Feb 13th Lecture (Postwar Reconstruction) (Prof. Wong)
Why do some countries become rich while others do not?
Individual level – ethic (protestant), rationality
National – economics, growth
International – dependency theory
We take for granted today that many Asian countries today have rich economies.
- These countries were not always wealthy – in fact, historically they were extremely poor.
These countries achieved their wealthy status through a rate of 10% growth over a long period of
- Every piece of electronics that we use was likely manufactured in these wealthy Asian
The high rate of growth that these countries achieved can mainly be attributed to government
intervention in their economies, such as government investment into growing companies.
Infant industry protection also helped to grow these economies.
- Governments impose tariffs (duties and taxes) on foreign goods, which artificially made
foreign products more expensive and thus making domestic products cheaper and more desirable.
This allowed infant industries in these countries to grow and develop their products to a quality
level that was globally competitive. - These firms did not become what they are overnight –
rather, they grew overtime under the protection of the government.
Picking and making market winners also helped these countries. They created and made
products for which there was market demand (example: Taiwanese semiconductors and Korean
- They did this not by using their endowed comparative advantage, but by creating new
comparative advantage. Their market economies were keenly aware of comparative advantage.
The Asian economies that are wealthy today have historically enjoyed American patronage.
- Korea, for example, received much American aid and military support, which allowed
Korea more free capital to invest in economic activity.
- American patronage caused American consumers to buy the products which their
patronage helped create. American aid to Korea caused Americans to buy Korean products.
The Asian rise was also a function of the developmental state.
- The government of these Asian economies was hierarchical and based on
meritocracy. The highest positions were occupied by the best and brightest, and they
coordinated economic activity in an intelligent way.
Asian countries focused on export-oriented growth.
- They plugged into the global economy and produced products that other countries would
buy. They sold more products than they bought, which earned them more money than they spent.
Outlier or Model?
Are these rising Asian economies examples of how any country can become wealthy, or are they
the exception that proves a rule?
Market regarding – the story of Asia confirms Smith’s argument of market logic in economic behavior.
- Global trade is what fuels economic growth, and an ethic of hard work allowed Asia to
Mercantilist – Asia’s economic rise was a function of economic rationalism.
- It had less to do with economic individualism than it had to do with government
intervention in the economy.
Dependent development – Global capitalism comprises of the core and the periphery.
- These Asian countries developed by taking advantage of the core countries and their
dependence on the poor.
- Asia’s rise was a form of dependent development – the periphery depending on the poor.
Asia’s economic rise was a function of plugging into a global economy that was experiencing
- These Asian economies rose with the global economy.
The World Wars were a major turning point in global economic growth. Global growth came
near a standstill during WWI and WWII, while in the period immediately afterward global
growth increased to new heights.
The World Wars
World War I and World War II wrecked devastation on the world population. A total of 65
million people died as a cause of both World Wars.
- In the immediate post-war period, a new world order was created from the devastation.
- It is a tragic irony that the destruction caused by the wars led to the creation of a new
History of World War I
World War I was caused mainly by the rise of Germany.
- Beginning in the late 1800’s, Germany underwent massive industrialization in heavy
industry, mainly in the steel industry.
- The economic growth rate of Germany in the late 1800’s was double that of England, the
economic hegemony of the world.
In the 19th century, a naval arms race occurred between England and Germany.
- This was fueled mainly by Germany’s steel industry.
England began to feel isolated in its faceoff with Germany, and so England formed an alliance
with France and Russia to contain the rise of Germany.
- Germany felt isolated itself by the creation of this alliance, and so they allied themselves
Austria-Hungary declared war on Serbia, and shortly thereafter Germany declared war on
This was a power transition moment, as it combined the fall of English power with the rise of
Germany lost World War I, and the Treaty of Versailles was signed at its conclusion.
- The most significant clause of this treaty was the War Guilt Clause, which stated that it
was Germany which caused the war which killed 15 million people.
It was clear that something was wrong with the system if a power transition which caused World War I could occur.
President Woodrow Wilson started the collective security doctrine.
- At the core of this doctrine was the idea of preserving state sovereignty.
Wilson recognized that we needed new rules and institutions to prevent a world war from ever
- This doctrine, therefore, essentially outlawed offensive wars and international aggression.
- Aggression was deterred through coalition, as the rest of the world would form a coalition
of non-aggressors against an aggressive country.
- Failed deterrence would lead to collective punishment by the non-aggressive coalition on
It was Wilson’s vision which led to the creation of the League of Nations in 1919.
Despite Wilson’s best intentions, however, peace was always fragile.
- It was fragile on terms of security and on terms of economy.
Breakdown of Collective Security
Despite the compelling logic of collective punishment, the League of Nations collapsed, along
with the doctrine of collective security.
Japan’s East-Asia Co-Prosperity Sphere was essentially Japanese colonialism.
- Japan took over Taiwan and colonized Korea, and they continued to expand their military
in colonial operation throughout the rest of Asia.
- Japan was angry it had been excluded from the Treaty of Versailles despite its status as a
rising power with increasing influence.
In the 1930’s, Japan invaded China and unleashed inhumane colonial maneuvers. The League of
Nations did nothing in response to Japan’s aggressions. Italy invaded Ethiopia, and again the
League of Nations did nothing.
Because of the lack of collective punishment in response to Japan and Italy’s aggression, the
doctrine of collective security fell apart.
The U.S. Senate refused to ratify America’s participation in the League of Nations, which also
reduced the League’s effectiveness.
Germany felt isolated.
- France and Germany did not trust each other