Catching Up and Falling Behind
Yongseok Shin
Washington University in St. Louis
April 17, 2016
Yongseok Shin (WUSTL)
Convergence
April 17, 2016
1 / 29
Catching Up
Following the Industrial Revolution in Britain and some others, many
countries feel that they need to catch up.
1
2
3
Political pressure
Defensive modernization
Economic gains
Successes: Germany, Japan, the US
“Failures”: China, India
Questions:
1
2
How can we think of catching-up?
What can be done for catching-up?
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Convergence
April 17, 2016
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Catching Up
Alexander Gerschenkron (1962), Economic Backwardness in Historical
Perspective
Backwardness creates a tension that takes political form and
motivates institutional innovations.
The more backward the country, the more the state intervenes to
channel capital and entrepreneurs to nascent industries. Also, the
more coercive and comprehensive are the measures required to reduce
consumption and force national saving.
The more backward the economy, the more likely is an emphasis upon
domestic production of producer goods over consumer goods, capital
intensive technologies, the emergence of larger-scale production units,
and the adoption of advanced technology.
The more backward the country, the less likely is the agricultural
sector to provide a growing market to industry, and the more
dependent is industry upon raising productivity and inter-industry
sales. Such unbalanced growth is often made feasible by the state.
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Convergence
April 17, 2016
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Catching Up
Evidence:
Some vigorous programs of state-led modernization worked.
But, for each program that worked, there are many other that did not.
It is difficult to tell what works and what does not.
Elements that seem to help:
Strong nationalistic sentiments in government and population
Qualified bureaucrats that prioritize modernization
External pressures
In many successes, militaristic-authoritarian tendencies are common.
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Convergence
April 17, 2016
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Industrial Policy: Tariffs and Infant Industry
Original proponents: Alexander Hamilton, Friedrich List
Possible justifications:
1
Learning by doing (Rapping, Arrow)
2
Economies of scale
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Convergence
April 17, 2016
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Liberty Ships
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Convergence
April 17, 2016
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Liberty Ships
108
journal of political economy
Fig. 2. —Standard Liberty ships production speed, six yards (see note to fig. 1)
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Convergence
April 17, 2016
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Liberty Ships
liberty shipbuilders
123
TABLE 3
SURE Production Function Estimates (Experience Proxy: Cumulative
Employment)
Dependent Variable: Log Monthly Output in Ship
Equivalents
(3)
(4)
(5)
(6)
Log experience
(cumulative labor
hours)
Log operating
ways
Log capital, Kit
.359
(.040)
.355
(.038)
.228
(.038)
.208
(.050)
…
…
2.278
(.299)
…
Capacity utilization
weight,
wit p (6 1
Sit)/7
Log labor hours
…
Wald tests (pvalues):
Col. 3
Col. 4
Lowest adjusted
R2
Observations
…
…
…
1.040
(.127)
…
1.117
(.165)
1.117
(.165)
.542
(.074)
.566
(.072)
.462
(.065)
.343
(.086)
…
.902
…
.001
.001
.003
.004
.905
177
.901
177
.98
177
.716
149
Note.—See note to table 2.
component
Yongseok Shin atic
(WUSTL)
of quality change
is usually a challenging task. First,
Convergence
April 17, 2016
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Liberty Ships
liberty shipbuilders
131
TABLE 5
Determinants of Fracture Probabilities and Hazard Rates in Liberty Ships
Probit*
Constant
Labor hours per
ship (millions)
Production speed
(hundreds of
days)
War service (years)
Design changes
Date of keel laying
(years since first
keel laid)
Order of keel
laying
v
Observations
Log likelihood
Weibull Duration Model
(1)
(2)
(3)
(4)
2.70
(.37)
2.63
(.29)
…
2.78
(.27)
…
22.07
(.96)
21.83
(.77)
…
22.95
(.62)
…
21.28
(.41)
.06
(.02)
2.62
(.12)
2.21
(.15)
.05
(.02)
2.55
(.12)
2.27
(.14)
2.00
(.00)
…
2.00
(.00)
…
2,662
2819.2
2,654
2816.4
22.43
(.97)
…
…
21.48
(.27)
2.43
(.42)
21.38
(.28)
.35
(.36)
2.00
(.00)
.82
(.06)
2,662
21,174.2
2.00
(.00)
.81
(.06)
2,654
21,174.4
Note.—All regressions include yard dummies. Standard errors are in parentheses. War service is years to delivery to
end of sampling period or February 2, 1946, whichever comes first. Design changes equals zero if keel was laid before
May 1943, one otherwise. Eight ships delivered by Oregon had been partially built by Kaiser-Vancouver; data on
production speed are not available for these ships.
*
y equals one if the fracture was reported before February 2, 1946, and zero otherwise.
binary model is estimated by logit. Note also that the parameter v in
model is significantly
less than one, indicating that hazardApril 17, 2016
Convergence
duration
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Industrial Policy: Difficulties
1
2
Difficult to extend to many countries
Difficult to pick winners
Experience of MITI: Fifth generation computer systems, Honda
Atari Democrats (Current implications: green technologies)
3
Prone to corruption
4
Difficult to wean the vested interest
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Convergence
April 17, 2016
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Germany
On January 18, 1871, Deutsches Kaiserreich is proclaimed in the Hall of
Mirrors of the Palace of Versailles.
1
Largest population in Europe
2
Central position in the continent
3
Limited democracy/partially authoritarian regime
4
Most important, a fast-growing economy
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Convergence
April 17, 2016
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Convergence
April 17, 2016
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Convergence
April 17, 2016
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German Economy
Role of heavy industry: steel, chemical
Role of banks: universal banking
Role of research universities
Role of R&D
“Alliance of iron and rye”
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Convergence
April 17, 2016
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Japan
From the early 16th century, Japan was closed to the rest of the
world.
In 1852, Commodore Perry sails from Norfolk, Virginia to Tokyo Bay,
in command of four black-hulled steam frigates.
Goal: a trade treaty with Japan
President Fillmore authorized the use of force if necessary.
Treaty of Kanagawa signed in 1854.
In 1855, Russia and Japan establish diplomatic relations. In 1864,
British, French, Dutch, and American warships bombard Shimonoseki
and open more Japanese ports for foreigners.
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Convergence
April 17, 2016
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Black Ship
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Convergence
April 17, 2016
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Meiji Restoration
In 1868, Tokugawa Yoshinobu resigns, ending the Tokugawa dynasty,
and the emperor Meiji is restored.
Small, tight groups of elite notables control the country.
Accelerated program of modernization (ie, Westernization)
By 1873: prefects, bureaucratic jobs, newspapers, education ministry,
military conscription, railways, and the Gregorian calendar
By 1879: representative local government
By 1889: bicameral parliament (Diet)
Samurais are expropriated: Feudal rents transformed into bonds from
the central government but subsequently inflated away.
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Convergence
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Assertive Foreign Policy
1894–5: War with China. Control over Korea and Taiwan.
1899: Abolished extra-territoriality of Europeans.
1905: Russo-Japanese War in 1905. Battle of Tsushima. Control over
Manchuria.
1914: Japan declares war against Germany in World War I. Control
over German Pacific colonies. (Feels cheated in 1919.)
Significance: Non-Europeans can modernize quickly, too.
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Convergence
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Convergence
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The US
The US comes out of the Civil War as a country with a much more
unified elite. (No Southern president until Wilson in 1912.)
Ideal conditions for economic growth
Abundant land
Mineral resources
Border with no enemies
An educated populace
A large internal market
Fast economic growth: Unparalleled economic power by 1900.
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Convergence
April 17, 2016
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Gilded Age
Big corporations take advantage of economies of scale.
Robber Barons: Duke, Vanderbilt, Stanford, Rockefeller (to name but
those with a university named after them).
Antitrust legislation: Sherman Antitrust Act of 1890, Clayton
Antitrust Act and Federal Trade Commission Act of 1914,
Robinson-Patman Act of 1936.
In 1911, the Supreme Court agrees that Standard Oil Company
violated the Sherman Act and breaks up the monopoly into three
dozen separate companies:
Standard Oil
ExxonMobil)
Standard Oil
Standard Oil
Standard Oil
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of New Jersey (later known as Exxon and now
of Indiana (Amoco, now BP)
Company of New York (Mobil)
Company of California (Chevron)
Convergence
April 17, 2016
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China
The Taiping Rebellion of 1850–64 ravages central China.
Hong Xiuquan, a failed scholar
1
2
3
After failing one exam, he has a vision of him being the younger
brother of Jesus Christ.
Proclaims the Heavenly Kingdom of Great Peace.
Land equally divided after all landlords were killed (roughly 50 percent
increase in median peasant standards of living).
Three reasons the rebellion lasted for so long:
1
2
3
The imperial court feared successful generals (as potential usurpers) as
much as it feared rebels.
Enough landless, desperate peasants to join the rebellion.
Hong Xiuquan supplemented his brand of theocratic landlord-free
authoritarian communism with anti-Manchu nationalism.
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Convergence
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Convergence
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Self-Strengthening Movement
Li Hongzhang
Traditional scholar, serves the Dynasty during the Taiping rebellion.
Becomes senior official in foreign and military affairs.
Initiatives:
1
2
3
4
5
1877: Kaiping coal mine
1878: cotton mills in Shanghai
Tianjin arsenal
Telegraph between Tianjin and Peking
A seven-mile railroad to ship from Kaiping to the river.
Resistance:
1
Dynasty itself
2
Bureaucrats
3
Landowners
Reformers are defeated.
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Convergence
April 17, 2016
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The End of Imperial China
War of 1894–5 with Japan over the control of Korea
Boxer Uprising (or the Righteous Harmony Society Movement) in
1898–1901
Foreign powers: Eight-Nation Alliance
Finally, 1911 Revolution ushers in a period of political instability that
lasts until 1949.
Industrialization is nearly impossible.
Two important elements:
Sun Yat-Sen: First modern nationalist leaders
Kuomintang: First modern popular-nationalistic movement
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Convergence
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Convergence
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India
Great Rebellion of 1857
1
Last Mughal ruler, Bahadur Shah II, deposed (a direct descendent of
Ghengis Khan, Timur, and Babur)
2
Act for Government of India in 1858 abolishes the BEIC, and the
assets are transferred to the Crown. British Raj.
3
Ruled from London by the Indian Office (a small number of civil
servants).
4
Divided into British India and the Princely States (568 at
Independence).
5
Little or no economic growth until World War II.
6
Why? Effects of colonialism
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Convergence
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Convergence
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Modernizing Regimes
Karl Marx missed the main force of the 20th century: It was not class
struggle, but nationalism.
Japan and Atatürk in Turkey are the first examples of modernizing
nationalist regimes.
Even today, this is an extremely powerful force.
Failure of nationalist movement: e.g., in the Arab world (Nasser, the
Baath party).
East Asian miracles
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Convergence
April 17, 2016
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