14 ms·

How do poor countries get rich?

153 points by barry-cotter 4y ago

standardUser 4y ago
Is this propaganda? Most developing nations that have reached "first world" status, or close to it, did so via aggressive industrial policy, the thing that the already-wealthy Western world deterred developing nations from embracing for many decades (when they could) in favor of the "free trade" model the Bretton Woods institutions were designed to force on developing nations. This article doesn't even seem to acknowledge industrial policy, and instead harps exclusively on Western perspectives.
- thematrixturtle 4y ago
  The article talks about that at the end: The East Asian development model adds to export oriented manufacturing financial repression and land reform. Financial repression in this context is the state controlling people’s savings and through a combination of law and incentives, increasing the amount that’s invested in domestic manufacturing firms. Key tools of this are capital controls, which prevent capital from leaving the country to get higher returns internationally, political influence over bank lending, and currency devaluation which in addition providing advantages to exports reduces consumption and increases savings.
  - anovikov 4y ago
    What i never understood about it is where the "higher returns internationally" would come from. How can returns in a country where the capital is sorely lacking - and many businesses can be opened and operate in a virtually competition-free environment, are not created for not having money to start up - be lower than in developed nations that already have everything imaginable?
    - calvinmorrison 4y ago
      higher growth potential. You can double gdp by having people make $2 a day more
    - FredPret 4y ago
      You are right about the lack of competition in the third world. But there are sometimes structural and legal factors that make it harder to make money there; lawsuits, arguments, edge cases, and general agreement on how things should work that the West figured out long ago. You can’t invest lots of money with confidence until these things have stabilized. The other thing is that the economy is like an ecosystem - the richer it gets, the more nooks and crannies open up that can host thriving systems. That’s how a complex, rich economy can keep growing exponentially. Human needs are not limited - there’s always a way to improve life for someone.
    - acover 4y ago
      There are benefits to colocation. The inputs to your business may already exist and are cheaper in a rich city than in a poor city. You'll see this where everyday shelf stable goods are more expensive in developing nations than in the usa.
    - imtringued 4y ago
      You have to adjust returns by risk. The risk adjusted return of dollars and euros is much higher than the risk adjusted return in pretty much every African country. It only takes repossession, nationalisation policy or civil unrest and your investment is gone.
    - barry-cotter 4y ago
      Poor institutions. Low trust. Absence of rule of law. Corruption. Enormous cultural mismatches. Atrocious or nonexistent infrastructure. Insane difficulties hiring competent staff. Investing in poor countries is really hard.
- lambdasquirrel 4y ago
  Either propaganda or inability to get outside of one's own bubble? I don't think it was a coincidence that all of the Asian countries had strong central governments with commitments to long-term planning, at the times of their ascension. Even today, they send hordes of students to American engineering universities, as if the aggressive industrial policy never ended. At CMU, there were roughly as many Singaporean, Thai, Taiwanese, and Korean students (i.e. each of them) as there were students from the Midwest, in the engineering program I was in. And they were much much better prepared for the material than 9 out of 10 of the American students. From them, I gathered a picture of societies that had strong policies designed to build out the kind of economy that poor countries would love to have. Liberal, it was not.
- vinceguidry 4y ago
  The article backs its theories up with historical examples. You're attacking it for seemingly not being interested in your pet theory.
  - vkou 4y ago
    There's no shortage of historical examples to support his position, and it's not a weird fringe theory.
  - ohgodplsno 4y ago
    Propaganda doesn't mean lies. I can make propaganda saying that the only way to get rich is to have an industry based on the export of wheat, and I can find historical examples of that. Just because you can provide examples doesn't mean your theory is right, and the whole article basically reeks of "woo western good stupid asians not letting their whole economy commit suicide" while ignoring the thousands of factors that go into it. One of the markers for economical success is often lack of involvement of the US. See the Philippines where the US backed Marcos as a dictator, with this sack of shit Reagan granting him asylum after being kicked out of the country.
- marcosdumay 4y ago
  "Strong industrial policy" comes in many forms. The onw that conflicts with free trade tend to create low added value, high capital intensive "also run" companies that benefit no one. High tech industry requires both a policy that allows them and access to the international market, for both buying and selling.
- macco 4y ago
  Why should it be propaganda? Your claim that all countries got rich via aggressive industrial policy doesn't make sense to me. What was this policy in the US? What was this policy in Western Germany after WW II? Their main strategy was to allow creative destruction, through strong institutions. The most important probably the rule of law.
  - cma 4y ago
    Sounds like the US used the loose IP protection model we complain about with China: https://www.wikipedia.org/wiki/Samuel_Slater https://www.wikipedia.org/wiki/Samuel_Slater > Samuel Slater (June 9, 1768 – April 21, 1835) was an early English-American industrialist known as the "Father of the American Industrial Revolution" (a phrase coined by Andrew Jackson) and the "Father of the American Factory System". In the UK, he was called "Slater the Traitor"[2] and "Sam the Slate" because he brought British textile technology to the United States, modifying it for American use. He stole the textile factory machinery designs as an apprentice to a pioneer in the British industry before migrating to the United States at the age of 21.
  - sudosysgen 4y ago
    The US in the early 19th century was already a rich country. In fact, the US was a rich country from before it was even a country. West Germany after WW2 did have strong industrial policy, and up to now it's one of the European states with the strongest industrial policies.
  - rayiner 4y ago
    > What was this policy in the US? See: https://en.wikipedia.org/wiki/American_System_(economic_plan) https://en.wikipedia.org/wiki/American_System_(economic_plan...
- epistasis 4y ago
  If you read further, other potential models are mentioned. I would agree that the "liberalization" theory has been fairly well disproven, and is nearly laughable. But the post is not propaganda, as it mentions competing ideas that IMHO are much better.
- sillystuff 4y ago
  Yes, the US for instance was protectionist, once it had a domestic industry. And, earlier in its industrial development, it also stole IP from England[1]. It seems to be the way things are done. The only thing moderating US protectionism, in those early years, was the large agricultural exporting economy of the South. The other bit is that over a quarter of the worlds population are currently under US sanctions. With much of the world acting in lockstep so as to stay in the good graces of the US[2]. Looking at what Cuba has accomplished just in its biotech industry while under crippling sanctions (for 60 years) makes me think they could really flourish without the sanctions[3]. My argument is that it is necessary to end sanctions for a county to flourish, but it is not sufficient. For instance, ending sanctions and returning seized funds will not make a country like Afghanistan into a rich country (it may prevent an estimated 1M children from dying of starvation due to US sanctions, though[4]). [1] https://news.sky.com/story/cyber-is-changing-war-but-its-peace-we-should-worry-about-11615783 https://news.sky.com/story/cyber-is-changing-war-but-its-pea... [2] https://en.wikipedia.org/wiki/United_States_sanctions https://en.wikipedia.org/wiki/United_States_sanctions [3] https://www.ineteconomics.org/perspectives/blog/how-cuba-became-a-biopharma-juggernaut https://www.ineteconomics.org/perspectives/blog/how-cuba-bec... [4] https://www.ft.com/content/b038dec2-a49d-46d5-b187-3dd7216a2931 https://www.ft.com/content/b038dec2-a49d-46d5-b187-3dd7216a2...
throwaway4220 4y ago
As feedback - lots of incomplete sentences. I had to stop reading it was driving me nuts
rr808 4y ago
I like how the internet gives everyone an opportunity to voice their opinion. Unfortunately it means every random person can write something that sound authoritative even though there is no accuracy. The title is something lots of people are interested in, but then the author has lists sources, no evidence and doesn't even write a profile about who they are.
- necovek 4y ago
  You make it sound as if there's something wrong with that? As you point out, it's obvious none of the claims are supported by evidence, and there is no appeal to authority ("this is who I am"), which qualifies this as an opinion, and should be taken as such. Which means that any reasonable person should, before they make their own opinion, look for evidence for or contradictions to the posted opinion, and use that to make a more informed opinion. Now, the fact that a majority of internet readers are not reasonable is where we should be worried, not about someone sharing their opinion in a modern day bar. (Interestingly, the fact that those same people never thought to critically look at "official" news on TV/newspapers is a symptom of the same problem before the internet.)
deleted 4y ago
[deleted]
hunglee2 4y ago
East Asia is the only region which was certainly 'poor' but now can be described as somewhat 'rich', and they are all more or less followed the same pattern: - low wage, high volume, light industry for export - lower wage, high volume, heavy industry - multi-decade protectionism to raise global competitive domestic champions - no democracy, if you can help it to ensure political stability to execute multi-decade strategy Idiosyncratic caveats: - Japan got its boost particularly by becoming the arms manufacturer for the US in the Korean War - Singapore / Hong Kong also had financial liberalisation / international money laundering for the Brits - Korea / Taiwan / Hong Kong also had shipping China has followed clearly the same trend (note the irrelevance of the political system, main thing is to avoid democratic instability), simply becoming more massive than any before because it is inherently massive, and has therefore even greater economies of scale to leverage.
- beaconstudios 4y ago
  It's called a developmental state: https://en.m.wikipedia.org/wiki/Developmental_state https://en.m.wikipedia.org/wiki/Developmental_state
- machinekob 4y ago
  East/Central Europe (post commie)?
  - mc32 4y ago
    Germany has helped push development there (as has the US to a lesser degree) by investing in manufacturing and taking advantage of their labor force(s). Modernizing existing factories helped.
    - machinekob 4y ago
      Im more about "East Asia is the only region which was certainly 'poor' but now can be described as somewhat 'rich',"
      - 4y ago
thematrixturtle 4y ago
I've worked and traveled in many developing countries, and the key seems to be to get to the point where you have a self-perpetuating middle class: there have to be enough people with disposable income that they can start a virtuous cycle where their spending pulls other people out of poverty. And this is most easily (if that's the word) done by creating factory jobs that both pay better than farming and reward the entrepreneurial. This happened in China, in Singapore, in Korea, in Japan, in Thailand, and thanks to the BPO industry it's starting to happen in the Philippines and India as well. Alas, it's manifestly failing to happen in Africa. As it happens, I'm typing this in a mid-tier Vietnamese city of some fame as a beach resort. Coming out the War of American Aggression (as they call it here), Vietnam had a hardline Communist government and sub-Saharan Africa levels of poverty, with most people earning a dollar a day or less, but in the 1980s they finally started experimenting with capitalism. When I first visited this city in the early 2000s, there were a few hotels, but they catered almost exclusively to adventurous foreigners. In 2022, the equation has been flipped completely on its head: the beach is packed side to side with highrises that could easily be in Miami or the Gold Coast, and 99% of the visitors here are now locals. This applies even at the top-end places like the Western chain hotel I'm staying at, which is completely booked out, and the expensive seafood restaurants: the one I ate at tonight was doing a roaring trade in imported Alaskan king crabs selling for hundreds of US dollars each. And for every hi-so there's 10 or 100 regular folks on company-sponsored getaways and the like, and behind every domestic tourist there's the local low-cost airline with its air crew and ground staff, the Grab (Uber) driver, the tour guide, the IT guy sorting out the hotel's networking, etc etc.
- menshiki 4y ago
  I am not sure how accurate is the first paragraph. There is a strong notion in Confucianist countries that promotes saving majority of your income. People in China, Taiwan, and Singapore often tend to send save 70% of their income. The same can be said about migrants from those nations that moved to the western countries. At the same time, in the US and Western Europe is one decides to save 50% of their income it is considered exceptionally high.
  - 4y ago
frostwarrior 4y ago
We should ask also how do countries get rich amd also stay democratic and free. Saudi Arabia may be rich but that doesn't mean it's a great place to live
- thematrixturtle 4y ago
  It's questionable whether Saudi Arabia can really be described as "rich". The country has a great deal of income equality (there are beggars on the streets of Riyadh), foreign workers who are paid a pittance do virtually all of the work, and the economy including a huge chunk government make-work for locals is mostly a mirage propped up by oil prices.
  - frostwarrior 4y ago
    That's the problem, people usually talk about a rich country as synonymous to a good quality of life for the average man. And often it isn't A rich country is a country with money and capital. It doesn't mean that the country is a good place to live
  - sidibe 4y ago
    > there are beggars on the streets of Riyadh I have no idea how rich Saudi Arabia actually is but where are there no beggars?
    - imtringued 4y ago
      Begging is illegal in Singapore.
lizardactivist 4y ago
Unfortunately, it first depends on whether the IMF, really the U.S. and to some extent the EU, are willing to allow it.
- yunohn 4y ago
  This is the only correct answer. Everything else is textbook speculation. As long as we have modern colonialism and unbalanced currency valuations, the poor will stay poor. Eg - The irony of mentioning poverty traps, when all Western countries still have massive poor classes that experience them is lost on the author and audience.
photochemsyn 4y ago
The definition of 'getting rich' in this article seems rather vague. Are we talking about the average standard of living of the entire population, or the accumulation of wealth by a handful of privileged elites? A gross measure like GDP doesn't distinguish between the two situations, does it? The general trend in poor countries with exportable raw materials over the 20th century has been this: wealthy and powerful countries make deals with small groups of elites to extract those resources and ship them to the wealthy countries industrial production sectors at relatively low prices, while propping up the local tinpot dictators with weapons and cash so they can keep control of their populations. Saudi Arabia is one example (America being the wealthy patron), Niger is one example (France's supply of uranium ore), and that's how the Soviet Union operated in the various 'stans of Central Asia as well. The poor countries may have 'become rich' but in general, their average standard of living remains extremely low relative to the industial wealthy powers. The only way for such countries to raise their overall standard of living is to add value to their raw materials domestically by building up their manufacturing potential. For example, if they have lithium deposits, they should be building factories to convert the lithium into batteries, and then sell the batteries on the global market. Now they have an industrial center, which brings in revenue, and they have begin to have a well-paid professional sector, medical and legal experts, a higher standard of living and so on. At least until their brilliant financial gurus realize they can increase their personal wealth 50-fold by shipping the entire industrial sector to some Third World hellhole and wrecking the whole system, like Wall Street did to the Rust Belt in the United States.
- aetherson 4y ago
  In practice, when GDP rises significantly, average standard of living rises as well. Saudi Arabia's GDP per capita is $20k. Niger's GDP per capita is $565. I think that Niger and Saudi Arabia's living standards are about on par with other countries for those per-capita GDPs.
  - hither_shores 4y ago
    > Saudi Arabia's GDP per capita is $20k. Saudi Arabia's nominal GDP per capita. Their GDP (PPP) per capita is more like $50k - comparable to the United Kingdom, which has significantly better living standards.
bannedbybros 4y ago
[dead]
arminiusreturns 4y ago
When the economic hitmen come to the country with IMF conditionalities they accept them then trickle down all the money thats leftover. If you really want a nation rich they should nationalize their products but thats usually when its time for "democracy" and you get coup'ed, so for the greater good, just do what the economic hitman says. Unfortunately only the corrupt elite get rich. Maybe they industrialize and create a middle class despite the corruption, which does the most to increase a nations wealth.
- thriftwy 4y ago
  IMF is not a develoment fund. It may help you get your balance meet if you already have runaway debt problem. If you don't, it will not come knocking.
qikInNdOutReply 4y ago
By being at the borders of colliding empire vasall-states, were both sides prop up the front-states and use soft-power as much as possible. Follow the iron-curtain lines of the blocks in the cold war to find countries that got rich that way.
epistasis 4y ago
For people interests in this topic, I really recommend the book How Asia Works by Joe Studwell. It focuses mostly on a subset of Asia that has great economic success in the 20th century, and only looks at a few contrasting countries to show perhaps why they didn't work as well. The book's theory is that success starts by first focusing on productivity of agricultural land, to maximize output, not profit. To accomplish that, you need lots of farmers who are motivated to maximize output, which means land distribution so that farmers are working for themselves, rather than as laborers where the landowner takes all. Once there is a broad base of farmers, and the country has food sovereignty, limited import funds can't be drained away just to make sure everyone is fed. And once there's a broad farming base, that is accumulating savings, that means that 1) banks can start making loans for the beginning of industry, and 2) there's a strong farmer consumer base that can be customers of this early industry. Countries like Japan, Taiwan, and South Korea that practiced land reform to wrench land away from idle landlords and distribute it widely, have had this success. And countries that feigned it, like the Philippines, have struggled in comparison. Land really is different from capital, there's a finite amount of it, whereas more capital can always be made. Redistributing hoarded land should be a primary function of government, or at least a government that wants to grow the economy, rather than grow wealth inequality.
- 3a2d29 4y ago
  Really interesting perspective here, wanted to add. I am an engineer now, but studied developmental economics very briefly and there are lot of really interesting theories out there. This “land distribution” point reminds me of a paper they claimed Spain fell behind other colonial powers like England and France because the resource they exploited was precious metals that allowed a few to get rich, but didn’t allow a middle class to grow. Make me think of whether big tech does the same thing (if they can find a way to automate enough they can hire few people and few engineers)
  - dasil003 4y ago
    I’ve thought a lot about this as big tech has grown over the past twenty years. I don’t think it’s quite as bad as precious metals because tech does have utility. But the low marginal costs and rapid global distribution trend towards winner-take-all results.
rob_c 4y ago
Just buy more money
dirtyid 4y ago
TLDR is start with strong authoritarian state capacity and violently bring order to social fabric and build industrial/extractive base while ingratiating powerful hegemons / neighbours, or certainly not piss them off. Ultimately, those with wealth and power get to pick winners and losers. Nascent democracies tend to be developmental death sentences - can't coordinate. It will likely involve extreme state violence. Less viable Asian Tiger export driven route: -Be authoritarian. -Establish domestic serenity via state violence. -Have maritime access. -Be geopolitically strategic to US interests at heigh of hegemony. -Align as satraps and be subsidized by US. -Create export driven industrial policy to climb up value chain. -Educate population Still viable extractive state route. -Be authoritarian. -Establish domestic serenity via state violence. -Have maritime access. -Have resources. -Don't be sanctioned by US. To get to upper income fast: -Helps to have small population. -Have access to cheap migrant labour. Historically, start with: -Be authoritarian. -Establish domestic serenity via state violence. -Have access to cheap slave labour.
- refurb 4y ago
  Rather than “be authoritarian”, you could just say “provide stable political environment”, which would include authoritarian.
Eddy_Viscosity2 4y ago
Has there ever been an example of a country becoming rich that didn't involve some sort of systemic oppression and exploitation of some group of people (whether within their own country or in another)?
- pjscott 4y ago
  Can you think of any country, rich or poor, that doesn’t have something like that in its history?
  - deleted 4y ago
    [deleted]
febeling 4y ago
To me, this question has been answered long ago by the book The mystery of Capital (2000) by Hernando de Soto. The conclusion is, that the administrative and judicial system needs to work for the poor, too; and there needs to be a process that is somewhat practical to go from black/ gray economy to fully legal status. He and team did historical research how that process was very similar in all countries now rich; and showed by experiment that same process is a rich privilege, or extremely costly and inefficient for everyone else (often due to hesitation to overturn nominal property rights in conflict with factual reality). The experimental study was done in a number of countries in the so called developing world, Egypt, Peru, Malaysia among them iirc, covering quite distinct cultural backgrounds, and consisted in following real life cases (over many years).
- helloworld11 4y ago
  Read the same book, along with the much denser "El Otro Sendero" (the other path), which focuses more on Peru alone, and to date I haven't found a better detailed chain of reasoning for why countries get rich and developed across the board, or stay poor, or as in many cases, get wealthier but with enormous discrepancies in who accumulates the wealth and how it's achieved/used.
lazyjones 4y ago
Capital always flows to regions where it's not subjected to high taxation and where it's reasonably safe from political turmoil. And without plenty of capital, the only way developing nations can get rich is by exploiting resources or using forced labour.
5350-uiop-1130 4y ago
Geography also plays a large part. Hard to progress when you're dependent on bordering countries for access to resources. A coastline, access to ports and, regular and reliable rainfall, moderate climate with little danger of natural disasters all helps.
hbarka 4y ago
A poor to rich country should be measured by how quickly they can build high-speed rail networks and their capacity to turn raw input into finished goods. In addition, rich to poor decline should be measured in how quickly the opposite is occurring in terms of decline or inability to improve public works, education, and manufacturing.
cjmb 4y ago
I hate to plug my own writing here, but if you'd like a much deeper exploration of the topic, you'll probably enjoy reading The Full Stack of Society: Can You Make A Whole Society Wealthier? https://www.conradbastable.com/essays/the-full-stack-of-society-can-you-make-a-whole-society-wealthier-full-version https://www.conradbastable.com/essays/the-full-stack-of-soci... A lot of folks on HN have liked and shared it before so I feel like it's okay to share again. My core thesis is that there's a stack of wealth-building strategies: - Feudalism, aka "take & tax other people's productivity" (this is zero-sum) - Mercantilism, aka "sell someone else's productive outputs into someone else's consumption" - Industrialism, aka "Mercantilism but with production brought in-house" - Globalism, aka "export Industrialism to make your customers richer so they can buy more of your products" - Financialism, aka "centralize and allocate flows of capital across time to accelerate any of the other layers in the stack" In reality, most successful countries combine a couple of these, but one tends to be dominant at a time. Most large countries today have passed through this stack and are currently in one of the final 3 layers. A handful of small, well-positioned countries are able to run unique strategies based around supporting neighbours. I chose not to focus on these because they tend to be very specific (e.g. Singapore can only be Singapore because it's located in Singapore, Ireland needs to be in the EU for its tax arbitrage to work, etc.). I would also +1 to epistasis's suggestion in the top comment -- How Asia Works is a great book. If you read it, also read Miti and the Japanese Miracle. My chapter on Industrialism links to those and other related sources.
m00dy 4y ago
This article is interesting but it really needs proof-reading. There are some missing parts, poorly structured parts that are hard to understand. Would be great to read the corrected version
lcall 4y ago
A sufficient fraction of the population who practices honesty and the Golden Rule, which go a long way. One thing that helps with that is to really believe that we are and will be accountable to God, i.e., so that even when no one is watching, doing the honest and kind thing matters to oneself and one's own self-respect. Without this sufficient fraction of the population, it will be very hard to maintain the rule of law anywhere, I think. Also very important, I think, are literacy and education in general, which is more available than ever before (see for example other discussion around WGU and BYU Pathway Worldwide, like at https://news.ycombinator.com/item?id=31180816 https://news.ycombinator.com/item?id=31180816 or in wikipedia). They are accredited, online, and tuition at least for BYU Pathway Worldwide is vastly lower for students in poor countries, with support system etc etc, even if one doesn't yet know English. There are just so many opportunities, if we are willing to strive to be consistently honest and decent toward each other (...and of course, work and plan, as others point out in various ways...). edit: more at my web site (in profile, simple, skimmable, & nothing for sale). Thoughtful comments appreciated with any downvotes.
VictorPath 4y ago
In the case of China, the answer would be - fight off the Japanese, then fight the US backed KMT, launching speak bitterness rallies against large landlords along the way, pour troops into North Korea in the 1950s, start a great leap forward campaign and then a Cultural Revolution. Then Mao and Zhou Enlai make some peace with the US and we carry on until Xi Jinping where you have the largest gdp-ppp in the world and the second largest nominal gdp in the world. Not in this prescription, and of course Deng Xiaoping aligned the economy to the changing world situation, but it was a different road, and other countries industrialized on this road as well.
jleyank 4y ago
Get defeated in war by the us and have them rebuild your country for you. Humorously, the mouse than roared. Seriously, Japan and the Marshall plan. The also didn’t seem to include “dig something valuable out of the ground and sell it” as an option.
simne 4y ago
Not bad. But about financial repression is wrong. Best example is Russia. They few decades tried to make all things at home, naming it import-substitution ("импортозамещение"). Really they need this because they want to conquer world, and manufacture independence need to withstand sanctions. And in reality they got extremely criminalized economy, and economy slowdown, because it is much easier to falsify documents, to claim mostly Chinese produced goods, than to really make own production. Same thing practice Ukraine and most other ex-USSR countries, with same result. Second is that regulations vectored to limit access of imported goods, inhibit economy, because they limit access of business to really need things. For example, Ukraine have high import taxes for automobiles, to support internal auto producers, but in reality, because of this limitations, we have prices for same machines, few times higher than in neighbor countries, and small business cannot buy automobile and lot of business are not opened at all. These import barriers are so powerful brakes, that even last years chain of open market agreements with many countries, does not help to grow gdp much, we have grow of potential markets for 1000% in 10 years, but gdp grow less than measurement error. Korea was poor country before economic liberalization, and before them jailed president :) To be strict, none of mentioned methods alone could be driver for grow more than for few percents, and to grow faster, need to make them ALL good enough, comparable to developed countries of old democracies.

153 points by barry-cotter 4y ago

Is this propaganda? Most developing nations that have reached "first world" status, or close to it, did so via aggressive industrial policy, the thing that the already-wealthy Western world deterred developing nations from embracing for many decades (when they could) in favor of the "free trade" model the Bretton Woods institutions were designed to force on developing nations. This article doesn't even seem to acknowledge industrial policy, and instead harps exclusively on Western perspectives.

thematrixturtle 4y ago
The article talks about that at the end: The East Asian development model adds to export oriented manufacturing financial repression and land reform. Financial repression in this context is the state controlling people’s savings and through a combination of law and incentives, increasing the amount that’s invested in domestic manufacturing firms. Key tools of this are capital controls, which prevent capital from leaving the country to get higher returns internationally, political influence over bank lending, and currency devaluation which in addition providing advantages to exports reduces consumption and increases savings.
- anovikov 4y ago
  What i never understood about it is where the "higher returns internationally" would come from. How can returns in a country where the capital is sorely lacking - and many businesses can be opened and operate in a virtually competition-free environment, are not created for not having money to start up - be lower than in developed nations that already have everything imaginable?
  - calvinmorrison 4y ago
    higher growth potential. You can double gdp by having people make $2 a day more
  - FredPret 4y ago
    You are right about the lack of competition in the third world. But there are sometimes structural and legal factors that make it harder to make money there; lawsuits, arguments, edge cases, and general agreement on how things should work that the West figured out long ago. You can’t invest lots of money with confidence until these things have stabilized. The other thing is that the economy is like an ecosystem - the richer it gets, the more nooks and crannies open up that can host thriving systems. That’s how a complex, rich economy can keep growing exponentially. Human needs are not limited - there’s always a way to improve life for someone.
  - acover 4y ago
    There are benefits to colocation. The inputs to your business may already exist and are cheaper in a rich city than in a poor city. You'll see this where everyday shelf stable goods are more expensive in developing nations than in the usa.
  - imtringued 4y ago
    You have to adjust returns by risk. The risk adjusted return of dollars and euros is much higher than the risk adjusted return in pretty much every African country. It only takes repossession, nationalisation policy or civil unrest and your investment is gone.
  - barry-cotter 4y ago
    Poor institutions. Low trust. Absence of rule of law. Corruption. Enormous cultural mismatches. Atrocious or nonexistent infrastructure. Insane difficulties hiring competent staff. Investing in poor countries is really hard.
lambdasquirrel 4y ago
Either propaganda or inability to get outside of one's own bubble? I don't think it was a coincidence that all of the Asian countries had strong central governments with commitments to long-term planning, at the times of their ascension. Even today, they send hordes of students to American engineering universities, as if the aggressive industrial policy never ended. At CMU, there were roughly as many Singaporean, Thai, Taiwanese, and Korean students (i.e. each of them) as there were students from the Midwest, in the engineering program I was in. And they were much much better prepared for the material than 9 out of 10 of the American students. From them, I gathered a picture of societies that had strong policies designed to build out the kind of economy that poor countries would love to have. Liberal, it was not.
vinceguidry 4y ago
The article backs its theories up with historical examples. You're attacking it for seemingly not being interested in your pet theory.
- vkou 4y ago
  There's no shortage of historical examples to support his position, and it's not a weird fringe theory.
- ohgodplsno 4y ago
  Propaganda doesn't mean lies. I can make propaganda saying that the only way to get rich is to have an industry based on the export of wheat, and I can find historical examples of that. Just because you can provide examples doesn't mean your theory is right, and the whole article basically reeks of "woo western good stupid asians not letting their whole economy commit suicide" while ignoring the thousands of factors that go into it. One of the markers for economical success is often lack of involvement of the US. See the Philippines where the US backed Marcos as a dictator, with this sack of shit Reagan granting him asylum after being kicked out of the country.
marcosdumay 4y ago
"Strong industrial policy" comes in many forms. The onw that conflicts with free trade tend to create low added value, high capital intensive "also run" companies that benefit no one. High tech industry requires both a policy that allows them and access to the international market, for both buying and selling.
macco 4y ago
Why should it be propaganda? Your claim that all countries got rich via aggressive industrial policy doesn't make sense to me. What was this policy in the US? What was this policy in Western Germany after WW II? Their main strategy was to allow creative destruction, through strong institutions. The most important probably the rule of law.
- cma 4y ago
  Sounds like the US used the loose IP protection model we complain about with China: https://www.wikipedia.org/wiki/Samuel_Slater https://www.wikipedia.org/wiki/Samuel_Slater > Samuel Slater (June 9, 1768 – April 21, 1835) was an early English-American industrialist known as the "Father of the American Industrial Revolution" (a phrase coined by Andrew Jackson) and the "Father of the American Factory System". In the UK, he was called "Slater the Traitor"[2] and "Sam the Slate" because he brought British textile technology to the United States, modifying it for American use. He stole the textile factory machinery designs as an apprentice to a pioneer in the British industry before migrating to the United States at the age of 21.
- sudosysgen 4y ago
  The US in the early 19th century was already a rich country. In fact, the US was a rich country from before it was even a country. West Germany after WW2 did have strong industrial policy, and up to now it's one of the European states with the strongest industrial policies.
- rayiner 4y ago
  > What was this policy in the US? See: https://en.wikipedia.org/wiki/American_System_(economic_plan) https://en.wikipedia.org/wiki/American_System_(economic_plan...
epistasis 4y ago
If you read further, other potential models are mentioned. I would agree that the "liberalization" theory has been fairly well disproven, and is nearly laughable. But the post is not propaganda, as it mentions competing ideas that IMHO are much better.
sillystuff 4y ago
Yes, the US for instance was protectionist, once it had a domestic industry. And, earlier in its industrial development, it also stole IP from England[1]. It seems to be the way things are done. The only thing moderating US protectionism, in those early years, was the large agricultural exporting economy of the South. The other bit is that over a quarter of the worlds population are currently under US sanctions. With much of the world acting in lockstep so as to stay in the good graces of the US[2]. Looking at what Cuba has accomplished just in its biotech industry while under crippling sanctions (for 60 years) makes me think they could really flourish without the sanctions[3]. My argument is that it is necessary to end sanctions for a county to flourish, but it is not sufficient. For instance, ending sanctions and returning seized funds will not make a country like Afghanistan into a rich country (it may prevent an estimated 1M children from dying of starvation due to US sanctions, though[4]). [1] https://news.sky.com/story/cyber-is-changing-war-but-its-peace-we-should-worry-about-11615783 https://news.sky.com/story/cyber-is-changing-war-but-its-pea... [2] https://en.wikipedia.org/wiki/United_States_sanctions https://en.wikipedia.org/wiki/United_States_sanctions [3] https://www.ineteconomics.org/perspectives/blog/how-cuba-became-a-biopharma-juggernaut https://www.ineteconomics.org/perspectives/blog/how-cuba-bec... [4] https://www.ft.com/content/b038dec2-a49d-46d5-b187-3dd7216a2931 https://www.ft.com/content/b038dec2-a49d-46d5-b187-3dd7216a2...

throwaway4220 4y ago

As feedback - lots of incomplete sentences. I had to stop reading it was driving me nuts

rr808 4y ago

I like how the internet gives everyone an opportunity to voice their opinion. Unfortunately it means every random person can write something that sound authoritative even though there is no accuracy. The title is something lots of people are interested in, but then the author has lists sources, no evidence and doesn't even write a profile about who they are.

necovek 4y ago
You make it sound as if there's something wrong with that? As you point out, it's obvious none of the claims are supported by evidence, and there is no appeal to authority ("this is who I am"), which qualifies this as an opinion, and should be taken as such. Which means that any reasonable person should, before they make their own opinion, look for evidence for or contradictions to the posted opinion, and use that to make a more informed opinion. Now, the fact that a majority of internet readers are not reasonable is where we should be worried, not about someone sharing their opinion in a modern day bar. (Interestingly, the fact that those same people never thought to critically look at "official" news on TV/newspapers is a symptom of the same problem before the internet.)

deleted 4y ago

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hunglee2 4y ago

East Asia is the only region which was certainly 'poor' but now can be described as somewhat 'rich', and they are all more or less followed the same pattern: - low wage, high volume, light industry for export - lower wage, high volume, heavy industry - multi-decade protectionism to raise global competitive domestic champions - no democracy, if you can help it to ensure political stability to execute multi-decade strategy Idiosyncratic caveats: - Japan got its boost particularly by becoming the arms manufacturer for the US in the Korean War - Singapore / Hong Kong also had financial liberalisation / international money laundering for the Brits - Korea / Taiwan / Hong Kong also had shipping China has followed clearly the same trend (note the irrelevance of the political system, main thing is to avoid democratic instability), simply becoming more massive than any before because it is inherently massive, and has therefore even greater economies of scale to leverage.

beaconstudios 4y ago
It's called a developmental state: https://en.m.wikipedia.org/wiki/Developmental_state https://en.m.wikipedia.org/wiki/Developmental_state
machinekob 4y ago
East/Central Europe (post commie)?
- mc32 4y ago
  Germany has helped push development there (as has the US to a lesser degree) by investing in manufacturing and taking advantage of their labor force(s). Modernizing existing factories helped.
  - machinekob 4y ago
    Im more about "East Asia is the only region which was certainly 'poor' but now can be described as somewhat 'rich',"
    - 4y ago

thematrixturtle 4y ago

I've worked and traveled in many developing countries, and the key seems to be to get to the point where you have a self-perpetuating middle class: there have to be enough people with disposable income that they can start a virtuous cycle where their spending pulls other people out of poverty. And this is most easily (if that's the word) done by creating factory jobs that both pay better than farming and reward the entrepreneurial. This happened in China, in Singapore, in Korea, in Japan, in Thailand, and thanks to the BPO industry it's starting to happen in the Philippines and India as well. Alas, it's manifestly failing to happen in Africa. As it happens, I'm typing this in a mid-tier Vietnamese city of some fame as a beach resort. Coming out the War of American Aggression (as they call it here), Vietnam had a hardline Communist government and sub-Saharan Africa levels of poverty, with most people earning a dollar a day or less, but in the 1980s they finally started experimenting with capitalism. When I first visited this city in the early 2000s, there were a few hotels, but they catered almost exclusively to adventurous foreigners. In 2022, the equation has been flipped completely on its head: the beach is packed side to side with highrises that could easily be in Miami or the Gold Coast, and 99% of the visitors here are now locals. This applies even at the top-end places like the Western chain hotel I'm staying at, which is completely booked out, and the expensive seafood restaurants: the one I ate at tonight was doing a roaring trade in imported Alaskan king crabs selling for hundreds of US dollars each. And for every hi-so there's 10 or 100 regular folks on company-sponsored getaways and the like, and behind every domestic tourist there's the local low-cost airline with its air crew and ground staff, the Grab (Uber) driver, the tour guide, the IT guy sorting out the hotel's networking, etc etc.

menshiki 4y ago
I am not sure how accurate is the first paragraph. There is a strong notion in Confucianist countries that promotes saving majority of your income. People in China, Taiwan, and Singapore often tend to send save 70% of their income. The same can be said about migrants from those nations that moved to the western countries. At the same time, in the US and Western Europe is one decides to save 50% of their income it is considered exceptionally high.
- 4y ago

frostwarrior 4y ago

We should ask also how do countries get rich amd also stay democratic and free. Saudi Arabia may be rich but that doesn't mean it's a great place to live

thematrixturtle 4y ago
It's questionable whether Saudi Arabia can really be described as "rich". The country has a great deal of income equality (there are beggars on the streets of Riyadh), foreign workers who are paid a pittance do virtually all of the work, and the economy including a huge chunk government make-work for locals is mostly a mirage propped up by oil prices.
- frostwarrior 4y ago
  That's the problem, people usually talk about a rich country as synonymous to a good quality of life for the average man. And often it isn't A rich country is a country with money and capital. It doesn't mean that the country is a good place to live
- sidibe 4y ago
  > there are beggars on the streets of Riyadh I have no idea how rich Saudi Arabia actually is but where are there no beggars?
  - imtringued 4y ago
    Begging is illegal in Singapore.

lizardactivist 4y ago

Unfortunately, it first depends on whether the IMF, really the U.S. and to some extent the EU, are willing to allow it.

yunohn 4y ago
This is the only correct answer. Everything else is textbook speculation. As long as we have modern colonialism and unbalanced currency valuations, the poor will stay poor. Eg - The irony of mentioning poverty traps, when all Western countries still have massive poor classes that experience them is lost on the author and audience.

photochemsyn 4y ago

The definition of 'getting rich' in this article seems rather vague. Are we talking about the average standard of living of the entire population, or the accumulation of wealth by a handful of privileged elites? A gross measure like GDP doesn't distinguish between the two situations, does it? The general trend in poor countries with exportable raw materials over the 20th century has been this: wealthy and powerful countries make deals with small groups of elites to extract those resources and ship them to the wealthy countries industrial production sectors at relatively low prices, while propping up the local tinpot dictators with weapons and cash so they can keep control of their populations. Saudi Arabia is one example (America being the wealthy patron), Niger is one example (France's supply of uranium ore), and that's how the Soviet Union operated in the various 'stans of Central Asia as well. The poor countries may have 'become rich' but in general, their average standard of living remains extremely low relative to the industial wealthy powers. The only way for such countries to raise their overall standard of living is to add value to their raw materials domestically by building up their manufacturing potential. For example, if they have lithium deposits, they should be building factories to convert the lithium into batteries, and then sell the batteries on the global market. Now they have an industrial center, which brings in revenue, and they have begin to have a well-paid professional sector, medical and legal experts, a higher standard of living and so on. At least until their brilliant financial gurus realize they can increase their personal wealth 50-fold by shipping the entire industrial sector to some Third World hellhole and wrecking the whole system, like Wall Street did to the Rust Belt in the United States.

aetherson 4y ago
In practice, when GDP rises significantly, average standard of living rises as well. Saudi Arabia's GDP per capita is $20k. Niger's GDP per capita is $565. I think that Niger and Saudi Arabia's living standards are about on par with other countries for those per-capita GDPs.
- hither_shores 4y ago
  > Saudi Arabia's GDP per capita is $20k. Saudi Arabia's nominal GDP per capita. Their GDP (PPP) per capita is more like $50k - comparable to the United Kingdom, which has significantly better living standards.

bannedbybros 4y ago

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arminiusreturns 4y ago

When the economic hitmen come to the country with IMF conditionalities they accept them then trickle down all the money thats leftover. If you really want a nation rich they should nationalize their products but thats usually when its time for "democracy" and you get coup'ed, so for the greater good, just do what the economic hitman says. Unfortunately only the corrupt elite get rich. Maybe they industrialize and create a middle class despite the corruption, which does the most to increase a nations wealth.

thriftwy 4y ago
IMF is not a develoment fund. It may help you get your balance meet if you already have runaway debt problem. If you don't, it will not come knocking.

qikInNdOutReply 4y ago

By being at the borders of colliding empire vasall-states, were both sides prop up the front-states and use soft-power as much as possible. Follow the iron-curtain lines of the blocks in the cold war to find countries that got rich that way.

epistasis 4y ago

For people interests in this topic, I really recommend the book How Asia Works by Joe Studwell. It focuses mostly on a subset of Asia that has great economic success in the 20th century, and only looks at a few contrasting countries to show perhaps why they didn't work as well. The book's theory is that success starts by first focusing on productivity of agricultural land, to maximize output, not profit. To accomplish that, you need lots of farmers who are motivated to maximize output, which means land distribution so that farmers are working for themselves, rather than as laborers where the landowner takes all. Once there is a broad base of farmers, and the country has food sovereignty, limited import funds can't be drained away just to make sure everyone is fed. And once there's a broad farming base, that is accumulating savings, that means that 1) banks can start making loans for the beginning of industry, and 2) there's a strong farmer consumer base that can be customers of this early industry. Countries like Japan, Taiwan, and South Korea that practiced land reform to wrench land away from idle landlords and distribute it widely, have had this success. And countries that feigned it, like the Philippines, have struggled in comparison. Land really is different from capital, there's a finite amount of it, whereas more capital can always be made. Redistributing hoarded land should be a primary function of government, or at least a government that wants to grow the economy, rather than grow wealth inequality.

3a2d29 4y ago
Really interesting perspective here, wanted to add. I am an engineer now, but studied developmental economics very briefly and there are lot of really interesting theories out there. This “land distribution” point reminds me of a paper they claimed Spain fell behind other colonial powers like England and France because the resource they exploited was precious metals that allowed a few to get rich, but didn’t allow a middle class to grow. Make me think of whether big tech does the same thing (if they can find a way to automate enough they can hire few people and few engineers)
- dasil003 4y ago
  I’ve thought a lot about this as big tech has grown over the past twenty years. I don’t think it’s quite as bad as precious metals because tech does have utility. But the low marginal costs and rapid global distribution trend towards winner-take-all results.

rob_c 4y ago

Just buy more money

dirtyid 4y ago

TLDR is start with strong authoritarian state capacity and violently bring order to social fabric and build industrial/extractive base while ingratiating powerful hegemons / neighbours, or certainly not piss them off. Ultimately, those with wealth and power get to pick winners and losers. Nascent democracies tend to be developmental death sentences - can't coordinate. It will likely involve extreme state violence. Less viable Asian Tiger export driven route: -Be authoritarian. -Establish domestic serenity via state violence. -Have maritime access. -Be geopolitically strategic to US interests at heigh of hegemony. -Align as satraps and be subsidized by US. -Create export driven industrial policy to climb up value chain. -Educate population Still viable extractive state route. -Be authoritarian. -Establish domestic serenity via state violence. -Have maritime access. -Have resources. -Don't be sanctioned by US. To get to upper income fast: -Helps to have small population. -Have access to cheap migrant labour. Historically, start with: -Be authoritarian. -Establish domestic serenity via state violence. -Have access to cheap slave labour.

refurb 4y ago
Rather than “be authoritarian”, you could just say “provide stable political environment”, which would include authoritarian.

Eddy_Viscosity2 4y ago

Has there ever been an example of a country becoming rich that didn't involve some sort of systemic oppression and exploitation of some group of people (whether within their own country or in another)?

pjscott 4y ago
Can you think of any country, rich or poor, that doesn’t have something like that in its history?
- deleted 4y ago
  [deleted]

febeling 4y ago

To me, this question has been answered long ago by the book The mystery of Capital (2000) by Hernando de Soto. The conclusion is, that the administrative and judicial system needs to work for the poor, too; and there needs to be a process that is somewhat practical to go from black/ gray economy to fully legal status. He and team did historical research how that process was very similar in all countries now rich; and showed by experiment that same process is a rich privilege, or extremely costly and inefficient for everyone else (often due to hesitation to overturn nominal property rights in conflict with factual reality). The experimental study was done in a number of countries in the so called developing world, Egypt, Peru, Malaysia among them iirc, covering quite distinct cultural backgrounds, and consisted in following real life cases (over many years).

helloworld11 4y ago
Read the same book, along with the much denser "El Otro Sendero" (the other path), which focuses more on Peru alone, and to date I haven't found a better detailed chain of reasoning for why countries get rich and developed across the board, or stay poor, or as in many cases, get wealthier but with enormous discrepancies in who accumulates the wealth and how it's achieved/used.

lazyjones 4y ago

Capital always flows to regions where it's not subjected to high taxation and where it's reasonably safe from political turmoil. And without plenty of capital, the only way developing nations can get rich is by exploiting resources or using forced labour.

5350-uiop-1130 4y ago

Geography also plays a large part. Hard to progress when you're dependent on bordering countries for access to resources. A coastline, access to ports and, regular and reliable rainfall, moderate climate with little danger of natural disasters all helps.

hbarka 4y ago

A poor to rich country should be measured by how quickly they can build high-speed rail networks and their capacity to turn raw input into finished goods. In addition, rich to poor decline should be measured in how quickly the opposite is occurring in terms of decline or inability to improve public works, education, and manufacturing.

cjmb 4y ago

I hate to plug my own writing here, but if you'd like a much deeper exploration of the topic, you'll probably enjoy reading The Full Stack of Society: Can You Make A Whole Society Wealthier? https://www.conradbastable.com/essays/the-full-stack-of-society-can-you-make-a-whole-society-wealthier-full-version https://www.conradbastable.com/essays/the-full-stack-of-soci... A lot of folks on HN have liked and shared it before so I feel like it's okay to share again. My core thesis is that there's a stack of wealth-building strategies: - Feudalism, aka "take & tax other people's productivity" (this is zero-sum) - Mercantilism, aka "sell someone else's productive outputs into someone else's consumption" - Industrialism, aka "Mercantilism but with production brought in-house" - Globalism, aka "export Industrialism to make your customers richer so they can buy more of your products" - Financialism, aka "centralize and allocate flows of capital across time to accelerate any of the other layers in the stack" In reality, most successful countries combine a couple of these, but one tends to be dominant at a time. Most large countries today have passed through this stack and are currently in one of the final 3 layers. A handful of small, well-positioned countries are able to run unique strategies based around supporting neighbours. I chose not to focus on these because they tend to be very specific (e.g. Singapore can only be Singapore because it's located in Singapore, Ireland needs to be in the EU for its tax arbitrage to work, etc.). I would also +1 to epistasis's suggestion in the top comment -- How Asia Works is a great book. If you read it, also read Miti and the Japanese Miracle. My chapter on Industrialism links to those and other related sources.

m00dy 4y ago

This article is interesting but it really needs proof-reading. There are some missing parts, poorly structured parts that are hard to understand. Would be great to read the corrected version

lcall 4y ago

A sufficient fraction of the population who practices honesty and the Golden Rule, which go a long way. One thing that helps with that is to really believe that we are and will be accountable to God, i.e., so that even when no one is watching, doing the honest and kind thing matters to oneself and one's own self-respect. Without this sufficient fraction of the population, it will be very hard to maintain the rule of law anywhere, I think. Also very important, I think, are literacy and education in general, which is more available than ever before (see for example other discussion around WGU and BYU Pathway Worldwide, like at https://news.ycombinator.com/item?id=31180816 https://news.ycombinator.com/item?id=31180816 or in wikipedia). They are accredited, online, and tuition at least for BYU Pathway Worldwide is vastly lower for students in poor countries, with support system etc etc, even if one doesn't yet know English. There are just so many opportunities, if we are willing to strive to be consistently honest and decent toward each other (...and of course, work and plan, as others point out in various ways...). edit: more at my web site (in profile, simple, skimmable, & nothing for sale). Thoughtful comments appreciated with any downvotes.

VictorPath 4y ago

In the case of China, the answer would be - fight off the Japanese, then fight the US backed KMT, launching speak bitterness rallies against large landlords along the way, pour troops into North Korea in the 1950s, start a great leap forward campaign and then a Cultural Revolution. Then Mao and Zhou Enlai make some peace with the US and we carry on until Xi Jinping where you have the largest gdp-ppp in the world and the second largest nominal gdp in the world. Not in this prescription, and of course Deng Xiaoping aligned the economy to the changing world situation, but it was a different road, and other countries industrialized on this road as well.

jleyank 4y ago

Get defeated in war by the us and have them rebuild your country for you. Humorously, the mouse than roared. Seriously, Japan and the Marshall plan. The also didn’t seem to include “dig something valuable out of the ground and sell it” as an option.

simne 4y ago

Not bad. But about financial repression is wrong. Best example is Russia. They few decades tried to make all things at home, naming it import-substitution ("импортозамещение"). Really they need this because they want to conquer world, and manufacture independence need to withstand sanctions. And in reality they got extremely criminalized economy, and economy slowdown, because it is much easier to falsify documents, to claim mostly Chinese produced goods, than to really make own production. Same thing practice Ukraine and most other ex-USSR countries, with same result. Second is that regulations vectored to limit access of imported goods, inhibit economy, because they limit access of business to really need things. For example, Ukraine have high import taxes for automobiles, to support internal auto producers, but in reality, because of this limitations, we have prices for same machines, few times higher than in neighbor countries, and small business cannot buy automobile and lot of business are not opened at all. These import barriers are so powerful brakes, that even last years chain of open market agreements with many countries, does not help to grow gdp much, we have grow of potential markets for 1000% in 10 years, but gdp grow less than measurement error. Korea was poor country before economic liberalization, and before them jailed president :) To be strict, none of mentioned methods alone could be driver for grow more than for few percents, and to grow faster, need to make them ALL good enough, comparable to developed countries of old democracies.