Markets, progress and development: Lessons of the past half-century

There have been many economic success stories over the last four decades, although many countries have struggled. For Professor Henderson, economic progress of the poor depends largely on internal factors, including the dynamism of the economies in which they live and work.

The main lessons of the years since the end of the Second World War are for me economic. They emerge from some remarkable developments which neither I nor anyone else foresaw. Both the speed and the extent of economic progress have exceeded what past experience would have suggested as likely or even possible.

Part of the story relates to the countries which already counted as economically advanced in 1950: these were to be found in western Europe, North America, Australasia and Japan. For all of them this past half century, viewed as a whole and despite local and temporary setbacks, has been a period in which material welfare has advanced at rates substantially higher than past history would have suggested as likely or even possible.

But the record of economic progress during the half-century goes beyond this group of already advanced countries, in ways that no one foresaw or even imagined, and which mark a still more decisive break with the past. Up to 1950, and even after, it was possible to doubt whether modern economic growth, and with it a sustained rise in material welfare for people in general, could be achieved outside a magic circle of countries which were all, with the exception of Japan, either European or of predominantly European origin. Such doubts have now been dispelled. A number of poor countries have achieved sustained rates of growth in material standards of living which were virtually unprecedented in any country, rich or poor, in previous history.

Which are these newly successful economies? So far, nine countries stand out. In eight of them the record of success goes back to mid-century or thereabouts. This group comprises three countries in southern Europe – Spain, Portugal and Greece; four in east Asia – the so-called “tigers” of Hong Kong-China, South Korea, Singapore and Chinese-Taipei; and Israel, which I would include, though growth performance there has been less spectacular than in the other seven. The ninth country is China, where the record of outstanding economic progress begins with the reforms of 1978 which set off a continuing process of liberalisation, both internal and external. Besides these, there are a number of today’s developing countries where growth performance has been impressive by past standards.

From this record of economic progress since the Second World War, both in the established countries and in the newly successful ones, three lessons in particular emerge.

The first is that, generally speaking, the sustained high growth rates owed little or nothing to foreign assistance.

Second, these events have further confirmed, what earlier economic history already indicated clearly, that everywhere the progress of poor people depends primarily on the dynamism of the economies in which they live and work. It does not chiefly depend on the activities of trade unions, the regulation of wages and employment, or even on the development of social services and progressive taxation.

Third, the various success stories likewise confirm that in countries where there are stable governments, where governments act responsibly in matters of public finance and the control of the money supply, where property rights are well established and maintained, where economic decision-making rests largely with private individuals and enterprises, and where the economy is substantially open to transactions with the rest of the world, material progress is now likely to go ahead at rates which half a century ago would have been viewed as unthinkable. This bodes well for the many countries across the world in which these conditions are met and seem likely to continue to be met.

Unfortunately, however, there are today many countries where the conditions are not met. Alongside the success stories there is a long list of what Angus Maddison has termed “faltering economies”: he identifies no less than 168 of these, though many are small. In the light of past history, what can be said about their situation and prospects?

The argument that is now often made, that these economies have been marginalised by globalisation, is wholly false. The more successful developing and transition countries have gained both from making their own trade and investment regimes freer and from the market opportunities provided by other countries. Faltering economies have not made such gains because of internal influences, including, in many cases, the actions and policies of their own governments.

Progress in these countries, as elsewhere, will largely depend on internal changes. There is no clear route by which the people of these countries can be “empowered” through collective action on the part of the international community.

The most direct way in which the OECD countries can help “faltering economies” – or at any rate, those where the internal situation permits business enterprises to grasp commercial opportunities – is by keeping their markets open to imports and further reducing their trade barriers. (They would of course make their own people better off by doing so.)

A second line of action, which raises more problems but could also bring significant gains in both groups of countries, would be for the OECD countries to adopt less restrictive policies in relation to “economic migrants”.

The reverse side of the coin is that the OECD countries should refrain from actions that would be contrary to the interests of people in poor countries. Attempts to prescribe and enforce common international standards, to be applied to these countries along with the rest, would darken their prospects further. Such notions as “global social governance” can do nothing but harm if put into effect. There is now a real risk that the OECD countries will move towards over-regulating the world, as well as their own citizens.

For the same reasons and in the same way, actions taken by multinational enterprises to establish in poor countries norms and standards that are not appropriate to local circumstances, under pressure from public opinion and in the name of “corporate social responsibility”’, are likely to run counter to the interests of the people of those countries.

The economic history of the past half-century has been encouraging in important respects. The main single lesson that has emerged from it is that economic progress can be expected to go ahead in any country, large or small, that has a well-functioning market economy. For the future, this gives point to the case, in all countries and on the international scene, for extending the scope and improving the working of markets.

Reference

Maddison, A. (2001), The World Economy: A Millennial Perspective, Paris, OECD.

©OECD Observer No 235, December 2002




Economic data

GDP growth: +0.6% Q4 2017 year-on-year
Consumer price inflation: 2.6% May 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.4% Mar 2018
Last update: 06 Jul 2018

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Watch the webcast of the final press conference of the OECD annual ministerial meeting 2018.
  • International co-operation, inclusive growth and digitalisation lead the themes of the 2018 OECD Forum in Paris on 29-30 May, under the banner of What brings us together www.oecd.org/forum. It is held alongside the annual OECD Ministerial Council Meeting on 30-31 May, chaired this year by France with a focus on multilateralism www.oecd.org/mcm.
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • Ambassador Aleksander Surdej, Permanent Representative of Poland to the OECD, was a guest on France 24’s English-language show “The Debate”, where he discussed French President Emmanuel Macron’s speech at the World Economic Forum in Davos.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018