15 Mauritius, one of the most successful African economies, took off in the 1970s by targeting labor-intensive industries such as textiles and garments. These industries were mature in Hong Kong, its “compass-economy.” Both economies share the same endowment structure and the per capita income in Mauritius was about half of that in Hong Kong-China in the 1970s.<sup>28</sup> The Mauritius Industrial Development Authority (MIDA) and Export Processing Zones Development Authority were created by the government to attract Hong Kong-China’s investment in its export processing zone. The vision was to position Mauritius as a world class export hub on the Hong Kong-China model. Together, they have contributed to the country’s emergence as an economic powerhouse.

By contrast, many countries designed and implemented catch-up strategies that were too ambitious for establishing the “commanding height” given their level of development. Historical examples of such mistakes go back to countries such as Hungary or Russia, which tried to replicate industries in place in Britain in the late 19<sup>th</sup> century (Gerschenkron 1962). While GDP statistics are scarce for individual countries, purchasing power parity estimates by Maddison (2006) indicate that their per capita GDP represented 25 and 30 percent of that of Britain in 1900. Such a large gap made any attempt by the former to develop British industries unrealistic.<sup>29</sup> Most developing countries fell in the same trap after World War II. They often targeted advanced industries in advanced economies when their per capita incomes represented only a very small fraction of that of high-income countries. After gaining their independence from colonial powers, many countries considered the development of advanced heavy industries as a key symbol of their freedom, a sign of strength, and a political statement of their reputation on the international scene. Across Latin America, Africa and South Asia, some of these newly independent countries were run by political leaders with leftist inclinations and chose to follow the prevailing Stalinist model of state-led industrialization through the development of advanced heavy industries regardless of their political denominations. State resources were used in the industrialization push, with resources directly allocated to various investments, and large public enterprises set up in almost every sector of the economy—all deemed strategic for the survival and modernization of the nation. Under the “macroeconomics of nationalism” (Monga 2006), the criteria for designing industrial policies and selecting specific sectors for government intervention were mostly political.

In parallel to political aspirations for heavy-industry development, there was an obsession with “market failure” in academic circles—especially in Latin American countries. Many influential economists and policymakers there (Albert Hirschman, Raul Prebisch, Roberto Campos, and Celso Furtado among others) argued that industrialization and growth could not take place spontaneously in developing countries because of structural rigidities and coordination problems.<sup>30</sup> They recommended that government support be provided to the manufacturing

> 28 According to Maddison (2006), Hong Kong’s per capita income in 1970 measured in 1990 international dollars was 5,695, whereas that of Mauritius was 2,945.

> 29 As discussed earlier, a similar policy was pursued successfully in Germany, France, and the USA at the same time. Their per capita incomes ranged from 60 percent to 75 percent that of Britain.

> 30 The new field of development economics was regarded as covering underdevelopment because “conventional economics” did not apply (Hirschman 1982). Early trade and development theories and policy prescriptions were based on some widely accepted stylized facts and premises about developing countries (Krueger 1997); these