Development Economics is at a Turning Point
Navigating the Future of Economic Development Through Innovative Strategies
On 7th May 1977 Nottingham Forest beat Milwall 1-0 in the second division of English football. The victory, thanks to a clumsy own goal from Milwall full back Jon Moore, secured promotion for Forest to England’s top tier by the skin of their teeth. A team of “underachievers, journeymen and inexperienced youngsters”, nobody gave them much of a chance in the first division. But Brian Clough’s men defied their critics and stormed to the title in 1978, finishing 7 points clear of reigning European Cup holders Liverpool to become perhaps the most unlikely English champions of all time.1 In 1979 Forest won the European Cup themselves. In 1980 they won it again.
5,000 miles away, on the southern half of the Korean peninsula, a similarly unlikely success story was unfolding. South Korea was well on its way to pulling off perhaps the most astonishing economic transformation of the 20th Century.2 With industrial policy now back in vogue, South Korea has become perhaps the development model to emulate.
But today’s footballing minnows aren’t scouring videos of Forest legend John Robertson scoring against Hamburg in 1980 in search of a strategy for success. South Korea’s transformative phase was half a century ago. Development economics is at a turning point – does it continue to look to the past, or try to predict the future?
Heavyweight economists Dani Rodrik and Joseph Stiglitz recently released a provocative paper, charting a new growth strategy for developing nations. They argue that premature deindustrialisation means low-income countries can no longer rely on manufacturing to power prosperity. New drivers are needed. Rodrik and Stiglitz suggest investment in the green transition – in new energy systems, for example – can be a new source of growth. Another is non-tradable services. They cite the partnership between the state government of Haryana and Uber in India to create driver jobs as one example of success.
Other commentators are reluctant to abandon the models of the past. Noahpinion criticised the paper because “it tosses out something tried-and-true in favor of something speculative and poorly specified”. Perhaps, but humans tend to overvalue the past when thinking about the future – that’s why casinos prominently display the results of previous rolls at roulette tables. Rodrik and Stiglitz are doing important work searching for future growth sectors, even if Jonathan Said is right that they are yet to demonstrate a viable route to job creation at scale.
So let’s hedge our bets. Keep supporting traditional industry in case Noahpinion is right that as China matures, it will leave a manufacturing hole behind for low-income countries to fill. But we should be ready to test new sources of growth. That might be via the green transition or non-tradable services. Or it might be something else.
Perhaps the real lesson from the South Korean experience comes not from what they did, but how they did it. Yes, they invested heavily in industry – but the government knew when to cut their losses and withdraw support. They supported what were then considered extremely risky ventures and changed course according to what was and wasn’t working. Leaders must be entrepreneurial and disciplined.
Rodrik, this time speaking to the FT, has argued powerfully that countries need “the discipline of monitoring, figuring out whether what you’re doing is working, and being able to move away from mistakes when things aren’t working. Successful industrial policy is not about picking winners, it’s about letting the losers go.”
The Nottingham Forest story is not a perfect analogy for industrial policy (surprise, surprise). Football is not economics. But Jon Moore’s unfortunate intervention on that rainy spring day in the East Midlands shows that success stories can have unlikely catalysts. Let’s be open minded about where future growth may come from.
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Emails making the case for China in the 1990s should be sent to alex@theGPI.org.