First of all, in pushing for institutional improvement in developing countries, we should accept that it is a lengthy process and be more patient with it. The discussion in Chapter 3 shows that it took the NDCs decades, if not centuries, to develop institutions, and that there were frequent setbacks and reversals during the course of the process. Seen from this perspective, the 5 to 10-year transition periods currently being given to the developing countries to bring their institutions up to ‘global standards’ are highly inadequate. Moreover, given that today’s developing countries are already institutionally more advanced than were the NDCs at comparable stages of development, asking these countries to install a whole range of new ‘global standard’ institutions in short periods of time seems unrealistic. This, of course, should not mean that developing countries should adopt institutional standards of the last century. Nor should it make developed countries accept any ‘we-are-not-ready-yet’ argument put forward by governments of developing nations (more on this point later in section 4.4). However, it is clear that there should be a keener recognition of the speed – or lack of it – with which institutional development can be achieved in developing countries.
The second qualification I wish to make is that ‘good’ institutions produce growth only when they are combined with ‘good’ policies. As the reader can probably guess, when I say ‘good’ policies here, I mean the policies that most NDCs were using when they were developing, rather than the ones that they are now recommending to the developing countries. The fact is that, despite the continuous, and presumably accelerating, improvements in the quality of their institutions, today’s developing countries have experienced marked slowdowns in growth during the last two decades (see section 4.2). In my view, this was because the ability of these countries to pursue the ‘(genuinely) good’ policies was significantly curtailed as a result of the ‘policy reforms’ implemented during this period.
Table 4.3 shows that the average per capita growth rate among developing countries has fallen from around three per cent p.a. during the period 1960-1980 (see table 4.1) to 1.5 per cent p.a. for 1980-1999.[12] The latter is basically the rate of growth that the NDCs achieved during the late nineteenth and early twentieth centuries (1875-1913) when they were hampered by less favourable institutional conditions than those experienced by the developing countries of today (see table 4.2). The only sub-groups which achieved growth rates above that level during this period were East Asia (and Pacific) and South Asia, whose growth rates are dominated by those of China and India respectively. The interesting thing to note is that both these countries are frequent lambasted by the IDPE for the poor quality of their institutions and policies. If we had excluded these two countries from our calculation of developing country average, we would have ended up with a much lower growth rate still.[13]
| Table 4.3 | |||
|---|---|---|---|
| Per capita annual GDP growth rates (per cent) in developing countries during the ‘Age of Institutional Reform’ | |||
| 1980-1990 | 1990-1999 | 1980-1999 | |
| Developing Countries | 1.4 | 1.7 | 1.5 |
| --East Asia and Pacific | 6.4 | 6.1 | 6.3 |
| --Europe and Central Asia | 1.5 | -2.9 | -0.6 |
| --Latin America and the Caribbean | -0.3 | 1.7 | 0.6 |
| --Middle East and North Africa | -1.1 | 0.8 | -0.2 |
| --South Asia | 3.5 | 3.8 | 3.6 |
| --Sub-Saharan Africa | -1.2 | -0.2 | -0.7 |
| Developed Countries | 2.5 | 1.8 | 2.2 |
Notes: The data is from World Bank 2001. The figures are only approximate, as they were constructed by subtracting the population growth rates from GOP growth rates. This had to be done because the World Bank stopped publishing IO-year per capita GOP growth rates from its 1998 World Development Report. For country classification, see the table in p. 334 of the report.
It therefore seems quite plausible to argue that, during the period 1960-1980, partly thanks to their better institutional foundations compared to those possessed by the NDCs at comparable stages of development, the currently developing countries grew much faster than the NDCs had done, because they were being allowed to pursue ‘bad policies’. However, when such policies were discontinued in the 1980s, better – and presumably improving – institutions were not enough to allow them to notch up better performances than those of the NDCs in the early days of their development, not to mention letting them improve over their own performance of the 1960-1980 period.[14]
What do all these mean for the ‘kicking away the ladder’ argument? I would agree that, if done in a realistic way and if combined with the right policies, international pressures for institutional improvements can play a positive role in the developmental process. However, the current push for institutional improvements in developing countries is not done in this way and is likely to end up as another ‘ladder-kicking’ exercise.
By demanding from developing countries institutional standards that they themselves had never attained at comparable levels of development, the NDCs are effectively adopting double standards, and hurting the developing countries by imposing on them many institutions that they neither need nor can afford.[15] For example, maintaining ‘global standard’ property rights and corporate governance institutions would require the developing countries to train (or even worse, to hire from abroad) a large army of world-class lawyers and accountants. This means that they will inevitably have less money (their own or donors’) to spend on, say, the training of schoolteachers or of industrial engineers, which may be more necessary given their stages of development. In this sense, the NDCs are ‘kicking away the ladder’, not only in the area of policies but also in the area of institutions.
However, the picture in relation to institutions is more complicated than that in relation to policies. Unlike in the case of policies, many of the institutions that are recommended can bring benefits to the developing countries, although their exact forms do matter. However, these potential benefits can only be fully realized when combined with the ‘right’ policies. There are, too, genuine costs to institutional improvements. Therefore, whether the campaign for ‘good institutions’ will in effect turn into an act of ‘kicking away the ladder’ greatly depends on the exact forms and quality of the institutions demanded, and.on the speed with which such demands are expected to be met. On both accounts, the current push for institutional reform does not look very positive for the developing countries.
4.4. Possible Objections
There are at least three objections that could be raised against my argument in this book. The first, and most obvious, is the argument that developing countries need to adopt the policies and institutions recommended by developed countries whether they like them or not, because that is how the world works – the strong calling the shots and the weak following orders.
At one level, it is difficult to deny the force of this argument. Indeed, my discussion in section 2.3 of Chapter 2 on the ‘pulling away’ tactics used by the NDCs in earlier times (e.g., colonialism, unequal treaties, bans on machinery exports) provides ample support for this argument. There is, too, plenty of evidence that even in the present age, when colonialism and unequal treaties are no longer acceptable, the developed countries can ·exercise enormous influence on developing ones. The NDCs exercise direct bilateral influence through their aid budgets and trade policies; they also maintain collective influence on developing countries through their control of the international financial institutions, on which developing countries are dependent. And they have disproportionate influence in the running of various international organizations, including even the ostensibly ‘democratic’ WTO, which is run on the one-country-one-vote principle (unlike the UN, in which the permanent members of the security council have veto power – or the World Bank and the IMF where voting power roughly corresponds to share capital). Moreover, during the last two decades or so, the collapse of the Soviet Union, which had provided some counterbalance to the power of the developed countries, and the demise of the so-called ‘nonaligned’ movement among developing countries, have further weakened the bargaining positions of the developing countries.
12
The figures in the two tables are not strictly comparable, as the category of ‘developing countries’ is comprised of slightly different sets of countries in each table.
13
This will be a growth rate that is more similar to those in the NDCs in the early-to mid-nineteenth century (when they had very few of the institutions recommended by the IDPE these days) than the ones in the late nineteenth and early-twentieth centuries (when they had seen major improvements in the quality of their institutions).
14
Another piece of evidence that ‘good institutions’ are not enough to generate growth is the fact that the major Asian developing economies remained virtually stagnant during the first half of the twentieth century, despite the fact that many modern institutions were introduced under (formal or informal) colonial rule. According to the estimate by Maddison 1989, the average per capita GDP growth rate for the nine largest Asian developing countries (Bangladesh, China, India, Indonesia, Pakistan, the Philippines, South Korea, Taiwan, and Thailand) during 1900-50 was 0 per cent p.a .. During this period, Taiwan and the Philippines grew at 0.4 per cent p.a., Korea and Thailand at 0.1 per cent p.a .. China grew at -0.3 per cent p.a., the South Asian countries and Indonesia at -0.1 per cent. These countries were, however, able to generate much faster growth after the end of colonial rule. The average per capita GDP growth rate for the 1950-87 period for these countries was 3.1 per cent p.a .. Part of this was, of course, due to improvements in the quality of their institutions, but the more important change was that they were able to pursue the ‘right’ policies, that is, activist ITT policies. See Amsden 2001 for a further exposition on this point.
15
A rather sad anecdote that supports my point here is that, right after the collapse of socialism in Mongolia, the US government provided a large sum of money to Harvard University to train dozens of bright young Mongolians as stockbrokers money that could have been used for a lot of useful developmental purposes.