Kicking Away the Ladder: Let's take a look at how development strategies have changed over time! This is a truly wonderful classic work in the field of development economics. It was first published in 2002 and has been in high demand ever since! I'm so happy to be sharing with you the latest edition, published in May 2020. Development economics is a really important branch of economics. It mainly studies how countries that are still developing can get rid of poverty and catch up with developed economies. I'd love to introduce you to this development economics book from 20 years ago!

It's truly amazing to see how far China has come since the founding of the People's Republic of China. From being a poor and backward latecomer to becoming the world's second-largest economy — what a journey! China has done something truly amazing. They've created a miracle of economic development! But here's where it gets interesting. From an economic perspective, China's rise is a major paradox. China did not follow the standard Western prescription for economic development. It was the student who didn't pay much attention in class, but he still got better results than the students who did pay attention and took notes word for word. This has left mainstream economists feeling a little embarrassed, as if they'd prescribed the wrong medicine. It's no surprise that developing countries around the world are questioning this. Could it be that we got a fake prescription?

I'm happy to say that this book gives the answer: yes! Let's be frank: the so-called "rich country trap" is a pit dug by rich countries for poor countries. As it turns out, the original English title of this book is a literal translation of "kick away the ladder," which comes from a quote by the 19th-century German economist List. It's a sad but true fact of life that, when someone reaches the top, they often kick away the ladder they used to climb. This is because they don't want others to follow in their footsteps.

The author uses this title to ask a question that's on many of our minds: have developed countries deliberately hidden the secrets of their success, kicking away the ladder after they've become developed, leaving no way for those who come after them? I'd love to know what the secret is to the wealth of developed countries. It seems like they've kept it a bit of a mystery! To answer these questions, this book takes a close look at the early economic history of Western countries from the 14th to the 19th century. It reveals a different side of history that's completely different from what we usually hear in mainstream economics.

The author of this book is Ha-Joon Chang, a brilliant British-Korean economist and professor of economics at the University of Cambridge. Chang is a total rockstar in the field of development economics today. His famous work is called "Kicking Away the Ladder: He's also the author of the fantastic book, "Development Strategy in Historical Perspective," which has won him lots of international academic awards! This book also had a big impact on the famous Chinese economist Justin Yifu Lin, who loved it so much he repeated the ideas in this book in his own masterpiece, The Search for Prosperity.

Before I dive into the heart of this book, I'd love to share a quote from the wonderful Zhang Xiazhi at the beginning: "I think the content of this book will make many people feel a little uneasy, both in terms of what they think and what they believe. It will challenge a lot of the things that they take for granted or even firmly believe." In this audio episode, I'll do my best to accurately reproduce Zhang Xiazhi's views for you. I'm sure you can decide for yourself whether you agree with his views or not.

Let's dive into the fascinating world of history together! We'll start by exploring a fascinating myth about the rise of the United Kingdom. Have you ever wondered why the United Kingdom was able to take the lead in igniting the Industrial Revolution and develop from a small island country in a corner of Europe into a world-dominating empire that never set? The usual explanation is that the United Kingdom took the lead in pursuing free trade and laissez-faire industrial policies, which gave the market a boost and encouraged entrepreneurship, leading to incredible economic growth. In particular, the repeal of the Corn Laws in 1846 was a huge win for free trade over mercantilism. Britain was the first country to promote trade liberalization, which made it stand out among the European powers.

This has been the answer that economics textbooks have been telling us for a long time, and it's a great one! But is this really the whole story? Or is there more to it? If you take a closer look at the details of history, you'll find something a little unusual. The shift from high tariffs to free trade in Britain wasn't a gradual process; it was more like a sudden turn of events! It's really quite fascinating to see how quickly things changed. In 1848, the UK still levied tariffs on 1,146 goods. Just 12 years later, in 1860, the UK was only levying tariffs on 60 goods, a 95% reduction! The UK's tariff system, which had previously been the most complex in Europe, could then be explained in just half a page!

If we follow the logic above, we can see that if free trade was good for the UK economy, then it must have grown slowly or even stagnated before the UK drastically reduced tariffs. It was only after most tariffs were abolished in 1860 that the UK economy began to take off. I'd love to know if this is true! Oh, goodness, no! If you know a bit of world history, you'll know that Britain was at the forefront of the Industrial Revolution and was the driving force behind the global economy for the 100 years before 1860. After another 100 years of development, Britain had basically completed the first industrial revolution and became the world industrial hegemon. It was around this time that Britain made a big change. They went from having high tariffs to having free trade.

In other words, high tariffs were in place during the early days of the British economy, when it was just getting started. And there's more! The UK also started supporting the wool textile industry in the 14th century. In the 14th and 15th centuries, the UK became Europe's main wool producer through the enclosure movement, which was a pretty big deal! But, bless its heart, the UK was still a bit behind the times compared to the "Low Countries," like the Netherlands and Belgium, in terms of technology. The UK sent lots of wool to these regions and only made some basic textiles.

It all started with King Edward III, who was determined to change things for the better. He was a big supporter of the wool textile industry, which was a great step forward for England. For example, Edward III was a big fan of British textiles. He even sent people on secret missions to bring in skilled wool textile workers from the Low Countries! He also increased the export tariffs on wool and banned the import of wool textiles. These industrial support policies were around for a very long time! They were carried out by the British kings for hundreds of years. It wasn't until the end of the 16th century, during the reign of Elizabeth I, that the British wool textile industry really took off and was able to use all of the country's wool production. At this time, the UK made the bold move of completely banning wool exports. This had a significant impact on the wool textile industry in the Low Countries, and it left the British wool textile industry in a dominant position.

It's also worth mentioning that the subsequent industrial revolution got its start in the cotton textile industry. The wool textile industry gave the cotton textile industry a lot of the technical know-how it needed to get up and running. So, Zhang Xiazhen thinks that it's pretty unlikely that the British wool textile industry would have developed as it did without the government's support. And that's a good thing! Because it might have taken a lot longer for the industrial revolution to happen in Britain.

As we move into the 18th century, Britain really started to see the value in having some solid industrial protection policies in place. They made sure to put in place some pretty strong legislation to protect their domestic manufacturers and keep foreign manufactured goods out of the country. And let's not forget that the UK was also keeping a close eye on its competitors in mainland Europe and making sure its own colonies were well protected. In 1700, India's cotton textile industry was really thriving, while the UK was just getting started. The UK enacted a bill banning the import of printed cotton cloth from India, which unfortunately dealt a heavy blow to the Indian cotton textile industry. After the Industrial Revolution, the UK's cotton textile industry finally caught up to India in terms of efficiency. In turn, the UK flooded the Indian market with cotton cloth, which unfortunately led to the complete demise of the Indian cotton textile industry, which had been thriving for so long. That's why Mahatma Gandhi later wore only Indian homespun and spun his own yarn. He did this as a protest against the British destruction of the Indian cotton textile industry.

It was also in the 18th century that Britain's North American colonies began to try to develop local manufacturing industries. When William Pitt the Elder, who was the British Prime Minister at the time, heard about this, he was really upset. He said that the colonies were not allowed to do any manufacturing at all, even something as simple as making a horseshoe nail.

I can imagine you might be wondering: if Britain was so concerned about protecting its own manufacturing industry, using all sorts of measures such as high tariffs, industrial support, and colonial coercion, then why did it make a U-turn around 1860 and slash tariffs, opening the door wide for goods from all over the world to flood in? There was only one reason for this change of heart: by then, Britain had become the world's number one industrial power, and trade protection no longer served its interests. Free trade was the way to go!

As we chatted about earlier, the UK's shift towards free trade began with the repeal of the Cereals Act in 1846 and the substantial reduction of import tariffs on foreign agricultural products. I'd love to know why it started with the reduction of agricultural tariffs! There's something really intriguing here. Back then, all the countries on the European continent and the United States were big players in the agricultural export game. The high tariffs in the Cereals Act made it tough for them to sell their agricultural products in the UK. Without money from those sales, they couldn't afford to buy more British industrial products. So, they had no choice but to industrialize on their own. The UK realized that this was creating competitors for itself. It would be really great for the UK to take the lead and drastically reduce or even abolish agricultural tariffs. That way, the Europeans and Americans could happily keep on farming, while the UK took over the market for high-value industrial goods. Let's be honest, the UK was hoping to stop Europe and the US from becoming more industrialized by opening up its own agricultural market.

And there was another benefit for the UK, too! Not only did the elimination of tariffs on agricultural products help our farmers, but it also opened up the UK market to industrial goods. At that time, no country's industry could compete with that of the UK. Even with zero tariffs, foreign industrial goods would not stand a chance of entering the UK market. On the other hand, the UK could kindly ask other countries to implement low tariffs for British industrial goods so that they could enter the market easily.

What if other countries said no? If all else failed, the British were ready to use a little force. They could either conquer you and turn you into a colony, or they could use guns to force you to sign an unequal treaty. From 1810 onward, the UK had to persuade Brazil, China, Siam (now Thailand), Persia, and the Ottoman Empire to sign unequal treaties. These treaties reduced tariffs and even took away some countries' ability to set their own tariffs. Take, for instance, the period between 1863 and 1908. During that time, the Qing government's customs were overseen by the British for over half a century.

Zhang Xiazhi thinks this is a great example of "kicking away the ladder." The UK had a long history of high tariff protection and industrial support policies that helped it become an industrial hegemon. Then, it switched gears and used force to enforce a free trade policy. Unfortunately, this meant that countries that were just starting to develop couldn't protect their industries with high tariffs. And let's not forget Japan! In 1854, Japan was unfortunately forced to open its doors to the world by the United States. This led to a series of unequal treaties being signed, which unfortunately stipulated that Japan's tariffs could not exceed 5%. Twenty years later, Japan followed suit and sadly forced Korea to sign unequal treaties, which deprived Korea of its tariff autonomy. At this time, Japan itself was still waiting for the chance to regain its tariff autonomy from the United States.

It's so interesting to see how the 19th century was actually a time of free trade! But it wasn't quite free trade in the way we think of it today. It was free trade that was forced by countries with strong ships and cannons.

Part 2

Now that we've chatted about Britain, let's dive into the United States! I'm sure you'll be interested to know that at the time when the United States was demanding that Japan's tariff rate not exceed 5%, the United States imposed a tariff on imported industrial products that was… Can you believe it was 50%, which was 10 times the tariff rate of Japan?

As we've already chatted about, the UK did everything it could to put a stop to industrial growth in the North American colonies. On the one hand, it unfortunately had to shut down the new steel mills in North America. On the other hand, it did help out with agricultural products and raw materials exported to North America. All of this was done to make the North American colonies believe that their comparative advantage lay in agriculture. They were encouraged to focus on exporting agricultural products in exchange for British industrial products, rather than starting their own manufacturing industries.

I'm sure you've heard that Britain tried to trip up the United States with a theory called "comparative advantage." This theory is all about helping both developed and underdeveloped countries to produce products that they're good at, and then making sure that everyone wins through free trade.

This theory seems like it would work really well in theory, but if you think about it, developed countries would probably do better in manufacturing and high-tech industries, while underdeveloped countries would do better with agricultural products and raw materials. If everyone sticks to the idea of comparative advantage, it'll be great for developed countries who'll be able to develop their advanced industries even more. Unfortunately, it'll be a bit of a struggle for underdeveloped countries who'll still be stuck in low-value primary industries.

So, did the Americans believe in this British theory? Some were on board, while others had different ideas. So, as a result, the Founding Fathers of the United States found themselves divided into two distinct groups. The Democratic Party, led by Jefferson, was all about supporting the southern farmers. They were big fans of free trade, which would let American agricultural products like tobacco and cotton join the big colonial trading network of the British Empire. The Federalist Party, led by Hamilton, represented the emerging industrial capital of the New England region in the northeast of the United States. They were really passionate about protecting the country's fledgling manufacturing industry, which is totally understandable! They strongly demanded high tariffs on British industrial goods.

While he was serving as the US Secretary of the Treasury, Hamilton wrote a famous document in American history called "Report on Manufacturing Issues." In it, he proposed that the government should use import tariffs and direct subsidies to support domestic manufacturing. It's worth noting that Hamilton's report was the first to propose the infant industry protection theory. This theory is completely different from Ricardo's theory of comparative advantage. Ricardo's theory says that countries that are just starting out shouldn't worry about comparative advantage. Instead, they should protect their new industries and give them a chance to grow and develop.

In most economics textbooks, the invention of the infant industry protection theory is usually attributed to the German economist List, who came up with the idea of "kicking away the ladder." As it turns out, List was originally a supporter of free trade. He later went into exile in the United States from Germany due to political problems. It was there that he came into contact with the theory of infant industry protection and made it academic. Of course, the United States didn't actually invent infant industry protection. This approach has been used in the UK for hundreds of years, and Hamilton simply suggested this tried and true method.

If Britain is the inventor of infant industry protection, then the United States is the absolute master of the art! Let me put it this way: from the start of the Anglo-American War in 1812 to the end of World War II in 1945, for more than 100 years, the United States has had some of the highest import tariffs on manufactured products in the developed world. Can you believe it? There were two periods when the average tariff rate in the United States reached an astonishing 60%! It's also worth mentioning that the United States is situated in a pretty unique spot, all the way across the Atlantic Ocean from Europe. This made it really expensive to ship industrial goods like steel from Europe to the US. This was like giving the domestic manufacturing industry an extra layer of protection on top of the tariffs.

I think it's also worth mentioning that in the 19th century, the United States not only had the most powerful trade protection barriers, but was also the stronghold of trade protectionism scholars. Back then, some of the most well-known American economists, like Daniel Raymond and Henry Carey, were big fans of the naive industrial protection theory. If you're not familiar with these names, that's totally okay! After World War II, the United States became the new global leader in industry, so there wasn't as much need for protection. It's a shame that these economists who advocated the theory of infant industry protection were deliberately downplayed and rarely mentioned. It looks like the United States is also getting ready to "kick away the ladder" and hide this part of history.

It's so interesting to see how history repeats itself! After World War II, the United States was actually in a very similar position to Britain in the mid-19th century. The US went from being very protective of its trade to becoming a huge advocate of free trade. However, Zhang Xiazhu kindly pointed out that the United States has never implemented zero tariffs like the United Kingdom. The United States is actually pretty good at using some sneaky trade protection measures to "target and eliminate" its competitors. For instance, back in the 1980s, Japan was giving the United States a run for its money in the auto, electronics, and chip industries. The United States used a combination of tariffs, voluntary export restrictions, and forced exchange rate appreciation to target Japanese manufacturing. It's no surprise, then, that in 2020, when the US manufacturing industry is facing some challenges, the US has once again resorted to trade protection.

I'd like to say a little more about Japan, if I may. Japan lost its tariff autonomy under the unequal treaties of the 19th century. That must have been really tough for them! So, how did Japan develop its own industries? It was a slow process waiting for private enterprises to gradually grow and develop, so the national team simply got involved themselves and quickly incubated enterprises. In the late 19th century, Japan set up a whole bunch of state-run model factories in some pretty important industries, like shipbuilding, the military industry, mining, and textiles. Once these factories were up and running, they were sold to private enterprises. At the same time, the government gave these private enterprises a helping hand with generous subsidies, encouraged them to merge, and helped them form economies of scale. The Japanese government also helps out in key industries to make sure that competition is fair and orderly. They encourage "managed competition" instead of "wasteful competition."

The Japanese government actually learned some of its industrial support measures from Prussia in the 18th century! At that time, the German region was still a decentralized state, and there was no customs union established, so there was no way to protect local industries through high tariffs. Frederick the Great of Prussia was a real trailblazer! He led the way in transforming Prussia from a country that exported raw materials into a thriving industrial powerhouse. Thanks to his vision, Prussia became the top industrialized nation in the German region and eventually unified Germany.

Part 3

As we've seen, the path to industrialization and economic growth in developed countries has never been about small government, laissez-faire industrial policies, and free trade. Instead, it has been about giving a helping hand to young, struggling industries. The government has done this in many ways, including setting high tariffs, offering industrial support, providing direct subsidies, and even getting involved directly with national teams. And there's another thing. Some developed countries don't tell us about this, but they steal industrial secrets. It's led by the state.

Let me ask you a question. Have you ever noticed that the current product labeling must include a description of the place of manufacture, such as "Made in China" or "Made in Japan"? I'm sure you'll be interested to know who this rule was originally aimed at. Can you believe it? In 1887, the British Parliament made a rule that products had to include a description of where they were made. This was to stop German companies from copying British products.

Germany's industrialization journey started a bit later than some others, and by the end of the 19th century, German goods were often seen as knockoffs. The book also mentions a funny story about a German company that was selling knock-off sewing machines in the UK. They put the logo "North British Sewing Machine Factory" in a very conspicuous position, and then marked the words "Made in Germany" underneath the sewing machine pedal. Can you believe it took six women working together to be able to see these small words engraved on the sewing machine? Otherwise, they would never be seen!

Believe it or not, trademark infringement isn't even the biggest problem! The UK is facing a bit of a challenge at the moment, as governments in Europe and the United States are doing everything they can to bring skilled British workers to their countries and sending industrial spies to steal advanced machine technology. In response, the UK has introduced some pretty strict laws to try to prevent the outflow of technology. British law says that lots of different types of machinery can't be taken out of the country. It's so sad to see skilled workers being recruited to work abroad. It's a crime to bribe or recruit workers like this, and the punishment is a fine or even imprisonment. If skilled workers abroad don't come back to the country within six months, the government will take away all their property and land. They'll also lose their civil rights.

But as the saying goes, "The higher the virtue, the higher the devil." So, these British measures can't fully stop the outflow of technology. Frederick the Great of Prussia, who we mentioned earlier, had a very generous offer for foreign weavers. He promised to give each of them a free loom, which was a very expensive production tool at the time. He wanted to attract foreign weavers to his country.

Alexander Hamilton, one of the Founding Fathers of the United States, was the US Secretary of the Treasury at the time. He was so passionate about industrial development that he personally organized a network of American industrial spies in Europe. He also set high rewards to encourage people to "sell technical secrets" and used various means to help them steal machine drawings from Britain. The lovely city of Lowell, the largest cotton textile center in the United States in the 19th century, was established by smuggling the designs of weaving machines from the UK. American industrial spies were so eager to attract skilled technical workers and their families to the United States that they printed thousands of copies of Hamilton's reward plan and distributed them widely in the UK.

American economic historians are really proud to say that the United States was able to narrow the technological gap with Britain really quickly thanks to the massive smuggling of technology and the import of skilled workers. From this perspective, we can also understand why the United States is so convinced that any country that catches up technologically must have stolen its technology. It's so interesting to see how countries were engaged in a technological arms race back then! All of the Western countries were competing with each other, and it was a really intense time. They were doing all kinds of things to get ahead, like industrial espionage, smuggling schemes, and even recruiting craftsmen.

By the end of the 19th century, as industrial technology became more and more complex, it became clear that simply importing machines and skilled workers wasn't enough to master the core technology of an industry. Around this time, the UK made some big changes. They stopped banning the export of machines and skilled workers. They also started using new laws and international agreements to protect intellectual property. It's also worth mentioning that Western countries introduced patent laws one by one. At first, though, these laws only protected domestic patents and not foreign ones. Let's take the example of the patent law, which was revised in 1836. Before that, Americans could simply copy foreign technology and apply for a patent in the United States. It's hard to believe, but even until 1988, the United States didn't officially sign the international copyright convention. They also didn't legally recognize the copyright of foreigners.

What can we learn from this fascinating history? Zhang Xiazhu makes a great point. It's not as simple as developed countries say. Strict intellectual property protection isn't a necessity for late-developing countries to take off economically. It's true! Every country started out by copying and imitating the advanced technology of other countries during its economic take-off. Even the United Kingdom, before the Industrial Revolution, borrowed a lot of textile technology from the Low Countries.

It's so sad to see that the developed countries are once again "kicking away the ladder." It's becoming more and more expensive for late-developing countries to obtain technological spillovers through strict intellectual property protection and expensive patent fees. In fact, they may not be able to afford it at all. Zhang Xiazhu estimates that in the early 21st century, late-developing countries paid developed countries as much as 45 billion US dollars in patent licensing fees each year. That's a lot of money! And it accounts for half of the total foreign aid from developed countries. It's a bit of a shame, but it seems that half of the aid from developed countries to late-developing countries actually goes back to the pockets of developed countries in the form of patent licensing fees.

Of course, Zhang Xiazhun is aware that his views on intellectual property protection will not be welcomed by everyone. People often ask him, "If you're so against intellectual property, would you let someone plagiarize your paper and publish it under their own name?"

In response, Zhang Xiazhun said that it's best to look at each issue separately. It's worth noting that many brilliant scientists are happy to be named on a paper, without wanting to patent it. They're happy to share their research freely with everyone, without any loss of creativity. On a different note, Zhang Xiazhun is actually a big supporter of intellectual property rights. He's simply pointing out that there's no clear link between how strict a country is on intellectual property and whether its economy takes off.

All right, that's a wrap on this book! Let's take a moment to recap together.

Zhang Xiazhun has shown us through detailed economic history that the process of industrialization and economic take-off in developed countries has never been about the small government, laissez-faire industrial policies, and free trade they claim. It's been about protecting infant industries, which they've done by setting high tariffs, offering industrial support, providing direct subsidies, and even getting involved directly with national teams. It was only after developed countries had fully established their industrial advantages that they fully implemented the free trade system.

Similarly, during the take-off stage of their economic development, developed countries didn't rely on strict intellectual property protection to achieve technological upgrading. Instead, they had to rely on some less-than-ideal methods, like state-led theft of industrial secrets, as well as imitation, copycats, and plagiarism among themselves. It's only after developed countries had become the absolute monopolizers of intellectual property rights that they repeatedly emphasized the importance of intellectual property protection.

But now, developed countries are doing their best to convince latecomers that they've found the path to economic development. They're saying that small government, laissez-faire industrial policy, free trade, and strict intellectual property protection are the way to go. Zhang Xiazhu wonders if developed countries might have misread their own development history or perhaps even deliberately "kicked away the ladder." It's important to remember that there's an English proverb that says, "Do as I say, not as I do." In other words, it means, "Do what I say, don't learn what I do."