"Of course one could cite many other reasons for Korea’s success, including land reform, foreign aid, being allied to the US, industrial policies, etc. But none of the other factors seem as powerful as the two points listed above."
Being within the US security umbrella was the prerequisite, the effect of this-or-that domestic factor is swamped by that effect. This is why we can find so many "recipes," to use Rodrik's language. It prevented various forms of security-obsessed nationalisms (communist or otherwise) from taking hold, and eliminated the imperial competitions that diverted resources from development to state power. That is the common factor with Taiwan and Japan within the "Confucian" sub-unit, it is a common factor with Poland in Europe, and it is not common with places like sub-Saharan Africa or parts of Latam that never had consolidated communist regimes in power yet still didn't develop. It is also why China and Vietnam started liberalizing after rapproachment with the US, and stopped liberalizing since the US has turned against the open economy.
Inclusive domestic institutions are downstream of the security environment. The US structured global security over the past 75 years, and the US prioritized open markets, so if you were within the security environment you received the benefit of open markets. If you weren't it was much harder.
It's a real shame (from the perspective of world development) that the US security apparatus has become extractive, beginning with the Bush years. Over the past 25 years worldwide democracy has declined, press freedom has declined, corruption has increased, public trust has declined, and global growth rates have slowed. It's not a coincidence.
The open global economy was a cosmopolitan liberal project with progressive aims, not a libertarian project, nor a Confucian project, nor a statist project. But there seem to be no more cosmopolitan progressive liberals around anymore, other than Mark Carney.
I agree that US protection was essential for South Korea, which otherwise would have fallen to the North. I'm not sure how important it is elsewhere. I doubt that US foreign policy has much impact on places like Argentina or Portugal or India, which are outside the zone of great power competition.
I didn't say inside the zone of great power competition, I said within the US's security umbrella. To trade more Korea needed trade partners, and the US security network provided those trading partners. Portugal was one of the poorest original members of NATO -- which predated the European Economic Community and probably provided a necessary precondition for it -- perhaps the very poorest, but it has not only converged economically under that security umbrella but liberalized politically too. The security umbrella was prior to all the rest. Argentina, meanwhile, refused to declare war on Nazi Germany, and the US took the UK's side in the Falklands War (contra the Monroe Doctrine); Argentina has stagnated significantly over the past 75 years, overtaken by countries like South Korea, but when times have been good in Argentina they've been the times when Argentina has been mostly closely aligned with the US geopolitically.
I don't know how to respond to a claim that India is outside the zone of great power competition, but it certainly is not within the US's security umbrella and as a consequence its domestic institutions and economic policymaking under the Raj were less liberal.
Or take Iran: it was wealthier when it was within the US's security umbrella, less wealthy when it wasn't. Its orientation towards trade is roughly the same. This generalizes through the Middle East: the countries aligned with the US are richer than the countries non-aligned or opposed, irrespective of domestic institutions.
Domestic institutions are not magic. They are created in response to systemic pressures, and they change in response to systemic pressure. Policy outputs are consistent with systemic priorities: if you rely on the Soviet Union for security you have a different choice set than if you rely on the US for security, and if you remained non-aligned then you had very few choices at all.
Mark Carney (and Keir Starmer) understand that domestic institutions are insufficient for building prosperity, that "Global Britain" is a non sequitur. Global coordination is required. American hegemony provided the coordination mechanism for a long time, mediated through multilateral institutions. That's gone now, so the middle powers have to scramble to reconstruct as many features of it as they can, as quickly as they can, or the domestic institutions will fail.
India ie the Raj had economic policies that tracked England. When England went socialist post-WW2 India went too. The same economists and advisors were working for both India and Britain. The policies came recommended by the best economic science of the day.
"The policies came recommended by the best economic science of the day."
I don't accept this simplification, but even if I did it would only reinforce my point: choosing "the best" policies is inconsequential if you do not occupy the correct structural position. Perhaps even counterproductive.
As Scott notes, a major prerequisite is trade. He focuses on "trade openness" but there's not much evidence that "openness" in and of itself accomplishes much. What matters is having access to leading markets and technology. Korea accomplished that by becoming a vassal of the state with the largest markets and highest level of technology; India refused to become a vassal and so they did not have access to those markets or technologies.
A key missing variable in Scott's discussion is that the US is *not* a particularly trade-exposed economy, and this was even more true during its greatest period of economic dominance. The source of that dominance was not its domestic institutions -- which were the most socialist they've ever been -- but the fact that the US won a hegemonic World War.
What do you mean by "free"? The US interfered in the domestic politics of many countries during the Cold War, and did so explicitly to set an example for others. Newly-independent countries like India viewed this as a continuation of European imperialism, not a model of openness to which they could frictionlessly ascend. That is why after the Korean War ended, in a stalemate, India created and led a Non-aligned Movement in an attempt to preserve non-vassal status.
Successive American governments gave greater market access and substantial financial investment to countries that aligned than those that didn't, and we ended up referring to 1st, 2nd, and 3rd World nations according to these alignments.
On the ground this manifested in varying levels of "freedom" depending on how oriented countries were with American strategic priorities during the Cold War. The GATT was extremely biased against commodities/textiles exporters, Bretton Woods tightly regulated portfolio capital flows, and Cold War security priorities limited capital access to non-allies even more. That worked out for densely-populated places that exploited their position within the US defense structure -- which provided access capital as well as trade -- to generate manufacturing output which could be sold to American consumers. That describes Japan, Korea, and Taiwan quite well, but not India, because India was never a part of the US's Cold War alliance.
India and the "best" British economic science of the day, oh dear...
Nicely enabled a new class of bureaucratic nationalist kleptocrats keen on enriching themselves at the literal expense of the masses. So common in Africa, too.
Those new bureaucratic Indian nationalists could then ignore, in fact condone, and thus continue, the pre-British rule, uniquely Indian, uniquely backwards caste system.
Like the Chinese for many years, only outside India can Indians thrive fairly, unless thrown out like in most of post-colonial East Africa.
So much to unpack. So much of it unique, one-off, singularities.
(Russian here) For Poland's shock therapy, one question I have is what was the difference between privatization in Poland and in Russia? The former seems to be a success, but the latter is customary blamed for modern ills of the country.
Two subquestions here:
* What were, if any, _mechanical_ differences between the two processes? How they physically worked?
* What's the transmission mechanism for later economical and political outcomes?
I did a tiniest bit of research about this, and haven't found satisfactory answers. Would appreciate some links here!
I recall that there were complaints about corruption in Russia's program, but I don't know enough to have an informed opinion. Of course Russia started reforming several years later than Poland, so it took longer for things to start improving.
Poland stated a democracy, so kleptocrats can be thrown out of office, unlike Russia under Putin. Ukraine was going the same way until Putin decided that was a bad example, for him, personally.
China is different. Kleptocracy kept in check despite lack of democracy. Possibly, this is due to lack of natural resources relative to population size, unlike Russia where kleptocrats can get very rich and thus stay powerful by control of those resources without having to douch for the general population (like in smaller S American or African states).
Russian's "big bang" was planned and engineered by Harvard economists including Andrei Shleifer, who also participated in the looting of the country. I.e., in Russia they ignored politics, and thus facilitated the corruption that they later participated in.
Poland's post-communist development was instead guided by Solidarity's longstanding connection to trade unions and other civil society networks. It prioritized political organization and social mobilization first, not privatization as a magic bullet that could solve all governance problems on its own.
Similarly, South Korea did not pursue "big bang" liberalization efforts. They preserved chaebol production structures, and liberalized gradually to avoid macro disruption. The look much more like China post-1979 than Russia, or it is better to say that China post-1979 looks more like South Korea than Russia.
Privatization and the liberalization of prices in Russia were largely successful, but other aspects of economic reform had very serious problems. Most notably, the Soviet ruble stuck around for a few years after 1991, meaning that identical rubles were being printed by multiple ex-Soviet republics at once, leading to inflation. Russia's central bank also followed a pretty loose monetary policy after the ruble zone was broken up. There was also a problem with the overcomplicated and inconsistently enforced tax code, which was greatly simplified by Putin in the early 2000s.
Thanks for correcting a few misconceptions on my part. I had heard the case of Poland argued from the opposite position, with the framing relying exclusively on comparisons between Poland and post-Soviet Russia. Your analysis presents a far more rounded picture. On the industrial policy, do you think there is a specific exception for targeted industrial policy which is specific and encompasses an understanding of markets? Both South Korea and Singapore invested heavily in semiconductors. Are good industrial policies simply too difficult and multi-faceted for most governments with strong political factors to consider to accomplish? I know Germany and Japan in specific periods were cited in the original arguments against Friedman. I guess my question is: are they unlikely to work in most instances because Man of Systems requirements make them unobtainable to all but exceptional governments in exceptional periods?
A while back I looked at conditions for success for majority Muslim countries. Excluding the oil rich Gulf States, Turkey and Malaysia were the best success stories. Both operate a very threadbare and limited version of Sharia Law, mostly relating to personal and family law for Muslims.
I doubt whether industrial policy played much of a role in the success of Singapore or South Korea. I wouldn't rule out the possibility that it can help here and there, but I don't have much confidence in claims made by proponents of the idea. Even if a particular industry was helped, what was the opportunity cost of the aid? These are difficult questions.
Well, the sensible line seems to be something along the lines of assessing strategic needs, doesn't it? I did a deep drive on the steel tariffs because instinctively I was against them. However, from what I could gather the Trump Admin is at least *claiming* to be using the tariffs as a bridge to enable the industry to pivot to specialised steel. I don't how much stock I put in growth projections for specialised steel into the 2030s, but it's certainly a key strategic sector which has many downstream consequences.
I don't think anyone is paying enough attention to advanced chemicals. As a sector it naturally aligns with the oil and gas sector, and is critical for any number of specialised high tech applications. Important, given the potential inherent to metrics like Robots per 10,000 workers. Sir Jim Radcliffe is well worth a watch on the subject of advanced chemicals.
Germany is probably going to lose a large segment of their advanced chemicals capacity. Hormuz places a question mark over investing in Asia in advanced chemicals. Do you watch or read Doomberg? I was watching an interview with Peter Boghossian and was very interested in his take on Australia and the energy innumeracy of its political class.
My broader point is that I don't think most political leaders are getting advice which joins the dots. The combination of oil/gas with high automation potential is a game changer. Most of the ROI on AI actually appears to be from teams using the technology smartly, rather than the conventional workforce displacement everybody is obsessed with. Robots and automated facilities are another matter entirely. It's an argument for vertical integration and geographical locations which prioritise stability, especially in terms of supply chains, although friend-shoring is another option.
“I’m about to start reading Hanania’s Kakistocracy. I hope he can explain to me why the world is getting dumber.”
From the description of his book, Hanania is exhibiting what I call ‘the Anne Applebaum arrogance’: self-righteous and increasingly dysfunctional Western elites complaining about the working class pushing back against elite dysfunction. Such pushing back is at the core of national populism.
The end of the Cold War—so the end of an external existential threat—meant that Western elites had much less incentive to conciliate their own working classes. Hence, there was a shift towards more exploitive domestic behaviour, as analysts of social dynamics such as ibn Khaldun would predict.
We have a dysfunctional triad of bureaucratisation, feminisation and progressivism interacting with the wider pattern of the expansion (discussed in my most recent post) of the unaccountable classes—of those paid to turn up, of those paid for process, rather than for reality-tested results.
Bureaucratisation leads to expansion in predatory parasitism, as bureaucracies seek to expand their claim on resources, and their authority, while frustrating accountability, including using moral projects to do so. In the absence of any strong character tests, there is also selection within bureaucracies for more manipulative personalities.
Feminisation means a shift towards institutions and organisations more pervaded by female relational aggression—or the threat thereof—leading to lower trust institutions, a protective conformism and censoriousness, and much more resistant to inconvenient feedback.
Progressivism means a shift to a more dysfunctional relationship with information, as the glorious imagined future—the splendours in progressive heads—become the benchmark of judgement. Since there is no information from the future, it creates a benchmark of judgement utterly ungrounded in reality.
Progressivism thus means the adoption of moral and character judgement by belief; so that belief in X makes you a good person, hence belief in not-X makes you a bad one. Due to the monopoly effects of networks—the more people who are playing the status game, the more protection there is in joining it—you get marches through institutions. You also get the international censorship-industrial complex.
These are all mechanisms to restrict what is acceptable discourse, and frustrate democratic feedback, that tend to reinforce each other. That the welfare state has developed in such a way that there is more and more income to be had from maintaining—even extending—social dysfunction just adds another layer of elite dysfunction. (See for example, the homelessness-industrial complex.)
The working class is functionally excluded from all this—worse, it becomes those against whom such status is asserted, Western elites having more in common with each other than with their own working classes. As Musa al-Gharbi has analysed, you get a mutually coordinating elite status game based on various affirmations and de-legitimations—in effect, the status game creates a series of mutually-supporting cognitive assets to go with their other assets.
See: Musa al-Gharbi, We Have Never Been Woke: The Cultural Contradictions of a New Elite, Princeton University Press, 2024.
So, you get a whole range of policies—immigration, trade, land use regulation, education, cultural—against the interests of the working class in a status-and-rhetoric package that seeks to de-legitimise them arcing up. This leaves a gap in the political market, which national populists fill. As part of the de-legitimising of dissent, such arcing up becomes “the” problem.
The notion that the working class, and how they vote, is “the” problem is ridiculous. It is pure projection by our self-righteous, and increasingly dysfunctional, elites. If “we” are getting dumber, it is the elites who are getting dumber in a pretty standard way across history—being in thrall to dysfunctional status games and bad institutional incentives.
I remember the show MASH as a kid portraying the Korean people, obviously impacted by the ravages of war, as essentially peasants. What has happened in post-war South Korea is nothing short of amazing.
Why were all of those Confucian countries so poor until recently? There was something about them that made them poor for a very long time and then something changed. Also, Noah and others have written extensively on S Korea. While its true they became much more market oriented especially in their interactions with the outside world, their government remained very active internally and was much more interventional with its corporations and businesses than what we see in the US.
"much more interventional with its corporations and businesses"
This is a complicated issue, and it varies from place to place. For instance, Hong Kong is far less interventionist than the US. Singapore and Taiwan are more interventionist in some respects, and less so in others. There are many types of intervention---think of all of our environmental and labor regulations, for instance. Singapore's government owns their airline, but its 100% run like a private company.
Why were they previously so poor? I'd say a mix of bad governance and political instability.
If South Korea has become dramatically more market oriented, but remains less so than the US, then you might expect it to have grown rapidly, but remain below US levels of productivity. Which is exactly what happened.
Note an important exception --- Japan got its growth going about a century earlier.
A just so story here would be that growth is downstream of right policies, and that policies seem to follow punctuated equilibrium --- your default action is to continue business as usual, but once in a while you roll a die and end up with a different set of polices, for better or worse. Japan was just luckier in some aspects of its historically contingent choices.
Zooming out the historical scale a bit more, an interesting question is _why_ didn't Industrial Revolution got going in China somewhere in XVI century, given that paper, paper money, mariner's compass, gunpowder and printing all come from China? Would love to read some detailed research there, but my understanding (based primarily on "Power and Plenty" by Findlay and O'Rourke is that somewhere around Mongol Conquests culture and policy got flipped, from "lets explore what's there over seas" to "oversea trade is a crime".
It seems that Confucian countries do really well under capitalism. But they were poor under feudalism. The problem with feudalism is that it can create a massive lock on the rest of the society, preventing any social migration upwards; just the fact that the military nobility holds all the weapons prevents any major change in the status quo.
Once the mandarins and the eunuchs were removed from power by external forces, the non-noble population found a way to rise socially and thrive.
Sumner, if you actually read Park Chung Hee's books, you will see he was not very smart and (at least at first) not at all inspired by Korean history. His first priority was ending South Korea's humiliating dependence on foreign aid (which he almost entirely succeeded at), and his economic models were West Germany and Israel.
"There was no consensus that East Asia would do better than Latin America (or indeed that America would do better than the Soviet Union.)"
Lothrop Stoddard in "The Rising Tide of Color Against White World-Supremacy", though he was wrong in most of his predictions, correctly called the prospects for economic development: Japan>China>Brown Man's Land>Latin America>Black Man's Land.
The "Confucian" culture I think is likely at least partly due to biology; the Chinese writing direction is the one most compatible with good posture, while the Arabic one is the least. Thus the Muslim world often had selection against literacy, while Japan, China, Korea, Vietnam, etc., had selection in favor of literacy.
"By the turn of the century, these institutional foundations had catapulted a fractured and impoverished territory into the ranks of the world’s ten wealthiest nations by GDP per capita"
“We’ve forgotten why nationalism is an evil ideology.”
This is likely more a quibble than a critique. Criticising nationalism—in the form of ethno-nationalism—as an ideology is fine, though one doubts that, say, Danish nationalism has done much damage.
Criticising cultural nationalism is more moot and complaining about civic nationalism aka patriotism is quite wrongheaded, for it is clear that resilient polities need a robust civic culture, including to maintain the norms and rules of their institutions.
We can see, for example, large lumps of Somali immigrants corroding local institutions in Minnesota and Sweden, to the extent that Sweden has been reduced to paying them to go away. This is a corrosion of institutions due to cultural differences that is unsurprising if one reads the relevant scholarship.
Claiming that one “is in favour of immigration” is like saying “one is in favour of monetary policy”, as if it can never be done badly; as if immigrants are the only Homo sapiens in human history who cannot make things worse.
If one is complaining about national feeling, then one is complaining about a historical perennial rooted in human nature. The first nation-state is Old Kingdom Egypt—they had a strong sense of who was, and was not, Egyptian. The first serious “damn foreigner” political rhetoric I am aware of is Seventeenth and Eighteenth Dynasty (the first dynasty of New Kingdom Egypt) complaints about the Hyksos and their rule of northern Egypt.
The trick is to have patriotism mobilising national feeling in a way that does not lead to the more noxious patterns of nationalism. Nor to use concerns about such noxious patterns to justify balkanising the demos so as to enable greater elite domination (see “Broken Britain”).
Because we humans cognitively model significance, not facts, and we are social beings, it turns out that cognitive framings (aka culture) and connections are at least as important as transactions in understanding human social dynamics.
Also, Douglas Irwin’s paper is yet another terrific piece from him, thanks for drawing attention to it.
If economists do not have a robust theory of long term economic growth—which they do not, as your post clearly demonstrates—that means they do not have a robust theory of immigration either. One sign of this is the failure to develop any useful models of the limits to the capacity to absorb immigrants, including trade-offs with other policies.
Hence Net Zero (so higher energy costs restricting what is commercially sustainable) plus mass immigration (so increased contestation over land and other resources) leads to surging national populism.
If it is hard to do something analytically well, that means it is much easier to do it to an agenda, including a class-status agenda.
The second paper creates a bullshit (i.e. something said for rhetorical effect without regard for its truth or accuracy) analytical concept—compositional amenity—so the authoring academics can sneer at working class concerns rather than notice that the working class voices in their paper are, completely rationally, concerned about the dilution and breaking up of their locality-based social capital. (The term ‘social capital’ appears nowhere in the paper.)
Again and again academics implicitly or explicitly label as racism what is concern over cultural distance and locality-based social capital so they can play to academic status games. There is a quite systematic inability to see how things look to folk different from themselves, the problem that bedevils so much commentary and policy analysis.
"If economists do not have a robust theory of long term economic growth—which they do not, as your post clearly demonstrates—that means they do not have a robust theory of immigration either."
That makes no sense, and in any case what does immigration have to do with this post?
And we are back to “you’re a bad person because you have bad opinions”. Yes, folk complain about newcomers all the time. Especially, when they come in “big blocks”. You had assimilated Jews complaining about unassimilated Eastern European Jews. But Irish and Southern Italians had way less cultural differences than the existing US population than, for example, Somalis and this makes a difference.
Moreover, the US had a long pause in mass immigration, from the early 1920s to the mid 1960s, to digest those waves of immigrants. Which it did very successfully. Eventually, there were some issues on the way through.
What also makes a difference is that the US elite was very much committed to the nation-building project. Now, thanks to the Critical Theory magisterium that increasingly dominate universities, we have large sections of Western elites openly hostile to anything that resembles nation building. The 1619 Project, for instance, was a series of hostile historical fables (a polite way of saying lies) designed to have a corrosive effect.
We can see differences in the way Texas and Florida operate with Hispanic (and other) immigrants than California does due to different elite strategies. California is now creating favelas and economic emigrants. Very Latin American of it.
"And we are back to “you’re a bad person because you have bad opinions”."
Are we back to mischaracterizing what I say?
"California is now creating favelas"
LOL, I live here. I'm not some dumb Fox News viewer that can be fooled by scare stories about California. Our "favelas" like south LA have homes costing a half million dollars, because everyone wants to live here.
Yes, we should build more homes in California, as it's such a good place to live.
You seem to struggle with basic logic. I responded to the argument that Somali domination of Minnesota fraud rings tells us something useful about immigration. By that logic, the Italian Mafia in New York would suggest Italian immigration was a bad idea. You respond that Somalis are different from Italians--I agree. But that has no bearing on anything I said. If you want to argue that Somalis are bad for some reason other than organized crime, then do so, but don't use arguments that are clearly discredited. Immigrant concentration into organized crime is not a good reason to oppose immigration.
This is a bit imprecise. Mafia is southern Italian phenomenon, so you would have to make judgments about southern Italian immigration, not just about imigration from Italy in general.
IDK how you calculate the result to be positive or negative, but I would like to mention one thing: when the Allies landed in Sicily during WWII, American-Sicilian mafiosi were able to negotiate rejuvenation of the Mafia there (it was previously brutally suppressed by Mussolini) in exchange for pacifying the occupied regions. This is a long-term effect of southern Italian immigration into the US which hit postwar Italy quite badly and isn't fully resolved yet.
So, when calculating the entire result, this should be taken into account. The transplanted Mafia was literally able to exploit American military power to its own ends.
"This is a bit imprecise. Mafia is southern Italian phenomenon, so you would have to make judgments about southern Italian immigration, not just about imigration from Italy in general."
I assumed that it was well understood that the vast majority of Italian immigration to America was southern Italian. Indeed, more so than in Latin America, where the migrants skewed somewhat more toward northern Italy--and yet did less well than the poorer immigrants to America.
Thanks for this post. I was a little curious myself after reading the Noah Smith one. Economic liberalism is #8 on his list, and he didn't highlight it in his comments either. I understand why people still argue about how important things like industrial policy or culture or geography is, but surely, given the consistent or near-consistent positive track record of liberalism, shouldn't that be on top of the list? Then again, Noah Smith knows a lot more about this than I do, so maybe I'm misinformed. Even in his own examples, though, it seems to me liberalism runs like a red thread in the success cases.
I agree that economic liberalism is a key factor--especially in terms of public policies (culture is harder to control.)
In defense of other views, liberalism is hard to precisely define, as countries may be economically liberal in some dimensions and not others. I view Singapore as a quite liberal economic regime, while other people point to its industrial policies in some sectors.
But I'd say there's a fairly strong correlation between greater economic liberalism and better economic performance, even though the correlation is not perfect and it is hard to precisely measure the degree of liberalism.
Sustained economic take-off requires some resilient combination of mass commerce (i.e., gains-from-trade transactions) and cheap energy. Argentina failed the resilient bit. (There is a line of Australian commentary about not being Argentina: we were both remarkably rich resource-exporting settler societies in 1900.)
If you can move peasants into factories en masse you can industrialise, provided the factories get built. Who gets the benefit, at what cost, and how sustainably, much larger questions. Command economies can industrialise in that way. Then the resilience of growth becomes a problem. (There can also be a fair bit of hidden commerce in such systems, which meant the Mises-Hayek economic calculation critique bit much more slowly than they anticipated.)
If there are various paths to some resilient combination of mass commerce and cheap energy, it is going to be hard to pin down crucial factors across cases. How to get from where you are is surely a very path-dependent matter because of the variety in starting points.
I understand the ‘Confucian’ culture usage. It makes me a bit nervous, however, because it is a bit chicken-and-egg: do Confucian ideas resonate due to underlying patterns in the culture? Japan, for instance, is “Confucian” in a rather limited sense.
It is also pretty clear that Japan was an early adopter of technic modernity because its institutions in 1868 resembled those of Western Europe in, say, 1468 way more than any other non-Western country, so “fast forwarding” history by adapting Western models was a lot easier. But that then did not apply to other successful take-off countries.
Good points. To be clear, I didn't mean anything specific by "Confucian", other than "East Asian". As an analogy, when people speak of the effects of Christianity on development it's never clear whether the mechanism is actual Christian doctrine, or just general cultural attitudes in regions like Europe.
Regarding international comparisons and path dependency due to different starting points, much of what the CCP did after 1978 was work out ways to “get there from here”.
Nevertheless, there are some striking parallels between post-1945 Japan and post-1978 China. Both had massive surges in economic growth with large industrial expansion. Both used financial repression. Both became the second-largest economy. Both peaked at around 17-18% of world GDP. Both generated commentary about how the US/West needed to learn from them. Both experienced mass asset crashes and serious debt overhangs.
Except China is doing it from a much lower income/wealth base, with worse feedback systems and much more corruption. (I am somewhat sceptical about China’s GDP and even demographic statistics: which is not at all to deny there has been decades of remarkable economic growth.) It is also doing it with a much larger military establishment (which has grown at about twice the rate of the economy), a regime obsessed with the collapse of the Soviet Union, and revanchist ambitions (Taiwan, South China Sea).
I am always puzzled by these statements. Anyone who has ever visited China can see that it's actually much richer than it's reported GDP. Reported per capita GDP in 2026 is below $15,000, vs. nearly $95,000 in the US. And yet any physical measure such as electricity production or total exports suggests a country at a higher level of development than $15,000.
One of the best descriptions of China I have come across (was it yours? I don’t remember where I read it) is that it has the same population as the Americas, but it is as if Manhattan and the back blocks of Colombia were in the same country. It would be very surprising if its official stats were understating its GDP, as the incentives are clearly the other way.
That said, that urban/coastal China is effectively a developed economy is clear enough. Part of the issue with the stats is how well investment is being measured given its actual use. For instance, Japan’s fast trains are profitable, China’s make massive losses.
As for levelling off rather than asset crash, perhaps that is a better description, though one wonders how the asset/liability balance looks.
"It would be very surprising if its official stats were understating its GDP, as the incentives are clearly the other way."
Just the opposite is true. People used to claim China understated GDP to gain the leeway given to "developing countries", which had less burdensome requirements in certain areas such as carbon emissions and foreign aid.
"That said, that urban/coastal China is effectively a developed economy is clear enough."
You don't seem to realize that this proves my point. China's now almost 70% urban. Even if the other 30% had a GDP of zero (and it isn't), the fact that urban areas are developed would mean China's GDP is above $15,000 per capita.
If China had a very large informal economy—so large, it overwhelmed the official incentives to overstate GDP—that would lead to understated GDP figures relative to the actual economy. There is certainly precedent for a large informal sector, albeit previously mainly in the countryside. If that is happening in metro China, that would be fascinating in itself.
Bolivia has been independent since 1825. Korea, which was occupied by Japan during World War II is far more “post-colonial” whatever that term even means.
In much of the developing world, economic power is largely concentrated in the hands of a “market-dominant” ethnic minority. The classic case is southeast Asia, where the Chinese, usually a tiny proportion of the population, enjoy an overwhelmingly dominant economic position. In Malaysia, the average Chinese household had 1.9 times as much wealth as the Bumiputera (Khalid 2007); in the Philippines, the Chinese account for 1 per cent of the population and well over half the wealth (Chua 2003). The same is true in varying degrees in Indonesia, Burma, Thailand, Laos, and Vietnam.
Great forgetting? You’re treating 2008 as if it carried no implications or lessons to be learned. We lived through that and trust me, we’re not forgetting.
You do know that I wrote an entire book on the lessons of 2008, don't you? Indeed to the extent I have any reputation at all in the blogosphere, and the reason I get linked to by people like Tyler, is my blogging back in 2009 on the 2008-09 recession.
Scott-I’m vaguely aware of you from some articles you wrote years ago from the Marginal Revolution. It wasn’t a particularly friendly site for non economists and I migrated away from it. I read this article in RealClearMarkets and recognize that 2008 wasn’t the main point of your article. Since I’m a forensic psychiatrist and not an economist (just a Federal Reserve brat), there’s no particular reason I should be familiar with your book.
I took the article as I read it and it seemed to give 2008 short shrift. RealClearMarkets attracts a fairly diverse crowd. Perhaps an extra explanatory sentence or two might have made a difference for someone relatively unfamiliar with you and your work. Thanks.
The biggest "Great Forgetting" of 2008 was forgetting the importance of having the Federal Reserve maintain stable growth in nominal GDP. The big fall in NGDP during late 2008 caused both high unemployment and a large wave of bank failures. My book on that topic is entitled "The Money Illusion", if you are interested.
The reason I didn't focus on 2008 in this post is I was looking and long run economic growth factors in places like Korea, rather than factors that generated business cycles. But I certainly agree that business cycles are also a big problem, and that 2008 showed serious flaws in our policymaking.
> If you compared South Korea with much poorer North Korea, you could rule out factors that also apply to the North such as culture, educational level, having a seaport, etc.
I think more care is warranted here. The model of development that you assume is what lets you rule factors in or out by comparison.
In particular, what bothers me about this quoted list is the sea access. I'd be comfortable seeing someone argue that sea access is necessary, but not sufficient, for development, similarly to how communism is sufficient, but not necessary, for impoverishment. Under that model, sea access would be irrelevant to the difference in development between South Korea and North Korea (because there's no difference in sea access), but it would remain highly relevant to the difference in development between South Korea and Bolivia.
And this fact would make it inappropriate to use a comparison between North and South Korea to eliminate sea access as an explanation for South Korea's wealth. The hypothetical model in my previous paragraph isn't telling us that South Korea is rich because sea access doesn't matter; it's telling us that North Korea is poor because sea access isn't the only thing that matters.
Sure, that's obvious. My point is that it's helpful to look at comparisons like North and South Korea to try to isolate at least some factors that matter a great deal. It doesn't mean that other factors don't matter. Sea access is clearly a plus. But keep in mind that there are a number of very rich countries with no seaport, such as Austria.
> Smith sees manufacturing success as something that Poland and Malaysia have in common. But he also noted an important difference from South Korea:
>> Unlike South Korea, they relied heavily on foreign direct investment.
As a historical question, how did South Korea square its balance of payments with a ban on FDI? A poor country was presumably not exporting lots of specie. Was foreign investment welcomed in a more managed way such that it did not count as traditional FDI?
> How likely is it that a country that got rich after removing many of those restrictions on the private sector, reducing the role of the state, achieved its success precisely because of the remaining restrictions?
I'd like to provide a counterargument here that this is perhaps more likely than you'd think. We can all agree that institutions are a first-order contributor to growth, but they are non-economic. I posit that large policy shocks risk corrosion of good institutions through a variety of pedestrian measures: breaking beneficial conventions, loss (or irrelevance) of institutional knowledge, rapid turnover making it impossible to screen for the best politicians/bureaucrats, and so forth.
"The remaining restrictions" might just be a way for developing nations to limit societal/cultural change to a pace where its institutions can remain adapted and thus exert effective control over the country.
I think this is particularly relevant with respect to FDI. A poor nation may find it effectively impossible to regulate a foreign enterprise once allowed into the country. The enterprise will not be constrained against corruption (or even crime) by the social norms of the country it's newly entering, and likewise it will have every incentive to push for friendly, extractive regulation and policy treatment rather than growth-promoting/liberal/rules-based policies. It might be simpler to ban foreign enterprise 'at the door' until society and government can effectively push back, even if these bans may outlast their usefulness in the long run.
That's possible, but once again you also see East Asian success stories that differ from Korea in that they did allow lots of FDI. Indeed South Korea was something of an exception, which makes me question how central FDI limits were to its success.
On the FDI question, I believe Korea relied on foreign loans to finance its industrialization, as it was too poor to have adequate domestic savings.
"How likely is it that a country that got rich after removing many of those restrictions on the private sector, reducing the role of the state, achieved its success precisely because of the remaining restrictions?"
I'd say that the "remaining restrictions" in China preventing NIMBYs from blocking development projects is an example.
"Export led growth" just means that investment in traable sectors is disciplined by interntional prices rather than "import substitution" which the Trump-Biden-Trump Adminsitration is attempting.
Also it would be interesting to know if the SK, Malaysian, Polish, etc. states were running large fiscal deficits > Public investments as the US is.
I guess I view NIMBYism itself as a statist policy--government regulations restricting building. So removing NIMBYism doesn't seem to me to be a particularly statist policy.
Having said that, I do think it's reasonable to give the CCP credit for successfully building lots of infrastructure. I'm not saying the state played no role in China's development.
"Of course one could cite many other reasons for Korea’s success, including land reform, foreign aid, being allied to the US, industrial policies, etc. But none of the other factors seem as powerful as the two points listed above."
Being within the US security umbrella was the prerequisite, the effect of this-or-that domestic factor is swamped by that effect. This is why we can find so many "recipes," to use Rodrik's language. It prevented various forms of security-obsessed nationalisms (communist or otherwise) from taking hold, and eliminated the imperial competitions that diverted resources from development to state power. That is the common factor with Taiwan and Japan within the "Confucian" sub-unit, it is a common factor with Poland in Europe, and it is not common with places like sub-Saharan Africa or parts of Latam that never had consolidated communist regimes in power yet still didn't develop. It is also why China and Vietnam started liberalizing after rapproachment with the US, and stopped liberalizing since the US has turned against the open economy.
Inclusive domestic institutions are downstream of the security environment. The US structured global security over the past 75 years, and the US prioritized open markets, so if you were within the security environment you received the benefit of open markets. If you weren't it was much harder.
It's a real shame (from the perspective of world development) that the US security apparatus has become extractive, beginning with the Bush years. Over the past 25 years worldwide democracy has declined, press freedom has declined, corruption has increased, public trust has declined, and global growth rates have slowed. It's not a coincidence.
The open global economy was a cosmopolitan liberal project with progressive aims, not a libertarian project, nor a Confucian project, nor a statist project. But there seem to be no more cosmopolitan progressive liberals around anymore, other than Mark Carney.
I agree that US protection was essential for South Korea, which otherwise would have fallen to the North. I'm not sure how important it is elsewhere. I doubt that US foreign policy has much impact on places like Argentina or Portugal or India, which are outside the zone of great power competition.
I didn't say inside the zone of great power competition, I said within the US's security umbrella. To trade more Korea needed trade partners, and the US security network provided those trading partners. Portugal was one of the poorest original members of NATO -- which predated the European Economic Community and probably provided a necessary precondition for it -- perhaps the very poorest, but it has not only converged economically under that security umbrella but liberalized politically too. The security umbrella was prior to all the rest. Argentina, meanwhile, refused to declare war on Nazi Germany, and the US took the UK's side in the Falklands War (contra the Monroe Doctrine); Argentina has stagnated significantly over the past 75 years, overtaken by countries like South Korea, but when times have been good in Argentina they've been the times when Argentina has been mostly closely aligned with the US geopolitically.
I don't know how to respond to a claim that India is outside the zone of great power competition, but it certainly is not within the US's security umbrella and as a consequence its domestic institutions and economic policymaking under the Raj were less liberal.
Or take Iran: it was wealthier when it was within the US's security umbrella, less wealthy when it wasn't. Its orientation towards trade is roughly the same. This generalizes through the Middle East: the countries aligned with the US are richer than the countries non-aligned or opposed, irrespective of domestic institutions.
Domestic institutions are not magic. They are created in response to systemic pressures, and they change in response to systemic pressure. Policy outputs are consistent with systemic priorities: if you rely on the Soviet Union for security you have a different choice set than if you rely on the US for security, and if you remained non-aligned then you had very few choices at all.
Mark Carney (and Keir Starmer) understand that domestic institutions are insufficient for building prosperity, that "Global Britain" is a non sequitur. Global coordination is required. American hegemony provided the coordination mechanism for a long time, mediated through multilateral institutions. That's gone now, so the middle powers have to scramble to reconstruct as many features of it as they can, as quickly as they can, or the domestic institutions will fail.
That's our project.
I guess I have no idea what you are talking about.
Domestic institutions are not chosen independently, so the outcomes they mediate cannot be assessed strictly through institutional lenses.
Put another way: if the story about the success of South Korea refers only to the domestic features of South Korea, then it is wrong.
India ie the Raj had economic policies that tracked England. When England went socialist post-WW2 India went too. The same economists and advisors were working for both India and Britain. The policies came recommended by the best economic science of the day.
"The policies came recommended by the best economic science of the day."
I don't accept this simplification, but even if I did it would only reinforce my point: choosing "the best" policies is inconsequential if you do not occupy the correct structural position. Perhaps even counterproductive.
As Scott notes, a major prerequisite is trade. He focuses on "trade openness" but there's not much evidence that "openness" in and of itself accomplishes much. What matters is having access to leading markets and technology. Korea accomplished that by becoming a vassal of the state with the largest markets and highest level of technology; India refused to become a vassal and so they did not have access to those markets or technologies.
A key missing variable in Scott's discussion is that the US is *not* a particularly trade-exposed economy, and this was even more true during its greatest period of economic dominance. The source of that dominance was not its domestic institutions -- which were the most socialist they've ever been -- but the fact that the US won a hegemonic World War.
"India refused to become a vassal and so they did not have access to those markets or technologies."
I see no evidence for that claim. India was free to export to the US and to buy technology from any leading country.
What do you mean by "free"? The US interfered in the domestic politics of many countries during the Cold War, and did so explicitly to set an example for others. Newly-independent countries like India viewed this as a continuation of European imperialism, not a model of openness to which they could frictionlessly ascend. That is why after the Korean War ended, in a stalemate, India created and led a Non-aligned Movement in an attempt to preserve non-vassal status.
Successive American governments gave greater market access and substantial financial investment to countries that aligned than those that didn't, and we ended up referring to 1st, 2nd, and 3rd World nations according to these alignments.
On the ground this manifested in varying levels of "freedom" depending on how oriented countries were with American strategic priorities during the Cold War. The GATT was extremely biased against commodities/textiles exporters, Bretton Woods tightly regulated portfolio capital flows, and Cold War security priorities limited capital access to non-allies even more. That worked out for densely-populated places that exploited their position within the US defense structure -- which provided access capital as well as trade -- to generate manufacturing output which could be sold to American consumers. That describes Japan, Korea, and Taiwan quite well, but not India, because India was never a part of the US's Cold War alliance.
India and the "best" British economic science of the day, oh dear...
Nicely enabled a new class of bureaucratic nationalist kleptocrats keen on enriching themselves at the literal expense of the masses. So common in Africa, too.
Those new bureaucratic Indian nationalists could then ignore, in fact condone, and thus continue, the pre-British rule, uniquely Indian, uniquely backwards caste system.
Like the Chinese for many years, only outside India can Indians thrive fairly, unless thrown out like in most of post-colonial East Africa.
So much to unpack. So much of it unique, one-off, singularities.
(Russian here) For Poland's shock therapy, one question I have is what was the difference between privatization in Poland and in Russia? The former seems to be a success, but the latter is customary blamed for modern ills of the country.
Two subquestions here:
* What were, if any, _mechanical_ differences between the two processes? How they physically worked?
* What's the transmission mechanism for later economical and political outcomes?
I did a tiniest bit of research about this, and haven't found satisfactory answers. Would appreciate some links here!
I recall that there were complaints about corruption in Russia's program, but I don't know enough to have an informed opinion. Of course Russia started reforming several years later than Poland, so it took longer for things to start improving.
Poland stated a democracy, so kleptocrats can be thrown out of office, unlike Russia under Putin. Ukraine was going the same way until Putin decided that was a bad example, for him, personally.
China is different. Kleptocracy kept in check despite lack of democracy. Possibly, this is due to lack of natural resources relative to population size, unlike Russia where kleptocrats can get very rich and thus stay powerful by control of those resources without having to douch for the general population (like in smaller S American or African states).
Russian's "big bang" was planned and engineered by Harvard economists including Andrei Shleifer, who also participated in the looting of the country. I.e., in Russia they ignored politics, and thus facilitated the corruption that they later participated in.
Poland's post-communist development was instead guided by Solidarity's longstanding connection to trade unions and other civil society networks. It prioritized political organization and social mobilization first, not privatization as a magic bullet that could solve all governance problems on its own.
Similarly, South Korea did not pursue "big bang" liberalization efforts. They preserved chaebol production structures, and liberalized gradually to avoid macro disruption. The look much more like China post-1979 than Russia, or it is better to say that China post-1979 looks more like South Korea than Russia.
Privatization and the liberalization of prices in Russia were largely successful, but other aspects of economic reform had very serious problems. Most notably, the Soviet ruble stuck around for a few years after 1991, meaning that identical rubles were being printed by multiple ex-Soviet republics at once, leading to inflation. Russia's central bank also followed a pretty loose monetary policy after the ruble zone was broken up. There was also a problem with the overcomplicated and inconsistently enforced tax code, which was greatly simplified by Putin in the early 2000s.
Thanks for correcting a few misconceptions on my part. I had heard the case of Poland argued from the opposite position, with the framing relying exclusively on comparisons between Poland and post-Soviet Russia. Your analysis presents a far more rounded picture. On the industrial policy, do you think there is a specific exception for targeted industrial policy which is specific and encompasses an understanding of markets? Both South Korea and Singapore invested heavily in semiconductors. Are good industrial policies simply too difficult and multi-faceted for most governments with strong political factors to consider to accomplish? I know Germany and Japan in specific periods were cited in the original arguments against Friedman. I guess my question is: are they unlikely to work in most instances because Man of Systems requirements make them unobtainable to all but exceptional governments in exceptional periods?
A while back I looked at conditions for success for majority Muslim countries. Excluding the oil rich Gulf States, Turkey and Malaysia were the best success stories. Both operate a very threadbare and limited version of Sharia Law, mostly relating to personal and family law for Muslims.
I doubt whether industrial policy played much of a role in the success of Singapore or South Korea. I wouldn't rule out the possibility that it can help here and there, but I don't have much confidence in claims made by proponents of the idea. Even if a particular industry was helped, what was the opportunity cost of the aid? These are difficult questions.
Well, the sensible line seems to be something along the lines of assessing strategic needs, doesn't it? I did a deep drive on the steel tariffs because instinctively I was against them. However, from what I could gather the Trump Admin is at least *claiming* to be using the tariffs as a bridge to enable the industry to pivot to specialised steel. I don't how much stock I put in growth projections for specialised steel into the 2030s, but it's certainly a key strategic sector which has many downstream consequences.
I don't think anyone is paying enough attention to advanced chemicals. As a sector it naturally aligns with the oil and gas sector, and is critical for any number of specialised high tech applications. Important, given the potential inherent to metrics like Robots per 10,000 workers. Sir Jim Radcliffe is well worth a watch on the subject of advanced chemicals.
Germany is probably going to lose a large segment of their advanced chemicals capacity. Hormuz places a question mark over investing in Asia in advanced chemicals. Do you watch or read Doomberg? I was watching an interview with Peter Boghossian and was very interested in his take on Australia and the energy innumeracy of its political class.
My broader point is that I don't think most political leaders are getting advice which joins the dots. The combination of oil/gas with high automation potential is a game changer. Most of the ROI on AI actually appears to be from teams using the technology smartly, rather than the conventional workforce displacement everybody is obsessed with. Robots and automated facilities are another matter entirely. It's an argument for vertical integration and geographical locations which prioritise stability, especially in terms of supply chains, although friend-shoring is another option.
“I’m about to start reading Hanania’s Kakistocracy. I hope he can explain to me why the world is getting dumber.”
From the description of his book, Hanania is exhibiting what I call ‘the Anne Applebaum arrogance’: self-righteous and increasingly dysfunctional Western elites complaining about the working class pushing back against elite dysfunction. Such pushing back is at the core of national populism.
The end of the Cold War—so the end of an external existential threat—meant that Western elites had much less incentive to conciliate their own working classes. Hence, there was a shift towards more exploitive domestic behaviour, as analysts of social dynamics such as ibn Khaldun would predict.
Indeed, even evolutionary thinking leads to such a prediction. See: David C. Lahtia, Bret S. Weinstein, ‘The better angels of our nature: group stability and the evolution of moral tension,’ Evolution and Human Behavior, 26, 2005, 47–63. https://www.researchgate.net/profile/David-Lahti/publication/228350694_The_better_angels_of_our_nature_Group_stability_and_the_evolution_of_moral_tension/links/5a218253aca2727dd87a9e97/The-better-angels-of-our-nature-Group-stability-and-the-evolution-of-moral-tension.pdf. (The paper would have been better if they were aware of the work of ibn Khaldun and similar thinkers.)
We have a dysfunctional triad of bureaucratisation, feminisation and progressivism interacting with the wider pattern of the expansion (discussed in my most recent post) of the unaccountable classes—of those paid to turn up, of those paid for process, rather than for reality-tested results.
Bureaucratisation leads to expansion in predatory parasitism, as bureaucracies seek to expand their claim on resources, and their authority, while frustrating accountability, including using moral projects to do so. In the absence of any strong character tests, there is also selection within bureaucracies for more manipulative personalities.
Feminisation means a shift towards institutions and organisations more pervaded by female relational aggression—or the threat thereof—leading to lower trust institutions, a protective conformism and censoriousness, and much more resistant to inconvenient feedback.
Progressivism means a shift to a more dysfunctional relationship with information, as the glorious imagined future—the splendours in progressive heads—become the benchmark of judgement. Since there is no information from the future, it creates a benchmark of judgement utterly ungrounded in reality.
Progressivism thus means the adoption of moral and character judgement by belief; so that belief in X makes you a good person, hence belief in not-X makes you a bad one. Due to the monopoly effects of networks—the more people who are playing the status game, the more protection there is in joining it—you get marches through institutions. You also get the international censorship-industrial complex.
These are all mechanisms to restrict what is acceptable discourse, and frustrate democratic feedback, that tend to reinforce each other. That the welfare state has developed in such a way that there is more and more income to be had from maintaining—even extending—social dysfunction just adds another layer of elite dysfunction. (See for example, the homelessness-industrial complex.)
The working class is functionally excluded from all this—worse, it becomes those against whom such status is asserted, Western elites having more in common with each other than with their own working classes. As Musa al-Gharbi has analysed, you get a mutually coordinating elite status game based on various affirmations and de-legitimations—in effect, the status game creates a series of mutually-supporting cognitive assets to go with their other assets.
See: Musa al-Gharbi, We Have Never Been Woke: The Cultural Contradictions of a New Elite, Princeton University Press, 2024.
So, you get a whole range of policies—immigration, trade, land use regulation, education, cultural—against the interests of the working class in a status-and-rhetoric package that seeks to de-legitimise them arcing up. This leaves a gap in the political market, which national populists fill. As part of the de-legitimising of dissent, such arcing up becomes “the” problem.
The notion that the working class, and how they vote, is “the” problem is ridiculous. It is pure projection by our self-righteous, and increasingly dysfunctional, elites. If “we” are getting dumber, it is the elites who are getting dumber in a pretty standard way across history—being in thrall to dysfunctional status games and bad institutional incentives.
I remember the show MASH as a kid portraying the Korean people, obviously impacted by the ravages of war, as essentially peasants. What has happened in post-war South Korea is nothing short of amazing.
Why were all of those Confucian countries so poor until recently? There was something about them that made them poor for a very long time and then something changed. Also, Noah and others have written extensively on S Korea. While its true they became much more market oriented especially in their interactions with the outside world, their government remained very active internally and was much more interventional with its corporations and businesses than what we see in the US.
Steve
"much more interventional with its corporations and businesses"
This is a complicated issue, and it varies from place to place. For instance, Hong Kong is far less interventionist than the US. Singapore and Taiwan are more interventionist in some respects, and less so in others. There are many types of intervention---think of all of our environmental and labor regulations, for instance. Singapore's government owns their airline, but its 100% run like a private company.
Why were they previously so poor? I'd say a mix of bad governance and political instability.
If South Korea has become dramatically more market oriented, but remains less so than the US, then you might expect it to have grown rapidly, but remain below US levels of productivity. Which is exactly what happened.
Note an important exception --- Japan got its growth going about a century earlier.
A just so story here would be that growth is downstream of right policies, and that policies seem to follow punctuated equilibrium --- your default action is to continue business as usual, but once in a while you roll a die and end up with a different set of polices, for better or worse. Japan was just luckier in some aspects of its historically contingent choices.
Zooming out the historical scale a bit more, an interesting question is _why_ didn't Industrial Revolution got going in China somewhere in XVI century, given that paper, paper money, mariner's compass, gunpowder and printing all come from China? Would love to read some detailed research there, but my understanding (based primarily on "Power and Plenty" by Findlay and O'Rourke is that somewhere around Mongol Conquests culture and policy got flipped, from "lets explore what's there over seas" to "oversea trade is a crime".
It seems that Confucian countries do really well under capitalism. But they were poor under feudalism. The problem with feudalism is that it can create a massive lock on the rest of the society, preventing any social migration upwards; just the fact that the military nobility holds all the weapons prevents any major change in the status quo.
Once the mandarins and the eunuchs were removed from power by external forces, the non-noble population found a way to rise socially and thrive.
Good point.
Sumner, if you actually read Park Chung Hee's books, you will see he was not very smart and (at least at first) not at all inspired by Korean history. His first priority was ending South Korea's humiliating dependence on foreign aid (which he almost entirely succeeded at), and his economic models were West Germany and Israel.
"There was no consensus that East Asia would do better than Latin America (or indeed that America would do better than the Soviet Union.)"
Lothrop Stoddard in "The Rising Tide of Color Against White World-Supremacy", though he was wrong in most of his predictions, correctly called the prospects for economic development: Japan>China>Brown Man's Land>Latin America>Black Man's Land.
The "Confucian" culture I think is likely at least partly due to biology; the Chinese writing direction is the one most compatible with good posture, while the Arabic one is the least. Thus the Muslim world often had selection against literacy, while Japan, China, Korea, Vietnam, etc., had selection in favor of literacy.
"By the turn of the century, these institutional foundations had catapulted a fractured and impoverished territory into the ranks of the world’s ten wealthiest nations by GDP per capita"
I don't think this is true; see this chart:
https://x.com/joefrancis505/status/1750638612281016597
Ironically Cuba was claimed to be the second richest country in the world during the 1920s.
Surely Latin America > Brown Lands (I suppose South Asia is meant )
Latin America had a higher starting level, but had slower growth.
“We’ve forgotten why nationalism is an evil ideology.”
This is likely more a quibble than a critique. Criticising nationalism—in the form of ethno-nationalism—as an ideology is fine, though one doubts that, say, Danish nationalism has done much damage.
Criticising cultural nationalism is more moot and complaining about civic nationalism aka patriotism is quite wrongheaded, for it is clear that resilient polities need a robust civic culture, including to maintain the norms and rules of their institutions.
We can see, for example, large lumps of Somali immigrants corroding local institutions in Minnesota and Sweden, to the extent that Sweden has been reduced to paying them to go away. This is a corrosion of institutions due to cultural differences that is unsurprising if one reads the relevant scholarship.
See: Plamen Akaliyski, Vivian L. Vignoles, Christian Welzel, & Michael Minkov, ‘Individualism–collectivism: Reconstructing Hofstede’s dimension of cultural differences,’ Journal of Personality and Social Psychology, (2025). Advance online publication. https://www.researchgate.net/publication/398587882_Individualism-Collectivism_Reconstructing_Hofstede's_Dimension_of_Cultural_Differences
Claiming that one “is in favour of immigration” is like saying “one is in favour of monetary policy”, as if it can never be done badly; as if immigrants are the only Homo sapiens in human history who cannot make things worse.
If one is complaining about national feeling, then one is complaining about a historical perennial rooted in human nature. The first nation-state is Old Kingdom Egypt—they had a strong sense of who was, and was not, Egyptian. The first serious “damn foreigner” political rhetoric I am aware of is Seventeenth and Eighteenth Dynasty (the first dynasty of New Kingdom Egypt) complaints about the Hyksos and their rule of northern Egypt.
The trick is to have patriotism mobilising national feeling in a way that does not lead to the more noxious patterns of nationalism. Nor to use concerns about such noxious patterns to justify balkanising the demos so as to enable greater elite domination (see “Broken Britain”).
Because we humans cognitively model significance, not facts, and we are social beings, it turns out that cognitive framings (aka culture) and connections are at least as important as transactions in understanding human social dynamics.
Also, Douglas Irwin’s paper is yet another terrific piece from him, thanks for drawing attention to it.
"We can see, for example, large lumps of Somali immigrants corroding local institutions in Minnesota and Sweden,"
You are the sort of person who 100 years ago would have complained:
We can see, for example, large lumps of Irish and Southern Italian immigrants corroding local institutions in New York and Chicago,
If economists do not have a robust theory of long term economic growth—which they do not, as your post clearly demonstrates—that means they do not have a robust theory of immigration either. One sign of this is the failure to develop any useful models of the limits to the capacity to absorb immigrants, including trade-offs with other policies.
Hence Net Zero (so higher energy costs restricting what is commercially sustainable) plus mass immigration (so increased contestation over land and other resources) leads to surging national populism.
If it is hard to do something analytically well, that means it is much easier to do it to an agenda, including a class-status agenda.
Read Mark Granovetter’s classic paper, ‘The Strength of Weak Ties: A Network Theory Revisited,’ Sociological Theory, Vol.1, 1983, 201-233. https://www.csc2.ncsu.edu/faculty/mpsingh/local/Social/f15/wrap/readings/Granovetter-revisited.pdf (It is a follow-up to a seminal essay by him, but it is this follow-up that is relevant.)
Then read David Card, Christian Dustmann and Ian Preston, ‘Immigration, Wages, and Compositional Amenities,’ Norface Migration Discussion Paper No. 2012-13, February 2012. https://davidcard.berkeley.edu/papers/immigration-wages-compositional-amenities.pdf
The second paper creates a bullshit (i.e. something said for rhetorical effect without regard for its truth or accuracy) analytical concept—compositional amenity—so the authoring academics can sneer at working class concerns rather than notice that the working class voices in their paper are, completely rationally, concerned about the dilution and breaking up of their locality-based social capital. (The term ‘social capital’ appears nowhere in the paper.)
Again and again academics implicitly or explicitly label as racism what is concern over cultural distance and locality-based social capital so they can play to academic status games. There is a quite systematic inability to see how things look to folk different from themselves, the problem that bedevils so much commentary and policy analysis.
See Helen Dale’s excellent essay People Unlike Me, https://www.notonyourteam.co.uk/p/people-unlike-me
It is the most popular essay on her Substack for very good reasons.
https://www.notonyourteam.co.uk/archive?sort=top
"If economists do not have a robust theory of long term economic growth—which they do not, as your post clearly demonstrates—that means they do not have a robust theory of immigration either."
That makes no sense, and in any case what does immigration have to do with this post?
And we are back to “you’re a bad person because you have bad opinions”. Yes, folk complain about newcomers all the time. Especially, when they come in “big blocks”. You had assimilated Jews complaining about unassimilated Eastern European Jews. But Irish and Southern Italians had way less cultural differences than the existing US population than, for example, Somalis and this makes a difference.
Moreover, the US had a long pause in mass immigration, from the early 1920s to the mid 1960s, to digest those waves of immigrants. Which it did very successfully. Eventually, there were some issues on the way through.
https://www.nber.org/system/files/working_papers/w8942/w8942.pdf
What also makes a difference is that the US elite was very much committed to the nation-building project. Now, thanks to the Critical Theory magisterium that increasingly dominate universities, we have large sections of Western elites openly hostile to anything that resembles nation building. The 1619 Project, for instance, was a series of hostile historical fables (a polite way of saying lies) designed to have a corrosive effect.
We can see differences in the way Texas and Florida operate with Hispanic (and other) immigrants than California does due to different elite strategies. California is now creating favelas and economic emigrants. Very Latin American of it.
"And we are back to “you’re a bad person because you have bad opinions”."
Are we back to mischaracterizing what I say?
"California is now creating favelas"
LOL, I live here. I'm not some dumb Fox News viewer that can be fooled by scare stories about California. Our "favelas" like south LA have homes costing a half million dollars, because everyone wants to live here.
Yes, we should build more homes in California, as it's such a good place to live.
Sumner, Ireland and Southern Italy look nothing like Somalia.
You seem to struggle with basic logic. I responded to the argument that Somali domination of Minnesota fraud rings tells us something useful about immigration. By that logic, the Italian Mafia in New York would suggest Italian immigration was a bad idea. You respond that Somalis are different from Italians--I agree. But that has no bearing on anything I said. If you want to argue that Somalis are bad for some reason other than organized crime, then do so, but don't use arguments that are clearly discredited. Immigrant concentration into organized crime is not a good reason to oppose immigration.
This is a bit imprecise. Mafia is southern Italian phenomenon, so you would have to make judgments about southern Italian immigration, not just about imigration from Italy in general.
IDK how you calculate the result to be positive or negative, but I would like to mention one thing: when the Allies landed in Sicily during WWII, American-Sicilian mafiosi were able to negotiate rejuvenation of the Mafia there (it was previously brutally suppressed by Mussolini) in exchange for pacifying the occupied regions. This is a long-term effect of southern Italian immigration into the US which hit postwar Italy quite badly and isn't fully resolved yet.
So, when calculating the entire result, this should be taken into account. The transplanted Mafia was literally able to exploit American military power to its own ends.
"This is a bit imprecise. Mafia is southern Italian phenomenon, so you would have to make judgments about southern Italian immigration, not just about imigration from Italy in general."
I assumed that it was well understood that the vast majority of Italian immigration to America was southern Italian. Indeed, more so than in Latin America, where the migrants skewed somewhat more toward northern Italy--and yet did less well than the poorer immigrants to America.
Sumner, if you want me to respond more appropriately you should more explicitly state the premises of your argument.
Thanks for this post. I was a little curious myself after reading the Noah Smith one. Economic liberalism is #8 on his list, and he didn't highlight it in his comments either. I understand why people still argue about how important things like industrial policy or culture or geography is, but surely, given the consistent or near-consistent positive track record of liberalism, shouldn't that be on top of the list? Then again, Noah Smith knows a lot more about this than I do, so maybe I'm misinformed. Even in his own examples, though, it seems to me liberalism runs like a red thread in the success cases.
I agree that economic liberalism is a key factor--especially in terms of public policies (culture is harder to control.)
In defense of other views, liberalism is hard to precisely define, as countries may be economically liberal in some dimensions and not others. I view Singapore as a quite liberal economic regime, while other people point to its industrial policies in some sectors.
But I'd say there's a fairly strong correlation between greater economic liberalism and better economic performance, even though the correlation is not perfect and it is hard to precisely measure the degree of liberalism.
Isn't a coarse measure government spending as a percent of GDP? Or is that considered outdated?
Not really, as for example Denmark is one of the most free market economies, but has a very high level of government spending as a share of GDP.
Sustained economic take-off requires some resilient combination of mass commerce (i.e., gains-from-trade transactions) and cheap energy. Argentina failed the resilient bit. (There is a line of Australian commentary about not being Argentina: we were both remarkably rich resource-exporting settler societies in 1900.)
If you can move peasants into factories en masse you can industrialise, provided the factories get built. Who gets the benefit, at what cost, and how sustainably, much larger questions. Command economies can industrialise in that way. Then the resilience of growth becomes a problem. (There can also be a fair bit of hidden commerce in such systems, which meant the Mises-Hayek economic calculation critique bit much more slowly than they anticipated.)
If there are various paths to some resilient combination of mass commerce and cheap energy, it is going to be hard to pin down crucial factors across cases. How to get from where you are is surely a very path-dependent matter because of the variety in starting points.
I understand the ‘Confucian’ culture usage. It makes me a bit nervous, however, because it is a bit chicken-and-egg: do Confucian ideas resonate due to underlying patterns in the culture? Japan, for instance, is “Confucian” in a rather limited sense.
It is also pretty clear that Japan was an early adopter of technic modernity because its institutions in 1868 resembled those of Western Europe in, say, 1468 way more than any other non-Western country, so “fast forwarding” history by adapting Western models was a lot easier. But that then did not apply to other successful take-off countries.
Lots of big questions raised by a great post.
Good points. To be clear, I didn't mean anything specific by "Confucian", other than "East Asian". As an analogy, when people speak of the effects of Christianity on development it's never clear whether the mechanism is actual Christian doctrine, or just general cultural attitudes in regions like Europe.
Regarding international comparisons and path dependency due to different starting points, much of what the CCP did after 1978 was work out ways to “get there from here”.
Nevertheless, there are some striking parallels between post-1945 Japan and post-1978 China. Both had massive surges in economic growth with large industrial expansion. Both used financial repression. Both became the second-largest economy. Both peaked at around 17-18% of world GDP. Both generated commentary about how the US/West needed to learn from them. Both experienced mass asset crashes and serious debt overhangs.
Except China is doing it from a much lower income/wealth base, with worse feedback systems and much more corruption. (I am somewhat sceptical about China’s GDP and even demographic statistics: which is not at all to deny there has been decades of remarkable economic growth.) It is also doing it with a much larger military establishment (which has grown at about twice the rate of the economy), a regime obsessed with the collapse of the Soviet Union, and revanchist ambitions (Taiwan, South China Sea).
"I am somewhat sceptical about China’s GDP"
I am always puzzled by these statements. Anyone who has ever visited China can see that it's actually much richer than it's reported GDP. Reported per capita GDP in 2026 is below $15,000, vs. nearly $95,000 in the US. And yet any physical measure such as electricity production or total exports suggests a country at a higher level of development than $15,000.
https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita
Otherwise those are interesting comparisons, although I don't think China has experienced a mass asset crash, more like a leveling off.
One of the best descriptions of China I have come across (was it yours? I don’t remember where I read it) is that it has the same population as the Americas, but it is as if Manhattan and the back blocks of Colombia were in the same country. It would be very surprising if its official stats were understating its GDP, as the incentives are clearly the other way.
That said, that urban/coastal China is effectively a developed economy is clear enough. Part of the issue with the stats is how well investment is being measured given its actual use. For instance, Japan’s fast trains are profitable, China’s make massive losses.
As for levelling off rather than asset crash, perhaps that is a better description, though one wonders how the asset/liability balance looks.
"It would be very surprising if its official stats were understating its GDP, as the incentives are clearly the other way."
Just the opposite is true. People used to claim China understated GDP to gain the leeway given to "developing countries", which had less burdensome requirements in certain areas such as carbon emissions and foreign aid.
"That said, that urban/coastal China is effectively a developed economy is clear enough."
You don't seem to realize that this proves my point. China's now almost 70% urban. Even if the other 30% had a GDP of zero (and it isn't), the fact that urban areas are developed would mean China's GDP is above $15,000 per capita.
If China had a very large informal economy—so large, it overwhelmed the official incentives to overstate GDP—that would lead to understated GDP figures relative to the actual economy. There is certainly precedent for a large informal sector, albeit previously mainly in the countryside. If that is happening in metro China, that would be fascinating in itself.
Bolivia has been independent since 1825. Korea, which was occupied by Japan during World War II is far more “post-colonial” whatever that term even means.
In much of the developing world, economic power is largely concentrated in the hands of a “market-dominant” ethnic minority. The classic case is southeast Asia, where the Chinese, usually a tiny proportion of the population, enjoy an overwhelmingly dominant economic position. In Malaysia, the average Chinese household had 1.9 times as much wealth as the Bumiputera (Khalid 2007); in the Philippines, the Chinese account for 1 per cent of the population and well over half the wealth (Chua 2003). The same is true in varying degrees in Indonesia, Burma, Thailand, Laos, and Vietnam.
Source for this please
https://blogs.lse.ac.uk/businessreview/2019/09/11/income-inequality-among-different-ethnic-groups-the-case-of-malaysia/
Great forgetting? You’re treating 2008 as if it carried no implications or lessons to be learned. We lived through that and trust me, we’re not forgetting.
You do know that I wrote an entire book on the lessons of 2008, don't you? Indeed to the extent I have any reputation at all in the blogosphere, and the reason I get linked to by people like Tyler, is my blogging back in 2009 on the 2008-09 recession.
Scott-I’m vaguely aware of you from some articles you wrote years ago from the Marginal Revolution. It wasn’t a particularly friendly site for non economists and I migrated away from it. I read this article in RealClearMarkets and recognize that 2008 wasn’t the main point of your article. Since I’m a forensic psychiatrist and not an economist (just a Federal Reserve brat), there’s no particular reason I should be familiar with your book.
I took the article as I read it and it seemed to give 2008 short shrift. RealClearMarkets attracts a fairly diverse crowd. Perhaps an extra explanatory sentence or two might have made a difference for someone relatively unfamiliar with you and your work. Thanks.
The biggest "Great Forgetting" of 2008 was forgetting the importance of having the Federal Reserve maintain stable growth in nominal GDP. The big fall in NGDP during late 2008 caused both high unemployment and a large wave of bank failures. My book on that topic is entitled "The Money Illusion", if you are interested.
The reason I didn't focus on 2008 in this post is I was looking and long run economic growth factors in places like Korea, rather than factors that generated business cycles. But I certainly agree that business cycles are also a big problem, and that 2008 showed serious flaws in our policymaking.
> If you compared South Korea with much poorer North Korea, you could rule out factors that also apply to the North such as culture, educational level, having a seaport, etc.
I think more care is warranted here. The model of development that you assume is what lets you rule factors in or out by comparison.
In particular, what bothers me about this quoted list is the sea access. I'd be comfortable seeing someone argue that sea access is necessary, but not sufficient, for development, similarly to how communism is sufficient, but not necessary, for impoverishment. Under that model, sea access would be irrelevant to the difference in development between South Korea and North Korea (because there's no difference in sea access), but it would remain highly relevant to the difference in development between South Korea and Bolivia.
And this fact would make it inappropriate to use a comparison between North and South Korea to eliminate sea access as an explanation for South Korea's wealth. The hypothetical model in my previous paragraph isn't telling us that South Korea is rich because sea access doesn't matter; it's telling us that North Korea is poor because sea access isn't the only thing that matters.
Sure, that's obvious. My point is that it's helpful to look at comparisons like North and South Korea to try to isolate at least some factors that matter a great deal. It doesn't mean that other factors don't matter. Sea access is clearly a plus. But keep in mind that there are a number of very rich countries with no seaport, such as Austria.
> Smith sees manufacturing success as something that Poland and Malaysia have in common. But he also noted an important difference from South Korea:
>> Unlike South Korea, they relied heavily on foreign direct investment.
As a historical question, how did South Korea square its balance of payments with a ban on FDI? A poor country was presumably not exporting lots of specie. Was foreign investment welcomed in a more managed way such that it did not count as traditional FDI?
> How likely is it that a country that got rich after removing many of those restrictions on the private sector, reducing the role of the state, achieved its success precisely because of the remaining restrictions?
I'd like to provide a counterargument here that this is perhaps more likely than you'd think. We can all agree that institutions are a first-order contributor to growth, but they are non-economic. I posit that large policy shocks risk corrosion of good institutions through a variety of pedestrian measures: breaking beneficial conventions, loss (or irrelevance) of institutional knowledge, rapid turnover making it impossible to screen for the best politicians/bureaucrats, and so forth.
"The remaining restrictions" might just be a way for developing nations to limit societal/cultural change to a pace where its institutions can remain adapted and thus exert effective control over the country.
I think this is particularly relevant with respect to FDI. A poor nation may find it effectively impossible to regulate a foreign enterprise once allowed into the country. The enterprise will not be constrained against corruption (or even crime) by the social norms of the country it's newly entering, and likewise it will have every incentive to push for friendly, extractive regulation and policy treatment rather than growth-promoting/liberal/rules-based policies. It might be simpler to ban foreign enterprise 'at the door' until society and government can effectively push back, even if these bans may outlast their usefulness in the long run.
That's possible, but once again you also see East Asian success stories that differ from Korea in that they did allow lots of FDI. Indeed South Korea was something of an exception, which makes me question how central FDI limits were to its success.
On the FDI question, I believe Korea relied on foreign loans to finance its industrialization, as it was too poor to have adequate domestic savings.
"How likely is it that a country that got rich after removing many of those restrictions on the private sector, reducing the role of the state, achieved its success precisely because of the remaining restrictions?"
I'd say that the "remaining restrictions" in China preventing NIMBYs from blocking development projects is an example.
"Export led growth" just means that investment in traable sectors is disciplined by interntional prices rather than "import substitution" which the Trump-Biden-Trump Adminsitration is attempting.
Also it would be interesting to know if the SK, Malaysian, Polish, etc. states were running large fiscal deficits > Public investments as the US is.
I guess I view NIMBYism itself as a statist policy--government regulations restricting building. So removing NIMBYism doesn't seem to me to be a particularly statist policy.
Having said that, I do think it's reasonable to give the CCP credit for successfully building lots of infrastructure. I'm not saying the state played no role in China's development.