Learning by example?

Learning from the past development experiences of one set of countries to inform strategies in another clearly requires considerable caution. Any analysis of dynamic country experiences involves risks, and can be prone to reinterpretation over time (Page, 1994, 2011, 2014). Some academics have questioned the usefulness of such exercises in the light of weaknesses in government institutional capacities, changing external policies and economic environments, and/or historical misreading of the nature and processes of economic development (Weiss, 2011, 2005; Naudé, 2010a, 2010b; Naughton, 2010; Altenburg, 2011; Hobday, 2011; Milberg et al., 2014). The very term, “economic miracle”, applied to conspicuous development success stories, implies that such cases can be neither explained nor replicated.

Unquestionably, every country is unique, and its particular geographical, historical, demographic and social circumstances have important implications for its development path, as do its initial economic conditions. Equally, the international economic environment has changed considerably over the past 30 years. The development of the multilateral trading system, for example, may mean that paths pursued by the four success cases examined here are no longer possible, although LDCs have greater flexibility in this regard than do other developing countries. And, as discussed in chapter 6 of this Report, the international context will undoubtedly change further in the decades to come, not least as a result of the post-2015 development agenda.

Equally, however, it would be imprudent to assume that no conclusions can be drawn from successful cases, or “that there is no point in learning about their growth paths because the lessons cannot be applied at home” (Commission on Growth and Development, 2008: 20). Certainly, policymakers in successful countries have often looked to the experiences of others (Mahbubani, 2009; Virmani, 2006). For example, it has been argued that China and India — two of the most successful developing countries in recent history — owed their success precisely to their attentiveness to the limitations of the mature market economy model and its standard policy prescriptions, and sought to adapt it to their own unique conditions and circumstances (El-Erian and Spence, 2008).

Some indirect and context-specific policy lessons can indeed be gleaned from successful cases (Wade, 2010; Chang, 2012). The experiences of successful countries may be an important complement to imperfectly formulated economic theory, highlighting the role of key growth drivers and helping to identify relevant variables that could improve the analytical approach to assessing policy. Even some observers who rightly stress that no lessons can be directly learned, or models imitated, have acknowledged that “there may well be some subtle and useful insights from the Asian experience” (Hobday, 2011: 17).

The question is what kinds of lessons can and cannot be drawn, and how they can be applied in different contexts to positive effect. Evans (1998: 78–79) captures well the potential and the limitations of the process:

If transfer were defined literally as the implantation of East Asian institutions in developing countries of other regions, then it would make

Every country is unique, and its particular circumstances and initial economic conditions have important

implications for its development path.

Policymakers in successful countries have often looked to the experiences

of others.

Some indirect and context-specific policy lessons can be gleaned from

no sense. The concrete institutional forms associated with East Asian success vary substantially across individual countries for good reason. Achieving analytically similar results in different historical, cultural and political contexts requires adaptive ‘reverse engineering’. Policies may be sometimes transferable in the mechanistic sense of replication, but institutions rarely are … Other countries will have to use East Asian models as creatively as East Asians used the models that their American advisors presented them with in the 1950s.

The lessons that can be learned relate primarily to what, broadly, needs to be achieved for successful structural transformation, and what general types of policies, institutional arrangements and instruments may contribute to that process. However, the particularities of such changes, and the appropriate means for undertaking them, must necessarily be based on the specific circumstances of each country.

Developing appropriate development strategies within each country requires pragmatism (i.e. a willingness to do what works in the local context), experimentation based on the lessons of past experiences, capacity-building and a progressive refinement of strategies in the light of experience as the process progresses. This is a well-trodden path taken by successful developing countries. Even China adopted such a process in achieving its “economic

Box 4. Chinese policy reforms: Learning by doing

When reforms started in China in the late 1970s, it was a low-income country, with a real per capita GDP similar to that of the poorest LDCs in 2013. The population was largely rural, and agriculture was the largest sector in terms of employment. Like most low-income countries, it had relatively abundant natural resources and unskilled labour, and a scarcity of human and physical capital; and it relied on exports of raw materials such as crude coal, crude oil, minerals and agricultural products to earn foreign exchange. Agriculture and processed agricultural products accounted for more than 60 per cent of its foreign exchange earnings (Lin and Wang, 2008; Lin et al., 1996; Perkins, 1988).

At the time, China’s leaders had no detailed “blueprint” for reforms; only a general sense of policy direction (and where they did not want to go). They had an ingrained scepticism towards the kinds of economic theories and policies proposed by the more developed industrialized nations, which partly reflected ideological differences. They therefore tended to look for practical lessons from the international arena through case studies and their demonstration effects, and these remain important to their decision-making even today (Ravallion, 2009).

As El-Erian and Spence (2008: 8) observe,

The fundamental fact that was recognized early on was that the models with which China was equipped to predict the effects of policy actions were very imperfect and partial, and hence the policy makers had to navigate higher subjective ex ante uncertainty about policy predictions than we are used to in advanced countries. The response was probably as expected. If the dynamic system you are trying to influence has uncertain characteristics and if you are pretty sure that it is changing over time (a kind of system-wide learning curve, with the object changing while you are learning), then you experiment, take small steps, learn and refine your understanding of the economy, and try to avoid high-risk moves and big mistakes.

China’s policy experiments clearly provided its leaders with valuable knowledge about development processes. According to Rodrik (2009: 45),

The China example is important because it illustrates, in a vastly significant real-world instance, how the experimental approach to policy reform need not remain limited in scope and can extend into the domain of national policies. China, of course, is a special case in many ways. The point is not that all countries can adopt the specific type of experimentation… that China has used to great effect. But the mindset exhibited by China’s reform process is general and transferable — and it differs greatly from the mindset behind… presumptive strategies.

Equally, the idealized notion that East Asia’s success was engineered by a set of impervious super-bureaucrats obfuscates the reality that “Economic change often happens not when vested interests are defeated, but when different strategies are used to pursue those interests” (Rodrik, 2013). It has been part of a gradual, decades-long process of building capable State institutions, requiring a willingness and commitment to invest both political and economic resources (Gilson and Milhaupt, 2011; El-Erian and Spence, 2008). While this process has certainly needed close cooperation, coordination and information exchange between government and business, relations have not always been based on a “bland, tension-free consensus” (Evans, 1998: 74).

Developing appropriate development strategies within each country requires pragmatism, experimentation, capacity-building

and a progressive refinement of strategies.

miracle”, experimenting, learning and adapting over time, rather than rigidly following a predetermined blueprint (box 4).

In making policy recommendations for LDCs (or any other large group of countries) collectively, it is also important to take into account their interdependence. LDCs are both trading partners and competitors for markets and inward investment. Consequently, there are both synergies and tensions between their development paths. Successful development by one LDC may benefit others — particularly neighbouring landlocked countries — and boost intraregional trade, but it may also undermine prospects for others, or limit the options available to them, especially in export markets. It may not be advisable for all LDCs to move simultaneously into the production and export of the same commodities or manufactures, since this could exert downward pressure on the international prices of these products.1

This reinforces the need to avoid offering “one-size-fits-all” policy prescriptions. Rather than all LDCs pursuing an identical model of structural transformation, each needs to develop its own model based on its particular circumstances, assets and disadvantages. Thus, the quest for structural transformation should not involve a search for a blueprint. Rather, the objective should be to establish the means for each country to identify the best course available to it, and the instruments needed to pursue that course.

C. Structural transformation and labour