Why Some Countries Are Rich and Others Poor: Ha-Joon Chang on the Historical Reality of Economic Development

This podcast episode, featuring economist Ha-Joon Chang, fundamentally challenges the conventional wisdom that rich countries achieved their wealth through free trade and free-market policies. Chang argues that, historically, virtually all of today's developed nations, including Britain and the United States, employed extensive protectionist measures, tariffs, subsidies, and state intervention to nurture their nascent industries against superior foreign competitors. He highlights how these 'bad policies,' now discouraged for developing countries by institutions like the World Bank and IMF, were precisely the tools that enabled industrialization and economic growth in the now-rich world, a phenomenon he terms 'kicking away the ladder.'

Chang makes crucial distinctions between per capita income measured at market exchange rates, which reflects a country's economic power, and purchasing power parity (PPP), which indicates living standards. He demonstrates the vast and growing disparities between rich and poor nations, citing examples like Norway being 534 times richer than Burundi in market exchange rate terms. He details historical examples, such as Robert Walpole's strategic industrial policies in 18th-century Britain following the South Sea Bubble, and Alexander Hamilton's advocacy for infant industry protection in the early United States, directly contradicting Adam Smith's free-trade advice. These historical accounts reveal that protectionism was not an exception but a rule for successful industrialization.

Furthermore, the episode critically examines and refutes common 'meta-structural' explanations for poverty, such as tropical climate, landlocked geography, natural resource curse, ethnic diversity, poor institutions, or cultural deficiencies. Chang provides numerous counter-examples: landlocked Switzerland and Austria are rich; resource-rich US and Canada are developed; countries like Singapore and Scandinavia thrive despite extreme climates; and nations like Ethiopia and Rwanda achieve high growth despite being landlocked and conflict-prone. He argues that these factors are often used to imply that developing countries are 'destined to fail' due to inherent flaws, rather than acknowledging the impact of policy choices and historical power dynamics.

In conclusion, Chang advocates for a re-evaluation of development strategies, suggesting that developing countries should not blindly follow the free-market prescriptions imposed by international bodies. Instead, they should learn from the actual historical paths of today's rich nations, which involved strategic state intervention, protection of infant industries, regulation of foreign direct investment, and the use of state-owned enterprises to foster technological leadership and economic diversification. The broader implication is a call for a more nuanced, historically informed approach to economic development that prioritizes national industrial policy over dogmatic adherence to free-market ideology.

"the gap used to be two and a half times now 813 times"

"virtually all up today's rich countries develop are using those bad policies that they tell that developing country is not to use"

"Britain was one of the most heavily protected economies in the world"

"Britain telling us not to use our protectionism is like someone climbing up to the top with a ladder and kicking the ladder away so the other people cannot follow"

"I can predict the movements of heavenly bodies but I cannot predict human madness"

"if I supported him for another 12 maybe 15 years he could become lots of things"

"Hamilton had the guts to say to Adam Smith well not personally thank you bond oh thank you I know what is good for my country please go away"

"until the Second World War it remained one of the most protected economies in the world"

"Finland classified all forms with more than 20% foreign ownership as dangerous enterprises"

"almost all sectors in which the u.s. still has the internal technological leadership our sectors that were created and promoted by the US military"

"developing countries are not developing because there's something wrong with them it's not even policy they are destined to fail"

"Switzerland and Austria two of the richest countries in the world are landlord"