Varieties of Capitalism in Asia, the Wait Has Ended

Critical Studies of the Asia-Paciﬁc

“I’ve been waiting for a work that could ﬁll the gap between the riotous reality of Asian capitalism and our spotty understanding of it. With Varieties of Capitalism in Asia, the wait has ended. The canvas of the book, like Asia itself, is expansive, and its argument nuanced and layered. By bringing society back into the study of capitalism, Hundt and Uttam offer an analysis that is as sweeping as it is revealing. This is required reading.”

—A. Aneesh, Associate Professor of Sociology, University of Wisconsin-Milwaukee, USA Critical Studies of the Asia Pacific showcases new research and scholarship on what is arguably the most important region in the world in the twenty- first century. The rise of China and the continuing strategic importance of this dynamic economic area to the United States mean that the Asia- Pacific will remain crucially important to policymakers and scholars alike. The unifying theme of the series is a desire to publish the best theoreti- cally-informed, original research on the region. Titles in the series cover the politics, economics and security of the region, as well as focusing on its institutional processes, individual countries, issues and leaders.

More information about this series at http://www.springer.com/series/14940 David Hundt • Jitendra Uttam Varieties of Capitalism in Asia

Beyond the Developmental State David Hundt Jitendra Uttam Faculty of Arts and Education School of International Studies Deakin University Jawaharlal Nehru University Burwood 3125, Australia New Delhi, India

Critical Studies of the Asia-Paciﬁc ISBN 978-0-230-24031-5 ISBN 978-1-349-58974-6 (eBook) DOI 10.1057/978-1-349-58974-6

Library of Congress Control Number: 2017938882

© The Editor(s) (if applicable) and The Author(s) 2017 The author(s) has/have asserted their right(s) to be identified as the author(s) of this work in accordance with the Copyright, Designs and Patents Act 1988. This work is subject to copyright. All rights aresolelyandexclusivelylicensedbythe Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodol- ogy now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

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This Palgrave Macmillan imprint is published by Springer Nature The registered company is Macmillan Publishers Ltd. The registered company address is: The Campus, 4 Crinan Street, London, N1 9XW, United Kingdom ACKNOWLEDGEMENTS

David Hundt: Many people played a part in bringing this project to successful completion. I would ﬁrst like to thank Mark Beeson (University of Western Australia), the commissioning editor of the Critical Studies in the Asia–Paciﬁc series at Palgrave, for his encouragement and support at several points over the past few years. Baogang He (Deakin University) provided insightful comments on the manuscript as it neared completion and helped to strengthen its key arguments. Matthew Clarke (Head of School, Humanities and Social Sciences, Deakin University) granted me enough time in the second half of 2016 so that the book could be completed. Michael Hatherell, Belinda Townsend, and Vanessa Smith (all Deakin University) helped to bring the book together through their outstanding research assistance and helpful feedback on some of the chapters. KC Suri and other colleagues at a conference and workshop held in Hyderabad in 2012 and 2013 offered input at the earliest stages of this manuscript, and helped to shape the direction of the argument. Finally, I am grateful to my family for their support during the completion of this book. Finishing a project of this scale requires a lot of effort as well as time, and far too often that time was taken away from those nearest and dearest to me. Jitendra Uttam: I would like to sincerely appreciate the contribution made by three academic institutions – Jawaharlal Nehru University in New Delhi, India; Seoul National University in Seoul, Korea; and Moscow State University, Moscow, Russia – in shaping of my views about capitalism, socialism and the understanding of qualitative differences in the

v vi ACKNOWLEDGEMENTS economic development of diverse and vast Asian region. A series of discussions with H.E. Mr Cho Hyun, Korean Ambassador in New Delhi, focused on the rise of capitalism in Korea and India’s tumultuous journey from socialism to capitalism helped me formulate ideas about the importance of social embeddedness in the process of economic development. A preparatory workshop jointly organised by the University of Hyderabad, India and Australia’s Deakin University on ‘varieties of capitalism’ offered many useful suggestions that helped in the widening of my understanding regarding socioeconomic forces causing diversity in the capitalist mode of production. I would like to personally thank Yogendra Yadav, Surajit Mazumdar and Balveer Arora for their ideas and suggestions. This work was supported by the university with potential for excel- lence (UPE II) scheme. I acknowledge time and space provided by my loving family that enabled me to spare enormous time in this book writing endeavour. I am indebted to my wife Elena’s explanation based on her Russian experiences about having capitalism without capitalist class, and the politics of creating an entrepreneurial-industrial class. CONTENTS

1 Asia Amid the Varieties of Capitalism Debate 1 1.1 Capitalism in Asia After WWII 5 1.2 A New Approach to Analysing Asian Capitalism 10 1.3 Understanding Embeddedness 12 1.4 Structure of the Book 17 Notes 21

2 State and Society in Asian Capitalism 23 2.1 The Developmental State in Retrospect 25 2.2 The Varieties of Capitalism and Asia 29 2.3 The Social Origins of Asian Capitalism 31 2.3.1 The Socioeconomic Base of Capitalism 31 2.3.2 Capitalist Institutions and Social Embeddedness 34 2.3.3 The Politics of Economic Regimes 36

3 Japan’s Collective Capitalism and the Origins of the Asian Model 39 3.1 The Transformation of Capitalism in Japan 41 3.1.1 The Notion of Collective Capitalism 41 3.1.2 How Much Transformation? 44 3.2 The Socioeconomic Base of Collective Capitalism 48 3.2.1 The Rise of Mercantilism 50 3.3 Capitalist Institutions in Japan 51 3.3.1 The Signiﬁcance of Land Reforms 52

vii viii CONTENTS

3.3.2 Big Business and the Financial Sector 54 3.3.3 The Ruling Party and the Bureaucracy 56 3.3.4 The Role of Labour 57 3.3.5 The Embeddedness of Collective Capitalism 59 3.4 Economic Policy and Strategy 64 3.4.1 Opening Up? 64 3.4.2 Industrial Policy 66 3.4.3 Monetary and Fiscal Policy 68 3.4.4 Financial-Sector Policy 69 3.4.5 Science and Technology Policy 71 3.4.6 Labour Market Policy 73 3.5 Conclusion 75 Note 76

4 Confucian Capitalism: ‘Organised from the Top’ in Korea and ‘Reorganised from the Bottom’ in Taiwan 77 4.1 Shared Historical Context and the Development of Capitalism 79 4.1.1 Impact of Chinese Cultural Flows 79 4.1.2 Colonialism, Land Reform, and the Cold War 81 4.2 The Making of Confucian Capitalism 84 4.3 Structural–Institutional Dynamics 85 4.3.1 Societal Institutions 85 4.3.2 State Institutions 87 4.3.3 Bureaucratic–Technocratic Institutions 90 4.3.4 Financial Institutions 93 4.3.5 Labour Institutions 96 4.4 Economic Policy and Strategy in Korea 99 4.4.1 Exchange Rate and Trade Policies 101 4.4.2 Financial Repression and Deregulation 104 4.4.3 Science and Technology Policy 106 4.5 Taiwan’s Economic Policy and Strategy 107 4.5.1 Exchange Rate and Trade Policies 110 4.5.2 Savings, Financial Repression, and FDI 111 4.5.3 Science and Technology Policy 112 4.6 Conclusion 114 Notes 115 CONTENTS ix

5 Entrepôt Capitalism in Hong Kong and Singapore 117 5.1 The Development of Entrepôt Capitalism 119 5.1.1 Quality of Governance 120 5.1.2 Coexistence of State and Market 123 5.2 The Socioeconomic Base of Entrepôt Capitalism 125 5.2.1 Embedding Entrepôt Capitalism in Society 125 5.2.2 A Conservative Style of Embedded Capitalism 128 5.3 Two Variants of Entrepôt Capitalism 131 5.3.1 State Capitalism in Singapore 132 5.3.2 Hong Kong’s Liberal Capitalism 134 5.3.3 Social Responses to Entrepôt Capitalism 135 5.4 Economic Policy and Strategy in Singapore and Hong Kong 138 5.4.1 Industrial Policy 139 5.4.2 Science and Technology Policy 142 5.4.3 Free Trade Agreements and Increasing Interdependence 143 5.5 Conclusion 145

6 Malaysia’s ‘State Capitalism’ and Thailand’s ‘Alliance Capitalism’ 149 6.1 The Evolution of Capitalism in Southeast Asia 151 6.1.1 Early Capitalist Accumulation 152 6.1.2 Colonialism, Class, and Capital 154 6.1.3 The Post-colonial Period 156 6.2 Ideas, Ideologies, and the Shaping of Capitalism 158 6.2.1 Neomercantilism and Keynesianism 158 6.2.2 Nationalism, the Developmental State, and the Cold War 160 6.2.3 Crony Capitalism, Neoliberalism, and State–Market Rebalancing 161 6.3 The Socioeconomic Base of Southeast Asian Capitalism 163 6.3.1 Socioeconomic Divisions 164 6.3.2 State and Society 167 6.3.3 The Developmental State in Thailand 168 6.3.4 Malaysia’s Developmental State 171 6.4 Economic Policy and Strategy 172 6.4.1 Corporate Governance 173 x CONTENTS

6.4.2 Finance and Banking 174 6.4.3 Monetary Policy 177 6.4.4 Labour Market Policy 180 6.4.5 Science, Technology, and Innovation Policy 181 6.5 Conclusion 186 Notes 187

7 India’s ‘Democratic Capitalism’ and China’s ‘Market Socialism’ 189 7.1 The Emergence of Capitalism in India and China 191 7.1.1 Historical Discontinuity and the Recasting of State–Society Relations in China 192 7.1.2 Historical Continuity and Stagnation in State–Society Relations in India 194 7.2 The Social Embeddedness of Capitalism in Comparative Context 196 7.2.1 Embedded Egalitarianism 197 7.2.2 Embedded Elitism 199 7.3 Ideas, Ideologies, and Different Economic Regimes 200 7.3.1 Democratic Idealism and Communist Pragmatism 200 7.3.2 Hindu–Buddhist Individualism and Confucian–Buddhist Collectivism 201 7.3.3 Economic Nationalism and Asian-Style Neomercantilism 203 7.4 Transitions to New Economic Regimes 204 7.4.1 LIMMER and Socially Embedded ‘Market Socialism’ 206 7.4.2 CIHIER–KISIER and Weakly Embedded Democratic Capitalism 208 7.5 Policy Responses and Economic Strategy 210 7.5.1 Banking and Financial Policy 211 7.5.2 Trade, Investment, and Exchange Rate Policy 213 7.5.3 Science and Technology Policy 217 7.6 Conclusion 220 Note 221 CONTENTS xi

8 Asian Capitalism and the VoC Debate 223 8.1 The Embeddedness of Capitalism in Asia 225 8.1.1 Variation Within the Region 226 8.1.2 The Diversity of Embeddedness 228 8.2 The Diversity of Asia’s Capitalist Institutions 229 8.2.1 The Classical Developmental State 230 8.2.2 Diverging from the DS 231 8.3 Patterns of Economic Regimes 233 8.3.1 Social Embeddedness and Regime Formation 233 8.3.2 The Diversity of Economic Regimes 234 8.4 The VoC and the DS in Retrospect 237 8.4.1 Social Embeddedness and the VoC Framework 237 8.4.2 Society and the Developmental State 238 8.5 Rethinking Capitalism in Light of Asia’s Experiences 240

References 243

Index 277 ABBREVIATIONS

AFC Asian ﬁnancial crisis ASEAN Association of South East Asian Nations ASEAN COST ASEAN Committee on Science and Technology BoJ Bank of Japan BOP balance of payments CCP Chinese Communist Party CCRRIC caste–class–region–religion–identity complex CG corporate governance CIHIER capital-intensive, heavy industrial-led economic regime CME coordinated market economy CPF Central Provident Fund (Singapore) CSP Center for Systemic Peace DIC Deposit Insurance Corporation (Japan) DS developmental state (or capitalist developmental state, CDS) EDB Economic Development Board (Singapore) EOI export-oriented industrialisation (strategy) EPB Economic Planning Board (Korea, Singapore) FDI foreign direct investment FTA free trade agreement FTZ free trade zone GDP gross domestic product GII Global Innovation Index GLF Great Leap Forward GNP gross national product GRI government research institute GTC general trading company HCI heavy and chemical industry HDI Human Development Index

xiii xiv ABBREVIATIONS

ICG institution of corporate governance ICT information and communications technology IMF International Monetary Fund IP industrial policy ISI import-substitution industrialisation IT information technology JPPCC Joint Public–Private Consultative Committee (Thailand) KISIER knowledge-intensive, service industry-led economic regime KMT Kuomintang (political party, a.k.a. the Nationalist Party) KOTRA Korea Trade Promotion Association KPR Korean People’s Republic LDP Liberal Democratic Party (Japan) LIMMER labour-intensive, mass-manufacturing-led economic regime LME liberal market economy MITI Ministry of International Trade and Industry (Japan, a.k.a. the Ministry for Economy, Trade and Industry) MNC multinational corporation MOF Ministry of Finance (Japan, Korea, Taiwan, Thailand) MOST Ministry of Science and Technology (Korea, Thailand) NAM Non-Aligned Movement NEP New Economic Policy (Malaysia) NPL non-performing loan NSC National Science Council (Taiwan) NSTP National Science and Technology Policy (Malaysia) NT$ New Taiwanese dollar NTPC National Technology Promotion Conference (Korea) OECD Organisation for Economic Co-operation and Development PAP Peoples’ Action Party (Singapore) PDS private debt security POE privately owned enterprise R&D research and development S&T science and technology (policy) S2A Science to Action (Malaysia) SAR Special Administrative Region (Hong Kong/China) SIF Strategic Investment Fund (Taiwan) SIP strategic industrial policy SIRIM Scientiﬁc and Industrial Research Institute of Malaysia SME small and medium enterprise SOE state-owned enterprise STAG Science & Technology Advisory Group (Taiwan) STI Act Science, Technology and Innovation Act (Thailand) TCPR Thai Central Plain region ABBREVIATIONS xv

TFP total factor productivity TISIR Thailand Institute of Scientiﬁc and Technological Research UK United Kingdom UMNO United Malays National Organisation US United States (of America) USMGK United States Military Government in Korea VoC varieties of capitalism WEF World Economic Forum WTO World Trade Organization WVS World Values Survey WWII World War II LIST OF FIGURES

Fig. 3.1 Levels of conﬁdence in various institutions 62 Fig. 3.2 Economic and non-economic goals 63

xvii LIST OF TABLES

Table 1.1 Some indicators of social embeddedness in Asian case study countries 14 Table 5.1 Conﬁdence in government and civil service 137 Table 5.2 Tolerance for ‘strong leadership’ 137 Table 6.1 Inﬂation and its volatility in Malaysia and Thailand1 179

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