Saturday, April 14, 2012

Industrial Policy in Meiji Japan

Japan’s industrial development is an interesting subject. Japan’s rapid period of industrial take-off came after 1911:
“Industrial production almost doubled between 1914 and 1919 and average profit rates for industry increased sharply … Japan thus emerged as an industrial nation during the Taisho period with a doubling of GNP from 1910 to 1930, and a quadrupling of real output of mining and manufacturing, and of employment in heavy and chemical industries” (Sorensen 2002: 92).
But even the foundation and early development of the industrial revolution in Meiji era Japan (1868–1912) in the 19th century involved significant state intervention (Noland and Pack 2003: 23).

From 1859 and 1869, Japan had been subjected to a number of unequal treaties forcing a liberal trade policy on it, in which tariffs had to be kept below 5%.

I recently had the interesting experience of arguing with a libertarian who attributed Japan’s proto-industrialisation under the Meiji to trade liberalisation in the 19th century: the trouble is that the treaties that opened up Japan were imposed by the threat of force, such as the expedition of Matthew Calbraith Perry (1794–1858) in 1854, leading to the Convention of Kanagawa (March 31, 1854). A number of other treaties followed:
(1) Anglo-Japanese Friendship Treaty, signed October 14, 1854 in Nagasaki.

(2) Ansei Treaties or the Ansei Five-Power Treaties, signed in 1858.

(3) Treaty of Amity and Commerce or the Harris Treaty between the US and Japan, signed on July 29, 1858.

(4) Treaty of Amity and Commerce between France and Japan followed on October 9, 1858.

(5) The Anglo-Japanese Treaty of Amity and Commerce, signed on August 26, 1858.
One of the most important terms of some of these treaties was to impose low import-export duties, even subject to international control, which went as low as 5% in the 1860s.

It is quite bizarre to see libertarian ideologues normally so insistent on opposing force defending trade liberalisation imposed by European and American coercion. In fact, the Japanese opposition to the “Unequal Treaties” (as they were called) was a major reason for the Meiji revolution in 1868 that overthrew the Shogun.

What was the result of the treaties imposed on Japan? The answer is as follows:
“… immediately after 1859, a flood of imports, unchecked by tariffs, soon devastated the domestic economy. Japan immediately faced a balance-of-payments problem because it depended heavily on imports of raw materials and capital goods indispensable for early industrialization. While the price of rice soared, the outflow of gold that followed was aggravated by the silver standard which Japan adopted, because the price of silver steadily fell vis-à-vis gold throughout the second half of the nineteenth century. Naturally, trade revision was a continuing issue in the early Meiji years.” (Sohn 2005: 22).
Because their hands were tied by treaties forcing a low tariff policy, the Meiji rulers sought to develop Japan’s economy by other means: what we would now call state industrial policy.

One of the architects of this industrial policy was Okubo Toshimichi (Beasley 2000: 103–104), who was head of the Home Ministry (内務省 Naimu-shō), a government department under the Meiji government founded in 1873 that was responsible for economic development, until various aspects of that policy were transferred to separate departments, such as the Department of Agriculture and Commerce (created in 1881), the Railroad Ministry (created in 1890), and the Communications Ministry (1892).

One of the first concerns of the Meiji state was to boost exports to stop the outflow of gold. To this end, the Meiji government increased production of tea and silk, by introducing domestic manufacturers to Western technology (Beasley 2000: 104). Shipping services also received government subsidies and patronage (Beasley 2000: 104).

The government also abolished the various currencies of the feudal lords, and by the New Currency Act (1871) created the yen as a national currency. A national central bank was created in 1882, with a monopoly on controlling the money supply in 1884.

The Meiji government also promoted industry and economic development in the following ways:
(1) The government created and built the fundamental public infrastructure in Japan underlying the modern economy: the postal service, railroads and telegraph (Flath 2005: 190). The postal service and the foundations of the railway system were the creation of the state (Beasley 2000: 104).

(2) The Meiji rulers had created industries in the most important areas of industry in that era: iron foundries, arsenals, and some shipbuilding. By 1880, government enterprises included 3 shipyards, 5 munitions works, 10 mines, and 52 factories (Flath 2005: 190). Modern cotton spinning mills were set up by the government in 1881 when the state acquired the latest English technology (Norman 2000: 129).

(3) The government initiated the development of chemical, glass and cement industries, which were then sold off to the private sector when they became profitable (Norman 2000: 127). With this privatisation program after 1882, Japan’s economic development came to have a larger role for private enterprise.

(4) The government used subsidies to other key industries. An important sector, as seen above, was marine transportation and shipbuilding, which received 75% of all subsidies from 1897 to 1913 (Flath 2005: 192). When tariff autonomy was attained again in 1911, Japan raised tariffs on foreign ships from 5% to 15% (Flath 2005: 192). To obtain revenue the government had introduced an agriculture tax in the Land Tax Reform of 1873, and in fact Japan’s state-directed economic development did not depend on foreign capital to a great extent in the Meiji era.

(5) The government created three state-controlled banks by the end of 19th century to direct credit to industrial development (Flath 2005: 192). Between 1885 and 1915 government spending accounted for 35% of capital investment, mainly in the crucial areas of steel, ships and railways (Flath 2005: 192). Throughout the late 19th century, outside agriculture, government provided about 50% of capital investment in Japan (Nafziger 1995: 63).
Although the evidence shows an important role for private enterprise from the 1880s, this was directed and supported by government policy, exactly the same as in Japan’s post-1945 industrial policy.

In short, these Meiji industrial policies set the foundation for Japan’s take-off after 1911.


BIBLIOGRAPHY

Beasley, W. G. 2000. The Rise of Modern Japan (3rd rev. edn.), Weidenfeld & Nicolson, London.

Flath, David. 2005. The Japanese Economy (2nd edn.), Oxford University Press, Oxford.

Nafziger, E. Wayne. 1995. Learning from the Japanese: Japan’s Pre-War Development and the Third World, M. E. Sharpe, New York.

Noland, M. and H. Pack. 2003. Industrial Policy in an Era of Globalization: Lessons from Asia, Institute for International Economics, Washington, D.C.

Norman, E. Herbert. 2000. Japan’s Emergence as a Modern State: Political and Economic Problems of the Meiji Period (ed. L. T. Woods), UBC Press, Vancouver.

Miles Fletcher, W. 1996. “The Japan Spinners Association: Creating Industrial Policy in Meiji Japan,” Journal of Japanese Studies 22.1: 49–75.

Sohn, Yul. 2005. Japanese Industrial Governance: Protectionism and the Licencing State, RoutledgeCurzon, London.

Sorensen, A. 2002. The Making of Urban Japan: Cities and Planning from Edo to the Twenty-First Century, Routledge, London and New York.

Wilds, Kevin Mark. 2003. Meiji Industrial Development: A Case Study, Dissert. California State University, Fresno.

49 comments:

  1. Great post. It is unfortunate that this kind of history is not taught in most modern economics departments.

    Indeed, didn't Friedrich List and the German Historical School of Economics influence Meiji industrial policy? You never hear about the GHS anymore, but it seems to have been pretty influential at one point.

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    Replies
    1. The German Historical School was awesome, and it had an American offshoot in the old Institutionalist school, which has also been neglected by the mainstream. I have read that List is *still* very influential among some statesmen in Asia.

      Does anybody know where Alexander Hamilton's thinking came from? I believe Napoleonic Europe also practiced similar policy.

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  2. When Okubo Toshimichi (see my comments on him above) visited Germany, it is thought he was exposed to the ideas of the German Historical school.

    As early as 1870, Wakayama Norikazu, an official in the Ministry of Finance, urged protectionism for Japan, and summarised the views of the American protectionist Henry Charles Carey (1793–1879), who was a follower of Alexander Hamilton's protectionism.

    Friedrich List's works also became well known in Japan in the 1880s.

    There is an untold story here.

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  3. Why exactly was it that even though the Meiji Restoration began in 1868, there was still relative stagnation until a major turnaround point in 1911? That's 43 years before the major fruits of the program are borne.

    These turnaround points coming after many decades seem to be quite common in the developing world.

    Even though South Asian governments began a program of industrialisation in the 1950s, they had relatively low industrial output growth rates until 1981-984, when their industrial output growth rates doubled over what they were decades ago.

    It seems to take a long time, but once the turnaround comes, it is not gradual but quite sudden.

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  4. "Why exactly was it that even though the Meiji Restoration began in 1868, there was still relative stagnation until a major turnaround point in 1911? "

    I do not regard it as correct to say that "there was still relative stagnation until a major turnaround point in 1911". This is not correct. There was a emerging industrial revolution going on in this time.

    For example, witness the creation of steel, chemical, shipbuilding and textile industries.

    Even a quick look at Angus Maddison's estimates for Japanese GDP from 1870 onwards shows significant growth: in 1870 GDP was 25.3 billion and by 1890 it was 40.5 billion. That is not "stagnation" by any means. Per capita GDP did not rise as quickly, but it still rose from $737 in 1870 to $1012 by 1890 (1990 int. dollars).

    See here:

    http://books.google.com./books?id=3NKSC0cgNroC&pg=PA206&lpg=PA206&dq=%22japan:+GDP,+population+and+per+capita%22&source=bl&ots=0E4dbrCDuy&sig=d6rg4uScP_Q8INsiXdWtXC5gjJM&hl=en&sa=X&ei=3ZqJT5i9G47umAWt7JC1CQ&ved=0CDYQ6AEwAQ#v=onepage&q=%22japan%3A%20GDP%2C%20population%20and%20per%20capita%22&f=false

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  5. I'm very interested in industrial policy, and wonder what the PK line on it is.

    To me it seems that the British PKs are in favor of an industrial policy and the promotion of industry, while MMT types less so, but I'm not clear why that should be analytically.

    I understand that 'exports are costs', but it seems that such costs may in turn yeild benefits, which are only lightly touched upon. I suppose that development is not the focus of mmt economists.

    I think there's a three balances/ sectoral balances story to be told here- about the consistency between relative austerity, increasing exports, and a tariff policy.

    I expect exports/ hard industry to be the bright spot in american economy for some time, even if gross employment only improves at an inadequate rate.

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  6. Argosy,
    PK and MMT favor industrial policies, especially oriented towards a develpment of the domestic market, but taking care of having enough foreign currency to avoid external constraints. Though not all MMT are well versed in development, the best economist on that line is Jan Kregel, who has written a lot on the importance of finance for development, and on the dangers of relying in FDI. His work is very important in the topic that you mention.

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  7. Japan is on its way down. Sony and Panasonic's combined market cap is $36 billion, absolutely pitiful for companies of their size. Sharp and Sony had record losses, when Chinese TV makers like Hisense and TCL start exporting, it's game over for Japan's electronic sector.

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  8. Japan is on its way down.

    (1) You mean it been overtaken by China? True, but that doesn't mean Japan is facing some massive crisis or collapse.

    (2) Japan is the third largest economy in the world (fourth if you want to count the EU as a country), and a manufacturing powerhouse. That by criterion alone it beats out all but 2 (or 3) other nations on earth.

    (3) It just had its first trade deficit in 31 years mainly because of its terrible earthquake and nuclear crisis, but this just underscores how remarkable it is that it has always had a (usually large) trade surplus for many years.

    (4) Japan has incredible technology and potential for growth on the basis of increasing use of science and technology to increase productivity and output.

    (5) How is this even relevant to its successful use of industrial policy to industrialise in the Meiji era and incredibly successful planning post-WWII?

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  9. (2) Japan is the third largest economy in the world (fourth if you want to count the EU as a country), and a manufacturing powerhouse. That by criterion alone it beats out all but 2 (or 3) other nations on earth.

    Japan has 50% more people than Germany, of course it's total GDP is large. But per capita GDP (PPP) is 24th, and it will soon be surpassed by South Korea (propelled by its recently signed FTAs with the EU and US, which I'm sure you denounce since you have stated that the benefits of free trade are a "myth"). And it's way behind the US, which has comparatively little industrial policy (no doubt you will trumpet 19th century infant industry protection in the US, but really, does anyone believe that the US would be some poor 3rd world country without those policies?)

    (5) How is this even relevant to its successful use of industrial policy to industrialise in the Meiji era and incredibly successful planning post-WWII?

    How is Meiji Japan's industrialization and the post-war reconstruction relevant to anything today? Do you think other developing countries can copy Japan's state-led industrial model and become manufacturing powerhouses too?

    This is an unfortunate truth, but the Japanese and other NE Asians are good at math and science, for whatever reason (be it cultural, genetic, or a combination). That is the primary reason why Japan, Korea, and Taiwan are industrial powerhouses, not MITI or Park Chung Hee or whatever other factor gets routinely trotted out.

    Fortunately, manufacturing is not the only path to prosperity. Look at the Bahamas--93% services, and just behind Japan in per capita GDP (PPP). Even Japan's economy itself is dominated by services (70%+ vs. 22% for manufacturing).

    Not all countries have a comparative advantage in high-tech manufacturing like Japan (obviously!) But free trade theory tells us that they don't have to, as long as they specialize in what they do well.

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  10. (1)"Japan has 50% more people than Germany, of course it's total GDP is large

    If mere population size was a sure fire way to achieve a powerful industrialised modern economy, then Pakistan, Indonesia or Bangladesh should have larger GDPs than Japan, or for that matter Germany or the UK, but that is not the case. China is the population nation on earth, yet its GDP was well below Japan for most of the late 20th century.

    Nation | Population
    1 China 1,347,350,000
    2 India 1,210,193,422
    3 United States 313,364,000
    4 Indonesia 237,641,326
    5 Brazil 192,376,496
    6 Pakistan 179,281,000
    7 Nigeria 162,471,000
    8 Russia 143,056,383
    9 Bangladesh 142,319,000
    10 Japan 127,650,000
    11 Mexico 112,336,538
    12 Philippines 92,337,852
    13 Vietnam 87,840,000

    "Do you think other developing countries can copy Japan's state-led industrial model and become manufacturing powerhouses too?"

    Other nations can certainly emulate Japan and create a domestic industrial base and richer economy. Many nations of course will not enjoy the export led success that Japan has had, but the general success of import substitution industrialisation is not in
    doubt.

    "This is an unfortunate truth, but the Japanese and other NE Asians are good at math and science, for whatever reason (be it cultural, genetic, or a combination)... That is the primary reason why Japan, Korea, and Taiwan are industrial powerhouses,"

    That explanation is laughable.

    Here are average IQs for the top nations:

    1 Hong Kong 107
    2 South Korea 106
    3 Japan 105
    4 Taiwan 104
    5 Singapore 103
    6 Austria 102
    7. Germany 102
    8 Italy 102
    9 Netherlands 102
    10 Sweden 101
    10 Switzerland 101
    12 Belgium 100
    12 China 100
    12 New Zealand 100

    http://sq.4mg.com/NationIQ.htm

    The difference between South Korea and New Zealand is a mere 6 points, an insignificant difference, yet New Zealand does not have the kind of manufacturing economy that South Korea has. The difference between Austria and Japan is but 3 points, but Austria does not have the kind of manufacturing economy that Japan has.

    The belief South Korea's industrialisation is not explained to a significant extent by industrial policy is fit only for the feeble minded.

    "Fortunately, manufacturing is not the only path to prosperity. Look at the Bahamas--93% services, and just behind Japan in per capita GDP (PPP)"

    The Bahamas are islands with a total population of 353,658. It is absurd in the extreme to believe that most nations can follow a service industry path.

    Unless you have a lucrative commodity like oil, industrialisation is path to wealth, and always has been.

    "Not all countries have a comparative advantage in high-tech manufacturing like Japan "

    Japan's manufacturing success and advantage was created by government intervention, as I have shown in the post above, and has nothing to with comparative advantage, which remains a dogma for both neoclassical and libertarian cultists:

    http://socialdemocracy21stcentury.blogspot.com.au/2011/01/mises-on-ricardian-law-of-association.html

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  11. Prateek: Why exactly was it that even though the Meiji Restoration began in 1868, there was still relative stagnation until a major turnaround point in 1911?

    Yes, LK, this is quite wrong. The real turnarounds came much earlier than 1911, as the Japanese knew themselves, then and now. Read the Fukuzawa Yukichi's Autobiography to get a feeling for the times. After Japan's victories in the 1895 Sino-Japanese War & the 1905 Russo-Japanese War, it was clear to all that Japan had undergone modern economic development.

    One source of Japan's success I recall being emphasized only by Chomsky is simple - glaring lack of the resource curse. Of all quarters of the globe, they were the least victimized by western imperialism. The great powers looked them over, and saw there was nothing to steal. So the relatively benign imperialism they were subjected to gave them a kick in the ass, rather than the wholesale slaughter, enslavement and/or economic strangulation imposed everywhere else.

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  12. The difference between South Korea and New Zealand is a mere 6 points, an insignificant difference, yet New Zealand does not have the kind of manufacturing economy that South Korea has.

    No, but at $27,966 NZ is only 13% behind Korea in per capita GDP (PPP)--not very far off from the 6% difference in IQ. NZ also has a much smaller domestic market, and is much more geographically isolated from major markets and shipping routes than Korea is. Do you really believe industrial policy alone would make NZ into an industrial powerhouse? If so, it shows you have no practical business sense whatsoever.

    You've checkmated yourself by citing this IQ table. Do you really want to go there? Because the same table shows massive differences in IQ between the developing countries and industrialized ones, which correspond quite well to national income.

    Do you propose that these lower IQ countries overcome this handicap through industrial policy alone? What about the brainpower for the shop floor engineers and product design teams? Can it also magically appear by government fiat? Pick a country from among the lower IQ tiers (below 90) that is pursuing an industrial policy that you think will succeed in the next decade. I'll choose a high IQ country (95-100) without an industrial policy. We'll compare notes in 10 years--I'm fully confident my choice will still have a higher per capita GDP.

    The belief South Korea's industrialisation is not explained to a significant extent by industrial policy is fit only for the feeble minded.

    Industrial policy has also created numerous problems for Korea. Remember the Asian Financial Crisis? Korean chaebols' avg debt-to-equity was over 400% due to wasteful govt allocated credit policies. Protection led to poor product quality and massive trade deficits in Korea in the years leading up to the IMF (look it up). The Korean economy is still terribly unbalanced towards large conglomerates with weak brand images and low profitability (Samsung aside, since it gets the cream of the Korean intellectual crop).

    Japan's manufacturing success and advantage was created by government intervention, as I have shown in the post above, and has nothing to with comparative advantage

    Nothing to do with kaizen, nothing to do with the innate intelligence and diligence of the Japanese? Purely created by industrial policy? Visit Japan sometime, and then tell me that the hard-working attitude of every convenience store employee there can be magically transposed to any country through govt policy alone.

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  13. LK, when you speak of the success of Import Substitution Industrialisation, do you refer to

    a) one particular model of ISI followed in Korea, Japan, and Taiwan

    OR

    b) ISI in general?

    There is next to no post-colonial Third World regime that hasn't followed ISI in some form or the other. Why did Egypt, Turkey, Pakistan, or South Africa never end up with world class manufacturing, while Japan or Korea did?

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  14. Prateek@Apr 15, 2012 07:08 PM

    a) one particular model of ISI followed in Korea, Japan, and Taiwan

    There are two forms: inward oriented and outward oriented (export-led).

    Obvious (2) has a greater scope for economic growth than (1) unless you have a huge internal market.

    "There is next to no post-colonial Third World regime that hasn't followed ISI in some form or the other"

    There is a lot of evidence that post-WWII ISI (of the inward variety) was considerably more successful than is commonly believed.

    "Why did Egypt, Turkey, Pakistan, or South Africa never end up with world class manufacturing, while Japan or Korea did?"

    Because their version was of the inward-variety - naturally there would not achieve the same success as Japan or South Korea.

    There are also examples of failed industrial policy:

    (1) Argentina post WWII
    (2) For reasons why India’s industrial policy failed, but why, say, South Korea’s was enormously successful, see Vivek Chibber, 2003. Locked in Place: State-Building and Late Industrialization in India, Princeton University Press, Princeton, N.J. and Oxford.

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  15. Robert Dinero@Apr 15, 2012 04:34 PM

    (1) I see you don't even bother to dispute your absurd, simplistic appeal to population as the main reason for Japan's success.

    (2) "No, but at $27,966 NZ is only 13% behind Korea in per capita GDP (PPP)--not very far off from the 6% difference in IQ. NZ also has a much smaller domestic market, and is much more geographically isolated from major markets and shipping routes than Korea is"

    LOL - in other words your latter comments (in bold) suggest a simple appeal to IQ will not work as a major explanation of GDP and per capita GDP differences.

    (3) "Do you really believe industrial policy alone would make NZ into an industrial powerhouse"

    Straw man.
    I have never said "industrial policy alone would make country x into an industrial powerhouse" - I say that industrial policy is a major reason why numerous nations (the late industrialisers especially in East Asia) are successful manufacturing economies.

    The same applies to Germany and other Western nations in their industrialising phase too, except it was the cruder form of infant industry protectionism.

    (4) "Industrial policy has also created numerous problems for Korea. Remember the Asian Financial Crisis? "

    Yes, the Asian Financial Crisis in South Korea was caused by financial liberalisation and economic deregulation:

    http://www.twnside.org.sg/title/joon-cn.htm

    (5) "Protection led to poor product quality and massive trade deficits in Korea in the years leading up to the IMF"

    This is why you libertarians can't be taken seriously. You think everyone is so stupid that nobody fact checks your statements.

    You assert that "protection led to ... massive trade deficits in Korea in the years leading up to the IMF".

    Massive trade deficits, you say??

    I am afraid not:

    Between 1980 and 1996, the current account had an average deficit amounting to 0.32% of GDP, with a standard deviation of 1.82 (using quarterly data). Between 1999 and 2009, however, the current account shifted to an average surplus amounting to 1.99% of GDP,

    http://www.adbi.org/working-paper/2010/07/01/3925.rebalancing.growth.korea/current.account.imbalances.in.korea/

    As any idiot knows, if you want a proper gauge of how large a trade deficit is you need the deficit as a percentage of GDP to compare to other nations: South Korea's average current account deficit from 1980 to 1996 amounting of 0.32% of GDP is remarkably small by any measure or standard.

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  16. (6) Nothing to do with kaizen, nothing to do with the innate intelligence and diligence of the Japanese?

    Notice that weasel word "innate": there is no convincing reason to think diligence is "innate". Many Europeans found the Japanese lazy right up to the early 20th century. after their strong phase of Meiji industrialization:

    "In his 1903 book, Evolution of the Japanese, the American missionary Sidney Gulick observed that many Japanese “give an impression … of being lazy and utterly indifferent to the passage of time”.

    After her tour of Asia in 1911-1912, Beatrice Webb, the famous leader of British Fabian socialism, described the Japanese as having “objectionable notions of leisure and a quite intolerable personal
    independence.” ... She
    described the Koreans as “12 millions of dirty, degraded, sullen, lazy and
    religionless savages who slouch about in dirty white garments of the most
    inept kind and who live in filthy mudhuts”


    http://www.sed.manchester.ac.uk/research/events/conferences/povertyandcapital/chang.pdf

    And that's just a sample: see Ha-Joon Chang, Bad Samaritans, p. 182ff.

    As for intelligence, this is essentially a function of environmental factors like epidemiology, health care (including pre-natal and natal and childhood health care), nutrition, diet, culture and education. I'll bet you the Japanese had an average IQ in the 19th century as low as any developing nation today.

    Hell, the average IQ in America from 1910-1920 was about 76, and was no doubt lower in the 19th century: and without doubt lower than the average IQ today in Ghana, Congo, Uganda, and Tanzania: yet America still industrialised and developed rapidly.

    And your idiotic statements suggest you've obviously never heard of the Flynn effect:

    http://en.wikipedia.org/wiki/Flynn_effect

    On the rise in average IQ in America since 1900, see the graph here:

    http://books.google.com/books?id=-VhTTqJhB1wC&pg=PA241&dq=%22average+IQ%22++1910&hl=en&sa=X&ei=BrqLT7yzAqmXiAfrtfDFCQ&ved=0CGkQ6AEwCA#v=onepage&q=%22average%20IQ%22%20%201910&f=false

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  17. More on the Flynn effect in Japan and Korea:

    "The FE has been seen as a rise in IQ test raw scores at various rates in virtually every corner of the world. In the U.S. the usually cited effect size is 3 points per decade. ... Japan and Korea have experienced rates around 7.7 points per decade, but the Korean gains were delayed by almost 30 years."

    http://www.cogn-iq.org/archives/641

    That is, 100 years ago their average IQs must have been similar to America's, maybe around 70-75, roughly the current average IQs of Congo, Uganda, and Tanzania.

    Not only is it obvious IQ is malleable (not rigidly heritable) but if Japan could industrialise with an average IQ of 70-80 (just as America did), there is no reason why modern developing nations can too with the right policies.

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  18. (1) I see you don't even bother to dispute your absurd, simplistic appeal to population as the main reason for Japan's success.

    I didn't follow up on this because I assumed that even one as obtuse as yourself would realize that I wasn't making the argument that large population size = prosperity. YOU cited the fact that Japan's total GDP is #3 in the world (#2 for many years) as evidence that it's economy "beats out every other one on earth." The point I made is that per capita GDP is a better indicator of economic success than total GDP. And by that measure, Japan has been quite ordinary (24th in the world).

    If industrial policy is so helpful in promoting economic growth, why does the US beat Japan in per capita GDP by 40%? Australia similarly blows Japan away (18% higher), as do Austria, Switzerland, the Netherlands, and Canada. So Japan is doing fairly well for an OECD country, but not spectacularly so.

    But if you misunderstood that I was implying that population alone leads to wealth, I'm sorry I gave that impression. It never occurred to me that anyone would ever make such an illogical connection.

    in other words your latter comments (in bold) suggest a simple appeal to IQ will not work as a major explanation of GDP and per capita GDP differences.

    Obviously, factors such as geographic isolation and small domestic market, and resource endowment (though this can be a curse as well) affect per capita GDP in addition to intelligence. Nobody is denying that.

    What is interesting is that despite being incredibly isolated, NZ still has a per capita GDP that is second best in Oceania and only about 10% less than Spain or Italy, countries with much larger internal markets and far better geographical access to commerce. Why does NZ do so well, while the rest of Oceania (minus Oz) flounders? I would say the intelligence of the people of NZ combined with its embrace of the free market (4th in economic freedom, http://www.heritage.org/index/ranking) explain most of it. What factors would you cite? (Don't bother, you won't find anything. Btw, Spain at 36 and Italy at 92 would do even better if they followed NZ embrace of the free market).

    I say that industrial policy is a major reason why numerous nations (the late industrialisers especially in East Asia) are successful manufacturing economies.

    It is impossible to know the outcomes of counterfactual history. Japan (A) used a state-directed industrialization model and (B) successfully industrialized. We will never know if B would have occurred without A in Japan, Korea, Taiwan, or many other countries. But that is not the same thing as saying A causes B--correlation does not imply causation.

    There are some examples of countries that industrialized without infant industry protection: Switzerland and the Netherlands. Yes, I realize these are special cases. Nevertheless, it is true that some countries have industrialized without overt infant industry protection.

    The policy that would most help the developing world would be the abolition of intellectual property laws, or at least a serious weakening of them and a reduction in the length of patent protection. IP is an unjustifiable state-granted monopoly and a tremendous handicap on developing nations (comprehensive arguments against IP can be found in "Against Intellectual Monopoly" by Boldrin and Levine http://www.micheleboldrin.com/research/aim/anew.all.pdf).

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  19. the Asian Financial Crisis in South Korea was caused by financial liberalisation and economic deregulation

    This seems like an old article (Chang mentions "the current financial crisis in that country"). At any rate, Chang is wrong--the crisis was fundamentally caused by crony capitalism and inefficient govt allocation of credit; liberalization merely exposed the underlying weakness behind the former "Asian miracle." Today Korea's financial sector is healthier than ever due to the reforms mandated by the IMF--Korean banks are far more open and deregulated than they were before the crisis, and they are enjoying record profits.

    Between 1980 and 1996, the current account had an average deficit amounting to 0.32% of GDP

    Korea underwent a major round of tariff reduction in the early 90s. After the completion of tariff reform in 1993, the CA turned sharply negative from a 1% (of GDP) surplus in 1993 to deficits in 1994 (-0.8%), 1995 (-1.5%), and 1996 (-4%). 4% is not "remarkably small"; it is higher than the US's present CA deficit (3.2%). Additionally, considering Korea's high external debt in 1996 (58%, due to reckless, over-leveraged chaebol coddled by assurances of govt bailouts) and low foreign reserves, the impact of these deficits was quite massive for Korea in the immediate pre-crisis years.

    Protection led to poor product quality

    Are you seriously disputing that Korean products from the 80s and 90s were terrible? Have you heard of the Hyundai Excel? Case closed.

    Yet following tariff reduction and trade liberalization, the quality of Korean products improved dramatically. You can't possibly deny this.

    Many Europeans found the Japanese [and Koreans] lazy right up to the early 20th century, etc

    From Wikipedia: "Economic development during the Edo period included urbanization, increased shipping of commodities, a significant expansion of domestic and, initially, foreign commerce, and a diffusion of trade and handicraft industries. The construction trades flourished, along with banking facilities and merchant associations."

    Yeah, very lazy indeed. Also, the Japanese led the world in gun manufacturing in the 16th century before the Tokugawa period ended the civil wars.

    As for Korea, it suffered from centuries of an oppressive Neo-Confucian regime (more strict even than China's) that repressed commercialism of any kind, as well as a highly exploitative landowning class. Additionally, by 1911, the Japanese had already confiscated over 10% of all arable land in Korea, and starting in 1902, the Dai-Ichi Bank (de facto central bank of Korea by this time) started a massive currency debasement program and refused to convert Korean traditional currency, inflating away Korea's meager monetary wealth. So no doubt the Koreans of 1911 were quite glum when they met Ms. Webb.

    I'm busy now, so I will address your IQ related comments in a post tomorrow.

    ReplyDelete
  20. "What is interesting is that despite being incredibly isolated, NZ still has a per capita GDP that is second best in Oceania and only about 10% less than Spain or Italy, countries with much larger internal markets and far better geographical access to commerce. Why does NZ do so well, while the rest of Oceania (minus Oz) flounders? I would say the intelligence of the people of NZ combined with its embrace of the free market"

    The Oceania nations are mostly tiny islands with small populations and virtually no resources and capacity for development, apart from tourism and fishing. The comparison with New Zealand is laughable.

    Also, a few Oceania nations have respectable enough per capita GDPs:

    French Polynesia 18,000
    New Caledonia 15,000
    Cook Islands 9,100

    Other reasons for New Zealand's success:

    (1) New Zealand got out of the Great Depression by large Keynesian stimulus:

    http://socialdemocracy21stcentury.blogspot.com.au/2011/09/keynesian-stimulus-in-new-zealand.html

    New Zealand was one of the most social democratic nations on earth between 1945-1980, when it had an astonishingly high per capita GDP. It had Keynesian macroeconomic policy, a generous welfare state and reasonable success import substitution until Muldoon's poorly thought out programs.

    When wool commodity prices fell from the late 1960s its per capita GDP declined, but the really significant decline in per capita GDP came when the country adopted the disastrous neoliberal reforms from the 1980s:

    http://socialdemocracy21stcentury.blogspot.com.au/2009/07/new-zealand-and-think-big-did-it-ruin.html

    Thus New Zealand’s per capita GDP collapsed from 100% of the OECD average in 1984 to just 83% of the OECD average by 1999, before the election of the Labour government of Helen Clark that rejected some of the more extreme neoliberal policies. Growth in per capita GDP has resumed since 1999 and by 2009 was 86% of the average.

    ReplyDelete
  21. "Korea underwent a major round of tariff reduction in the early 90s. After the completion of tariff reform in 1993, the CA turned sharply negative from a 1% (of GDP) surplus in 1993 to deficits in 1994 (-0.8%), 1995 (-1.5%), and 1996 (-4%). 4% is not "remarkably small";"

    LOL.. Your original assertion now vanishes like a puff of smoke:

    "protection led to ... massive trade deficits in Korea in the years leading up to the IMF".

    You said "massive trade deficits in Korea" - notice that "s", a plural.

    Now the whole assertion collapses and you can cite only one year: 1996 (-4%).
    One year.

    Meanwhile the truth is that "Between 1980 and 1996, the current account had an average deficit amounting to 0.32% of GDP" - very small.

    "Are you seriously disputing that Korean products from the 80s and 90s were terrible? Have you heard of the Hyundai Excel?"

    No doubt they made cheap garbage. So what? I didn't even deny it above. This is a red herring.

    German products in its period of indutrialisation in the late 19th century were also regarded as cheap junk - just like a lot of Chinese goods today, yet no one doubts the tremendous success of both German and Chinese - and for that matter Korean - industrialisation.

    ReplyDelete
  22. "Yeah, very lazy indeed. Also, the Japanese led the world in gun manufacturing in the 16th century before the Tokugawa period ended the civil wars."

    You have merely missed the point: whether they were lazy objectively or not, the point is that neither intelligence nor diligence is inflexible, set in stone and rigidly innate.

    Therefore, contrary to your statement above, neither Japanese intelligence nor diligence was some innate comparative advantage imagined by free trade theologians.

    The average IQ in Japan has been subject to the Flynn effect - rises of about 7.7 points per decade for those born approximately 1940–1965:

    "Lynn and Hampson (1986) review five studies providing evidence on the secular trend of intelligence in Japan for the post
    World War II period. They conclude that two studies of the early post World War II period show substantial IQ gains of 9.9 and 11.4 IQ points per decade, giving an average of 10.7 IQ points per decade. Three studies of a longer period from approximately 1950–1975 – so for those approximately born 1940–1965 – show lower gains of 9.1, 8.3, and 5.7 IQ points per decade, giving an average gain of 7.7 IQ points per decade. This is the highest gain on a broad intelligence battery in the literature."


    Jan te Nijenhuis, Sun Hee Cho, Raegan Murphy, and Kun Ho Lee, 2011. "The Flynn effect in Korea: Large gains," Personality and Individual Differences, p. 2.
    http://www.iapsych.com/iqmr/fe/LinkedDocuments/nijenhuis2011ip_FE_Korea.pdf

    See also Lynn, R., & Hampson, S. 1986. "The rise of national intelligence: Evidence from
    Britain, Japan and the USA," Personality and Individual Differences 7: 23–32.

    And R. Lynn (1982. "IQ in Japan and the United States shows a growing disparity," Nature 297: 222–223) reports that Japanese IQ increased from the 1930s to the 1970s as well.

    It is obvious that average Japanese IQ in 1800s or early 1900s must have been as low as any poor developing nation today, especially if there was a even mild to moderate Flynn effect from the 1860s-1920s.

    ReplyDelete
    Replies
    1. Some of these comments are the result of free enterprise subsidizing disfunction and convoluted logic. Spectacle seems to guarantee steady returns, though in doing so it alters what exactly spectacle is.

      Delete
  23. Wouldn't a policy favouring exports over domestic consumption be considered both politically unfeasible and - if it is the right word - morally irresponsible in some cases?

    When an industrial region exports something, it denies local consumers the chance to purchase those products. It means Sudanese citizens having less gas to purchase, or Malawians having fewer minerals for domestic infrastructure, and so on.

    If development is the big long-term goal, would it not be favourable to use the resources and industrial output for domestic development?

    ReplyDelete
  24. If development is the big long-term goal, would it not be favourable to use the resources and industrial output for domestic development?

    I think there might be some confusion here: even export-led ISI has a large role for domestic industry producing for its own citizens, certainly if there is a large enough domestic market.

    Certainly Japan produces a lot of its own motor vehicles, electronics consumer goods for itself as well as exporting. It's just that the ability to sell to foreigners too gives greater opportunity for growth.

    For example, I suspect that contrary to what many people think a number of African nations could have strong industrial sectors with the right policies: some nations have potentially large internal markets and Africa as a continent a huge potential market.

    ReplyDelete
  25. Right.

    There are, still, hundreds of factors at play in every situation that affect development, outside of industrial policy.

    One World Bank project in Tanzania involved building a shoe factory in Morogoro. The Morogoro shoe factory never reached 5% of its potential output, because Tanzania is so hot that everyone is always stressed out under the simmering heat. The project consumed more cash than it ever generated.

    Hot weather seems like a trivial point. But it strains development in real ways. There is also the problem of navigable waterways - there are few river-connected and naturally harboured coastlines in Africa, making cost of shipping very very high. Geography and natural factors retard the development of much of the poor world. Japan, at least, had a coastal seafaring location, allowing it to trade easily.

    ReplyDelete
  26. Meanwhile the truth is that "Between 1980 and 1996, the current account had an average deficit amounting to 0.32% of GDP" - very small.

    Once again, you exhibit your unenviable, bulldog-like talent for latching onto minutiae and totally missing the broader picture, i.e. that Korea's high tariffs and protectionist policy led to poor product quality, which was exposed after trade liberalization. Confession: I wrote the word “deficits” in the initial post based on a faulty recollection of a graph I saw many years ago of the CA deficits in the years leading up to the Korean crisis (btw, how does the phrase “years leading up to” imply a span of 16 years for a recent historical event? For me the phrase suggests a period of 3-5 years, maybe 10 at most, not a span from 1980-1996. However you interpret the phrase, I was most definitely referring to a period of about 4-5 years.)

    Evidently the large CA deficit of 1996 made a large impression on me, and I mistakenly believed that there were three or four years of large deficits immediately preceding the IMF crisis, when in fact there was only one year. I later tried to cover up for this recall error by restating that the years from 1994-96 showed a sharply worsening trend of CA deficits (which in fact they do), but I should have dropped the subject. I apologize--strike it from the record. No doubt you will accuse me of “moving the goalposts” or something, but originally it really was faulty recall on my part. I most definitely was not implying that there were huge CA deficits every year from 1980-96 (how did you come up with 1980? I never said that).

    Nevertheless, it is true that the quality of Korean products swiftly improved after the shock of the early 90s round of liberalization, and many Korean-exports can truly be called world class today. So the point I wanted to make (but expressed poorly) is that trade liberalization was ultimately very beneficial for Korea. Since you earlier stated in a different thread something to the effect that free trade is harmful to developing economies, I wanted to show that you were wrong, and that, at least in the case of Korea, freer trade has provided an impetus allowing it to move into the upper echelon of economies (or at least to do so in the near future). The FTAs with the EU and the US will further improve Korea's competitiveness, not to mention the welfare of its consumers.

    The Korean economy is still terribly unbalanced towards large conglomerates with weak brand images and low profitability

    Though you have ignored this, my point is still absolutely true, and it is very largely due to the preferential and inefficient allocation of credit to the chaebol during Korea's state-led industrialization phase. Instead of the govt allocating scarce credit to large conglomerates directly, I believe Korea would have been better off by removing the restrictions on FDI (which was highly discouraged from the 60s-80s, primarily out of nationalistic fear of Japanese “economic colonization” or some such nonsense) and leaving credit allocation to a privatized banking sector.

    The state-led industrialization phase, with its emphasis on building a few, large (and more easily controllable) firms rather than a dynamic network of small entrepreneurial start-ups has strangled the imaginations of bright young Koreans, who almost exclusively aim for a position at Samsung. Korea will struggle with this side-effect of the state-led model for many years to come. More on this here: http://www.economist.com/node/18682342

    ReplyDelete
  27. The difference between Austria and Japan is but 3 points, but Austria does not have the kind of manufacturing economy that Japan has.

    FYI, industry makes up 32% of Austria's economy, higher than 22% in Japan. But at any rate, this comment of yours, which you no doubt intended as some kind of withering attack on my unassailable statement that Japan's economic performance is somewhat mediocre for an OECD country (18/34 per capita GDP PPP, and only 14/34 nominal, plus the bottom 10 countries don't really even qualify as “rich nations”), is meaningless because Austria's per capita GDP (PPP) is 18% higher than Japan's. Try again.

    http://en.wikipedia.org/wiki/List_of_OECD_countries_by_GDP_per_capita

    If industrial policy is so helpful in promoting economic growth, why does the US beat Japan in per capita GDP by40%? Australia similarly blows Japan away (18% higher), as do Austria, Switzerland, the Netherlands, and Canada.

    Your silence is deafening. I'll just assume you've given up your assertion that Japan's economy “beats out all but 2 or 3 other nations on earth.”

    there is no convincing reason to think diligence is "innate"

    It has been shown to be at least partially heritable (defined as “conscientiousness”). Reinforcement from a culture that prizes diligence (such as Japan's) would provide a positive environmental influence:

    http://en.wikipedia.org/wiki/Big_Five_personality_traits#Heritability

    Pick a country from among the lower IQ tiers (below 90) that is pursuing an industrial policy that you think will succeed in the next decade. I'll choose a high IQ country (95-100) without an industrial policy. We'll compare notes in 10 years--I'm fully confident my choice will still have a higher per capita GDP.

    You'll never accept this challenge, because you know I'm right.

    The Oceania nations are mostly tiny islands with small populations and virtually no resources and capacity for development, apart from tourism and fishing. The comparison with New Zealand is laughable.

    Papua New Guinea is larger in area than NZ, and it has many natural resources. It also is closer than NZ to trading partners in ASEAN.

    Also, a few Oceania nations have respectable enough per capita GDPs:

    French Polynesia 18,000
    New Caledonia 15,000
    Cook Islands 9,100


    Make up your mind, please! Right after saying “Oceania nations are mostly tiny islands with small populations and virtually no resources and capacity for development,” you then cite some of these SAME ISLAND NATIONS as ones that have “respectable per capita GDPs.” What?!! Didn't you just say Oceania's island nations have no capacity for development?

    Ignoring the heavily subsidized Cook Islands (you are from NZ, correct? Your tax $$$ hard at work), what do the remaining two have in common? That's right, significant European populations, or a combination of significant European and Chinese admixture (in Tahiti). So you've inadvertently proven my point: intelligence matters in economic development.

    I'm not overjoyed by the IQ gap between the industrialized world and the 3rd world. Complain to the creator (either Him or Darwin), but wishing it away won't change anything.

    ReplyDelete
  28. "If industrial policy is so helpful in promoting economic growth, why does the US beat Japan in per capita GDP by 40%?

    Japan is the 3rd largest economy on earth.
    Simple as that. That is a fact.

    As for per capita GDP, Australia, Austria, Switzerland, the Netherlands have far fewer people than Japan, so pointing to per capita GDP is just an infantile comparison.

    As for America, it's industrialisation started well before Japan's, and it had all the benefits of being a European offshoot, so it is not surprising that its per capita GDP is higher.

    "It has been shown to be at least partially heritable (defined as “conscientiousness”).

    You really are a dolt. You think I won't actually read the links you post?

    You cite a Wikipedia article that says nothing whatsoever about "diligence," hard work or even intelligence, you fraud. Instead all it refers to are these:

    Openness to experience 57%
    Extraversion 54%
    Conscientiousness 49%
    Neuroticism 48%
    Agreeableness 42%

    Reinforcement from a culture that prizes diligence (such as Japan's) would provide a positive environmental influence:"

    Culture is malleable, as is education, and work ethics.

    "Pick a country from among the lower IQ tiers (below 90) that is pursuing an industrial policy that you think will succeed in the next decade. I'll choose a high IQ country (95-100) without an industrial policy.

    Since a high IQ nation "without an industrial policy" is already industrialised, so there is no point to such a idiotic exercise.

    You could pick 2 developing nations, one with an industrial policy and one without, and see what happens in 20 years: that would be a sensible comparison.

    "Make up your mind, please! Right after saying “Oceania nations are mostly tiny islands with small populations and virtually no resources and capacity for development,” you then cite some of these SAME ISLAND NATIONS as ones that have “respectable per capita GDPs.”

    There is no contradiction:

    (1) “Oceania nations are MOSTLY (notice how I didn't say ALL) tiny islands with small populations and virtually no resources and capacity for development”

    (2) That some have respectable GDPs like
    French Polynesia or New Caledonia does not contradict statement (1).

    "Ignoring the heavily subsidized Cook Islands (you are from NZ, correct?"

    No, I'm not.

    Yes, both French Polynesia and New Caledonia nations have benefited being attached to France: the former is an overseas country of the French Republic and latter is a special collectivity of France.

    Cook Islands is a self-governing parliamentary democracy, but in free association with New Zealand, and in fact Cook Islands's economy is supported by foreign aid from New Zealand.

    http://en.wikipedia.org/wiki/Cook_Islands#Economy

    This aid or technical inclusion in France (with the benefits that flow from this) reinforces what I said above.

    "what do the remaining two have in common? That's right, significant European populations, or a combination of significant European and Chinese admixture

    I'm willing to bet any number of Pacific islands have "significant European populations" just as high as, say, French Polynesia, yet their GDPs are still well below French Polynesia. Doesn't fit your case.

    So you've inadvertently proven my point: intelligence matters in economic development.

    Your ignorant and risible comments on IQ above have already been shot down in flames.

    ReplyDelete
  29. You cite a Wikipedia article that says nothing whatsoever about "diligence," hard work or even intelligence, you fraud. Instead all it refers to are these:

    Openness to experience 57%
    Extraversion 54%
    Conscientiousness 49%
    Neuroticism 48%
    Agreeableness 42%


    Websters: dil·i·gence 1 (dl-jns)
    n.
    1. Earnest and persistent application to an undertaking; steady effort; assiduity.
    2. Attentive care; heedfulness.

    Conscientiousness (as defined in the context of the "Big Five" personality traits model): "Conscientiousness is the trait of being painstaking and careful, or the quality of acting according to the dictates of one's conscience. It includes such elements as self-discipline, carefulness, thoroughness, organization, deliberation (the tendency to think carefully before acting), and need for achievement. Conscientious individuals are generally hard working and reliable."

    http://en.wikipedia.org/wiki/Conscientiousness

    Diligence = conscientiousness, and you are an idiot.

    ReplyDelete
  30. Re: IQ and GDP. Let's get this straight right off the bat--I think that improving disease control, nutrition, and schools can do a lot to improve average IQ's in many poor countries. Controlling the birth rate is imperative for poor countries as well. Even a libertarian like me thinks those tasks are best done by the state in the extreme circumstances that many poor countries suffer from today. Here's the Economist on disease and IQ: http://www.economist.com/node/16479286

    The rich countries should also stop all agricultural subsidies (politically impossible, I know), which are highly damaging to agriculture-dependent poor economies: http://en.wikipedia.org/wiki/Agricultural_subsidy#Poverty_in_Developing_Countries

    Flynn effect? Yes, I know about it. The fact is, nobody in the world, including Jim Flynn, knows what causes it, or even what it means.

    The average IQ in Japan has been subject to the Flynn effect - rises of about 7.7 points per decade for those born approximately 1940–1965, etc

    Your various remarks regarding Japan and the US's IQ increases over the last century seem to imply that, given enough time, developing nation IQs will catch up to the industrialized nations through the Flynn effect. You also postulate that, since Japanese and the US IQ's were so low a century ago, modern citizens of poor countries with IQs in the 70-80 range should easily be able to industrialize, since low IQ Americans and Japanese did it a 100 years ago.

    First, even Flynn has found that in some countries, average IQs are going down. “In the United Kingdom, a study by Flynn (2009) found that tests carried out in 1980 and again in 2008 show that the IQ score of an average 14-year-old dropped by more than two points over the period. For the upper half of the results the performance was even worse. Average IQ scores declined by six points.”
    http://en.wikipedia.org/wiki/Flynn_effect#Possible_end_of_progression

    Also: “In Australia, 6–11 year olds IQ, as measured by the Colored Progressive Matrices, has shown no increase from 1975–2003.”

    So there is likely an upper limit to how far IQ scores will rise. Honestly, do you think that, given enough time, everyone will score at a genius level? It just doesn't pass the smell test.

    Second, even assuming that the Flynn effect conclusively proves that Americans and Japanese were 20-30% stupider 100 years ago, what matters is that relative to poor countries, intelligence test results still show large gaps between rich and poor countries. http://www.oecd.org/dataoecd/54/12/46643496.pdf

    The usual suspects do well on math and science, and though the correlation isn't exact, lower scoring countries tend to have poorer economies than high scoring ones. So if poor countries are going to implement industrial policies, with the intention of someday challenging rich nations in industrial fields, they will find that they are just out-gunned in terms of brainpower, at least for now.

    Finally, if IQ really is as malleable as you think, Qatar should serve as a good test case. It's per capita GDP is over $100,000, and it is investing huge amounts into its educational system. If any low IQ country is going to close the IQ gap, it's Qatar.

    But I doubt the investment will make a huge difference. I will bet you several hundred dollars (if you can find someone trustworthy to escrow, perhaps Bob Murphy would be into this kind of thing given his Krugman bet) that Qatar does not reach the OECD average PISA score within 10 years.

    You won't take the bet, although I wish you would.

    ReplyDelete
  31. "FYI, industry makes up 32% of Austria's economy, higher than 22% in Japan. "

    I am not sure where you got this data:

    "GDP - composition by sector:
    agriculture: 1.4%
    industry: 24%
    services: 74.6% (2011 est.)"


    https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html

    Austria:

    agriculture: 1.5%
    industry: 29.5%
    services: 69% (2011 est.)

    https://www.cia.gov/library/publications/the-world-factbook/geos/au.html

    And Austria still doesn't have the type of world class manufacturing industries that Japan has: nor a large trade surplus for years and years from its exports, as in fact Japan has had for decades.

    ReplyDelete
  32. "The fact is, nobody in the world, including Jim Flynn, knows what causes it, or even what it means. "

    Oh, jeez, that is cartload of garbage.

    It is doubly ignorant, especially since in the last few years there has emerged strong evidence that simple interventions to reduce and prevent infectious disease in children will increase IQ considerably:

    "In our 2010 study, we not only found a very strong relationship between levels of infectious disease and IQ, but controlling for the effects of education, national wealth, temperature, and distance from sub-Saharan Africa, infectious disease emerged as the best predictor of the bunch. A recent study by Christopher Hassall and Thomas Sherratt repeated our analysis using more sophisticated statistical methods, and concluded that infectious disease may be the only really important predictor of average national IQ."

    Christopher Eppig, “Why Is Average IQ Higher in Some Places?,” Scientific American, September 6, 2011.
    http://www.scientificamerican.com/article.cfm?id=why-is-average-iq-higher-in-some-places

    See also Christopher Hassall and Thomas N. Sherratt, 2011. “Statistical inference and spatial patterns in correlates of IQ,” Intelligence 39.5 (September–October): 303–310.

    "First, even Flynn has found that in some countries, average IQs are going down."

    Yes, it has - in rich, first world countries, not in developing nations.

    Yet the implications of this escape your small, libertarian mind: the Flynn effect very probably has hit a wall in the developed nations. So??

    That means the developing nations will catch up in the coming decades, as public health care systems improve and disease prevention and control have effects.

    ReplyDelete
  33. "So there is likely an upper limit to how far IQ scores will rise. Honestly, do you think that, given enough time, everyone will score at a genius level?"

    No, I don't. Another straw man fallacy.
    I never said or implied any such thing above.

    "Let's get this straight right off the bat--I think that improving disease control, nutrition, and schools can do a lot to improve average IQ's in many poor countries. Controlling the birth rate is imperative for poor countries as well. "

    So now you say that IQ is a complex function of disease control, nutrition, and education? You can add culture, prenatal care and possibly even breast feeding to this:

    http://www.scientificamerican.com/article.cfm?id=surety-bond-breast-feeding

    "Second, even assuming that the Flynn effect conclusively proves that Americans and Japanese were 20-30% stupider 100 years ago, what matters is that relative to poor countries, intelligence test results still show large gaps between rich and poor countries"

    (1) If America industrialsed 100 years ago with an average IQ of 70, there is no reason why developing countries cannot industrialise today either.

    (2) If the Flynn effect hits a wall in the industrialised nations, the developing nations will close their IQ gap with the right policies.

    ReplyDelete
  34. That means the developing nations will catch up in the coming decades, as public health care systems improve and disease prevention and control have effects.

    So take my Qatar bet. I'm dead serious: if Murphy will agree to escrow, I will Paypal him $1,000 USD (provided that you do as well). If, in 10 years, Qatar scores at or above the OECD average on the PISA, you can have that money. If it scores below the average, I get your $1,000 USD. (Murphy can keep the interest for his services for the next 10 years).

    Qatar has the WORLD'S HIGHEST GDP per capita. It also has an average Gini coefficient: http://data.worldbank.org/indicator/SI.POV.GINI

    It has high healthcare spending: http://www.allianzworldwidecare.com/healthcare-in-qatar

    It is spending massively on education: “Qatar has invested heavily in education as part of the National Vision 2030 initiative. A significant development has been spending per capita, which increased from QR248 in 2004 to jump to more than QR13,000 in 2008.”

    http://doha.dbanksouq.com/dohasooq/en/QatarGuide/EducationinQatar.aspx

    No other country could possible be better prepared to narrow the intelligence gap with the OECD's top performers. Really, Qatar should blow away the entire group after today's 5-year olds take the PISA in 10 years.

    I'm offering you a sweet deal by saying that Qatar will not reach the OECD average with 10 years. This is easy money for you.

    ReplyDelete
  35. "Finally, if IQ really is as malleable as you think, Qatar should serve as a good test case. ... If any low IQ country is going to close the IQ gap, it's Qatar.

    But I doubt the investment will make a huge difference. I will bet you several hundred dollars ... that Qatar does not reach the OECD average PISA score within 10 years."


    Why would it only take 10 years, you idiot?

    Even assuming a 7.7 point increase per decade (a very high one reported from Japan from the 1950s-1970s), then Qatar (let's say it current average IQ is 78) will require nearly 3 decades - 30 years - to see the IQ gap close and reach 100. But 7.7 is probably much too high a realistic decadal point rise.

    I would say there are additional cultural factors in both Japan and South Korea that caused such a high decadal point rise - probably the unremitting emphasis placed on education and achievement in tests for children, that may not be replicated in other nations. Perhaps 3 points per decade is far more realistic.

    Anyway, Qatar supposedly has a average IQ of 78, yet a look at Richard Lynn and Tatu Vanhanen's IQ and the Wealth of Nations, p. 217 (from which the average appears to be derived) shows this figure is based on nothing but one study of 273 12 year olds from 1987!

    So:

    (1) First, I would want some proper well-sampled tests from today to give us a statistically respectable average IQ for Qatar.

    (2) See Qatar address ALL significant aspects related to IQ: disease control, nutrition, education, culture factors, prenatal care (possibly even see whether breast feeding might be a factor).

    (3) see if we can calculate any plausible, realsitic Flynn effect decadal average for point rises in Qatar

    (4) then calculate how many decades it will take them to close the gap

    (5) I'd take that bet, but it would probably be 40 or 50 years before you'd see the resolution.
    -----

    In short, your own bet above is an inherently stupid one, just rigged to prove your point.

    ReplyDelete
  36. Even assuming a 7.7 point increase per decade (a very high one reported from Japan from the 1950s-1970s), then Qatar (let's say it current average IQ is 78) will require nearly 3 decades - 30 years - to see the IQ gap close and reach 100. But 7.7 is probably much too high a realistic decadal point rise.

    So Qatar, with a per capita income that today dwarfs even the US (and with a similar Gini coefficient), will take, by your own admission, AT LEAST 30 years to narrow the IQ gap with the rich nations.

    Yet you earlier stated: That means the developing nations will catch up in the coming decades, as public health care systems improve and disease prevention and control have effects.

    What does “coming decades” mean? I think most people would assume somewhere around two to three decades. Possibly 4-5, at the very most.

    So let's get this straight again: the country with the WORLD'S HIGHEST GDP PER CAPITA today will take at minimum 30 years to close the IQ gap, yet other developing countries, with incomes BELOW the OECD nations, will somehow manage this feat in only 20 more than Qatar.

    To use your favorite word: RISABLE.

    ReplyDelete
    Replies
    1. Ok, I misspelled risible. Perhaps the Flynn effect hasn't hit me yet.

      My bet still stands at $1,000, if Murphy escrows. Today's Qatari children have every material advantage poor children could possibly dream of, no reason they shouldn't hit the OECD average in 10 years on the PISA. Your avoidance of this proves that you don't have any faith in your convictions.

      Delete
    2. "Today's Qatari children have every material advantage poor children could possibly dream of, no reason they shouldn't hit the OECD average in 10 years on the PISA."

      Unless it's not already clear to you: your stupid bet is rigged in your favour.

      Also, your statement "Qatari children have every material advantage poor children could possibly dream of" is plainly false: Qatar is ranked at 56 for infant mortality at 11.48 per (deaths/1,000 live births in 2005) below Costa Rica, Guam, and Chile. On Wikipedia, it's given at 15.69 births/1,000 population (2008 est.)

      This alone makes nonsense of your statement.

      You're clearly thinking that just because Qatar has huge oil wealth this filters down to everyone or that there aren't serious social problems and disease control issues.

      And as I said above I want a proper well-sampled test from today to give us a statistically respectable average IQ for Qatar, not a figure based on nothing but one study of 273 12 year olds from 1987.

      Delete
  37. "So Qatar, with a per capita income that today dwarfs even the US (and with a similar Gini coefficient), will take, by your own admission, AT LEAST 30 years to narrow the IQ gap with the rich nations.

    Correct - but if you assume a decadal point rise of 7.7, but this apply of course to people born from now on in each decade benefiting from the necessary remedial interventions.

    "That means the developing nations will catch up in the coming decades, as public health care systems improve and disease prevention and control have effects.

    What does “coming decades” mean?


    It means “coming decades” - 3, 4, 5, 6, 7, 8 decades.

    "the country with the WORLD'S HIGHEST GDP PER CAPITA today will take at minimum 30 years to close the IQ gap, yet other developing countries, with incomes BELOW the OECD nations, will somehow manage this feat in only 20 more than Qatar."

    Another straw man: I have made no such statement like "other developing countries, with incomes BELOW the OECD nations, will somehow manage this feat in only 20 more than Qatar" - this is your invention.

    How long EACH nation will take to close the IQ gap will depend on

    (1) whether its government can implement successfully the necessary remedial interventions (disease control, nutrition, education, culture factors, prenatal care - although at this point it looks like disease control sis a very, very important factor).

    (2) how high the decadal point rises will be in each decade in the course of this century

    (3) how high its average IQ is TODAY and how many points actually need to be added.
    E.g., Brazil supposedly has an average IQ of
    87, so closing the gap and attaining 100 will, if they can gain an average of 3 points per decade, take 4.3 decades.

    One point I should have stressed above but forgot to is obviously this rise in average IQ applies to generations born today onwards, not to people who are already adults today.

    No doubt it will take a few more decades as well to raise the nation's total average IQ as older age cohorts are replaced with new ones who benefited from remedial interventions.

    ReplyDelete
  38. (1) If America industrialsed 100 years ago with an average IQ of 70, there is no reason why developing countries cannot industrialise today either.

    There is a huge reason that govt led, rather than market-led, investment in industrial production will tend to fail today--the incumbent industrialized nations. Any developing nation govt that tries to create a manufacturing industry today from scratch (steel, ships, cars, textiles, take your pick) will be able to sell its goods only in its own domestic market.

    Why? Because no other country will purchase the developing nation's industrial exports when far better, cheaper alternatives from China, Taiwan, Korea (and the entire industrialized world) exist.

    The problem is that no developing country (save India and China) has the population to support economies of scale in a particular industry to match the costs of its foreign competitors, or even to come close. Even if a poor country did have the requisite population size, it would not have the range of complementary industries (cars, for example, in the case of steel) to absorb the resulting output.

    This is not to say that factories will never be built in poor countries. But they will primarily be built by private investors (mainly corporations) who think they can get a positive return on their investment. The market, and predictions about the market, will determine what countries get investment in industrial production facilities.

    Another huge barrier: retaliatory tariffs from trade partners. The rich countries don't miss any tricks--any govt giving excessive subsidies to particular industrial sectors will be called before the WTO (e.g. Embraer in 99, 2000).

    The country would also have to convince domestic consumers and other industries in the country to accept only the domestically produced good, and to refuse to buy foreign substitutes. This is also an extremely tough political sell, since buyers would have to agree to accept more expensive, lower quality domestic goods instead of better foreign substitutes. Consumers naturally won't be happy, and any businesses purchasers of domestically-made intermediate goods will be punished in the worldwide market for the high costs and poor quality of its final products.

    Finally, what's the point of all this unless the protected industry can eventually survive on its own? But that won't happen either, because while all this "learning while doing" has been going on, the foreign competitors will have already advanced to new technological frontiers.

    To some degree, EVERY industry today is high-tech. Product and process development constantly occur. Productivity gains are constantly squeezed out. Every edge is exploited to the max.

    The game gets harder every year, not easier. Fair? No. But true.

    ReplyDelete
  39. "Any developing nation govt that tries to create a manufacturing industry today from scratch (steel, ships, cars, textiles, take your pick) will be able to sell its goods only in its own domestic market."

    Really? People don't buy from China? From industries started by Chinese entrepreneurs?

    It takes time to become internationally competitive as well of course - even South Korean or Japanese manufactured goods in the 1950s or 1960s were cheap textiles and so on.

    "The problem is that no developing country (save India and China) has the population to support economies of scale in a particular industry to match the costs of its foreign competitors, or even to come close."

    That is just garbage:

    4 Indonesia 237,641,326
    5 Brazil 192,376,496
    6 Pakistan 179,281,000
    7 Nigeria 162,471,000
    8 Russia 143,056,383
    9 Bangladesh 142,319,000
    11 Mexico 112,336,538
    12 Philippines 92,337,852
    13 Vietnam 87,840,000

    "it would not have the range of complementary industries (cars, for example, in the case of steel) to absorb the resulting output.....

    Finally, what's the point of all this unless the protected industry can eventually survive on its own? But that won't happen either, because while all this "learning while doing" has been going on, the foreign competitors will have already advanced to new technological frontiers."


    Infant industry protection creates these industries and creates internationally competitive industries - that is the whole point.

    In its early stages of development, a nation can create industries that gave increasing returns to scale, rather than dead-end “diminishing returns to scale.” Once these sectors became internationally competitive - or least able to compete domestically with imports - it is (and was) possible to reduce or eliminate tariffs or infant industry industrial policy. Note also that this policy is perfectly compatible with the fact the other types of tariffs or poorly targeted tariffs can be harmful to economic development:

    http://socialdemocracy21stcentury.blogspot.com/2010/06/industrial-policy-brief-comment.html

    In short, if what you say if true Taiwan would never have industrialised. Nor would South Korea.

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  40. Really? People don't buy from China? From industries started by Chinese entrepreneurs?

    You are really missing the point of what I said. Compared to potential newcomers today (like African nations), China is already a grizzled veteran of the industrialization wars, with over 30 years of FDI inflows and manufacturing experience since the opening of the special economic zones in 1979.

    Any newcomer today would have to deal with Chinese competition, as China itself had to deal with Korea and Taiwan's head starts. Today, China makes nearly EVERY TYPE OF PRODUCT. Some sectors haven't really even started exporting in a major way yet, like cars (I'm aware there are some car exports, but get ready for the boom in the next 10 years). Industrial newcomers today would also have to combat SE Asian sweatshops to get into light manufactures.

    Out of curiosity, what specific industries do you think might be suitable for protection in African countries? Surely you must have something concrete in mind, since you said: "I suspect that...a number of African nations could have strong industrial sectors with the right policies." Or were you just thinking of "industrial products" in general? (probably)

    See, a factory in Africa can't just jump into the "industrial sectors" market, it has to produce a specific product. Can you give a specific example of a potentially "strong industrial sector" in Afria? I highly doubt you've ever given any thoughts about how African nations would actually implement your infant industry fantasies.

    You also totally ignore this: Another huge barrier: retaliatory tariffs from trade partners. The rich countries don't miss any tricks--any govt giving excessive subsidies to particular industrial sectors will be called before the WTO (e.g. Embraer in 99, 2000).

    Another barrier: intellectual property. Where is the money to license production technology and product designs supposed to come from for these would-be African protectionists? (China gets around it by explicitly tying technology transfer agreements to FDI approval. Good luck to African govts trying to wring out similar agreements from multi-nationals corps in exchange for access to African markets).

    Finally, you seem to be admitting that IQ differences among nations do exist (hence your ducking my Qatar bet). By the chart that YOU cited, African nations have pretty low average IQs. Don't you think that might constitute a slight disadvantage for, let's say, African product design engineers (or even production line supervisors & shop floor managers) when competing with foreign counterparts in Europe, E. Asia, and N. America? Or would the African workers be just as productive? (Don't cry strawman--for African nations to have "strong industrial sectors," they certainly couldn't have worker productivity levels grossly lower than foreign firms).

    ReplyDelete
    Replies
    1. Finally, you seem to be admitting that IQ differences among nations do exist (hence your ducking my Qatar bet).

      Jesus, you're a clod. What is this, straw man no. 10?

      Where have I ever denied above that average differences in IQ exist across nations? Nowhere.

      If I didn't admit some national differences in average IQs what would be the damn point of my argument that they will eventually catch up owing to the Flynn effect?

      By the chart that YOU cited, African nations have pretty low average IQs. Don't you think that might constitute a slight disadvantage for, let's say, African product design engineers

      No worse disadvantage than, say, Japan in the 1860s or the US around that time.

      Why?

      Because America had an average IQ c.1910-1920 of about 76, probably lower in the 1800s, lower even than the average IQ today in Ghana, Congo, Uganda, and Tanzania: yet America still industrialised and developed rapidly.

      Furthermore, just because your national average IQ is, say, 75 does NOT mean there aren't plenty of people about who have IQ of 100 or 120 and over: we are talking about an average not an upper limit.

      People who score well above the average will exist: they will be entrepreneurs, managers, administrators, etc.

      Nor am ducking your stupid Qatar bet: it's pointless and absurd.

      Delete
  41. "Any developing nation govt that tries to create a manufacturing industry today from scratch (steel, ships, cars, textiles, take your pick) will be able to sell its goods only in its own domestic market."

    Initially, this statement would absolutely have to be true. Your subsequent comment about Chinese entrepreneurs in no way addresses this issue. I said if a developing nation tries to create a new industry from scratch (as in your proposed African idea), no other country would buy its products over competing Chinese or other substitutes. Absolutely true.

    ReplyDelete
  42. "Initially, this statement would absolutely have to be true. Your subsequent comment about Chinese entrepreneurs in no way addresses this issue."

    I've already addressed your point fully.

    I've made it clear that the whole point of ISI
    IS to initially create industries selling to the HOME market. In its early stages of development, a nation can create industries that gave increasing returns to scale, rather than dead-end “diminishing returns to scale.”

    Let me emphsise: once these sectors became internationally competitive - or least able to compete domestically with imports - it is (and was) possible to reduce or eliminate tariffs or infant industry industrial policy:

    http://socialdemocracy21stcentury.blogspot.com/2010/06/industrial-policy-brief-comment.html

    ReplyDelete
  43. If you had actually bothered to read the link you cited, you would find that it actually contains many statements and conclusions that sharply call into question your insistence that the FE is indicative of real gains in intelligence. Again, these are quotes are from the link that YOU cited (http://www.cogn-iq.org/archives/641):

    “When Flynn began his study and reports on the secular gains, he gave numerous examples of how extreme the gains have been, questioning that they could possibly be real.  For example the large gains in The Netherlands would mean that, by 1982 standards, the Dutch mean IQ in 1952 would have been 79.  Flynn commented “Has the average person in The Netherlands ever been near mental retardation?”...He noted that there are not more gifted Dutch school children now and that patented inventions have shown a sharp decline. He presented a number of similar arguments, all of which questioned the possibility that such large changes could have happened and, therefore, the score gains must be meaningless.”

    Also (in the section “Real or Hollow Gains?”): “Jensen commented that the definitive test of whether FE gains are hollow or not is to apply the predictive bias test.  This means that two points in time would be compared on the basis of an external criterion (real world measurement, such as school grades).  If the gains are hollow, the later time point would show underprediction, relative to the earlier time. This assumes that the later group has not been renormed. [Earlier IQ points would exceed the performance of the later generation for the same IQ.] In actual practice tests are periodically renormed so that the mean remains at 100.  The result of this recentering is that the tests maintain their predictive validity, indicating that the FE gains are indeed hollow.  If the gains were real and the tests were renormed, people at a given IQ would be getting smarter and this would show up in the predictive validity.”

    So despite FE-related improvements in IQ scores over time, these higher IQ scores do NOT indicate gains in real intelligence when compared to external, real world measurements of achievement. From the hyperlinked-paper at the bottom of http://www.cogn-iq.org/archives/641 (page 2):

    “Jensen examined the SAT for the period 1952-1990 and found the well known decline...[Jensen] showed that 3/4 of the decline was due to the addition of more lower IQ testees, while the remaining 1/4 was a real decline in scores. The change in IQ loss for the SAT was -5 for the time period in question, while the FE gain was +3. This strongly suggests that the IQ test scores were not reflecting real world gains in intelligence.
    https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnx0aGlyZHN0cmF0dW18Z3g6MTJlZjMyODZlYjQyZjVhYw

    More (from page 3): “While IQ test scores have been rising (in some cases soaring), academic performance has done the opposite.”

    So the paper from the link that YOU provided strongly indicates that FE-gains in IQ scores do NOT show that people are gaining in real-world intelligence, not even in developed countries. If the FE does not show real intelligence gains even in the industrialized nations, how can we possibly be sure that FE-based gains in developing nations mean that those populations are actually becoming smarter?

    ReplyDelete
  44. (1) you have merely latched on to an article that I should have read more carefully before citing, as it makes plainly false statements. The quote I used from that article above, however, is correct, but quotes you use are in fact plainly wrong.

    (2) “When Flynn began his study and reports on the secular gains, he gave numerous examples of how extreme the gains have been, questioning that they could possibly be real."


    You're citing some of Flynn's EARLY reaction to his research.

    Yet Flynn's subsequent research shows without any doubt that the Flynn fact is real:

    "We have already seen that the present generation has made huge gains compared to the last on Raven's, perhaps the test with the highest g loading of them all. There is no evidence that the test was drained of its normal cognitive etc."

    James Robert Flynn, What Is Intelligence?: Beyond the Flynn Effect, p. 61.

    http://books.google.com/books?id=qvBipuypYUkC&pg=PA61&lpg=PA61&dq=%22flynn+effect%22+%22g+loading%22&source=bl&ots=dJ6C_kU348&sig=5JxRN6ypN6SzrgGIRS2laZdDbUs&hl=en&sa=X&ei=aq-PT5PXF66yiQfS_JnxAw&ved=0CFUQ6AEwBg#v=onepage&q=%22flynn%20effect%22%20%22g%20loading%22&f=false

    See also Flynn, J. R. (2010). "The spectacles through which I see the race and IQ debate☆". Intelligence 38 (4): 363–366.

    Se also:

    "In the western world, average IQs have shown remarkable gains over the course of the twentieth century (Flynn, 1984, 1987, 2007). These gains have been largest for non-verbal tests once considered relatively impervious to cultural influences, such as the Raven's (Brouwers et al., 2009). For instance, in the Netherlands an unaltered version of the SPM [Raven's Standard Progressive Matrices] was administered to male military draftees from 1952 to 1982. The 1982 cohort scored approximately 20 IQ points higher than the 1952 cohort (Flynn, 1987)."

    Wicherts et al. "Raven's Test Performance of Sub-Saharan Africans: Average Performance, Psychometric Properties, and the Flynn Effect". Learning and Individual Differences, 2010.

    As for SAT, it is a knowledge based test, not a "culture fair" test: IQ tests are much more reliable as correlates of general intelligence, and SAT test are not.

    Falling SAT scores suggest a failure of schools to teach the necessary curriculum for doing well in them: not falling IQ.

    IQ tests remain the best test for g, and they show rising IQ over time.

    ReplyDelete