ABSTRACT
In the decades immediately following World War II, less-developed countries (LDCs) embarked on programs of industrialization and state-directed economic development, instituting economic policies that were, to put it mildly, at variance with the tenets of orthodox economic theory and advice. The familiar litany of “policy errors” includes the following: import quotas and prohibitions; excessively high and varied import tariffs; price controls on food and other measures discriminating against agriculture; detailed regulation of business activity; fiscal and monetary profligacy leading to inflation; regulations that repressed the financial sector, proliferation of inefficient state-owned enterprises, labor protection laws that reduced flexibility in the labor market, and failure to fulfill the state’s essential functions of protecting property rights, enforcing contracts, and providing and maintaining physical infrastructure. Although some of these measures received limited endorsement from the new field of “development economics,” the vast majority of economists trained at universities in the rich countries would, if they had examined the policies of typical LDCs, have been highly critical of the degree of state intervention in the economy and the failure to achieve macro-economic balance.
