In This Review

The Paradox of Catching Up: Rethinking State-Led Economic Development
The Paradox of Catching Up: Rethinking State-Led Economic Development
By Li Tan
Palgrave Macmillan, 2006, 176 pp.

The central thesis of this short book is that developing countries will naturally -- and sensibly -- rely on state leadership in economic development. Their success depends not on getting rid of that leadership, as is too often implicit in claims for the merits of a market economy, but rather on the character of that leadership. State leadership can go badly wrong, as in the Soviet Union, where the state took on virtually all economic decision-making and management. Or it may be remarkably successful, as in several East Asian countries, where the state played a central role in guiding and facilitating investment but generally left property under private ownership and management. The author emphasizes incentives to hard work and to entrepreneurship, as well as the importance of developing the transactional services -- finance, marketing, distribution -- that make all modern economies viable. These were woefully inadequate in post-Soviet Russia in the early 1990s; in southern China after the shift away from central planning these crucial services were provided initially by Hong Kong and other overseas Chinese. A long and interesting chapter on China notes the continuing tension between now-prevalent private incentives and continued state ownership and bureaucratic control; the combination is an invitation to corruption and a force behind growing income disparities.