Chapter Content
Okay, so, like, let's talk about economic development in the Global South. You know, after spending so much time, and I mean *so much* time, on the Global North, it's, like, fair to look at what was happening elsewhere, right? We're talking about, roughly, from the early 1900s to around the end of the Cold War, the 90s.
Now, here’s the thing: the Global South is... complicated. It's so incredibly diverse that, you know, an economist, W. Arthur Lewis, said back in the 70s, that you can pretty much find an example to support *any* argument you want to make. And that's, like, a big challenge for grand narratives, those big-picture stories, you know? They kinda risk falling apart when you try to apply them universally to such different places. But, you know, I'm still gonna try and, uh, use those big narratives, because, well, they can still help us think through things, right? I'm gonna keep those five themes in mind, like, economic history, technology, government, globalization, and, uh, you know, tyranny. And, okay, full disclosure here: I'm gonna give you a broad overview and then kinda zoom in on some specific stories, some, like, "vignettes," as they say.
So, back in the 1870s, when, like, the "long 20th century" started, Britain was, like, way ahead in industry and technology. Their income per person was, you know, pretty high. But, it was, like, *double* what anyone else had, outside of Britain itself and a few places like, uh, you know, its colonies and the United States. Outside that circle, incomes in the Global South varied quite a bit, but they were generally much lower. I mean, think of, like, China and India, they were having a rough time back then. So, the average income was probably around, I don't know, $1300 a year.
Cut to the early 1900s, around 1911. The world had kinda grown, right? The Global South had, too. Incomes were, you know, a bit higher on average, but, uh, still, the Global North was growing much faster.
Then, you get to the big stuff—World Wars, the Great Depression, the Cold War. And the Global South, well, it really lagged behind. By 1990, the United States had become the leader and was making, you know, an average of $35,000 a year. Meanwhile, in the Global South, incomes still varied a *lot*, and were, like, way behind. The average income in the Global South had grown, but still China and India were super poor. You'd *think* that, since everyone had access to the same technology, that poorer countries would catch up, right? But, like, that didn’t happen. Things actually got *more* unequal.
So, why? Well, an economic historian, Robert Allen, had a list of things countries needed to do to get on the "escalator to prosperity". He's talking about a stable government that supports markets, building infrastructure like railroads and ports, banks, mass education, and using tariffs to protect industries. And, also, a “Big Push” to get things started.
For most of the Global South, this just *didn't* happen. The colonial powers didn't do much to prepare their colonies for independence. Plus, the workers in those countries faced competition from, you know, really low-wage workers in China and India, which made it hard to build a strong middle class.
Latin America had similar issues. They had become independent earlier, but they suffered from, you know, "internal colonialists"—powerful elites who didn't want an educated working class.
After World War II, the U.S. didn’t want old colonial empires anymore. Everyone was gaining independence. The problem was, the idea of helping these newly independent countries was dropped right when it would have made a difference. They needed help rebuilding, but the former colonial powers weren’t really interested in that.
These new nations tried to do what they were told to do to succeed, right? They built governments with parliaments, courts, and civil services. They built railroads, ports, and banks. They started schools and used tariffs. But it wasn't enough. They needed that "Big Push," and, well, it just didn’t happen.
Politics became a mess. Instead of democracies, many countries ended up with military dictatorships or leaders who were just popular but not really effective. One example is Nigeria, where the first prime minister was assassinated.
I mean, maybe we were too optimistic to think democracy would just take root. The countries, like, Goethe and Schiller, couldn't maintain it, right? It took Britain centuries to develop its parliament.
But even if they didn't have democracy, you'd think the Global South would benefit from the industrial technology that already existed, right? It should have led to better living standards and closed the gap with the richer countries.
The Global South *did* grow, but not enough to catch up. Latin America had a "lost decade" in the 80s. Today, only a few Latin American countries are doing better than China. Africa has fallen *way* behind. Countries that had high hopes, like South Africa and Nigeria, didn't live up to their potential. Crop production and exports declined.
In 1950, half the world lived in extreme poverty. By 1990, it was a quarter. But by 2010, most of that poverty was concentrated in Africa. Zambia used to be more industrialized than Portugal. Imagine that!
Why? Some thinkers say it had to do with the slave trade. The slave trade was, like, super huge. It created a culture of distrust. You couldn’t trust strangers, because they might be slave raiders. It becomes hard to build the kind of economy where people can work together.
Think about Abubakar Tafawa Balewa, the assassinated Nigerian prime minister. He wrote a novel about slavery where pretty much everyone will do terrible things for money. He was murdered by his own army.
Was the Global South richer in the 90s? Yes, much richer. Was the world more connected? Yes. But was it more unequal? Yes, vastly so.
So, who's to blame?
Well, one factor is low savings rates and expensive capital. Machines cost more in poor countries. Also, people had lots of kids, which meant investment went to basic stuff instead of higher-quality tools. There was also a lack of education and entrepreneurship.
These are called vicious cycles. The more modern you get, the more has to go right.
So, what starts these cycles?
Some say it's the governments being "extractive," not "developmental." You know, rule by thieves, "kleptocracy."
But kleptocracy isn’t new. Think about ancient thugs stealing crops. The problem is, governments want to stay in power. Their priorities are, you know, preventing riots, keeping the army happy, and keeping bureaucrats content. Long-term development is, you know, less important.
Machiavelli wrote that new rulers need to reward supporters, and that doesn't always lead to good economic growth.
So, maybe the question isn’t *who* is to blame, but *what* needs to happen for growth to take place. Most leaders would be good if they could be. But they need stability and security.
Why don't entrepreneurs overthrow bad governments? Well, one cocoa farmer in Ghana said that if he did, he'd lose all his licenses and property.
Restricting new businesses is often a cheap way to favor existing businesses. The government will strangle manufacturers abroad as a favor to existing businesses.
So much has driven the divergence between the Global North and South that responsibility-attributing answers to "why?" and "what?" questions can only be unsatisfactory. The “who?” question has a more straightforward answer: the Global North, collectively, had the wealth and power to arrange things more favorably for the global south, and it did not do so.
Successful development needs a strong but limited government. Strong in enforcing laws and building infrastructure, and limited so that it doesn't interfere too much with businesses and concentrate power.
So, let me tell you a few stories about all of this.
One sad story is Argentina. In 1913, Buenos Aires was, like, one of the most modern cities in the world. In 1929, Argentina had one of the highest rates of car ownership. In the 30s, its politics were rough, but no worse than most other places.
But then, the leaders responded to economic problems by trying to stimulate demand and redistribute wealth. They distrusted foreign trade and used controls instead of prices. This led to some growth, but also monetary chaos. Politics became violent. People "disappeared".
Juan PerĂłn was one of these leaders. He raised taxes, created marketing boards, supported unions, and regulated trade. He wanted to redistribute wealth to workers.
At first, this worked. But then exports fell, the international business cycle hit them hard. Because PerĂłn had twisted the terms of trade so drastically against agriculture and exportables, when the network of world trade was put back together in the 1950s, Argentina was no longer thickly connected.
Perón didn't want to devalue the currency because it would hurt workers. And he didn't want to borrow from abroad. So, he controlled imports. This wasn’t good for Perón. The army overthrew him. Subsequent governments didn't fully change his policies.
Argentina became an economy where the government controlled imports and redistributed income, but neither the public nor private sector was efficient. They could not invest, and the economy fell behind.
Could this have happened in Europe? Maybe, without the Marshall Plan.
Or, if the Global North had offered aid on the scale of the Marshall Plan, maybe the Global South could have had the same success.
Another tough case is Iran under Reza Shah Pahlavi. He was supported by the West because he was anti-communist and wanted to modernize Iran. He listened to experts and put money back into the economy.
Yes, he was a tyrant with a secret police. But the revolution that overthrew him had more to do with poverty and wealth, and the obstacles to development.
In 1973, oil prices tripled, and Reza Shah wanted to make Iran an industrial country in one generation. He did land reform, giving land to farmers. But the plots were small. Oil exports pushed up the exchange rate, making it profitable to import food. So, farmers struggled.
While some Iranians got richer, many didn't. And they were angrier than those who did benefit. Also, people could see what was happening in other countries, with Russians, Britons, and Americans in their cities. Iranians had been used to thinking of themselves at the center of civilization, so they were constantly reminded that this was no longer the case.
Reza Shah tried to turn Iranians into Europeans, like Imperial Germany. But he left Islam out. And the state was corrupt. His reforms, like emancipating women, were unpopular with traditionalists. While he wanted an educated country, schools ended up producing revolutionaries.
Ayatollah Khomeini, in exile, called for an Islamic revolution. Protests started, with young people getting killed and sparking more protests.
In 1979, Reza Shah fled.
Iran's economy stagnated. A war with Iraq took up resources. The new religious government wasn't interested in economic development, they wanted to pursue paradise in heaven, not a utopia here on Earth.
If those problems weren’t bad enough, ideology also created problems. Many newly independent governments in the 50s and 60s followed advice from left-wing intellectuals in the Global North, which led to problems.
The left had been anti-colonial, while the center and right were imperialist. These ideas had a big influence on development policy. Marx had wanted free speech, democracy, and wealth. But socialist governments had little of that. Intellectuals made excuses, and told the Global South that the absence of these was a virtue.
Western freedoms were promised, but always delayed. There was always a need to shed old colonial orders, and a constant emergency, and the era of transition was never-ending. A centralized party was deemed necessary. If politicians and newspapers could criticize the government, this would disrupt that fragile unity. Advocacy of private economic freedoms would disappear.
We see this in Maoist China.
Mao's Communist Party won the civil war. His plan was to shoot the landlords and distribute the land, giving peasants the support of the CCP. In the initial years the People’s Republic of China made good on this promise.
But, in the mid-50s, Mao followed the Soviet example. He collectivized agriculture and suppressed dissent. But, he also tried to industrialize through the "Great Leap Forward." He thought the revolutionaries would be able to fix material problems. Villages would industrialize without foreign capital or engineers.
It was a disaster. Peasants couldn't produce steel and grain at the same time. 40 million people died in the famine. Because Mao was in charge, everyone told him it was going great.
Mao’s lieutenants moved slowly against him, and Liu Shaoqi replaced him as head of state. But Mao eventually launched a counterstrike and launched the Cultural Revolution. Liu Shaoqi was killed, and Deng Xiaoping was purged. Universities were closed to better reflect Mao's ideology. The Cultural Revolution was anti-intellectual. In 1971, Lin Biao, the new second-ranking member of the Chinese Communist Party’s Politburo Standing Committee, fled before Mao could purge him, dying in a plane crash.
The Cultural Revolution continued until Mao’s death. Millions were killed and purged. China's prosperity fell behind India's.
After Mao's death, Deng Xiaoping took over.
Ultimately, two things saved China. First, Mao couldn't conquer Taiwan or attack Hong Kong. Taiwan and Hong Kong provided the entrepreneurs and finance for industrial development. Second, Deng Xiaoping launched economic reforms, which made a huge difference. It was Deng who made the decision to restore and then develop China’s economy. Mao claimed he had made China stand up, but that was false. It was Deng who did the job.
But what about places that *did* grow rapidly?
Chile, Mexico, Brazil, Panama, Algeria, Botswana, Hong Kong, Malaysia, Singapore, South Korea, Taiwan, Thailand, and China have all managed to close the gap with the Global North. How did they do it?
So, there were two groups that managed to catch up to global-north norms after 1950. The first was the members of the OECD, and the second was the countries of the East Asian Pacific Rim.
Japan's recovery after 1950 was surprising. After World War II, it was unclear if its economy would recover. But the Korean War made Japanese industry valuable and the Japanese successful. By 1955, Japan's economy was strong again. And then growth took off.
From 1960 to 1973, Japan grew 10% a year, quadrupling the economy.
How did Japan do it? One part of the plan was strong domestic protectionism through an intricate network of non-tariff economic and social network barriers. In the long run it appears that producers gained enough to offset the static losses from overpaying, and they grew rich. Economists hate protectionism. But Japan’s protectionism, it seemed, was smart policy.
Afterward, observers said Japan was special, with a strong government, an elite that wanted to modernize, a growing population, and a love for commerce and education.
Back in 1945, most outside observers regarded East Asia, with the exception of Japan, the way observers today regard Africa: as the part of the globe facing the biggest development challenges, and most likely to stay poor. So the Pacific Rim's growth in the latter half of the long twentieth century was a miracle. Many countries have tried to grow rapidly under a “developmental state". These have usually failed.
Why was East Asia different? Because, states in Latin America and the Soviet bloc were designed, above all else, to achieve independence and self-sufficiency. They walled their economies off from world market prices and, indeed, from prices altogether. East Asia started with the assumption that it would have to export—and export big-time—if only because its resources were thin and scarce.
The goal was not to forge a new economic path; the goal was simply to catch up.
The king of England did not call a meeting of barons, bishops, bankers, and a few mechanics and say, “Let’s have an Industrial Revolution.” But that is pretty much what Japan did at the beginning of the long twentieth century with its reforms under the Meiji Restoration. This strategy succeeded. And Japan then provided a model for how its ex-colonies, South Korea and Taiwan, should attempt to play catch-up under their dictators.
What's this model? First, trade, but managed trade. Undervalue the exchange rate so you can export manufactures that aren't up to global-north standards. Subsidize companies that successfully export.
Those same Japanese firms that were protected against imports from abroad were, in international markets, forced to hone their competitive abilities and match international standards of innovation, quality, and price. Very patient cheap capital helped. And by the 1980s it was clear that protectionism had yielded incredible results.
In Latin America, an overvalued exchange rate would see a lot of society’s wealth spent on the purchase of foreign luxuries, as the upper class preferred to live well rather than channel its resources into national development.
Back to Japan: Add a high rate of savings, sustained year after year, and channels – such as a postal savings system – that made savings easy. Sellers of machines charge low prices. You want to tilt the economy's price structure so that machines that embodied modern technological knowledge were cheap and foreign-made and luxurious consumption goods were expensive.
This means hidden taxes on labor and financial repression. It means export surpluses, with the hope that learning by doing will outweigh the cost of the subsidies.
The lesson of history is that as long as exports earn enough dollars for domestic businesses to obtain access to the global-north-produced machines they need, and the global-north-invented technologies they embody, and as long as the machines go to firms that are efficient and effective, this formula enables a country to advance.
The East Asian model depends on other nations absorbing exports and running trade deficits, especially the United States. Could the United States have absorbed everyone's exports? No. The model could only have worked for a small handful of countries.
But it did work. Look at South Korea, home to one of the most efficient high-tech factory complexes of the world, Samsung. No one thought South Korea would be successful in the 50s. It had just been devastated by war.
President Syngman Rhee sought to control imports. He overvalued the currency, imposed high tariffs, and implemented stringent quantitative import restrictions. The results were slow and erratic growth and continued dependence on the United States. But things changed with Park Chung-Hee in 1961. He was brutal but effective. He shifted Korea to export-led industrialization, which was a shift from a strategy of import substitution. Exports grew from 3% of GDP to 40%. The growth rate of income per capita averaged more than 7% of GDP for the three decades after 1960.
Even where rapid growth would seem to have been swimming against the regional political-economic tide, it was possible. The shining beacon is Botswana. Its income per capita went from $900 in 1960 to $14,000 in 2010. It had the highest Human Development Index in sub-Saharan Africa. Its neighbor Zambia’s income per capita went from $2,800 in 1960 to $3,500 in 2010. Botswana had an independent judicial system, a lack of tariffs on machinery imports, a savings-encouraging banking system, and a policy of plowing back government revenues into infrastructure investment.
Recall Robert Allen's checklist for development: promote markets, build infrastructure, charter banks, teach children and engineers, impose tariffs, and nurture engineering communities. Provide a Big Push. The Pacific Rim added its own sauces. The key gap between the Pacific Rim and the rest of the Global South was due to its successful implementation of the obvious.
The logic of politics is about favors, wealth, influence, and taxes. This is very different from the logic of economic growth. A state that is still emerging cannot successfully midwife development. What is needed is either a stringently limited government – one incapable of redistributing resources to favored clients – or a functioning developmental state. Either “neoliberal”-style international market-led development or Pacific Rim–style governance and growth. Attempting the latter is very risky. As economist Lant Pritchett likes to say, “There are few things in the world that are worse than state-led development led by an anti-development state.”
That was what too many postindependence Asian and African states, and too many post–World War II Latin American states, turned out to be.
So, what if a country can't create a government that prioritizes development?
Then, the only option is "neoliberalism." This means insulating the economy from the government, so the government can't do too much harm. Starting in the 80s, hopes shifted to this "neoliberalism", because people saw the state's interventions as more destructive than constructive. They advised relying on the world market for demand and as a source of good-enough governance.
These pressures have been strong enough to counteract the natural tendency for poor countries to learn about technology and catch up. There's no clear reason for these pressures to diminish. Optimists hope that the failures of the past will lead to intellectual pressure for reform. If ideas are truly the decisive forces making history in the long run, perhaps the optimists are right.
If the optimists are wrong, then we are all in big trouble. Successful handling of global warming and other future global environmental problems, and successful long-run stabilization of human populations, hinges on successful industrialization in the global south. “Neoliberalism” in the global south has thus been the strategy of pessimistic optimists. Pessimism in the short run – but optimism in the long.