Kicking Away the Ladder

Ha-Joon Chang opens with a provocative question: Did the rich countries really become rich by following the policies and institutions they now prescribe to developing nations? The international development policy establishment, he argues, pressures developing countries to adopt a package of "good policies," broadly those of the Washington Consensus (trade liberalization, privatization, deregulation, restrictive macroeconomic policy), and "good institutions" modeled on those found in developed countries. These include democracy, an independent judiciary, strong private property rights, transparent corporate governance, and politically independent central banks. Chang contends that this conventional wisdom rests on a deeply misleading reading of history. His short answer is that developed countries did not develop through the policies and institutions they now recommend. Most actively used protectionist trade and industrial policies, and they lacked institutions now deemed essential until they were quite advanced economically.

Chang frames his methodology through the work of Friedrich List, the nineteenth-century German economist known as the father of the infant industry argument, which holds that less developed countries cannot build new industries without state protection, especially tariffs. List devoted a large portion of his 1841 masterwork, The National System of Political Economy, to historical analysis, arguing that Britain was the first country to perfect infant industry promotion and that its later advocacy of free trade was self-serving nationalism disguised as universal principle. Chang quotes List's famous metaphor: When a nation reaches the summit of greatness, it "kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him" (4). List pointed out that the United States, dismissed by the earlier economist Adam Smith as destined to rely on agriculture, protected its infant industries with great success after 1816 and became the world's industrial leader. Chang traces the intellectual lineage of List's approach through the German Historical School, a tradition of history-focused economists, and the early founders of development economics. He laments that this tradition has been marginalized by Neoclassical economics, an abstract, theory-driven approach that leaves contemporary development debates detached from history.

The book's core historical argument unfolds in Chapter 2, where Chang examines the industrial, trade, and technology (ITT) policies used by now-developed countries (NDCs) during their own development. He begins with Britain, widely regarded as having developed through laissez-faire principles. Chang shows this claim to be false. Britain entered its post-feudal age as a backward economy reliant on raw wool exports to the more advanced Low Countries (modern-day Belgium and the Netherlands). Edward III, the fourteenth-century English king, was the first to deliberately promote domestic cloth manufacturing. Continuing through the Tudor monarchs Henry VII and Elizabeth I, England pursued systematic infant industry promotion by poaching skilled workers from abroad, imposing export bans on raw wool, and raising tariffs on competing imports. Robert Walpole, the British political leader behind the landmark 1721 trade reform, made this approach more comprehensive by lowering duties on imported raw materials, raising tariffs on manufactured imports, and extending export subsidies. Chang notes these policies were strikingly similar to those later used by postwar East Asian economies. Britain maintained very high manufacturing tariffs as late as the 1820s and only shifted to free trade in the 1850s and 1860s, after its technological supremacy was already overwhelming. Even then, the shift was partly motivated by "free trade imperialism," a desire to halt industrialization on the European continent. The free-trade era proved short-lived; by the 1880s British manufacturers were asking for protection, and tariffs returned on a large scale in 1932.

Chang then turns to the United States, which he calls "the mother country and bastion of modern protectionism." Alexander Hamilton, the first Secretary of the Treasury, systematically articulated the infant industry argument in 1791, predating List, who only adopted the position after his period of exile in the US. From 1816 onward, the US maintained among the highest tariff rates in the world on manufactured goods, and tariff policy became deeply entangled with the sectional conflicts that led to the Civil War. Abraham Lincoln, the Republican presidential candidate and committed protectionist, won the 1860 election partly on the support of protectionist states. During and after the Civil War, tariffs reached their highest levels and stayed there. The US was the fastest-growing economy in the world throughout the nineteenth century while being the most protectionist. It liberalized trade only after World War II, when its industrial supremacy was unchallenged. Beyond tariffs, the US government supported agricultural research, expanded public education, subsidized railway development, and in the postwar era funded between one-half and two-thirds of total research and development spending, helping create industries like computers, aerospace, and the internet.

Chang examines Germany, France, Sweden, and smaller European economies to demonstrate that the pattern held across countries, though the specific policy mix varied. Germany used relatively low tariffs but compensated through direct state involvement, including model factories, recruitment of foreign skilled workers, and educational reform. France, contrary to its reputation as inherently interventionist, ran a largely laissez-faire regime for most of the nineteenth century and was actually less protectionist than Britain during this period. Sweden used strategic tariff protection and sophisticated public-private cooperation. Switzerland and the Netherlands developed under broadly liberal policies, but Chang argues this was because they were already near the technological frontier, not because free trade was inherently superior. Japan, forced open in 1854 and unable to use tariffs due to coercive unequal treaties that capped its rates below five percent, instead used state-owned enterprises, subsidies, and institutional borrowing from multiple advanced countries. After regaining tariff autonomy in 1911, Japan adopted more comprehensive industrial strategies, and its spectacular postwar growth is widely attributed to activist state policy.

Chang also examines how leading economies actively prevented others from developing. Britain outlawed manufacturing in its colonies, imposed unequal treaties on weaker nations, banned the emigration of skilled workers and the export of machinery, and destroyed competing colonial industries. Less developed countries responded with industrial espionage and willful violation of patents and trademarks. Even after an international intellectual property regime emerged in the 1880s, advanced countries routinely violated foreign intellectual property: Switzerland and the Netherlands lacked patent laws until 1907 and 1912, and the US did not recognize foreigners' copyrights until 1891.

In Chapter 3, Chang turns to institutional development, examining democracy, bureaucracy, judiciary, property rights, corporate governance, financial institutions, and social welfare and labor institutions across the NDCs. The picture that emerges is one of painfully slow, uneven progress with frequent reversals. Universal male suffrage was not common until after 1900; universal suffrage including women was not achieved in the majority of NDCs until 1946. Professional bureaucracies emerged only through decades of reform. Central banking developed haltingly: The US Federal Reserve was not established until 1913 and even then covered only a fraction of banks. Child labor was not banned at the federal level in the US until 1938, the same year a maximum 40-hour working week was implemented. Chang demonstrates that, at comparable levels of per capita income, today's developing countries are institutionally far more advanced than the NDCs were. The UK in 1820, at a higher development level than India today, lacked universal suffrage, a central bank, income tax, generalized limited liability, and virtually all labor regulations.

In his concluding chapter, Chang argues that the evidence confirms a pattern of "ladder-kicking." Developing countries grew much faster during 1960 to 1980, when they used supposedly "bad" activist policies, than during the subsequent two decades of recommended "good" policies. Per capita GDP growth across developing countries fell from roughly three percent per annum to 1.5 percent. Latin America's growth collapsed from 2.8 percent to 0.3 percent; Sub-Saharan Africa went from growth to contraction. Chang addresses potential objections, including the argument that global institutional standards have risen, but insists the transition periods demanded of developing countries are unrealistically short given historical experience. He calls for rewriting World Trade Organization (WTO) rules and International Monetary Fund (IMF) conditionalities to allow developing countries greater policy autonomy, and for a more realistic approach to institutional reform. Allowing developing countries to adopt policies suited to their actual circumstances, he concludes, would benefit not only those countries but also the developed world through expanded trade and investment opportunities.