Comment by sanxiyn | Hacker News Reader

Comment by sanxiyn | Hacker News Reader

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Hong Kong is a super special exception that does not generalize. Approximately everyone became rich by using industrial policy: read Kicking Away the Ladder for detailed historical research. Our understanding of growth economics is not very good, so history is better guide than theory.

Experience of China and South Korea shows you can be very flexible about secure private property and functioning legal system. Or market capitalism and democracy for that matter. South Korea freely used eminent domain to build infrastructures like highway. It also declared everyone should trash all their electronics so that country can upgrade transmission voltage from 110V to 220V to reduce loss. Both decisions are considered good in retrospective.

What seems to be essential is investment in infrastructures like water, electricity, and transportation. You mentioned Ethiopia. It stopped stupid collectivization and is doing rather well recently. It's kind of mystifying why World Bank and like are against projects like Grand Ethiopian Renaissance Dam. World Bank was also against South Korea's Soyang Dam, so it had to borrow from Japan. (Ethiopia is borrowing from China.)

> Approximately everyone became rich by using industrial policy: read Kicking Away the Ladder for detailed historical research.

You're confusing correlation with causality. The reason why many countries became rich while pursuing industrial policy is that in the past almost every country pursued industrial policy in some way. There are just as many cases where industrial policy has gone terribly wrong, for example Argentina.

Many economists argue that countries like Japan or Korea have become rich despite industrial policies. Compared to other countries, however, they had much lower import barriers at the time, and they could have been even more successful if they had not had them[1]. It is also worth mentioning that import restrictions mainly affect the poorest[2], both in rich and poor countries.

> Our understanding of growth economics is not very good, so history is better guide than theory.

You always need both theory and empirics, otherwise you cannot gain any insights.

[1] https://www.nber.org/papers/w1936 [2] https://www.nber.org/papers/w20331

I see no reason why Hong Kong wouldn’t generalise or why I should dismiss growth theory. History shows that there are many different ways to successfully industrialise. It also shows us that some ways are terrible.

Your point on the legal system, especially regarding China, is well taken but I fail to see how eminent domain is against anything I’ve said. I’m not aware of a legal system without eminent domain though the circumstances under which the government can take your stuff and the compensation available for it vary markedly.

Changing voltage from 110 to 220 may have been a good decision but industrial policy has resulted in many disasters, from the backyard steel furnaces of Mao’s Great Leap Forward to Ghanaian cocoa farmer’s pulling up their crops because the price the state controlled cocoa board gave them for it made farming it not worth the labour. Industrial policy increases the variance of economic growth as bureaucrats make decisions for an entire country. Sometimes it works, sometimes it doesn’t.

Regarding investment in infrastructure I never said anything against it though the experience of the Soviet bloc and other communist countries does not lead me to believe it’s sufficient for good outcomes.

I do not believe democracy is necessary but I don’t see how market capitalism isn’t. Nothing else works anywhere near as well. Communism on the Soviet model seems sufficient to get to middle income and market socialism on Yugoslav lines might be superior but nothing approached capitalism’s record at lifting people out of poverty.

Okay, name one country which became rich by unilateral free trade except Hong Kong. I am waiting.

Singapore, UAE, Malaysia, Switzerland

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