Globalization promises to give everyone access to
markets, capital and technology, and to foster good
governance. In other words, globalization has the potential to remove all of the deficiencies that create and
sustain poverty. As such, globalization ought to be a
powerful engine for economic catch-up in the lagging
regions of the world.
And yet, the past two centuries of globalization have
witnessed massive economic divergence on a global
scale. How is that possible?
This question has preoccupied economists and policy
makers for a long time. The answers they have produced
coalesce around two opposing narratives.
One says the problem is “too little globalization,” while
the other blames “too much globalization.” The debate
on globalization and development ultimately always
comes back to the conundrum framed by these competing narratives: if we want to increase our economic
growth in order to lift people out of poverty, should we
throw ourselves open to the world economy or protect
ourselves from it?
Unfortunately, neither narrative offers much help
in explaining why some countries have done better
than others, and therefore neither is a very good guide
The truth lies in an uncomfortable place: the middle.
It’s a point best illustrated by the country that has contributed the most—given its overall size—to the reduction
of poverty globally: China. China, in turn, learned from
Japan’s example, as did other successful Asian countries.
THE JAPANESE EXCEPTION
In the aftermath of the Industrial Revolution, glo- balization enabled new technologies to dissemi- nate in areas with the right preconditions, but also entrenched and accentuated a long-term division
between the core and the periphery. Once the lines
were drawn between industrializing and commodity-producing countries, strong economic dynamics reinforced the division.
Commodity-based economies faced little incentive
or opportunity to diversify. This was very good for the
small number of people who reaped the windfall from
the mines and plantations that produced commodities,
but not very good for manufacturing industries that were
squeezed as a result. 1 The countries of the periphery not
only failed to industrialize; they actually lost whatever
industry they had. They deindustrialized.
Geography and natural endowments largely determined nations’ economic fates under the first era of globalization, until 1914. One major exception to this rule
would ultimately become an inspiration to all com-modity-dependent countries intent on breaking the
“curse.” The exception was Japan, the only non-West-ern society to industrialize prior to 1914.
Japan had many of the features of the economies of
the periphery. It exported primarily raw materials—
raw silk, yarn, tea, fish—in exchange for manufactures, and this trade had boomed in the aftermath of
the opening to free trade imposed by Commodore Matthew Perry in 1854. Left to its own devices, the economy would have likely followed the same path as so
many others in the periphery.
But Japan had a local group of well-educated, patriotic businessmen and merchants, and even more
important, a government—following the Meiji Restoration of 1868—that was single-mindedly focused on
economic (and political) modernization. That government was little moved by the laissez-faire ideas prevailing among Western policy elites at the time. Japanese
officials made clear that the state had a significant
role to play in developing the economy, even though
its actions “might interfere with individual freedom
and with the gains of speculators.” 2
Many of the reforms introduced by the Meiji bureaucrats were aimed at creating the infrastructure of
a modern national economy: a unified currency, railroads, public education, banking laws, and other legislation. Considerable effort also went into what today
would be called industrial policy—state initiatives targeted at promoting new industries.
The Japanese government built and ran state-owned
plants in a wide range of industries, including cotton
textiles and shipbuilding. Even though many of these
enterprises failed, they produced important demonstration effects. They also trained many skilled artisans and managers who would subsequently ply their
trade in private establishments.
Eventually privatized, these enterprises enabled the
private sector to build on the foundations established
by the state. The government also paid to employ foreign technicians and technology in manufacturing
industries and financed training abroad for Japanese
students. In addition, as Japan regained tariff autonomy from international treaties, the government raised
import tariffs on many industrial products to encourage domestic production.
These efforts paid off most remarkably in cotton textiles. By 1914, Japan had established a world-class textile industry that was able to displace British exports
not just from the Japanese markets, but from neighboring Asian markets as well. 3
Americas Quarterly SPRING 2012