Even though the ideas herein have been churning in my head for quite some time - and I have expressed them elsewhere in one form or another - this article is provoked after reading an interesting commentary by Eyob Tekalign [Volume 7 Number 339, October 29, 2006], under the headline, “Developmental State Concept May Be Worth a Try” and the op-ed article on the same issue of this paper, under the headline, “Is Ethiopia Losing Sight of the Guiding Light” as well as the synopsis of a book due by Meles Zenawi, prime minister of Ethiopia.
 

I have rather found Eyob’s conclusions somewhat too tamed, hesitant and less bold to my liking. What interested me about the forthcoming book by the Prime Minister is his conviction and conclusion that economic liberalism is a “dead end”. Leaving the theoretical underpinnings of the liberal paradigm for another occasion, I would like here to briefly emphasize that the paradigm is indeed a “dead end” and based on a fictitious and mythological history of capitalist economic development.
 

It is the belief in this myth that has led the proponents and ignorant onlookers to label the success stories of North East Asian countries in particular as a “miracle” - a historical aberration impossible to explain using economic theory or historic precedents. By putting the East Asian experience within the context of the experiences of the now developed countries, I will try to show that the concept of developmental state is not a new phenomenon, nor is it something that is peculiar to the East Asian success stories.
 

The “official” history of capitalist economic development goes like this: The classical school of economic thought, which was spearheaded by such luminaries as Adam Smith, proved beyond any reasonable doubt that free-market and non-interventionist domestic policies provide the best chance for economic efficiency and long-term development. The unassailable “law of comparative advantage” beautifully crafted by David Ricardo put to rest any doubts regarding the virtues of free trade.
 

These principles were put into full practice by Britain and passed the test with flying colors. After battle testing these policy tools at home, Britain was then able to play the role of the architect and dominant player in such a “liberal” world economic order. This order, which was based on “lassez-faire” industrial policies at home and free exchange of goods and resources across borders, resulted in a period of unprecedented prosperity to all involved.
 

The major players in the world economy lost their senses in the inter-war period and the Second World War destroyed the last remnants of the first liberal order. Some progress was made towards re-instituting the order under the General Agreement on Trade and Tariff (GATT) but dirigiste (interventionist) approaches to economic management dominated the scene until 1970s in the developed world, and until the early 1980s in the developing world.

Fortunately, the story goes, the rise of neo-liberalism with its emphasis on “getting prices right” led to the abandonment of interventionist and protectionist policies across the world since the 1980s. Especially, the developing countries, (which got their lessons the hard way when their flirtation with inward-looking, import-substitution policies ended with harsh consequences) began to follow the foot-steps of the East Asian countries that had already been following “good” policies with “miraculous” results. With the “assistance” of the Bretton Woods institutions and the establishment of the World Trade Organization (WTO), it is said, policymakers have more or less regained their senses and the world has, for the first time in history, “the potential for eradicating global poverty in the early part of the 21st Century”.

Let me do the “reality check” where the myth starts: Britain. Contrary to the common belief, there is ample evidence that shows that Britain was actually the first country that systematically used interventionist domestic policies with selectively protectionist international trade policies to incubate, hatch and nurture the industrial revolution. Well after achieving industrial supremacy over its competitors through interventionist domestic and external policies and military might, Britain exclaimed repentance over its former “follies” and its conversion to the “holy” ways of free trade and laissez-faire.
 

It is for this reason that Fredrich List, a German economist of the 19th Century noted that, like their manufactured goods, the theories promoted by the British were not for domestic consumption but for export.
 

The history of the economic development of today’s “torchbearer” and prophet of laissez-faire and free trade, the United States, is no different. In fact, the first clear and well argued presentation of what is today popularly known as the “Theory of Developmental State” comes from Alexander Hamilton, the very influential first Secretary of the Treasury and one of the founding fathers of the US.
 

His program of infant industry promotion was developed by his follower, Mathew Carey and widely propagated (by his son Henry Carey). The program was implemented by Abraham Lincoln as well as his successors during the period 1860 to 1940, when the US became the new leading industrial country on the planet.
 

The ideas of “the developmental state” or what I sometimes call “the infant economy argument” were further developed by Hamilton’s admirer and the chief architect of the German industrialization under Bismarck, the aforementioned Frederich List. It is widely known that the economic rise of Japan began with the Meiji Restoration in the last quarter of the 19th century. I do not think that the fact that the Japanese industrialization was modeled on the German economic “miracle” is as well known.
 

The industrialization program, which was later made highly sophisticated and intricate, was designed by Okubo Toshimichi, one of the leaders of the Meiji Restoration, inspired by his study of the German model.
 

Now to the East Asian Tigers: the “miracles” of Taiwan and South Korea were extremely faithfully copied from policy tool-kits of the Japanese. In fact, the policymakers of the two countries were not only imitating the Japanese experience but were also explicitly modeling their intensive and extensive interventions with an assumption of a 15-20 year lag from Japan.
 

There is no significant economic success story to date that is the result of laissez-faire and free trade development strategy. None. In other words, “give me an economic ‘miracle’ and I will give you the work of a developmental state and an ‘infant economy approach’ ”.
 

That is why, even today, the developed countries follow this approach when they deal with their current “infant industries”; the frontier technology industries. And that is why Fredrich List wrote long time ago that “[i]t is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder  by which he has climbed up, in order to deprive other of the means of climbing up after him… [He] can do nothing wiser than to throw away [the] ladders of his greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth”.
 

In 1993, the World Bank, which is the paragon of neo-liberalism and the henchman of what is commonly known as the “Washington Consensus”, published a famous report about the North East Asian economic success and introduced the catchy phrase “economic miracle”.
 

To those who can “see” the truth, there was no miracle at all; the success was simply a continuation of the story of state-led capitalist economic development (with a sufficient dose of luck, maybe). That is to say, it was not a miracle, but rather a product of design.
 

Why was it called a “miracle”? Well, the obvious reason is because the liberal paradigm and its readings of history could not explain it or did not want to admit that its “gospel” of laissez-faire and free trade are dead wrong. Or simply, the proponents of the “miracles” story are “kicking away the ladder”. If you believe that it was in fact a miracle, then you would not try to replicate it for that is what miracles are all about: Unexplainable and impossible to replicate.
 

What they call a “miracle” has not been achieved through the magic wand of the market mechanism and the formula of “getting prices right”, but through “getting interventions right”. The apostles of the gospel of free markets seem to have missed the means (the market mechanism) for the end (the economic development). They have innocently or maliciously misunderstood the idea of government intervention as an attempt to replace the market or the private enterprise.
 

As I understand it, the role of the government is not to replace the “invisible hand” but to create, supplement and govern it.