The Chinese Lamborghini

Suppose we have a group of drivers leave New York at the same time to drive to Washington, and we interview the first 5 drivers who arrive in Washington. We find that they drove Lamborghinis at 150 mph, weaving in and out of traffic down the New Jersey Turnpike and I-95, out-running Highway Patrol cars who tried to stop them. Are they models for success getting from New York to Washington?

No, because since we only studied the “successful” first 5 drivers to arrive, we didn’t know about the vast majority of Lamborghini “failures” – the drivers who got into fatal accidents or were caught by the Highway Patrol and jailed for insanely reckless driving. On average, this approach was a disaster. On average, soccer moms driving mini-vans outperformed the Lamborghini drivers, if we study BOTH successes and failures.

So Asian success either happened in spite of statist industrial policy, not because of it, or industrial policy was an incredibly risky strategy that usually fails but occasionally has big successes, possibly in East Asia.

Bill Easterly defends the view that state-promoted industrialization in Asia failed on his ever more interesting blog.

For a different point of view, I had my students read Dani Rodrik’s 2006 paper Goodbye Washington Consensus, Hello Washington Confusion? Well worth a look if you haven’t seen it before.

6 thoughts on “The Chinese Lamborghini

  1. That is a really great example of selecting on the dependent variable. I will be using it in my econometrics courses.

  2. That would make a lick of sense if any Western country had industrialized without industrial policy ever.

    Seriously, that comment boils down to, “If you ignore the recent history, then ignore the less recent history, then you can postulate an hypothesis that ignores even current events!”

  3. When I lived and worked in Japan in the ’70s, I concluded that either all the principles of classical economics holding government subsidies to be ultimately harmful were wrong, or that Japan’s contemporaneous successes proved only that it’s possible to violate economic laws with apparent success in the short term, and that in the long run Japan was going to pay dearly for its sins.

    During subsequent years, my sense that in fact the latter was the case became steadily stronger. A factor intensifying that sense was my continuing study of WWII history, through which I saw that the belief then so widely held among the West’s intelligentsia that Japan is lead by great strategic thinkers was completely mistaken.

    So I am not surprised that the largest GDP downturn seen so far in this has come in Japan.

  4. You can tell that Japan is totally wrong, because it is the 122nd poorest nation in the world.

  5. The living standard of a Japanese worker compared to that of an American worker of equal ability and education, putting out equal effort on the the job, is much lower.