Consider the level of economic development that determines the potential advantages of backwardness. Economists usually discuss the reasons for the existence of these potential advantages: less developed economies can borrow technologies, business models, and marketing procedures from more advanced economies;2 and imitation may be easier and faster than innovation on which the leading economies have to rely.
Plausibly, these advantages are greater at moderate levels of backwardness where the level of human capital formation permits the exploitation of the opportunities of backwardness. Or, less developed economies have more scope for reallocating labor from less productive work in agriculture to more productive work in industry or services. Or, it is probably easier to find profitable investments in developing countries. say, in transport infrastructure.than in highly developed economies where many of the obvious investments have already been made. I do not want to join the debate about the relative merit of these arguments. Nor do I want to add arguments from other social sciences according to which the process of economic development implies value changes that feed back to undermine prospects for later economic growth.3
The Role of Advanced Countries
Instead, I want to underline the obvious, which nevertheless tends to be forgotten: the advantages of backwardness for some developing countries presuppose the existence of advanced countries. If advanced countries.say, the United States, European nations, and Japan.had not existed, the early East Asian tigers (South Korea, Taiwan, Hong Kong, and Singapore) could never have grown as fast as they did, nor could China and India do so today. Before the mid-20th century and its previously unknown income differentials between Western industrial societies and less developed countries, no major country ever grew as rapidly as South Korea and Taiwan did during the 1960s and 1970s, or China has since the 1980s, and India and Vietnam are doing now.4 Thus, international inequality is an essential part of the advantages of backwardness. This inequality benefits those backward countries that grasp the available opportunities.
The advanced and relatively free countries are essential to generating the opportunities of backwardness. They provide a model, a source of technology, and a market for lowwage products. If the advanced countries became rich ahead of other countries because they established safe property rights for merchants and producers earlier than others, because they benefited from limited government earlier than others, because they invented capitalism and benefited from economic freedom first, then the advantages of backwardness are the effect of economic freedom or capitalism.5
Unfortunately, a lack of quantitative data prevents us from analyzing the impact of economic freedom on growth rates in the long run. But it is plausible to base a claim on qualitative data or narratives according to which the impact of economic freedom is strong. The advantages of backwardness must have been small before the establishment of capitalism because most major civilizations (comprising tens of millions of people) then still had rather similar per capita incomes.6
Thus, the advantages of backwardness merit a Hayekian interpretation: