The Great Forgetting: Lessons from Economic History

 

The Great Forgetting

How motivated reasoning frames economic debates SCOTT SUMNER MAY 14, 2026

Noah Smith has a very good post on development economics, which contains the following list: The field of economics doesn’t lack for big ideas about why countries go from poverty to riches. These include:

1. Institutions: The idea that property rights, legal frameworks, and other systems of human organization are long-lasting (“sticky”) and are crucial for development.
2. Geography: The idea that countries’ natural endowments — navigable waterways, farmland, proximity to other regions, etc. — determine which place gets rich.
3. Human capital: The idea that skills — reading, math, etc. — and population health determine national income.
4. Industrialism: Various theories about how promotion of manufacturing, export-led growth, the “development state”, industrial policy, and so on are the key to rapid development.
5. Culture: The idea that countries grow because of a culture of progress, innovation, and openness to technology.
6. Coordination failure: The theory that countries naturally grow rich as long as they don’t have any significant roadblocks to growth, so that development happens when you remove all of the roadblocks at once.
7. Flying geese theory: The idea that growth naturally happens in a sequential pattern as some countries luckily get rich first and then invest in poor countries until those countries catch up.
8. Economic liberalism: The notion that all you really need to grow is free markets and openness to trade.
9. State capacity: The theory that strong, efficient states are crucial for growth.
10. National cohesion: The idea that a populace who see themselves as one unified people will support the public goods and other policies necessary for growth.

That’s just a small sample of the huge diversity of big ideas out there. That seems like a good list, and I suspect many of those factors play an important role. But I’m a lot older than Smith and I have a slightly different perspective on the issue. I see a sort of “Great Forgetting”, a tendency to ignore the lessons of history.

In particular, a number of the cases cited in Smith’s, including South Korea and Poland, were once highly controversial. Now both countries are viewed as major success stories. Along with thinking about why they might have been successful, it seems worth thinking about the following questions:

1. Why were people once so pessimistic about these two economies?
2. Why do the people who were pessimistic often not admit they were wrong?
3. What can we learn from the fact that these countries did far better than expected?

Back in the 1960s, South Korea was poorer than much of sub-Saharan Africa, with a per capita income lower than Haiti, Ethiopia, and Yemen. Experts widely assumed Korea would stay poor due to overpopulation and a lack of natural resources. South Korea was also criticized for adopting export-led growth in the 1960s instead of focusing on import substitution like Argentina, which was much richer at the time. Fortunately, Korea did not follow that advice.

Back in 1989, Poland was severely criticized for what was derisively called “shock therapy” or “neoliberalism”. In the end, Poland was far more successful than former Soviet bloc nations that pursued gradual reform, yet its critics rarely admit they were wrong.

While Smith’s post is fine, I worry younger readers may not be aware of this history. For example, Smith compares South Korea and Bolivia, noting that South Korea was much more highly educated in the 60s, focused on manufacturing exports, had a special relationship with the U.S., was ethnically homogeneous, had sea access, and had a strong bureaucracy. Smith argues that depending on which theory you believe, you could attribute Korea's success to many different factors, making it a "story" rather than a scientific explanation.

Smith is correct that the situation is complex, but I feel we know more than his discussion implies. For instance, a better comparison for South Korea might be North Korea (to rule out culture and geography) or Taiwan (which achieved similar success). South Korea’s economy specifically took off after the foreign trade sector was partially liberalized in the 1960s.

I hate the term “export-led growth” because Korea actually ran almost nonstop trade deficits during its three and a half decades of rapid growth. I prefer the terms “trade-led growth” or an “open economy model”. Even if Korea maintained some high tariffs, its imports rose from 10% of GDP to over 30% in just a few years, moving toward a more open economy.

Beyond South Korea, Poland and Malaysia are also impressive success stories. By 2026, Poland’s GDP per capita is expected to exceed that of Japan and Spain. Unlike Korea, Poland and Malaysia relied heavily on foreign direct investment (FDI).

In Malaysia, the average Chinese household has 1.9 times as much wealth as the majority Bumiputera. Throughout Southeast Asia, economic power is often concentrated in "market-dominant" ethnic minorities, particularly those from a “Confucian” culture (Chinese, Korean, Japanese, and Vietnamese). Today, a Confucian culture combined with a non-communist economic system is highly correlated with economic success.

So, we know two important things about South Korea:

1. It has a Confucian culture that is relatively rich in any country not ruled by communists.
2. It grew rapidly after adopting a trade-oriented growth policy.

While other reasons like land reform and U.S. alliance exist, they aren't as powerful as these two. Some industrial policy fans, like Ha-Joon Chang, argue that rich countries succeeded by restricting FDI, but they could have succeeded in spite of those policies.

When considering countries like Maoist China or modern North Korea, it’s clear they became richer after removing restrictions on the private sector and opening to trade. It is unlikely that China achieved success because of its remaining restrictions, as growth was fastest when reforms allowed a bigger role for the private sector.

Poland’s shock therapy, urged by Jeffrey Sachs, is also winning the test of time as Poland outperformed other Eastern European countries. Unfortunately, even Sachs seems to have forgotten these lessons, now suggesting massive foreign aid is the key to ending poverty. William Easterly has countered this, noting that when controlling for bad government and corruption, initial poverty doesn't explain slower growth; rather, bad government does.

By the late 1990s, the debate seemed over: trade-oriented growth and shock therapy were successes. But after 2008, a “Great Forgetting” took hold. We’ve forgotten the critique of activist fiscal policy, why nationalism is an evil ideology, and the lessons of Orwell’s 1984. We’ve forgotten that statist economic policymaking is counterproductive.

As a final note, for those who think Argentina failed because of culture rather than its closed economy, it's worth remembering that between 1880 and 1914, Argentina was one of the world's ten wealthiest nations by following Adam Smith’s recipes for free trade and property rights. This "Golden Age" proved that national wealth is the result of an institutional framework that protects the right to create and trade.