Alice Amsden

Authors


Alice Amsden was educated at Cornell University (BSc) and at the London School of Economics (MSc and PhD). After working in Europe and Africa early in her career, she occupied various positions at prestigious American universities (UCLA, Columbia, Harvard Business School, New School) and more recently MIT in Cambridge, Massachussetts, where she has been the Barton L. Weller Professor of Political Economy since 2001. She is also active in various academic and UN networks. Alice Amsden is mostly known for her innovative work on industrial development in developing countries — especially her book Asia's Next Giant: South Korea and Late Industrialization (1989), which made her a widely known specialist on industrialization processes. This is an issue which she revisited in her book The Rise of ‘the Rest’: Challenges to the West from Late Industrializing Economies (2001). She also made the Honour Roll of the Scientific American magazine in 2002 and became one of fifty visionaries chosen ‘from the worlds of research, industry and politics whose recent accomplishments point towards a brighter future’.1 In her latest book, Escape from Empire: The Developing World's Journey through Heaven and Hell (2007), she argues that the more freedom developing countries have to set their own policies, the faster they grow.

  • RvdH: What subject did you develop in your PhD thesis?
  • AA: I looked at how a labour market forms in a developing country. Before 1954, when for the first time in history the Colonial Office declared a labour surplus in Kenya, the labour market was extremely tight. Demand for labour exceeded supply, but a high wage economy didn't emerge the way it did in regions of recent settlement like Canada. The colonial government used all sorts of coercive means to make African farmers work for British farmers instead of for themselves. Africans were taxed, their land was taken from them, and they were prohibited from growing cash crops. These roots of under-development are well covered in some brilliant analyses by other economists. As a labour surplus emerged, Kenya's Colonial Office had less need to drive labour into paid employment, and it was constrained by Mau Mau. But after independence, market forces again took a back seat. The Kenyatta government killed the trade union movement. Someone literally killed its leader, Tom Mboya. Wages were restrained with the help of market forces, because labour supply exceeded demand, so market forces and government preferences converged — to keep wages down. But the government kept at it. I concluded that government intervention in the labour markets of developing countries is the rule, and concerns more than just prices. The labour market is a political battlefield when economic development is just getting started. It still is in South Africa. Labour in Kenya, with a fairly coherent trade union movement, slowly but surely lost power. Even today, no one talks about gross unemployment. That's too hot. Better stay out of the labour market. It's all about poverty alleviation now. No one cares about jobs. They care more about cultural liberty, for example, because social theory is in fashion.
  • RvdH: Soon after your thesis dealing with African labour markets, your attention was caught by developments in East Asia and especially South Korea. Why did you become interested in Asia? Did any current schools of economic thinking drive you?
  • AA: No. I'm usually driven by injustice or hypocrisy rather than by a two-sector model, although that's always in the background. I went to East Asia (Taiwan) to find out if all the (free market) labour-intensive manufacturing that had begun (sector 1) was having any impact on skill-intensive industries (sector 2). I studied manufacturers of machine tools. Later the machine tool industry became remarkable — small firms, a big exporter, and without any government support. This was one of the few industries I ever studied where government support wasn't required. I always use it as a benchmark. It got its capital from slogging away and selling its inner-city factories when real estate prices soared. It first exported to overseas Chinese in Southeast Asia. Know-how came from reverse engineering — it bought American machine tools, dismantled them, and copied them. Just local entrepreneurship was involved, which was inherited from pre-war China. Skilled labour was waiting to be employed. Now the industry has moved into high-tech machining. Very impressive, but a hard act to follow. It is one of the few cases where a small- and medium-size enterprise made it to the top. The question is why there aren't more Taiwan machine tool-like industries.
  • RvdH: Were you influenced by Gerschenkron in your work?
  • AA: Yes and no. I could never understand what he was saying explicitly, because he was a terrible writer. But his central idea is critical. It is that the chronological order in which a country industrializes has a major influence on its policies and institutions. His example was finance and that is all he wrote about — private individuals in England's industrialization, banks in Europe, and the state in Russia. Russia was probably the most backward country he considered. Still, he made a major contribution to our understanding of development.
  • RvdH: What made your work on industrialization and on Korea so influential?
  • AA: Showing that Korea developed by getting the prices ‘wrong’. The government's mighty hand, outstretched arm, bearing generous subsidies, but imposing strict performance standards (give nothing to business for free) go a long way in explaining Korea's growth. What must be added is that the government was always concerned about employment. That's why it got export processing going, following Singapore's role model. That's why every month the hard-nosed Korean president pushed businesses to export more and helped them do it. The state was full of professional bureaucrats that had passed a meritocratic exam, modelled on the exam system first introduced in ancient China, which helped further. So did a land reform in the 1950s, which took the bite out of political resistance. Many progressives had already left the South for North Korea during the Civil War, so the South contained a pretty conservative population. There can't ever be another Korea, but bits of its experience can serve as an excellent role model for other developing countries.The concern about jobs and employment paid off for the Korean people in so many ways. Professional managers first gained experience in labour-intensive plants, and as employment grew, the government didn't have to apologize for investing in capital intensive industries, where the acquisition of technological capabilities really surged, Also, heavy investment in jobs and education were critical for democratization. Political reforms were always driven by activist student movements as well as professionals. Korea's entire industrialization was based on learning. That's why it succeeded.
  • RvdH: The rapid development of East Asian economies was often given as proof that market-based and exports-oriented policies were the only alternative for developing countries to achieve economic growth and development in general. Your work gave a twist to that story. Could you explain how you developed that and what the initial reaction of the neoliberal economists were to your interpretation of the success in East Asian economies?
  • AA: In 1981, when the World Bank was still a reasonable institution under Robert McNamara and Hollis Chenery, I was responsible for the Korean component of a project on how latecomers acquire their technological capabilities. My Korean counterpart, Linsu Kim, and I spent a lot of time in thirty Korean companies in six industries, examining how nationally owned firms learned their production engineering and project execution skills. These skills, not innovation, were the secret to their success in world markets. From the bottom up, I came to understand the role of the state and entrepreneurship in the struggle of a poor country to attain global competitiveness.While Korea was building a chemical plant to international standards, the level of those standards was raised, so the plant had to be redesigned in mid-stream — an expensive proposition. Then when Korea began selling chemicals in world markets, the big chemical companies began ‘dumping’— flooding the market to reduce prices and drive Korea out. So the government granted some subsidies to the chemical plant to keep it in business. When Korea's shipyard opened, world demand collapsed and Korea was stuck with an expensive inventory of unsold ships — the quality of the first generation of ships was understandably poor. The shipbuilder, Hyundai Heavy Industries, bought the unsold ships from itself and established a merchant marine. Then the Korean government stepped in and decreed that all crude oil sold to Korea had to be delivered in Korean-made ships. This was like an orchestra: all the instruments fit together. From the bottom up, it became obvious that developing countries could not industrialize without government support.The neoliberals finally came to terms with East Asia in 1993, with the World Bank's publication of The East Asian Miracle. But this report was inherently dishonest. To save their own theories from the dustbin of development history, the powers behind the throne contrived a counter-factual. IF East Asia had followed free market dogmas, it would have achieved the same stunning growth as it did under statism. But how did they know? IF East Asia had followed free market dogmas, Korea might have performed much worse, or much better!But life went on, and soon Asia-bashing could resume. Everyone tried to say something critical about China. But the lesson from Korea is clear. To say anything sensible about China it is necessary to start from the ground up. What governments say they are doing is too unreliable to gain a handle on reality. Neoliberals seem destined to criticize any policy that challenges the invisible hand.
  • RvdH: More recently, at the end of the 1990s, the successful East Asian countries were caught by the East Asian crises. How did Korea and other countries react to that crisis? Was the model of managed openness and disciplining capital as much as labour — which you had favoured earlier as instrumental in South Korea's development process — also able to handle the Asian crisis later on?
  • AA: They reacted to that crisis not by radical pro-market reforms, since the crisis seems to have been caused by too much financial deregulation and falling export prices. Instead, they took a lot of statist policies underground, out from under the nose of the US Treasury, the World Bank and the World Trade Organization. No more out-and-out subsidies, but government heavily promoting new business by supporting science and technology, regional equality, and environmental improvement. All three underground approaches to promoting business are legal under the WTO, because the US, Europe and Japan need to use these levers, too. Korea's financial markets remain open, but every major foreign financial flow is monitored on a twenty-four hour basis. If anything seems wrong, the alarm goes off in the Ministry of Finance. This is a very sophisticated type of government intervention, and there are many more examples of how Asia circumvents some of the WTO's rules.
  • RvdH: If I understand your work well, you argue that meddling in economies by different national groups can be positive for long term sustainable development, but not the meddling of outsiders. Many people like Irma Adelman — and so I believe you, too — ascribe part of the success in the development of South Korea to redistribution before growth (especially redistribution of land and education opportunities). Yet the push for these redistribution policies, it is argued, came from external pressure of the Americans to withstand Chinese influence in South Korea. So some meddling from outside could also be helpful?
  • AA: Korean historiography suggests that land reform was engineered by Koreans, the first steps occurring before the US arrived on the scene (to rip Korea asunder in an unpopular civil war). The role model was communism in the North. The important contribution of the US was being permissive. After all, the record of the US in land reform in other parts of Asia is poor — witness the Philippines and Vietnam. It is anything but permissive in Latin America. Washington's policy towards land reform in Latin America in the post-war years has about as much to recommend it as George Bush's policy towards Mushareff in Pakistan in the post-millennium years. Incomprehensible.I think the overwhelming evidence comes out against foreign intervention. Developing countries should avoid it like the plague. Whatever it gives them in the way of resources (which is very important in the poorest countries) it takes away in the form of hypocritical policies, war and ignorance of local conditions. All this hurts development. In the developing world's Golden Age of growth, from 1950–80, when growth rates, even in Africa, exceeded those in Europe and the US, Washington whined constantly about import substitution but was preoccupied elsewhere and left the South alone. As Richard Nixon put it, ‘nobody gave a damn’. Growth was spectacular under a regime that defied market forces in the form of import substitution. Growth might have been faster if markets were freer, but this is a counterfactual proposition. If markets had been freer, growth might have been much slower. Then, after the developing world's debt crisis of the early 1980s, Wall Street gave a damn and more multinationals gave a damn. Everyone wanted to get their clutches on expanding Third World industries. US intervention tightened and growth rates fell.I believe cause and effect was due to Washington's self-serving policies, such as privatization, liberalization and de-regulation. These killed the goose, because they carelessly created financial instability and indebtedness. Nascent industries died, although not too many. What caused growth rates to decline was not market opening but the cessation of government investment initiatives in infrastructure and industry. US bailouts to developing countries on the verge of bankruptcy allowed Washington to march in and assume control over policies. It was then that promoting investment and jobs changed to alleviating poverty and championing unattainable social reforms, such as fighting like the dickens against corruption.
  • RvdH: Let's focus a bit more on inequality and development: you favour equitable and social development, yet you also promote industrial development and subsidies for industries. Many activists in development argue that industrial policies and subsidies will benefit an elite and that government expenditure should be focused instead on human development to reach the poor. The so-called Millennium Development Goals are in a certain way an expression of that. Do you still favour industrial policies in this context?
  • AA: Over the last half century, it has become clear in the developing world that curing poverty by creating employment takes time, but that trying to raise living standards only by eliminating poverty and encouraging social reforms takes an eternity. Yet the slow road is becoming more congested. Poverty alleviation in poor countries has begun to draw resources away from investment, the incubator of jobs. Social reforms have cornered the marketplace of ideas, crowding out conventional wisdom. Social theorists imagine that something as commendable as, say, ‘cultural liberty’ can cook a meal, by freeing the inner energy of the individual, which is how ‘development’ should be defined. Yet the unemployed youths of the developing world, from the Philippines to Port Au Prince, seem dubious. Entrepreneurship, technology and industrialization, that brought over one billion people out of poverty (even counting only half the populations of India and China), are no longer used for their gain.The Millennium Development Goals of the United Nations are to eradicate extreme poverty, achieve universal primary education, promote gender equality, reduce child mortality, improve maternal health, combat diseases like AIDs, ensure environmental sustainability, and create a global partnership for development. These goals are praiseworthy, but in the original MDG document there was no mention of employment. That's shocking! If the objective of universal primary schooling is met, where will the jobs for school leavers come from? In the developing world today, there may be more unemployed school leavers than students in school.
  • RvdH: In more recent discussions I noticed that you are less critical of the WTO than most of the people on the left who you interact with. Why is that?
  • AA: Because developing countries with enough savvy can get around WTO rules, exploiting loopholes created by rich countries, who choose not to ‘adjudicate’ certain issues. Subsidies are strictly verboten in theory, but in practice it is still possible for governments to subsidize business by supporting science and technology (as the Department of Defence and National Institute of Health do in the US), by eradicating regional inequalities (as European countries with rich Norths and poor Souths do), and by improving the environment (which involves widespread subsidization everywhere). What developing countries can't do, which was once very important, is to subsidize exports. They should be able to find a way to do that. But they are getting around this, too. The scary side of the WTO is agriculture. As the G24 bloc of developing countries said recently at the Doha round of meetings, the threat to free trade in agricultural goods resides exclusively in developed countries. At least developing countries like Brazil, with big agriculture industries, have a voice now in the WTO's eternal deliberations. The problem is the poorest countries that once enjoyed quotas for their agricultural exports to Northern markets. If the North really opens its agricultural markets, these quotas will go. That's the problem with policy rules which assume that one-size-fits-all.
  • RvdH: In your latest book you argue that developing countries were able to develop in the 1960s and 1970s because the USA, and also other industrialized countries, had a ‘benign neglect’ for developing countries. Things went wrong only when the industrialized world started to give more attention to developing countries, culminating in structural adjustment policies and their ‘intellectual’ justification based on the so-called Washington consensus. Two questions: firstly, how is the developing community, especially in the North, reacting to this; and secondly, you seem implicitly to disagree with one of Joan Robinson's famous sayings: ‘One thing is worse than being exploited and that is not being exploited’.
  • AA: The North hasn't had time to digest the fact that structural adjustment was a failure. It amounted to import de-industrialization. It told developing countries to import what they formerly produced locally, employing thousands of workers, or let a foreign investor produce it for them, sacrificing their managerial class. Structural adjustment was the mirror image of import substitution. In the most advanced developing countries, I believe structural adjustment strengthened private, nationally owned firms, so the Washington consensus is in for a big surprise. In the poorest countries, the poverty burden is increasing. Once the bubble of the current commodity price boom bursts the costs of faux structural adjustment will mount. I couldn't disagree with anything Joan Robinson said. It's good to be exploited, but not by foreign firms.
  • RvdH: Finally let me come back to the discussion we had at the beginning, namely development in Africa. Would you agree that the current good performance of Africa is mainly due to rising commodity prices and increases in FDI, mostly benefiting enclave sectors such as mining and petroleum? Is that sustainable? How do you see the future for African economies and workers and what can the North do about it?
  • AA: OPEC (Organization of Petroleum Exporting Countries) should be the role model for Africa's mineral rich countries. Despite national corruption, as in Venezuela and Saudi Arabia, OPEC was well managed by professionals, who step by step got the Seven Sisters to pay more taxes and royalties. Ultimately, OPEC countries, such as Kuwait, nationalized oil. But there was a common ground, which is why big oil went along with OPEC. Poor oil-rich countries got to control production and distribution. The Seven Sisters controlled the rest, the profitable provision of services to the oil industry, such as exploration. Today, finding common ground with the big raw material producing companies is essential for peace and prosperity.Africa should form something akin to OPEC such as AMEC, the African Mineral Exporting Countries, run by professional African managers and engineers trained in MIT, the London School of Economics and the American University in Beirut. Step by step, Africa should get better terms from foreign owners of its natural resources. Ideally, companies like Pechiney, which controls the rich bauxite reserves of Guinea, one of Africa's poorest countries, should only provide technical services in their capacity as hired consultants.The Anglo-French Suez Canal Company argued for over a century that running a canal was a complicated task, which turned out to be untrue. The same overstatement may well hold for Africa's extractive industries. What the North should do is keep its paws out of this process. It would be great if Africa got some pocket money to experiment with more efficient industries.
  • RvdH: Alice, thank you very much.

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