A Theory of Government Intervention in Late Industrialization
Author(s)
Amsden, Alice H.
Abstract
Developing countries since World War II have been engaged in a process of industrialization that is distinctly different from previous industrialization processes. In the first industrial revolution in England, the market was the catalyst, while in the second in the United States and Germany, the control of pioneering technology was the lever that gave leading enterprises their competitive advantage. Late industrialization in developing countries, however, must proceed on the basis of borrowed technology, not innovation, and their competitive advantage is largely reduced to lower wages. Contrary to neo-classical economic theory, low wages are not a sufficient condition for industrialization. This book chapter explains why higher levels of government intervention, such as that in South Korea and Taiwan, are necessary for industrialization to take place, a strategy that stands in contrast to the market-led prescriptions for reducing state intervention in developing countries. It further examines the conditions that have led to successful state-promoted industrialization and finds that relatively equal income distribution is a critical factor.
