Within this set of laboratory conditions the tools of economic analysis are very powerful. By getting prices right Mali will make the best use of the resources it has at hand. But the most interesting and important economic questions concern the assumptions and constraints themselves. Why are some countries chronically so poor? Why have others done so much to pull ahead?

Economic analysis can tell you where you can get the best return on an investment this week. It can tell you how a change in tax rates might affect the unemployment rate this year. It can even tell you how a new tariff level is likely to affect the volume of world trade over the course of this decade. But it has a very hard time accounting for the larger rises and falls in world affairs: why it was England and not France that dominated the nineteenth-century world economy; why it was Germany and not Poland that industrialized so rapidly at the end of that century; why Japan caught up in the early twentieth century and again now. Economics is a wonderful tool for analyzing trends and changes once nations have assumed their ranks. But getting prices right is not so good for understanding how they got to those ranks, and why the ranks change.

This would not be a serious failing except that most people believe that getting prices right tells us about the long run as well as the short. Indeed, the long-run evidence suggests that getting prices wrong—that is, violating the rules of Anglo-American economics may be indispensable for nations that are trying to get ahead.

In the late 1980s the economist Alice Amsden wrote a book about the Korean economy called Asia's Next Giant. In that book and subsequent writings she said that Korea's post-Second World War rise had much in common with Japan's industrial miracles and with Germany's industrialization in the nineteenth century. In none of these cases, she said, did the country get prices right, letting investors and consumers freely decide where they would put their money. The real secret, she said, was that unless a country deliberately rigged the markets so as to get prices wrong, it had no hope of catching up in the industrial race.

THE key to capitalistic development, in this view, is finally capital. If you want to build factories, leapfrog your competitors in efficiency, train your people so that they can outproduce others, you need money. If you are a poor nation, you don't have enough money sitting around to begin with; and if you are a rich nation, you are likely to have committed your extra money to pension and benefit programs, as the United States has now. Still, you need the money—for new factories, for research, for distribution networks. How do you get it?

Historically, Amsden concluded, successful nations have gotten extra money by rigging their markets. The goal is to get people to save more of their paychecks, and banks to lend more money for long-term industrial expansion, than normal market forces would allow. To make its people save, a country needs to jack up interest rates; to allow businesses to invest, it needs to keep the rates low. Under Anglo-American theory the country would just let these two forces fight it out until they reached the natural equilibrium. But that is not how successful development has actually occurred, Amsden said.

Industrial expansion depends on savings and investment, but in 'backward' countries especially savings and investment are in conflict over the ideal interest rate, high in one case, low in the other. In Korea and other late-industrializing countries, this conflict has been mediated by the subsidy.... Thus, the government established multiple prices for loans, only one of which could possibly have been "right" according to the law of supply and demand. Moreover, the most critical price—that for long-term credit—was wildly 'wrong' in a capital-scarce country, its real price, due to inflation, being negative.

That is, in order for Korea to get enough money into the hands of its industries, it needed to bend the rules. The crucial thing about this undertaking, Amsden emphasized, is that it was not some Korean quirk. Every country that has caught up with others has had to do so by rigging its rules: extracting extra money from its people and steering the money into industrialists' hands.

Today's Americans and Britons may not like this new system, which makes their economic life more challenging and confusing than it would otherwise be. They are not obliged to try to imitate its structure, which in many ways fits the social circumstances of East Asia better than those of the modern United States or Britain. But the English-speaking world should stop ignoring the existence of this system—and stop pretending that it doesn't work.