A Farewell to Ideology:
Developing From Role Models
Alice H. Amsden
Chapter Four
“Getting the Property Rights ‘Wrong’”
On a Dutch-owned coffee estate in Java,
administrator Haai, a fictional character whose
name means ‘shark’. . .sees all the walls and
doors of his house smeared with paint: “Property
of Republik Indonesia,” and “Dutch go home”...
Economic decolonization involves reshaping
economic activity into new kinds of businesses,
as well as establishing business enterprises for
which there had been no room in the colonial
setting.
J. Thomas Lindblad, Bridges to New Business
The Economic Decolonization of Indonesia,
Leiden, 2008.
“Creative Destruction”
The universal property rights which colonial powers
laboriously implanted around the world were uprooted by
World War Two and de-colonization.
This strengthened the
foundation of fast-growing national role models with
nationally owned enterprises at their core.
In market
theory, property rights are ideal if they are stable,
supposedly to reduce risk, stimulate investment, and grease
the market‘s squeaky wheels (generally “property rights”
are the laws and regulations that protect property and its
uses).1 Governments are good if they act merely as guardians
of law and order, as Adam Smith averred, and development is
driven by international trade.
But as colonialism
crumbled, a new theory of property rights became warranted
in light of the fact that a country’s development may
thrive from intermittent discontinuities, not just
stability, and from changes in the ownership of foreign
property, not just foreign trade.
Nationalization of foreign direct investment (FDI),
part of the larger process of ‘indigenism’ that accompanied
colonialism’s fall, opened the door for a new national
elite to replace a privileged class of ‘sub-imperialists’--the missionaries, soldiers, academics, bankers, traders
and investors that prospered under foreign protection.2
Whether through land reform or nationalization of FDI (we
discuss only the latter, although land may be redistributed
to peasants if foreign-owned plantations are seized), Third
World development entered a Golden Age.
Nationalization
provides an opportunity to re-examine established property
rights theory as it bears on modern economic development.
The Age of Nationalization began with Mexico’s
takeover of foreign oil companies in 1938,3 and ended
1 For the stability argument behind property rights and economic development, see {North, 1994 #733}, among others . {Lal, 2004 #2764} argues that imperial order is essential for growth. 2 The term “sub‐imperialists” was coined by {Fieldhouse, 1973 #208} as part of a study of the actors that benefited from the British Empire, 1830‐1914. 3 According to a business historian, Mira Wilkins, “More than any other event in history‐‐‐much more than the Russian Revolution‐‐‐the Mexican expropriation (with compensation) taught executives of the principal U.S. oil companies that foreign approximately with Chile’s confiscation of copper
concessions in 1973, about the same time that Vietnam
ousted the American system of property rights entirely. But
while nationalizations may have started and ended in Latin
America, the theatres for the most radical ruptures in
property rights were the Far East (Asia) and the Middle
East, which became the regions with robust role models.
During World War Two, the US and Japan had confiscated each
other’s properties, but after Japan’s invasion of Southeast
Asia in 1942, Japan also seized colonial holdings, such as
American investments in the Philippines.
With Japan’s
defeat, Japanese-owned investments became the basis for
“primitive accumulation” (windfall capital gains) in China,
Taiwan and Korea (North and South), and the object of
violent independence wars, as between Indonesian liberation
movements and the Dutch. With the transition from hot to
Cold War, Iran confiscated foreign oil concessions and gave
this act institutional form by establishing the National
Iranian Oil Company.
Amidst an explosion in Pan-Arabism,
Egypt nationalized the Suez Canal in 1956, just about the
same time that Saudi Arabia began to nationalize ARAMCO (a
new cycle of property nationalizations began with Iran’s
1979 revolution). Shaky property rights paved the way for a
general strengthening in “policy rights”---or the right of
nations to restrict the use of foreign property in the face
of international opposition (discussed in chapters xx).
Japan, for example, nationalized foreign direct investment
in wartime and then, as a next logical step, heavily
regulated it in peacetime.
governments did have the power to confiscate. . .(Counter) arguments based on the ‘principles of property rights’. . . might not be adequate” {Wilkins, 1974 #115} 230. Why may economic development benefit from the
nationalization of FDI, or “getting the property rights
‘wrong,’” and under what conditions are the ‘wrong’
property rights right?
The benefits are two-fold, as we argue below, and
stability, or the absence of redistributive indigenism,
imposes high costs.
The expropriation of foreign
corporations may thin the grass for nationally owned
companies to breath and grow, as in the Japanese role
model, thereby strengthening them at their weakest moment,
when they are starving of finance and world-class skills.
Expropriation may also give a country control over an
industry’s whole value chain, as in the OPEC role model,
with a positive impact on nationally earned rents. Although
Indian enterprises didn’t go as far as nationalizing
British companies (discussed in another chapter), they
didn’t have to; thanks to the discontinuities of decolonization, they could simply buy the basement-priced
assets of foreigners fleeing political uncertainty.4
Contrariwise, because de-colonization happened much earlier
in Latin America, foreign firms never left in large
numbers, leaving less room for aspiring entrepreneurs.
The costs of discontinuity, however, may be colossal.
China’s official estimates are that between 1931, the year
of the Manchurian Incident, and 1945, when the Japanese
army was driven out of China, Japan was responsible for the
death of 3.8 million soldiers, the killing or wounding of
18 million civilians, and the destruction of $120 billion
of property (denationalization) {Feuerwerker, 1989 #2709}.
Only after 30 years of slow growth, ending in the late
4 See {Gadgil, 1959 #854} and ({Tomlinson, 1978 #1476}, {Tomlinson, 1981 #2095} and {Tomlinson, 1982 #634}). 1970s when reforms opened some markets and others conformed
to the experiences of postwar Japan, did China find its
feet (we don’t discuss China below). Korea’s economy began
to take-off slightly earlier, in the late 1960s, but only
after fifteen years had elapsed following the end of the
Korean Civil War, during which time it is estimated that 23 million Koreans were killed along with 40,000 American
soldiers.
Against such costs, are the long-term economic
benefits of violent ruptures in property rights ever
worthwhile?
The stronger a role model to guide a country through a
property rights regime change, the more the wrong property
rights are right. The know-how embedded in the experience
of a role model can be diffused by three types of teachers:
(1) pre-modern artisans, merchants and money-lenders;5 (2)
foreign émigrés, first individuals and then multinational
firms;6 and (3) colonialists (sub-imperialists). At the time
of World War Two, European and American emigres in Latin
America represented an ideal---emigres transferred market
processes and institutions to poorer lands. In fact, the
émigré form of learning was the most successful of the
three judging by the fact that around 1945, Latin America’s
average per capita income exceeded that in every colonized
region.7 Still, the Enlightenment economics of these émigrés
didn’t teach a new generation how to operationalize statist
5 Countries with their own past imperial splendor (China and India) tended to have a relatively large financial sector and artisan industries associated with military rule and court life. In India, “Historical accounts of the expansion of European private merchants into the Indian interior have suggested that groups of Indian traders (‘pre‐modern’ Indian merchants’) played a significant part in providing finance for their enterprises” {Bayly, 1978 #2705} 171. 6 Learning from individuals and companies has systemic differences. See {Wilkins, 1987 #1056} 7 For estimates of GNP growth rates from 1938‐1961, see {United Nations, 1963 #1736} and {United Nations, 1965 #1737}. policies, as did the contemporary role models that
transformed the production systems of Asia and the Middle
East.
While the ISI role model depended on hands-on
manufacturing skills such as production engineering and
project management, the OPEC role model was more reliant on
administrative skills.
Oil-rich countries acquired these
in record speed, from technical assistance and
‘localization,’ a form of indigenism.
But such a transfer
of know-how occurred in the presence of ‘pre-modern’
experience. Following the first oil concessions in the
1930s, for example, when Saudi Arabia had neither foreign
banks nor banking statutes, its political leader, Abdul
Aziz, “allowed the money changers Mahfouz and Musa Kaki to
open the National Commercial Bank,” an achievement which
helped finance the first energy boom of 1973 {Mackey, 1990
#2515} 187. Arab universities (modern Cairo University
dates to 1908) were dominated by the study of law because
“at a time when the overriding problem facing the Arab
world was colonial domination,” lawyers could meet
Westerners on their own terms in dealing with law suits,
administrative procedures, diplomacy and ultimately, the
annulment of foreign concessions {Reid, 1981 #2704} 395-96.
Despite its backward appearance at the time of OPEC’s rise
in 1960, non-trivial administrative capabilities in the
Middle East were already in place.
to ch. 3.
Brain Gain---add also
Pick up in ch 5, wrong model.
As OPEC members
turned from fixing prices to controlling long-run supply,
the greater these skills, the more neighbor-learned-fromneighbor, and nationalization empowered a natural resource
to promote economic development as never before.
A theory of late development must have an underlying
theory of property rights, one that, ideally, displays not
only stability but also “creative destruction” (in
Schumpeter’s words).8
A productive change in foreign
property rights is dependent on knowledge to make the
process of nationalization work.
Destruction is creative
if the next generation of property owners is more
entrepreneurial than the previous one due to cumulative
learning.
Categories of ‘Indigenism’
De-colonization created a new political economy
devoted to studying the multiple channels through which
resources were being redistributed to independent
countries, or ‘indigenism.’
A spectrum of channels
specific to Indonesia was provided in a Cornell Ph.D.
thesis by John Sutter.9
His systematic classification is
helpful in organizing an answer to the question of what the
conditions are under which the ‘wrong’ property rights are
right.
Out of Sutter’s nine categories of Indonesianisasi,
five are relevant for the discussion below, with adaptation
and reorganization (see Figure 4.1):
Figure 4.1
Modes of ‘Indigenism’
A1.
Change in government control over foreign-owned
business, including;
8 {Schumpeter, 1942 #1142}, argues that “gales of creative destruction,” in the form of new technology, uproot market monopolies. Similarly, the less pacific forces of war and de‐colonization change the global distribution of income and uproot colonial political monopolies and physical properties. 9 {Sutter, 1959 #2719}, as cited by Lindblad 2008. A2.
Change in participation by indigenist people
(nationals) in the management of foreign-owned companies--called ‘localization.’
B3.
Establishment of new enterprises in sectors
previously closed to nationals (under colonialism),
including;
B4.
Establishment of state-owned enterprises.
C5.
Transfer of formerly foreign state-owned enterprises
or private-owned enterprises,
(i)
To nationals (public or private),
(ii)
By means of market forces (‘takeover’) or
state coercion (‘nationalization’).
Measures to create a national business elite that fall
in category A involve only a change in government
regulation of FDI, which we call a ‘policy right,’ and
discuss elsewhere.
Slightly more radical are the measures that fall under
category B, whether the establishment of state-owned firms
(SOEs) or private-owned firms (POEs).
These measures are
more radical because to succeed, they require the formation
of a new firm, an “administrative planning unit and pool of
resources” requiring greater organizational skills, firmlevel managerial and technological capabilities on the part
of nationals, as well as spillovers between the public and
private sectors to discernibly impact economy-wide growth.10
As shown below, the mass creation of SOEs (B4) in the 1950s
failed miserably in the Philippines.
It was more
successful in Malaysia after the discontinuity of race
riots in 1969, and represented a big step forward in
Indonesia.
10 The firm as an administrative planning unit is conceived by {Penrose, 1968 #2688}. Transfers in category C include changes in property
rights involving some kind of deployment of force or
exertion of state power, called---synonymously--nationalization, expropriation, confiscation, seizure,
etc., with or without compensation (an issue we don’t
discuss thoroughly below).
Nationalized properties may be
acquired either ‘aggressively’ (new owners instigate and
fight for them, as in Indonesia and Iran) or ‘passively’
(they are a windfall). A windfall occurred in Argentina
with the defeat of the Axis powers, but failed to act as a
growth pole. A much larger windfall occurred in Japan’s
former colonies, Manchuria, Korea and Taiwan, and served
the purpose of ‘primitive accumulation’ and
industrialization.
Aggressive nationalization of foreign
oil concessions was initiated by OPEC’s original founders
(a ‘velvet revolution’ in Arabia) and tended to be highly
successful for long-term growth.
Transfers in category C also include ‘takeovers’ (or
‘acquisitions’), a change in the ownership of property
accomplished through market forces, without any challenge
to legal convention.
This typified India after 1947, the
case that proves the point---India’s private industrial
sector could acquire private British firms without support
from the Indian government because it already had adequate
industrial experience by Third World standards, and was
further aided by the discontinuities engendered by war and
de-colonization, both of which weakened foreign firms and
lowered their purchase price (the Indian role model, a
combination of big business and grass roots poverty
alleviation, is discussed in chapter x).
The joint venture between foreign and national
investors, a mutant form of business organization, falls
into any of the three categories depending on its
initiation, ownership and control.
We now attempt to explain postwar differences in
indigenism.
Nationalization Without A Role Model:
Argentina
In the aftermath of World War Two, Argentina under
Juan Peron (1946-55) was the lightning rod in Washington
for everything wrong with state economic intervention:
populism, corruption, and inefficiency. But like the rest
of Latin America, Argentina, in fact, nationalized very few
foreign firms, those in question being mostly utilities
such as railroads and electric power (xxx).
The region
nationalized nearly no domestic property except central
banks, generally recognized as an essential ingredient of
sovereignty.
Instead, Argentina inherited around 35 choice
properties from former German owners.
At a moment in
history, when Argentina yearned to enter higher-tech
industries both for jobs and prestige, into its lap fell
subsidiaries of some of Germany’s greatest global
companies, such as Mannesmann, Beyer and Bosch.
What to do
with these jewels?
According to a new generation of historians, less
hostile to the Peronist age, the United States wanted
Argentina to sell its German properties and use the
proceeds to pay victims of Axis aggression (Juan Peron had
maintained cordial relations with the Axis Powers).11
At
minimum, it wanted Argentina to gut the enterprises
(“vaciamiento”), removing all German assets (such as
managers and engineers), and severing all German ties (to
11 Information on Peronist industry derives mainly from {Belini, 2001 #2700} and {Belini, 2009 #2710}. banks and suppliers), thereby effectively cutting these
gems off at the knees.
By contrast, the Argentine
government envisioned the emergence of new growth poles,
and “the evidence suggests that there was no thought of
converting nationalized properties into state-owned
enterprises” (Belini 2001 (sp. trans)). Instead, German
companies “accidentally” fell into state hands due to the
weakness of Argentina’s large-scale private entrepreneurs,
who had insufficient capital---human and physical---to
acquire them {Belini, 2001 #2700}.
A century of émigré
exchanges had left Argentina’s private sector with a large
number of small, relatively inefficient firms.12
Although
confiscated properties were operated profitably by the
Argentine government for a short time, its plans fizzled in
the long run.
Underneath the graft, what was the problem?
Despite Argentina’s wealth and tutelage by emigres,
the various elites responsible for its postwar planning
didn’t know exactly what to do. Although Argentina could
boast one of the leading theorists of import substitution
industrialization, Raul Prebisch, his writings didn’t
provide a roadmap for making new manufacturing properties
work.
Prebisch was “demonized” in Washington for defending
tariff protection, but he was no inward-looking statist
{Kapur, 1997 #1657}.
He saw Argentina’s future as lying in
exporting manufactures, not primary products.
In a report
on the Argentine economy undertaken for the United Nations,
he warned Argentina as early as 1968 that it had to start
exporting more {Mallon, 1975 #1359}.
But while he
elaborated on the trade policies necessary to shift
Argentina from selling at home to selling abroad, he wrote
little about the industrial policies that were needed to
12 See Barbero, Diaz Alejandro, and Lewis. create export-generating industries in the first place.
Like orthodox economists, his field of expertise was
exchange, not production.
The German firms that the Argentine government
inherited represented a wide array of industries
(metallurgy, electronics, construction equipment,
pharmaceuticals and industrial chemicals), so none could be
“targeted,” and little industry-specific expertise was
accumulated on the government’s part.
A diverse portfolio
also got the government in trouble with the private sector,
which objected to new competition from state-owned
enterprises; that these operated across industries
attracted political opposition from a strong industry-wide
business association.
Enterprise management was assigned
to a new government bureaucracy (Di.N.I.E13), with raw
energy but little experience or financial backing compared
with Argentina’s military-industrial complex. Di.N.I.E
displayed only rudimentary understanding of what policies
to use to make an industry prosper and grow. Instead,
inappropriate policies were overused.
“Policy
implementation was difficult because there were no clear
indications of the methods to use to reach the goals
articulated in the First-Five Year Plan.
Thus, for
example, although the production of cotton yarn was among
the industries to receive government attention (a sensible
choice), the bureaucracy failed to design a sectoral
policy.
Instead, it concentrated its attention on price
controls, and the economy stagnated” (Belini 2009, p. 199
sp. trans.).
13 Direccion Nacional de Industrias del Estado (National Management of State Industries). The same ignorance of industrial policy was evident in
Chile, Argentina’s rival for Latin America’s richest
country at the time.
Chile’s tiny automobile industry was
excoriated by American critics for comprising a large
number of inefficient assemblers all surviving behind high
tariff walls.
But it turns out the reason for this didn’t
lie with perverse interventionism.
“The government
considered restricting entry to only a few firms, so that
each could operate at higher, more economic levels of
output.
But the government was not able to formulate
acceptable criteria by which companies could initially be
selected” {Johnson, 1967 #1188, emph. added} 281.
It
relied instead on the market to stimulate competition and
self-select a few winners, but the whole industry
collapsed.14
A problem in Argentina and Chile was the absence of
any hands-on role model to guide them.
Being themselves
the most economically advanced countries in Latin America,
they could emulate nothing regional.
Nor did the model of
the émigré, in the form of a multinational investment from
Europe or the US, offer much guidance.
In the nineteenth
century (noted in chapter 2) Argentina’s idea of an
advanced economy was dreamy.
After World War One, when FDI
began to arrive (Pirelli invested in Argentina in 1917, one
of the first multinational companies to do so) Latin
America’s Southern Cone remained a backwater. “Owing to the
great distance from the United States, few top-level parent
14 In the Brazilian automobile industry, “One of the rationales for allowing so many firms to enter the market was the expectation that some would not survive, and the industry would consolidate. There was in fact a competitive shake‐out in the industry in the mid‐1960s,” and the industry survived (given a much larger domestic market than in Chile), but “the market was not the competitive one” that the Executive Group for the Automotive industry had in mind {Shapiro, 1991 #1187} 933‐944. company executives visited these operations.”
The big
mining companies, like Anaconda, Kennecott and American
Smelting and Refining isolated the activities of their
international operations from those in the United States.
Some managers couldn’t speak Spanish {Wilkins, 1974 #115}
126, 149. During the Great Depression, business was
declining, and many foreign companies shut down.
There was
little tangible that local entrepreneurs could learn about
expansion and diversification, and World War Two didn’t
provide an incentive to force industrialization, the way it
did in East Asia.
There was little, if any, migration of
workers to factories in more advanced countries the way
there was within Japan’s colonial empire, where Korean
workers, for example, voluntarily migrated to Manchuria to
find employment in new Japanese-owned factories {Park, 1999
#2101} comings 480.
Thus, despite emigres, the teaching of
best foreign business practice was nebulous, and the
teaching of industrial policy was nil.
By far the fastest growth in FDI in Latin America
occurred in public utilities, with a General Electric
subsidiary, American and Foreign Power Company (A&FPC),
lighting the way.
Between 1919 and 1929, US worldwide
investments in public utilities increased by 643 percent
compared with only 129 percent in manufacturing {Hausman,
1997 #2707}.
But the specific way that A&FPC expanded in
the 1930s in Argentina, Brazil, Chile, Mexico and
Venezuela---through acquisitions of existing companies
rather than through green-field investments in new
companies---further precluded the possibility of technology
transfer in the area of project execution skills {Wilkins,
1974 #115} 168. Project execution skills, for undertaking
plant expansions, were precisely those that DiN.I.E. lacked
to manage its German firms.15
The reputation of American business abroad in the
1930s gave no pause for thought, and before the American
management revolution of the 1950s, and possibly
afterwards, the high profits of multinationals were
routinely attributed to comparative advantage rather than
monopolistic markets. Yet FDI may not necessarily have
excelled, in Latin America or elsewhere.
In the oil
industry, for example, one of the most high-tech in the
1930s, Royal Dutch Shell discarded as worthless a
concession in South Sumatra that was later picked up by a
subsidiary of Standard Oil, enabling it to expand rapidly
in Indonesia’s oilfields {Lindblad, 1998 #1859}105.
When
Egypt’s Hydro-electric Power Commission unveiled its
designs in 1946 for a major project and invited bids to
supply equipment, competing groups refused to tender,
blasting the commissioner and his prestigious consulting
engineers, the firm of Kennedy and Donkin, for alleged
“inexpertise” {Vitalis, 1995 #2703} 150.
The East African
Power and Lighting Company, under private British
ownership, was reported as having “cumbersome” management,
and a customer, an executive of a sisal estate in Kenya,
asked the British Colonial Government to nationalize it
{Tignor, 1999 #2342} 304. In the 1920s, public utility
services for lighting and operating street cars in Latin
America were under British, German, French, and Canadian
ownership, but comprised isolated plants with “high costs
and unreliable service” {Wilkins, 1974 #115}.
A&FPC aimed
to turn these companies around, through reorganization, the
15 See Wilkins, Maturing, p. 182, for a table on fdi in world, 1929‐1940, broken down by ind and region. introduction of the latest U.S. marketing methods, and the
expansion of activities beyond lighting to running street
cars, furnishing telephone service, operating ice plants,
supplying water, and manufacturing gas. Yet in Argentina,
at least, “over the years, there seems to have been a
deficit in A&FPC of good management.”16
To this inefficiency, the Argentine government
responded only blandly, by acquiring a mere 38 percent
stake in A&FPC after World War Two {Hausman, 2008 #2689}
212.17
Following the Cuban Revolution, A&FP’s properties
were expropriated and its rates were cut.
The government
in Brazil expropriated one of its holdings, and all of its
Mexican assets had to be sold to the government, with the
proceeds restricted to re-investment in Mexico {Hausman,
1997 #2707}.
A&FP struggled after World War Two to
repossess the Shanghai power plant it acquired in 1932, but
in 1949 this installation was expropriated without
compensation by China’s new Communist regime.
The final
remains of A&FPC fell into the hands of Boise Cascade, an
American forest-products company, which liquidated its last
remaining Latin American utility in 1976 {Hausman, 1997
#2707}.
The German-owned properties that the Peronists had
fortuitously acquired failed to fulfill their expectations
16 Still, some American investments in mining excelled in their advanced technology. Chile’s El Teniente mine, the principal Braden mine owned by the Guggenheims, “was the first in the world to apply the flotation process in concentrating low‐grade ores. Further north, huge mechanical shovels carved Chuquicamata into the largest open‐pit mine in the world, while the Guggenheim’s engineers developed a new refining technique to treat its ore” {O'Brien, 1996 #2682} 35. 17 In Brazil, “the maximum initial payment for an expropriated enterprise was to be 10 percent of the value of its properties. The enterprise was required to reinvest at least 75 percent of the total payments received under a long‐term compensation agreement,” although these terms were softened under a new Brazilian President ({Mikesell, 1971 #2684}. to diversify Argentine industry; Argentina didn’t benefit
from its windfall, and wasted the chance to advance its
industries before a war-torn East Asia awoke. Unlike
Aeschylus, Argentina didn’t know a few important things,
such as how to develop sectoral policies, build expertise
in specific industries, extract exports from import
substitutes, and retain profit for domestic reinvestment.
Argentina started out with a “weak” private sector
(reluctant to invest long-term) and ended up with the same
type of sector, comprising many foreign-owned firms.18
In
short, Argentina lacked a role model to teach it the few
important things it needed for success.
Without a role model, Argentina continued to lurch
from one policy regime to another, strongly welcoming FDI
under US-supported President Arturo Frondizi in the 1950s,
and then backtracking to promote policies to strengthen
national capital.19 The less consistent the guidance of a
role model, the more erratic economic growth.
The best
performing companies in Brazil, Mexico and Venezuela became
their state-owned oil companies, which succeeded in
diversifying their vast oil and gas sectors based on a
model similar to OPEC’s (of which Venezuela was a chief
architect). As a share of total manufacturing output, the
chemical industry in Argentina and Mexico was almost twice
as large as the machinery industry, with the reverse nearly
18 The fact of the “weakness” of Argentina’s large‐scale private sector, meaning its risk‐aversion towards long‐term industrial investment, is less contentious than other aspects of Argentine history. Generally there is agreement that at the time of World War Two, the private sector was dominated by small, relatively inefficient companies that failed repeatedly to merge {Diaz Alejandro, 1970 #15} and {Lewis, 1990 #937}. Business historians are somewhat less critical in light of the external constrains business faced, such as unfavorable exchange rates, but still, the regard for the private sector is not high. See {Ines Barbero, 1995 #664} and {Schvarzer, 1995 #1521}. 19 the case in Korea and Japan (Amsden 2001) tab 5.2.
By the
1990s neither of these Latin American countries could be
considered as remotely a part of the import-substitution
role model.
Nationalization and the Coming of Korea’s ‘Chaebol’
When Japan’s properties fell into Korean hands, Korea
appeared poised to squander them much as Argentina had
done. The sale of Japanese properties, like the
disbursement of American foreign aid, had been corrupt,
But both Korea and Taiwan “were knowledgeable about the
ways in which the Japanese bureaucracy established
production targets, financial and labor inputs, pricecontrol machinery, and rules to enforce law and contracts,”
which helped them manage their new acquisitions {Kobayashi,
1996 #1858} 327-28. Workers in Korea and Taiwan had
received “intensive training due to the wartime demand for
educated and trained workers.”
The upper layers “rapidly
improved their skills and sometimes advanced to higherlevel jobs due to openings caused by industrial expansion
and positions left vacant by drafted Japanese workers”
{Park, 1999 #2101} 47. Although Japan spent very little on
health in its colonies, it created a healthier environment
“by relying heavily on administrative measures and direct
control.
It controlled infectious diseases and improved
sanitary conditions by enforcing quarantine regulations,
compulsory testing for and treatment of malaria,
vaccination campaigns, supervised collection of human
waste, and regular public health inspections.
Significantly, the police carried out these assignments”
{Ho, 1984 #1860} 353.
By way of illustrating hands-on skills, after Japan
surrendered in August 1945, Korean engineers and workers
immediately took over the Onoda Cement Company, emblematic
of Japan’s colonial expansionism, by forming “selfgoverning councils” in what became North Korea (the
Sunghori plant) and South Korea (the Samch’ok plant).20
A
Japanese manager who returned to Sunghori before learning
about Japan’s surrender was told, “Everything in the plant
will be done by Koreans from now on.” The Japanese
remaining at the plant, repatriated after three years, were
instructed to teach Koreans industrial planning and to
start a one-year technical school, in which they taught
cement, firebricks, ceramics and glass manufacturing.
The
Samch’ok plant had been sent seven fresh engineers in 1942,
of whom one was a 22-year old Korean (Oh Pyong-Ho), the
eldest son of a landlord, fresh out of engineering college
in Japan.
Due to a large number of unfilled vacancies, Ho
worked long hours, rotated jobs, and “was able to learn all
the production processes in the factory.”
In 1945 he was
the only living Korean with a full practical knowledge of
cement-making, and provided detailed technical assistance
when the Samch’ok plant was reconstructed in 1957.
Two
other workers became presidents of small cement-related
plants, still operating in the 1980s.
The Soviet Occupation Army took control of the
Sunghori factory on August 29 (it was the Soviets who had
detained the Japanese managers for technology transfer
purposes), and Mr. Oh went to Seoul in September, as
representative of the self-governing council of Sanch’ok,
“to ask the U.S. Military Government for financial support
20 Information on the Onoda transition is from the excellent work of {Park, 1999 #2101}. to keep the factory going.”
The request was granted, but
Onodo, and soon all of Korea were engulfed in political
factionalism and civil war.
Japan’s invasion of Manchuria nearly thirty years
earlier, had been greeted by Korea’s business community
“with nothing short of euphoria,” in anticipation of new
markets, rich raw materials and government contracts
{Eckert, 1996 #1863} 8.
Clearly a Korean business
community had evolved under colonial capitalism, and some
companies---like the Koch’ang Kim in textiles---were modern
and profitable {Eckert, 1991 #311}.
Korea had evidently
acquired a critical level of manufacturing experience. But
most Korean companies were small, as in Argentina, and were
“subordinate” to Japanese capitalists. Throughout the
colonial period Korean capitalists had “relied heavily on
Japanese corporate associates. . . for their procurement of
raw materials and marketing, and above all for their
equipment, spare parts, and technical expertise” (Eckert
1991) 256.
The nationalization of Japanese properties destroyed
this dependence.
Diplomatic relations between Korea and
Japan had been severed for twenty years, from 1945 to 1965,
insulating Korean industry from Japanese trade competition
(effective tariffs were infinite against Japanese exports)
and corporate takeover (although some Korean companies had
established informal relations with Japanese companies even
before 1965). The corruption surrounding the sale of
Japanese properties, like the disbursement of American aid,
had served a positive purpose.
One was “primitive
accumulation,” as the classical economists called the early
phase of capitalist development, during which time the
Korean manufacturing sector had become less specialized in
textiles.
Diversification initially came from
confiscations of Japanese properties in a wide range of
industries such as alcohol and tobacco (which became
government monopolies to finance development), building
materials, fertilizers, flour, glass, paper, pottery,
livestock, mining, construction, real estate, warehousing
and trade.
Out of this broad-ranging inheritance of the
private sector emerged a new type of Korean entrepreneur,
not the specialist of the colonial period (mainly in
textiles), but the generalist, the precursor of the
chaebol, or Korea’s widely diversified business groups
{Amsden, 1989 #1}.
Unlike diplomatic relations, historical
relations between Japanese and Korean capitalists were
never disconnected.
It is estimated that exactly forty
years after Japan’s military surrender and vast property
losses, “nearly 60 percent of the founders of Korea’s top
50 chaebol had some kind of colonial business experience”
{Eckert, 1991 #311} 254.
After coming to power in 1961, Park Chung-Hee arrested
key Korean businessmen for “illicit wealth,” and released
them only after they promised to invest their ill-gotten
gains in Korean industry {Jones, 1980 #1108}.
Political
theorists and sociologists have regarded this extraordinary
act of power as evidence of Korea’s “strong state,” and
subscription to the Japanese role model.21
But the identity
of a strong, developmental state depends on the
capabilities of a class of national entrepreneurs, also a
feature of the Japanese role model, which matured in Korea
only after a sharp discontinuity in property rights.
The
‘wrong’ property rights were ‘right’ in Korea because
21 See, for example, {Evans, 1995 #13}, {Kohli, 1994 #1857} and {Wade, 1990 #716}. knowledge as well as property had changed hands---a strong
state was rooted in a strong base of managerial
capabilities, otherwise it wasn’t sustainable.
Without
Japanese FDI, Korean companies learned to stand on their
own.
Between 1953, the year the Korean War ended, and
1958, both heavy and light industry are estimated to have
grown faster in Korea than in any other developing country
for which data are available, including Argentina, Brazil,
Chile, Mexico and the Philippines (see Figure 4.1---shows
data for Philip. As well).22
Japan’s “Southward Advance:”
Filipino
‘Exceptionalism’
Japan’s invasion of the Philippines, culminating in
the Bataan Death March of 1942, triggered a fierce guerilla
war against Japanese aggression that was absent in Burma,
Indonesia and Malaysia.23 Overall, the Philippines was least
impressed by the Japanese role model (Philippine President
Manuel Quezon has been accused of coming close to evoking
the “Yellow Peril”). Japan, in turn, regarded the
Philippines as a lost cause: “...No nation in Asia had so
many factors hindering cooperation with Japan as did the
Philippines. The Philippines was the most Westernized
country in the region, and the nationalist goal of
independence was about to be realized.
The Filipinos were
not frustrated with U.S. policy (the way the Indonesians
were frustrated with Dutch policy, for instance), and there
was no reason they would want to side with the enemy of the
United States” {Goto, 1996 #2680} 286.
Thirty years later,
22 Giant, p. 41. Take out developed countries. 23 We neglect Burma (Myanmar) for lack of information as well as Vietnam, because of the complications introduced by the transfer of power from France to the United States after the battle of Dien Bien Phu in 1954. when Japanese investors returned in large numbers to
Southeast Asia, especially to the electronics and
automobile sectors, they first turned their attention to
Indonesia, then to Singapore and Thailand, and finally to
Malaysia after it formulated its ‘Look East’ policy, of
emulating the economic examples of Japan, Korea and Taiwan.
“Japanese enthusiasm was markedly less for investing in the
Philippines” {Lindblad, 1998 #1859} 134.
Not only was the Philippines the least influenced by
the Japanese role model, it also became one of Southeast
Asia’s greatest economic disappointments, with relatively
slow growth in income and employment compared with its
neighbors. Political instability, income inequality and
graft have acted as a heavy drag on its development. But
neighboring countries have had to develop bearing some of
the same burdens.
“Despite its rich base of human capital
and its early lead, the Philippines has performed poorly,
particularly in a region where many other countries have
successfully (often spectacularly) overcome similar
constraints to development” {Abrenica, 2003 #2714}. Given
the weakness of explanations for regional growth variations
based on corruption, is there a connection between the
Philippines’ under-achievement and its isolation from the
Japanese role model?
With the passage of the Jones Act in 1916, a
precocious piece of democratic legislation by colonial
standards, Filipinos became predominant in the civil
service.
But perversely, the Filipinos who came to
dominate the colonial legislature were Christians (leaving
out Muslims) and ‘hacenderos,’ or the ‘cacique’ landed
elite who, brought together in the capital city by
politics, became a “self-conscious ruling class”24
Then, after Commonwealth status was reached in 1935,
a large number of state-owned enterprises were created in a
wide range of industries and services under the banner of
“bureaucratic capitalism”; state ownership is reported to
have had tremendous popular appeal {Golay, 1969 #2716}.
These state enterprises did not become national property by
means of foreign nationalizations (which were largely
limited to Japanese plantations growing abaca, or jute); no
catharsis from nationalization of FDI comparable to what
occurred in Northern China, Korea, Taiwan, Burma and
Indonesia occurred in the Philippines.
The state-run
Manila Railroad Company and its subsidiary, the elegant
Manila Hotel, provided a first course in state ownership. A
National Development Company (NDC) was established in 1919
to serve as a development bank, creating new companies with
government support.
The Philippines had a high level of
formal education---United States investments in schooling
were impressive by colonial standards, leading to some of
the highest regional rates in primary, secondary and
tertiary education, although “the Americans had intended
the public school system as a means to gradually bring
about socio-economic equality in the Philippines and
counteract the influence of the traditional elite,” but
nothing of the sort happened {Caoili, 1986 #2736}.525
The
Philippines’ new cache of SOEs was expected to benefit from
24{Anderson, 1988 #2728} 11, as cited by {Boyce, 1993 #2713} 7. 25 American education policy “was a glaring display of naivete. The American policy of free trade further entrenched the Filipino elite in Philippine society, just as it also dictated that Philippine economic development should take place mainly along agricultural lines” {Salamanca, 1984 #2738} 163, as cited by {Caoili, 1986 #2736} 5. a well-educated workforce, and to imbue it with hands-on
skills.
Yet like Argentina, the Philippines had good students
but no teacher to guide it when an opportunity presented
itself.
Because the private sector was so weak, the state
became the leading agent of industrialization, but
‘bureaucratic capitalism’ was implemented in a vacuum,
without any real model of state enterprise to emulate,
certainly not in the United States. “Prior to the Japanese
invasion at the end of 1941, the Philippine government
experimented persistently with bureaucratic
entrepreneurship and the public corporation as the
instruments with which they hoped to industrialize the
economy and transfer control to Filipinos.
The
accomplishments of the Commonwealth period, however,
produced little basic change in the colonial-type economy
that the Filipinos had inherited” {Golay, 1969 #2716} 32.
Little experience had been accumulated in the
manufacturing sector because, like European colonialists,
American foreign investors had favored natural resource
industries, such as coconuts, sugar and gold.26 When
political independence came in 1945, American FDI began to
concentrate in oil refining and distribution, ignoring
other manufacturing sectors that were at the heart of the
Philippines’ postwar development strategy.27
What was
26 “During the American period, many large sugar mills were built to take advantage of a more efficient, centrifugal method of production, and the sugar industry became the vanguard of machine production in the pre‐war period. The lack of progress outside the processing industry, however, was appalling. Not only sophisticated machines but even simple manufactured goods were imported”{Kunio, 1985 #2742} 1‐2. 27 In fact, some American electronic companies began investing in the Philippines in the 1950s, and some semiconductor assembly started in the 1970s, by such missing to manage state enterprises were project execution
and production engineering skills and related
institutions.28
State projects “lacked thorough planning
and programming, competent management, direction and
supervision.”
They were hampered by “complicated
administrative procedures and poor personnel selection and
administration” {Golay, 1969 #2688} 57.
By the 1950s the government was opening and operating
companies in manufacturing, social services,
infrastructure, and commerce.
These ranged from factories
making nails and paper to companies operating shipyards and
ocean-going freighters.
There was no “targeting,” or
specialization in industries that were central to the
development effort, with good long-term prospects for
increasing productivity, employment and exports, as became
typical of Japan and its neighbors (in fact, antagonists of
the Japanese model fault it precisely for “targeting”).
There was insufficient specialization by industrial branch
to acquire technological expertise, a problem similar to
what plagued Argentina’s administration of nationalized
German firms.
Investments were not staged, to allow
experience to be digested.
After the election of President Ramon Magsaysay, a
champion of the poor as well as a close friend of
Washington, who fought against the Filipino Hukubalahap
communist movement (“Huks”), ”Filipino faith in
bureaucratic manufacturing enterprises” weakened, and by
1956 most SOEs had been closed or privatized {Golay, 1969
companies as Intel, Texas Instruments and Motorola. But political conflict, as in other parts of Southeast Asia, stemmed the flow until the 1990s. 28 Export interests, slow export growth 33 golay #2702} 56.29
Instead of creating growth poles and model
factories to strengthen the skills and organizational
capabilities of a new class of Philippine industrialists,
and to equalize one of the world’s most unequal income
distributions through supplying high-paying jobs, the
government followed a different policy, possibly more
risky. It was to buttress private Philippine enterprise
with direct incentives, in the form of import licenses,
access to foreign exchange, subsidized credit, tariff
protection and entry restrictions on new firms, a
wellspring of malfeasance.
The failed experiment of bureaucratic capitalism in
the 1930s and 1950s left most structures, institutions and
practices in the Philippine economy and society unchanged
(except for income distribution, which seems to have
worsened).30
In fact, a reliance on private enterprise as
the agent of growth was not revolutionary, because
notwithstanding the popularity of bureaucratic capitalism,
the ideology guiding the Philippine economy always
emphasized individualism. In the educational system,
“despite progressive Filipinization of the teaching staff,
the system retained its American orientation in curricula,
philosophical attitudes, and many aspects of content.”
Study abroad started early, and this “created a generation
of Filipinos receptive to Western-oriented patterns of
29 In Indonesia, by contrast, an Economic Urgency Plan created new private manufacturing enterprises, but these had to be taken over by the government for lack of private managerial capabilities. The Plan was scrapped entirely in 1956. The First Five Year Plan that followed gave up on supporting private manufacturing enterprise altogether in favor of state enterprise, all of which, however, was overwhelmed by mass nationalizations of Dutch enterprises in 1957‐58, although least of all in manufacturing {Anspach, 1969 #2702}163. 30 For a careful study of income distribution through the end of the Marcos regime in 1986, see {Boyce, 1993 #2713}. individualism” {Golay, 1969 #2702} 39. In foreign
relations, a new Constitution in 1946, designed to reserve
the exploitation of natural resources and the operation of
utilities to Filipinos, made an exception for Americans.
In exchange for US payment of war reparations and the
signing of a trade treaty, “national treatment” was granted
for American enterprises to own Philippine private
property, a privilege later used mainly to grow pineapples
and bananas, next door to some of the largest plantations
in the world {Golay, 1969 #2702} 45.
A study in the early 1960s of Filipino manufacturing
entrepreneurs tells a similar story, one of continuity
rather than structural change. A single pattern was found
among enterprises established after 1949:
in a sample of
almost 100 firms, all were founded by entrepreneurs
belonging to the “upper or upper middle stratum,” with
prior business experience that “provided capital and
contacts rather than technical skills.”
The most typical
members of this elite group “had had fathers and even
grandfathers in the upper or upper middle stratum;” some
had come into business ownership by “a process of
succession within the family.”
Entrepreneurs included
“wealthy landowners and business owners in mining, logging
and transportation” {Carroll, 1965 #2735} 193; 195.
For
the foreign companies that were interested in operating in
the Philippines, but needed a Filipino partner to comply
with new restrictions on foreign ownership, Filipinos were
willing to act as “dummies,” or owners in name, although
stringent laws were adopted against this widespread
practice {Golay, 1969 #2716}. The ideology may have been
individualism, but in the sector where Filipinos placed
their hopes for postwar economic development, the reality
was striking social stratification.
Two Philippine economists, both specialists in
technology management, posed the same question around 2000
that Filipinos had posed much earlier: why are we falling
behind?
The answer was similar in both cases---the elite
didn’t know exactly what it was doing.
Regarding public
enterprise, the attempt at “forced industrialization” in
the 1950s supposedly did too much.
Regarding radical
market reforms and stimulation of competition in the 1990s,
it was doing too little:
“the weaknesses in technological
capacity can only be traced to policy neglect.”
Policy
makers believed that “creating a competitive environment is
sufficient to call forth technological upgrading”---but it
isn’t {Abrenica, 2003 #2714} 297-298.
however.
Times changed,
After World War Two, the norm for judging “doing
too much” or “doing the wrong thing” was the abstract
market model, of which the Philippines was ideologically a
part.
In the 2000s, the norm used to compare the
Philippines and its neighbors was the Japanese role model,
which became the Far Eastern role model as the adaption of
Japan’s experiences became region-wide.
Regarding this
newer model, the Philippines never became remotely a part.
“Time of Madness,” “Edge of Chaos:” Indonesia, 19421965
Indonesia became part of a regional Japanese role
model not because everything it did to extricate itself
from colonialism is directly traceable to what it learned
from Japan’s experience.
In fact, starting with a bloody
anti-communist coup in 1965, the technocrats who ran
Indonesia’s macro-economy under military dictatorship (the
“Berkeley Mafia”) harked from the Cold War and were
American-trained {Thee Kian Wee, 2003 #2727}.31
Still,
through the power of history to shape not least of all the
Indonesian army---which was directly under the control of
Japan’s military from March 1942 though August 1945--Indonesia wound up having elements that ultimately became
associated with the Japanese regional role model; Indonesia
itself helped concretize some of these characteristics.
By
the 1950s it had become clear (in the Philippines as well)
that “private domestic capital was unable to provide the
basis for capital formation, and the leaders of the new
Indonesian republic began to turn towards state capital,”
and later towards more radical solutions {Robison, 1986
#1755} 37.
In Indonesia’s cities and countryside, there
existed a “prevailing climate of hostility to policies in
any way tainted with ‘liberal thinking’” {Mackie, 1961-1962
#2717} 344.
The connections between Japan and Indonesia ran from
the geographical and institutional to the operational and
personal. The Kobe-Osaka heartland of Japan, since the
1880s, “had developed into a dynamic new industrial centre
for Asia,” redirecting trade patterns and attracting
“Chinese, Arab, Indian and local indigenous business groups
in the region.”32 Indonesia’s legal system was overturned--Japan’s occupation made an “enormous impact” by abolishing
the discriminatory elements in the colonial judiciary {Bas
Pompe, 1997 #2741} 51. Despite Japan’s bungling of rice
rationing, local government administration was transformed,
altering “power relations in the countryside of Java”
31 For the intricacies of the coup and American involvement, see {Roosa, 2006 #2750}. 32 {Post, 1993 #2743}, as cited in {Post, 1997 #2744} 87. See also {Dick, 2003 #2731} . {Sato, 1997 #2739} 84. Sukarno and Hatto, Indonesia’s two
independence leaders, were in close wartime contact with
Tokyo to secure Indonesia’s liberation from Dutch rule.
When the Dutch military tried to retake Indonesia after
Japan’s defeat, some units in Japan’s imperial army gave
their weapons to nationalist guerrillas {Sundhaaussen, 1983
#2733}.
Japan’s popularity rested on its support of
Indonesian liberation.
Future Indonesian Prime Minister
Ali Sastroamidjojo managed Japan’s ‘Office for the People’s
Economy’ in Jakarta during Japan’s occupation {Lindblad,
2008 #2686}. Like Korea’s Park Chung Hee, discussed in
chapter 2, Sukarno was allegedly interested in two
development models, the Pan-Asianism of Sun Yat-sen and the
modernization of Japan.
Sukarno is reported by his
external affairs advisor as having said, “if you ask me
which I would prefer, democracy or militarism, my choice
would undoubtedly be democracy.
But if the question
concerns a choice between Dutch democracy and Japanese
militarism, I would prefer Japanese militarism.”
As early
as the late 1920s, Sukarno was sufficiently knowledgeable
about Japan to predict a Pacific War between European
imperialism and Japanese expansionism.33
Soeharto, the
military man who overthrew Sukarno in 1965 and ruled
autocratically for 32 years, led one of Japan’s security
forces during the Occupation, and remembered enough years
later to reminisce.34
In preparation for Allied retaliation, Japan’s
Intelligence Branch of the General Staff stationed in Java
established defensive military and para-military
organizations---referred to as PETA---comprised of
33 {Goto, 1996 #2723} 281, referring to his interview with Sukarno’s adviser, Roeslan Abdulgani, in Jakarta, October 5, 1977. 34 {Notosusanto, 1979 #2759} ix. Indonesians.
A few Japanese officers were attached to each
battalion as instructors.
A riveting account of the
influence of the Japanese military on the Indonesian
military, written in 1960, is presented in a 30-page
document by Guy Pauker, a brilliant military analyst
associated with the Berkeley Mafia, a group of academics
supported by the Ford Foundation to help Indonesia develop
its intelligentsia after the outbreak of the Cold War and
Chinese communist rule. When he wrote his report, Pauker
was employed by the Rand Corporation, an American military
intelligence think-tank, and Sukarno had replaced
Indonesia’s parliament with ‘Guided Democracy’ amidst an
imploding economy.35 “In order to judge the probable
behavior of the officers’ corps and its probable
consequences for the political future of the country, it is
necessary to examine its origins, its ideology, and its
purposes” {Pauker, 1960 #2745} 1.
With Indonesia’s
proclamation of martial law on March 14, 1957, the same
year as nationalization of Dutch properties, the officer
corps acquired “a controlling influence over all aspects of
Indonesian life” (p. 12).36
A larger number of Indonesian officers had been
drilled by the Japanese between 1942 and 1945 than had been
educated by the Dutch before 1942, and while no Indonesian
had risen above the rank of major in either force, the
35 According to some first‐rate left‐wing investigative journalism, “Rumanian by birth, Pauker helped found a group called “Friends of the United States” in Bucharest just after the Second World War. He then came to Harvard, where he got his degree. While many Indonesians have charged the professor with having CIA connections, Pauker denies that he was intimate with the CIA until 1958, after he joined the RAND Corporation” {Weissman, 1975 (rev) #2720} 4. See also {Roosa, 2006 #2750}. 36 Both former Japanese colonies also declared martial law, in Taiwan by the Guomindang Party on May 19, 1949, and in South Korea by Park Chung Hee on October 17, 1972. single exception, a Japanese trained general (Sudirman)
became commander-in-chief of the Armed Forces of the
Republic of Indonesia for four years, beginning on December
18, 1945, a day before PETA was disbanded.
During this
four-year nationalist struggle for independence against the
Dutch following Japan’s surrender, a group of students “who
had undergone intensive anti-Western indoctrination from
the Japanese” fought bravely for independence (p. 10).
Later, they were admitted into the officer corps or given
university educations.
A group of officers who had been
drilled in guerrilla tactics became the hard-core
nationalist opposition to the Allies’ return.
The Indonesian officer corps by 1960, although split
in a thousand directions with the advent of new recruits,
including leftists, tended to be “the intellectual captives
of the training they received from the Japanese” (p. 21).37
(The Japanese occupation itself “had produced a number of
militant groups with ideological differences and varying
amounts of fire power at their disposal” (p. 15).) Having
remained at the level of battalion commanders, Indonesian
officers “were unfamiliar with strategic thinking and the
complex calculus it implies,” leaving them vulnerable to
political takeover and to takeover of politics.
They had
not been instructed in Maoist communist doctrines of
“revolutionary war,” but relied instead “on the Japanese
doctrine of the ‘fighting spirit,’” according to which the
warrior’s élan was supposed to outweigh his technical
training---its intensity would overcome all obstacles. As
the corps aged, it began to enjoy the perks of office and
power.
37 Indonesia’s men of the sword, however, are alleged to have deeply resented being branded “Japanese‐type fascists and militarists” {Sundhaaussen, 1983 #2733} 2. Still, a spirit of intense nationalism survived.38
The
most radical breakaway officers “agitated for the total
elimination of the economic and cultural influence of the
Dutch.” When Japan surrendered, “apparently a total of 150
Indonesian officers had been drilled in guerrilla tactics
and returned to their homes to organize resistance
movements.
These officers became the hard core of the
initial nationalist opposition to the return of the Allies
to Java” (p. 11).
It is not surprising, then, that it was
the leadership of these radicals, with the officer corps
following behind, that responded to the “altered
international power balance” when the first Russian Sputnik
appeared, and “seized the opportunity to take over the
Dutch properties in Indonesia and to force the remaining
Netherlanders out of the country, carrying out at last---as
they saw it---the revolution interrupted in 1949”39 (p. 23).
The Japanese role model thus evolved into something--in Indonesia---that was both anti-imperialist and anticommunist---the Japan of the 1930s. The two beliefs were
connected insofar as both favored a strong national
business elite, private and public.
“The sudden
disappearance of Dutch private enterprise from Indonesian
economic life in 1958 created a vacuum that offered unique
38 According to another study of the PETA, based on interviews with Indonesian regulars and officers long after the fact, ”an interesting question frequently asked in connection with the Peta is the extent of Japanese indoctrination of its officers.” In the opinion of the author, an Indonesian historian who interviewed Suharto about his years in Peta, “What actually happened, in my view, was that the Japanese, by telling the Indonesians about their historical lore and traditions, had inspired the Indonesians to delve into their own lores and traditions,” which whipped up nationalism {Notosusanto, 1979 #2759}. 142‐43. 39Dutch‐owned firms were first seized by Indonesian workers. Then in December 1957 General A.H. Nasution repressed the strikers and, contrary to his training in a Dutch military academy in Bandung, ordered all Dutch properties placed under military control, an expropriation endorsed not until a year later by Parliament {Robison, 1986 #1755}. opportunities” to new and old private indigenous businesses
{Lindblad, 2007 #2746} 70. It also offered opportunities to
the military.40
“Immediately after the takeovers at the end
of 1957, many Army officers were attached to agricultural
estates as supervisors,” until the most senior Indonesian
employees of the former Dutch enterprises could be promoted
to key jobs as managers or inspectors {Mackie, 1961-1962
#2717} 344. After the military takeover in 1965,
nationalized properties became the basis for “primitive
accumulation” of Indonesian enterprises {Kano, 2009 #2724}.
“What is emerging in Indonesia,” according to an observer
operating as part of the American Universities Field Staff
in 1959, “may be a new form of government-military-private
enterprise co-operation, half voluntary, half reluctant. .
. “.41
The main structure of Indonesian big business became
the ‘diversified business group,’ which was similar to that
of the Japanese zaibatsu, Korean chaebol, and Chinese
guanxiqiye (add Hikino).
Nationalization eventually reached the three ‘seven
sisters’ (big international petroleum companies) operating
40 It also offered an opportunity for the so‐called Berkeley Mafia to improve the management capabilities of new executives of state‐enterprises, many of them middle‐level managers (or lower) under Dutch ownership. In 1960, the Ministry of Industry was in the process of establishing an “academy” along the lines of a joint management‐engineering program at MIT. The Economics Department at the University of Indonesia, strongly influenced by the eminent economist Sutri, was contemplating running an advanced management training program similar to that of Baguio in the Philippines, created in 1960 with help from the Harvard Business School and financial support from the Ford Foundation {Sadli, 1960‐61 #2758}. Sutri was a prominent member of the Socialist Party, which in one of Indonesia’s rare free elections after World War Two, polled only 2‐3 percent of the vote, compared to that of the more popular parties that promoted state enterprise and shared the remainder, the communist party, the nationalist party (of Sukarno) and the Islamic party (which, despite its conservatism, recognized the role of SOEs in the new Indonesia. 41 {Hanna, 1961 #2749} 7, as cited by {Mackie, 1961‐1962 #2717} 352. in Indonesia’s oil fields, which led to the formation of
Pertamina, a national oil company. By the late 1950s oil
financed around 70 percent of Indonesia’s development
projects.42
Indonesia thus began to operate with guidance
from not just one role model but two: that of Japan and
that of OPEC, having undergone one of the great
discontinuities in Third world history (“among Southeast
Asia’s newly independent countries, Indonesia stands out
for the rapidity with which it has destroyed Western social
and economic institutions implanted by colonialism” {Paauw,
1963 #2751}.
Indonesianisasi succeeded whereas Filipinism failed,
as measured by economic growth: for the 30 year period
1962-1986, Table 4.1 suggests that despite the Philippines’
greater gains in reducing infant mortality, both GNP and
GNP per head grew much faster in Indonesia.
Over time the
anti-imperialism of the American- and Japanese-backed
Soeharto military rulers softened, and FDI recommenced,
Indonesia being the favorite Southeast Asian destination of
foreign investors in 1914, 1937 as well as 1989.
But
despite all the hype about FDI’s domination of the
Indonesian economy, in real money per capita, FDI in
Indonesia was about the same magnitude in 1989 as it was in
1937.43 Foreign property rights in Indonesia’s rich mining
sector remain under active attack, to wit, managers of
Freeport-McMoRan, an American multinational based in
Phoenix that holds a concession in the world’s largest gold
mine, in Papua (formerly New Guinea and then Irian Jaya),
have been targeted by arson, roadside bombs and ambushes by
42 {Tan, 1967 #2747}. ADD pertamina turned around in record time. See company history in bookmarks. 43 See {Lindblad, 1998 #1859}, Tables 2.1 and 2.3. indigenous nationalist movements since production began in
the 1970s (bookmark).
Malaysia’s government also created a national business
class alongside foreign investment, by founding, financing
and furnishing technical assistance to enterprises legally
owned by the national Bumiputra majority indigenous
population. “It was the nature of the regulating mechanism
that contributed greatly to the policy’s (racial
equalization) accomplishments. The Malaysian government’s
use of its discretionary powers, by not always depending on
strict law enforcement techniques, contains aspects similar
to the “administrative guidance” used by Japan’s Ministry
of International Trade and Industry (MITI).”
Bumiputra
ownership of corporate stock grew from 2.4 per cent in
1970, the first anniversary of tumultuous race riots, to
7.5 percent in 1975, to 12.5 percent in 1980, and to 19.1
per cent in 1985.
The Chinese business community also
gained---non-Bumiputra Malaysian groups held 34.5 per cent
of the country’s corporate stock in 1970, then 37.3 per
cent in 1975, 44.6 percent in 1980, and 54.9 per cent in
1985.
In this time period, the tail end of the Golden Age,
the losers were foreign investors, who started out with
63.3 per cent of the countries corporate stock in 1970,
then 54.9 per cent in 1975 and 26.0 per cent in 1985
{Yasuda, 1991 #2711} 348.
In 2009 the Malaysian government scrapped this program
because Malays were simply selling their equity shares.
Instead, the government announced a new investment
instrument called Ekuiti Nasional Bhd (Ekuinas), which is a
private venture capital fund focusing on helping bumiputra
entrepreneurs who have the potential and capability to
develop into huge players domestically, regionally and
globally” {Shari, 2009 #2748}.
State promotion of private
national enterprise has endured.
‘Development Without Growth’
The OPEC role model, both its pricing arm and its
development arm, limited its attention to solving two
practical price and quantity problems arising from the
structure of the international oil industry. Non-oil
producing countries like Egypt were left in the lurch
without the discipline of operating within another role
model, but one that shared the same narrow focus as
OPEC’s.44
Gamal Abdel Nasser, Egypt’s tragic President from
1954 until his death in 1970, was at a loss to know exactly
what to do about an economy that had excluded an
impoverished peasantry and that had only a small reserve of
oil (Egypt’s per capita income is estimated to have fallen
by roughly 20% between 1900 and 1945) {Tignor, 1984 #2755}.
Growth was fast for a few years after World War Two, but
food scarcities, strikes and student unrest led to a coup
in 1952 by young army officers.
Like Argentina, Indonesia
and the Philippines, Egypt first tried to promote new
industries using POEs, SOEs and mixed ventures, just so
long as they were national.45 Then in 1956, in a move that
44 Issawi has an interesting article on the Japanese role model and the Middle East, but it examines why Egypt didn’t take off in the late nineteenth century the way Japan did, not why Egypt didn’t follow the post‐World War Two Japanese role model {Issawi, 1995 #2753}, 167‐183. 45 In 1953, a year after Egypt’s military coup, ”the Permanent Council for Production was founded, to study and promote new projects, and it was soon followed by a Permanent Council for the Social Services. In 1954 various government organizations, members of the Misr group (a private conglomerate), and a German firm combined to found a large iron and steel company and the following year the government also participated in the capital of a new commercial bank and a company for making railway wagons. A General Petroleum Authority was founded stunned the world, Egypt nationalized the Suez Canal (with
compensation and user guarantees), triggering a military
attack by Israel, Britain and France, which then incited
Egypt to nationalize Jewish, British and French properties.
Nasser, however, went further than nationalizing FDI, or
deploying Cold War tactics to build and operate the world’s
largest infrastructure project at the time, the Aswan Dam.
Egypt began to function outside the box of either the OPEC
or Japanese role models, by nationalizing domestic private
enterprise. “Since 1956, the Egyptian government has
pursued a course which differs sharply from the past. This
course has been characterized by the Egyptianization of
foreign establishments; by closer state control of
business; by intensified industrialization; by sharply
increased taxation on the higher incomes; and by
nationalization and sequestration first of foreign and then
of Egyptian property” {Issawi, 1963 #2754} (54, empha.
added).
Oil-abundant countries as well as Egypt expropriated
foreign enterprises (both with compensation), but oil
nationalizations did not make a partisan political
statement with ideological overtones: nationalization was
seen among OPEC members as a practical necessity to
transform enough oil resources into development revenues to
finance basic physical and human infrastructure projects
neglected under colonial rule (Egypt’s 1952 revolution
overthrew the corrupt government of King Farouk, which had
come to power after an anti-British uprising in 1922). A
common ground was found with the Seven Sisters by letting
them continue supplying expensive high-tech services to the
in 1954 and a High Dam Organization in 1955” {Issawi, 1963 #2754} 54 For more details, see {Tignor, 1999 #2342}. new national oil companies that specialized in production
and distribution. Throughout the 1960s, the OPEC cartel was
mobilizing to achieve a higher international price for oil,
but individual OPEC member-countries weren’t getting enough
long-run national oil production to finance a fraction of
their development goals.
“While much less publicized than
disputes over taxes and prices, controversies over the
level of output between the petroleum companies and the
governments are widespread” {Wells, 1971 #2732} 224.
The big oil companies didn’t want to produce more than
was demanded in any single location, because having to
export tended to lower oil prices worldwide.
Under-
utilization in the oil fields was as detrimental to
economic development as fallow land was on the large
estates of Latin America’s haciendas, whose owners grazed
or farmed only a small fraction of their holdings for fear
that if they utilized more, they would demand more labor,
which would drive up wages {Barraclough, 1973 #2760}.
What
made a difference in the contribution of natural resources
to development was that unlike the oil concessions, the
haciendas were never confiscated:
Failure of the initial oil concession holder to
develop the concession more intensively lies at
the heart of the demands on the part of the host
governments for the initial concession holders to
relinquish undeveloped portions of the concession
and to invite new firms to exploit these areas.
The private integrated companies, on the other
hand, seek to limit output and the rate of
development in line with the growth of their
markets {Wells, 1971 #2732} 224.
Nationalization was necessary to gain control over the
volume of production, the key to controlling the supply
chain of oil, and the OPEC development model transferred
this responsibility to a nationally owned oil company,
typically a public (or quasi-public) enterprise, because
the private sector was chronically ‘weak.’
As late as the
1990s, when national oil companies were being urged by the
World Bank to privatize, resistance arose from the
conviction that privatization would simply amount to a
return to foreign ownership.
According to a senior Iranian
official: "What private sector?!
We have small-size
industry. We have 90,000 companies active in Iran, but less
than 500 are more than medium size.
When you talk about
privatization in Iran, you’re talking about the majors”
{Marcel, 2006 #2602} xx.
Despite a reputation for medievalism, the oilproducing countries built the modern organizations
necessary to implement nationalization with alacrity.
Institutional reform of the state bureaucracy was swift not
only in Saudi Arabia (see chapter 3) but also in the
emirates and Kuwait.
Writing just before the first oil
price hike in 1973, one economist notes that “given the
fact that less than a generation has passed since oil
revenues have been available on a really large scale,
Kuwait has moved with great speed in the acquisition of the
attributes of a modern state, and the organization and
administration of the Kuwait Fund for Arab Economic
Development is almost a model of its kind” {Penrose, 1971
#2690} 285.
When Indonesia’s state-owned oil company,
Pertamina, ran aground in the 1990s from over-investment
and under-regulation, its turnaround was fast at the hands
of an Indonesian who had worked for the majors {Funding
Universe, 2009 #2752}.
In the beginning, the OPEC role model extrapolated
from the experience of Iran.
“The establishment of the
National Iranian Oil Company (NIOC) in 1951 was the very
first of the national oil companies in the major crude-oil
exporting countries, and anticipated by nearly 10 years
(when OPEC was formed) any other such company in the Middle
East....NIOC not only provided a model for other oilproducing countries, but it led the way in negotiating new
forms of oil agreements, and in bringing the oil exporting
countries into direct contact with international markets,”
without foreign middlemen {Penrose, 1971 #2690} 297.
Only
after gaining seven years of administrative experience in
pricing, did OPEC members initiate the process of
nationalizing production.
By the time of the Yom Kipur War
of 1973, the institutions and policies were all in place
for OPEC to implement its first earth-shaking oil price
hike.
In Egypt, war in 1948, 1956, 1967, and then again in
1973 was catastrophic for an already worn-down military and
economy. Without a role model, Egypt had achieved
“Development without Growth”---radical changes in
institutions without increases in incomes.46
“The Free
Officers who seized power on July 23, 1952, had no
blueprint for modernizing Egyptian society; if Nasser is to
be believed, they had no intention of even running it”47
A business historian of postwar Egypt, Robert L. Tignor,
implies the lack of a roadmap at each turning point.
Regarding the young Revolutionary Command Council,
46 This is the title of a chapter in {Tignor, 1984 #2755}. 47 {Moore, 1980 #2756} 1, citing {Gamal Abdul Nasser, 1955 #2757} 63‐64. “internal events had compelled these men to seize power
before they were yet ready to rule; thus they came to
office without a clear agenda” {Tignor, 1999 #2342}(p.62).
The free officers had enunciated six principles immediately
before their coup:
the destruction of colonialism; the end
of feudalism; the termination of monopolies and control of
the state by capital; the establishment of social justice;
the construction of a strong national army; and the
creation of sound democratic life.
were vague and elastic” (p. 63).
“But these principles
Given the turmoil, being
caught short of ideas is understandable, but “two years
into their rule the new Egyptian military rulers still had
not articulated a full-fledged developmental strategy” (p.
84).
The nationalization of the Suez Canal obviously
carried dire implications, but “the Egyptian military elite
had no certain economic policy as the fateful year of 1956
began.”
Most lacking of all, “between 1952 and 1956 the
Egyptian government failed to give a clear and decisive
message to the business community” (p. 94).
State
sponsored projects were not intended to eradicate private
business activity, but as private capital left the military
more and more “disenchanted,” the Egyptian rulers became
“taken with Soviet, Yugoslavian, and Indian models,”
although they had little direct experience of them (p.
192).
Because many industrialists were also large landlords,
business-government relations soured with the massive land
reform undertaken by the military only six weeks after its
coup (however inexperienced it supposedly was) {Moore, 1980
#2756}. Much like the supine entrepreneurs in Russia before
the 1917 Revolution (see chapter 2), the Egyptian private
sector before the 1956 Suez War lacked vision. Almost
immediately after the military seized power, Nasser
expressed his enthusiasm for working closely with the
private sector to promote economic development.
But after
months of deliberation by business leaders over what
government policies they required in order to invest more,
the report of the Egyptian Federation of Industries, the
most powerful organ of industrial opinion, “disappointed”
the young officers, by fixating merely on lowering taxes
and liberalizing laws to lay off workers {Tignor, 1999
#2342} 65;
71-72. In support of the military’s dream of an
industrial revolution, this was all the private sector
would yield.
Such pettiness put the military in a bind. Labormanagement relations in the Egyptian-owned textile
industry, Egypt’s largest single manufacturing sector,
”were extremely hostile.
Management sought to stymie the
efforts to organize the work force, paid inferior wages
while earning high profits and paying out large dividends,
and circumvented much of the labor legislation against
discharging workers.”
A dispute escalated into a violent
confrontation and the military reluctantly intervened to
stop the strike. Ultimately, despite being autocratic, it
shifted its base of political support from capital to labor
(p. 65).
In Korea and Taiwan, postwar labor unrest had been
quelled by martial law, but the ‘weakness’ of capital
remained.
As in Egypt, national investors closely allied
themselves with (Japanese) foreign investors to pursue
individual, not national aims.48
Egypt’s capitalists were
48 Korea had no commercial or diplomatic relations with Japan between 1945 and 1965. The Korean business community strongly supported re‐opening them, and did business with Japanese firms even before 1965, when official relations resumed {Eckert, 1996 #1863}. “horrified” by the military’s nationalization of the Suez
canal, although the Anglo-French Suez Canal Company hadn’t
hired a single Egyptian manager or engineer since its
founding in 1858. What broke the deadlock between
capitalists, workers and the state in East Asia was the
arrival of economic growth and not just structural change,
or ‘economic development.’ Growth in East Asia sparked in
the late 1960s owing to manufactured exports.
These were
inspired by Japan, through emulating the way it targeted
export industries for investment, established exportpromoting institutions, adopted unorthodox trade policies,
and cultivated the huge American market {Amsden, 1989 #1}.
Apart from exporting its colonial staple, cotton,
Egypt had little experience in exporting manufactures, or
in exchanging them with other countries in the Middle East.
Colonial trade had tended to run between Europe and the
Middle East, not within the Middle East; oil money began to
flow more to New York and London than to Cairo.
Nasser
tried hard to unify Egypt and Syria, by forming the United
Arab Republic, which might have provided both countries
with a larger domestic market.
innovation shortly failed.
But this precocious
Without an expanding market and
flicker of long-run economic growth (Korean businessmen had
cheered Japan’s invasion of Manchuria because of its market
potential), stagnation set in.
The military’s takeover of
the Suez Canal had been flawless. “The crucial break for
Egypt’s engineering profession came in 1956.
Symptomatically, it was an Egyptian army engineer, Mahmud
Yunis, who took over the canal installations by prearranged
signal” {Moore, 1980 #2756} 44.
But management of other
nationalizations, ranging from textiles to nails and
screws, was less inspiring.
The experiment of the
idealistic colonels came to a close.
Rewrite with aymon’s comments—“aymon Sultan” file, desktop
or II papers
Conclusion
That the element of stability is good for everyday
business was never in doubt, but development is about more
than just the everyday, and from observation, discontinuity
was at the heart of the de-colonized generation’s escape
from poverty.
The developing world’s national economy
emerged out of war, political independence and indigenism,
or an international redistribution in the ownership and
control of resources.
We have argued that the stronger the
discontinuity of indigenism (Figure 4.1 presents variations
in degree), and the greater the guidance from a role model
to make indigenism work, ranging from providing boundaries
for nationalization to managing a confiscated firm, then
the faster and steadier the subsequent growth in national
enterprise, income and employment.
Nationalization was at
the core of the OPEC role model because without it, oilproducing countries couldn’t control their long-term output
volume, a critical variable in the financing of their big
development plans. The centrality of a property rights
change in the Japanese role model lay in the fact that when
neighboring countries consciously began emulating Japan’s
experience, wartime expropriations had already eviscerated
competition in their home markets in the form of Japaneseowned firms; only Japan’s roadmap remained.
Thus, the
best-performing regions in the de-colonized world---the Far
East’s manufacturing belt and the Middle East’s oil fields-
--are where indigenism and inductive learning went the
furthest, suggesting the need for a dialogue on the type of
discontinuities in property rights that are favorable for
different stages and conditions of economic development.
The OPEC and Japanese role models, both capitalist,
won adherents by providing reliable guidance as to how
extensive nationalization should be.
Unlike deductive
theories, these role models were not set in stone, and
evolved with new members and the passage of time.
Still,
both experiences dovetailed into two defining
characteristics: both were anti-imperialist and anticommunist. Together, the effect was to nationalize, but
only foreign-owned industry.
At the time, anti-imperialism
implied political independence and national ownership.
Anti-communism and private enterprise went hand-in-hand,
but SOEs were tolerated, though not on the carcasses of
POEs. A combination of anti-imperialism and anti-communism
thus comprise two other conditions under which the ‘wrong’
property rights are right.
The policy failures that vexed promising economies
that ventured outside the box defined by a role model hint
at its heuristic powers.
Anti-imperialism in the
Philippines was too weak, leaving both foreign and national
elites entrenched and unprogressive, the latter acting as a
‘dummy’ for the former to comply with legal restrictions on
foreign ownership.
Indigenism in Egypt went too far, in
nationalizing not just foreign properties, starting with
the popular seizure of the Suez Canal Company, but also
Egyptian-owned properties, in industries ranging from light
manufacturing to heavy industry. The wide spectrum covered
by nationalized enterprise impeded government officials
from acquiring expertise in any one field.
For policy
guidance, all that the Nasser regime possessed was
superficial knowledge of India, Yugoslavia and the Soviet
Union, whose actual experiences were poorly understood.
Off-setting the costs of emulation, role models
provide hands-on knowledge to emulators, as we tried to
document.
Korea and Taiwan were not unaware of Japan’s
“forced industrialization” of Manchuria, and used many of
the same agents, policies, institutions and tactics to
build their own heavy industries. The backgrounds of the
ultra-nationalist army officers that seized---and briefly
managed---Dutch-owned estates in 1957 can be traced to the
Indonesian battalions that Japan’s imperial army
established to ward off a Dutch counter-attack during its
occupation of Indonesia in 1942-1945.
By contrast,
Argentina mishandled the nationalized German properties
that fell into its lap, failing to transform them into
growth poles.
Latin America’s political de-colonization
had occurred much earlier in time, foreign investors were
not ousted when the rest of the developing world was
indigenizing, and no role model provided a practical guide
for what little indigenism occurred, typically toward
public utilities.
Africa’s disappointing economic
performance in the presence of rich raw materials may be
attributed to the same two conditions:
a continuity in
foreign ownership of mines and plantations, and the absence
of a concrete role model to emulate other than abstract
theory.
This chapter considered only a redistribution of
property between foreigners and nationals, not internal
politics, or a redistribution of property among nationals--away from the idle rich and privileged elite (landlords,
for one) towards the working poor and progressive classes
(tillers in the case of land reform).
The national element
is easily as important for economic development as the
international.
But unless the project of building national
enterprise becomes profitable, and attracts capital and
unemployed labor away from economically backward sectors
(the Middle East’s oil wealth magnetized millions of Muslim
workers and skilled professionals worldwide), then
entrenched interests can be expected to survive and act as
a drag on the national productivity growth rate. Seizure of
foreign properties held the potential to make the early
generation of nationally owned firms more profitable than
otherwise.
How the developing world got away with its
nationalizations, even with compensation, is an unaddressed
yet intriguing question in light of its many failures
(Iran’s first attempt to expropriate the Anglo-Iranian Oil
Company led to a CIA-backed coup in 1953, as did Chile’s
nationalizations two decades later under President
Allende). The least stormy yet most thorough-going
nationalizations, by the oil producing countries, occurred
on common ground:
a country gained control over the
production and distribution ends of the oil business,
leaving a multinational to supply producers and
distributors with high-tech, profitable services.49 But as
the BRICs expand in the energy sector, this division of
labor is changing, sometimes through an acquisition of a
multinational’s foreign subsidiary. In the 1950s and 1960s,
49Aware of Iran’s 1951 failure, Indonesia tried “to strike an acceptable balance” with the three majors operating in Indonesia. It “clearly provided for the termination of the Big Three’s previous mining rights. But an effort was made to coat the bitter pill with some sugar.” The nationalization law “provided that the Big Three would receive priority over other applications as contractors in their present mining areas” {Bartlett, 1972 #2762} 186‐187. the developed world became divided by the Cold War, whereas
the developing world remained united in its antiimperialism.
Can something analogous to this conjuncture
ever be replicated under the existing property rights
regime?50
China and the rest of the BRICs may be expected to
challenge a liberal regime insofar as they challenge
foreign investors’ rights; this is the weakest form of
indigenism (category A1) that appears in Figure 4.1, or
what the US State Department calls “creeping
expropriation.”51 For example, Chinese law sets a cap on the
length of time that a joint venture in the automobile
industry can operate before re-negotiation is required.
Out of 10 Sino-foreign joint ventures that manufacture
passenger cars, half contain such a clause.
After 20 or 30
years, with intermittent reviews, the decision on whether
or not a joint venture contract can be renewed is tied to
performance, and also conformance with government policy--towards investment in R&D, introduction of up-to-date
vehicle models, and modernization of facilities.52
Market
mavens have demanded no controls at all on foreign
investment.
But a “Multilateral Agreement on Investment”
to this effect, a liberal initiative of the Washington
Consensus and one of the few that failed, was defeated in
1999 by developing countries.53
The BRICs may be a hard
role model to follow, but they promise to attract adherents
since they share the same political culture as the earlier
50 Some say it is already being replicated sub‐regionally, in the role model arising around Venezuela’s Hugo Chavez. 51 {U.S. Department of State, 2005/7 #2761} 40. See also the earlier discussion in chapter 3. 52 Nam. Add. Ref in libe of red/small computer 53 Henderson. generation of popular role models: they tend to be both
anti-imperialist and anti-communist, even as they
themselves become imperialists and continue to promote
state enterprise and industrial policy.
History suggests that the nationality of a productive
enterprise matters for economic development in certain
types of industry, and it is to the relative merits of
foreign and national ownership that attention is now
turned.