New Countries: Successes and Failures

Jesus Fernandez-Villaverde1

November 17, 2019

1University of Pennsylvania

The End of European imperialism

• The end of WWII is also the end of European imperialism:

1. Formal empires.

2. (Largely) informal areas of influence.

• British empire will be the paradigmatic case. Relatively pain free.

• More painful examples: France (Algeria, Vietnam) and Portugal (Angola, Mozambique).

• Fall of the Soviet Union in 1991 is the end of the last European colonial empire.

• The peculiar case of South Africa.

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The sun sets down on the British Empire I

• Colonies of European settlement (Canada, Australia, New Zealand, South Africa) become

progressively independent (Responsible government⇒Dominions⇒Commonwealth realms).

1. In fact, it is hard to pin down an “independence day” for them.

2. Case of Canada: British North America Act (1867), Statute of Westminster (1931), British North

America (No. 2) Act (1949), or Canada Act (1982)?

• Ireland becomes independent in 1922 (and a republic in 1948) after a partition and a civil war.

• Between 1945 and 1965, the number of people under British rule outside the UK collapses from 700

million to 5 million (out of which 3 were in Hong Kong).

• Today, there are 14 overseas territories left with a population of around 265,000, with the majority

living in the Caribbean Sea.

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The end of the British Raj

• British rule in the subcontinent has been under increasing pressure from nationalists (Indian National

Congress, All India Muslim League).

• Already in 1935: Government of India Act, proposed Federation of India. Elections of 1937.

• Deal during WWII. Problems with Indian National Army.

• Increasing conflict between communities (particularly in Punjab and Bengal).

• Finally, the Labour government decides that they cannot keep India and agrees to its independence

and partition Radcliffe Line):

1. August 14, 1947, Dominion of Pakistan (republic in 1956, Bangladesh independent in 1971).

2. August 15, 1947, Union of India (republic in 1950).

3. 1948: Dominion of Ceylon (republic of Sri Lanka in 1962) and Union of Burma.

• Perhaps as many as 1 million deaths, 10 million people reallocated, four wars (1947, 1965, 1971 and

1999) plus ongoing skirmishes. 5

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Other colonies

• Most of “supporting” colonies of the Raj lose sense (Cyprus, Oman, Aden, Suez Canal) and Africa,

by itself, more of a burden than anything else.

• Also in 1948, the British rather hastily leave the mandate in Palestine.

• Malayan emergency (1948-1960).

• Nationalization of Anglo-Iranian Oil Company.

• Suez crisis in 1956.

• “Wind of Change” by Harold Macmillan to the Parliament of South Africa, on 3 February 1960 in

Cape Town.

• Hong Kong in 1997.

• The future of overseas territories?

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Reasons for decolonization

1. Increase in nationalism agitation.

2. Increase financial problems in the U.K.

3. Loss of interest among elites in the U.K.

4. Pressure of the U.S.

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What do new countries do? India

• Leaders of Congress party deeply influenced by British Fabian socialism.

• Set up five-year plans.

• Strong intervention, redistribution, investment in education.

• License raj.

• Hindu rate of growth at 2.5%.

• Positive aspects: democracy, absence of famines.

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What do new countries do? Singapore

• After several ineffective previous limited elections, general election in 1959 is won by the People’s

Action Party and Lee Kuan Yew becomes the first Prime Minister of Singapore.

• Enters into an ill-fated federation with Malaysia. Independence in 1965.

• Most observers think Singapore is not a viable state (too small, racial tensions...).

• Government takes a vigorous approach to development:

1. Sets up industrial parks with tax holidays for FDI.

2. Promotes the harbor.

3. Oil refineries.

4. Housing and retirement funds (Central Provident Fund).

5. Constant upgrade towards higher added value products (tourism, gambling, medicine hub biotech).

6. Efficient legal system, low corruption, great civil service.16

17

Comparison

• First, comparison is a bit unfair: a subcontinent with an island.

• Singapore has been several orders of magnitude more successful than India in economic terms.

• But it has come at a cost in terms of freedoms.

• Democracy Index compiled by the Economist Intelligence Unit:

1. India: 7.23, flawed democracy (U.S.: 7.96, full democracy, Norway: 9.87).

2. Singapore: 6.38 (higher than in recent past, when it was a hybrid regime).

• Even more in contrast with China’s experience

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A people’s republic

• October 1, 1949, Mao proclaims the People’s Republic of China.

• Effective end of the civil war and unrest that had plagued China for decades.

• Although Kuomintang survives in Taiwan.

• Copy model of High Stalinism, including 5-years plans and strong emphasis on collectivization and

basic industries in detriment of consumer industries.

• It will lead to a fight with the Soviet Union (close to open war in 1969).

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Going alone

• The Great Leap Forward: 45-60 million deaths.

• The Cultural Revolution: Lın Biao, Four Olds (old customs, old culture, old habits, and old ideas).

• Gang of four defeated, Deng Xiaoping takes power.

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[17:16 23/4/2016 rdv016.tex] RESTUD: The Review of Economic Studies Page: 1579 1568–1611

MENG ET AL. INSTITUTIONAL CAUSES OF CHINA’S GREAT FAMINE 1579

(a)

(b)

—

—

Figure 1

Average and spatial variation in famine severity

at Colum

bia University L

ibraries on April 25, 2016

http://restud.oxfordjournals.org/D

ownloaded from

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Figure 1: Population and Aggregate Production 1949-76

Source: The CPIRC and Comprehensive Statistical Data and Materials on 50 years of New China (1999)

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A changing world

• Arrival of China to world stage.

• In some sense, only returning to its natural place.

• Three eras:

1. First contact: 1972-1979.

2. Reform in the countryside: 1979-1990.

3. City-biased growth: 1990-2009.

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Deng Xiaoping, 1979

“Modernization does represent a great new revolution. The aim of our revolution is to liberate and

expand the productive forces. Without expanding the productive forces, making our country prosperous

and powerful, and improving the living standards of the people, our revolution is just empty talk. We

oppose the old society and the old system because they oppressed the people and fettered the productive

forces. We are clear about this problem now. The Gang of Four said it was better to be poor under

socialism than to be rich under capitalism. This is absurd.”

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Intellectual foundations: The years of the high theory of development

• Unequal exchange (Raul Prebisch).

• Big Push (Paul Rosenstein-Rodan).

• Forward and backward linkages (Albert Hirschman).

• Skepticism (Peter Bauer).

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Figure 5: The Great Liberalization and Growth Accelerations Log income per worker (PWT) relative to 1975–89 trend in liberalizers and nonliberalizers

Notes: The samples are as in Figure 4, based on changes in tariffs for capital and intermediate goods.

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17Urban world: Cities and the rise of the consuming classMcKinsey Global Institute

United States. The rise of Japan helped change the direction, particularly in the 1980s. However, it has been in the most recent decade of 2000 to 2010 that we have observed the fastest rate of change in global economic balance in history. During this period, the world’s economic center of gravity has shifted by about 140 kilometers per annum—about 30 percent faster than in the period after World War II when global GDP shifted from Europe to North America.

In the past three years alone, a period in which recession constrained growth in the cities of developed economies even while urbanization proceeded at a furious pace in the emerging world, there has been a decisive shift to the East and South. Between 2007 and 2010, the GDP of large cities in emerging markets increased from 37 percent of their counterparts in developed economies to 50 percent (Exhibit 4). During the same period, in the East, the combined GDP of China’s large cities increased from 20 percent of that of large cities in the United States to 37 percent.19 Three more Chinese cities vaulted into the megacity bracket with populations of ten million or more—that’s one new megacity a year! Contrast this with the much slower pace of the mature urban shift in the developed world. In the period to 2025, developed regions are expected to create only one new megacity—Chicago in the United States. In the South, the GDP of Latin America’s cities has risen from 26 percent of that of their European counterparts to 37 percent in these three years measured at market exchange rates.

In coming years, we expect this shifting balance of urban economic power to the East and South to continue, albeit at a slower speed.

19 This change reflects the continuing urbanization and rapid per capita GDP growth in China during the years when the United States was in recession as well as the appreciation of the renminbi against the dollar.

Exhibit 3By far the most rapid shift in the world’s economic center of gravity happened in 2000–10, reversing previous decades of developmentEvolution of the earth’s economic center of gravity1

AD 1 to 2025

SOURCE: McKinsey Global Institute analysis using data from Angus Maddison; University of Groningen

1 Economic center of gravity is calculated by weighting locations by GDP in three dimensions and projected to the nearest point on the earth’s surface. The surface projection of the center of gravity shifts north over the course of the century, reflecting the fact that in three-dimensional space America and Asia are not only “next” to each other, but also “across” from each other.

AD 11000

1500

1820

191319401950

19601970

19801990 2000

2010

2025

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Africa

• Level of income per capita in 1960 and 2000 roughly the same.

• Last 10 years much better.

• Reasons:

1. Legacy of colonialism.

2. Artificial states.

3. Wrong policies: Ujamaa.

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