The Paradox of Catching Up: Why Being Behind Can Be a Blessing for Emerging Markets

The idea that being backward can be beneficial may seem counterintuitive. However, it’s an argument made by some of the most astute observers of economic development, including Leon Trotsky, who posited that “backward” countries have a unique advantage in catching up with their more advanced peers.

At first glance, this notion seems absurd – what could possibly be beneficial about being behind? But upon closer examination, it becomes clear that Trotsky’s argument has merit. The context of China’s rapid growth and development illustrates the truth in his words.

Trotsky argued that countries starting from a lower level of economic development have an advantage when adopting new technologies and ideas. They lack the entrenched interests, bureaucratic red tape, and legacy infrastructure that hinder more advanced nations. As a result, they can skip over intermediate stages and adopt current practices.

China’s “privilege of historic backwardness” allowed it to leapfrog many contemporaries and become one of the world’s leading economies in just a few decades. Other emerging markets, such as South Korea and Singapore, have also used their own version of Trotsky’s “privilege” to rapidly catch up with more established nations.

For smaller businesses operating in these markets, being backward doesn’t necessarily mean being inflexible. Many emerging markets are characterized by a willingness to experiment and take risks – precisely because they have fewer established interests to protect. For instance, Vietnam’s thriving e-commerce sector has grown exponentially despite relatively low digital penetration. Vietnamese entrepreneurs have created innovative solutions that meet local needs with remarkable success.

While this approach isn’t without its challenges, the lack of institutional infrastructure can make it difficult for businesses to scale up and achieve real growth in emerging markets. However, being part of a larger market ecosystem can be beneficial: established players may partner or invest in smaller companies.

For small businesses looking to operate in emerging markets, understanding the local context and adapting quickly to changing circumstances is key. Rather than replicating more advanced countries’ models, entrepreneurs should focus on finding innovative solutions that meet specific needs – and be prepared to pivot when necessary.

The “privilege of historic backwardness” serves as a reminder that being behind can indeed be an advantage. Emerging markets are able to leapfrog intermediate stages and create new opportunities for growth and development by embracing new technologies and business models.

However, this raises important questions about the role of foreign investment and aid in these countries. Can the “benefits” of backwardness be replicated elsewhere – or do they depend on a unique combination of historical, cultural, and economic factors?

As emerging markets continue to shape global commerce and industry, understanding their complexities may reveal that being behind can indeed be a blessing – for business, people, and economies around the world.