Th e theories of catch-up industrialization can be traced back to List in the nineteenth century, a leading proponent of the German historical school, and Veblen, a pioneer of American institutional economics. As a matter of fact, catch-up industrialization policies can be found in much earlier periods as well (Chang 2007 , Chap. 2). For example, Britain’s King Edward III in the fi fteenth century attempted to promote Britain’s
‘backward’ wool-manufacturing industry by various measures such as inviting Flemish weavers and prohibiting the export of raw wool.
Th ese early catch-up industrialization policies and theories were based on the notion that to compete with leading countries and catch up with their industries, governments should protect their infant industries from imported manufactured goods and encourage the introduction of advanced technologies (as well as invite skilled foreign people). Th us, these policies led to import substitution industrialization (ISI), with the goal of ulti- mately gaining military and economic advantages over rival countries.
After World War II, the problems of late industrialization were pri- marily discussed by the so-called early development economists. In the postwar period, many latecomer countries, including various newly inde- pendent countries, were searching for directions for nation-state building and ways to promote economic development. Th erefore, urgent eff orts were made to determine eff ective strategies for economic growth. Among the latecomers emerging after the war, it was natural that the idea of catch-up industrialization through the ISI policy was revived with greater emphasis on economic, rather than military, purposes. In particular, as the Prebisch–Singer thesis—that the terms of trade deteriorate for export- ers of primary commodities compared with countries that export manu- factured goods—became widely known in the 1950s, industrialization tended to become a political goal for underdeveloped countries, defying the comparative advantage implications of specializing in the production and export of goods based on their initial endowments.
In the 1950s and 1960s, there were basically two mutually related arguments concerning the theory of the mechanism of late industrial- ization. Th e fi rst was whether latecomers should follow the same devel- opment path forged by the forerunners; in other words, the question of identifying the pattern of late industrialization. Th e second was what kind of strategy and policy latecomers should adopt to achieve industri- alization; in other words, the question of fi nding the right strategies of late industrialization.
Regarding the fi rst question, Rostow ( 1960 ) gave an infl uential view on catch-up industrialization, although it basically concerned modern- ization more widely. He argued that latecomers would follow the same rigid and linear path that was taken by advanced countries in fi ve stages:
traditional society, preconditions to take-off , take-off , drive to maturity, and the age of high mass consumption.
In contrast, Gerschenkron ( 1962 ) considered that latecomers were capable of pursuing more compressed paths than advanced countries could, although he also conceded that industrialization with technologi- cal progress is the single way to development. He proposed the famous concept of ‘the advantage of backwardness’, which means an opportunity to utilize the backlog of technologies developed in advanced countries as a source of compressed growth. Furthermore, he contended that the more backward a country, the greater are the advantages of backwardness and the more compressed the path. He further argued that for a latecomer to accomplish a ‘big spurt’ of industrialization and grow faster than advanced countries by exploiting the advantages of backwardness, the role of gov- ernment and institutions in providing capital, entrepreneurship, and the size of factories should increase in proportion to the degree of backward- ness. Also, specifi c industrialization ideologies are necessary to overcome the disadvantage of backwardness.
For the second question on the strategies of late industrialization, one point of contention was whether to pursue balanced or unbalanced growth, meaning whether a country should attempt to nurture all indus- tries simultaneously or choose one or two key industries when starting industrialization. Rosenstein-Rodan ( 1943 ) and Nurkse ( 1953 ) argued that underdeveloped countries should adopt a balanced-growth strat- egy in which all industries start growth at the same time; otherwise they would face the narrowness of their domestic markets and industrializa- tion would be likely to fail.
In contrast, Hirschman ( 1958 ) argued that it was not feasible for latecomer countries to invest simultaneously in all industries and that, even if successful, doing so would result in a dual economy, with a self- suffi cient industrial sector and a traditional sector having no relationship with each another. According to him, underdeveloped countries lacked resources in the broadest sense, including entrepreneurship and mutual linkages among industries. He contended that the right strategy for start- ing industrialization is to concentrate investment in one or two key sec- tors that have wider and stronger linkage eff ects within the country than other sectors, as this would trigger a transformation in society and bring about incentives for economic growth. In this sense, he argued for the strategy of unbalanced growth.
Despite these signifi cant diff erences, these visions and ideas of early development economists share two traits in common. First, they explic- itly or implicitly assume and agree that latecomers should pursue indus- trialization, rather than specializing in sectors such as agriculture and mining that align with its initial endowments based on comparative advantage. Second, they share the view that government has a critical role to play in the processes of catch-up industrialization. However, the early development economists were heavily criticized by neoclassical economists in the 1970s and 1980s based on two points: methodology and ideas. For the former, early development theories were criticized as neither rigorous nor scientifi c as they basically did not use the math- ematical tools and methods that neoclassical economics had developed (Krugman 1995 ).
Regarding ideas, many neoclassical economists promoted free trade policies over protectionist trade policies, emphasizing the role of free markets and free trade as the source of economic success and the contin- ued relevance of the idea of comparative advantages. Th ey also contended that state intervention was only justifi ed in cases of market failure in the classic microeconomic sense. Furthermore, it was argued that the source of rapid growth in East Asian countries, which attracted great attention in the 1980s, lay in their relatively free markets and export-oriented pol- icy, rather than in state intervention through import-substitution policy (Balassa 1988 ). A more radical neoclassical approach that stresses state failures in terms of rent-seeking is becoming increasingly infl uential, starting with Krueger ( 1974 ). It is argued that industrial policy, such as state intervention based on import-substitution policy, generates distorted incentives, or even corruption, which results in the ineffi cient allocation of resources.
Th is dominant neoclassical view on the East Asian experience and the policy package of liberalization later dubbed the ‘Washington Consensus’, is based on the idea of comparative advantages, and is more interested in the international division of labor among countries than the catch-up industrialization of latecomers. Th is view and policy, however, were heav- ily criticized in the late 1980s by the developmental state approach. Th is approach shed light on the critical role of industrial policy and govern- ment in economic development in a variety of ways, based on a deeper
understanding of the development experience of East Asian countries than on mainstream economists. 1
Broadly speaking, there are two strands in the developmental state approach: the political and the economic (Fine 2013 ). Although the two were not clearly distinguished in the early studies like those of Evans, Rueschemeyer, and Skocpol ( 1985 ), each has developed individually, although they continue to share the view that government matters.
Th e political school in the developmental state approach has focused on the political conditions and processes that bring about eff ective imple- mentation of state intervention (e.g., Haggard 1990 ; Evans 1995 ), while the economic school has examined the content and result of economic policy (e.g., Amsden 1989 ; Wade 1990 ). Both these approaches counter the Washington Consensus to some extent, by strongly arguing that East Asia’s ‘success was not so much about getting-prices-right as it was about getting-state-intervention-right’ (Nayyar 2013 , p. 125). Making some concession to the developmental state approach, the World Bank ( 1993 ) argued that the market-friendly approach was the main cause of the East Asian success.