Late Development

To investigate whether theories of late industrialisation explain differences in national systems, Britain, USA, Germany, Japan and China shall be used in this essay. Analysing each characteristic is beyond the scope of this answer, therefore emphasis placed upon the financial system, banking system, role of the state and business groups.

Britain and USA’s capitalism is similar. Their financial system is highly market based and unregulated; expected returns are high as shareholders own the typical firm. Banks are privately owned and state intervention is a minimum. On the onset of the industrialisation, small-scale firms were capturing a high market share, but today huge corporations are dominating the each of the most important sectors such as banking, energy, automobile and medicine.

In contrast, Germany, Japan and China are government regulated. The financial systems regulated and less market based, and the expected returns are lower than US and Britain. Banks are key financer backers of these countries. In Germany these banks owned by shareholders, while they owned by state in China. Shares of significant Japanese companies are held tightly in a system of cross holdings with sister firms in other industry groups.

Late development theory can shed light to why these differences occurred. Alexander Gerschenkron criticised Rostow’s take off model, arguing that nations don’t undergo the same 5 linear stages of development. Gerschenkron introduced the concept of “relative backwardness” by arguing that the development path of a late industrialising country will by the virtue of its “backwardness”. He stated that the more backward a country is, the more certain characteristics will occur. Therefore special institutions needed such as ...

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...ell if the growth rates decline after China reaches maturity. Japan and Germany growth rates that have slowed down in the 1990’s, this is because they industrialised earlier, they are in their mature stage and aren’t backward anymore, again this is consistent with Gerschenkron’s theory.

Gerschenkron’s theory does explain national differences, and the characteristics that the latecomers had to adopt, to industrialise. Some historical case studies of the European economies have failed to verify many of the characteristics, e.g role of banks in financing industry during the 19th century was quite different in France and Germany, despite the fact that both countries are classified as “relatively backward”. Therefore generalisations are hard to make, as more countries need to be studied, however Gerschenkron still gives a real insight into why these differences occurred.