East Asian Miracle Economic Growth and Development.

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East Asian MiracleEast Asian MiracleEconomic Growth and Economic Growth and

DevelopmentDevelopment

EEASTAST A ASIA’SSIA’S A ACHIEVEMENTSCHIEVEMENTS Diversity in performance Participation in the regional

production network Policy as key to economic success Authoritarian developmentalism as a

dynamic and temporary regime The exit problem Democratic developmentalism?

HHIGHIGH P PERFORMANCEERFORMANCENo doubt about high average growth in

recent decades

Source: Angus Maddison, The World Economy: A Millennium Perspective, OECD Development Centre, 2001.

Per Capita GDP(Measured in 1990 international Geary-Khamis dollars)

1000150020002500300035004000

1950 1960 1970 1980 1990 1998

East Asia

Africa

100 1000 10000 100000

Governance, WGI2005

Per capita income ($PPP2004, log scale)

Sin Hkg

J pnTwnS Kor

BruMal

ThaiMong

PhilChinaVN

E Timor IndoCambPNG

LaoN KorMya

DDIVERSITYIVERSITY ININ D DEVELOPMENTEVELOPMENT

Sources: Compiled from World Bank, Worldwide Governance Indicators, Sep. 2006; and World Bank, World Development Indicators, 2006.

High correlation (0.90) but causality cannot be argued from this diagramOnly circled economies participate in regional dynamism

EEASTAST A ASIA’SSIA’S U UNIQUENESSNIQUENESS The region is like a big factory where

member economies compete Growth starts by participating in this

regional dynamism The sandwich effect—pressure from

above and below to work harder FDI as relocater of industries Clear but shifting order and structure

(flying geese)

OOVERVIEWVERVIEW OFOF E EASTAST A ASIA’SSIA’S G GROWTHROWTH Average growth rate higher than those

of any other region in the world Superior performance of the eastern

half of Asia• Japan, South Korea• China’s mainland, Hong Kong, Taiwan• Indonesia, Malaysia, the Philippines,

Singapore, and Thailand

GGEOGRAPHICALEOGRAPHICAL D DIVISIONIVISION

GGROWTHROWTH ININ E EASTAST A ASIASIA

Japan’s economy took off in 1960s NIE’s (newly industrialized economies)

• Hong Kong, Taiwan and Korea“very high” growth in the 1960-1975

period“outstanding” growth in the 1975-1990

period• Singapore: opposite pattern

Irony of Myanmar and the Philippines

GGROWTHROWTH ININ N NIE’SIE’S East Asian NIE’s accumulated capital

and increased labor participation at a much faster rate than other economies

The increase in these two factors far from fully explains their exceptional growth rates

productivity growth also accounts for a significant fraction

GGROWTHROWTH ININ N NIE’SIE’S Growth of capital Hong Kong: “high” Taiwan & Singapore: “very high” Korea: “outstanding” Public investment/GDP similar to other

developing economies Private investment/GDP much higher Productivity growth Higher than that of United States Proportion of growth of GDP per person that

is explained by productivity growth was not systematically different from those of Japan and the United States

IINCREASENCREASE ININ P PRODUCTIVITYRODUCTIVITY Interlocking cooperation free enterprise government financial intervention guidance-minded technocratic bureaucracy Imports of foreign knowledge and technology Expanding education opportunities Better organization Improved work practices Asia growth pattern

• two-thirds of the growth is input-driven• the remaining third is attributable to increased

efficiency or total factor productivity (TFP)

East Asia’s ExperienceEast Asia’s Experience A long history of development (break out of isolation,

modernization) Defeat in war and military occupation (social reform,

new system, constitution) U.S. aid and influence The right economic model (export orientation) Authoritarianism (early stage of development) Institutional design (close ties b/t govt, bureaucracy,

private sectors, banks) Culture—Confucianism Resource (stimulation due to absence of natural

resources) The neighborhood (rich neighbors)

KKOREA’SOREA’S G GROWTHROWTH P PATHATH

High rates of saving with funds channeled into the industrial sector

Strong export orientation Strict limits on “non-essential” imports and

direct foreign investment Strict zoning laws and other restrictions on

the distribution system

SSTATETATE I INTERVENTIONNTERVENTION

Ability Low

High High India, Philippines Japan, Taiwan Intent (weak) (strong) U.S., U.K Hong Kong Low (minimalist) (market driven)

AASIANSIAN V VALUES?ALUES?

commitment to hard work sense of thriftiness emphasis on education well-defined family structure filial piety respect for political authority society above self

PPOLITICALOLITICAL S STABILITYTABILITY

Strongman rulers• North Korea, South Korea, Singapore,

Malaysia, the Philippines, Indonesia ... Single-party dominance

• Japan, Taiwan, Malaysia, Singapore … Trading civil rights and freedoms for

economic growth• presumption of basic material well-being

MMANUFACTUREDANUFACTURED E EXPORTSXPORTS

Manufactured exports / total exports

J apan

Taiwan

Singapore

Malaysia

Thailand

Philippines

Indonesia

Vietnam

Myanmar

Sources: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries, 1993 & 2006; Statistical Bureau,Ministry of Internal Affairs and Communications, J apan Statistical Yearbook 2007.

DDEVELOPMENTEVELOPMENT ANDAND A AIDID S STRATEGYTRATEGY

East Asia’s Way Western DonorsGoal Economic prosperity

and national pridePoverty reduction (MDGs)

Policies

Industry, investment, trade, technology

Health, education, governance

Key actors

Central government and businesses

Local communities and people

There is a clear gap in developmental thinking between Eastern practitioners and Western aid community.

EEASTAST A ASIA’SSIA’S P POLICYOLICY M MIXIX

Growth policies—vision, strategy, technology, HRD, infrastructure, SMEs, FDI, trade, finance, logistics, etc.Supplementary policies—inequality, pollution, urbanization, congestion, labor migration, corruption, drugs, HIV/AIDS, etcRapid growth always creates new problems, which destabilize society.Unless both policies are implemented, development will fail (Murakami).Success depends on these policies, rather than diligence or Confucianism

EEASTAST A ASIA’SSIA’S P POLICYOLICY

AAUTHORITARIANUTHORITARIAN D DEVELOPMENTALISMEVELOPMENTALISME. Asia chose authoritarian developmentalism

(AD) for economic take-off.Key ingredients of AD Powerful and economically literate top

leader Development as a supreme national goal Technocrat group to support leader and

execute policies Political legitimacy derived from growth The leader, as primary force of change,

can create the other three conditions.

1945 50 55 60 65 70 75 80 85 90 95 200060 61 79 87 88 92 97

Korea49 75 78 88 Kim Young-sam

TaiwanChenShui-bian

46 48 53 57 61 65 86 92 98

PhilippinesMagsaysay Macapagal 99

Indonesia55 59 65 90 Habibie

Singapore57 70 76 81

Malaysia46 48 57 58 63 73 75 77 80 88 91 97

Thailand51 76 Kriangsak Chatichai

Vietnam48 62 88

Myanmar

Source: Akira Suehiro, Catch-up Type Industrialization , Nagoya University Press, 2000, p115.

Kim Dae-jung

Nationalist Party Chiang Kai-shek Chiang Ching-kuo Lee Teng-hui

Rhee Syngman Park Chung-hee Chun Doo-hwan Noh Tae-woo

Ramos Estrada

Skarno Suharto Wahid

Quirino Garcia Marcos Aquino

LaborParty

People'sAction Party Lee Kuan-yew Goh Chok-tong

Vietnamese Communist Party

Authoritarian Developmentalism in East Asia

Phibun Sarit Thanom

UMNO / Rahman Razak Hussein Mahathir

U Nu Burma Socialist Programme Party / Ne Win SLORC

IndochinaCommunist Party Labor Party

Prem Chuan

EEMERGENCEMERGENCE OFOF AD AD AD emerges through a coup as well as election. AD is more likely to rise when the nation’s

existence is threatened by:• External enemy• Internal ethnic/social instability• Incompetent and corrupt leader

The rise and fall of AD is conditional mainly on the development stage of each country, but international environment also influences them.

Eg. Cold War – reduced global criticism of AD

WWHYHY P POWEROWER C CONCENTRATIONONCENTRATION I ISS NNEEDED?EEDED?

Growth requires a critical mass of mutually consistent policies. A strong state is needed to mobilize resources quickly and flexibly.

If broad participation is allowed, policies are too slow and can’t achieve critical mass due to:• Power struggle, party politics, interest groups• Processes requiring patience and compromise,

including parliamentary debate and consensus building

• Some groups may refuse to cooperate with state purposes

“The institutional characteristics and requirements for development and for democracy pull in opposite directions.”

“Democracies have great difficulty in taking rapid and far-reaching steps to reduce structural inequalities in wealth.”

AADRIANDRIAN L LEFTWICHEFTWICH (2005)(2005)

ChangeSpeed & flexibility

Accumulation

CompromiseAccommodation

Procedure

Development Democracy

CCRITIQUESRITIQUES OFOF AD ADDemocracy and development are separate issues: “I do not subscribe to the idea that you need to delay democratization just so that you can actually have growth or that you can have democracy only when you can afford it.” (Dani Rodrik, 2006)

Democracy is required for development “Expansion of freedom is viewed… both as the primary end and as the principal means of development.” (Amartya Sen, 1999)

KKOREANOREAN E EXPERIENCEXPERIENCE N.T.T.Huyen “Is There a Developmental

Threshold for Democracy?: Endogenous factors in the Democratization of South Korea” (2004) “Democracy as an advanced form of

politics is not independent from socio-economic development.”

“Developmental threshold for democracy [is] a point in the development process beyond which democracy can be effectively installed and sustained.”

0100020003000400050006000700080009000

1960 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94

Korea: Per Capita GDP in 1990 USD

80% farmers

90% middle class

End of AD

EEXITXIT OFOF AD ADLow income trap

High income society

Catching-up period(AD useful)

DemocracyPluralism

AD is a temporary regime of convenience, needed only to push up the country to a higher level.

Once a certain level is reached, AD becomes an obstacle to further development.

Watanabe (1998) argues that successful AD melts away automatically through social change and democratic aspiration.

“if development under authoritarian regime proceeds successfully, it will sow the seeds of its own dissolution” [improved living standards and diversified social strata]

A LA LESSESS O OPTIMISTICPTIMISTIC V VIEWIEW

However, barriers do exit: stubborn leader, bureaucratic resistance, interest groups. Therefore, leadership and strategy are also needed for an exit.

Strong leaders often refuse to step down because they will be revenged, jailed and even executed after transition, with most or all of their policies denied and reversed.

TTHEHE E EXITXIT P PROBLEMROBLEM FORFOR O ONE-PARTYNE-PARTY RRULEULE (China and Vietnam)(China and Vietnam)

Rapid growth and social transformation driven by private dynamism (local & FDI)

Success so far in managing liberalization, but not industrial activism

Policy challenge is in social areas, not accelerating growth

Future options:(1) Greatly enhancing party’s policy capability(2) Multi-party system under social democracy(3) Other

Pure dictatorshi

Full democracyDemocrati

c institution

(Form)

Political competition

ConstitutionLawsParliamentElectionCourtParty

Reform vs conservatism, big vs small government, foreign policy, etc

(Content)

Setback

Pure dictatorship

Full democracyDemocratic

institution(Form)

Political competitio

ConstitutionLawsParliamentElectionCourtParty

Reform vs conservatism, big vs small government, foreign policy, etc

Edo Meiji

Taisho

Fascism

ConstitutionParliament

Democracy movement,

Party cabinet

DemocratizationNew constitution

Showa2

War1937

1945-51 LDP dominanceLack of policy debate

Male suffrage

19602007US rule

Defeat

Showa1

1931Military rises

1937-45

(Content)

Political fights

THE CASE OF JAPAN

““DDEMOCRATICEMOCRATIC DDEVELOPMENTALISMEVELOPMENTALISM””?? (MILD FORM (MILD FORM

OF AD)OF AD) Research on DD

• Robinson and White eds (1998)• Centre for Policy Studies study on “The

Democratic Developmental State in Africa”• Ethiopian Prime Minister Meles Zenawi

Can we separate resource mobilization from freedom and human rights?

Countries that already have free election, functioning parliament, human rights—can they adopt developmental policies without throwing out their political achievements?

Need to decompose democracy into parts and analyze its structure

CCOMPONENTSOMPONENTS OFOF D DEMOCRACYEMOCRACY

Purposes Freedom, human rights, equality, social and economic benefits for all, security, peaceful coexistence

Procedures

Legitimacy (election), rule of law, participation, multi-party system, balance of power (L-E-J), local autonomy

Properties Tolerance, compromise, fairness, transparency, accountability

Random & excessive oppression should never be allowed. Can some of these restricted for resource mobilization?

DDESIGNINGESIGNING DD: DD:TTENTATIVEENTATIVE S SUGGESTIONSUGGESTIONS

Democratic criteria should go beyond “free election.”

Generally speaking, policy purposes should be upheld but procedures and properties may be partly adjusted.

The executive branch should have sufficient power, but with a mechanism to overthrow it if it performs badly.

Excessive decentralization at an early stage is not desirable.

FFINALINAL R REMARKSEMARKS

When income is very low, a bottom-up regime based on rural population or social democracy (poor farmers or poor workers) may not work.

More realistic: use the East Asian AD model (top-down quick decisions with supporting elites) with added democratic elements.

East Asian Miracle Economic Growth and Development.

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