Alice Amsden

Recent Articles

Beyond Shock Therapy: Why Eastern Europe's Recovery Starts in Washington

Laissez faire was planned. -- Karl Polanyi, The Great Transformation, 1944 T he collapse of Communism in Eastern Europe demonstrated the failure of a command economy. The subsequent crash in output and employment induced by "shock therapy" has suggested the limits of laissez faire. Rather than replace the excesses of communism with excesses of capitalism, it is time to lay extreme ideology aside and begin the practical work of economic reconstruction. Even more than in the West, which was viable capitalist institutions, this enterprise requries a mixed economy. Beginning in late 1989, economic reformers in Eastern Europe began lifting controls on prices, foreign exchange restrictions, subsidies to business, and barriers to trade. Shortages of goods gave way to a shortage of purchasing power. The shock treatment did have some beneficial effects. Manufactured exports to the West have risen; small private enterprises have thrived; and unemployment in Warsaw, Budapest, and Prague has been...

East Asia's Challenge

The conventional wisdom these days is that government intervention impedes development. Why, then, have Korea and Taiwan grown so fast?

Have successful developing countries thrived by conforming to the laws of the free market, or have they prospered by defying them? A recent wave of industrialization has surged over countries ranging from South Korea, Taiwan, and Japan to Brazil, Mexico, Turkey, and India. These late-industrializing countries started to grow by borrowing rather than inventing technology, which had been the hallmark of earlier industrial revolutions. Wherever it has succeeded, late industrialization based on borrowed technology has some common characteristics that compensate for the lack of pioneering products or processes. Typically, governments have used subsidies to encourage businesses to become internationally competitive, and businesses have focused strategically on the shopfloor to make the best use of the technology they have borrowed. According to the theory of free trade, the great comparative advantage of developing countries is low wages. And it is true that all recent or late...