IN ECONOMICS, the term “development” conceals as much as it reveals. The hidden connotation is that of wealth, and wealth equals power. Japan took the lesson to heart during the first half of the 20th century; now it’s China’s turn to upset the applecart. Expressed nakedly, without circumlocution, it expresses a central problem of political economy: how to catch up with the West?
The problem is one of political economy, not economics, even though economists have a good deal to say about it. The process is called late industrialisation; for purposes of convenience, I treat it as a non-Western, 20th-century phenomenon. By 1900, a handful of Western countries had come to dominate the rest of the world (Japan’s colonial career, which begins soon afterwards, is distinct from theirs). This domination was challenged by embryonic national movements led by reformers who had studied the West at close quarters. To them, it seemed evident that technology was power: to catch up with it, they would have to modernise and industrialise. This process involved two stages. The first step – of borrowing technology from the West – proved relatively easy. The next stage was much more difficult: in it, the state undertook to manage the economy in the interests of industrial growth, favouring domestic firms over foreign competitors.
Late industrialisation is inseparable from economic nationalism. Protectionism forms but one of its elements (and not necessarily the most important). Economists denigrate it by citing the benefits of free trade and free markets. However, these benefits are not equally distributed; they also involve hidden costs, which is why they did not command general assent until fairly recently. Many European states began shielding their craft industries from foreign competition as early as the 15th century. The theoretical justification for this practice was provided by mercantilism, the forerunner of economics.
The physical sciences were separated from philosophy by the scientific revolutions of the 17th century: the key figures in this transition are Newton and Galileo, and, in philosophy, Hume and Kant. It took much longer for economics to detach itself as a separate discipline; for that, some critical developments had to occur first. One might summarise them by saying that Adam Smith wrote The Wealth of Nations at the flood tide of the Industrial Revolution and of colonialism. Their admixture created a world economy without any precedent in the past. Its components were nations connected to each other through unequal terms of trade: then as now, they were divided into the haves and the have-nots. Economic theories reflect this inequality. The doctrine of free trade was grounded in Britain’s dominant position in the 19th-century world economy; Germany’s relative backwardness vis-à-vis Great Britain prompted Friedrich List to develop his model of state-directed industrialisation. By the same token, economic assumptions (concerning markets, institutions and practices) reflect conditions prevalent in Western economies, where the discipline of economics was invented and where most economists still live and work.