Seventy Years of Economic Development: A Review from the Angle of New Structural Economics

• DOI: http://doi.org/10.1111/cwe.12340
• Date: 01 July 2020
• Author: Yan Wang,Justin Yifu Lin
• Published date: 01 July 2020

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 26–50, Vol. 28, No. 4, 2020

26

Seventy Years of Economic Development: A Review

from the Angle of New Structural Economics

Justin Yifu Lin, Yan Wang*

Abstract

This review paper provides a new narrative by combing through the experiences of

structural transformation among developing countries and discussing the roles of

government and market in different contexts. Country performance has been inuenced

by the prevailing development thinking: the structuralism in the 1950s–1970s, which

stresses an active government’s role to overcome market failures for industrialization,

and the neoliberalism in the 1980s–present, which advocates for eliminating government

failures to build up a well-functioning market. We find that almost all countries

failing by following structuralism in their industrialization and neoliberalism in their

transition to a market economy, and the few countries successful in catching up have

a few characteristics that go against the prevailing structuralism and neoliberalism.

The new structural economics, generated from the experiences of successful East Asian

economies and proposing active facilitating roles of government in a market economy to

remove market failures, will gain traction and take root.

Key words: deindustrialization, development, industrial policy, new structural economics,

structural transformation

JEL codes: B2, O1, O2

I. Introduction

The global economy is falling into an unprecedented and synchronized recession in April

2020 after “the great lockdown” due to the spread of the COVID-19 pandemic. The

International Monetary Fund (IMF) declared that this global recession could be worse

than that in 2008–2009. Even before this, protectionism and anti-multilateralism trends

led by the US had already caused a reduction of global trade, increased unemployment

*Justin Yifu Lin, Dean of Institute of New Structural Economics, and Dean of South–South Cooperation and

Development, Peking University, China. Email: justinlin@nsd.pku.edu.cn; Yan Wang, Senior Fellow, Institute

of New Structural Economics, Peking University, China. Email: ywang2005b@gmail.com. The authors thank

Celestin Monga, Yong Wang, Jiajun Xu and the editor of this journal for suggestions, and Yinyin Xu for excellent

research assistance.

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Seventy Years of Economic Development 27

and losses in production capacity in some countries. The consequences of the COVID-19

have further exacerbated the massive unemployment, losses of lives and rises in

inequality and poverty in almost all countries, especially in developing countries.

Developing countries have for decades been trying to catch up with the advanced

industrialized countries, but few of them have succeeded in the last 70 years. This paper

asks a fundamental question: “Why is catching up so difficult?” Despite their own

efforts and a large amount of ofcial development assistance transferred to developing

countries, a substantial proportion of the world population remains in extreme poverty

and stagnant growth. Countries that followed structuralism were able to build up some

modern industries initially but stagnated later on, and countries that followed neoliberal

prescriptions have experienced hundreds of crises, volatility in capital flows and

exchange rates, stagnation of living standards and erosion of national wealth. However,

the world has seen the most rapid and unprecedented growth and poverty reduction

in China and other East Asian emerging economies, who did not follow the policy

prescriptions of structuralism and neoliberalism.

Not only is there a heightened anxiety among policymakers across the North and

the South, East and West, but also a wave of “rethinking” among prominent economists

in the world, as reected in recent works by Lin and Monga (2011), Lin (2014), Collier

(2018), Mazzucato (2018) and Stiglitz (2019a, b). For instance, Stiglitz revealed in an

op-ed (emphasis added):

The neoliberal experiment–lower taxes on the rich, deregulation of labor and product

markets, financialization, and globalization–has been a spectacular failure. Growth is

lower than it was in the quarter-century after World War II, and most of it has accrued to

the very top of the income scale. After decades of stagnant or even falling incomes for

those below them, neoliberalism must be pronounced dead and buried. (Stiglitz, 2019b)

The new structural economics (NSE), proposed by Justin Yifu Lin, the World

Bank’s rst chief economist from a developing country, and his coauthors (Lin, 2010;

Lin and Monga, 2011), provided new ideas, methodologies and policies based on

successful experiences of development, especially those from China and the East Asian

economies, and provided a theoretical foundation for development economics in the

post-neoliberalism era, so-called “development economics 3.0.”

This paper attempts to provide a new narrative by combing through the evolution

of development thinking and policies, reviewing the growth experiences through the

lens of structural transformation among developing countries in the last 70 years,

incorporating our old and new research. We also attempt to look forward into the future

for the next generation of development economics. Section II provides a brief review

of the evolution of development thinking: from structuralism to neoliberalism (their