Trustees of Princeton University
Review: East Asia's Economic Success: Conflicting Perspectives, Partial Insights, Shaky
Evidence
Author(s): Robert Wade
Source: World Politics, Vol. 44, No. 2 (Jan., 1992), pp. 270-320
Published by: Cambridge University Press
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ReviewArticle
EAST ASIA'S ECONOMIC SUCCESS
ConflictingPerspectives,Partial Insights,
ShakyEvidence
By ROBERT
WADE*
Alice Amsden. Asia's Next Giant: South Korea and Late Industrialization.
New York: Oxford UniversityPress, 1989, 379 pp.
Stephan Haggard. Pathwaysfrom the Periphery:The Politicsof Growthin the
Newly IndustrializingCountries. Ithaca, N.Y.: Cornell University Press,
1990, 276 pp.
Helen Hughes, ed. Achieving Industrializationin East Asia. Cambridge:
Cambridge UniversityPress, 1988, 377 pp.
Don't listen to "comparative advantage" advice. Whenever we
wanted to do anythingthe advocates of comparativeadvantage said,
"We don't have comparativeadvantage." In fact,we did everything
we wanted, but whateverwe did, we did well.
-Governor Park
Korea Central Bank'
I do not believe thatthe firmscould have organized a supercomputer
projectthemselvesbecause businesspeopledid not believe in the feasof this kind of supercomputerin the near fuibilityand profitability
ture. Our pressureor promotionwas needed.
-Senior
O
THE
NEOLIBERAL
INTERPRETATION
OF EAST ASIAN
MITI
official2
SUCCESS
VER the past two decades a literature big enough to fill a small
airplane hangar has been produced on the causes of East Asian
economic success. Of that which is economically literate the mainstream
adopts what could be called a "neoliberal" interpretation. This says that
* The authoracknowledgesAdrian Wood, Ronald Dore, ManfredBienefeld,Olivia CoxFill, JulieGorte,and Michael Lipton. The usual exonerationapplies withmore than usual
force.
I Quoted in YoginderAlagh, "The NiEs and theDeveloping Asian and PacificRegion: A
View fromSouthAsia,"Asian Development Review 7, no. 2 (1989), 116.I thankDevesh Kapur
forthisreference.
2 Cited in MartinFransman,The Market and Beyond: Cooperation and Competition in Information Technology in theJapanese System (Cambridge:CambridgeUniversityPress,1990),
176.
World Politics 44 (January 1992), 270-320
EAST ASIA'S ECONOMIC
SUCCESS
271
the East Asian countrieswere more successfulthan othersin termsof
long-rungrowthbecause, in essence,theystuck more firmlyto the prescriptionsfor short-runefficientresource allocation derived from the
theoremsof neoclassicaleconomics.
Neoliberal here refersto a subsetof neoclassicaleconomics. Its members believe thatas a general rule the neoclassicalprescriptionsforshortrun optimal resourceallocation are also the core recipe formaximizing
the rate of long-termgrowth. Other neoclassicals, by contrast,draw
more of a distinctionbetween the two kinds of analyses,introducinga
more complex array of variables into growth issues than they use for
questions of optimum resource allocation. Neoliberals are inclined to
think that "gettingthe prices right" is both a necessaryand a nearly
sufficientconditionformaximizing the rate of long-termgrowth("getting" in the sense of lettingprices findtheirrightlevels,and "right" in
the sense of the relativeprices establishedin freelyoperatingdomestic
and internationalmarkets); other neoclassicals would say that it is no
more than necessary.Relatedly,neoliberalsbelievethatmostmarketfailure is a resultof governmentpoliciesand that,even in thoseuncommon
cases where marketfailureoccurs forotherreasons,the welfarecosts of
remedial governmentinterventioncan oftenbe expected to be greater
than the welfaregains. This weightingof probabilitiesis based on a relativelycoherenttheoryof perversegovernment,as set out, forexample,
in the works of William Niskanen and David Colander.3
In the neoliberal view, growth is a natural or inherentpropertyof
capitalisteconomies. Governmentshave an importantrole in providing
those "public goods," such as physicalinfrastructure,
law enforcement,
macroeconomicstability,and perhaps education,thatare difficultto arrange through private contracts.But beyond that they should not go,
except in those rare cases of marketfailurereferredto above. The problem is thatmost governmentshave in factgone well beyondtheselimits,
and Representative
Government
3Niskanen, Bureaucracy
(Chicago: Aldine-Atherton,
1971);
and DUP Activand Colander, ed., NeoclassicalPoliticalEconomy:The AnalysisofRent-seeking
ities(Cambridge: Ballinger,1984). For an academic example of neoliberaldevelopmenteconomics,see Deepak Lal, The Povertyof DevelopmentEconomics(London: IEA Hobart Paperback no. 16, 1983). For a policy paper based on neoliberal assumptions,see, e.g.,
AcceleratedDevelopmentin Sub-saharanAfrica:An Agendafor Action(Washington,D.C.:
World Bank, 1981),commonlyknown as the Berg report.For an exampleof tendentioususe
of evidence in the neoliberalcause, see Michael Michaelyet al., LiberalizingForeignTrade:
LessonsofExperience
vols. 1-7 (Oxford:Blackwells,forthe World
fromDevelopingCountries,
Bank, 1991), esp. summaryvolume. For a critiqueof neoliberalism,see ChristopherColclough, "Structuralismversus Neo-liberalism:An Introduction,"in Colclough and James
and theDevelopmentPolicyDebate (Oxford:
Manor, eds., Statesor Markets?Neo-liberalism
Oxford UniversityPress, 1991). For a critiqueof the studyby Michaely et al., see David
Evans, "Institutions,Sequencing, and Trade Policy Reform" (Geneva: UNCTAD, May
1991).
272
WORLD POLITICS
intentionallyor not,with the freeworkadopting policies thatinterfere,
ing of markets.East Asian governmentshave stayedwithintheselimits.
Hence, East Asian economic success,which in turnresoundinglyvindicates the general neoliberalprescriptions.
Those who outline thisargumentas a preliminaryto a critique often
find themselvesaccused of settingup a strawman; no respectedeconomist is as simplisticas that,theyare told. So it is importantto establish
that thisis a fairshortsummaryof the core neoliberalposition,thatit is
what respectedeconomistssay.Enter Helen Hughes,4editorofAchieving
Industrializationin East Asia, definitelynobody's idea of a straw man.
What policies have been criticalto economic success in East Asia? she
asks. Her answer:
exports"(thatmostoftheEast Asian
The conclusionis that"unshackling
at first
shackled)hasbeenthekeytosuccess.Howcountries
had themselves
needsseveral[other]policy
performance
ever,itis also clearthatsuccessful
and theruleoflaw are essential.Economicpolstrands.Politicalstability
distorted
priceslessthanwas thecase in mostotherdeveliciesapparently
all
successful,
was relatively
management
macroeconomic
opingcountries;
weredeveloped,and publicinagriculture,5
economicsectors,
particularly
facilities
was productive.
vestmentin social and physicalinfrastructural
the
did notprevail,as in thePhilippines,
Wheretheseeconomicconditions
economyfaltered.Governmentsthus provided the environmentfor
made theindespiteriskand uncertainty,
growth;butprivateenterprise,
becompetition
and through
exposuretointernational
vestments
necessary
and profitable.
(pp. xv-xvi)
cameefficient
As for replicationby poorer countries,"There seems littledoubt that
ifotherdevelopingcountrieshad followedsimilareconomicpoliciesthey
would also have grown more rapidlyand would thus have been able to
alleviate the povertyof theirlow income groups as well as avoiding high
national indebtedness"6(p. xvi). This is cast in the past tense-"if other
4Professor of economicsand directorof the National CenterforDevelopmentStudies at
a high-rankingofficialat the World Bank.
the AustralianNational University,formerly
5 It is not clear what Hughes means at this point,but she presumablymeans that the
governmentdirectedits attentionto developingagriculture,among othersectors.But state
policies toward agriculturein Korea and Taiwan differedgreatlyfromstandard marketbased prescriptions.For an account of the highlydirigisterole of the state in developing
Korean and Taiwanese agriculture,see Wade, "South Korea's AgriculturalDevelopment:
The Mythof the Passive State,"PacificViewpoint24 (May 1983); idem,Irrigationand AgriculturalPoliticsin SouthKorea (Boulder, Colo.: WestviewPress, 1982); Mick Moore, "Economic Growth and the Rise of Civil Society:Agriculturein Taiwan and South Korea," in
Gordon White,ed., The DevelopmentalStatein East Asia (London: Macmillan,1988).
6 In additionto thechaptersmentionedin thispaper,thebook includespapersbyChenery
in East Asia), Parry(on the role of foreigncapital),
(on alternativeviews on industrialization
and economic
Wade (on the role of government),Harberger(on growth,industrialization,
structurein East Asia and Latin America),Lal (on ideologyand industrializationin India
and East Asia), Hirono (on Japanas a model), Haggard (on the politicsof industrialization
EAST ASIA'S ECONOMIC
SUCCESS
273
developing countrieshad followed"-but it is clearlyintended to apply
today.
According to Hughes, then,economic developmentreally is simple.
The experienceof East Asia confirmsAdam Smith's insightof two hundred years ago that "littleelse is requisiteto carrya stateto the highest
degree of opulence fromthe lowest barbarism,but peace, easy taxes,and
tolerable administrationof justice; all the rest being broughtabout by
the natural course of things."7Conversely,governmentsof the less successfuldeveloping countriesstand condemned for holding back the escape frompovertyand high national indebtedness,among other ills, by
with marketsand undersupplyingpublic goods.
interfering
JamesRiedel,8also nobody's idea of a strawman, concludes his overview essay in the Hughes volume on the same note: "The policy lessons
that derive fromthe experiencesof the East Asian countriesare simple
and clear-cut,and for that reason are all too readily ignored or dismissed" (p. 38). The lessonsare, above all, that
neo-classical economic principlesare alive and well, and working particularly effectivelyin the East Asian countries.Once public goods are provided for9and the most obvious distortionscorrected,marketsseem to do
the job of allocating resources reasonablywell, and certainlybetterthan
centralized decision-making. That is evident in East Asia, and in most
otherpartsof the developing and industrialworld,and is afterall the main
tenetof neo-classicaleconomics. (p. 38)
What evidence does Riedel provide? He readilyadmits that "governments have been deeplyinvolvedin the economies of all the East Asian
countries,"including Hong Kong.'0 They have been "activelyengaged
in managing the systemof industrialincentives."For example, "The
level of protectionin the Republic of Korea, apart from that faced by
exporters,has remainedhigh" (p. 32; emphasis added). One might have
expectedhim to address the obvious nextquestion. If the level of protectionon domesticsales has remainedhigh (not furtherspecified),why has
Korea's economic performancebeen so good, given thatthe most central
of all neoclassical development prescriptionsconcerns the benefitsof
nearlyfreetrade? He agrees that "the area of governmentinvolvement
in Korea and Taiwan), Mackie (on the politicsofgrowthin ASEAN), O'Malley (on cultureand
industrialization).
7Smith, An Enquiryinto theNatureand Causes of the Wealthof Nations,ed. E. Cannan
(New York: Random House, 1937).
8 Professorof international
economicsat The JohnsHopkins University.
9 It is possibleto definea publicgood to permithuge amountsof stateactivity.
10But Riedel also says (Hughes, 35) thatthe Hong Kong government"has confineditself
largelyto minimalfunctions,"fromwhich we could inferthathe intendsthe term"deeply
involved"to cover involvementlimitedto "minimal[Smithian]functions."
274
WORLD POLITICS
most difficultto evaluate is the managementof the systemof incentives
which guide private economic activity."Nevertheless,he leaves the
reader with the strongpresumptionthat"governments'main contribution to economic success in the East Asian countrieswas . . . principally
in removingtheobstaclesto growthwhichtheythemselves
put therein the
firstplace," that East Asian governmentsmade theirtask unnecessarily
complicated by having to "anticipateand offsetthe market distortions
that result from [theirown] dirigistestrategiesof industrialization"(p.
37; emphasis added). So while the factof "governmentintervention"in
East Asia is acknowledged,it is given scant analysis;the effectsof interventionare assertedwithvirtuallyno basis in evidence.In particular,key
challenges,such as the combinationof Korea's admittedhigh protection
with itsadmittedgood performance,are ignored.The dirigistestrategies
of industrializationare presentedas mistakesthatrequired furthergovernmentinterventionto offsetthem (such as export subsidies to offset
import protection);the idea that those dirigistestrategiesmight have
helpedindustrializationis not even entertained.
The chapter in Hughes by Seiji Nayall displays the same habits of
thought.Naya, too, recognizesthat "the incentivesystemapplied in the
freeof bias. Some industries,particularly
NICS was, of course,not entirely
intermediateand engineering goods industries,enjoyed heavily protected domestic markets at the expense of traditionalconsumer goods
industries"(p. 84). But he gives no evidence for the magnitude of the
incentivebias and saysnot a word about itseffectson output.He merely
repeats the conventionalconclusion that "the betterperformanceof the
NICS with respectto economic growth,employmentand income distribution compared to the resource-richASEAN countriescan, to a large extent,be relatedto a combinationof more thoroughand timelyadoption
of outward-looking,market-orientedpolicies and rapid improvements
in human resource and institutionaldevelopment" (p. 93). Neither he
nor the other contributorsto AchievingIndustrialization
in East Asia examines issues having to do with technologicalchange. As in most simple
neoclassicalwriting,technologyis assumed away, treatedimplicitlyas an
intermediatedependent variable that adjusts easily once the correct
(trade-policy-derived)incentivestructureis set in place in the economy
as a whole.'2
11Directorof the Resource SystemsInstituteat the East-WestCenter,formerly
the chief
economistof the Asian DevelopmentBank.
12
There is, however,a neoclassicaleconomicsof induced innovation,both technological
thatis seriousand interesting,
and institutional,
thoughlacking (1) a supplyside of science,
institutional
and technologicalinnovation(powered by
(2) a theoryof government-directed
inertia.
thingsotherthan factorscarcities),and (3) a theoryof institutional
EAST ASIA'S ECONOMIC
SUCCESS
275
Much of what these neoliberal authors say about the causes of East
Asian success is unexceptional.Hughes is rightto highlightthe role of
private enterprise-although it has been a long time since any serious
economisturged public enterprisesas the main vehicle of development.
She is rightto implythatin manyless developed countriespublic policies
have made mattersworse,and thatthesecountriescould have done better had their policies been more like East Asia's. And Riedel is quite
rightto say thatmarketsallocate resourcesbetterthando centraldecision
makers withoutmarkets(if theseare the only choices). But thisis pretty
anodyne stuff.The problemis thattheseand otherneoliberaleconomists
shy away fromsubjectingtheirbeliefsto serious empiricaltest,yet they
are powerfulenough to get those beliefswidely accepted,especiallyvia
internationalfinancialinstitutionslike the IMF and the World Bank.
EAST AsIA's SUCCESS?
Let us firstconsider the startingpoint of the whole exercise,the claim
that what is to be explained is the superiorityof capitalistEast Asia's
economic performancecompared with that of other "newly industrialized," "late developing,""intermediate,"or "semiperipheral"countries.
We concentrateon South Korea, which has receivedthe bulk of the attention.Has Korea really been outstandinglysuccessful?It is to be rememberedthatas recentlyas the mid-1970ssome prominentanalystson
the Left were writingoffKorea as "a house built on sand," a "tottering
neo-colony,"an export platformwhose success would last only as long
as wages were kept below thoseof competitors-this,in explicitcontrast
to themore viable communisteconomyof theNorth.'3The analystslambasted the South with chaptertitleslike "GNP VS. the People" and "South
Korean Society:The Deepening Nightmare."
It is true that Korea's record containsplentythat could qualify a eulogy of growth.Life expectancyat birth(sixty-nineyearsin 1986) is below Sri Lanka's, yet Sri Lanka's per capita income is only a sixth of
Korea's; and Korea is in the bottomhalf of a lifeexpectancyrankingof
upper-middle-incomecountries.'4The environmenthas become seriously polluted: Seoul's air is said to have one of the highestconcentra13
Aidan Foster-Carter,"North Korea: Development and Self-reliance,a Critical Appraisal,"Bulletinof ConcernedAsianScholars9, no. 1 (1977). See also Gavin McCormack and
JohnGittings,eds., Crisisin Korea (Nottingham:BertrandRussell Peace Foundation, for
of South Korean developSpokesman books, 1977). For more discussionon interpretations
ment,see Wade (fn.5, 1982).
14 World Bank, WorldDevelopment
Report1988 (Washington,D.C.: World Bank, 1988),
Table 1.
276
WORLD POLITICS
tionsof sulfurdioxide in the world.'5Its trafficcrawls at not much more
than half the speed of trafficin New York or London. Much of the
country'surban tap water is said to be unfitfordrinking.There is some
evidence that the applicationof exceedinglyhigh levels of chemical fertilizerto meet governmenttargetshas harmed the chemical composition
of the soil.'6 And in termsof civil and political rightsno one holds up
South Korea as a model, except in comparison with the North. In the
1970s it came about halfwaydown a rankingof civil and political rights
in middle-income countries; in 1983, about two-thirdsof the way
down.'7 Surveillance by the secretpolice has been pervasive,and a formidable coercive capacity remains in place. Independent labor unions
have been repressed.The male-femaleindustrialwage gap is, according
to Amsden, about the biggestin the world,rivaledonlybyJapan's.What
has happened to such values as civic responsibility,
sacrifice,loyalty,and
happiness I do not know.
Moreover, Korea's economic importance is often exaggerated, as
though it is on the verge of becominganotherJapanor Germany (as in
Amsden's title,Asia's Next Giant). In fact,it accounts foronly 0.87 percent of world population (against Japan's2.6 percent)and only 0.8 percent of world GDP (against Japan's 15.4 percent).In area it is a quarter
the size of Japanand less than a quarterof California.Its per capita U.S.
dollar income,expressedas a percentageof the average of the Northwest
European and North American core,was only 8 percentin 1960, 13 percentin 1980,and 20 percentin 1988.These figurespale alongside Japan's:
23 percentin 1960, 76 percentin 1980, 118 percentin 1988.18 Korea is
hardlya "miracle" in the Japanesecontext.And it remains,as in 1960,
by far the poorestof the fourEast Asian newly industrializedcountries
(NICS): per capita income in 1986 was only two-thirdsof Taiwan's, onethirdof Hong Kong's, and less than one-fifth
of Japan's;and it was onequarter of Britain'sand 14 percentof the U.S.'s. 9
This having been said, Korea is neverthelessoutstandinglysuccessful
by at least four key indicators.The firstis the gain in its relativeeco15 Economist,"The Environment:A Survey,"September2, 1989,p. 7; Sonya Hepinstall,
"A Smell of Success in the BattleagainstPollution,"Far EasternEconomicReview,July18,
1989,p. 70. Cited in Waldon Bello and StephanieRosenfeld,"Dragons in Distress:The Crisis
of the NICs," WorldPolicyJournal(September1990).
16 Wade
(fn.5, 1982),103 and chap. 5.
17
Wade, GoverningtheMarket:EconomicTheoryand theRole of Government
in East Asian
Industrialization
(Princeton:PrincetonUniversityPress,1990),254.
18 Giovanni Arrighi,"World Income Inequalities and the Future of Socialism" (Binghampton:Braudel Center,StateUniversityof New York, 1990).
19The figurewas $2,372 in 1986,as against$17,475forthe U.S. and $8,870 forthe U.K.
See Wade (fn. 17),Table 2.1.
EAST ASIA'S ECONOMIC
SUCCESS
277
nomic command over world resources,measured by the increase in per
capita income expressedin U.S. dollars.20In 1962 Korea ranked 99th in
the world, and U.S. aid officialsare said to have wondered audibly
"whether [it] was to remain indefinitelya pensioner of the United
States."2'A quarter centurylater,in 1986, it was 44th. In Giovanni Arrighi and JessicaDrangel's large sample of countries,Korea is the only
countryto have jumped fromtheir"periphery"to their"semiperiphery"
between 1938-50 and 1975-83 (Taiwan would have been there,too, had
it been included).22Its performancewas especiallygood over the 1980s.
Whereas in 1976 its per capita income ($670) was less than Malaysia's
and a bit more than half of Mexico's and Brazil's, by 1988 its figureof
$3,600 was far above the figuresfor Malaysia, Mexico, and Brazil and
about equal that for Portugal.23Indeed, Korea (and Taiwan) stand out
from virtuallyall other countries of Eastern Europe and the Third
World forhavingreducedthe income gap with the NorthwestEuropean
and North American core between 1980 and 1988. Everywhereelse the
20
Note that use of per capita dollar income to measure increasingor decreasinggaps
betweencountriesor regionsis always problematicbecause of the complicationsintroduced
incomedistribution).To
by changingreal exchangerates(to say nothingabout intracountry
get a gap measure that more accuratelyreflectswelfare,one should use purchasingpower
paritymeasures of income (now available in the tables in the World Bank's annual World
DevelopmentReport)or qualifythe dollar gap by changes in real exchange rates (and add
termsof trade changes as well). This is especiallyimportantin the contextof the trend
reportedlater in this paragraph,of a dramaticwideningof the gap betweencore countries
and almost everywhereelse during the 1980s.The polarizationwould be less, though still
serious,if eitherof these adjustmentswere made. Adrian Wood findsthat forthe period
1965-83about two-thirdsof the increasein theper capita GNP gap betweenindustrialmarket
economies and low-income countries,measured in currentU.S. dollars, was due to real
changesin theexchangerate;formiddle-incomecountriesthegap would have narrowedbut
for real changes in the exchange rate.See Wood, "Global Trends in Real Exchange Rates,
1960-84,"WorldDevelopment19,no. 4 (1991); and idem,"Puzzling Trends in Real Exchange
Rates: A PreliminaryAnalysis"(Mimeo, Instituteof Development Studies,Sussex Univerattentionto these
sity,Brighton,1986). Arrighi'simportantwork is marredby insufficient
matters;the same holds formy own use of per capita income comparisons(fn. 17). Anyone
concernedto explain trendsin the distributionof world wealth or income mustaddress the
question of the real incomeeffectsof the secularappreciationof the exchangeratesof industrialcountriesrelativeto thoseof the restof the world.Have such changescaused systematic
changes in incomedistributionbetweenor withincountriesor regions?
21 Edward Mason et al., The Economicand Social Modernization
of theRepublicof Korea
(Cambridge: Harvard UniversityPress, 1980), 181. This claim, that many observersin the
1950sand intothe early 1960sconsideredKorea a "basketcase," is oftenrepeated,the better
to highlightthe subsequentsuccess. I have not seen actual evidence fromdocumentaryor
othersources.LarryWestphalsays(in a personalcommunication)thatMason et al. drew on
his own verbalreport,based on U.S. documentsthathe saw butdid notcopywhile employed
as a foreignadviser in the Korean planningagencyin the late 1960s.To my knowledge the
"basket case" storyrestson this.
22 Arrighiand J.Drangel, "The Stratification
of the World-Economy:An Explorationof
the SemiperipheralZone," Review 10 (Summer 1986).
23 World Bank, WorldDevelopment
Report(Washington,D.C.: World Bank, 1978, 1990),
Table 1.
278
WORLD POLITICS
Brazil's average income, for exdollar gap has widened calamitously.24
ample, rose from 12 percentof the core's in 1960 to 18 percentin 1980,
only to drop like a stoneback to 12 percentby 1988. This is the Brazilian
"miracle."25
The second indicatorof Korea's successis trade performance:in 1962
Korea was the40thbiggestexporterof manufacturesto theU.S.; in 1986,
the fifth.
This does not refer
The third indicatoris industrialtransformation.
ratio
to the rapid rise of industryin total GNP, for by the industry/GNP
even Eastern Europe does quite well, thankspartlyto the odd way these
thingsare measured. (In a highlyprotectedeconomythe domesticprices
at which industrialproductsare measured are not world market prices,
so the less efficienta sector is in world prices the greater its apparent
contributionto GNP.) Rather,the indicatorof industrialtransformation
refersto the rise of skill-intensive,
high-value-addedindustriesthat are
competitiveat world marketstandardsof costand productspecifications.
The most spectacularKorean case is the semiconductorindustry,maker
of the leading input of the new technologicalparadigm.26Korea is the
world's third biggest producer,afterJapan and the U.S., of advanced
semiconductormemorychips. Most of the chips are produced by Korean-owned firms,which are draftingcloselybehind the world leaders,
well ahead of all European semiconductormakers.Several otherKorean
industries-notably, computers,automobiles,steel, and constructionare also having a sizable impacton the world economy.27
The finalindicatoris the removalof poverty,the eliminationof severe
Consider the numeconomic hardship,the expansionofpositiverights.28
ber of hours of work it takes an adult male unskilledcitylaborerto earn
theequivalent of one hundredkilogramsof thebasic foodgrain. (A composite measure forfood plus shelter,qualified by rateof unemployment,
would be much more accurate, but data are not available.) Fernand
Braudel presentsthis figurefor sites in Western Europe between 1400
and 1950, using wheat. In the fifteenth
centuryand firsthalf of the six100
it
the
was
below
teenth
figure
hours; then rose and remained above
100 hours until 1880; by 1920-30 in France it had fallen to between 40
and 60 hours.29I have made the calculation forTaiwan, not for Korea,
24
South Asia is an exception.Its average income in relationto the core fellonly slightly,
froma dismal 2 percentin 1980 to 1.8 percentin 1988. But see fn.20.
25 Arrighi(fn. 18).
26
See Giovanni Dosi, ed., TechnicalChangeand EconomicTheory(London: Pinter,1988).
27
For a briefaccount of Korea's automobileindustry,see Wade (fn. 17), 309-12; on steel,
see Amsden,chap. 12.
28 C. Fried, Rightand Wrong(Cambridge: Harvard University
Press,1978).
29
Braudel, Civilizationand Capitalism,Fifteenth-Eighteenth
Century,vol. 1, The Structures
EAST ASIA'S ECONOMIC
SUCCESS
279
but the Korean trendwould be similar.In Taiwan during the 1950s the
figure was in the range of 150-200 hours (as in France from 1700 to
1850). By the early 1980s it had fallento 40-60 hours,about the same as
in France between 1920 and 1930.30 In Korea it was probablymore like
60-80 hours by the early 1980s, like France at the turn of the century.
Having lived in an Indian village where a sizable proportionof the population has to put in 230 hours,3'and in the United States where the
figurefor those earning the minimum wage was about 15 hours in the
mid-1980s (my own figurewas halfan hour), I give thishuge reduction
in hardshipa big weightin any notionof progress.
Taking theseseveralcriteriatogether,I have no qualms about accepting the mainstreamview that the question is, indeed, to explain why
Korea and the other Asian NICS have been more successfulthan other
poor countriesin the postwarera.32As forwhat thosecriticson the Left
said in the mid 1970s, it is hard to thinkof a clearer refutationin the
whole of social science.33
WHAT
THE NEOLIBERAL
EXPLANATION
IGNORES
To say thatthe Left criticsgot it wrong is not to say thatthe neoliberals
got it right.The neoliberalshave tended eitherto ignore contraryevidence or to acknowledge it withoutthoughtfor its theoreticalimplicaof EverydayLife (London: Collins, 1981), 135, chart 15. Note that the chart excludes the
seventeenthcentury.And note the mistakein the verticalscale: the line marked 0 should be
10,the line marked 10 should be 20, the line marked20 should be 30, and so on, in logarithmic order (using unitsof ten hours). Due to thismistake,I mistakenlyreportedthe results
in earlier publications,sayingthat real wages "rarely"fell so low in westernEurope as to
cross the 200-hourline. In fact,between 1700 and 1860 about one-thirdof the observations
are at or above 200 hours,and between1560and 1600,about two-thirds.This is not rare.See
ofCollectiveActionin SouthIndia (Cambridge:
Wade, VillageRepublics:EconomicConditions
Cambridge UniversityPress,1988),35; idem,"What Can Economics Learn fromEast Asian
Success?" Annals505 (1989); and idem (fn. 17),39.
30 Wade (fn. 17), Table 2.4 and p. 39. The figureforNew Delhi in early 1991 was 140-67
hours (Rs. 25-30 per day, 7 hoursa day, rice at Rs. 6/kg.);forCape Town at the same time,
about 50 hours (but therecommutingcostswould be unusuallyhigh). The differencehighlightsSouth Africa'sindustrialization
problem.
31 Wade (fn.29, 1988),35.
32 North Korea may show a similar reductionin this indicatorof hardship,via central
planning,and may have eliminatedpovertyin food and savingsearlier.If so, theseare importantachievements.But the capacityof the North Korean economyto providerisingreal
wages and a diversifiedconsumptionbundle is much lower than that of South Korea; its
politicaland civil rightsare also farmore attenuated,and the conditionsof work in agricultureand industryprobablyare farworse.
33 Anothergood case is Pahl and Winkler's 1974 predictionthata systemof corporatism
would be establishedin Britain"by 1980." See R. Pahl and J.Winkler,"The Coming Corporatism,"New Society10 (October 1974). It would be interestingto hear fromGittings,
McCormack,Foster-Carter,and theotherswhytheythinktheirpredictionsforSouth Korea
and North Korea turnedout to be so wrong.
280
WORLD POLITICS
tions. This selectiveinattentionto data that would upset the approved
way of interpretingthingsand the use of repetitionas a chiefweapon of
argumentare two strongsigns that the neoliberal paradigm is in a degenerativestage,taking on attributesof a disciplineddelusional system.
And like classical ecoLike much Marxistwritingof the 1970s,in fact.34
nomics during the Great Depression, beforeKeynes's theoreticalbreakthrough.
Where are the responsesto David Evans's findingthat the heightof
protectionand static efficiencyare much less importantfor economic
performancethan the exchange rate and the wage rate?35Or to Colin
Bradford'sfindingthat"on average thereis not any associationbetween
outward versus inward orientationand a general measure of price distortionin the two key variables (the exchange rate and the real interest
rate)"?36Or to Hans Singer's findingthat per capita income is a better
predictorof economic performancein a large cross sectionof countries
Where are the detailedexamithan is inward or outward orientation?37
nations of the trade regimesof Korea, Taiwan, and especiallypre-1970
Japan-of theirinnerworkingsand theireffectson both the structureof
incentivesand output?38Where are the detailed neoliberal analyses of
the vigorous government effortsto expand national technological
capacity in East Asia--effortsthat are intendedto be selectivebetween
industriesand thatthereforeconflictwiththe injunctionagainst "targetIng"?
It is not just that challenges fromother scholarsare oftenignored. It
is also that neoliberal interpretersof East Asia are prone to avert their
of much Marxistwritingon a theoryof
34 By way of example, thinkof the scholasticism
the state.See MartinCarnoy,The Stateand PoliticalTheory(Princeton:PrincetonUniversity
Press, 1984).
in Theoryand Practice
35 Evans, Comparative
Advantageand Growth:Tradeand Development
(Hemmel Hempstead: Harvester-Wheatsheaf,
1989),sec. 9.6.
36 Bradford,"The NICs: Confronting
U.S. 'Autonomy,'" in R. Fienberg and V. Kallab,
Crisisin the ThirdWorld(New Brunswick,N.J.: TransactionBooks, 1984),
eds., Adjustment
125.
37 Hans Singer,"The WorldDevelopment
Report1987 on the Blessingsof 'Outward Orientation':A NecessaryCorrection,"JournalofDevelopmentStudies24, no. 2 (1988).
38 Why has JagdishBhagwati,one of the mostcreativeof trade theorists,
not done more
than an ellipticalpirouettearound the East Asian cases? See Bhagwati,Protectionism
(Cambridge: MIT Press, 1988). It is curiousthatso few of thosewho believe passionatelyin free
trade have looked carefullyat Japan's pre-1970trade regime,which would seem to be a
criticalcase. For furtherdiscussion,see Wade (fn.17),chaps.3, 5, 10; idem,"How to Manage
Trade: Taiwan as a Challenge to Economic" (forthcoming);and idem, "The Rise of East
Asian Trading States: How They Managed Their Trade" (Mimeo, Trade Policy Division,
World Bank, Washington,D.C., 1988). The latterwas writtenwhile I worked in the same
divisionof the bank thatpreparedthe bank's policypaper on trade reform.The paper definedissues in importreformas beingabout how to liftrestrictions;
it ignoredissuesof how
to manage importsbetterand said virtuallynothingabout the East Asian experienceof
importmanagement.
EAST ASIA'S ECONOMIC
SUCCESS
281
eyes fromcontrarydata even when it staresthem in the face. So we find
thatIan Little,39
as partof his generalargumentthatKorea succeeded in
large part because the governmentallowed the "right"pricesto prevail,
citesthe factthatthe governmentset high real interestratesthroughthe
banking system,as is "right"in a capital-scarceeconomy.He relateshow
these high rates stimulatedsavings,which in turnpermittedhigh levels
of (labor-intensive)investment.And at thatpointin the discussionof the
capital market, he stops. But markets,like scissors,have two sides: a
supply side and a demand side. Had Little moved fromthe supply side
of the capital marketto the demand side,he would have had to confront
the way that creditwas being allocated in Korea. At that point the detailed involvementof the governmentin credit allocation would have
been hard to ignore. The governmentused "liberal" methods (high administeredinterestrates, which are liberal only in the sense of corresponding more closelyto scarcityvalue) to get savings into the banking
system;it then allocated those savings by "nonliberal" methods,being
able to do so by virtueof the fact(not mentionedby Little) thatit owned
the banks. Its involvementbecame all the more intenseafterthe early
1970s, when the real interestrate on a large share of bank loans was
made verylow. For (anotherdetail Little failsto note in a paper written
nearly ten years later) the so-called liberal high real interestrate policy
prevailed foronly a shorttime,fromabout 1967 to 1971.40
The literatureon Taiwan resortsto the same device. In an overview
of how Taiwan "did it," Walter Galenson says,"The governmentmade
a major contributiontowardthe facilitationof capital formationby keeping its expendituredown.. .. Taxes were maintainedat a relativelylow
level, averagingabout 14 to 15 percentof the GNP."4' AlthoughGalenson
wrote these words in 1981, it had last been true in 1967; in the interim
taxes were always higher.In anotheroverview of Taiwan, Little writes
that "public industryhas until recentlybeen of rapidlydecliningquantitativeimportance."42But he neglectsto mention that from the early
39 Littleformerly
held a
chairin economicsat OxfordUniversity.
Little,"The Experienceand Causes of Rapid Labour-IntensiveDevelopmentin Korea,
Taiwan Province,Hong Kong and Singapore; and the Possibilitiesof Emulation," in Eddy
and Development(Geneva: Asian EmploymentProLee, ed., Export-ledIndustrialization
gramme,InternationalLabour Organization,1981).For the role of the Korean government
Businessand Entrepreneurship
in creditallocation,see LeroyJonesand I1SaKong, Government,
in EconomicDevelopment:The Korean Case (Cambridge: Harvard UniversityPress, 1980).
41 Galenson, "How to Develop Successfully:
The Taiwan Model," in Galenson, Experiencesand Lessonsof EconomicDevelopmentin Taiwan (Taipei: Instituteof Economics,Academia Sinica, 1982),80. Galenson retiredas professorof economicsat Cornell University.
42 Little,"An Economic Reconnaissance,"in Walter Galenson, ed., EconomicGrowth
and
StructuralChangein Taiwan: The Post-warExperienceoftheRepublicof China (Ithaca, N.Y.:
Cornell UniversityPress,1979).
40
282
WORLD POLITICS
1950sonward Taiwan has had one of thebiggestpublic enterprisesectors
outside the communist bloc and sub-Saharan Africa.43Both Galenson
and Little ignore or downplay factsthatwould obstructthe neat fitbetween Taiwan and neoclassicalprecepts.44
To see the same practiceoutsidetheEast Asian context,considerwhat
Anne Krueger offersas "suggestiveevidence," in her phrase,about the
effectsof governmentinterventionin developing countries,a subject of
much interestto political scientists."There is no evidence that living
standards fell in the now-developing countries prior to 1950, a time
which many observersassociate with a period of laissez-faire,"she reports."In many Africancountries,however,living standardshave been
falling-in some cases precipitously-since. The latterperiod has been
one of active governmentintervention,and there is no other obvious
reason forthe differencein performancein the two periods."45Note several thingsabout thisargument.First,forIndia (which contained more
people than Africa and Latin America combined) thereis evidence that
per capita income fellin the severaldecades priorto independence;46and
forAfricathereis simplyno good evidence one way or the otherbefore
1950. Second, colonial governmentsoftenwent well beyondlaissez-faire:
in West Africa marketingboards came to be highlyextractiveorganizations;47 in India the British colonial government used protection
against non-U.K. importsto stimulateindustryand in this and other
ways could not possiblybe described as laissez-faire.Third, most nonWade (fn. 17), Table 6.2.
The recentsurveyof developmenteconomicsby Gustav Ranis and Theodore Schultz
providesmany more examples of how the neoclassicalconfidenceis based on selectiveinattention-even when the data are in the same volume or the same paper; see Ranis and
(Oxford: BlackSchultz,eds., The StateofDevelopmentEconomics:Progressand Perspectives
well, 1988). The editors assert that "outward-looking[less developed countries] have
achieved relativelyrapid growth. . . and have withstood[shocks]better."In the same volume T. N. Srinivasandestroystheevidenceforthe second partof the proposition;and Ron(p. 79) but thenshows (pp. 90-93) thatthe
ald Findlay findsthe firstpart "incontrovertible"
normal sequence, in Germany,Japan,Britain,and Korea, involvednot trade neutralityor
firstprotectingimportsubmercantilism,
"outward-lookingness"but heavilyinterventionist
(Septemstitutesand thenpromotingexports.See Michael Lipton's review,EconomicJournal
ber 1989).
4,
45 Krueger, "GovernmentFailures in Development,"Journalof EconomicPerspectives
no. 3 (1990), 12. Kruegerwas the seniormosteconomistand the vice presidentforresearchat
the World Bank between 1982and 1986.
46 There is not much doubt that India's food grain availabilityper person per year deoutputincreasedfastenough
clined; but thereis some disputeas to whethernonagricultural
to preventper capita incomefromfalling.Heston's calculationsshow stagnationin per capita
income between 1911 and 1946,but most othersshow a decline. A. Heston, "National Income," in Dharma Kumar, ed., The CambridgeEconomicHistoryofIndia, vol. 2 (Cambridge:
Cambridge UniversityPress, 1983).
47 Peter Bauer, WestAfricanTrade (1954; reprint,
London: Routledgeand Keegan Paul,
1963).
43
44
EAST ASIA'S ECONOMIC
SUCCESS
283
Africaneconomies,includingthemostsuccessful
cases,have grown subsequently under more interventionist
regimes.Indeed, most sub-Saharan
African economies grew between 1950 and 1970, even in per capita
terms,and many grew fasterin the (postindependence,more interventionist)1960s than in the 1950s. Fourth, to say that thereis "no obvious
reason" forthe differencein Africa'sperformancebetween the two periods other than greatergovernmentinterventionin the second is to ignore several importantpoints. (1) "External" factorshave impacted especiallyadverselyon Africaneconomies,forreasons that do not reduce
to the characteristicsof Africangovernments.(2) At independence African economies suffereda major loss of skilled manpower froman already tinybase. (3) The problem is less "too much" governmentinterventionin Africathan thatgovernmentsare too weakly institutionalized
to maintaincentralizationand control-a combinationthatquickens the
use of "primordial" connections to capture state resources and evade
state demands.48In short,this evidence is shoddy,not suggestive;or if
suggestive,thenonly in the sense of the pornographer.49
My own evidence, illustratedabove, suggeststhat neoliberal economistshave been pioneeringa whole new principleof causal inferencethat to explain superior economic performanceone may either simply
ignoreeverythingthatis not in line withneoliberalprescriptionsor assert
thatit hinderedwhat would otherwisehave been an even betterperformance. When this principleis combined with a wider professionalpropensityto treat "power" as a third-rankconcept (the new 4,000-page
PalgraveDictionaryof Economicshas no entryfor "power"),50the result
48
Zambia at independencein 1964 had all of twelve hundredhigh school graduates. In
Botswana in 1965,the year beforeindependence,thirteenstudentspassed their0-level exams. Most sub-Sharan countriesat independencewere taken over by governmentswhose
leadershipgroup was comprisedmainlyof people with a primaryschool education or less.
Compare East Asia; see Wade (fn. 17), 64, 190,217-25. One should (as Krueger does not)
link the question of the appropriatetypesand amountsof governmentinterventionto the
educational competenceof the government.On the significancefor Africa'sgrowthof its
debt burden, fallingtermsof trade, unstableexchange rates,fallingaid, and agricultural
policiesand textileprotectionin the West,see, e.g., Adrian Hewitt and Hans Singer,"How
to FosterDiversification,
Not Dependence,"AfricaRecovery4 (October-December1990),3639; and Gerald K. Helleiner,"StructuralAdjustmentand Long-Term Developmentin Subsaharan Africa" (Paper forworkshopon AlternativeDevelopmentStrategiesin Africa,Oxford,December 11-13, 1989); and idem,Sub-saharanAfrica:FromCrisistoSustainableGrowth
(Washington D.C.: World Bank, 1989). On the "weak government"hypothesis,see Joel
Relationsand State Capabilitiesin the
Migdal, StrongSocietiesand WeakStates:State-Society
Third World(Princeton:PrincetonUniversityPress, 1986); the book is good on the "state"
side but mischaracterizesAfrican"society"as "strong."
49 This is not to diminishKrueger's importantcontributions
to economic knowledge,especiallyin the areas of rent-seekingbehaviorand tradepolicy.
50 RobertHeilbroner,"Economics withoutPower," New YorkReviewof Books,March 3,
1988.
284
WORLD POLITTCS
is an aversion to seriousinvestigationof the role of the statein economic
development.Assertionslike "success has been achieved [in Korea] despite intervention"are put forthwithouta shred of evidence.5"In this
way the circle is closed, the paradigm is protected,and minds can be set
at rest.
Although I have been talkingof neoliberaldevelopmenteconomics,I
do not mean to implythat these stricturesapply only to a small subsect
of neoclassical economics. Most Anglo-American development economists have a mistaken understandingof Korea and Taiwan as "lowintervention"countries,especiallywith referenceto trade,and theyrely
on this mistakenunderstandingto validate a low-interventionprescription elsewhere. But because the neoliberalsare both more extremeand
more uniformthan otherneoclassicals,theymake a sharpertarget;they
also tend to be opinion leaders in the developmentfield,which makes it
doubly importantto subjecttheirargumentsto scrutiny.52
Neoliberals say thatgrowthis easy,provided governmentsdo not act
to obstructthe natural growth-inducingprocesses of a capitalisteconof DevelopmentEconomics(London: IEA, Hobart Paperback
51 Deepak Lal, The Poverty
16, 1983),46. Lal is an exponentof what I call the Ptolemaicfallacy;see Wade (fn. 17),34849.
52 Ross Levine and David Renelt have recently
provided more evidence of insufficient
standardsof proof,a problemthatapplies notonlyto the work of the neoliberals;see Levine
and Renelt, "A SensitivityAnalysisof Cross-CountryGrowth Regressions"(Mimeo, MacroeconomicAdjustmentand GrowthDivision,World Bank, November 29, 1990). They examine the vast literatureon cross-country
regressionsof long-rungrowthagainst various
policy variables,with a view to determiningwhich conclusionsare robustand which are
fragile.Robust conclusionsare thosethatsurvivesmall changesin the right-hand(i.e., independent) variables. "We find that thereis not a strongindependentrelationshipbetween
almosteveryexistingpolicyindicatorand growth.. . . [T]he broad arrayoffiscalexpenditure
variables,monetarypolicyindicators,politicalstabilityindexes,human capital and fertility
measuresconsideredby the professionare not robustlycorrelatedwith growth;and newer
indicatorsthatwe have assembledto captureexchangerate,tax,and fiscalexpenditurepolicies are also not robustlycorrelatedwithgrowth"(p. 2). The one variablethatcould not be
shaken offby fairlysmall changes in the specificationof the independentvariableswas investment:"We found a positiveand robustcorrelationbetween average growthratesand
the average share of investmentin GDP" (p. 26). I want to draw special attentionto their
findingson trade and price distortions,the subject that occupies the core of neoclassical
developmenteconomics:"When controllingfortheshareof investmentin GDP, we could not
find a robustindependentrelationshipbetween any trade or internationalprice distortion
indicatorand growth"(pp. 19-20). These findingssuggestthateconomistsof all stripesought
to be a littlemore modestthan usual in claimingto understanddevelopment.But note that
the Levine and Reneltfindingsare based on an unusual notionof robustness;in theirwork
robustnessrelates to which variables are included or excluded. More familiarnotions of
robustnessrelateto changesin sample size, timeperiod,or functionalform.Unrobustnessin
thanunrobustnessin theothersenses,because accordingto their
theirsense is less significant
criterionany hypothesizedgrowthmechanismthatdepends essentiallyon several variables
is likelyto be found unrobust.For example,theirfindingthathuman capital variablesare
unrobustis unsurprisingifone considersthathuman capitaland physicalcapitalare complementary,such that a high rate of human capital formationis unlikelyto be an important
cause of growthin the absence of fairlyrapid physicalcapital accumulation.
EAST ASIA'S ECONOMIC
SUCCESS
285
omy. We come now to two recentbooks about the newly industrialized,
late-industrializing,or semiperipheraleconomies, books that have in
common an emphasison the difficulties-theunnaturalness-of growth.
ALICE
AMSDEN'S
INTERPRETATION
OF SOUTH
KOREA'S
SUCCESS
of East Asian, specificallyKorean, ecoAmsden builds an interpretation
nomic success on several kinds of stylizedfactsthat run counterto neoclassical theoryand thatare ignoredor treatedwith indifferencein neoliberal accounts of Korea. They include the following.(1) The Korean
state has acted as entrepreneur,banker, and shaper of the industrial
structure.(2) It has deliberatelydistortedthe price structureby way of,
among otherthings,subsidies,protection,price controls,and restrictions
on incomingand outgoingmovementsof financeand directinvestment.
By means of these distortions,it has generated an industrialstructure
differentfrom what unguided entrepreneurswould have produced on
theirown. (3) The actionsof the Korean statehave been complemented
by those of large, diversifiedbusinessgroups thathave come to occupy a
dominant positionin the economy-so much so thatthe combined sales
of the top ten rose from 15 percentof GNP in 1974 to (this is one of the
mostamazing of all Korean statistics)67 percentin 1984 (Amsden, Table
a ratherhigh
5.1).53 With firmsof this size and level of diversification,
proportionof transactionsin the Korean economyare intrafirm,
less subject to the disciplineof the market than to the disciplineof managerial
hierarchies.(4) The state not only activelypromotesthe growth of the
business groups, it also disciplinestheiruse of subsidies and other supports,rewardingthose who use subsidies "well" with furtherhelp and
withdrawingsupportfromthosewho do not. Its relationswith themare
anythingbut the arm's-lengthrelationsbetween governmentand firms
sanctionedby neoclassical theory.These four factssuggestan economy
in which governmentand firmsdepart quite substantiallyfromthe neoclassical model of a successfulindustrializer.
There is, however,anotherstrikingfactabout the Korean experience
that is more consistentwith neoclassical precepts:whereas the government greatlyrestrictedand channeled competitionin the domesticmarket, it also stronglyencouraged firmsto export,therebysubjectingthem
to intense competitionin foreignmarkets. Success in export markets
came to be the main criterionof good use of subsidies (and hence of
distributionof furthersubsidies); and neoclassical theorydoes suggest
53 Sales, of course,are not equal to value added. The trueshareof thesecompaniesin GDP
(totalvalue added) is probablyone-thirdto one-halfof this67 percent.
WORLD POLITICS
286
use of resources.(To be more
thatthatis quite a good proxyforefficient
exact, neoclassical theorysays that success in export markets is a good
in resourceuse provided thereis zero bias in incenproxyforefficiency
tives to sell abroad or at home; by contrast,a more classical theoryof
long-rungrowthmightsanctionthe same criterioneven in conditionsof
net subsidiesto exports.)
LATE
INDUSTRIALIZATION
Amsden suggeststhat these and certainother factsabout Korea can be
explained as a response to the conditions of "late industrialization."
These conditionsreferto the handicaps and advantages experiencedby
market-basedeconomies thatinitiateindustrializationwhen technologically more advanced firmsalreadyexistin othercountries.The firmsof
the late industrializerthen have to competewith thoseestablishedfirms
thatcan introducenew technologiesfastenough to capture "technology
rents" and therebyearn higher profits.This does, of course, allow the
late industrializerto acquire, or "borrow,"the more codifiedelementsof
a given technologywithouthaving to develop them foritself.But there
is generallya greatgap betweenbuyingor stealingthe codifiedelements
and masteringthe technologyin production.The lower labor costsof the
late industrializerofferanother partial advantage in such competition.
But since its labor forceis much less skilled,the lower labor costs may
not compensate for differencesin productivity.Late industrializersall
to respondto the handicaps
tend to constructa similarset of institutions
and advantages of lateness.In particular,theytend to develop an entrepreneurialstateand diversifiedbusinessgroups.
THE STATE
The state offerssubsidies and protection("subsidies" for short)both to
offsetthe disadvantagesfaced by national firmsin internationalcompetition and to move the present industrial structuretoward one with
highervalue-added, more technologicallydynamicactivities.It does this
fasterand perhaps along a differentpath than the free market might
have done on its own.
So, forexample, as recentlyas the late 1960s the cost positionof Korean manufacturersof cottontextileswas less favorablethan thatof their
Japanesecounterparts,
despitelowerwages.To enterexportmarketson a
sizable scale the Korean industryneeded subsidies. As Amsden puts it,
"Subsidies in Korea were necessarynot because of 'distortions'[in particular, the exchange rate was not much distorted]but because the Koreans
could not,initially,competeagainstthe Japanese,even in industriessuch
EAST ASIA'S ECONOMIC
SUCCESS
287
as cottonspinningand weaving in which theleastdeveloped,mostlaborintensivecountries supposedly have a comparativeadvantage" (p. 68).
Afterseveralyearsof productionexperience,however,the cottontextile
industrywas competitiveenough to be weaned offsubsidies-a striking
fact,in lightof experienceselsewhere.
Indeed, (unsubsidized) profitrates in cotton textilesand other light
industrycame to be substantiallyhigher than those in capital-intensive
industries,yetfromthe mid-1970sit was the capital-intensiveindustries
thathad the highestrateof exportgrowth."One may inferfromall this,"
says Amsden, that
as the capital-intensiveindustriesshowed themselvesincreasinglycapable
of exporting,theybecame more attractiveforthe governmentto promote.
Their long gestationperiodsand relativelylow profitability
throughadoleslessdesirableinvestments
cence,however,renderedthemrelatively
to theprivate
firm. The initiativeto diversify,
therefore,
fell to thestate. (p. 88 and Tables
4.1, 4.2; emphasis added)
And she shows furtherthat the leading firmsin light industry(notably
textiles)did not grow into diversifiedbusinessgroups and did not lead
the way into the new heavyand chemicalindustries,as one mightexpect
fromthe conventionaldynamicsof comparativeadvantage. Instead,new
firmswith strongstatesupportundertookthe developmentof the heavy
and chemical industry.According to Amsden, then,Korea's entryinto
heavyand chemical industriesand theemergenceof cottontextilesas the
leading export industrytogetherprovide graphic evidence of the need
forstatedirigismein conditionsof late industrialization.
BUSINESS GROUPS
The businessgroups of the late industrializerdiversifyinto many different, oftenunrelatedindustriesin order to spread risksand allow crosssubsidizing of entryinto a varied portfolioof necessarilylow-end products. They also focusmore on the shop-floorlevel of organization-that
is, on the production process itself-because that is where borrowed
technologyis firstmade operationaland later optimized. This contrasts
with more advanced firms,which tend to compete on the basis of innovation instead. The strategicfocusin thosecases is less on the shop floor
than on the corporate headquarters,especially the R and D complex,
where the major profit-makingopportunitiesare made (and also, one
should add, thefinancialasset managementcomplex,the source of much
profitable"paper entrepreneurship").Amsden makes the point in the
formof a hypothesis:
288
WORLD POLITICS
Leading firmsin late industrializingcountries,if they are to penetrate
world markets, must adopt unusually pro-active production and operations management policies. By pro-active we mean policies that assign
high-qualitymanagers to the shopfloorand inspire initiativeon the part
of such managers to develop the skills of the work forceand to improve
processperformance.Otherwise thegap in productivitylevels with leading
firmsin advanced countries will not be bridged while the advantage in
wage levels narrows. (p. 160)
A disproportionate number of managers will have credentials in engineering, as distinct from a background in generic management or finance.
What matters, then, is not so much the newness of an industrialization
process (as in "newly industrized country"), as its lateness as compared
with others. Amsden argues that
the general propertiesof an industrializationprocessbased on learning,or
borrowing,technologyare entirelydifferentfromthose of an industrialization process based on the generationof new productsor processes-the
hallmark of the First and Second Industrial Revolutions. Thus, the late
acquisition of internationalcompetitivenesshas given rise to certaincommon tendencies in otherwise diverse countries-Japan, Korea, Taiwan,
Turkey, Brazil and Mexico.54
(Elsewhere she adds India, p. v).55These common tendencies concern the
role of the state, the role of the market, and the structure and competitive
strategies of business firms. Insofar as there is a single symbol that captures the difference, it is the subsidy.
The First
The subsidy serves as a symbol of late industrialization....
Industrial Revolution was built on laissez-faire,the Second on infantindustryprotection.In late industrialization,the foundationis the subsidywhich includes both protectionand financialincentives.The allocation of
subsidies has rendered the government not merely a banker, as Gerschenkron (1962) conceived it, but an entrepreneur,using the subsidy to
decide what, when, and how much to produce. The subsidy has also
changed the process wherebyrelativepricesare determined.(pp. 143-44)
WHY DOEs KOREA Do BETTER?
Why has Korea, together with Japan and Taiwan, done so much better
than the other late industrializers? Because, in a word, the institutions
of late industrialization have functioned more effectivelythere than else-
where. "It may be said thatgrowthhas beenfasterin Korea not because
marketshave been allowed to operatemorefreelybut becausethesubsidiza'Global Fordism' or a New Model?"
54 Alice Amsden, "Third World Industrialization:
New LeftReview 182 (1990), 14-15.
55 Also ibid.,5.
EAST ASIA'S ECONOMIC
SUCCESS
289
tionprocesshas been qualitativelysuperior:reciprocalin Korea, unidirectional in mostothercases" (Amsden, 145; emphasis added). By "reciprocal," Amsden means that in direct exchange for subsidies of various
kinds, the state exacted certainperformancestandards fromfirms,notablyin the fieldof exports.Most otherlate industrializersallocated submost
sidies withoutimposingany quid pro quo: "WhereKorea differsfrom
countriesis in thedisciplineitsstateexercisesover
otherlate industrializing
privatefirms"(p. 14; emphasis added). Generalizing,Amsden puts forth
thatcharacterizesstatean audacious proposition:"The more reciprocity
firm relations in these countries,the higher the speed of economic
growth" (p. 146).
LEARNING
AND INNOVATION
This argumentabout Korean and Third World industrializationin general, says Amsden, differsnot only fromthe neoclassical,but also from
the Schumpeterian,approach. Schumpeterrecognized that by his time
marketstructureshad become less competitivethan was consistentwith
the neoclassical paradigm. The new basis of competition-the new
source of disciplineover firmbehavior-came fromthe creativegales of
technologicaldiscoveriesthat uprooted old monopolies and raised productivity,not steadilybut in spurts.Late industrialization,however,involves not innovationbut "learning,"that is, borrowing,adapting, and
improvingupon foreigndesigns.The new source of disciplineover firm
behavior is the state itself,a factorto which the entrepreneuriallyand
technologicallydriven Schumpeterianmodel had understandablypaid
littleattention.Late industrialization,much more than early industrialization, has been a politicalprocess,shaped by the exigenciesof mastering (or learning)alreadyexistingtechnologies.Some commentatorshave
taken the Japanesecase as confirmationof the usefulnessof the Schumpeterianapproach, as in the Schmiegelows'statementthat"the evidence
of massive penetrationof global marketsby JapaneseSchumpeterianentrepreneurs,of theircompetitiveedge, and of theirgrowing leadership
in innovation is so unmistakable,and thereis so littlethat mainstream
economics can offerto explain it, that the Austrian [or Schumpeterian]
approach enjoys prime facie validityin explainingJapan'simpacton the
Amsden would presumablyreplythat
structureof the world economy."56
the Schumpeterianapproach is not the only alternativeto mainstream
economics and thathersdoes a betterjob of explainingthe Japanesecase
prior to the early 1970s; she would probablyagree with the Schmiege56 H. Schmiegelowand M. Schmiegelow,"How JapanAffects
the InternationalSystem,"
International
Organization44, no. 4 (1990).
290
WORLD POLITICS
lows that the Schumpeterianbetterhandles the subsequent era, when
Japanesefirmscompetemore than beforeon the basis of innovationand
when the state has scaled back its "leadership" role in industrialtransformation.57
GLOBAL FORDISM
Her approach also differsfromworld systemsinterpretations
that present industrializationat the "periphery"(including Korea) as the reflex
of problems of capital accumulation in the "core." In Alain Lipietz's
forexample, industryin the Third World arises as capital
formulation,58
fromthe core extendsthe "scale" of itsoperationsin search of new markets and cheap labor. Once installedby means of "primitiveTaylorist"
modes of labor control,it may then evolve into "peripheral Fordism"
when growthin the homemarketformanufacturedgoods plays a large
part in the national "regime of accumulation,"as has been true in Korea
since about 1973. At this point the tendencytoward underconsumption-production exceeding the capacityto consume-becomes a stumbling block to furthereconomic growth,as it is in the core. Amsden
answers thissortof argumentwith severaldamaging factsabout Korea.
(1) Even after 1973 Korean growthhas not been centeredon the home
market.(2) Korean wages have grown fasterthan in any otherprevious
or contemporaryindustrialization,without underminingcompetitiveness, sustainedby even fasterproductivity
growth.(3) Work in the large
has
not
been
in
a
businessfirms
managed
Taylorist,top-down fashion.
Technicalignoranceat thehighestmanageriallevel,and inexperience
on
thepartof theworkforce,
havemade it impossibleforborrowedtechnola top-down,
ogyto be optimizedthrough
Tayloristapproachtoproductivityand qualityimprovements.
of work has
Instead,the standardization
beenaccompaniedbya moreparticipatory
(and,as itturnsout,morepronotforculturalreasonsbut forreaductive)approachto workrelations,
sons related to technologytransfer.59
57 But while MITI's
leadershiprole in the domesticeconomyhas decreasedsubstantially,
it
has recentlybeen expandingthereachof itsindustrialplanningand coordinationintoforeign
economies,in responseto the explosionof Japaneseinvestmentabroad and the absence of
coherentindustrialpolicyin receivingcountries.See Ivor Ries,"Japan'sMightyMITI Extending Its Reach," Financial Review,December 18, 19, 20, 1990. I thankChalmers Johnsonfor
this reference.On leadershipas applied to industrialpolicy,see RobertWade, "Industrial
Policy in East Asia: Does It Lead or Follow the Market?" in Gary Gereffiand Donald
Miracles:Patternsof Industrialization
in Latin Americaand East
Wyman,eds., Manufacturing
Asia (Princeton:PrincetonUniversityPress,1990).
58 Lipietz, Miragesand Miracles:The Crisesof Global Fordism(London: Verso, 1987). See
Amsden (fn.54) fora discussionof Lipietz.
59 Amsden (fn.54), 12-13.
EAST ASIA'S ECONOMIC
SUCCESS
291
(4) The state in Korea (and in other late industrializers)has gone well
beyond its role in the Fordist model (largelyone of creatingboth effective demand in responseto crisisand protectionforinfantindustries).
So neitherthe Schumpeteriannor the global Fordism approaches can
explain the common tendenciesof the late industrializers;still less can
the neoclassical. Amsden's approach-which could be summarized as
betweengov"industrializing
throughlearning,learningthroughreciprocity
ernmentand diversified
businessgroups,reciprocity
involving
price-distorting
subsidiesin exchangeforperformance"-constitutes,she says,a new paradigm for understandinglate industrialization,which is a new way of
industrializing(p. 141).
In a field plagued by stale thinkingAsia's Next Giant stands out as
wonderfullyoriginal,powered by a militant,epigrammaticintelligence.
The chapterstowardtheend, on thefirm-leveldynamicsof theevolution
of shipbuilding,textiles,cement,and steel,range fromofferingtechnical
informationabout productionto tellingdetailsabout social organization.
The author relateshow, well beforethe firststeel plant had been completed, workers were recruitedand trained-even taken out to open
fieldsto rehearsetheirjobs, shoutingordersto one anotheralong imaginaryproductionlines. For given its lack of the cheap natural resources
thatotherNICslike Mexico (gas) and Brazil (ore and hydro)could use to
defraythe high start-upcosts of steel and othercapital-intensiveindustries,Korea had no choice but to compensateby means of a supereffective deploymentof its labor force,to discipline and train it as fast as
possible.
But there are some serious weaknesses in the argument. Some key
propositionsare poorlysupported,some key conceptsare treatedas selfevidentwhen theyare not, and some alternativemechanismsforwhich
thereis reasonable evidence are not considered.Einstein'saphorismthat
"imagination is more importantthan knowledge" is taken a bit too literally.In particular,Amsden misses many opportunitiesto incorporate
neoclassical findingsinto her story,therebyrenderingit much weaker
than it need be in terms of economic analysis. Nowhere is this more
apparent than in what she says about prices.
GETTING PRICES "WRONG" IN KOREA
This is the phrase that Amsden emblazons upon her escutcheonas the
essence of her theoryof economic development.60
Reversingthe conven60
Ibid., 23.
WORLD POLITICS
292
tional injunction (converting "right" to "wrong" and the sense of"getting" from "letting" to "setting") produces an arresting paradox. But
what evidence does she offer,first,for the proposition that relative prices
were "wrong" and second, for the proposition that the structure of
"wrong" prices was a key element in output growth? Although she does
not present it systematically, the evidence seems to be as follows:
1. The exporteffectiveexchange rate,which includes subsidiesto export
sales, was substantiallyabove the officialwon/dollar exchange rate between 1960 and 1965 (see her Table 3.4, p. 67), and duringthistime exports
took off.Amsden says that export subsidies,as indicated by the gap between the export effectiveexchange rate and the officialexchange rate,
"turned the tide." So the volume of exportswas not determinedby market
factorsalone, at least in the period covered by her numbers.Note several
problems with this argument.First,six years and two sets of numbers are
a slender base for causal inference.Second, she says that subsidies (as indicated by the gap between the two exchange rates) increased as exports
increased, the formerdriving the latter.In fact,her own numbers show
the opposite: the gap was greatestin 1960, when exportswere small and
stagnant,and least in 1964 and 1965,when exportswere booming. Third,
this gap is in any case a poor measure of the bias of the systemfor or
against exports.For thatone has to compare the exporteffectiveexchange
rate with the importeffectiveexchange rate.It is quite possible to increase
export subsidies (as measured by her gap) while at the same time giving
even more incentivesto import substitution(perhaps via quantitative restrictions),making a net increase in the bias against exports.It is this bias,
not her gap, that might drive exports;but we are not given the information. Fourth, nor are we given informationabout the real exchange rate
(relative price of traded goods-exports and importsubstitutes-vis-a-vis
nontraded goods). Lacking informationon both export bias and the level
and movement of the real exchange rate, we cannot make a judgment
about whether these prices were "right" or "wrong." Certainly the fact
that the exporteffectiveexchange rate differedfromthe officialexchange
rate (as in most other developing countries)does not in itselfmean that
either the officialrate or the export effectiverate was "wrong." In short,
Amsden's evidence on this point does not support the conclusions she
draws.
2. "Tariff barriersand nontariffbarriershave comprised a key ingredient of Korea's industrialpolicy,"she says (p. 145). But we receive virtually no informationon the magnitudeof protectionover time,though such
informationis available.6'
3. In the capital marketa multiplicityof pricesprevailed forloans of the
same maturity-one for foreignloans, more than one for domestic commercial bank loans depending on whethertheywere fora priorityuse, and
one or more for "curb" or informalmarket loans. Not all of these prices
61
Wade (fn. 17),chap. 10.
EAST ASIA'S ECONOMIC
SUCCESS
293
could possiblyhave been"right,"she sayswithoutfurther
ado. This, too,
is overlyhasty.For one thing,to theextentthatthecurbmarketis used
forriskierloans thancan be grantedby commercialbanks,neoclassical
analysiswouldpredictcurbmarketratesto exceedcommercial
bankrates
on accountofdifferential
risk.
4. Pricecontrolshave beenextensive."At theend of 1986,as manyas
110commodities
werecontrolled,
includingflour,sugar,coffee,red pepper,electricity,
gas, steel,chemicals,synthetic
fibers,paper,drugs,nylon
stockings,
and televisions"
automobiles,
(p. 17).A hundredpageslaterthis
expandsto "theEconomicPlanningBoardcontrolsmostprices"(p. 129).
Is "most"reallythe same as "as manyas 110"? We have no idea of the
shareof finaldemandthatis price-controlled
overtimeor of how much
thecontrolsbite.
5. Subsidiesto the cottontextilemakerswere neededforquite a few
in exportmarketsagainstJapanese
yearsto enablethemto getestablished
competition.
Latersubsidiesto someheavyand chemicalindustries
were
neededto induceprivatecapitalists
to forgohighershort-term
profitsin
Amsden'sevidenceon thisscoreis moreconvincingthan
lightindustry.
therest.
Not stoppingwiththe propositionthatKorea succeeded because it got
prices wrong, Amsden makes a still more arrestingclaim: "Although
Korea industrializedon the basis of relativeprices thatdeviated sharply
fromfree-marketequilibria,suchpriceswere less 'distorted'
and provided
big businesswithfewerbonanzasthanpricesin India, Turkey,and theLatinAmericanlate-industrializing
countries"(p. 145; emphasis added). Or in a
slightlydifferentformulation,"In Korea the 'wrong' prices have been
rightbecause governmentdisciplineover businesshas enabled subsidies
and protectionto be less than elsewhereand more effective"(p. vi). This
is an intriguingidea, but it is asserted withouta shred of evidence. If
Korean price distortionshave in factbeen less than in most othercountries,how can we distinguishthisargumentfromthe centralneoclassical
claim thatit is preciselybecauseprice distortionshave been less thatKorea was more successful?62
Furthermore,it is not self-evidentthat short-runequilibrium prices
should be used as the standard of "right" against which actual Korean
prices were correctly"wrong." Afterall, neoclassical theoryacknowledges that even marketsthat operate withoutgovernmentinterference
62
Perhaps Amsden'sargumentcould be clarifiedbydistinguishing
threesensesof "distortion." One is deviationfromthe marketequilibriumprice,which just offsetsdisadvantages
due to "marketimperfections"
elsewherein the system.Anotheris deviationthatpulls resourcesintouses expectedto be to the country'sfuturecomparativeadvantage.The thirdis
deviationthatprovidesbig windfallgains forlittleeffort.Korea presumablyhad much less
distortionin thethirdsensethanothercountrieshad, but presumablynotin thesecond sense.
294
WORLD POLITICS
may experience"failures"due to externalities,
complementarities,
uncertain learning gains, imperfectcapital markets,and economies of scale,
scope, and time.In such a case the configurationof marketprices,which
no longercorrespondsto economic values or opportunitycosts,may send
the "wrong" signals,even in conditionsof freetrade.Neoclassicals argue
thatempiricallythesesourcesof marketfailuretend to be less important
than those caused by governmentintervention;theythereforeprescribe
freetradeas theway to achieve thebestresultsin thereal world of special
interests.63
Moreover,thereis a modifiedneoclassicalinterpretation
of the role of
the Korean government:thatitsvarious interventions
had the aggregate
effectof compensatingfor these failures(as well as for those caused by
the "politically driven" components of governmentintervention)and
thus of creatingthe relativeprice structurethatwould have prevailed in
an ideal free market. I have elsewhere called this the "simulated free
market" theoryof East Asian industrialsuccess.64I do not find it very
convincing,but it does have a place in the literature,and Amsden might
have taken it up in an analytical dissection of "wrong" and "right"
prices.
Even if we grantthat the governmenthelped to get prices (correctly)
"wrong," there is still the separate question of the outputeffectsof this
rigged price structure.Again, this issue is barely raised, it being taken
for granted that the effectswere not just positive but so positive as to
constitutethe essence of why Korea did betterthan the rest. Perhaps
Amsden would considerthe success of the heavy and chemical industry
drive of the 1970s (and she certainlyconsiders it to have been highly
successful)as evidence of benign outputeffects,forit was not the result
of free-marketforces.But this same heavy and chemical industrydrive
is routinelycited in the literatureas the clincherforthemaligneffectsof
Korean dirigisme.Amsden mightat least have responded to those who
say that its costsswamped its benefits.(My own conclusion,incidentally,
is thatthe medium- and long-termbenefitsdid exceed the costs.)65
All told,thiscentralplank in Amsden's theoryremainsin urgentneed
A generousreading mightsay thatAmsden
of empirical reinforcement.
what
economists
beforeher have done, which is to predone
has
many
See Colclough (fn.3).
(fn. 17),23-24.
65 For a briefdiscussion,see ibid.,chap. 10,esp. 319-20. For a veryusefulrecentstudy,see
RichardAuty,"CreatingComparativeAdvantage:South Korean Steel and Petrochemicals,"
voorEcon. en Soc. Geografie82, no. 1 (1991).
Tijdschrift
63
64 Wade
EAST ASIA'S ECONOMIC
SUCCESS
295
sent a series of "stylized facts" about how, in her understanding,the
world works,leaving it to thosewho disagreeto mustercounterevidence.
A less generous reading might say that Amsden displays the same disdain forestablishedprinciplesof scientificknowledge as do the neoliberals cited earlier.
THE
STATE IN KOREA
As the initiatorof major new investments,
the distorterof prices,and the
disciplinerof big firmsand labor, the state has a centralplace in Amsden's story.Yet she takes what could politelybe called an "abstentionist"
view toward it. She saysalmostnothingabout how thestateis organized,
its base of support,its means of survival,and how it maintainsits discipline in the exerciseof huge discretionarypowers. So abstentionistis she,
indeed, that the key agencies for industrialand trade policies,the Economic Planning Board and the Ministryof Trade and Industry,are
given onlythreementionsbetweenthemin the whole 329 pages. Perhaps
it is unfairto expect otherwisein a work of economics.
ROLE
OF MANUFACTURING
PRODUCTIVITY
GROWTH
Amsden's argumentassumes,implicitly,thatthedrivingforceof Korean
industrialization was fast growth of productivityin manufacturing
(driven by fast "learning"). Thus, her emphasis on the structureand
managementof businessgroups. She mighthave addressed some of the
evidence,fromHollis Chenery,Moshe Syrquin,Howard Pack, and others,66thatpartlyruns against thisargument.To summarize,thereis evidence to suggest that prior to the mid-1970s productivitygrowth in
manufacturingwas byno means high as compared withgrowthin other
countriesat roughlythe same income level. But (1) Korea had poor natural resource endowments in comparison with many other low- and
middle-incomecountries;it thereforehad no comparativeadvantage in
exportsof primaryproducts,which leftmanufacturesas the only broad
alternative.(2) It also had a high ratio of people with basic education to
people withoutbasic education,again compared with othercountriesat
was much lower than
similarincome levels.(3) Agriculturalproductivity
in manufacturing.And (4) the physicalinfrastructure
was fairlygood.
a high ratio of basicallyedThe combinationof middling productivity,
66Chenery,"Growth and Transformation,"in Hollis Chenery,Sherwin Robinson,and
and Growth:A ComparativeStudy(New York: Oxford
Moshe Syrquin,eds.,Industrialization
UniversityPress, 1986); Syrquin,"ProductivityGrowth and Factor Reallocation,"in Chenery,Robinson,and Syrquin; Pack, "Industrializationand Trade," in Cheneryand T. N.
Srinivasan,eds.,HandbookofDevelopmentEconomics(Amsterdam:North Holland, 1988).
296
WORLD POLITICS
gap in
ucated to uneducated people, a big agriculture-manufacturing
productivity,and a fairlygood infrastructure
allowed Korean manufacturingto compete internationally.But the real drivingforcebeforethe
mid-1970s,according to thisargument,was the huge increase in capital
and labor inputsintomanufacturing(more and more young women behind more and more desks assemblingmore and more shirtsand circuiteffect.These inputscame
boards). It was a scale effect,not a productivity
in substantialpart fromagriculture,and the economy-widelevel of productivitygrew fastas resourceswere reallocatedfromlower productivity
uses in agricultureto higher productivityuses in manufacturing.67
But
the only way to absorb such large amounts of capital and labor in manufacturingwithoutrunninginto rapidlydiminishingreturnswas to export the output,because the domesticmarket would have been able to
absorb the extraoutputonly at the cost of sharp fallsin price.This is the
singlemost importantway thatexportshelped Korea's industrialization.
Since the mid-1970s,however, with the completionof the reallocation
fromagriculture,the drivingforcehas been productivitygrowthwithin
It may well be thatthe sortsof managementpractices
manufacturing.68
and firmstructurethatAmsden emphasizeshave been an importantpart
of thisgrowth.But much of Amsden's own account of firmsand industries draws on data frombeforethat time. This is not to suggest that
Amsden is necessarilywrong for the earlier period-one can imagine
ways in which her argumentcould be reconciledwiththeotherevidence.
But thisotherevidence is simplynot addressed.
COMPARATIVE
ADVANTAGE:
RIGID,
FLEXIBLE,
OR IRRELEVANT?
Did Korea follow its prevailing comparativeadvantage (CA), or did it
engage in activitiesthatwere out of line with CA?Neoliberals implythat
its industrializationwas governed by CA,except forthe temporaryaberrationof the heavy and chemical industrydrive thatstartedin the early
1970s and more or less terminatedaround 1980,as economic rationality
again came to prevail.Amsden and also GovernorPark (in the epigraph
67
For the agriculturalend of thesereallocations,see Moore (fn.5); on the politicalcontrol
of Korean agricultureand the nonpricemethodsof achievingrelativelyhigh levels of agricultural productivity(cf. standard recipesfor agriculturalgrowthand mechanismof FeiRanis-typemodels),see Wade (fn.5, 1983).
68 This is likely,but most of the evidence I cite stops shortof this period. Pack (fn. 66)
suggeststhat even afterthe mid-1970stotal factorproductivity
growthwas not especially
good, and he creditscontinuedrapid absorptionof factors,includingextrainvestment.But
subsequent evidence suggeststo him that productivitygrowth within manufacturinghas
indeed been more of a driverthan he thoughtwhen he wrote the articlein Chenery and
Srinivasan(fn.66); Pack, personalcommunicationwithauthor.
EAST ASIA'S ECONOMIC
SUCCESS
297
to this article) implyeitherthat it went against CA or thatCA was somehow irrelevant.What is at stake? Accordingto the standardtheory,specializing according to CA makes foran efficientpatternof resourceuse,
with more intensiveuse of the more abundant factorsand less of the
scarcerfactors.A countrymay be able to produce goods out of line with
its CA, but those goods, which require a lot of the scarce factorsand few
of the abundant factors,will not be profitable.Stereotypically,
a lowwage, labor-abundant countryshould concentrateproduction and exports on labor-intensiveproducts, while importingthe more capitalintensivegoods fromcountrieswhere labor is scarcerand capital more
abundant. (China can make and launch satellites,but such engineeringintensiveindustriesare not in its CA.) So if Korea departed significantly
from CA and yet was still outstandinglysuccessful,one could conclude
thatsomethingis seriouslywrong with the theory.And since the theory
formspart of the bedrock of neoclassical economics,this would sound
the alarm in many quarters.
There is remarkablylittleevidence on thiscentralquestion. It is true
thatexportshave been farmore labor-intensivethan overall production,
a predictionin line with CA theory.But it is also true thatfromthe early
1960s,capital-intensiveindustriesproducing intermediateshave experienced rates of growth much higher than the manufacturingaverage, a
phenomenon liessreadilyreconciledwith CA theory.And we know, too,
that most of these industrieshave had substantiallevels of protection,
which is also sometimestaken to indicateinvestmentout of line with CA.
On the otherhand, PatrickMinfordand Adrian Wood69have recently
argued, contraryto the general understanding,that capital-intensityis
almost irrelevantforthe determinationof CA, especiallybecause noninfrastructural
capital is mobile betweencountries.Rather,it is labor force
skills that count. Product categoriescan be ranked in termsof skill requirements,and the categoriesthatare "appropriate"to a countryat any
one time (in the sense of being in line with CA) can be read offby comparing theirskill requirementswith the ratiosof highlyskilled to basically skilled to unskilledpeople in thelabor force(theseratiosdetermine
the scarcityand relativecost of more or less skilled people and therefore
69
See Minford, "A Labour-based Theory of InternationalTrade," in J. Black and
A. MacBean, eds., CausesofChangesin theStructure
ofInternational
Trade,1960-85 (London:
Macmillan, 1989); Wood, "A New-Old TheoreticalView of North-SouthTrade, Employmentand Wages," Discussion Paper 292 (Sussex: Instituteof DevelopmentStudies,Universityof Sussex, 1991). Wood's paper is based on one chapterof his book, North-SouthTrade,
and Inequality(London: OxfordUniversityPress,forthcoming).
Employment
298
WORLD POLITICS
the viabilityof investmentsthat require differentcombinationsof these
people).
If thisis accepted,we have to say thatwe simplydo not know to what
extentthe fastgrowthof capital-intensiveindustriesin Korea was in line
withCA, because no one has calculatedtheirskill intensities.We do know
thatall capital-intensiveindustriesare not skill-intensiveand thatwithin
industriesdefined at the three-digitlevel (industrialchemicals,for example) there are huge variationsin skill requirements.We also know
that the factthat these industrieshad protectiondoes not in itselfmean
that theywere against CA. Protection,that is, mighthave offsetmarket
imperfectionselsewhere that would have renderedthe industriesfinancially unviable without the protection,even if they were economically
viable with propershadow prices.Nor does the factthattheseindustries
grew fasterthan themanufacturingaverage in itselfmean thattheywere
out of line with CA, for all industrializationinvolves some growth of
upstreamsectors,forreasons of transportcosts and otheradvantages of
local production.And this growthmay be veryfastif it comes froma
low base. The key question,then,is whetherthe capital-intensiveindustries grew fasteras a result of policy measures than they would have
under conditionsof well-functioning
freemarkets.
So one hypothesisis that Korea's industrialization-including the
dual-track promotionof some capital-intensiveintermediate(and later
final)goods alongside labor-intensivegoods forexportmarkets-did not
depart from CA to any significantextent.This implies that the capitalintensive industriesremained within the (rapidly rising) limits of the
skilled labor supply,which furtherimplies thatthe capital-intensiveindustries of the 1960s and early 1970s (before the heavy and chemical
industrydrive) had ratherlow skill requirements.
Another hypothesis,which is more consistentwith Amsden-Park, is
(1) thatKorea stretcheditsCA (as witha rubbermembrane)to cover more
skill-intensiveindustriesthan would be "normal" in relationto its skill
endowments70and (2) that this stretchingwas especially pronounced
during the heavyand chemical industrydrive(thoughnot absentearlier,
as seen in thosesubsidiesused to launch thecottonspinningand weaving
the Koindustryagainst Japanesecompetition).By this interpretation,
reans excelled at "learning by doing," which increases the supply of
scarce skills and therebystretchesthe CA membrane.More precisely,the
Koreans excelled at learning by doing at low cost. It is as though those
70
CA to Adrian Wood.
I owe thisidea of stretching
EAST ASIA'S ECONOMIC
SUCCESS
299
men in the field shoutingorders at each otheron theirimaginaryproduction lines were a microcosmof the whole labor force.In many other
countrieseffortsto stretchthe CA membraneby investingin advance of
skills so as to generate learning-by-doingeffectshave proved so costly
thatthe projectshave eventuallyfolded.
How then to interpretthe difficultiesthat beset many heavy and
chemical industriesin the late 1970s and early 1980s? The neoliberal
hypothesiswould say that these difficultiesindicate that the heavy and
chemical industrydrive departed radicallyfromCA. Anotherhypothesis
suggests that the difficultieswere due less to the misallocation of resources between sectors,as in CA theory,than to a non-CA-basedmacroeconomic mechanism.The sheer size and speed of the "big push," coupled with the long gestation period of these industries, caused
inflationarypressures,depreciationin the exchange rate,deficitsin the
balance of payments,and budget deficits.These promptedthe government to institutea stabilization package, which caused deflationjust
when the output fromthe new industriescame on stream,shrinkingthe
marketand lowering the returns.The rebound of the Korean economy
in the mid-1980s may have been due less to the economic liberalization
of the early 1980s (the neoliberal position)than to a combinationof the
earlier stabilizationplus the maturationof the heavy and chemical industries.7'
The main point,however,is thatlittleis known about the answer to
the centralquestion of whether,in what ways,and when Korea departed
from its comparativeadvantage. This is a great handicap for political
analysisof the role of the state.For a centralquestion of such analysisis
how much, and by what methods,thegovernmentdetermineda pattern
of investmentallocation thatdifferedfromwhat unguided privatebusinesspeople operatingin real marketswould have produced. And if there
was a difference,to what extentdid the governmentstick to projects
that,though financiallyunviable for privatebusinesspeople,were neverthelesseconomic at proper shadow prices? Or to what extentdid the
governmentdisregardthisconstraintand undertakeprojectsthatlooked
to be economicallyunviable accordingto conventionalsocial cost/benefit
analysis?This indicatestheextentto which thegovernmentwent against
"market forces,''and therebythe amount of statepower needed to effect
the desired investmentpattern-the amount of "leadership" as distinct
from"followership."Followership is indicated where governmentsup71
I owe thispointto RichardAuty.
300
WORLD POLITICS
port went to projectsthatlooked to be more or less financiallyviable at
the start.Type I leadershipis indicatedwhere governmentsupportwent
to projectsthatwere financiallyunviablebut economicallyviable ex ante.
And type II leadership is indicated where governmentsupport went to
projectsthatwere economicallyas well as financiallyunviable ex ante. A
projectsupportedby typeII leadershipthatturnsout to be economically
successful(for reasons other than unexpectedexogenous price changes)
poses a greaterchallenge to economic theorythan does a successfulproject helped by governmentfollowershipor leadership of type I. This is
not to say that the lattertwo roles are of minor significance.They still
give scope for the governmentto formulatea vision of the appropriate
development path and to choose commoditygroups within the wide
band of CA-consistent
productsforintensified
growth,coordinatingentry
to these industriesso as to reduce the risks of surplus capacity,thereby
growthpath than would be
but stillcA-consistent,
producinga different,
produced by unguided privatebusinesspeopleon theirown.72 MITI's role
in Japan'ssupercomputerproject(see the second epigraphto thisarticle)
may have followed thislogic.
Amsden, and the literaturein general,pays too littleattentionto these
issues. And one otherkey part of her argumentis also insufficiently
developed, as is also trueof the wider literature.This concerns"learning."
INDUSTRIALIZATION THROUGH LEARNING
In Amsden's schema the centraldifferencebetween the early and late
industrializersis that the formerwere driven by Schumpeterianinnovation and the latter,by "learning." But what is "learning"? It has certainlybecome a popular word in industrialeconomics over the past decade or so, for it exudes an aroma of fresh knowledge. Despite its
popularity,however,therehas been littleeffortto examine it analytically,
to make clear whetherand how "learning"differsfromor adds to what
It remainsa terminologicaldisasterarea. Amswas talked about before.73
72 On government
leadershipand followershipof themarket,see Wade (fn.57); and idem
(fn.17),chaps. 1, 10.See also JosephStern,"IndustrialTargetingin Korea," Discussion Paper
no. 343 (Cambridge: Harvard Institutefor InternationalDevelopment, 1990). The latter
makes an importantcontributionto the analysisof industrialpolicy in general and to the
literatureon Korea, and I regretnotcomingacrossit untilthispaper was going to press.
73 See Sanjay Lall, Learningto Industrialize:
The Acquisitionof TechnologicalCapabilityby
India (London: Macmillan, 1988). "Learning" makes a jazzy titlebut receiveslittleconceptual attention;it seems to be used as a singleword to mean "technologicalchange thatleads
to productivity
growth."The problemis thattheword seemsto indicatesome specificmechanism of causality,but thispromiseis not fulfilledin Lall's (or Amsden's) discussion.For a
usefuloverviewof some oftheproblems,see MartinBell, " 'Learning'and the Accumulation
of IndustrialTechnological Capacity in Developing Countries,"in Martin Fransman and
EAST ASIA'S ECONOMIC
SUCCESS
301
den sometimestalksof learning,implicitly,as any continuoustechnological change thatis not pushed by formalresearchand development,leaving R and D to be linked to innovation.But to oppose learning and
R and D as in some sense mutuallyexclusive is misleading. Japan as a
late industrializerin the 1950s was doing plentyof R and D. And the
recentKorean upsurge in R and D does not signifythe end of Korea's
status as a late industrializer(except in semiconductors).Most of its
R and D is aimed at making it competitivein more advanced but still
"follower" productsand processes,as occurredin Japanup to the early
1970s. R and D in thesecases has the primaryfunctionnot of producing
innovationsbut of allowing firmsto absorb and masternew knowledge
produced elsewhere.
If the distinctionbetween learning and innovationis less clear than
Amsden would have it, the distinctionbetween various meanings of
"learning" has to be made sharper.There is firstthe learning of "the
learningcurve,"the relationshipbetweenoutputper unitinputand some
measure of experienceof production(cumulativevolume or time). The
relationshipis describedas the "rate of learning."Then thereis the quite
distinctsense of learningas an amassing of knowledge,of expertise-a
change on theinputsside thatmay or may not be associatedwith changes
on the outputs side. This in turn has to be subdivided. "Learning by
doing," the focusof much work in industrialeconomics in recentyears,
is oftenand probablymistakenlytaken to be a relativelyautomaticprocess by which a firmbecomes more practiced,and hence more efficient,
at what it is already doing. Finally,learningin the sense of "expanding
absorptivecapacity" refersto the abilityof a firm,industry,or national
set of industriesto identify,assimilate,and exploitalreadyexistingtechnological knowledge about processesand productsnew to the firm,inAmsden is by no means alone in using the one label
dustry,or country.74
forthe many concepts,but given that"learning" standsin her theoryas
gasoline to the automobile, it would have been helpful to have some
explanationof her own usage. The Korean experiencewould confirm,I
suspect,that much of the improvementin productivitycommonly described as the result of "learning by doing" is the result of sustained,
deliberate,and cost-fulleffortsat improvements effortsto get more
knowledge of productionmaterialsand of the ways theymay be comKenneth King, eds., TechnologicalCapabilityin theThirdWorld(London: Macmillan, 1984).
I am gratefulto Bell fordiscussionon some of thesepoints.
74 See Bell (fn.73); and W. Cohen and D. Levinthal,"Innovationand Learning: The Two
Faces of R&D," EconomicJournal99 (September1990).
302
WORLD POLITICS
bined to permit machines to run at fasterspeeds, for example, efforts
that are not (formal) R and D-intensive but that are certainlyproduction-engineering-intensive.
Indeed, Amsden's cases show thatsuch effort
was a dominant concernof Korean managers. What drives learning in
this sense is the frameof mind that asks how a particulartask can be
What is it that helps this frameof mind to become
performedbetter.75
pervasive?And to theextentthatlearningis more thana matterof going
out and acquiring a new machine,what other steps must be taken and
how can public policy acceleratethem? These questions should be central to a discussionof industrialization,comparativeadvantage, and industrialtargeting.But beforetheycan be asked, the distinctionshave to
be made.76
To recap: Key conceptsin Amsden's argument-the state,learning,
and wrong prices-are underdescribedand underanalyzed. Key causal
argumentsare not assessedagainstotherpossibilities-"learning via conditional allocation of price-distortingsubsidies" against, for example,
''reallocation fromagricultureto manufacturing,'or "heavy investment
in education plus learningby doing at low cost," or "lower price distortions than in otherdevelopingcountries,"or some othersto be referred
to below. Nonetheless,Amsden is surelyrightto highlightthe synergy
between stateindustrialpolicies and the strategiesof diversifiedbusiness
groups,and she has conceptualizedthissynergyin a promisingnew way.
STEPHAN
HAGGARD'S
INTERPRETATION
AND LATIN
AMERICAN
OF EAST ASIAN
SUCCESS
FAILURE
Whereas Amsden challenges the neoclassical mainstreamof developone unusuallysuccessfulcase, Stephan
menteconomics by reinterpreting
Haggard jumps offfroma standardneoclassicalconclusionand goes on
75 See JosephStiglitz,"Learning to Learn, Localized Learning and Technical Progress,"
in Partha Dasgupta and Paul Stoneman,eds.,EconomicPolicyand TechnologicalPerformance
(Cambridge: Cambridge UniversityPress, 1987).
76 Amsden is undertaking
researchin Thailand, Malaysia,and Indonesia to testan importantbut unsupportedargumentin the book: "The generalpropertiesof an industrialization
fromthose of an
processbased on learning,or borrowingtechnologyare entirelydifferent
industrializationprocessbased on thegenerationof new productsor processes.. . . Thus, the
has given riseto certaincommon tendencies
late acquisitionof internationalcompetitiveness
in otherwisediversecountries."That is, the other,less successfullate industrializershave
stateswith a set of roles broadlysimilarto Korea's thattheycarryout less effectively,
price
structuresthat are also "wrong" but less rightly"wrong," diversifiedbusinessgroups that
are less diversifiedthan Korea's but stillmore diversifiedand centrallymanaged than those
of the West, and a strategicfocus withinfirmson the shop floorbut with fewerengineers
and more top-downmanagement.
EAST ASIA'S ECONOMIC
SUCCESS
303
to address the left-outpolitics."The crucial differencebetween the East
Asian and Latin American NICs," he says,"is the differencebetween industrializationthroughexportsand importsubstitution"(p. 27). Given
this,whyhave governmentsof industrializingcountriesadopted certain
developmentstrategies,and why,more importantly,have theychanged
them? For "the success of the East Asian NICs restednot only on certain
discretepolicies but on the particularpolitical and institutionalcontext
that allowed the NICS to adopt those policies in the firstplace" (p. 21).
Conversely,the relativefailureof the Latin American NICs was due to a
political and institutionalcontext that stronglyinclined their governments to adopt and maintain policies of secondaryimportsubstitution,
despite the slower growthand income-unequalizingeffectsof those policies.
Haggard distinguishesthreedevelopmenttrajectoriesamong the NICS:
the import-substitution
(is) trajectory,
exemplifiedby Brazil and Mexico;
the export-led(EL) trajectory,as in Korea and Taiwan; and the entrep t
trajectory,as in Singapore and Hong Kong. Each trajectoryis in turn
divided into phases. The is trajectorybegins with a primaryproductexportphase (Brazil, pre-1930;Mexico, prerevolution);thatgives way to
is phase 1 (Brazil and Mexico, 1935-55);then to is phase 2 (1955-65);
then to is phase 3 (1965-present).The EL trajectoryalso begins with a
primaryproduct-exportphase (Korea and Taiwan, 1900-1945) thatgives
way to an is phase 1 (Korea, 1945-64; Taiwan, 1945-60). That, however,
is followed by EL phase 1 (through1970) and next by EL phase 2 (1970present).Each phase has an associated economic structure(or changes
thereof)and associated economic policies. This schema highlightsthe
disjunctionbetween the two main trajectoriesat the end of is phase 1
(the two prior phases are much the same, as also is the final phase of
both). But the sameness of the finalphase departs froma verydifferent
base, namely,the growthmechanismin place at the end of the penultimate phase,one based on secondaryimportsubstitution(thatis, domestic
productionof capital and intermediategoods), theotherbased on exports
of the consumer goods items whose importswere substitutedfor in is
phase 1. The key analyticalquestion is thereforewhat accounts for the
divergence. Why did the Latin Americans around 1955 continue to
deepen theirindustryratherthan exportthe consumergoods (and other
light industrialgoods) whose domestic productionbecame well established in the priorphase? As the evidence came in during the late 1960s
thatthe East Asians were doing better,whydid the Latin Americansnot
switchto the superiorpathway?
304
WORLD POLITICS
Haggard's general answer is that fourkinds of factorsbear on policy
choices of this type: internationalfactors,domestic coalitions,political
institutions,and ideas. Further,he suggestson the basis of the six cases
thattheirgeneral causal weightcan be statedas follows:
International
pressures
[e.g.,balanceofpayments
deficits,
politicalconflicts
withtradingpartners]
are themostpowerfulstimulusto policyreform.
The strength
of different
socialgroups-agricultural
interests,
labor,and
or widenthefeasiblesetofpolicyreforms,
business-can constrain
butit
is difficult
to explainpolicyoutcomesbyreference
to coalitionalinterests
wheresocialgroupsare poorlyorganized,interests
alone,particularly
are
and statesare "strong.".. . [In addition]explaining
subjectto uncertainty,
thereform
processdemandswe payattention
to theinterests
ofpoliticians,
theinstitutional
contextin whichtheyoperate,and theideas availableto
themconcerning
economicgrowth.(pp.28-29)
So in the Korean case, the fatefulshiftto EL growthin the mid-1960s
"can . . . be traced to externalpressures"(p. 61), namely,declining U.S.
aid (which financedfour-fifths
of importsin 1955) and greaterU.S. readiness to press foreconomic policy reformsusing the threatof aid cutoff
as leverage. This growing externalpressureacted in conjunction with
institutionaland political changes initiatedafter 1961 at the domestic
level by the incomingPark regime,a militaryregimethatenjoyed much
greater"autonomy" than the precedingRhee regime. Using its greater
autonomy,it concentrateddecisionmaking in theexecutive,rationalized
the economic policy-makingmachinery,and developed new policy instrumentsforsteeringindustrialization.But even withtheseinstitutional
changes, the policies themselvesdifferedlittleat firstfromthose of the
previous regime.In particular,the same lack of budgetaryand fiscaldiscipline generated high inflation,as Park tried to buy supportfromkey
groups (notablyfarmers,with above-marketfood prices). As the imbalances grew,theU.S. in 1962 suspendedall aid in an effortto bringspending and income into line. Unrestgrew. At thisdesperatepoint,the political and military leaders granted the technocrats in the newly
restructuredpolicy-makingapparatus more scope than before,and the
latters'ideas about the industrializationprocess came to be a key factor
in the determinationof subsequent policy.They and U.S. advisers had
foryearsbeen emphasizingthe importanceof stabilization,reformof the
exchange rate,and promotionof exports;now, in crisis,theirtime came.
Compare Brazil a decade before,in theearly 1950s.It was at an equivalent point in its trajectory,at the end of its is phase 1. The factthat it
plunged into is phase 2 instead of switchingto EL phase 1 is due, Hag-
EAST ASIA'S ECONOMIC
SUCCESS
305
gard suggests,to a combination of factors.First, frequentbalance-ofpaymentsdeficits("external shocks") in the late 1940s and early 1950s
forcedthe governmentto considerchanges in economic policies. Second,
the choice of is deepening was influencedby the balance of class forces.
Landed elites stillconstitutedan importantpoliticalforce(in contrastto
East Asia), but prior industrializationhad spawned a substantiallabor
movement(also in contrastto East Asia) and had createda sizable business and professionalmiddle class. A shiftto outward-orientedpolicies,
involving devaluation and import liberalization,would have benefited
the existingagro-exportingsectorover manufacturing.But those whose
income derived frommanufacturing"had an interestin continuingan
inward-lookingindustrialcourse" (p. 172). Third, one importantsection
of the agro-exportingelite also had an interestin avoiding outward-oriented policies,namely,the coffeegrowers.Since Brazil was a dominant
supplier to the world marketand since the demand forcoffeewas price
inelastic,devaluation (instead of trade controlsas a responseto balanceof-paymentsdifficulties)would have meant lower receiptsfor coffee.77
Fourth,the commitmentof the leading politicians(Vargas, Kubitschek)
to the new course was importantin overridingoppositionto aspects of
the is phase 2 package on the part of some of the middle class and some
of the landed elite. (There was, forexample,oppositionto the expanded
role of the stateand to theentryof foreignfirms.)That commitmentwas
based upon the way thatthe variouspoliciesallowed politiciansto weave
togethera supportbase froma coalitionof disparategroups. And finally,
the technocratsbought the "structuralist"ideas, then associated with
Raul Prebischand the Economic Commission forLatin America (ECLA),
thatsanctionedan active staterole to promotesecondaryis. So, too (sur77 Haggard does not say why he thinksthis is true. It would be wortha littleeconomic
analysis,even in a workofpoliticaleconomy-if onlyto be able to distinguishbetween"real"
economicobjectionsto devaluationand thosethatconceal some otheragenda. A devaluation
would increaselocal currencyreceiptsfromcoffeeat a constantworld price.But thenaftera
lag Brazilian supply would increase (assuming no productioncontrols),pushing out the
world supplycurveand loweringthe world price.Would thiswipe out thegains to Brazilian
coffeeproducers?Suppose Brazil had 50 percentof theworldcoffeemarket.Suppose a given
devaluation gives rise to a 10 percentincreasein Brazilian supply,making a 5 percentincreasein world supply.For Brazil to loose revenuein foreigncurrency,this5 percentincrease
in world supplywould have to cause a fallin world priceby more than 10 percent(demand
elasticityof less than 0.5). I do not know whetherthesevalues are accurateforBrazil of the
mid-1950s,but theycould easily enough be checked. There is thena furthercomplication.
What matteredto Brazilian coffeegrowerswas presumablynot coffeerevenuesin foreign
currencybut the value of theirdomesticcurrencyreceipts;devaluationwould have lowered
thevalue of each unitof domesticcurrency,otherthingsbeingequal, because importswould
cost more. So the economicsof the alleged oppositionof the coffeegrowersto devaluationis
not entirelystraightforward.
WORLD POLITICS
306
prisinglyin view of later trends),did U.S. advisers,who at thistime had
a significantrole in Brazil, as in East Asia. So it is not the case that
Brazil's new industrializationproject of the early to mid-1950s simply
responded to, or followed,coalitional interests:"Developmentalisteconomic policies led, as much as followed,the interestsof this new coalition" (p. 173). The ideas of technocratsdo matter,sometimes.
And that,in the contextof Korea and Brazil, is Haggard's answer to
the "profound puzzle" posed at the beginningof his book: "If neoclassical [EL] policies are so superior,whyare theyso infrequentlyadopted?'-'
(p. 9). Haggard bringsthe trajectoriesup to the late 1980sand also traces
the movementof Hong Kong and Singapore along theirown entrep t
path.
To my knowledge, this is the firstbook by a single author to make
back-to-back,politicalas well as economiccomparisonsbetweenas many
as six NICS in two regions.It outlinesa usable frameworkforcomparing
and explaining developmentpaths and, in a brave departurefromconventionalassumptions,pays attentionto the importanceof ideas-all in
under two hundred pages. (The last thirdof the book is taken up with
threestand-aloneessayson the relationshipbetween developmentstrategy and foreigndirectinvestment,income distribution,and political regime, respectively.)Some of the weaknessesof the argumentcan be put
down to the severe compressionof a mass of literatureon each country;
conversely,its very brevity(and abundant citations of the literature)
make it a good overviewof economic and politicaltrendsin thesecountries.Let us considertwo of the weaknesses.
INDUSTRIALIZATION
THROUGH
EXPORTS
AND IMPORT
SUBSTITUTION
One problemlies in the startingassumptionthat"the crucial difference"
in economic performancebetween East Asia and Latin America is "the
differencebetween industrializationthroughexportsand importsubstitution." Since this distinctionis the key to the whole discussion, one
would expect some clarificationof what it means as well as some discussion of the empiricalevidence on which it rests.There is none. In fact,a
conceptual confusionbetween outcomesand policy-basedincentivespermeates the discussion. "Import substitution"can referto outcomes (a
rising proportionof consumptionof a given item met from domestic
production) or to incentives(net incentivesto sell a given item on the
domesticmarketratherthan abroad). Growth may be export-led(in the
sense of export growth causing output growth) without an export or
outward orientation;and an outward orientationmay not generate ex-
EAST ASIA'S ECONOMIC
SUCCESS
307
port-ledgrowth.Distinctionslike theseneed to be made if thereis to be
any objective basis for distinguishingbetween differentphases of
growth,as thereis not in Haggard's discussion.78
I have discussed the empirical evidence about the importanceof the
distinctionelsewhere.79Suffice it to say that there is some evidence
against the propositions that (1) Taiwan and Korea had export-led
growth,(2) theyhad outward-orientedtrade regimes,and (3) theydid so
much betterthan Brazil and Mexico largelyon account of eitheror both
I do not say that this counterevidenceis either
of these differences.80
or conclusive,stillless thatthe tradeopennessof Taiwan
straightforward
and Korea had nothing to do with their superior performance.But it
does seem importantto startthe politicalanalysiswith a clear statement
of what the economic dependentvariablesare and with some discussion
of the evidence about theirimportance.
It is important,too, to fashiona political explanation that takes accountof economic constraints.It is misleadingto implythatLatin America could simplyhave switchedto EL phase 1 if only the balance of class
forcesand the "politics" had been different.The economic constraints,
especially Latin America's relativelygood endowment of natural resources and its effecton labor costs and labor skills,were much more
limitingthan such a "political" explanationsuggests,as we shall shortly
see.
THIN POLITICS
A second problem with Haggard's argument is that the discussion of
politicsis curiouslytruncated.There is of course a lot about how "external shocks" (generallynot specifiedas to magnitude) change the incentivesfacingincumbentor would-be politicalleaders and therebytrigger
changes in strategy.There is also plentyabout how the EL reformswere
helped by preceding "political" changes,such as centralizationof decision-making power and the greaterautonomy of technocrats.But we
never learn much about whythese changes occur, although that would
be a natural path to followin doing politicalanalysis.
78
To be fair,therehas been much confusion,conceptualas well as terminological,in the
economicsliteratureon tradepolicy.A firststep towardclarityis to distinguishmarketand
nonmarketbias, tradablesand nontradablesbias, and exportand importbias, conceptsthat
can be applied to many typesof policies (not just to trade policies but also, forexample, to
labor marketpolicies). A helpfulpaper is Sebastian Edwards, "Openness, Outward Orientation,Trade Liberalization,and Economic Performancein Developing Countries,"PPR
WorkingPaper 191 (WashingtonD.C.: World Bank, 1989).
79 Wade (fn. 17), pp. 15-21,chap. 5, p. 308.
80
Ibid., esp. chap. 1, pp. 15-21,chap. 5, chap. 10,pp. 307-9, 333-42.
308
WORLD POLITICS
The most strikingomission has to do with "social coalitions,"however. Coalitions are, as we saw, one of four major sets of factorsthat
affectthe switchof developmentstrategy.Accordingly,thereare dozens
of referencesto coalitionsin Haggard's six countrystudies.Yet in not a
single case is thereany analysisof what the coalition is, how it is organized, what its role is, who its opponents are, how much influenceit
wields, and so on. Generally the existenceof a "coalition" seems to be
inferredfrom the fact that some economic categories (business, labor,
landed elite) have some interestsin common, or at least appear to anoutsider as though they should have some interestsin common. This
inferenceis then used to support a propositionabout their support or
oppositionto a particularpolicy.
Take a small example. Haggard argues that during the 1970s and
1980sTaiwan followeda more "liberal" course than Korea. Why? Partly
because Taiwan's greaterdependence on trade created "an export-oriented coalition heavily dependent on world markets" (p. 139) that was
presumablystrongerthan Korea's "export-orientedcoalition" (although
thisis not stated).Of the six countriesin the sample I know Taiwan best,
and I simply do not know what is meant by Taiwan's export-oriented
coalition.Is it a set of organizations?If so, does it have significantautonomy? Does it lobbythe governmentto do thingsthe governmentwould
not otherwisedo? Even withoutsuch a "coalition" would not the governmentin any event be responsiveto the needs of exportersbecause of
the importanceof exportsforgrowthand legitimacy?If yes,how important is the coalition in shaping Taiwan's more liberal course, assuming
thatit exists?
Or take the argumentforBrazil summarized above. The fatefulshift
to is phase 2 occurred in part because of the commitmentof leading
politiciansto the is phase 2 package. Why were theyso committed?Because various partsof the package allowed them to "weav[e] togethera
coalitionof . .. disparategroups." But thisis the end of the analysis,not
the beginning,and thus we have not a clue as to how the elementsof the
package allowed the leaders to weave togetherthis coalition,whatever
the coalition mighthave been. Given thatthe Latin American failureto
go forEL phase 1 is the key focusfora politicalanalysis(because, according to Haggard, the East Asian push into EL phase 1 was in line with
economic rationality),the failureto analyze the coalitional basis for the
transitionis a serious drawback.
To be fair,"interestgroups" and "coalitions" do lend themselvesto
the sloppiest kind of reasoning in the whole of political science. Their
EAST ASIA'S ECONOMIC
SUCCESS
309
existenceis often inferredfrom the asserted fact of common interests,
and theirinfluenceis in turninferredfrompolicyoutcomes in line with
thoseinterests,theirinfluencethenbeing used to explain the outcomesto yield, in sum, one great tautology.But this is no excuse forperpetuatingthe practice.From Haggard's book we learn regrettably
littleabout
what should be at the heartof a politicsof economic growth:rulers'and
would-be rulers'calculations,thatis, how theyattemptto securesupport,
by what mix of policies,designed to appeal to which groups,with what
political success, and at what economic cost.8'(Why, for example, was
Park able to translate fast economic growth into political legitimacy
whereas Chun was not?) Nor do we learn much about the circumstances
in which "growth coalitions" formor the circumstancesin which rapid
growthoccurs withoutgrowthcoalitionsor the circumstancesin which
growthcoalitionsexistwithoutrapid growth.
These questions should have been addressed in the missing conclusion. Moreover,the countryresultscould have been testedagainst some
explicitlyformulatedhypotheses;forexample:
1. Authoritarianregimes are more likely to succeed in switchingand
then sustaining development strategies,whatever the direction of the
switch.
2. Newly formed governmentsare more likely to attempt to switch
strategies.
3. A sudden worseningof economic conditions(say, a fall in per capita
income by x percent over y years, or the near exhaustion of foreignexchange reserves)is likelyto precede a switchin policy.
4. A strugglebetween "interestgroups" (outside the state) is also likely
to precede a switchin policy,with a tendencyforpolarization into antireformand proreformgroups,the lattereventuallybecoming dominant.
5. A sustained switch to EL strategyis likely to be accompanied by a
sizable inflow of foreignaid or loans, to bridge the gap between the bad
news of the adjustmentpolicies and the good news of the (expected) supply
response.
The six case studies suggestadditional issues forconsideration,as well.
A study of the politicsof policy change should address the paradox of
reformfirstenunciatedby Machiavelli and cited by Haggard in his epigraph but not referredto again, that the reformer"has for enemies all
who have done well under the old order of things,and lukewarm de81
For a case studyalong these lines that providesa quantitativeestimateof how much
economic benefitItaly's rulerswere preparedto give up in order to raise politicalsupport,
see Wade, "Regional Policy in a Severe InternationalEnvironment:Politicsand Marketsin
South Italy,"PacificViewpoint23 (October 1982).
WORLD POLITICS
310
fendersin those who may do well under the new."82The balance can be
tipped by such thingsas a shorttime between the costs being incurred
and benefitsbeing received,confidencethatthe governmentwill persist
in the new course, sizable expected benefitsto importantgroups, and
limitedchannels forexpressingopposition.83
Amsden and Haggard have produced books that substantiallyadvance our understandingof East Asian economic performance,one by
proposinga new economic mechanism,the otherby elucidatingthe politics behind the mechanism of the economics mainstream.But theydo
have certainshortcomingsin common. Neither of them adequately addresses the connectionbetween the world systemand the development
experiencesof theirchosen countries,and neitherexplains why the East
Asian statesremained relativelywell disciplinedin theiruse of an awesome amount of public power. These are centralissues. My own short
answers are as follows.
WORLD
SYSTEM
AND NATIONAL
CAPACITY
To the neoclassicaleye developmentis like a marathon:thedeterminants
of each country'sposition are a functionof factorslargely internal to
itself.All countriesshould be able, conceptually,to cross the finishline
simultaneously.There is no inherentreason why some must remain behind others,no inherenthierarchicalordering.The experienceof Korea,
Taiwan, and Japan is taken to validate the beliefthat the opportunities
forrapid developmentare virtuallyunlimitedand open to any economy.
The authorsdealt withhere,includingAmsden,share thisbasic assumption. Of course, in Amsden's theorythe institutionsof latecomers are
much shaped by the coexistenceof more developed countries.The effort
to compete against firmsin the latterfostersthe emergence of certain
stateroles and formsof businessorganizationin the former.But beyond
this Amsden says little about the impact of the world systemon late
developers.She differsfromthe neoclassicalsmainlyin her view of how
latecomersavail themselvesof thelimitlessopportunities:not by "market
relaxation and state compression" but by "technological learning
throughcondition-boundallocationof subsidies."
We should distinguishbetween the questions of what caused, or allowed, the NICphenomenonitselfand what determinedwhich countries
N. Machiavelli,The Prince(London: J.M. Dent, Everymanedition,1968),29.
This paragraphdraws on JohnToye, "InterestGroup Politicsand the Implementation
of AdjustmentPolicies in Sub-saharan Africa" (Mimeo, Instituteof Development Studies,
Brighton,1991).
82
83
EAST ASIA'S ECONOMIC
SUCCESS
311
would become NICS. When Korea and Taiwan began theirrapid rise up
the world wealth hierarchyin the early to mid-1960s,several circumstancescame togetherin the world economythatfacilitatedthe NIC phenomenon. First, transportcosts and trade barriers in core markets
(North America and NorthwesternEurope) were tumbling. Second,
competitionintensifiedwithinthe U.S. market,especiallywith the entry
of Japanese manufactures.Third, the accumulation of higher skills in
the core work forcemade "unskilled" labor scarcerand thereforemore
expensive,which enhanced the comparativeadvantage of lower-income
countrieswith a less-skilledlabor forceand created a demand for importsproduced by such labor. All threefactorscombined to promptU.S.
buyersto search out low-costsuppliersin farawayplaces.
Latin America mighthave been chosen. But its abundant natural resource endowment(crudelyexpressedin a high man/landratio) reduced
the need to export any sort of manufactures,because enough foreign
exchange came fromnaturalresourceexportsto financeimports.Its natural resourcesthereforesupportedan exchange rate and wage rate too
high to compete in world manufacturingmarkets against countriesat
similar income levels but withoutnatural resources.This explains why
the totalvolume of manufacturedexportsfromLatin America remained
small. Moreover, within this small total volume, the composition was
skewed toward products that required highlyskilled labor to produce
and away fromcheap labor productsthatrequired large amounts of basically skilled labor. This is because of the skill mix of the labor force.
Latin America had a relativelylow ratioof basicallyskilled to unskilled
people and a relativelyhigh ratio of highlyskilled to basically skilled
people. This skill mix, in turn,may have been caused by the ownership
patternof the natural resourcesand the resultingpolitics.Governments
controlledby an elite thatowned the naturalresourcessaw no particular
need to extend basic education throughoutthe labor force,for the exploitationof the natural resourcesdid not depend on a large supply of
basically skilled people. But the elites did want to expand tertiaryeduto professionalizetheirown children.Hence, secondcation sufficiently
ary education was oftenexpensive; tertiaryeducation was oftencheap.
For all these reasons,then,Latin America was an unlikelycandidate for
supplierof cheap labor manufacturedexports.Notice that Latin America's notoriousinward-lookingtrade regimeemergesfromthisexplanation as more a resultthan a cause of the region's poor performancein
manufacturedexports,quite contraryto the neoliberalargument.84
84
This sets up a puzzle about Malaysia, which has drawn on a good natural resource
312
WORLD POLITICS
Korea and Taiwan benefitedfromthe converse.They had no natural
resources to cause a "Dutch disease" effecton the exchange rate and
wages or to cause a governmentcontrolledby owners of natural resources to neglect education. Labor was theironly resource; and their
populations were unusually greedy for (comparativeadvantage-changing) education. Moreover,theirtimingwas lucky. They began to experience the limitsof furtherprimaryimportsubstitutionlater than Latin
America, just as U.S. buyerswere beginningto hunt forforeignproducers using cheap labor. And by this time they had developed a highly
productive agriculturefrom which resourcesfor furtherindustrialization could be squeezed withoutimperilingfood security.
In addition,theywere blessed bygeopolitics,located as theyare on the
faultline of post-Second World War global politics,abuttingcommunist
Asia. They thereforetook on unusually great importancein U.S. eyes,
which reinforcedU.S. concernfortheireconomicgrowth(more than for
Latin America's), a concernthattranslatedinto massive aid, good access
to the biggest,richestmarket in the world, and U.S. toleranceof their
importbarriersand state supportfor U.S. companies wishing to invest
there.Location on the faultline eventuallycame to matterless than did
proximityto Japan,since 1960 the most dynamiceconomyin the world.
and historicalfamiliarity
all helped to create
Proximity,culturalaffinity,
an important"neighborhood" growtheffect,not just in termsof trade
but also in termsof the plausibilityof Japanas a model foremulation.
Of course, all these opportunitiesmight have been fritteredaway.
That they were not had a lot to do with the existence in Korea and
Taiwan of a stateapparatus thatwas both authoritarianin relationto its
subjects and disciplinedwithinitself,and that used its power to pursue
the goals of militarystrengthand nationaleconomic wealth. Why was it
disciplined and competent?If it is true that bigger and bettermarkets
(often)need biggerand betterstates,it is also true thatbigger states(often) seek to controlor remove markets.85
There is no simple answer. We need to thinkin termsof an interacting combinationof elementswithinwhich causal priorityis difficultto
determine-more in termsof opening a combinationlock than a padlock.
First,therewas the disciplineof themarketand privateproperty.Unlike Russia, China, and North Korea, these states never carried their
endowmentwithmuch less of thesepredictedeffects.Its per capita income is about thesame
as Korea's.
85 Lipton,"The State-Market
Dilemma, Civil Society,and StructuralAdjustment,"Round
Table 317 (1991).
EAST ASIA'S ECONOMIC
SUCCESS
313
admiration for the state to the point of having it provide haircutsand
make shoes. Control of most of the economy'sproductiveassets by private capitalistsmeant thatgovernmentofficialshad to pay close attention
to how theirdecisions affectedprofits.Second, there was the discipline
of a rapidly growing pool of technicallyeducated manpower, which
again differentiatesthem from the Asian communist cases and from
most otherdeveloping countriesas well. This rapidlygrowingpool provided the civil servicewith an ample supplyof well-educated managers
and professionalsand at the same time provided a growing source of
outside technicalcommenton governmentpolicies via a press that was
fairlyfree to voice technical criticisms.Third, compared with many
other developing countries,Korea and Taiwan were culturallyfairly
unified,removinga common source of indisciplineand making the creation of a strongnation-statethatmuch easier.
The civil servicecould draw on an endowment of a long experience
of staterule and well-institutionalized
procedures.More than this,it had
a culture of social responsibilityinculcated by the educational system.
State officialswere products of a traditionin which the school played
both roles that in Western societies are divided between school and
church: developing the intellectand developing a conscience.The two
were linked by the teachingof explicitethicalrules,the demands of conscience being strengthenedby fearof angeringan amorphous deitywho
demands not obedience but responsiblebehavior toward society.High
prestigehas accrued to public officialsbecause they are considered to
embody thisideal of social responsibility;
many of the best and brightest
stillopt fora low-paid civil servicejob ratherthan a more lucrativeone
in "basely self-seeking= neoclassical profit-maximizing"private industry.86
relationsallowed the civil serviceto opThe structureof state-society
withrelativelylittleconcession
erationalizea senseof social responsibility
of
narrow
interest
to the demands
groups. Such groups were enfeebled
or thwartedaltogetherby both the Japanesecolonial and the postindependence governments(a resultfacilitatedby the lack of a natural resource-owningelite).What emergedwas an unattractivekind of regime,
86
A studyof Hong Kong, the U.S., and France foundthatthe Chinese respondentshad a
significantly
highercapacity"forunderstandingthe abstractnotionof socio-politicalresponsibilityat the societallevel." A Taiwanese educatorhas writtenthat"social scienceought to
emphasize the developmentin childrenof moral concepts,group consciousness,patriotic
thoughts,habits of cooperation,the attitudeof serviceand the spiritof sacrifice,etc."; see
RichardWilson, "Moral Behaviorin Chinese Society:A TheoreticalPerspective,"in R. Wilson, S. Greenblatt,and A. Wilson,eds.,Moral Behaviorin ChineseSociety(New York: Praeger, 1981).See furtherWade (fn. 17),chaps. 7, 10; and Ronald Dore, "Reflectionson Culture
and Social Change," in Gereffiand Wyman (fn.57).
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WORLD POLITICS
promotinga blend of puritanicalnationalismand rule by police and militarymight quite similar to China's and North Korea's, except that it
also contained violentlyanticommunistmeasures reminiscentof preSecond World War agrarian fasciststates like Portugal, Poland, and
Hungary. On the other hand, at least Adam Smith's great fear of the
invisiblehand of merchantsbehind the veryvisiblehand of government
had not much basis here. And not being perforatedand pressured by
outside interestgroups, the bureaucracycould more easily demonstrate
competence. Furthermore,the weakness of middle-class organization,
compared with Latin America, meant thatless foreignexchange had to
be spenton importedconsumergoods, easing pressureon the balance of
payments.At the same time the state created a varietyof channels of
informationfeedbackabout privatesectorcapabilitiesand preferences.
But why did the rulersand the bureaucracyelevateeconomicgoals to
such importance?Here we have to bringin a numberof externalcontingencies to complementthe economic and bureaucraticendowmentsjust
described. First, the looming externalthreat:whereas the governments
of most otherdevelopingcountriesknow thattheycan faileconomically
and not riskinvasion,thegovernmentsand elitesof thesecountriesknew
that without fast economic growth and social stabilitythis could well
happen. This led them to make an unusuallyclose coupling of national
securityand economic strength.As earlier in Japan,the economic bufordirectingresourcesto enhance the
reaucracywas given responsibility
war potential of manufacturing,an objective subsequentlyextended,
with the same "can do" orientation,to joining the advanced Western
world as fastas possible.The constantsenseof externalthreatalso helped
to discipline the bureaucracyand to elicitmore toleranceof measures of
internalrepressionon the part of the populationat large.
Second, the U.S. used itsconsiderableinfluenceto disciplinethe state's
use of resourcesin line with economic (as well as military)goals. This
reinforcedthe effectof the external threatby discouraging the rulers
fromusing the statelargelyas an instrumentof personal and group enrichment.
Third, rulersand officialswere well aware of theJapaneseprewarand
postwar experience.This provided them with a tangiblemodel of what
a disciplinedstatecould achieve bothmilitarilyand economically,which
contributedto thedevelopmentof a mission-oriented
organizationalculture in key governmentagencies.
As the rulers came to see their survival as dependent on economic
success,theystrengthenedthe hand of the economic technocratswithin
EAST ASIA'S ECONOMIC
SUCCESS
315
the state.The technocratsin turnwere able to implementindustrialpolicies thathad been pioneered earlierin Japanbut had not yetbeen tried
bypostwardevelopingcountries.The keypolicyfeaturewas a "governed
market,"a systemof mostlyprivateenterprisescooperatingand competing under state supervision,in the contextof heavy investmentin education. The state'sdirigismewas guided neitherby the half lightof economic theorynor by the preferencesof vote-seekingpoliticians.Rather,
the technocratspaid attentionto (1) the industriesneeded to increase
(2) the Japanesemodel, down to very specific
militaryself-sufficiency,
resultsin exportmarkets,and (4) privatesector
details,
(3)
organizational
importsof capital and intermediategoods. With criteriaderived from
these sources theydid plentyof what neoliberalssay bureaucratscannot
do: theypicked particularindustriesforspecial promotion,encouraging
resources into them beyond what individuals were prepared to risk.
They treatedparticularindustriesat any one time (latterlywithininformation, electronics,and biotechnology)as the natural successorsof the
bridgesand lighthousesof Smith'sday-items he thoughttoo criticalfor
the general welfareto be leftto marketforces.And the onrush of technicallyeducated people into the labor forcehelped to bufferthe government frommaking mistakes in picking the winners: as the proportion
of skilled people in the labor forcerose, projectsthat were initiallytoo
advanced in relationto presentcomparativeadvantage soon ceased to be
too advanced.
No other developing countries achieved this combination. Korea
and Taiwan alone managed to obtain not only the economies of scale
that come from acting in a wide economic space and the innovations
induced by competition,but also the advantages of protection and
selective industrial promotion. Both were able to ride the wave of
global internationalizationwhile at the same time imposinga politically
determineddirectionalthruston resourceallocation withinthe national
theproductionstrucThey therebyintegratedand transformed
territory.
ture faster than would have occurred had the controllersof capital
been allowed to operate within an unconstrainedlogic of global profit
maximization. The advantages of insertingsome wedges between the
internationaleconomy and the national economy were not just economic in the narrow sense. Buffering(but not insulating)people from
the disruptionsof market volatilityhelped to sustain the legitimacyof
the market-basedsocial order.87That in turn helped to avoid the acute
87 See R. Bates,P. Brock,and J.Tiefenthaler,
"Risk and Trade Regimes: AnotherExploOrganization45, no. 1 (1991); and Wade (fn. 17),chaps. 10, 11.
ration,"International
316
WORLD POLITICS
social and political instabilitythatotherwisetends to characterizehighspeed economic growth,making Korea's and Taiwan's more sustainable.88
What does this explanation suggest about the likelihood that other
developing countriescan transformtheireconomies and raise incomes
fastto shoot up the hierarchyat somethingapproaching the
sufficiently
ratesof Korea and Taiwan? It suggeststhe chances are a good deal slimmer than the neoliberal account would have us believe. Not only is the
world economy much less expansive (a point we returnto shortly),but
also the politicalconditionsneeded to establishand sustainthe key policy
combinationof competition,dirigisme,and education are too stringent
to be met by many others.The stringencyof thiscombinationis consistent with Arrighi and Drangel's data on the rarityof countrymobility
fromperipheryto semiperipheryor semiperipheryto core over the past
fivedecades.89As noted earlier,Korea is the only countryin theirlarge
sample thatmoved fromperipheryin 1938-50 to semiperipheryin 197583, and Taiwan would be in the same class had it been in the sample. On
the otherhand, Malaysia,Thailand, and Indonesia (combinedpopulation
270 million) and the coastal provincesof China90grew rapidlyover the
1980s,thoughfroma low base. Perhaps some Latin American countries,
squeezed bydebt and byAsian competititionin potentialexportmarkets,
are moving fromthe semiperipheryto theperiphery,leaving space in the
semiperipheryforsome of the Asian newcomersto move into. Perhaps
Britain,with the most ill-educatedlabor forceof all the core countries91
and with a long-standingand recentlyreaffirmedcommitmentto an
overvalued exchange rate,is movingout of the core toward the semiperiphery.This mightleave space forsome others,such as Singapore,Tai88 This is obviouslya highlystylizedaccount.In a longertreatment
we would have to deal
withthedispersionaround thesetendencies-such as bureaucraticcorruptionand infighting,
the Rhee period in Korea, and the earlyChiang Kai-shek period in Taiwan. We mightlook
at these questions in termsof the "Migdal effect"-the tendencyof insecurelyestablished
leaders to pulverizethe arms of the bureaucracyin orderto preventchallengesto theirrule
fromcentersof power withinthe state while at the same time relyingon those arms for
and legitimacy.See Migdal (fn.48). For furtherdiscussion,see Wade (fn.
policyeffectiveness
17),chaps. 7-10, esp. 333-42; idem (fn.5, 1982),chap. 8; and idem (fn.5, 1983).See also Bruce
Cumings, "The AbortiveAbertura:South Korea in the Light of Latin American Experience," New LeftReview 173 (1989).
89 Arrighiand Drangel (fn.22).
90See Ezra Vogel, One StepAheadin China: GuandongunderReform(Cambridge: Harvard
UniversityPress, 1989).
91 See the discussionbetweenseniorBritisheconomicpolicymakersand academic analysts
of Britishdecline in PeterHennessyand Caroline Anstey,eds.,FromClogsto Clogs:Britain's
RelativeEconomicDecline since1851,StrathclydePapers on Governmentand Politics(Glasgow: Departmentof Government,Universityof Strathclyde,1991).
EAST ASIA'S ECONOMIC
SUCCESS
317
wan, Korea, Spain, and parts of Eastern Europe, to move into as they
intensifyworld competitionin corelikeactivities.
THE CUSP OF NEOLIBERALISM
Whether or not one accepts the idea of a more or less fixed hierarchy,
thereis no doubt thatinternationaltrade became more adversarialduring the 1970s and 1980s.The escape upward of some of the low-income
countriesis encounteringa more formidablechallengefromexistingNICS
and fromthe older industrializedcountriestryingto hang on to existing
markets.At the same time,some of the firmsthatare leading the escape
are themselvesfinancedand partlyowned byfirmsfromcountrieshigher
up the ladder. And withinthe older industrializedcountriestrade pressure fromlow-income countriesis fanningpoliticalconflict.Those who
speak for relativelyunskilled workers and their employersare pitted
against representativesof those who (whetherbecause of theirskills or
for other reasons) are insulated from low-wage competitionand who
reap the benefitsin cheaper consumergoods and services.This conflict
is being intensifiedby the new flexibleautomationmanufacturingtechnologies, with theirreduced demand for both basicallyskilled and unskilled labor.92
In light of all this,it is curious that the neoliberal approach, with its
emphasison themutualityof interestsbetweenrichand poor "countries"
(treatedas unitaryentities),became the mainstreamof developmenteconomics in the mid-1970s.For it was just thenthatunemployment,inflaand increasinginstabilitybecame prominent
tion, falling profitability,
featuresof the OECD economies and that NIC expansion looked as if it
would lead to serious conflictsof interestwith groups in the industrialized economies. The vast outpouringof neoliberalresearchseems to dispel this fear. Yet as we have seen, the empiricalbasis forthe neoliberal
confidenceis open to question,as also is its theoreticalfoundation.93
This
92 For a carefulattemptto estimatethe effect
of tradewiththe "South" on workersof the
"North," see Adrian Wood, "How Much Does Trade withthe South AffectWorkersin the
North?" WorldBank ResearchObserver6, no. 1 (1991). See also Manfred Bienefeld,"The
InternationalContextforNational DevelopmentStrategies:Constraintsand Opportunities
in a Changing World," in Bienefeldand MartinGodfrey,eds., The Struggle
forDevelopment:
in an International
Context(Chichester:JohnWiley, 1982); Paul Streeten,
National Strategies
"Comparative Advantage and Free Trade," in Azizur Rahman Khan and R. Sobhan, eds.,
Trade,Planning,and Rural Development(Basingstoke:Macmillan, 1990); and Evans (fn.35).
neoclassicalHeckscher-Ohlintheorysays clearlythatwithineach
93 The quintessentially
countrysome gain and some lose fromthe opening of trade. This is overlooked by many
neoliberal practitioners.I should emphasize that my argumentdoes not imply a blanket
in stressingtheimportanceofcertainpolitical
rejectionof freetradepolicies.On thecontrary,
318
WORLD POLITICS
includes the contentionthat,whateverthe conditionof the world economy,economic liberalizationin poor (as well as rich)countriespromotes
the mutual interestsof rich and poor countriesand withincountries,of
labor and capital, and further,that insofaras mutual interestsare not
being served,it is generallybecause the degree of liberalizationis insufficient.
I wonder to what extentthe continueddominance of thisset of beliefs
is related to the factthatmuch of the researchhas been financedby the
main internationalfinancialinstitutionsor else has been carried out by
people who look to such organizations for careers and consultancies.
These organizationsbelieve that theirabilityto ensure the servicingof
outstanding loans depends on the debtor countries' maintaining their
commitmentto liberalization,which is taken as the best way to promote
the exports needed to repay the loans. So these organizations are well
aware thatliberalizingreformis in theirinterestas well as in the interest
of the main private commercial banks.94They have thus campaigned
vigorouslyforreformsof thiskind. These two pointstogethersatisfythe
requirementsof a "political" explanationof the broad unanimityof neoliberal researchfindingsin developmenteconomics.
But this particularexplanation is no doubt only a minor element in
the overall assessment.A more importantfactoris the interestsof the
controllersof transnationalcapital and finance.As capital became much
more internationalizedaftertheearly1970s,so the power of thosewhose
income is derived fromtransnationalcapital and financemultiplied.As
a categorytheyhave both common and opposed interests.Those based
in the high-technologyindustries(the upstream sources of the radical
technologicalchanges sweepingthroughthe productionstructuresof the
industrializedcountries)have been seeking occult protectionand other
state supportsin order to restrictthe corporateand countrydiffusionof
these activities.At the same time they,togetherwith theircounterparts
in the medium- and low-technologyindustries(which include the downconditionsforgap-reducinggains in nationalincome,it also suggeststhatfreetrademay be
a second-beststrategyin cases wherethestatecannoteven beginto approachthoseconditions
(as in some sub-SaharanAfricancountries,forexample). There is afterall some truthto the
neoclassicaleconomists'implicittheoryof power (also Marx's, in his writingson India) that
so powerful
the possibilitiescreated by expandingmarketserode existingpower structures,
is the incentiveof profit;for that reason power structuresare more or less ignored in the
neoclassicalanalysis.
94 This followsonly if evidenceshows thatthe liberalizationof the structural
adjustment
package is usually good for exportcapacity,exportearnings,and hence debt servicing.A
recentWorld Bank report,carefullyread, casts doubt on thisand hence on what is in the
See World Bank, Adjustment
bank's self-interest.
Lending:An Evaluation of Ten Years of
Experience,Policy and Researchno. 1 (Washington,D.C.: CountryEconomics Department,
World Bank, 1988).
EAST ASIA'S ECONOMIC
SUCCESS
319
stream applications of the new technologies),have sought to open up
thirdmarkets,especiallyin developingcountries,to allow them to move
theirassets worldwide in search of the highestprofits.The firstof these
two tracksinvolvesconfrontations
as well as alliances between the varitheir
ous technologyleaders,backed by
governments;but the secondopening thirdmarkets-is somethingthattheycan all agree on. So there
has been a strongpush by transnationalcapitalists,by governmentsof
countrieswhere transnationalcapitalistsare powerful,and by international financialinstitutionsto seek the removalof statecontrolsover the
use of economic assets in thirdmarketsand more generallyto compress
the developmental role of governments.This push has more recently
been accompanied by overt supportfornational political arrangements
that facilitatethe abilityof these groups to influencegovernments.But
theirinterestsneed to be presentedas entirelyconsistentwith the common interestsof national populations-for which the doctrinesof "free
tradeand investment,""democracy,"and "human rights"(includingthe
In parrightto use one's propertyas one wishes) are veryconvenient.95
ticular,an explicitmodel of malign state-marketrelationsis promoted
in the contextof the technologicallydownstreamactivities,while occluding the implicitmodel of benignstate-marketrelationsin technologically
upstreamones (occluding,too, the practiceof nontariff
protectionof unindustriesin induscompetitive,low-technology,employment-intensive
trialized countries).
In ways that are anythingbut straightforward,
the power gains of
transnationalcapital in the 1970s and 1980s have reinforcedthe consensus within economics that mutual interestsare generallyserved by free
to eliminate the earlier anomaly of a
trade96-reinforcedit sufficiently
developmenteconomics thatchallenged thiscentraltenet.The low professionalesteem attachedto empiricalinquirythen servesto protectthe
beliefagainst contraryevidence. (Asked what attainmentscontributeto
success in the profession,only 3 percentof 212 graduate studentsin economics said that "having a thoroughknowledge of the economy was
very important"; 68 percent thought it "unimportant.")97Only very
compelling factsabout situationsclose to home will serve to breach the
of transnationalcapital are one importantset
95 I suggestno more than thatthe interests
of causes of the wave of democratizationin developingcountriesand of the salience of democracyand human rightsin NorthernstrategyforNorth-Southrelations.See World Bank,
WorldDevelopmentReport,1991 (Washington,D.C.: World Bank, 1991),chap. 7.
96 Bruno Frey et al., "Consensus and Dissensus among Economists: An Empirical Inquiry,"AmericanEconomicReview 74, no. 1 (1984).
97 David Colander and Arjo Klamer, "The Making of an Economist,"Journal
ofEconomic
1 (Fall 1987),100.
Perspectives
320
WORLD POLITICS
defenses. The examples of Japan, Korea, and Taiwan have not been
enough to do so. How much worse will the long-termeconomic performance of the U.S. and the U.K. have to get beforethe mainstreamof the
English-speakingeconomicsprofessionbegins to sound less like Herbert
Stein,chairmanof the Council of Economic Advisorsduringthe Reagan
years ("If the most efficientway for the U.S. to get steel is to produce
tapes of 'Dallas' and sell them to the Japanese,then producing tapes of
and less like Sir Terence Burns, chief
'Dallas' is our basic industry"),98
economic adviser during the Thatcher years ("If we can't make money
by manufacturingthings,we'd bettterthinkof somethingelse to do"),99
and more like GovernorPark of the Korea Central Bank and the senior
MITI officialquoted at the outset?100
98 See U.S. Congress,House of Representatives,
IndustrialCompetitiveness
ActHouse Report
98-697,98thCong., 2d sess.,April 24, 1984,p. 83.
9 He was respondingto complaintsthattightmonetarypolicieswere destroyingBritain's
manufacturingindustry;"Profile:Sir Terence Burns,Not Merelya Civil Servant,"Independent,March 16, 1991,p. 16.
100This is not to endorsea "proindustry/antiservices"
argument,nor is it to suggestthat
comparativeadvantage is irrelevant.Rather,the point is thatGovernorPark and the MITI
forformulating
a view of the approofficialbelieve thatgovernmenthas some responsibility
priateindustrialand tradeprofileof theeconomyand forusing public power to push in that
direction,whereasStein and Burnsemphaticallydo not. It may be thoughtthata new interventionismhas alreadyarrivedin mainstreameconomics,in particular,in the formof "strategictrade theory."But I am talkinghere of the developingcountrycontext,and most proponents of strategictrade theorywould say it does not apply widely under developing
countryconditions.The World Bank has certainlytriedto neutralizeits pollutingeffecton
neoliberalprescriptions.Aftersummarizingstrategictrade theoryit concludes,"The trade
theoristswho helped develop the literatureon strategictradetheoryremainextremelysceptical about its policy relevance.Most fearthat,ratherthan being used to enhance national
who take cover
welfare,these new ideas will do damage in the hands of interventionists
theseideas provide."Note the implicationthat"interbehind the intellectualrespectability
ventionists"have no intellectualjustificationfor theirpositionand hence need a cover of
intellectualrespectability.See "StrengtheningTrade Policy Reform (Washington,D.C.:
World Bank, November 1989),Box 1-2.See also E. Helpman, "The NoncompetitiveTheory
of InternationalTrade and Trade Policy,"Annual Conferenceon DevelopmentEconomics,
supplementto the WorldBank EconomicReview(1989). Helpman concludes,"Policy should
be designedon a case-by-casebasis and . . . no intervention
(freetrade) remainsa good rule
of thumb" (p. 193). Only the firstpart of the sentencereallyfollowsfromhis analysis,the
second being more the World Bank line. See also Wade (fn. 17), 14,378. If a new interventionismhas not yetenteredthemainstream,thereare signsofa new defensiveness.
Consider,
forexample, the following.AftertheEconomistpublishedan unusuallyenthusiasticreview
theMarket(June1, 1991,pp. 102-3),the reviewerreceivedover six transatlantic
of Governing
phone calls fromWorld Bank officialsringingto complainabout theEconomistpublishinga
Several said the journal was lowering its
favorablereview of a book by an interventionist.
The reviewerasked each
standards.Anothersaid, "Don't you know he is an interventionist?"
whetherhe had read the book or even glanced at it. Answer: No, in everycase. See James
Post,October 6, 1991,foran exFallows, "Economics of the Colonial Cringe," Washington
of theEconomist'sreview.
actlyoppositeinterpretation