## The forgotten ancestors of East Asian developmentalism

2021 marked the centenary of the creation of the Chinese Communist Party, born of the May Fourth Movement of 1919. History textbooks tend to claim that the Movement emerged out of a widespread realization that China’s rights as a victorious power during WWI had been sold out at the Paris Peace Conference by the European Powers. Students were angered by elite collusion with Japan and the corruption of the early Chinese Republic—also known as the “Beiyang Regime.” The activists found hope in the new Soviet model, and May Fourth is credited with bringing Bolshevism to China and beginning its socialist phase.

In Japan, conversely, state-led economic development has often been attributed to a deliberate attempt to mimic the West industrially and militarily since the Meiji era. Japanese developmentalism is perceived to be strategic and straightforward, enabled after WWII by a foundation of free market capitalism.

In fact, state driven economic development in both countries is the product of a long and complex ideological history. In the late nineteenth century, Chinese and Japanese economists drew inspiration from Hamiltonianism (also known as the “American School”) and German State Socialism

## Global trade hierarchies across two eras of globalization

During the first era of globalization (1870–1913), the global division of labor was stark. Britain and other Western nations largely produced manufactured goods, but they also exported a whole range of temperate agricultural goods like wheat, beef and barley. Elsewhere in the European colonial empires, products like cotton, cocoa and coffee were exported, often at very low prices and sometimes with forced labor, to sate a growing demand in the global economic core for tropical luxuries. More than a century has passed since World War I heralded the collapse of this world order. Today, the globalization wave that has shaped the world since the 1980s is ebbing.

What is the legacy of the First Globalization of the late nineteenth- and early twentieth-centuries on the economic fortunes of countries during the Second Globalization? To what extent have countries’ positions in the international economic order been persistent across the two globalizations, with some trapped at the bottom and others comfortably on top?

# WATER MARKETS

Since the 2000 World Water Forum in The Hague, governance over water resources has gained salience in international development discourse. The allocation of rights (to technology and decisionmaking) and resources (both financial and natural) has shaped local economies in the face of compounding climate emergencies.

A 2014 piece by KAREN BAKKER reviews the literature on water marketization, complicating existing accounts which focus exclusively on models of ownership.

From the article's conclusion:

"Market environmentalism is not synonymous with (or limited to) privatization. It includes commercialization, environmental valuation and pricing, the marketization of trading and exchange mechanisms, and the liberalization of governance. The trend is relatively recent and is by no means hegemonic. In many countries, it has only partially displaced a state hydraulic paradigm of water management—indeed, many aspects of the social and hydrological cycle are still owned, managed, and regulated by governments.

Market environmentalism is difficult to implement in practice, with tensions arising from attempts to privatize, commercialize, value, market, and liberalize water governance—for example, between the desire for less government control and drivers for greater governmental control, spurred by fears over water security. Some of these tensions arise from contradictions that are difficult to resolve in practice, notably the contradiction between monetary and nonmonetary values of water and the tension between framing water as an economic good versus incorporating its noneconomic uses. These tensions, which have acted as a brake on market environmentalism, are inherent to water management and are unlikely to be effectively resolved. The question is how, through institutional innovation, governance reforms, and political mediation, they will be handled."

# PETROSTATES

In January 2021, Crown Prince of Saudi Arabia Mohammed bin Salman unveiled plans to build ‘The Line’, a $/500bn futuristic 170km carbon-free city strip in Neom destined to be fully automated, fueled by clean energy, linked to neighboring Jordan and Egypt, and at the core of Vision 2030, a national development plan to diversify the heavily oil-dependent Saudi economy. Critics have argued that the project provides little more than a ‘mix of science fiction and corporate buzzwords’ and that Mohammed bin Salman ‘thinks that building cities will happen in the same way as it does in video games. Over the past decade, plans for megaprojects encompassing futuristic cities and large-scale transnational connectivity infrastructure across the global South have come to embody fantastical promises of modernity, development, and economic integration. What can political economy tell us about the relationship between resource-rich economies and such developmental fantasies? In a 1997 book, FERNANDO CORONIL explores how the circulation of oil rents shaped the process of state formation in Venezuela, where the national myths and the modern state were sealed with the particular properties of oil. From the introduction: "The acclaimed Venezuelan political commentator José Ignacio Carbujas related the state’s providential appearance to its worldly materiality and highlights the cultural and political effects of its extraordinary wealth. As if wishing to acknowledge and disavow the state's exalted self-representation, he notes that in Venezuela the state is a 'magnanimous sorcerer' endowed with the power to replace reality with fictions propped up by oil wealth. 'Oil is fantastic and induces fantasies,' Carbujas says. Its power to awaken fantasies enables state leaders to fashion political life into a dazzling spectacle of national progress through 'tricks of prestidigitation.' State representatives, the visible embodiments of the invisible powers of oil money, appear on the state's stage as powerful magicians who pull social reality, from public institutions to cosmogonies, out of a hat. In this book, I explore the appearance of the Venezuelan state as a transcendent and unifying agent of the nation. I argue that the deification of the state took place as part of the transformation of Venezuela into an oil nation. Thus transformed into a petrostate, the Venezuelan state came to hold not only the monopoly of political violence but of the nation’s natural wealth. The state has exercised this monopoly dramaturgically, securing compliance through the spectacular display of its imperious presence. The Venezuelan state has been constituted as a unifying force by producing fantasies of collective integration into centralized political institutions. By manufacturing dazzling manufacturing projects that engender collective fantasies of progress, it casts its spell over audience and performers alike. As a 'magnanimous sorcerer,' the state seizes its subjects by inducing a condition or state of being receptive to its illusions—a magical state." Link to the text. ### January 16th, 2021 ## Metaesquema # DECENTRALIZATION The simultaneous integration of global markets and decentralization of government within nation states has been a hallmark of the age of globalization. In a 2004 article, NEIL BRENNER looks to Europe to argue that through processes of decentralization and localization, national state power has been increasingly articulated through competitive forms of urban and regional governance. From the paper: "As in the 1970s, the reorientation of urban governance during the 1980s was initiated in part through the bottom-up strategies of local political coalitions struggling to manage the disruptive consequences of economic restructuring by means of ad hoc, uncoordinated policy adjustments. In this period, national goals of equalizing economic development capacities across the national territory was increasingly seen to be incompatible with a new priority of promoting assets within each country's most powerful cities and city-regions. Accordingly, in addition to their strategies to undercut traditional redistributive regional policy relays, national governments now mobilized a number of institutional restructuring initiatives in order to establish a new, competitive infrastructure for urban economic growth within their territories. Local governments were granted new revenue-raising powers and an increased level of authority in determining local tax rates and user fees, even as national fiscal transfers to subnational levels were diminished. New responsibilities for planning, economic development, social services and spatial planning were devolved downwards to subnational (regional and local) governments. In a number of western European countries, local economic development projects were a key focal point for such devolutionary initiatives. Although these trends were most apparent in traditionally centralized states, such as France and Spain, various policies to enhance regional and local autonomy were also enacted in less centralized European states as well. Decentralization policies were seen as a means to limit the considerable welfare demands of urban areas and to encourage lower-level authorities to assume responsibility for growth policies that might reduce welfare burdens. Even in the United Kingdom, where major aspects of local governance were subjected to increasing central control under the Thatcher regime, the problem of local economic governance was among the key issues upon which the restructuring of intergovernmental relations was focused." Link to the text. ### September 19th, 2020 ## Shape in the Green # SPECIAL ECONOMIC ZONES Since the first export processing zone was established in Puerto Rico during the 1940s, special economic zones (SEZs) have proliferated to number 5,400 across 147 countries and employ more than 100 million workers. While the zones have been lauded for generating economic growth and allowing for infant industry development, recent work has documented their concerning impact on labor markets and domestic regulatory frameworks. In a recently published book chapter, PATRICK NEVELING analyzes the history of SEZs throughout the postwar period: "The Roosevelt administration injected significant sums of money into Puerto Rican infrastructure after 1934, in response to massive strikes and riots across all economic sectors on the island. From the 1940s onward, Puerto Rico set up three crucial institutions: a planning board that oversaw the implementation of industrial standards, a development bank that supplied new industries with capital, and a parastatal development corporation that managed new import-substitution industries. However, the import-substitution phase in Puerto Rico was to be short-lived. Five years after those factories had opened in 1942, Puerto Rico lured mainland manufacturers with tax holidays and financial subsidies to relocate their production. As the Puerto Rican export-oriented industrialization programme coincided with the beginning of US international development aid for pro-capitalist allies across the Third World, the Truman administration’s Point Four programme made extensive use of the island’s success story. Thousands of officials from postcolonial nations were flown in and other European colonial powers in the Caribbean were pushed to embrace similar programmes. The World Bank and IMF made EPZs an integral part of the many structural adjustment programmes that postcolonial nations had to sign up to during the 80s debt crisis. Subsequently many other nations across the world would sign SAPs and be forced to privatize national industries and establish tripartite institutions of the Puerto Rican kind, with national standard boards that now oversee compliance with the International Organization for Standardization’s ISO norms series, national development banks, and development organizations with private-sector majorities on executive boards. Why did Western nations promote SEZ in developing nations even though heart-lands of textile and garment production in the United States, the United Kingdom, Germany, and elsewhere went into rapid decline with deindustrialization? Emerging multinational corporations in the textile and garment sector and later also in consumer electronics, automobile production, and so forth could use their increased and low-risk capital mobility to play off manufacturing locations against one another by forcing trade unions to accept wage cuts in exchange for relocation waivers." Link to the piece. • "While EPZs have flourished as a vehicle for globalized production, as an employer strategy for low-cost exports, and as a governmental strategy to absorb surplus labour and attract FDI, they have failed to create decent jobs." A 2011 ILO report by Jamie K. McCallum offers a comparative review of labor market impacts of EPZs in China, Honduras, Nicaragua and South Africa. Link. • Nathalie Picarelli on the distributional impacts of export processing zones in Nicaragua: "the policy benefited the upper-tail the most." Link. • Another piece by Neveling analyzes "Free Trade Zones, Export Processing Zones, Special Economic Zones and Global Imperial Formations 200 BCE to 2015 CE. Link. ### June 30th, 2020 ## Rooftops ## DEVELOPMENT AND SOCIAL POLICY Brazil's Bolsa Familia is widely credited with lifting more than 20 million people out of extreme poverty, making it a global model for anti-poverty initiatives. Developed as part of a broader theory of equitable development, it serves as the basis for ongoing efforts to expand the social welfare system for the country’s poor and working class. In a 2017 book, economist LENA LAVINAS takes a critical approach to Brazilian social policy. Examining the relationship between social policy and financial markets, Levinas argues that, despite its successes, the strategy of "social developmentalism" in Brazil unwittingly entrenched both unequal growth and the stagnation of social protection. From the book: "The twenty-first century seemed poised to pluck Brazil from its history of underdevelopment. After suffering through two decades (1980–2003) of low growth and considerable macroeconomic instability, Brazil—in step with the rest of Latin America—was ready to begin a series of rosy years. In the new developmental strategy, the missing link on the way to social cohesion, so the argument went, would emerge with the advent of mass consumption. In Brazil, as in the rest of Latin America, the core impediment to the expansion of a mass consumption society resided (above all else) in the absence of mechanisms for boosting consumption in the context of low productivity and the persistent oversupply of labor. Performance in terms of the provision of public facilities has not tracked remotely close to the vitality of the market. It does, however, reveal welfare inequities that the market obscures. Through this prism, the upward social mobility observed in Brazil in the years spanning 2003–2014 failed to even come close to promoting a true expansion of the country’s middle classes. Social policy served as collateral to access financial markets through credit. In Brazil, the market has universalized access to color TVs and fridges among those in the lowest income quintile. Treated water, however, to say nothing of adequate sanitation, remains a luxury, the province of few." Link to the publisher's page. • A 2018 by Lavinas details one of the book's arguments—"the collateralization of social policy." Link. And a 2013 paper by Lavinas examines the broad adoption of conditional cash transfer schemes throughout Latin America. Link. • In a 2014 paper, Michael McCarthy examines union attempts to control pension fund investment. Link. Another paper by Natascha van der Zwan on the financial politics of occupational pensions. Link. See also: McCarthy's book Dismantling Solidarity, on these same themes. Link. • Marie Gottschalk's book The Shadow Welfare State examines the American "private-sector safety net." Link. See also: Frank R. Dobbin's 1992 paper "The Origins of Private Social Insurance: Public Policy and Fringe Benefits in America, 1920-1950." Link. ### May 19th, 2020 ## Plate Study ## STABLE SHOCK ### Remittances across contexts Among the many corona-induced shocks rippling through the global economy is the crash in remittance payments to developing countries. The World Bank predicts that remittance flows will fall 20% this year—a decline of$100b—largely as a result of shutdowns and wage losses in the global north. The politics of remittances are complex: the scholarly literature both touts the positive development effects of countercyclical cash inflows, and questions the effects of a system that supports consumption at the expense of longer-term economic development.

In a fascinating study on remittances from GCC countries—where migrant workers tend to have few rights while making up a large share of the population—FAISAL Z. AHMED looks at the political effects of remittance economies.

"Using duration models of government turnover for a sample of 97 countries between 1975 and 2004, this article demonstrates that the combination of aid and remittance inflows can empower governments in autocracies to survive longer. The link between the effects of foreign aid and remittances on government survival hinges on the fact that these inflows of money constitute forms of unearned foreign income that a government can potentially exploit for nefarious purposes. This is achieved via two channels. In the first, governments direct some foreign aid to finance patronage goods (income effect). In the second, governments respond to shocks in unearned and largely untaxable household income (i.e., remittances) by diverting expenditures from the provision of welfare goods in favor of patronage goods (substitution effect). My findings suggest that domestic political institutions (and the incentives they generate for governments) mediate the impact of aid and remittance inflows on the quality of governance and the endurance of governments in autocracies."

• A 2019 analysis from the Financial Times provides an excellent overview of remittances to emerging market economies. Link. Part of a FT series on remittances, including case studies on Zimbabwe and Nepal, and reporting on the nations attempts to issue "diaspora bonds" to attract the earnings of expatriate workers. Link to the series.
• A paper by Muhammed Tariq Majeed looks at the effects of remittances on poverty across 65 countries from 1970-2008. Link. Relatedly, a 2015 paper by Phanindra Wunnava et al looks at the impact of financial liberalization on remittances across 84 countries from 1986-2005, and finds mixed results: increased economic freedom in the financial sector has a positive impact, while improved robustness of financial markets has a negative and lagged effect. Link. h/t Alison Oh
• A 2011 paper by Rui Esteves and David Khoudour-Castéras examines remittances and capital flows in the European periphery from 1870-1913. Link.

## Group Formation

### Comparative development and social policy

Among the diverse local and national policy responses undertaken to combat the pandemic in recent months, Kerala's has been notable. Within the broader context of Indian economic development, Kerala's government has a tradition of successful redistributive development policies, sometimes referred to as the Kerala model.

In a 2005 article, MANALI DESAI traces Kerala's unique post-independence record of welfare provision to its experience under indirect British rule. By comparing the trajectory of its policy successes to those of West Bengal, a state with a similar electoral history, Desai strikes a distinctive balance between path dependency and contingency, arguing that "the form and content of welfare policies are shaped by the exigencies of state formation, but political struggles are the decisive determining factors of the former."

From the article:

"In the somewhat meager annals of comparable state action in third world societies, Kerala appears as a clear exception. Despite fierce party competition, a church-landlord coalition, and the imposition of presidents’ rule on two different occasions (in 1959 and 1965), the state has seen an array of policies aimed at redistributing land, and providing education, pension plans, minimum wage legislation, and housing for the poor. There have been few serious attempts at understanding these state actions as a form of historical agency. In particular, an issue that is consistently overlooked is the fact that Kerala’s post-independence policy regime was preceded by significant welfare expansion in the nineteenth century in its two southern princely states of Travancore and Cochin. In part under pressure from the British administration, both monarchies undertook significant land reforms and expanded education and health care. While reforms by princely states were not that unusual in the colonial era, the scale and scope of Kerala’s surpassed its peers.

The extreme nature of the caste hierarchy in Kerala, perhaps the most oppressive across India, meant that Christian missionaries not only found a home in Kerala but fed and even stimulated caste insurgency. In particular, one crucial effect of British rule and Protestant missionary activity was the increased porosity of the state to social (lower caste) demands. Both dimensions of colonial power (colonial power as well as social resistance to this power) destroyed status privileges, primarily those based on caste, to a larger degree than found elsewhere in British India. Early welfare policies in Kerala were implemented in a dependent colonial context and aimed at warding off annexation by the British, but their unintended consequences were to stimulate what they were precisely designed to avoid—radical caste and class movements."

• An edited volume from 2000 looks at the history of Kerala's social policies. Link. (A 1991 exchange in the NYRB between Barbara H. Chasin and Richard W. Franke, and Amartya Sen discusses the nature of Kerala's "exceptionalism." Link.)
• "This article addresses the welfare state in a global historical context. In the new societies of industrial capitalism, two powerful and opposite interests converged in generating public social policies. It uses the five-part model to ask what lessons, if any, it has for the likely emergence of welfare states in the developing world. It also recognizes the immense variety within the 'global South' and distinguishes the distinctive patterns of risk management within it." A 2010 paper by Ian Gough and Göran Therborn. Link. (Ungated version here.)
• A 2007 paper by Nita Rudra looks at the applicability of Gøsta Esping-Andersen's welfare state typology in the developing context. Link. And Stephen Haggard and Robert Kaufman's 2009 book provides a comparative account of welfare state development across Latin America, East Asia, and Eastern Europe. Link.

## History, empirics, and industrial policy

Nathan Lane is an economist working on political economy, development, and economic history. Assistant Professor at Monash University, he is the co-founder of sodalabs.io, an interdisciplinary research hub for data-driven work in the social sciences.

Lane's research has focused on comparative development, in particular on state-led development patterns, including work on industrial policy in South Korea, the way historical states shape development and political action, and an indispensable look at the challenges of studying industrial policy and how new empirical strategies can overcome them.

Nathan blogs here, and tweets here. Below, his recommendations for Phenomenal Works.