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E
Lecture Notes: East Asian
Miracles
J. Bradford DeLong
Department of Economics & Blum Center for Developing Economies at
U.C. Berkeley
, & WCEG
http://bradford-delong.com
::
brad.delong@gmail.com
:: @delong
2019-12-25
Revised 2020-04-20
NEXTSTEP: podcast audio
4149 words
I. East Asia & the Malthusian Cycle
A. On the Downside at the Start of the Long 20
th
Century
ast Asia was on the downside of the Malthusian cycle when western
Europe erupted into the eastern Pacifi c in the 1800s: populous, with
many ingenious and effi cient non-machine technologies for
squeezing output out of very limited resources, but desperately poor. “The
West” brought machine technologies and the global market. It also brought
a measure of contempt for east Asia. Nearly all western observers thought
the idea that the Mysterious East might catch up to the north Atlantic in
any reasonable historical timeframe was absolutely ludicrous.
Malthusian poverty meant no domestic middle-class to demand domestic
manufactures, and productivity levels in Asia were hopeless as far as
manufactured exports were concerned. The military and political power
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A
W
gradient vis-à-vis the north Atlantic meant no ability to impose tariffs,
even had a domestic middle class on whose demand one might be able to
build a community of engineering practice and progress existed. The lack
of a powerful domestic bourgeoisie meant rule by princes for whom
broad-based economic growth was simply not a priority. And in general a
“Confucian” religious orientation meant that right orientation was more
important than the rationalization of techniques and methods.
B. The East Asian Surprises
s Melissa Dale says: If we were sitting here in the 1950s, we would
not have predicted anything like east Asia’s miracles.
Yet we have had four: fi rst the early industrialization of Japan, then the
extraordinary drive of Japan to global north status from 1950 to 1975, then
the four east Asian tigers, and now coastal China.
All that surprises: As Melissa Dell says: As of 1950 the smart western
money was that the Philippines was much more likely than even Japan to
rapidly obtain global north status. The Philippines had the highest rates of
education in Asia. The Philippines had the highest rates of indigenous
entrepreneurship. In the Philippines head it's healthcare sector and other
close economic links with America.
II. Growth Accounting
A. Factor Accumulation
hat were the proximate causes of the east Asian miracles?
Briefly,
they were
factor accumulation and technology transfer
—and the institutional framework to support those, and make
them possible and productive
.
2
W
These economies grew in no small part through intensive factor
accumulation: Education expanded massively. Their savings rates were the
highest in the world. Hours worked were quite high. There was an
extremely rapid transfer of workers from the farm to the city, and from
low marginal value agriculture to constant and higher marginal value
manufacturing.
B. Sources of Demand
here did the demand for manufactured goods
to make factor
accumulation and mobilization effective, even possible,
come
from?
Initially, in Meiji and post-Meiji Japan,
it came
from the state: The focus
was on revering the emperor and expelling the barbarians, which required
building a rich country that could build a strong army. The revenues of the
aristocratic samurai class were confi scated by the state, and the samurai
bought off by government bonds, the value of which was then inflated
away. The government revenues were then used to fund the building of
roads and factories. Later on, the growing Japanese middle class played a
key role in demand.
After World War II—in Japan and
also
in the four east Asian tigers—it
was a combination of the opening world economy, and what Yingyi Qian
and I call “neocolonial origins of comparative development”: It was very
important for a United States fi ghting the Cold War that that part of east
Asia that was in the “Free World” be prosperous and be seen to be
prosperous. Thus export-oriented development strategies that would and
did have run into nasty quota buzzsaws when pursued by Latin American
and south Asian countries were welcomed when the exports came from
east Asia. The United States was thus the importer of last resort for the
east Asian development model.
3
T
Y
C. The China Shock
his openness to exports channel was then amplifi ed and reinforced by
the Bush 41 and Clinton administration's decisions, even after the Tien
an Men Square massacre, to hug China close: Generate as much contact as
possible, economic, social, intellectual, and ideological, between the
United States and the rising potential superpower across the ocean to the
west. That seemed to provide the best road to a prosperous and peaceful
21st-century. That, after all had been Britain’s strategy over 1860-1945
with the then-rising potential superpower across the ocean to the west that
was the United States. In Britain’s case, that strategy had been very
successful.
Thus China's accession to the WTO and Chinese imports were greatly
welcomed. Then came the decision of the Bush 43 government of the
2000s that its highest economic policy priority was a tax cut for the rich,
funded by defi cit spending and large-scale borrowing from China. That
then carried with it the massive import flood of the China Shock, which
was the real-side economy counterpart of the fi nancial flows. That was the
icing on the cake in making possible the coastal China growth miracle that
has produced China’s state capitalism with Chinese characteristics (and
utopian socialist aspirations).
D. Institutions & Technology
et east Asia also managed the important tasks of: getting institutions
and incentives right; succeeding at large-scale technology transfer;
avoiding rent-seeking and other elite-corruption political economy traps.
Some people have argued that the large role played by factor mobilization
makes the term “miracle” a misnomer. But that factor mobilization is a
key is obvious. And lots of other places didn’t grow: were unable to do the
factor accumulation. People need to have the right incentives to invest
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large shares of their incomes and to participate intensively in the labor
force. That industrialization still hasn’t spread to many parts of the world
suggests that creating and maintaining these incentives is no easy task.
III. How Did They Do It?
A. Geographical Proximity Suggests Common
Causes
hat are the hypotheses for east Asia’s miracles? Remember:
the geographical concentration of these economic miracles
strongly suggests that saying “each country (and era) was
different” will not cut it. There is something in the air, in the water, in the
soil, found throughout east Asia that has made its economic experience
very different from other places outside the global north. A good
hypothesis will have to fi t with the Japanese and the coastal China
miracles as well as with the “four tigers” experience.
There have been a large number of explanatory hypotheses proposed:
•
J
apanese colonial policy—Japan is the seed from which all of the
miracles grew, through its influence fi rst on its colonial empire, and then
through Taiwan’s influence on south co
a
stal China.
•
The extraordinarily low level of inequality: Japan’s decapitation of its
landlord samurai class meant that the poison of internal colonization by
a hereditary landlord elite with all of its negative political economy
consequences did not happen. Then Japan’s conquest of south Korea and
Taiwan decapitated their landlord elites. Then the purge of Japanese
collaborators did it again. Mao’s PLA did it in China. And so all east
Asian economies have a social class that is (a) educated but (b) poor and
propertyless, hence (c) interested in entrepreneurship and enterprise—in
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L
creative destruction and economic growth—rather than (d) in holding on
to what they have and producing stagnation as a result.
•
Neocolonial origins: any country could have done what east Asia did
had they been allowed to craft smart tariffs to protect domestic
industries in which they could build a community of engineering
practice and acquire a comparative advantage, while at the same time
having the freedom to export to the global north. But, outside of east
Asia, the global north demanded that you pick one or the other: abandon
domestic protection, even smart protection, if you wanted access to
global north demand for manufactures.
•
Simply that leaders matter: the Meiji reformers, those who rose to the
top of Japanese politics after WWII, the brutal but effective Park Chung
Hee and his successors, the KMT in Taiwan, and Deng Xiaoping and his
successors, plus Lee Kuan Yoo were remarkable men whom east Asia
was lucky to see.
•
And, last, that east Asia somehow had the state capacity to run a
developmental state: to have trade and industrial policy crafted to boost
growth massively, as happened earlier with Germany and America’s
“Hamiltonian system”, but to a much greater and more effective degree.
B. State Capacity & Industrial Policy
et’s focus on state capacity and industrial policy
. What does a
government need to do other than to be a “night watchman”? And how
can you build, or at least take advantage of, state capacity to successfully
accomplish these tasks?
I was tempted—and I am sure Melissa Dell was tempted—to assign all of
Peter Evans’s book
Embedded Autonomy
. It is great. But
ars longa, vita
brevis
…
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Evans starts with the observation that “
i
ndustrial policy” was a success in
east Asia, and a bad failure elsewhere.
Actually, that is not quite true. We see premonitions of the east Asian post-
WWII successful model in pre-WWI Germany, in Hamiltonian America,
and in Meiji Japan.
Evans bets that to understand why, we need to focus on the state. Melissa
Dell calls out this passage: Evans writes:
Until less hierarchical ways of avoiding a Hobbesian world are
discovered, the state lies at the center of solutions to the problem of
order... the contradiction between the ineradicable necessity of the state
in contemporary social life and the grating imperfection with which
states perform is a fundamental source of frustration. Dreams of
cannibalizing bureaucrats are one response. Analyzing what makes
some states more effective than others offers less immediate
satisfaction but should be more useful in the long run…
Successful economies need rules—for property, for exchange, for the
provision of public goods. Laissez faire will not cut it—too many
externalities. That India was ruled by Britain under laissez-faire
presumptions about policy for a century and yet in 1950 was as poor as it
had been in 1850 should be enough to get anyone who holds that laissez-
faire and laissez-faire alone is necessary, suffi cient, and unique for
successful economic growth laughed out of the room.
Attempts to dismantle the state risk perverse consequences: communist
revolutionaries who fought to install a system that would make the state
“wither away” ended up constructing extremely repressive states.
20th century states are a key to different paths of historical development.
One of the few universals of the 20th century is the increasingly pervasive
7
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influence of the state. It is a necessary part of society and we should study
how to make it better.
C. Predatory & Developmental States
ey for que
s
tions of economic development is how the state can
succeed or fail at promoting industrial growth. Evan
s
’s book looks at
IT industries in three countries, Brazil, India, and Korea, during the 1970s
and 1980s.
Consider the state and the international economic order.
Comparative advantage is dynamic: Comparative advantage is not just
about natural endowments, but also about social and political institutions.
State involvement is a determinant of what niche a country ends up
occupying in the international division of labor. States with transformative
aspirations are typically looking to participate in “leading sectors”. Efforts
to reshape participation in the global economy are interesting because—
while there are examples of success—they also often highlight the limits
of what states can achieve.
A key argument in Evan’s book is that it’s more important to ask “what
kind” of state involvement than to ask “how much”. India, Brazil, and
Korea are very different contexts. Nevertheless, state involvement in
industrial transformation in all three economies is undeniable.
⍰
These
countries provide a stark illustration of why asking about the types of
interventions undertaken is imperative.
At one pole, predatory states extract so much otherwise investable surplus
—while providing so few public goods in return—that they impede
economic transformation.
8
E
To sharpen ideas, let us look for the moment at the the archetypal
predatory state: the
Democratic Republic of the Congo
. Evans argues that
“everything is for sale”; marketization and personalism dominate society-
state relations rather than predictable, rule-governed bureaucratic
behavior, which makes it foolhardy to make long-run investments.
The absence of bureaucracy is central to the DRC’s problems:
R
ule-governed behavior immersed in a larger structure of careers that
creates commitment to corporate goals is notably in absence. The only
semblance of corporate cohesion centers on the state’s repressive
capacity, and even that teeters on incoherence…
⍰
The state works to actively disorganize civil society; it is not that the state
has weak ties with civil society that prevent joint transformative projects,
but rather that the state actively prevents the emergence of social groups
that might have an interest in transformation, which would creatively
destroy the power and the incomes of the rulers.
Developmental states foster long term entrepreneurial orientation amongst
private elites by increasing incentives to engage in transformative
investments and lowering risks. These states are not immune to cronyism
and corruption, but on balance the consequences of their actions promote
rather than impede transformation.
II. Peter Evans’s Embedded Autonomy
A. Japan as the Archetype
van
s
’s goal is to link obvious variation in the outcomes of the state
to underlying variations in state structures and state-society
relations. He uses a comparative institutional approach.
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Evans’s motivating example is the archetypal developmental state—Japan.
Japan had a “powerful, talented, and prestige-laden bureaucracy.”
Bureaucrats were selected by a competitive exam system, with only 2-3
%
of applicants succeeding.
⍰
The government offi cials’ success in building
their careers takes place via conformity to bureaucratic rules rather than
via exploitation of individual opportunities. But beyond impersonal
bureaucracy, informal networks are integral to the state’s functioning.
Japanese industrial policy depends fundamentally on the maze of ties that
connect bureaucrats and industrialists: “Complex and stable ties with
market players…”
Relative autonomy of the bureaucracy is what allows it to address the
collective action problems of private capital. In the case of Japan
historically, connectedness appears to create increased competence rather
than state capture. Embedded autonomy: combines a Weberian
bureaucracy with intense connections to the surrounding social structures.
⍰
Evans argues that embedded autonomy is the key feature of a
developmental state.
Social network-based career strategies; the relative autonomy of the
bureaucracy; individual success springs from advancing societal goal: rich
country—(once) strong army.
The key is that the bureaucracy needs to be embedded in society—so that
it understands it and helps build it up—but autonomous—so that it is not
under the control of parasitic hereditary elites—and mission-oriented—in
that all participants share a strong and ideology-driven commitment to
achieving the societal goal of strong economic growth.
How is this different from Stalinist bureaucracy under really existing
socialism? Using rather than destroying the market; connecting rather than
atomizing society.
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