Transcript Why did Asia develop? - University of California, Berkeley

Development and Institutions
Commerce and manufactures can seldom flourish
long in any state which does not enjoy a regular
administration of justice, in which the people do
not feel themselves secure in the possession of
their property, in which the faith of contracts is
not supported by law, and in which the authority
of the state is not supposed to be regularly
employed in enforcing the payment of debts from
all those who are able to pay. Commerce and
manufactures, in short, can seldom flourish in any
state in which there is not a certain degree of
confidence in the justice of government.
-- Adam Smith, Wealth of Nations
Is Dependency Theory just a
complaint?
• Provides explanation for poverty of the south
but not a good prescription
• NIEO failed
• Bowing out of the international neo-liberal
economy won’t work
• Have any strategies to promote development
actually worked?
Testing Dependency Theory
• Dependency perspectives have evolved
• There has been an impressive rise of former poor
countries of the South in Latin America and in
Asia.
• ISI worked in some places, as we shall see
• Countries could develop WITH Dependency!
• Dependent Development
• Negotiations between governments, firms, and
MNCs
A modification of Dependency Theory:
Dependent Development
• Sometimes the surplus is invested in the host
country---location of plants, services
• This can stimulate domestic industry and
business
• The result: “Dependent Development”
• So maybe stagnation is not inevitable
Why did Asia develop?
If dependent development is possible, why do
MNCs invest in some countries and not others?
• The answer might be government policies and
institutions
Why institutions are needed to spur
development
• Poor countries can’t afford to wait while
natural market forces work their beneficial
effects.
– Market forces take too long
– Produce unbalanced economies
– Vulnerable to price shocks
– Vulnerable to manipulation by strong trading
partners
Poor Countries can be seen as “late
developers” ….adding to our terminology
• Liberal and modified Liberal Theory
– Developing countries
– Less Developed Countries (LDCs)
– Emerging markets
– Late Developers
– Newly Industrializing Economies (NIEs)
– “dependent development”
• Dependency theory
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Underdeveloped Countries
Periphery
• Neutral?
– The “South”
– Third World
Requirement for development: A
developmental State
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Example of Soviet Union
Compatible with Keynes
Compatible with embedded liberalism
Historical experience
Gerschenkron’s contribution
If You’re Early, use the market! (?)
If You’re Late, Use the State!
• Development Banks
• The STATE
– Czarist Russia and Soviet Union
The advantages of backwardness
• Need for rapid development
• British example
• British investment in a “developing” country:
the U.S.
• Technology diffusion
• Late developers got the newest technology
• Why I call this perspective “modified
Liberalism”
It pays to be late
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Latecomers grow faster
Access to state-of-the-art technology
Quick move to heavy industry
Development is possible through contact with
the International Economy
Leapfrogging: Access to the Latest
Technology
Latecomers grow faster…
They move quickly to competitive
industries
Development is possible through contact
with the international economy
The more integration, the more
growth
SUMMARY OF ALL DEVELOPMENT
THEORIES
Accumulation of Capital is the Key to
development
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Theories differ on the BEST way
Trade?
Aid?
Technology transfer?
State mobilization of capital?
ISI?
Growth of a middle class?
Dependent Development?
And the explanations are…..
• Liberal claim…….
• Marxists and dependency theorists
maintain….
• Economic Nationalists demand……
• And Modified Liberals (Institutionalists)
believe……
Who is right?
• Maybe it depends on the conditions under
which a country tries to develop
• And countries have to learn to play their cards
right
What did Asia do right?
Growing share of World GDP
Japan
The Role of American hegemony
The Asian “Tigers”
• South Korea, Singapore, Taiwan, China, India
• Moved out of “periphery status”
• High growth Rates and relative income
equality
Asia-US GDP Growth
Decline in poverty rate
Liberal explanation
Attracting foreign investment
The Product cycle?
Taiwan: A case study
Single-payer health care
Taiwan has ridden the crest of the
product cycle…..
How did Taiwan do it?
• Colonial legacy
• Japan was a different colonial power than
Britain, France, and Belgium
• Japan contributed to Taiwan’s economic
development
Role of the State
• KMT conviscated Japanese assets after WW II
• No middle class—the state did not emerge
from within Taiwanese society
• An authoritarian, non-democratic state….
• ….That guided the growth of the economy
– To attract foreign investment
– Only resource was disciplined labor force
– Investment in R&D
U.S. Aid and Hegemony
• US need to build up strong capitalist countries
to counter communism
• USAID allied with the small business elite
• US forced switch from ISI to Export orientation
Land Reform
Export orientation
FDI
Investment in High Technology
Japanese participation in the
Taiwanese economy
Labor Repression
Results: Weathering the Asian Fiancial
Crisis
The other “Tigers” have gone through
a similar process
Korea
Singapore
Late Developers as a test of theory
…..as a test of dependency theory
• Troublesome because
– Dependent on the world economy (terms of trade
worked in their favor
– Developed with massive amounts of Cold War aid
• Aid was used wisely
• Military burden carried by American taxpayers
Why Wallerstein and Galtung would
not like the “tigers”
• Their theories are static and the “Tigers”
developed dynamically
• They developed with very little income
inequality
• Their colonial legacies helped development
But why Gerschenkron would like
them…….
• They conform most to his theory of “modified
liberalism”
• They show that timing and technology are
everything
Do the NIE’s conform to theories of
“dependent development?”
• Yes These countries developed in a
“dependent” relationship
• They showed that foreign investment can
contribute to development
Why Foreign Investment worked…
• It was not in extractive industries
• It did not come in until the economies were
strong enough to use their technologies
• Foreign investment was restricted
What will all of this economic development
do to repressive governments?
• Can new information technologies lead to
more freedom?
But what about liberal theory?
• Undermines generalizations of liberal theory
• These countries had strong, repressive,
developmental states
What about the role of culture? “Asian
values?”
• Did Asian “culture” make a difference?
• Does Asian culture undermine the Western
laissez-faire approach to economic policy
• Willingness to sacrifice?
• Commitment to community instead of the
individual
• Authoritarian culture?
What is true is…….
Has Liberalization and Globalization
overtaken State-led development in
the 21st century?
Have strong markets led to Democracy
and have the NIEs reached the stage of
a mass-consumption society?
Political Liberalization
Taiwan’s interdependence with China
Interdependence
Political Interdependence?
From export-led growth to Domestic Demand and
Mass-Consumption Society: Convenience-store
culture
From Mass Consumption Society to
relative decline?
• Somewhat declining growth rates
• Slow population growth
• Outflow of investment