Chapter 8. The Advantage of Backwardness (Latecomer Advantage)
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1. Catch-up
2. Why does Germany overtake the United Kingdom?
1. Catch-up
⑴ Catching up—i.e., a less-developed country using the advantage of backwardness to follow and catch up with advanced countries.
⑵ Great divergence: Right after the Industrial Revolution, the economic gap between advanced and less-developed countries widened.
⑶ Great convergence: Since the mid-1990s, the economic levels of advanced and less-developed countries have been converging.
⑷ Cause 1. Technology transfer
① Before 1945: Advanced countries were wary of people from less-developed countries coming to learn technology.
② After 1945: Advanced countries became more friendly toward people from less-developed countries coming to learn technology.
○ Trigger 1. Marshall Plan: As the Cold War system took shape, the United States began rebuilding devastated advanced countries.
○ Trigger 2. The United States tried to form a pro-American bloc/line to exert political influence.
○ Trigger 3. Standardization of technology and (U.S.) leadership
③ Today, there are also moves to prevent brain drain and capital outflow.
○ China is heavily involved in the shift toward a more protective and defensive stance.
○ Example: In 5G, China’s capabilities have reached the world’s top level.
⑸ Cause 2. Convergence through structural change
① In advanced countries, productivity across the primary, secondary, and tertiary sectors is relatively balanced.
② Less-developed countries can raise productivity by reallocating resources.
③ In such cases, institutions must support the process.
⑹ Cause 3. Lenin’s logic
① Advanced countries have abundant capital and low profits, while less-developed countries have little capital and high profits—so capital moves from advanced countries to less-developed countries.
② A logic used to justify imperialism
⑺ Rebuttals to Lenin’s logic
① Rebuttal 1. According to Lucas, capital can move from less-developed countries to advanced countries (e.g., appropriation/stealing of advanced-country technology).
② Rebuttal 2. With agglomeration effects and economies of scale, having more capital can lead to higher profits.
2. Why did Germany overtake the United Kingdom?
⑴ The catch-up mechanism may have been at work.
⑵ The United Kingdom’s special characteristics
① The UK was treated as the “sick man of Europe” after the British Empire, but began to prosper after becoming a member of the European Union.
② Human capital: For economic growth, human capital is more important than physical capital.
○ In the late 19th century, the UK’s academic development centered more on economics than on the hard sciences (i.e., natural sciences).
○ Because finance was developed, the UK pursued high-interest-rate policies, which suppressed manufacturing that required capital investment.
○ Only in the 1970s did the UK begin large-scale investment in the natural sciences.
③ Physical capital
○ Factor 1. The UK industrialized around the cotton textile industry: From the perspective of the 20th century, cotton textiles were a declining industry.
○ (Note) Spinning: Making cotton yarn from cotton; contributed to productivity improvements of 40–50× or more.
○ (Note) Weaving: Making cloth from yarn; could be competitive if labor is low-wage.
○ (Note) “Bangjeok topo” (spinning topo): Making cotton cloth from British cotton yarn using a hand-spinning device.
○ Factor 2. In the late 19th century, the UK had little home bias.
○ By the late 19th century, the UK was the center of global finance.
○ Home bias: Having more information about the domestic market.
○ British newspapers at the time had information only on things like the international rates of return in the U.S. and Argentina.
○ Roughly half of the content was information about foreign government bonds, so investment in the domestic market did not actually take place.
○ Capital stock per employee: In 1917, the UK was 1/3 of the U.S.; in 1950, it was 60%.
⑶ Germany’s special characteristics
① Over the entire period 1873–1973, Germany’s economic growth rate was higher than the UK’s, and also higher than the U.S.’s.
② Human capital: For economic growth, human capital is more important than physical capital.
○ Factor 1. Germany had strong natural sciences, with engineering schools thriving in the late 19th century.
○ Factor 2. Germany had many monopolistic cartel firms.
○ Under perfect competition, profits are zero, so firms cannot invest in technological development.
○ Under monopoly/oligopoly, technological development is active to maintain a “super-gap” (large lead) that deters entry by other firms.
○ Factor 3. Unlike the UK, industry-wide unions in Germany and Scandinavia were advantageous for technological development.
○ (Note) Company unions: The Japanese model; Korea also follows this.
③ Physical capital
○ Factor 1. Germany industrialized based on heavy and chemical industries: Heavy and chemical industries can continue to develop.
○ Factor 2. German banks provided a “canal” (investment channel/flow) through which heavy and chemical industries could be financed.
○ (Note) Korea is also investing very heavily in R&D.
⑷ (Reference) The United States
① Human capital
○ Factor 1. The U.S. performed well in literacy, school enrollment, and human-capital investment.
○ Factor 2. In the U.S., it was common for engineers/technologists to also take on management roles.
○ (Note) Even before 1930, it was common for white-collar workers to employ blue-collar workers.
② Physical capital
○ The U.S. industrialized based on heavy and chemical industries: Heavy and chemical industries can continue to develop.
⑸ (Reference) Why did industry develop into large-scale management, while agriculture remained household-scale production?
① Agriculture
○ Nature dictates the conditions and speed of production.
○ Agricultural labor is difficult to monitor (∵ it is hard to evaluate until harvest).
② Industry
○ Because it is limited only by human ingenuity, economies of scale are larger.
○ It is easier to monitor work effort.
Entered: 2020.07.11 11:33