The Erosion of Traditional Paradigms: Real-World Transformations and New Models of Growth

The enduring Smithian and Marxian master narratives of development have been fundamentally undermined by both real-world economic transformations and advances within historical scholarship. In the West, the scale and structure of business evolved dramatically, while the minimalist night-watchman state often transformed into an interventionist social welfare state. These changes rendered classical Smithian theory inadequate even as a stylized description, challenging its adherents. The Marxian alternative, as both an analysis of the West and the foundation for real-existing socialism, ultimately fared worse. However, it is crucial to recall that socialist experiments, for a significant period, demonstrated that substantial economic growth was achievable in a non-capitalist setting, complicating the claim of capitalism's exclusive efficiency.

A profound challenge to these old paradigms emerged from spectacular, non-Western growth stories. Japan provided the first major anomaly, industrializing during the Meiji Era. Attempts to fit Japan into Western models by highlighting its feudal past or work ethic remained suspect; its path resembled Germany's state-coordinated industrialization more than Britain's laissez-faire model. Japan’s post-World War II phenomenal rise further defied Smithian and Marxian blueprints, leading to analyses of a unique and successful "Japanese model".

This challenge intensified with the rise of the Asian Tigers (Hong Kong, Singapore, South Korea, Taiwan) and, later, China and India. While not a monolithic "Asian model," common characteristics emerged, most notably the developmental state—a term coined by Chalmers Johnson. These states were typically interventionist, authoritarian in early development phases, and fostered export-oriented, labour-intensive economies. Their success made the quest for a universal growth model even more elusive for developmental economists.

Concurrently, historical research deconstructed the idealized Western industrialization narrative. The Smithian "rise of the market" story encountered stark contradictions: industrializing Britain was a fiscal-military state with high taxes, huge debt, and significant government intervention, especially in trade. The United States was a bastion of protectionism until the twentieth century. Furthermore, the British Industrial Revolution itself was reinterpreted; its GDP impact was initially modest, it was a regional phenomenon, and family firms remained crucial. The link between capitalism and industrialization appeared casual, not causal, as market growth often did not lead to industrial takeoff, even in export-focused proto-industry.

These cumulative shifts—theoretical, empirical, and historiographical—have dismantled the notion of a single valid model. The role of the state has been systematically rehabilitated in economic historiography, revealing that successful development, both historically in the West and contemporarily in Asia, has always involved substantial and proactive government steering, challenging the core tenets of both traditional Smithian and Marxian orthodoxy.