, that of Hong Kong). For another example, Germany used to be the world’s fifth largest exporter of textiles and clothing until as late as the early 1990s. However, these were possible only because these countries applied advanced technologies to these ‘traditional’ activities and upgraded them – hydroponic culture in the case of Dutch agriculture and specialty textiles and high-class design in the case of German textile/clothing. At the other extreme, countries like the Philippines export a lot of high-tech products, like electronics, but no one calls it developed because the production uses someone else’s technologies, is organized by someone else, and has few roots in the domestic economy. Should all the multinational companies decide to leave the Philippines tomorrow, it will be reduced to exporting primary commodities.

Once again, these examples confirm my earlier point that it is not what one has but how one has got it that determines whether a country is developed or not. Without any vision of transformation in productive structure and the upgrading of the productive capabilities that make it possible, the vision of development behind the MDGs can only be described as ‘development without development’.

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