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Amsdem Response to East Asian Miracle Woridikvelopment, Vol. 22, No. 4, pp. 627633, 1994 Pergamon Copyright 0 1994 EIsevier Science Ltd Printed in Great Britain. All rights reserved 0305-750x/94 $7.00 + 0.00 0305-750X(94)EOO29-S Why Isn’t the Whole World Experimenting with the East Asian Model to Develop?: Review of The East Asian Mracle ALICE H. AMSDEN” New School forSocial Research, New York Summary, - Like Narcissus, the World Bank s&es its own reflection in EastAsia’s success. It attr- butes the East Asian miracle to macroeconomic basics - high saving and investment rates, expenditures on education, and exports - but in reality, these are anchored in micro-institutions that exhibit perva- sive state intervention. East Asia created competitiveness by subsidizing learning. whereas Bank policy emphasizes methods that effectively cur real wages. The Repon is rich in empirical data, hut they do not support the Bank’s dismissal of industrial policy as “ineffective,” and they are presented in a way that makes it difficult for students to corroborate Bank findings. The greatest disappointment of the Reporf’s market fundamentalism is a failure to study seriously bow elements of the East Asian model can be adapted to suit conditions in other countries. I. MARKET FUNDAMENTALISM economies owe much of their growth to honoring the Bank’s “market-friendly approach” and “getting the The World Bank’s verdict on the causes of the East basics (a twist on prices) right.” The Report acknowl- Asian miracle was bound to be controversial because edges that “in most of the East Asian countries, in one the topic is controversial and so is the Bank. The Bank form or another, the government intervened - sys- is inherently a political organization yet purports to tematically and through multiple channels” (p. 5). produce objective economic analyses. Its middle mat- Thus, the basics cannot tell the entire story. But since agement is comprised of many highly respected econ- they allegedly tell most of the story, and the effect of omists while its top management is comprised of government intervention on the “supernumerary” political appointees who serve at the discretion of the growth rate cannot be determined (the effect might industrialized countries, especially the United States. conceivably be nil or even negative), other developing The East Asian Miracle Report (World Bank, countries are advised to forget intervention and focus 1993) reflects the Bank’s internal conflict. On the one on the fundamentals: hand, the Report widens the scope of the debate on the role of the state in economic development, a debate What caused East Asia’s success? In large measure the muffled by the neoliberal “Washington consensus.” high performing Asian economies [HPAECs] achieved Most chapters indicate a thorough understanding on high growth by getting the basics right. Private domestic the part of Bank staffers of East Asian institutions and investment and rapidly growing human capital, were the principal engines of gmwth [along with an export orien- how deviations from the free market model induced tation, essential in Japan, Korea, Hong Kong, and development, as in the case of financial repression. Singapore, whose supply of natural resources, including The Report’s analysis of policy formulation should be land, was minimal]. In this Sense there is little that is of interest to a wide range of developing countries. Its “miraculous” about the HPAE’s superior record of findings on high total factor productivity growth in the growth; it is largely due to superior accumulation of East Asian region should also stimulate further dis- physical and human capital (p. 5). cussion. John Page, who directed the research, has done a nice job of getting his arms around a bear. On This focus on the fundamentals suggests that eco- the other hand, because the Report cannot prove its nomic growth is a fairly straightforward process, in own major conclusion, it is quintessentially political and ideological. *I would like to thank Takashi Hikino, Gregory Ingram, Its conclusion is that the high performing Asian Akihiko Kawaura, and Hans Singer for helpful suggestions. 627 628 WORLD DEVELOPMENT contradistinction to all the new growth models which, that the high performing East Asian economies could given imperfect information, increasing returns, mul- have grown as fast or even faster if their governments tiple equilibria, path dependence, self-reinforcing had intervened less or not at all. mechanisms, historical lock-ins and other dynamic The Report notes: properties, emphasize that growth processes have "no single explanation" (Stiglitz, 1992, p. 44). The dis- Measuring the relative impact of fundamentals and inter- agreement arises from the Bank's error of believing ventions on high performing Asian economies is virtu- that it is possible to disentangle the "macro" basics -- ally impossible. It is very difficult to establish statistical links between growth and a specific intervention, and investment, education, exports -- from their "micro" even more difficult to establish causality. Because we foundations, or supporting institutions. Once the two cannot know what would have happened in the absence are integrated, and the macro basics are anchored in ofa specific policy, it is difficult to test whether interven- their policy formulation and implementation context, tions increased growth rates (p. 6, emphasis added). growth becomes as complex as the new formal models suggest, and the Bank's attempt to attribute most of Quite correctly, then, the "revisionist" argument (as East Asia's development to market fundamentalism the Bank calls heterodoxy) -- to the effect that market becomes misleading. and state interacted impenetrably in East Asia to gen- For example, if East Asia has had high rates of sav- erate rapid industrialization -- is shown to be unfalsi- ing and investment (most East Asian countries began fiable. the postwar period with very low rates), then these But speaking of the devil! If it is not possible to arose only in conjunction with, say, a particular struc- establish statistical links "between growth and a spe- ture of business enterprise and financial system (all cific intervention," then neither is it possible to estab- banks in Korea and Taiwan, for instance, were pub- lish statistical links between growth and non-interven- licly owned). If the high-performing East Asian coun- tion. In trying to do so the Report commits the same tries have exported a lot and have been aided in doing fallacy as the unfortunate economist Nassau Senior. so by reasonable exchange rates, then their exchange Confusing stocks and flows, Senior argued in the rate regimes have operated only in conjunction with 1830s against reducing the 10-hour work day on the extensive import substitution policies (tariffs or quo- grounds that all profits were made in the tenth hour. In tas on competing imports) and elaborate export incen- effect, the Bank also fallaciously argues that govern- tive systems. Thus, one cannot separate high invest- ment intervention in East Asia accounted for only a ment rates from financial repression, or high export small fraction of total growth and, therefore, was of growth from import substitution or deliberate export minor consequence! promotion. Equally ideological is the Report's premise that Because of East Asia's superlative output and pro- growth would have been as fast if the Bank's own ductivity performance, it was incumbent on the Bank "market-friendly" policies had been substituted for to go out of its way to figure out how to transfer the the actual policies which East Asia used to develop, East Asian model (with all its internal differences) to and that other late-industrializing countries should countries that have remained underdeveloped. This adopt the Bank's own policies rather than East Asia's. cannot be done by force-feeding one East Asian This is an old chestnut, first heard in the form that model to all poor countries, as the Bank has tried to do "Japan could have grown even faster if it had followed with its "market-friendly" approach. But a step in the neoclassical (or "market-friendly") policies." This right direction would have been to begin to explore type of argument is doctrinaire because neoclassical and analyze systematically which of East Asia's sup- economics, while taught in academy with great vivid- porting institutions has served investment, education, ness and conviction, is still only a theory. The policies and exports especially well with an eye toward what associated with it do not automatically generate the must be done to modify these institutions to make outcomes they promise: for instance, it cannot be them work elsewhere. Instead, like Narcissus, all the taken for granted that a set of"neutral," "market-con- Bank was capable of doing in its Report was seeing forming" investment policies will induce the "market the image of its own "market-friendly" policies in conforming" industrial structure that neoclassical the- East Asia's fortunes. ory predicts. Between theory and practice lies a moun- tain of assumptions, many exogenously determined or beyond domestic policy manipulation (relating to, 2. REINVENTING NASSAU SENIOR say, information, entrepreneurship and motivation, international price changes, and so forth). Unless This narcissism is inherently ideological: one can- enough of a model's tortuous assumptions are ful- not coherently claim that the effect of government filled, the implementation of its policy prescriptions intervention in East Asia was residual,
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