Why are Economic Miracles Rare in Colonies?
A decade ago, Robert Lucas noticed a pattern:
The economic progress that has come to Asia and Africa came after the colonial empires were dismantled.
To put it another way, Lucas claims that with the exception of Hong Kong, no massive economic modernization has ever happened in a colony.
So being an independently governed nation is a near-necessary condition for economic success. Remember: the only non-Western economy to undergo genuine economic modernization in the 19th century was Japan…and Japan was one of a handful of nations to avoid colonization.
Lucas was responding to Niall Ferguson’s praise for the economic policies of the British Empire. In a more famous essay, Lucas noted:
The second major change in the postwar world is the beginning of per capita income growth in Africa and Asia, entirely a post-colonial phenomenon.
If the British empire brought such great policies to its colonies, why did the policies only pay off after the British up and left?
I suspect public choice helps explain why independence is a near-requirement for economic success. Colonizers probably believed in some version of the Lipset Hypothesis that democracy and economic modernization tend to go hand in hand. Colonizers may also have believed in some version of Milton Friedman’s claim (YouTube, 3 minutes) that economic freedom is a necessary condition for political freedom. The urban bourgeoisie might start demanding the vote.
That means that free market capitalism is a threat to any would-be colonizer. Yes, a colonizer could grab more tax revenue from a productive country than from an unproductive one, but if you let the colony become productive one thing they might produce is a revolution.
Lucas’s observation should change the pacifist’s moral calculus. Yes, defensive wars have real costs, as Bryan notes. But on the list of defensive war’s possible benefits we probably need to include “opening the door to prosperity.”
Coda: I’ve wondered if Korea under Japanese occupation fits or fails Lucas’s pattern. In Korea’s three decades of political independence before the Japanese took over Korea made real strides toward modernization, though it was less successful than Japan. At least to a degree independent Korea fits the Lucas pattern. But this article claims that living standards improved substantially during the decades of Japanese occupation. Did Japan impose a broad-based industrial revolution on Korea? Does Lucas have two major exceptions to his rule?