Can the success of a government be measured by the economic progress it brings to its citizens, regardless of the political system in which it operates?

Justin Yifu Lin, former Chief Economist of the World Bank and creator of the New Structural Economics theory, answers in the affirmative. Today, he leads the Institute for New Structural Economics at Peking University, and he recently took part in a debate on the new global economic order at the World Congress of Economists in Belgrade, organized by the Serbian Association of Economists.

Lin’s theory offers underdeveloped countries a middle way between post-war structuralism – which advised states to develop industries for which they were not yet ready – and neoliberalism, which managed the population through the market. His formula links an efficient market with a “facilitating state”: the government should remove infrastructural and institutional bottlenecks, support first movers, and help the private sector in activities based on existing comparative advantages.

This formula, however, raises questions that are not purely economic. What happens when industrial policy turns into political clientelism, economic growth is built on the exploitation of people and nature, and all those who challenge it are branded enemies of the state?

According to Lin, there are no universal political recipes: different systems, he claims, can be successful if they raise living standards, employment, and exports. For Radar, he speaks about China’s development experience, green growth, foreign investment, and the institutions of the Global South, but also about why he does not necessarily equate democracy with its Western liberal form.

The New Structural Economics you advocate represents a third generation of development policy, following post-war structuralist theories and the neoliberal Washington Consensus. You argue for efficient markets and a facilitating state. Should that state merely be capable, or also democratic and accountable?

Different political institutions are possible. In East Asia you have China, a socialist country led by a single party, but also Korea and Singapore with different systems, and yet they applied similar development policies. At the congress, I also mentioned Mauritius, a small island nation that successfully implemented modernisation. What matters more is the development concept and the strategy used to achieve it.

If you want to develop, you have to be competitive: produce at the lowest possible cost with high quality. That way, you will be more competitive than imports and able to compete in international markets. This is achieved by focusing on sectors in which the country has a comparative advantage and by removing bottlenecks in infrastructure, finance, and education. The market cannot do this alone; the state creates the conditions, and the private sector seizes the opportunities.

Any government can do this if it understands that this is the path to success. Every state, regardless of its political system, wants to be successful. Political leaders want to stay in power, but they also want to be remembered fondly. The best way to achieve this is to bring prosperity to citizens in an inclusive and sustainable manner; then they will gain their support again. Structuralism was wrong to advise states to substitute imports and develop sectors in which they had no comparative advantages. Neoliberalism, by contrast, advised the state to stand aside. But without a development policy, you can neither increase income nor create jobs. Which political institutions are most suitable depends on the culture, social structure, and circumstances of each country. With good ideas and strategy, different systems can succeed.

The Communist Party of China’s concept of “ecological civilisation” is presented as an attempt to reconcile development, modernisation, and environmental protection. Can this attempt succeed if growth still requires vast amounts of energy, minerals, land, and infrastructure, including resources outside China?

We need inclusive, but also sustainable growth. We must abandon the development path that, since the Industrial Revolution, has been accompanied by high pollution, high carbon emissions, and global warming. The new path is green growth. It requires new technologies and green energy sources, as well as reducing their costs so they become accessible.

When we talk about climate change mitigation and adaptation, we must respect the principle of common but differentiated responsibilities. The countries that industrialised first have historically accumulated the vast majority of emissions, which is why they must help developing countries adopt green technologies. If that happens, we can have green, sustainable, and inclusive growth, and developing countries can dynamically catch up with developed ones and sit at the same table as equals.

Some governments present themselves as development-oriented, yet they centralise power, weaken institutions, control the media, and treat opponents of mega-projects as enemies. How do you distinguish a genuine facilitating state from an autocracy that uses development as an ideology?

I do not use the term “developmental state”, but rather a “facilitating state”. Both socialist planning and old structuralism had developmental intentions, but their strategies did not work. That is why I prefer to speak of a state that facilitates development.

If you want growth to be inclusive and sustainable, you must simultaneously raise living standards, create jobs, increase exports, and remain competitive. This is achieved by orienting towards sectors in which the country has comparative advantages. If you follow your comparative advantages, you can have the lowest possible production costs.

However, competitiveness does not depend solely on production costs, but on total costs, which consist of two parts: production costs and transaction costs. Transaction costs depend on the quality of infrastructure, power supply, roads, financial institutions, and other establishments that can mobilise resources for investment. In improving infrastructure and institutions, there are numerous market failures, which is why a government is needed. But it should facilitate the development of sectors in which the country has comparative advantages. If you do not follow them, the goal may be development, but the result will be stagnation or even the collapse of the economy.

You speak of “soft infrastructure” – institutions, regulations, the financial and legal systems, social capital, and values. Are free media, independent courts, democratic debate, and the right of local communities to challenge state projects also an essential part of it?

Institutions are very important: they shape incentives and can reduce transaction costs. However, they should correspond to the level of development and the business activities they serve. In the past, it was often thought that the institutions of developed nations, such as the United Kingdom or the United States, were the best and that other countries should simply adopt them. I think that is wrong. Every country should build institutions that suit its own conditions.

According to New Structural Economics, countries should develop in line with their latent comparative advantages. What if a country’s obvious advantage is cheap labor, mining, or an environmentally risky sector? Should every advantage be exploited, or can a society reject a certain development path?

If labour costs are low, it means the country has an abundant workforce. If it does not develop sectors that utilise it, it will create unemployment – and a job is very important to people. At that stage of development, the comparative advantage will be in labour-intensive industries. They create jobs, exports, and an economic surplus from which financial and human capital are accumulated. As capital becomes less scarce and labour relatively scarcer, wages rise, and the country can move towards more capital- and technology-intensive sectors.

Look at China: the automotive sector is very competitive today, but thirty years ago it was not. Back then, China was competitive in light industry, textiles, clothing, household appliances, and similar products. Those labour-intensive industries created many jobs and enabled exports. Thanks to that, financial and human capital were accumulated. As wages rose, China was able to move up the industrial ladder. If you choose technologies or sectors that are not aligned with your comparative advantages, you will have to protect them. And if they must be protected, then they are neither competitive nor sustainable.

In Serbia, development is often promised through foreign investment, subsidies, infrastructure projects, cheap labour, and natural resources. When does such a strategy lead to structural transformation, and when does it become a trap of dependency and low added value?

At the beginning, it is sometimes necessary to offer incentives to investors, but these should be short-term and compensate for the positive externalities generated by first movers. They bring technology, capital, management, and access to export markets, which can increase employment and exports. Over time, the country adopts these technologies, develops supply chains, and enables domestic firms to enter the same sectors. As the country approaches full employment, wages rise, and the economy can transition into more complex industries.

It is like in life: when we are young, we do things suited to youth, and when we grow up, we do more complex things, with more technology, capital, and higher wages. You have to go step by step. If you try to skip steps, it may look ambitious, but it often fails. If you progress gradually, every step may seem small, but it is stable, and cumulatively you can advance rapidly.

You mentioned first, “early” investors. Within weak or captured institutions, support for companies can turn into clientelism and corruption. How do you prevent industrial policy from becoming extractive?

You must follow comparative advantages. Then the government does not have to constantly subsidise companies, but only offer limited compensation for the externalities of first movers. For example, it can offer corporate tax relief for three, at most five years.

The state’s other task is not subsidising, but facilitating. It should upgrade infrastructure. Ideally, the state should build good infrastructure for the entire country, but its resources are limited. Therefore, it can pragmatically build a special economic or export-processing zone with adequate infrastructure and business services.

This is not a subsidy, but a part of the state’s responsibility that is carried out gradually and pragmatically, in a limited area, to kick-start the development process quickly. That is why state capture does not necessarily occur under such an approach. The problem arises when the state tries to develop sectors that run counter to comparative advantages: then companies are not viable and demand continuous, ever-increasing subsidies. That is how “infant industries” that never grow up are created.

China is often presented as proof that rapid development is possible without Western European-style liberal democracy. Is the Chinese experience a general model or a historically specific case that cannot be exported?

The core principles of development are universal: a country must be competitive, follow its comparative advantages, reduce transaction costs, and provide limited support to first movers. But political institutions are not universal. Every country has its own history, culture, and social structure, and its autonomy to choose its institutions should be respected.

Every government has an incentive to bring prosperity to its people. If it succeeds, people will be satisfied, and such institutions may suit that country. It is wrong to claim that Western democracy is the best system that everyone must adopt. China has no intention of imposing its political order on other countries; the principle of non-interference should be respected.

The panel you participated in was dedicated to the new global economic order. What would make that order better for developing countries – more room for their own policies, reform of the World Bank and IMF, cooperation within the Global South, debt relief, or a deeper structural change?

When we talk about reforming multilateral development institutions, we should keep in mind that in the past they were sometimes used as a tool to implement policies that benefited powerful countries, all in the name of aiding developing nations. The intentions may have been presented as supporting development, but in practice, they often served to preserve the existing global order and the interests of powerful nations.

Nevertheless, these institutions have an important function. They should genuinely help developing countries exploit their own potential, in a way that suits those countries. In the past, the starting point was mostly one-way learning: from the Global North to the Global South. People looked at what developed countries had and developing countries lacked, and advised the latter to copy the institutions and policies of the former. The results were often poor.

It is better to start from what developing countries already have, determine what they can do well on that basis, and how they can expand it. That is the way to help them achieve inclusive and sustainable development. There is a wealth of experience in the Global South to learn from, so knowledge-sharing among its countries should be encouraged, rather than just a transfer from North to South.

Can a capitalist system based on constant growth be reconciled with democracy understood as the well-being of the majority? Is it possible to have successful capitalist growth and democratic values?

Much depends on how you define democracy. In some countries, the system is called democratic, but it is captured by the interests of rich and powerful groups. I do not think that is true democracy.

There are different types of democracy. Some systems today bear that name, but their policies are not aimed at the well-being of ordinary people, but rather at the interests of a small number of powerful groups protecting their own privileges. One should respect people and give every individual the opportunity to develop, to express their talents, desires, and abilities. Policies should be designed to benefit the people as a whole, not a small number of powerful groups. Society should enable people to grow, reach their potential, and fulfill their dreams. A system that enables this is the best system. It should be considered a democracy, because it reflects the desires and vision of the people and creates the opportunity for everyone to progress.

(Radar, 24.08.2026)

https://radar.nova.rs/ekonomija/dzastin-jifu-lin-prof-ekonomije/