Bill Gates


Can the Asian Miracle Happen in Africa?

I read Joe Studwell’s How Asia Works because it claimed to answer two of the greatest questions in development economics: How did countries like Japan, Taiwan, South Korea, and China achieve sustained, high growth and turn into development success stories? And why have so few other countries managed to do so? Clear answers could benefit billions of people living in countries that are poor today but have the essential ingredients to develop thriving economies.

I’m pleased to report that Studwell, a smart business journalist, delivers clear answers—not the hedged “on the one hand, on the other hand” answers that led an exasperated Harry Truman to ask for a “one-armed economist.” I found the book to be quite compelling. Studwell explains economic history in a concise and understandable way. I asked the whole Agriculture team at our foundation to read it because of its especially good insights into the critical role of household farming for economic development.

So what are Studwell’s answers to the multi-trillion-dollar question of why some Asian countries developed rapidly and others (Philippines, Indonesia, Thailand) did not? He offers a simple, three-part formula:

  1. Create conditions for small farmers to thrive.
  2. Use the proceeds from agricultural surpluses to build a manufacturing base that is tooled from the start to produce exports.
  3. Nurture both these sectors (small farming and export-oriented manufacturing) with financial institutions closely controlled by the government.

Here’s the formula in slightly greater depth:

Agriculture: Studwell’s book does a better job than anything else I’ve read of articulating the key role of agriculture in development. He explains that the one thing that all poor countries have in abundance is farm labor—typically three quarters of their population. Unfortunately, most poor countries have feudal land policies that favor wealthy landowners, with masses of poor farmers working for them. Studwell argues that these policies not only produce huge inequities; they also guarantee lousy crop yields. Conversely, he says, when you give farmers ownership of modest plots and allow them to profit from the fruits of their labor, farm yields are much higher per hectare. And rising yields help countries generate the surpluses and savings they need to power up their manufacturing engine.

Manufacturing: Studwell argues that once countries are producing steady agricultural surpluses, they should start moving to the manufacturing phase of development. He makes a strong historical case that the successful countries do not simply rely on the invisible hand of market forces; they supplement market forces with the heavy hand of state-driven industrial policy. These countries engage in a combination of protectionism (coddling infant industries to give them time to become globally competitive) and then culling losers (cutting off resources to firms that don’t succeed in export markets).

Finances: Studwell shows that rapidly developing countries usually give lip service to free-market principles while actually keeping their financial institutions “on a short leash.” In other words, they enact policies to protect themselves against the shocks and whiplash of global-capital flows, and they make sure their financial institutions serve the country’s long-term development ends rather than the short-term interests of financiers.

I came away from the book with many take-home messages that apply to our foundation’s work. I’ll highlight two.

First, I appreciated Studwell’s thinking about agriculture economics. Drawing on data on crop yields and overall agricultural output, he argues that rapid agricultural development requires redistributing land more equitably among the farming population. To date, I haven’t focused as much on the land ownership piece as I have on the role of better seeds, fertilizers, and farming practices. This book made me to want to learn more about the land ownership picture in countries where our foundation funds work.

Second, Studwell provoked me to think hard about whether his three-part formula is as applicable to Africa as it is to Asia. Certainly, the agricultural piece applies well—and has many economic and health benefits. The big question for me is: Can African countries become successful export-oriented manufacturing hubs? I do see this potential in countries like Ethiopia and Djibouti. They already have a strong connection with China and ambitious, long-term economic plans. Unfortunately, many other countries on the continent don’t have those same success factors, especially landlocked ones with very poor infrastructure. Helping farmers in those countries grow more food and earn more money would be a big help on its own.

How Asia Works is not a gripping page-turner aimed at general audiences, but it’s a good read for anyone who wants to understand what actually determines whether a developing economy will succeed. Studwell’s formula is refreshingly clear—even if it’s very difficult to execute.

The News (Pakistan)

Asian tigers and paper tigers
Friday, November 01, 2013
The writer is special adviser to the Jang Group/Geo and a former envoy to the US and the UK.
An important new book explains why some countries have become economic tigers in East Asia while others are relative failures or paper tigers. ‘How Asia Works’ by Joe Studwell is a bold and insightful work that is essential reading for anyone interested in understanding the ingredients for economic success in this continent.

It challenges much conventional wisdom in the development debate. Most significantly the book questions key tenets of the so-called Washington consensus, which prescribes free market ‘solutions’ for all economies regardless of their level of development. Studwell establishes that a nation’s development destiny is shaped most decisively by government action and policies. History, writes the author, shows that markets are created, shaped and re-shaped by political power.

Studwell presents his case unambiguously, backing it with solid empirical evidence. “No significant economy has developed successfully through policies of free trade and deregulation from the get-go.” “Proactive interventions” have been essential in all cases of economic transformation – in agriculture and manufacturing – as they fostered early accumulation of capital and technological learning.

The book does two important things. First, by a historical recall of the East Asian and Chinese experience it shows that for all the talk of an ‘Asian miracle’, countries in the region have followed different trajectories and policies, which have produced sharply different outcomes. While north-east Asian states achieved extraordinary progress and prosperity, south-east Asian nations have lagged behind, in part because they took poor advice from multilateral financial institutions and failed to heed the lessons of history. China, Japan, South Korea and Taiwan are all remarkable economic success stories. But the Philippines, Thailand and Indonesia, despite initial spurts in economic growth, slipped back and have remained relatively poor. This divergence has created what the author calls “a tale of two East Asias”.

Second, the book draws a distinction between what it calls the ‘economics of development’ and the ‘economics of efficiency’. The first is like an education process where poor nations, lacking technological capacity and adequate human capital, acquire the skills necessary to compete globally. This requires investible funds, which in turn needs state intervention, “nurturing and protection as well as competition”. However at a later stage of development, countries have to transition to the ‘economics of efficiency’ to achieve profitability. This requires less state intervention, more deregulation and freer markets.

From this emerges the author’s central argument that economic development is a “stages game” with different policy solutions suited for different phases of development. This challenges the one-size-fits all paradigm of neoclassical economics. Studwell delves into China and East Asia’s varying experiences to substantiate this thesis. This leads to a provocative conclusion: “Poor states can only become rich by lying” – publicly supporting ‘free market economics’, advocated by the developed world, while pursuing “interventionist policies that are essential to become rich in the first place”.

At the very outset, Studwell identifies three critical interventions that successful east-Asian countries and China (after 1978) employed to achieve accelerated economic development. The first, “often ignored”, and now “off the political agenda” in developing countries, is land reform. This restructured agriculture into highly labour-intensive household farming. In the early phase of development, with the necessary institutional support, this helped to generate a surplus, create markets and unlock great social mobility.

The second intervention, as countries cannot sustain growth only on agriculture and must transition to the next phase, is to direct entrepreneurs and investment to industrial manufacturing. Manufacturing allows for trade and technology learning. And trade, says the author, is essential for rapid economic development. Studwell then demonstrates – while challenging the champions of free trade – how nurturing and protection, along with instituting “export discipline”, builds the capacity to compete globally. Manufacturing policy is a key determinant of success he says, as an infant industry strategy offers the quickest route to restructuring the economy towards more value-added activities.

Holding that development is quintessentially a political undertaking, the author sees the relationship between the state and private entrepreneurs as a critical variable. History, he writes, teaches that governments should not run everything themselves. But governments have to use their power and the right policy tools to make private entrepreneurs do what industrial development requires.

The third intervention necessary for accelerated development is in the financial sector, aimed at directing capital initially to intensive, small scale agriculture and to manufacturing rather than services. Studwell argues persuasively that it was the close alignment of finance with agriculture and industrial policy objectives that produced north-east Asia’s economic success.

Detailing the role of financial policy, he illustrates how premature bank deregulation exacted a high price in Thailand and Indonesia. China, on the other hand, and other north-east Asian countries resisted that, instead using financial management to serve development needs and an accelerated economic learning process.

The 1997 Asian economic crisis laid bare the sharp differences in policies followed by China/north-east Asian countries and those in the south-east. China, South Korea and Taiwan were either unaffected by the crisis or bounced back quickly to re-embark on the path to robust growth and technological progress. But the economies of Indonesia, Thailand and Malaysia were derailed. The first two remain mired in significant levels of poverty.

For Studwell, the Asian crisis underscored that these three interventions were what made the crucial difference between sustained economic success and failure. In China, Japan, Taiwan and South Korea, he writes “governments radically restructured agriculture after the Second World War, focused their modernisation efforts on manufacturing and made their financial systems slave to these two objectives”.

But in south-east Asian states, this didn’t happen. There was neither any real land reform nor creation of globally competitive manufacturing firms. This caused what were called “technology-less” developing countries to regress when their investment funds dried up.

It is in the context of the author’s lament about how, despite land reform being a vehicle for change, it does not figure in the development advice given today by rich countries or international institutions, that Pakistan gets mentioned in the book. Pakistan is cited as a prime example of where land inequality and agricultural dysfunction is at the heart of its economic and security challenges. Elsewhere the book says rural poverty nourishes terrorist groups that echo those suppressed in south-east Asian countries.

India doesn’t feature in the book. But it gets a mention when the author challenges the myth that poor countries can become prosperous by leap-frogging the stage of industrialisation. Studwell believes it is a mistake to think that India with its “much-vaunted IT service sector”, which employs a fraction of its labour force, “represents an alternative to manufacture-led development”. “There is no way that the specialist IT firms of Bangalore, or the financial services elite of Mumbai, will propel India to the kind of development success seen in China, Japan and Korea.”

Much of the book concerns itself with the three interventions. But the author is also emphatic in stating that they only take countries to a certain development stage. Over time, these policies create problems and have to change as countries transition to the next phase, when the ‘economics of efficiency’ has to kick in. As Studwell puts it: “The one, two, three approach only gets an economy – not to mention a society – so far. If policies do not change the economic sclerosis of contemporary Japan or Italy beckons”.

In making a powerful case for poor countries to make the right development choices and learn from other nations’ experiences, the book warns against the kind of free-market economic dogma routinely pushed down the throats of developing nations by wealthy countries and international institutions. As China has shown by example, countries must determine their own development path, stick to it and then stay the course – not lurch erratically between contradictory policies under donor or populist pressure as several developing nations including Pakistan seem to do.

Joe Studwell, How Asia Works: Success and Failure in the World’s Most Dynamic Region, (London: Profile Books, 2013).

Twitter: @LodhiMaleeha

Review: John Williamson

Here is a review of How Asia Works from the blog of John Williamson, the man who coined the phrase ‘Washington Consensus’.

It is a thoughtful review to which I offer three brief points of response, whose relevance should become apparent as you read: a) I believe that Thailand’s very fast growth in the 1980s was based too much on a surge of FDI in low-value added processing activity and speculative real estate development and that this is why it proved to be unsustainable; I also think that far too much of Thailand’s manufacturing activity since the Asian crisis is still based on FDI and that this is one reason why the country will not progress towards developed nation status. b) since indigenous technological progress in manufacturing has characterised all the economic development success stories I have studied, I am unwilling to suggest to poor countries that there is ‘another way’, as Mr Williamson suggests there may be; such advice reminds me of the IMF telling poor countries in east Asia in the 1970s and 1980s to get rid of capital controls at an early stage of development despite the fact that no successfully developed country (outside offshore centres) ever did so; I am, if anything, a historian and so I go with what has been shown to work. c) I cannot see how I suggested in the book that Mr Williamson was personally in favour of open capital accounts in developing countries; I am quite sure he is sick to death of ‘Washington Consensus’ being misused, but I don’t think I said anything about how his personal views do or do not differ from the Consensus view.

Review of Joe Studwell, How Asia Works: Success and Failure in the World’s Most Dynamic Region

Posted on August 22, 2013by 

In this book, the author lays out what he takes to be the conditions for catch-up growth à la Gerschenkron. These are essentially three. The first is land reform: letting the peasants own their own land and supporting this by the necessary ancillary services will result in maximizing output per hectare (and the labor input), with consequences that include a burst of output, increased savings, the creation of rural markets for urban-produced goods, without jeopardizing a ready-made supply of labor for the new urban industries. The second is the development of an industrial sector under heavy infant-industry protection, disciplined by the requirement of export success, and its progressive expansion into ever more advanced fields. The third is the use of a repressed financial system under government control in order to promote the first two conditions. He argues that this was the formula first pioneered by Meiji Japan and subsequently copied elsewhere in N.E. Asia (postwar Japan followed by Korea and Taiwan, and he hopes now China).

He also considers Indonesia, Malaysia, the Philippines, and Thailand (S.E. Asia), and dismisses claims that they have enjoyed comparable success. They failed to implement a serous land reform, nor did any of them institute an industrial policy aimed at growing industry and pushing it into ever more advanced fields. Entrepreneurs were not required to assist in “developmental” causes when privileges were extended to them, nor were the privileges dependent on revealed success, e.g. in exporting. Accordingly they have no chance of becoming developed.

Of course, countries are required to lie through their teeth in order to implement his strategy. His hero is Park Cheung-hee, who was prepared to assure the Americans that he was aiming to enhance free markets at the same time that he actually did the opposite. But Studwell admits that there is a problem with his prescriptions, which are aimed at development. For an advanced economy, it is quite appropriate to pursue efficiency. The problem is in knowing when to switch from caring for development to pursuing efficiency. Korea accidentally made the switch right, at the time of the Korean crisis in 1997, when its policies were fortuitously controlled by the IMF. Japan failed to make the switch, as a result of which it has suffered 2 lost decades.

One suspects that there may be other problems with his prescriptions besides the self-diagnosed one. Before elaborating on these, let me say what a pleasure it was to read a literate defense of land reform again, emphasizing the importance of accompanying land reform by the provision of extension services, credit, marketing, etc. This is a reform that we have almost forgotten about in recent years, yet it is surely of vital importance. The problem is that it involves destroying some people’s property rights, unless full compensation is paid, which tends to be expensive. That is why historically major land reforms have occurred only in the wake of major wars, when the rulers had no qualms about raiding people’s property rights, since these were widely regarded as having been illegitimately acquired. My guess is that under current conditions it would be worth compensating fully, even though this would add to government debt. (A compromise is available to countries that have previously imposed a land tax: pay compensation at the declared value of land, which is usually a gross under-estimate of its actual value.)

It is also a pleasure to have the logic of the industrial policies pursued in NE Asia laid out so clearly, though I am not filled with the same zeal for them as for the agricultural policies. Buying them essentially requires a similar act of faith to that involved in signing on to the neoclassical economics he so fervently despises, and accepting that there is no other way to develop except by the dirigiste strategy that he so well outlines. But is that really true? When I was young the developed countries comprised Western Europe and what Angus Maddison has called the “European offshoots”. To those we must now add not only Japan, Korea, and Taiwan, but also Southern Europe, Israel, Hong Kong, and Singapore.

It is difficult to know what Studwell would make of Southern Europe (at least outside Italy, which he considers to have developed properly) and Israel. But Studwell tells us quite explicitly that he is not going to consider Hong Kong and Singapore, because they are merely “anomalous port financial havens” (p. 63). The implication is that it is wrong to compare city-states to “real” countries. This would make sense if the cities normally sacrificed for the benefit of their hinterland, but surely they have, on the contrary, generally exploited their hinterlands, so that it is more and not less difficult for a city-state to develop. Of course, addition of Hong Kong and Singapore to the comparators is devastating to his thesis. Hong Kong developed under the purest laissez-faire that I know of; its addition to the list of comparators suggests that we look to what the countries of NE Asia have in common—competitive exchange rates, reputable educational systems, demographic transitions, and high savings—rather than to what is different between them—industrial policy—in explaining their success. And the inclusion of Singapore in the reference set would force him to admit that part of SE Asia has already made it.

His attitude to SE Asia is in fact something of a mystery. He says on p.160 that it is difficult for him to see how any of the Asian stock markets contributed to development. Let me tell him: by letting firms raise money, and without the danger of strangling themselves by excessive leverage. On p. 166 he tells us that Thailand had been going completely the wrong way prior to 1997, but two pages before that he told us that Thailand was the world’s fastest developing country over the decade 1987-96. He added that this did not signify real development. In the sense in which he defines real development, as implying mastery of more advanced techniques, this may be right, but it makes one wonder about his definition. If there are alternative paths to advanced-country living standards that maybe involve less sacrifice of the current generation, why not take them?

Let us suppose for the sake of the argument that Studwell is correct in his description of how NE Asia developed. (I have a feeling that he is closer to the truth than all those who tried to make out that they succeeded because they were really paragons of liberal virtue.) At the same time, he does not convince me that this is the only route to development. What stands out from his description is the price that was paid for developmental success: he records how Korean businessmen were at one stage locked up (p. 89); foreign holidays by Koreans were banned as late as the 1980s (p. 149); the high rates of inflation that were endured by Koreans right up to the 1980s; the negative real rates of interest paid on Korean deposits and even in the kerb market when there was a crisis (p. 149); and so on. (Not to mention the deprivations experienced by Chinese consumers as the counterpart to the massive accumulation of reserves—reserves that will have a negative yield—by the People’s Bank of China.) Surely development à la NE Asia works, but it works at a terrible cost to the first (and maybe second) generations. If (as I argue above) there are alternative routes to high-income status and these alternatives demand fewer sacrifices en route, then one has to judge the demand that countries master ever more advanced techniques as quixotic.

Another paper that I read (in Portuguese) simultaneously with this book calculates the expected proportion of GDP contributed by industry over the period 2001-07, the expected proportion being determined by a regression equation containing per capita income, its square, population, and population density (Bonelli, Pessoa, and Matos 2013). An extract of their results shows:

Observed value         Lower limit     Expected value      Upper limit

Brazil                          0.15                      0.16                      0.18                      0.20

China                          0.32                      0.22                     0.28                      0.33

Germany                    0.21                      0.16                      0.19                      0.21

India                           0.15                      0.18                      0.22                      0.26

Japan                          0.21                      0.19                      0.21                      0.24

Korea                          0.24                      0.20                     0.22                     0.24

Thailand                     0.34                      0.17                      0.20                     0.23

UK                               0.13                      0.13                      0.16                      0.19

US                               0.14                      0.10                      0.14                      0.17

None of the NE Asian countries, nor Germany for that matter, are shown as falling significantly above the expected proportion of income. Ironically, the one country exhibiting clear signs of what they dub the “Soviet disease” (the opposite to the famous Dutch disease) is Thailand. Ah, but doubtless Studwell would fault them for having the wrong type of industry!

Let me note in closing that Studwell uses the term “Washington Consensus” with great frequency and always in what I think of as the populist sense. In n.3 he asserts, quite wrongly, that in introducing the term I favored floating exchange rates and unrestricted capital mobility: in fact I was quite explicit in condemning both. It is this that distinguishes the populist sense of the term (“populist” because it is used to signify policies that would discredit it in the minds of the audiences addressed) from my initial usage.

To return to the main theme, I welcome, though without much hope of his making an impact, the emphasis on land reform. But to assert that real development consists only of the process of mastering ever more advanced industrial techniques condemns most countries to remaining undeveloped. It has still to be proved that most countries cannot aspire to developed-country living standards without mastering the most advanced techniques. Unless this happens to be true, the notion of having a separate economics of development and then changing over to a concern with efficiency at some point in time, makes no sense.


Bonelli, Regis, Samuel Pessoa, and Silvia Matos. 2013. “Desindustrialzação no Brasil: fatos e interpretação”, in E. Bacha and M. Baugareten, eds., O Futuro da Indústria no Brasil (Rio de Janeiro: Editora José Olympio Ltda).

Studwell, Joe. 2013. How Asia Works: Success and Failure in the World’s Most Dynamic Region. (New York: Grove Press.)

The Inquirer (Philippines)

Proving the old adage that any book recommended by someone called Teddyboy is worth reading…


Get Real

How to sustain our 7-percent growth rate


9:33 pm | Friday, July 26th, 2013

Teddyboy Locsin raved about the book and urged me to read it asap. When he told me what the key message was, and then gave me the gist of the author’s pithy remarks about the Philippines, I went home and did as I was told.  The book is “How Asia Works,” subtitled “Success and Failure in the World’s Most Dynamic Region.” It came out sometime in the end of March, and its author is Joe Studwell, an old Asia hand, journalist (Economist, Economic Intelligence Unit, Financial Times, Asian Wall Street Journal, Far Eastern Economic Review), broadcaster and author of several other highly acclaimed books, who is currently pursuing a mid-career PhD in Cambridge.

And what is Studwell’s message? Like all effective communicators, he says it both in the introduction and in the epilogue of his work, although using different words. And that is that based on the Asian experience, there are three critical interventions that governments can use to speed up economic development: restructuring agriculture into highly intensive household farming, directing investment and entrepreneurs into export-oriented manufacturing, and intervening in the financial sector to support the two sectors. A recipe for success that is “as simple as one-two-three.”

Studwell cites Japan, Taiwan, South Korea and China as countries that have employed these interventions, resulting in “the quickest progressions from poverty to wealth that the world has seen.” These countries radically restructured agriculture (compulsory land reform) after World War II, focused their modernization efforts on manufacturing, and made sure that the financial system accommodated this development strategy. Other countries, like Malaysia, Thailand, Indonesia and the Philippines, did not follow the recipe (and also accepted bad advice from rich countries), and while these countries (excluding the Philippines—or until very recently, anyway) may have exhibited high growth for relatively long periods, the progress was not sustainable.

What is especially intriguing about Studwell’s book is his justification of the three interventions. With respect to land reform, he points to the studies of Klaus Deininger, whose research findings show that “only one significant developing country has managed a long-term growth rate of over 2.5 percent with a very unequal distribution of land. That country is Brazil, the false prophet of fast growth which collapsed in a debt crisis in the 1980s in large part because of its failure to increase agricultural output.” Deininger’s two big conclusions, he continues, are that “land inequality leads to low long-term growth,” and that “low growth reduces income for the poor but not for the rich.”

In the process of justifying his arguments, Studwell earns his reputation as a myth-buster. For example, he cites data showing that following the shift to small-scale agriculture in his success countries, gross output of foodstuffs increased by somewhere between half (in Japan) and three-quarters (Taiwan). He also shows that sugar and banana yields in Taiwan from these home farms far exceeded plantation yields (which is what the Food and Agricultural Organization also has pointed out, but the data are ignored by large landholders and their supporters in the Philippines).

His descriptions of the land reform experiences of Japan, Taiwan, Korea and China are fascinating and instructional (I did not know that the programs of the first three were in major part influenced by the fear of communism, and there was resistance, too, from the elites, but this was overcome), and he emphasizes that the land redistribution was accompanied by massive credit, infrastructure and extension programs. And then he follows up with a second set of stories that begins with Negros Occidental and broadens to the entire Philippines, providing a brief history of the land reform attempts starting from the US colonial government in 1904 (165,000 hectares of religious estates—unsuccessful because the Americans insisted on a full market price, and of course the tenants had no money; most of the land was bought by businessmen).

Studwell has this to say: “Nowhere in Asia has produced more plans for land reform than the Philippines. But equally, no ruling elite in Asia has come up with as many ways to avoid implementing genuine land reform as the Filipino one.” I have to agree.

And this is how he describes the Philippines’ Comprehensive Agrarian Reform Law: “The result was a law that was long winded, unduly complex, insufficiently radical, with many loopholes and with an absurdly extended timetable for implementation.”  He then proceeds to go into the specifics of implementation failures—from the very large retention limits (five hectares + three hectares for every owner’s child over 15, compared to a maximum of three hectares in Japan and Taiwan), to the fact that the compulsory acquisition of land as of 2006 covered only 5 percent of the total “reformed” area, to the stock distribution option a la Luisita.

It is an indictment of the law and its implementation. As Studwell remarks, “In the Philippines, man’s capacity to seize failure from the jaws of opportunity is writ large.”  Again, one cannot help but agree.

But why bring it up now? Well, because the message seems clear that if we want to make sure that our 7-percent growth rate can be sustained, we better focus on agriculture and land reform. Otherwise, we will end up with a Third World state, with poverty rates to match.

More Lowy Institute

Below is a critique of How Asia Works with specific reference to Indonesia. Indeed there is a second part of the critique that you can track down via the Lowy site. I am just posting the first part and, underneath it, rejoinders to the main points it makes.

Indonesia’s development formula

by Stephen Grenville – 25 July 2013 11:10AM

I share Sam Roggeveen’s enthusiasm for the iconoclastic approach of Joe Studwell’s How Asia Works (his previous book on Asian Godfathers was a great read too). I also share Studwell’s scepticism about the ‘magic of the market’, his views on the IMF, and his admiration for the achievements of the South Koreans.

But I’m unconvinced by Studwell’s three-step development prescription, not because it is intrinsically wrong but because it is too hard to implement successfully.

The Koreans might have done so, but the strategy requires a level of sustained administrative competence, single-minded toughness and luck which are rare. Just as important, there are alternative development strategies, less demanding of skilled policy-making and administrative competence. The growth outcome won’t match Korea’s, but will be more feasible for countries like Indonesia (which Studwell sees as a development failure).

Let’s go through the three elements of the Studwell strategy. The first stage requires land reform and a boost to agricultural productivity.

It’s an old and sensible idea that agriculture has to provide the investable surplus which will propel the rest of the economy along the path of development. Fifty years ago, Clifford Geertz (Agricultural Involution) despaired about Indonesia’s failure to follow the example of Japan, which shifted surplus agricultural labour into factory work to create a modern urban/manufacturing sector. This failure would lead the excess population to atrophy, farming progressively more Lilliputian plots.

But things turned out better. With the average size of farms on Java around half a hectare, the opportunity for land reform couldn’t play the key role that Studwell advocates. But Soeharto, with his roots in agriculture, gave rice production high priority (extension services, high-yield seeds, fertilizer, pesticides and attractive terms-of-trade between agriculture and urban consumers via an active price stabilisation authority). Not very free-market, but big yield increases and self-sufficiency were speedily achieved.

What about a vigorous industry policy, the second Studwell requirement? Despite inheriting the usual disaster story of failed prestige projects from Sukarno, Soeharto was ready to have a go at ‘picking winners’.

Cement, fertilizer, textiles, paper production, food processing and petroleum refining all fitted Indonesia’s comparative advantage and made sense. Others were less defensible: Krakatau Steel,Tommy Soeharto’s national car and Ibnu Sutowo’s tankers. Habibie‘s IPTN aeroplane fits the Studwell strategy and might have succeeded if it hadn’t been stopped by the Asian crisis: ex-aeronautical engineer Habibie was well-qualified to lead this project, plane construction is quite labour-intensive (all those rivets) and the Indonesian archipelago needs lots of them (one airline recently ordered several hundred in one hit).

Whether IPTN would have succeeded is not the issue here: the point is that Indonesia, for better or worse, did try the sort of hot-house industrialisation Studwell advocates, and the IMF wasn’t able to stop this, at least until the 1997 crisis. Planning retained a central role, just as Studwell wants, and state-owned enterprises did the government’s bidding. Where Indonesia had comparative advantage, this often worked out well, and where the industry didn’t suit Indonesia’s attributes, generally it was a failure.

Indonesia’s development experience doesn’t fit the Studwell formula. Java’s rice production has done well without relying on his key element of land reform, and industry policy based on domestic entrepreneurship has been tried without much success.

Governments attempting to steer the process of development need effective administrative capacity; in a follow-up post, I’ll expand on the idea that market failure is common enough, but so too is government failure.

Joe Studwell’s response:

1. I doubt, contra Mr Grenville, that there is some arbitrary minimum land holding that makes land reform unworkable. If this were the case, then the micro-plots of a few tens of square metres championed by groups like Landesa would make no sense, when historical evidence around the world shows that privately-held micro-plots produce very high yields.

I am presently up my hill in Italy, and using a very slow Internet connection, and so cannot readily check the average Javan landholding. I assume Mr Grenville means that the average Javan landholding is half a hectare now, and would therefore be less after land reform. (The average land holding in most parts of China, Japan, ROK, and Taiwan after land reform was roughly half a hectare.) If my understanding is correct, my response is that Java has some of the best soil and climate conditions in the whole of east Asia, and so even smaller plots should be more than viable — if indeed size matters at all in a downward direction, a question which I think deserves real scrutiny.

Mr Grenville is correct that yields on Java are high by south-east Asian standards. The rice yield is over five tonnes per hectare. However this is still less than the average in north-east Asia. Given its soil and climate, it would not surprise me if north-east Asian style household farming could produce as much as 9 tonnes per hectare on Java — about as high as has been managed anywhere, because the growing conditions are so favourable.

Mr Grenville is correct that Suharto invested heavily (if patchily) in agricultural extension services and (eventually) used minimum price guarantees to promote higher yields. However he is wrong to say that self-sufficiency was achieved ‘quickly’. Rice self-sufficiency was not achieved until the mid-1980s, 40 years after independence, and wheat self-sufficiency never was. So I maintain my position that Indonesia is a real relative failure in agriculture.

2. On industry, much of my criticism of policy in south-east Asia focuses on politicians’ efforts to ‘pick winners’ rather than run industrial policy that periodically culls losers. I also talk at length about the need for ‘export discipline’ to anchor industrial policy. And I avoid traditional discussions of what is or is not a society’s comparative advantage because, to my mind, development is about changing (within reason) your comparative advantage. Economic development is about investing in a learning process in order to reap higher future returns.

Mr Grenville’s points about industry in Indonesia therefore seem to me to be based on a misreading, or mere scanning, of How Asia Works. He highlights industrial projects that were picked as ‘winners’, were not subjected to sufficient competition or pressure to export, and which consequently produced a poor return on industrial policy investment. His observations are essentially supportive of the policy requisites I highlight.

The one thing I think is truly misplaced in Mr Grenville’s comments is the argument in the third paragraph that, essentially, Indonesians are politically and administratively ‘not up to’ the task of accelerated economic development, particularly compared to people like the Koreans. Is this true? In 1945, South Korea was the rural backwater of a brutally colonised state in which Koreans had been allowed to play perhaps the most restricted administrative and economic role in any east Asian colony. I cannot see that the Koreans had much political, administrative or educational capital. Elite Indonesians, by contrast, held senior civil service positions under the Dutch, could win scholarships to study in Europe, and had much greater (formal) political, administrative and educational resources. The difference was not the endowments, but the change politicians wrought over 60 years of independent government.



The Economist

Boom and bust in Asia

Going for growth

Explaining Asia’s economic success is as easy as one, two, three

How Asia Works: Success and Failure in the World’s Most Dynamic Region. By Joe Studwell. Grove; 366 pages; $27. Profile; £14.99. Buy

IN 1989 John Williamson, a British economist in Washington, DC, listed ten economic policies that enjoyed the backing of the IMF, the World Bank and many of their clients in Latin America. Whatever the merits of these policies, the “Washington consensus”, as he called it, proved badly named. Its prescriptions—stabilise, privatise and liberalise—have caused no end of controversy. Almost 25 years later, they get another drubbing in Joe Studwell’s provocative new book, “How Asia Works”.

Mr Studwell has no such inhibitions. Asia’s post-war miracle economies emerged, he argues, by following a recipe with just three ingredients: land reform; export-led, state-backed manufacturing; and financial repression.

The process began with the ousting of the landlords. Feudal estates were broken up and divided among small farmers, who also received cheap credit and valuable advice. Smallholder farming requires “grotesque” amounts of labour, Mr Studwell concedes. But that is a good thing, because countries as poor as Taiwan or South Korea were in the 1950s have labour—and only labour—in abundance.

Tightly planted, closely tended farms coax the best yields out of each parcel of land. This rural bounty then creates room for the next step: export-led manufacturing. The state, Mr Studwell argues, must nurse manufacturers through their infancy, helping them to learn how to stand on their own feet. This nurture should, however, be combined with discipline: the state must oblige firms to export. Foreign sales provide an external test of their progress, allowing the state to “cull losers”, even if it cannot pick winners.

The final secret of Asian success, Mr Studwell argues, was a cowed financial system. Captive savers, penned in by capital controls, were ripped off by the banks, which paid low interest rates. This allowed the banks to subsidise industrial firms through their years of education.

Mr Studwell’s recipe is not original: the formula dates back at least 140 years, he shows, to Japan under the Meiji emperor. Only the first step, smallholder farming, would be backed by this newspaper. But “How Asia Works” is a striking and enlightening book, which reflects the author’s unusual career. Having worked as an analyst (for the Economist Intelligence Unit, our sister company) and a consultant, he wrote books on China’s seduction of foreign businessmen and Asia’s crony capitalists. Then he went back to school, embarking on a doctorate at Cambridge, home to a number of unorthodox economists.

The result is a lively mix of scholarship, reporting and polemic. Its heart is a historical account of how smallholder farming, export-led manufacturing and financial repression took root in Asia’s miracle economies, such as Japan and Taiwan, but failed to bed down in the Philippines and Indonesia. This is punctuated by travelogues, describing Asia’s landscape of economic triumph and tribulation, from the kitsch houses of rice farmers in Japan’s Niigata prefecture, who have great agricultural know-how but little architectural taste, to the unfinished towers of Jakarta’s Bank Alley, their growth stunted by the Asian financial crisis.

The most impressive part of the book is the 68 pages of footnotes in which Mr Studwell dips into his trove of reading and reporting. He includes observations on Javanese chickens, the sex life of a Korean chaebol-founder, the constitutional rules that Meiji-era Japan copied from Prussia and his exchanges with Mahathir Mohamad, Malaysia’s former strongman.

In these notes, Mr Studwell wanders into the weeds of development (quite literally: Japanese rice is weeded nine times a year, he writes). But he never gets lost. The three-step doctrine he advocates is even shorter than the ten-step Washington consensus he opposes. But it will no doubt prove similarly controversial.

The Lowy Institute

This is an ongoing Q&A thing in which I will respond to questions when I can, with whatever time I can spare… The Lowy Institute, which asked me to do this, is an Australian think tank.

Interview: Author of ‘How Asia Works’

by Sam Roggeveen  – 11 July 2013 12:34PM

Last month Marginal Revolution blogger Tyler Cowen described Joe Studwell’s How Asia Works: Success and Failure in the World’s Most Dynamic Region as ‘perhaps my favourite economics book of the year‘.

I decided to see for myself what the fuss was about, and I must say I have rarely had my economic preconceptions so thoroughly tested. This book challenges a lot of free market notions I had taken for granted, and as this interview progresses, I will try to tease out some of those ideas with Studwell. For now, here’s my opening scene-setter question and Joe Studwell’s answer.

SR: How Asia Works is a bold assault on what we might call the neo-liberal consensus about what makes economies grow. You argue that protectionism and industry policy are actually important policy tools for countries at an early stage of development, and that Asian governments have adopted this model with varying degrees of success.

This is an almost heretical thought in the Western economic debate, and I suspect a lot of readers of this site would dismiss it out of hand. So what are some of the key facets of Asia’s economic development you would point to that prove your case?

JS: The distinction I make is between the ‘economics of learning’ and ‘the economics of efficiency’. Poor countries lack technological capacity and have low quality human capital. This is why they need to target investible funds at a learning process and such a learning process requires nurturing and protection as well as competition.

It was ever thus. Anyone who disagrees is simply historically ignorant. The history of British, American, German, and indeed Australian development is the history of government policies that nurtured globally competitive firms, whether those policies were Britain’s Navigation Acts, the average 40% tariff applied in the US in the 19th century, German export subsidies of the late 19th and early 20th centuries, or Australia’s own long history of tariff protection and industry subsidy.

Those ‘infant industry’ policies allow learning to take place and produce more competitive firms, especially when subsidy is predicated on exports, or what I call ‘export discipline’, as has very much been the case in the fastest growth stories in Japan, ROK, Taiwan and now China. The capacity to export into the global market tells governments of development countries if they are getting an acceptable return on their subsidies to domestic firms.

However, the economics of learning only get you so far. There comes a point when an economy is close to the global technological frontier and it is much harder, if not impossible, to run cost-effective industrial policy. It is then necessary to enter the world of Adam Smith or (to put things in Australian terms) Colin Clark. It is no surprise that Smith produced his ideas in the late 18th century, when Britain was close to global technological dominance but the British consumer was getting screwed every day by oligopolies and monopolies set up in the infant industry era. Britain needed to be more efficient, more focused on short-run profit, more fair to the consumer. And that was what gradually happened in the 19th century.

Colin Clark made similar points in Australia in the early 1960s and was fortunate that Labor Party politicians were receptive to his arguments about the need for deregulation so that Australia could continue to progress on its development path (I was going to say to the promised land of Kath and Kim, but I’ll leave that out).

Anyhow, the basic point is that it is a stages game, and there are different solutions for different stages of development. This, of course, is horribly problematic for modern economics because everything is supposed to fit in the same spreadsheet — there are no stages. And behind this problem is the other one that so many contemporary economists are really just (drug-less) hippies, whose every statement begins with ‘Imagine!’: ‘Imagine that there are large numbers of participants in every transaction, imagine that information is perfectly dispersed…Dude, you’d get a perfect price function. Pass the dooby!’

So I have a number of issues with the economics profession as it is presently constructed. But economics offers us powerful analytical tools and there are also some very smart, historically literate economists. In the book I quote Charles Kindleberger’s question about whether there really can be only one kind of economics. My answer, as stated above, is that, at a minimum, there is an economics of development and an economics of efficiency and what we really need to understand is where and how they meet in the middle. (But please don’t ask for the answer to this question because I don’t know and it is the subject of my next book.)

Interview: ‘How Asia Works’ part II

by Sam Roggeveen  – 12 July 2013 11:59AM

Below is the second part of my exchange with Joe Studwell, whose book, as I said in the intro to part 1, has tested some assumptions about economic development I’ve been carrying around with me for a long time.

SR: Asia is home to some of the great cautionary tales of industry policy: Malaysia’s national car brand, Proton, and Indonesia’s aircraft manufacturer IPTN come to mind. So what is it that distinguishes those failed efforts from success stories such as Hyundai?

And how do you get around the argument that, even where state-backed companies succeed in the long term, they still represent a misallocation of resources and an attempt to pick winners? Why wouldn’t these governments have been better off creating favourable tax and regulatory conditions for industry to flourish, rather than backing specific industries themselves?

JS: This is a number of different questions.

First, what makes industrial policy cost-effective? The answer to this in east Asia has been what I term ‘export discipline’, or the conditioning of subsidy (in all its myriad forms) on a significant level of exports at the firm level. In essence, export discipline solves an information problem. If you give subsidy to entrepreneurs they are amazingly good at taking the money and pretending to do what you want in terms of developing globally competitive firms that carry an economy forward, but not actually doing so.

Most obviously they tend to concentrate on services, which employ and ‘upgrade’ relatively few people, avoid adding value through manufacturing by importing components of manufactured goods or even finished manufactured goods, and they tend to limit the competition they face by sticking to the domestic market. They then take the cash flows from subsidised domestic activity and invest it on a portfolio basis in more advanced and competitive economies.

This is the story of what my last book dubbed ‘godfathers’ — the oligarchs who dominate economies from south-east Asia, to Russia, to Latin America (KS Li, Ambramovich, Carlos Slim, if you want three examples). In essence these entrepreneurs outplay the state in its efforts to foster economic development based on technological learning and broad-based improvement of human capital.

When you have export discipline, the game changes. First, export discipline is almost inevitably bound up with a focus on manufacturing because manufactures are way more freely traded in the world than services (services are only 19% of world trade and have been stuck at that level for a quarter century). So entrepreneurs manufacture because manufactures are readily exportable.

Then comes the information bit. The capacity to export tells the state whether firms it subsidises and otherwise supports are globally competitive. Domestic financial institutions benefit from the same information feedback. Of course you can sell at a loss for a while, but not long if you have to export, say, 30% of your output, because it will bankrupt your firm. As a result, the capacity of the entrepreneur to deceive the state is undermined. He or she faces the horrible reality that in order to feed their insatiable desire for wealth and recognition (those ‘animal spirits’) they have to knuckle down, actually make stuff, and sell it in the viciously competitive world market.

Hyundai is a good example because founder Chung Ju Yung was himself a godfather, bribing his way to construction contracts under Syngman Rhee in the 1950s. Then came Park Chung Hee’s coup in May 1961. Park brought in so much export discipline that firms had to file their export returns to the government on a monthly basis. Suddenly Chung became a big fan of manufacturing for export and had to get rich that way.

In Southeast Asia, industrialisation programs like Proton and IPTN did not face export discipline. As a result the state’s return on industrial policy was very poor. Was it zero, however? I think not. There has been some industrial learning in Malaysia and, to a lesser extent, in Indonesia. So I doubt they would have been better off without Mahathir or Habibie, the main people who drove those programs. However, the performance was lousy by the standards of Japan, ROK, Taiwan and China and I talk in a lot more detail in the book about exactly why. After the Asian financial crisis, when the IMF went in to Indonesia and dismantled/emasculated its industrialisation strategy, it made things worse. If you look at IPTN, on which the Indonesians spent billions training engineers, designers and so on, many of the key people went off in the late 90s and 2000s to work in places like the US or Germany. Indonesia’s learning-oriented subsidy ended up going to the world’s richest nations (that’s why we have black humour).

On the inevitability of misallocation of resources in industrial policy, the answer is ‘yes’. There is a lot of waste in industrial policy. But the waste is at an acceptable level when you are far behind the technological frontier because you can see where you need to go. Steel, chemicals, plastics, construction materials, etc — you have to learn to make this stuff just like everybody before you. You have to fill your society with tacit, value-adding knowledge. Critically, manufacturing is the way to learn because people learn on the job, in factories, generating the capital to pay for their education. It is affordable in the way that more schooling for everybody would not be because school is just a sunk cost until you leave and get a job. (Indians — don’t get me started — only think about learning through investment in formal education and have no real manufacturing strategy, which is why they are relatively so much poorer than the Chinese.)

On ‘picking winners’, this is a term of abuse coined by neo-liberal economists in Europe in the 1970s (I have never managed to identify first use of the term) when they were beginning to criticise the industrial policies that made a country like Italy grow 5-6% for a quarter century after World War II. It is a term of abuse because, as far as I can see, successful industrial policy has never been about picking winners. It is about culling losers, which is very different. Culling losers means cutting off state support to subsidised firms that are failing to make the grade, judged by profit & loss and export performance. There is a period of culling losers going on in China right now, so you can watch live!

On ‘favourable tax and regulatory environments’, development requires these, but the objective remains that of learning, as I have said, not efficiency expressed in terms of short-run returns. That comes later. I think that perhaps the answer you want to this question is the following statement: if you can show me a country, other than anomalous offshore financial centres/trading entrepots, which has developed to the first rank through policies of free trade from the get-go, then tell me which country it is. (Certainly not yours or mine…)

Reading through the first part of this answer, I realise that I simplified and exaggerated considerably to make a point. Perhaps too much so. But people need to read the book!

Can we talk about the rugby now?


Below is the third part of my exchange with Joe Studwell, author of How Asia Works. Here’s part 1and part 2.

SR: In your previous answer you took a swipe at the IMF for its behaviour towards Indonesia during the currency crisis, so I wonder if you could say some more about the role of international institutions.

I notice that Michael Pettis, in his Amazon review of your book, says the merits of industry policy are so obvious as to be not worth debating. The fact it is debated ‘suggests to me how unreal academic economics has become and how divorced from historical understanding.’

But it’s not just academic economics, clearly. It’s also the policy advisers in the IMF and World Bank (and perhaps even the NGOs?) who push a pure free market line. How do you account for the fact that these institutions seemingly continue to ignore the evidence of successful industry policy? And how have Asian governments dealt with advice from the IMF, World Bank and others? Do they just ignore it?

JS: The story of the international institutions is a complex one, so I’d like to try to reflect that complexity. I would also like to say that I am not an expert in the history of these institutions and mostly know them from the work I have seen them doing in east Asia.

The first point is to consider the origins of the IMF, the institution that is best known for going in to countries after financial crises occur and agreeing (forcing?) and overseeing reform ‘programs’. The IMF was created at the end of the Second World War and gained its early crisis experience in the 1970s in already quite mature western European countries after the Bretton Woods fixed exchange rate regime broke down. The IMF played an important role cajoling countries that had employed what I earlier called the ‘economics of development’ or ‘economics of learning’ in order to get back on their feet after the Second World War towards what I called the ‘economics of efficiency’.

In other words, the institution moved countries along from one kind of economics to the next (at least in my conceptualisation). For the most part this involved deregulation, the imposition of freer markets and the gradual removal of currency controls (the latter not in the UK, for instance, until the advent of Margaret Thatcher as prime minister in 1979).

In the 1980s the IMF then took its medicine to Latin America with the onset of the Latin American debt crisis. As far as I can see (again, I am not an expert), Latin America had messed up its development policy in two main ways. First, land reforms were absent or ineffective (because of lousy execution). This left a very skewed income distribution in place, failed to give landless farmers any capital (in the form of land) with which to play the capitalist game, and did not maximise yields.

During the post-war industrialisation drives in countries like Brazil, agricultural exports either flatlined or fell, or imports increased, exacerbating the balance of payments stresses that occur in the early stages of industrialisation when countries always run trade deficits (because of the need to import producers’ goods — typically, machines to make stuff with). The second policy cock-up was the shortfall of ‘export discipline’ to ensure adequate returns on subsidy and protection to manufacturers.

The wrong agriculture policy and the failure to export enough manufactures created balance of payments pressures and a capital shortfall that were filled with foreign loans. When dollar interest rates rose under the Reagan Administration, the loans could not be serviced, and governments resorted to printing money (just like in the Philippines under Marcos, which was east Asia’s Latin American state).

In this respect, the deflationary macro policies the IMF brought in were necessary and stabilised the situation. However, the IMF also dismantled industrial policy and has never, as far as I can see, understood anything about agriculture. The upshot was that the IMF undermined Latin America’s ability to develop quickly and sustainably. But then one can say that the Latin Americans had already done that for themselves by borrowing lots of money and investing it unwisely.

I make the point in How Asia Works that, scaled for GDP, the Koreans borrowed more money overseas than any Latin American country, but it didn’t matter because they had export discipline which meant they were creating lots of globally competitive manufacturing firms. Latin America seems to have produced one: Embraer.

Anyhow, we can say the IMF did well in western Europe, and then did well-ish (at best) in Latin America. Next it came to east Asia after the Asian financial crisis. Here, for me, it really made a terrible mess of southeast Asia by imposing Anglo-Saxon financial systems in Thailand and Indonesia after the crisis, having already done the same thing in the Philippines following the fall of Marcos in 1986. Industrial policy has been almost completely undermined and the banking systems now focus loans on consumers (making very tidy profits, just like in post-crisis Latin America). But the banks do not support sensible developmental policies that make national economies more value-adding. It should be no surprise that southeast Asia has had east Asia’s best performing stock markets since the Asian crisis while, in terms of the real economy, a country like the Philippines is on the brink of a return to the Third World. The only positive thing the IMF has done in southeast Asia is to make the place work for hedge fund managers. In fact I often think the IMF should become a hedge fund.

In defence of the IMF, I would point out two things. In southeast Asia, Malaysia did much of what the other major economies did, but without an IMF intervention; it just copied them anyway. With that kind of lack of political leadership, a country is in a lot of trouble anyway. And second, the IMF intervention in South Korea, which got caught up in the crisis, was much better timed, at least in my view.

South Korea was already a US$10,000 GDP per capita country when the crisis hit and the IMF forced sales of equity in the financial system to foreigners, required major changes to company law, and oversaw other adjustments in favour of consumers and minority shareholders. Contrary to Ha Joon Chang (whom I admire enormously), I think these interventions were well-timed. Of course the good timing was totally by chance because the IMF does not believe in timing, if you get what I mean! South Korea, in short, was ready for the economics of efficiency.

So that’s the IMF. The World Bank, by contrast, was set up specifically to support economic development at the micro level, and should be judged on this basis. Its real name is the International Bank for Reconstruction and Development.

My own observation over the years has been that the World Bank has some fantastic people, but that the institution is only as good as the use governments make of it. This means knowing what you want and getting World Bank specialists to work within some kind of brief that is defined by the developing state. If you just ask the World Bank (or the IMF) what to do, the ideologues in these institutions will their list of currently fashionable options, almost all of which have been between useless and disastrous for the past 40 or more years.

Classic examples include ‘privatise your banks’, ‘develop your stock markets’, and ‘concentrate financial intervention on micro-finance’. Note that each one is a financial liberalisation policy, reflecting exactly what has been fashionable (often rightly so) in rich countries and is deemed to be good for poor ones too. We may be about to get a new fashion menu based more around ‘institutions’. Again my expectation is that in timing terms the advice will be out of kilter. The institutional stuff becomes critical after the basic structural stuff that I talk about in How Asia Works. However now we are getting on to the subject of my next book again…

Successful developing countries have ignored the fashion menu(s) and instead have asked the World Bank’s technical people to support a proper development strategy. This is what China did in the 1980s when it had the World Bank, for instance, bring over Korean government people to explain what they had done and produce a bunch of comparative historical development studies. The process is described from different perspectives in Ezra Vogel’s biography of Deng Xiaoping, and in Harold Jacobson and Michael Oksenberg’s China’s Participation in the IMF, the World Bank, and the GATT, and, in Chinese, in Wu Jinglian et al (eds), Chinese Economists 50 Forum Looking at Thirty Years: Retrospective and Analysis (中国经济50人看三十年:回顾与分析).

Other developing countries would do well to study the manner in which China, the ROK and Japan have handled the IMF and the World Bank and gotten value from them. It is basically about avoiding the ideologues and making use of the technical people. You don’t want people like the World Bank guy in Jakarta who, shortly before the fall of Suharto, held a press conference lauding a successful telecoms ‘privatisation’ that had actually just been handed to one of Suharto’s daughters. You do want the ones like Edwin Lim, the Filipino Chinese who led the early World Bank mission in China.

Your last question is the one about why the bad advice continues to flow. I think it mainly comes down to ignorance, although just the other day someone was saying that they once asked a USTR guy in a bar to name one instance in which policies of free trade from the get-go had led to a positive developmental outcome, and the person just got up and left.

So maybe there is some pre-meditated desire to screw poor countries. Friedrich List claimed that one British prime minister used to keep a copy of The Wealth of Nations in his pocket and quote it to French leaders at every meeting in a cynical attempt to have them accept their (then very backward) division of labour in grain and wine production and leave manufacturing and services up to Britain.