FPIF Special Report
December 2003

Kicking Away the Ladder: The “Real” History of Free Trade

By Ha-Joon Chang

5. Lessons for the Present

The historical picture is clear. When they were trying to catch up with the frontier economies, the NDCs used interventionist trade and industrial policies in order to promote their infant industries. The forms of these policies and the emphases among them may have been different across countries, but there is no denying that they actively used such policies. And, in relative terms (that is, taking into account the productivity gap with the more advanced countries), many of them actually protected their industries a lot more heavily than what the currently developing countries have done.

If this is the case, the current orthodoxy advocating free trade and laissez-faire industrial policies seems at odds with historical experience, and the developed countries that propagate such a view seem to be indeed “kicking away the ladder” that they used in order to climb up to where they are.

The only possible way for the developed countries to counter this accusation of “ladder-kicking” will be to argue that the activist trade and industrial policies that they had pursued used to be beneficial for economic development but are not so any more, because “times have changed.” Apart from the paucity of convincing reasons why this may be the case, the poor growth records of the developing countries over the last two decades makes this line of defense simply untenable. It depends on the data we use, but roughly speaking, per capita income in developing countries grew at 3% per year between 1960 and 1980, but has grown only at about 1.5% between 1980 and 2000. And even this 1.5% will be reduced to 1%, if we take out India and China, which have not pursued liberal trade and industrial policies recommended by the developed countries.

So, if you are a neoliberal economist, you are faced with a paradox. The developing countries grew much faster when they used “bad” trade and industrial policies during 1960–1980 than when they used “good” (at least “better”) policies during the following two decades. The obvious solution to this paradox is to accept that the supposedly good policies are actually not good for the developing countries but that the “bad” policies are actually good for them. This gets further confirmation from the fact that these “bad” policies are also the ones that the NDCs had pursued when they were developing countries themselves.

Given these arguments, we can only conclude that, in recommending the allegedly good policies, the NDCs are in effect “kicking away the ladder” by which they have climbed to the top beyond the reach of the developing countries. I do accept that this “ladder-kicking” may be done genuinely out of (misinformed) goodwill. Some of those NDC policymakers and scholars who make the recommendations may sincerely believe that their own countries developed through free trade and other laissez-faire policies and want the developing countries benefit from the same policies. However, this makes it no less harmful for the developing countries. Indeed, it may be even more dangerous than “ladder-kicking” based on naked national interests, as self-righteousness can be even more stubborn than self-interest.

Whatever the intention is behind the “ladder-kicking,” the fact remains that these allegedly good policies have not been able to generate the promised growth dynamism in the developing countries during the last two decades. Indeed, in many developing countries, growth has simply collapsed.

So what is to be done? While spelling out a detailed agenda for action is beyond the scope of this article, the following points may be made.

To begin with, the historical facts about the developmental experiences of the developed countries should be more widely publicized. This is not just a matter of “getting history right,” but also of allowing the developing countries to make informed choices. I do not wish to give the impression that every developing country should adopt an active infant industry promotion strategy like eighteenth-century Britain, nineteenth-century United States, or twentieth-century Korea. Some of them may indeed benefit from following the Swiss or Hong Kong models. However, this strategic choice should be made in the full knowledge that historically the vast majority of the successful countries used the opposite strategy in order to become rich.

In addition, the policy-related conditions attached to financial assistance from the International Monetary Fund and the World Bank, or from the donor governments should be radically changed. These conditions should be based on the recognition that many of the policies that are considered bad are not, and that there can be no “best practice” policy that everyone should use. Second, the WTO rules and other multilateral trade agreements should be rewritten in such a way that a more active use of infant industry promotion tools (e.g., tariffs, subsidies) is allowed.

Allowing the developing countries to adopt the policies (and institutions) that are more suitable to their stages of development and to other conditions they face will enable them to grow faster, as indeed it did during the 1960s and the 1970s. This will benefit not only the developing countries but also the developed countries in the long run, as it will increase the trade and investment opportunities available to the developed countries in the developing countries. That the developed countries are not able to see this is the tragedy of our time.

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