East Asia's Economic Success: Conflicting Perspectives, Partial Insights, Shaky Evidence Author(S): Robert Wade Source: World Politics, Vol

Review: East Asia's Economic Success: Conflicting Perspectives, Partial Insights, Shaky Evidence Author(s): Robert Wade Source: World Politics, Vol. 44, No. 2 (Jan., 1992), pp. 270-320 Published by: Cambridge University Press Stable URL: http://www.jstor.org/stable/2010449 . Accessed: 17/07/2011 20:08

Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use.

Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at . http://www.jstor.org/action/showPublisher?publisherCode=cup. .

Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected].

Cambridge University Press and Trustees of Princeton University are collaborating with JSTOR to digitize, preserve and extend access to World Politics.

http://www.jstor.org ReviewArticle

EAST ASIA'S ECONOMIC SUCCESS ConflictingPerspectives, Partial Insights, ShakyEvidence

By ROBERT WADE*

Alice Amsden. Asia's Next Giant: South Korea and Late Industrialization. New York: Oxford UniversityPress, 1989, 379 pp. Stephan Haggard. Pathwaysfrom the Periphery:The Politicsof Growthin the Newly IndustrializingCountries. Ithaca, N.Y.: Cornell University Press, 1990, 276 pp. Helen Hughes, ed. Achieving Industrializationin East Asia. Cambridge: Cambridge UniversityPress, 1988, 377 pp.

Don't listen to "comparative advantage" advice. Whenever we wanted to do anythingthe advocates of comparativeadvantage said, "We don't have comparativeadvantage." In fact,we did everything we wanted, but whateverwe did, we did well. -Governor Park Korea Central Bank' I do not believe thatthe firmscould have organized a supercomputer project themselvesbecause businesspeopledid not believe in the feas- ibilityand profitabilityof this kind of supercomputerin the near future. Our pressureor promotionwas needed. -Senior MITI official2

THE NEOLIBERAL INTERPRETATION OF EAST ASIAN SUCCESS OVER the past two decades a literature big enough to fill a small airplane hangar has been produced on the causes of East Asian economic success. Of that which is economically literate the mainstream adopts what could be called a "neoliberal" interpretation. This says that * The authoracknowledges Adrian Wood, Ronald Dore, ManfredBienefeld, Olivia Cox- Fill, JulieGorte, and Michael Lipton. The usual exonerationapplies with more than usual force. I Quoted in Yoginder Alagh, "The NiEs and the Developing Asian and PacificRegion: A View fromSouth Asia," Asian Development Review 7, no. 2 (1989), 116.I thankDevesh Kapur forthis reference. 2 Cited in MartinFransman, The Market and Beyond: Cooperation and Competition in In- formation Technology in the Japanese System (Cambridge:Cambridge University Press, 1990), 176.

World Politics 44 (January 1992), 270-320 EAST ASIA'S ECONOMIC SUCCESS 271 the East Asian countrieswere more successfulthan others in terms of long-rungrowth because, in essence,they stuck more firmlyto the pre- scriptionsfor short-runefficient resource allocation derived from the theoremsof neoclassical economics. Neoliberal here refersto a subsetof neoclassical economics. Its mem- bers believe thatas a general rule the neoclassicalprescriptions for short- run optimal resourceallocation are also the core recipe for maximizing the rate of long-termgrowth. Other neoclassicals, by contrast,draw more of a distinctionbetween the two kinds of analyses,introducing a more complex array of variables into growth issues than they use for questions of optimum resource allocation. Neoliberals are inclined to think that "getting the prices right" is both a necessaryand a nearly sufficientcondition formaximizing the rate of long-termgrowth ("getting" in the sense of lettingprices find theirright levels, and "right" in the sense of the relativeprices establishedin freelyoperating domestic and internationalmarkets); other neoclassicals would say that it is no more than necessary.Relatedly, neoliberals believe thatmost market failure is a resultof governmentpolicies and that,even in those uncommon cases where market failureoccurs forother reasons, the welfarecosts of remedial governmentintervention can often be expected to be greater than the welfaregains. This weightingof probabilitiesis based on a rel- ativelycoherent theory of perversegovernment, as set out, forexample, in the works of William Niskanen and David Colander.3 In the neoliberal view, growth is a natural or inherentproperty of capitalisteconomies. Governmentshave an importantrole in providing those "public goods," such as physicalinfrastructure, law enforcement, macroeconomic stability,and perhaps education,that are difficultto ar- range through private contracts.But beyond that they should not go, except in those rare cases of marketfailure referred to above. The problem is thatmost governmentshave in factgone well beyondthese limits,

3Niskanen, Bureaucracyand RepresentativeGovernment (Chicago: Aldine-Atherton,1971); and Colander, ed., NeoclassicalPolitical Economy: The Analysisof Rent-seekingand DUP Activ- ities(Cambridge: Ballinger,1984). For an academic example of neoliberaldevelopment economics,see Deepak Lal, The Povertyof DevelopmentEconomics (London: IEA Hobart Pa- perback no. 16, 1983). For a policy paper based on neoliberal assumptions,see, e.g., AcceleratedDevelopment in Sub-saharanAfrica: An Agendafor Action (Washington,D.C.: World Bank, 1981),commonly known as the Berg report.For an example of tendentioususe of evidence in the neoliberalcause, see Michael Michaelyet al., LiberalizingForeign Trade: Lessonsof Experience from Developing Countries, vols. 1-7 (Oxford: Blackwells,for the World Bank, 1991), esp. summaryvolume. For a critique of neoliberalism,see ChristopherCol- clough, "Structuralismversus Neo-liberalism:An Introduction,"in Colclough and James Manor, eds., Statesor Markets?Neo-liberalism and the DevelopmentPolicy Debate (Oxford: Oxford UniversityPress, 1991). For a critique of the study by Michaely et al., see David Evans, "Institutions,Sequencing, and Trade Policy Reform" (Geneva: UNCTAD, May 1991). 272 WORLD POLITICS adopting policies thatinterfere, intentionally or not,with the freework- ing of markets.East Asian governmentshave stayedwithin these limits. Hence, East Asian economic success,which in turn resoundinglyvindi- cates the general neoliberalprescriptions. Those who outline this argumentas a preliminaryto a critique often find themselvesaccused of settingup a straw man; no respectedecono- mist is as simplisticas that,they are told. So it is importantto establish that thisis a fairshort summary of the core neoliberalposition, that it is what respectedeconomists say. Enter Helen Hughes,4editor of Achieving Industrializationin East Asia, definitelynobody's idea of a straw man. What policies have been criticalto economic success in East Asia? she asks. Her answer: The conclusionis that"unshackling exports" (that most of theEast Asian countrieshad themselvesat firstshackled) has beenthe key to success. How- ever,it is also clearthat successful performance needs several [other] policy strands.Political stability and therule of law are essential.Economic pol- iciesapparently distorted prices less than was thecase in mostother developingcountries; macroeconomic management was relativelysuccessful, all economicsectors, particularly agriculture,5 were developed, and publicin- vestmentin social and physicalinfrastructural facilities was productive. Wherethese economic conditions did notprevail, as in thePhilippines, the economy faltered.Governments thus provided the environmentfor growth;but private enterprise, despite risk and uncertainty,made thein- vestmentsnecessary and throughexposure to internationalcompetition became efficientand profitable.(pp. xv-xvi) As for replicationby poorer countries,"There seems littledoubt that if otherdeveloping countries had followedsimilar economic policies they would also have grown more rapidlyand would thus have been able to alleviate the povertyof theirlow income groups as well as avoiding high national indebtedness"6(p. xvi). This is cast in the past tense-"if other

4Professor of economicsand directorof the National Center forDevelopment Studies at the AustralianNational University,formerly a high-rankingofficial at the World Bank. 5 It is not clear what Hughes means at this point, but she presumablymeans that the governmentdirected its attentionto developingagriculture, among othersectors. But state policies toward agriculturein Korea and Taiwan differedgreatly from standard market- based prescriptions.For an account of the highlydirigiste role of the state in developing Korean and Taiwanese agriculture,see Wade, "South Korea's AgriculturalDevelopment: The Mythof the Passive State,"Pacific Viewpoint 24 (May 1983); idem, Irrigationand Agri- culturalPolitics in SouthKorea (Boulder, Colo.: Westview Press, 1982); Mick Moore, "Eco- nomic Growth and the Rise of Civil Society:Agriculture in Taiwan and South Korea," in Gordon White,ed., The DevelopmentalState in East Asia (London: Macmillan, 1988). 6 In additionto the chaptersmentioned in thispaper, the book includespapers by Chenery (on alternativeviews on industrializationin East Asia), Parry(on the role of foreigncapital), Wade (on the role of government),Harberger (on growth,industrialization, and economic structurein East Asia and Latin America),Lal (on ideologyand industrializationin India and East Asia), Hirono (on Japanas a model), Haggard (on the politicsof industrialization EAST ASIA'S ECONOMIC SUCCESS 273 developing countrieshad followed"-but it is clearlyintended to apply today. According to Hughes, then, economic development really is simple. The experienceof East Asia confirmsAdam Smith's insightof two hundred years ago that "littleelse is requisiteto carrya state to the highest degree of opulence fromthe lowest barbarism,but peace, easy taxes,and tolerable administrationof justice; all the rest being broughtabout by the natural course of things."7Conversely, governments of the less suc- cessfuldeveloping countriesstand condemned for holding back the escape frompoverty and high national indebtedness,among other ills, by interferingwith marketsand undersupplyingpublic goods. JamesRiedel,8 also nobody's idea of a straw man, concludes his overview essay in the Hughes volume on the same note: "The policy lessons that derive fromthe experiencesof the East Asian countriesare simple and clear-cut, and for that reason are all too readily ignored or dis- missed" (p. 38). The lessons are, above all, that

neo-classical economic principlesare alive and well, and working particularly effectivelyin the East Asian countries.Once public goods are provided for9and the most obvious distortionscorrected, markets seem to do the job of allocating resources reasonably well, and certainlybetter than centralized decision-making. That is evident in East Asia, and in most otherparts of the developing and industrialworld, and is afterall the main tenetof neo-classical economics. (p. 38) What evidence does Riedel provide? He readilyadmits that "governments have been deeplyinvolved in the economies of all the East Asian countries,"including Hong Kong.'0 They have been "activelyengaged in managing the systemof industrialincentives." For example, "The level of protectionin the Republic of Korea, apart from that faced by exporters,has remainedhigh" (p. 32; emphasis added). One might have expected him to address the obvious nextquestion. If the level of protection on domesticsales has remained high (not furtherspecified), why has Korea's economic performancebeen so good, given thatthe most central of all neoclassical development prescriptionsconcerns the benefitsof nearly freetrade? He agrees that "the area of governmentinvolvement in Korea and Taiwan), Mackie (on the politicsof growthin ASEAN), O'Malley (on cultureand industrialization). 7Smith, An Enquiryinto the Nature and Causes of the Wealthof Nations,ed. E. Cannan (New York: Random House, 1937). 8 Professorof internationaleconomics at The JohnsHopkins University. 9 It is possibleto definea public good to permithuge amountsof stateactivity. 10But Riedel also says (Hughes, 35) thatthe Hong Kong government"has confineditself largelyto minimalfunctions," from which we could inferthat he intendsthe term"deeply involved"to cover involvementlimited to "minimal [Smithian]functions." 274 WORLD POLITICS most difficultto evaluate is the managementof the systemof incentives which guide private economic activity." Nevertheless, he leaves the reader with the strongpresumption that "governments'main contribu- tion to economic success in the East Asian countrieswas . . . principally in removingthe obstaclesto growthwhich they themselves put therein the firstplace," that East Asian governmentsmade theirtask unnecessarily complicated by having to "anticipate and offsetthe market distortions that result from [theirown] dirigistestrategies of industrialization"(p. 37; emphasis added). So while the factof "governmentintervention" in East Asia is acknowledged, it is given scant analysis; the effectsof inter- ventionare assertedwith virtuallyno basis in evidence. In particular,key challenges,such as the combinationof Korea's admittedhigh protection with its admittedgood performance,are ignored.The dirigistestrategies of industrializationare presentedas mistakesthat required furthergov- ernment interventionto offsetthem (such as export subsidies to offset import protection);the idea that those dirigistestrategies might have helpedindustrialization is not even entertained. The chapter in Hughes by Seiji Nayall displays the same habits of thought.Naya, too, recognizes that "the incentivesystem applied in the NICS was, of course,not entirelyfree of bias. Some industries,particularly intermediate and engineering goods industries,enjoyed heavily protected domestic markets at the expense of traditionalconsumer goods industries" (p. 84). But he gives no evidence for the magnitude of the incentivebias and says not a word about its effectson output.He merely repeats the conventionalconclusion that "the betterperformance of the NICS with respect to economic growth,employment and income distribution compared to the resource-richASEAN countriescan, to a large extent,be related to a combinationof more thoroughand timelyadoption of outward-looking,market-oriented policies and rapid improvements in human resource and institutionaldevelopment" (p. 93). Neither he nor the other contributorsto AchievingIndustrialization in East Asia ex- amines issues having to do with technologicalchange. As in most simple neoclassical writing,technology is assumed away, treatedimplicitly as an intermediate dependent variable that adjusts easily once the correct (trade-policy-derived)incentive structure is set in place in the economy as a whole.'2

11 Director of the Resource SystemsInstitute at the East-West Center,formerly the chief economistof the Asian Development Bank. 12 There is, however,a neoclassicaleconomics of induced innovation,both technological and institutional,that is seriousand interesting,though lacking (1) a supplyside of science, (2) a theoryof government-directedinstitutional and technologicalinnovation (powered by thingsother than factorscarcities), and (3) a theoryof institutionalinertia. EAST ASIA'S ECONOMIC SUCCESS 275 Much of what these neoliberal authors say about the causes of East Asian success is unexceptional.Hughes is rightto highlightthe role of private enterprise-although it has been a long time since any serious economisturged public enterprisesas the main vehicle of development. She is rightto implythat in many less developed countriespublic policies have made mattersworse, and that these countriescould have done better had their policies been more like East Asia's. And Riedel is quite rightto say thatmarkets allocate resourcesbetter than do centraldecision makers withoutmarkets (if these are the only choices). But this is pretty anodyne stuff.The problem is thatthese and otherneoliberal economists shy away fromsubjecting their beliefs to serious empirical test,yet they are powerful enough to get those beliefswidely accepted, especiallyvia internationalfinancial institutions like the IMF and the World Bank.

EAST AsIA's SUCCESS?

Let us firstconsider the startingpoint of the whole exercise,the claim that what is to be explained is the superiorityof capitalistEast Asia's economic performancecompared with that of other "newly industrialized," "late developing," "intermediate,"or "semiperipheral"countries. We concentrateon South Korea, which has received the bulk of the attention.Has Korea really been outstandinglysuccessful? It is to be re- membered thatas recentlyas the mid-1970ssome prominentanalysts on the Left were writingoff Korea as "a house built on sand," a "tottering neo-colony,"an export platformwhose success would last only as long as wages were kept below those of competitors-this,in explicitcontrast to the more viable communisteconomy of the North.'3The analystslam- basted the South with chaptertitles like "GNP VS. the People" and "South Korean Society: The Deepening Nightmare." It is true that Korea's record containsplenty that could qualify a eu- logy of growth.Life expectancyat birth(sixty-nine years in 1986) is below Sri Lanka's, yet Sri Lanka's per capita income is only a sixth of Korea's; and Korea is in the bottomhalf of a life expectancyranking of upper-middle-incomecountries.'4 The environmenthas become seri- ously polluted: Seoul's air is said to have one of the highestconcentra-

13 Aidan Foster-Carter,"North Korea: Development and Self-reliance,a Critical Ap- praisal,"Bulletin of ConcernedAsian Scholars 9, no. 1 (1977). See also Gavin McCormack and John Gittings,eds., Crisisin Korea (Nottingham:Bertrand Russell Peace Foundation, for Spokesman books, 1977). For more discussionon interpretationsof South Korean development,see Wade (fn.5, 1982). 14 World Bank, WorldDevelopment Report 1988 (Washington,D.C.: World Bank, 1988), Table 1. 276 WORLD POLITICS tions of sulfurdioxide in the world.'5Its trafficcrawls at not much more than half the speed of trafficin New York or London. Much of the country'surban tap water is said to be unfitfor drinking. There is some evidence that the application of exceedinglyhigh levels of chemical fer- tilizerto meet governmenttargets has harmed the chemical composition of the soil.'6 And in termsof civil and political rightsno one holds up South Korea as a model, except in comparison with the North. In the 1970s it came about halfwaydown a rankingof civil and political rights in middle-income countries; in 1983, about two-thirds of the way down.'7 Surveillance by the secretpolice has been pervasive,and a for- midable coercive capacity remains in place. Independent labor unions have been repressed.The male-femaleindustrial wage gap is, according to Amsden, about the biggestin the world,rivaled only by Japan's.What has happened to such values as civic responsibility,sacrifice, loyalty, and happiness I do not know. Moreover, Korea's economic importance is often exaggerated, as though it is on the verge of becoming anotherJapan or Germany (as in Amsden's title,Asia's Next Giant). In fact,it accounts for only 0.87 percent of world population (against Japan's2.6 percent)and only 0.8 percent of world GDP (against Japan's 15.4 percent).In area it is a quarter the size of Japanand less than a quarterof California.Its per capita U.S. dollar income,expressed as a percentageof the average of the Northwest European and North American core, was only 8 percentin 1960, 13 percent in 1980,and 20 percentin 1988. These figurespale alongside Japan's: 23 percent in 1960, 76 percent in 1980, 118 percentin 1988.18 Korea is hardly a "miracle" in the Japanesecontext. And it remains,as in 1960, by far the poorest of the four East Asian newly industrializedcountries (NICS): per capita income in 1986 was only two-thirdsof Taiwan's, one- thirdof Hong Kong's, and less than one-fifthof Japan's;and it was one- quarter of Britain'sand 14 percentof the U.S.'s. 9 This having been said, Korea is neverthelessoutstandingly successful by at least four key indicators.The firstis the gain in its relative eco-

15 Economist,"The Environment:A Survey,"September 2, 1989, p. 7; Sonya Hepinstall, "A Smell of Success in the Battle against Pollution,"Far EasternEconomic Review, July 18, 1989,p. 70. Cited in Waldon Bello and StephanieRosenfeld, "Dragons in Distress:The Crisis of the NICs," WorldPolicy Journal (September 1990). 16 Wade (fn.5, 1982), 103 and chap. 5. 17 Wade, Governingthe Market: Economic Theory and theRole of Governmentin East Asian Industrialization(Princeton: Princeton University Press, 1990),254. 18 Giovanni Arrighi,"World Income Inequalities and the Future of Socialism" (Bing- hampton: Braudel Center,State Universityof New York, 1990). 19The figurewas $2,372 in 1986,as against$17,475 forthe U.S. and $8,870 forthe U.K. See Wade (fn. 17), Table 2.1. EAST ASIA'S ECONOMIC SUCCESS 277 nomic command over world resources,measured by the increase in per capita income expressed in U.S. dollars.20In 1962 Korea ranked 99th in the world, and U.S. aid officialsare said to have wondered audibly "whether [it] was to remain indefinitelya pensioner of the United States."2' A quarter centurylater, in 1986, it was 44th. In Giovanni Ar- righi and JessicaDrangel's large sample of countries,Korea is the only countryto have jumped fromtheir "periphery" to their"semiperiphery" between 1938-50 and 1975-83 (Taiwan would have been there,too, had it been included).22Its performancewas especiallygood over the 1980s. Whereas in 1976 its per capita income ($670) was less than Malaysia's and a bit more than half of Mexico's and Brazil's, by 1988 its figureof $3,600 was far above the figuresfor Malaysia, Mexico, and Brazil and about equal that for Portugal.23Indeed, Korea (and Taiwan) stand out from virtuallyall other countries of Eastern Europe and the Third World forhaving reducedthe income gap with the NorthwestEuropean and North American core between 1980 and 1988. Everywhereelse the

20 Note that use of per capita dollar income to measure increasingor decreasing gaps betweencountries or regionsis always problematicbecause of the complicationsintroduced by changingreal exchange rates(to say nothingabout intracountryincome distribution).To get a gap measure that more accuratelyreflects welfare, one should use purchasingpower paritymeasures of income (now available in the tables in the World Bank's annual World DevelopmentReport) or qualify the dollar gap by changes in real exchange rates (and add terms of trade changes as well). This is especiallyimportant in the contextof the trend reportedlater in this paragraph,of a dramaticwidening of the gap betweencore countries and almost everywhereelse during the 1980s. The polarizationwould be less, though still serious,if eitherof these adjustmentswere made. Adrian Wood findsthat for the period 1965-83 about two-thirdsof the increasein the per capita GNP gap betweenindustrial market economies and low-income countries,measured in currentU.S. dollars, was due to real changes in the exchangerate; for middle-income countries the gap would have narrowedbut for real changes in the exchange rate. See Wood, "Global Trends in Real Exchange Rates, 1960-84," WorldDevelopment 19, no. 4 (1991); and idem,"Puzzling Trends in Real Exchange Rates: A PreliminaryAnalysis" (Mimeo, Instituteof Development Studies, Sussex Univer- sity,Brighton, 1986). Arrighi'simportant work is marred by insufficientattention to these matters;the same holds formy own use of per capita income comparisons(fn. 17). Anyone concernedto explain trendsin the distributionof world wealth or income must address the question of the real incomeeffects of the secularappreciation of the exchangerates of indus- trialcountries relative to thoseof the restof the world. Have such changescaused systematic changes in income distributionbetween or withincountries or regions? 21 Edward Mason et al., The Economicand Social Modernizationof the Republicof Korea (Cambridge: Harvard UniversityPress, 1980), 181. This claim, that many observersin the 1950s and into the early 1960sconsidered Korea a "basketcase," is oftenrepeated, the better to highlightthe subsequent success. I have not seen actual evidence fromdocumentary or othersources. Larry Westphal says (in a personalcommunication) that Mason et al. drew on his own verbalreport, based on U.S. documentsthat he saw but did notcopy while employed as a foreignadviser in the Korean planningagency in the late 1960s.To my knowledge the "basket case" storyrests on this. 22 Arrighiand J.Drangel, "The Stratificationof the World-Economy:An Explorationof the SemiperipheralZone," Review 10 (Summer 1986). 23 World Bank, WorldDevelopment Report (Washington, D.C.: World Bank, 1978, 1990), Table 1. 278 WORLD POLITICS dollar gap has widened calamitously.24Brazil's average income, for example, rose from 12 percentof the core's in 1960 to 18 percentin 1980, only to drop like a stoneback to 12 percentby 1988. This is the Brazilian "miracle."25 The second indicatorof Korea's success is trade performance:in 1962 Korea was the 40th biggestexporter of manufacturesto the U.S.; in 1986, the fifth. The third indicatoris industrialtransformation. This does not refer to the rapid rise of industryin total GNP, for by the industry/GNPratio even Eastern Europe does quite well, thankspartly to the odd way these thingsare measured. (In a highlyprotected economy the domesticprices at which industrialproducts are measured are not world market prices, so the less efficienta sector is in world prices the greater its apparent contributionto GNP.) Rather,the indicatorof industrialtransformation refersto the rise of skill-intensive,high-value-added industries that are competitiveat world marketstandards of cost and productspecifications. The most spectacularKorean case is the semiconductorindustry, maker of the leading input of the new technologicalparadigm.26 Korea is the world's third biggest producer, afterJapan and the U.S., of advanced semiconductormemory chips. Most of the chips are produced by Ko- rean-owned firms,which are draftingclosely behind the world leaders, well ahead of all European semiconductormakers. Several other Korean industries-notably, computers,automobiles, steel, and construction- are also having a sizable impact on the world economy.27 The finalindicator is the removalof poverty,the eliminationof severe economic hardship,the expansion ofpositive rights.28 Consider the number of hours of work it takes an adult male unskilledcity laborer to earn the equivalent of one hundred kilogramsof the basic food grain. (A com- posite measure forfood plus shelter,qualified by rate of unemployment, would be much more accurate, but data are not available.) Fernand Braudel presentsthis figurefor sites in Western Europe between 1400 and 1950, using wheat. In the fifteenthcentury and firsthalf of the six- teenththe figurewas below 100 hours; it then rose and remained above 100 hours until 1880; by 1920-30 in France it had fallen to between 40 and 60 hours.29I have made the calculation for Taiwan, not for Korea,

24 South Asia is an exception.Its average income in relationto the core fell only slightly, froma dismal 2 percentin 1980 to 1.8 percentin 1988. But see fn.20. 25 Arrighi(fn. 18). 26 See Giovanni Dosi, ed., TechnicalChange and EconomicTheory (London: Pinter,1988). 27 For a briefaccount of Korea's automobileindustry, see Wade (fn. 17), 309-12; on steel, see Amsden, chap. 12. 28 C. Fried, Rightand Wrong(Cambridge: Harvard UniversityPress, 1978). 29 Braudel, Civilizationand Capitalism,Fifteenth-Eighteenth Century, vol. 1, The Structures EAST ASIA'S ECONOMIC SUCCESS 279 but the Korean trendwould be similar.In Taiwan during the 1950s the figure was in the range of 150-200 hours (as in France from 1700 to 1850). By the early 1980s it had fallento 40-60 hours,about the same as in France between 1920 and 1930.30 In Korea it was probablymore like 60-80 hours by the early 1980s, like France at the turn of the century. Having lived in an Indian village where a sizable proportionof the population has to put in 230 hours,3'and in the United States where the figurefor those earning the minimum wage was about 15 hours in the mid-1980s (my own figurewas half an hour), I give this huge reduction in hardship a big weight in any notionof progress. Taking these several criteriatogether, I have no qualms about accept- ing the mainstream view that the question is, indeed, to explain why Korea and the other Asian NICS have been more successfulthan other poor countriesin the postwar era.32As forwhat those criticson the Left said in the mid 1970s, it is hard to think of a clearer refutationin the whole of social science.33

WHAT THE NEOLIBERAL EXPLANATION IGNORES

To say that the Left criticsgot it wrong is not to say thatthe neoliberals got it right.The neoliberals have tended either to ignore contraryevidence or to acknowledge it without thoughtfor its theoreticalimplica- of EverydayLife (London: Collins, 1981), 135, chart 15. Note that the chart excludes the seventeenthcentury. And note the mistakein the verticalscale: the line marked 0 should be 10, the line marked 10 should be 20, the line marked20 should be 30, and so on, in logarith- mic order (using unitsof ten hours). Due to this mistake,I mistakenlyreported the results in earlier publications,saying that real wages "rarely"fell so low in westernEurope as to cross the 200-hourline. In fact,between 1700 and 1860 about one-thirdof the observations are at or above 200 hours,and between 1560and 1600,about two-thirds.This is not rare.See Wade, VillageRepublics: Economic Conditions of CollectiveAction in SouthIndia (Cambridge: Cambridge UniversityPress, 1988),35; idem, "What Can Economics Learn fromEast Asian Success?" Annals505 (1989); and idem (fn. 17), 39. 30 Wade (fn. 17), Table 2.4 and p. 39. The figurefor New Delhi in early 1991 was 140-67 hours (Rs. 25-30 per day, 7 hours a day, rice at Rs. 6/kg.);for Cape Town at the same time, about 50 hours (but therecommuting costs would be unusuallyhigh). The differencehigh- lightsSouth Africa'sindustrialization problem. 31 Wade (fn.29, 1988),35. 32 North Korea may show a similar reductionin this indicatorof hardship,via central planning,and may have eliminatedpoverty in food and savingsearlier. If so, these are im- portantachievements. But the capacityof the North Korean economyto provide risingreal wages and a diversifiedconsumption bundle is much lower than that of South Korea; its politicaland civil rightsare also farmore attenuated,and the conditionsof work in agricultureand industryprobably are farworse. 33 Anothergood case is Pahl and Winkler's 1974 predictionthat a systemof corporatism would be establishedin Britain"by 1980." See R. Pahl and J.Winkler, "The Coming Cor- poratism,"New Society10 (October 1974). It would be interestingto hear fromGittings, McCormack,Foster-Carter, and the otherswhy they think their predictions for South Korea and North Korea turnedout to be so wrong. 280 WORLD POLITICS tions. This selective inattentionto data that would upset the approved way of interpretingthings and the use of repetitionas a chiefweapon of argument are two strongsigns that the neoliberal paradigm is in a de- generativestage, taking on attributesof a disciplined delusional system. Like much Marxistwriting of the 1970s,in fact.34And like classical economics during the Great Depression, beforeKeynes's theoreticalbreak- through. Where are the responsesto David Evans's findingthat the height of protectionand static efficiencyare much less importantfor economic performancethan the exchange rate and the wage rate?35Or to Colin Bradford'sfinding that "on average thereis not any associationbetween outward versus inward orientationand a general measure of price distortionin the two key variables (the exchange rate and the real interest rate)"?36Or to Hans Singer's findingthat per capita income is a better predictorof economic performancein a large cross section of countries than is inward or outward orientation?37Where are the detailedexami- nations of the trade regimesof Korea, Taiwan, and especially pre-1970 Japan-of theirinner workings and theireffects on both the structureof incentivesand output?38Where are the detailed neoliberal analyses of the vigorous government efforts to expand national technological capacity in East Asia--effortsthat are intended to be selectivebetween industriesand thattherefore conflict with the injunctionagainst "target- Ing"? It is not just that challenges fromother scholarsare oftenignored. It is also that neoliberal interpretersof East Asia are prone to avert their

34 By way of example, thinkof the scholasticismof much Marxistwriting on a theoryof the state.See MartinCarnoy, The Stateand PoliticalTheory (Princeton: Princeton University Press, 1984). 35 Evans, ComparativeAdvantage and Growth:Trade and Developmentin Theoryand Practice (Hemmel Hempstead: Harvester-Wheatsheaf,1989), sec. 9.6. 36 Bradford,"The NICs: ConfrontingU.S. 'Autonomy,'" in R. Fienberg and V. Kallab, eds., AdjustmentCrisis in the ThirdWorld (New Brunswick,N.J.: TransactionBooks, 1984), 125. 37 Hans Singer,"The WorldDevelopment Report 1987 on the Blessingsof 'Outward Ori- entation':A NecessaryCorrection," Journal of Development Studies 24, no. 2 (1988). 38 Why has JagdishBhagwati, one of the most creativeof trade theorists,not done more than an ellipticalpirouette around the East Asian cases? See Bhagwati,Protectionism (Cam- bridge: MIT Press, 1988). It is curious that so few of those who believe passionatelyin free trade have looked carefullyat Japan's pre-1970trade regime,which would seem to be a criticalcase. For furtherdiscussion, see Wade (fn. 17),chaps. 3, 5, 10; idem,"How to Manage Trade: Taiwan as a Challenge to Economic" (forthcoming);and idem, "The Rise of East Asian Trading States: How They Managed Their Trade" (Mimeo, Trade Policy Division, World Bank, Washington,D.C., 1988). The latterwas writtenwhile I worked in the same division of the bank thatprepared the bank's policypaper on trade reform.The paper de- finedissues in importreform as being about how to liftrestrictions; it ignoredissues of how to manage importsbetter and said virtuallynothing about the East Asian experience of importmanagement. EAST ASIA'S ECONOMIC SUCCESS 281 eyes fromcontrary data even when it staresthem in the face. So we find that Ian Little,39as part of his general argumentthat Korea succeeded in large part because the governmentallowed the "right" prices to prevail, cites the factthat the governmentset high real interestrates throughthe banking system,as is "right"in a capital-scarceeconomy. He relateshow these high rates stimulatedsavings, which in turn permittedhigh levels of (labor-intensive)investment. And at thatpoint in the discussionof the capital market, he stops. But markets,like scissors,have two sides: a supply side and a demand side. Had Little moved fromthe supply side of the capital marketto the demand side, he would have had to confront the way that credit was being allocated in Korea. At that point the detailed involvementof the governmentin credit allocation would have been hard to ignore. The governmentused "liberal" methods (high ad- ministeredinterest rates, which are liberal only in the sense of corre- sponding more closely to scarcityvalue) to get savings into the banking system; it then allocated those savings by "nonliberal" methods, being able to do so by virtueof the fact(not mentionedby Little) thatit owned the banks. Its involvementbecame all the more intenseafter the early 1970s, when the real interestrate on a large share of bank loans was made verylow. For (anotherdetail Little failsto note in a paper written nearly ten years later) the so-called liberal high real interestrate policy prevailed foronly a shorttime, from about 1967 to 1971.40 The literatureon Taiwan resortsto the same device. In an overview of how Taiwan "did it," Walter Galenson says,"The governmentmade a major contributiontoward the facilitationof capital formationby keep- ing its expendituredown.. .. Taxes were maintainedat a relativelylow level, averagingabout 14 to 15 percentof the GNP."4' Although Galenson wrote these words in 1981, it had last been true in 1967; in the interim taxes were always higher. In anotheroverview of Taiwan, Little writes that "public industryhas until recentlybeen of rapidlydeclining quan- titativeimportance."42 But he neglects to mention that from the early

39 Little formerlyheld a chair in economicsat OxfordUniversity. 40 Little,"The Experienceand Causes of Rapid Labour-IntensiveDevelopment in Korea, Taiwan Province,Hong Kong and Singapore; and the Possibilitiesof Emulation," in Eddy Lee, ed., Export-ledIndustrialization and Development(Geneva: Asian Employment Pro- gramme,International Labour Organization,1981). For the role of the Korean government in creditallocation, see LeroyJones and I1SaKong, Government,Business and Entrepreneurship in EconomicDevelopment: The Korean Case (Cambridge: Harvard UniversityPress, 1980). 41 Galenson, "How to Develop Successfully:The Taiwan Model," in Galenson, Experi- encesand Lessonsof EconomicDevelopment in Taiwan (Taipei: Instituteof Economics, Aca- demia Sinica, 1982),80. Galenson retiredas professorof economicsat Cornell University. 42 Little,"An Economic Reconnaissance,"in Walter Galenson, ed., EconomicGrowth and StructuralChange in Taiwan: The Post-warExperience of theRepublic of China (Ithaca, N.Y.: Cornell UniversityPress, 1979). 282 WORLD POLITICS 1950sonward Taiwan has had one of the biggestpublic enterprisesectors outside the communist bloc and sub-Saharan Africa.43Both Galenson and Little ignore or downplay factsthat would obstructthe neat fitbe- tween Taiwan and neoclassical precepts.44 To see the same practiceoutside the East Asian context,consider what Anne Krueger offersas "suggestiveevidence," in her phrase, about the effectsof governmentintervention in developing countries,a subject of much interestto political scientists."There is no evidence that living standards fell in the now-developing countries prior to 1950, a time which many observersassociate with a period of laissez-faire,"she re- ports. "In many Africancountries, however, living standardshave been falling-in some cases precipitously-since. The latterperiod has been one of active governmentintervention, and there is no other obvious reason forthe differencein performancein the two periods."45Note several thingsabout this argument.First, for India (which contained more people than Africa and Latin America combined) thereis evidence that per capita income fellin the severaldecades priorto independence;46and for Africa there is simplyno good evidence one way or the other before 1950. Second, colonial governmentsoften went well beyondlaissez-faire: in West Africa marketingboards came to be highlyextractive organizations;47 in India the British colonial government used protection against non-U.K. imports to stimulateindustry and in this and other ways could not possiblybe described as laissez-faire.Third, most non-

43 Wade (fn. 17), Table 6.2. 44 The recentsurvey of developmenteconomics by Gustav Ranis and Theodore Schultz providesmany more examples of how the neoclassicalconfidence is based on selectiveinat- tention-even when the data are in the same volume or the same paper; see Ranis and Schultz, eds., The State of DevelopmentEconomics: Progress and Perspectives(Oxford: Black- well, 1988). The editors assert that "outward-looking[less developed countries] have achieved relativelyrapid growth. . . and have withstood[shocks] better." In the same volume T. N. Srinivasandestroys the evidencefor the second partof the proposition;and Ron- ald Findlay findsthe firstpart "incontrovertible"(p. 79) but thenshows (pp. 90-93) thatthe normal sequence, in Germany,Japan, Britain, and Korea, involvednot trade neutralityor "outward-lookingness"but heavilyinterventionist mercantilism, first protecting import sub- stitutesand thenpromoting exports. See Michael Lipton's review,EconomicJournal (Septem- ber 1989). 45 Krueger, "GovernmentFailures in Development,"Journal of EconomicPerspectives 4, no. 3 (1990), 12. Krueger was the seniormosteconomist and the vice presidentfor research at the World Bank between 1982 and 1986. 46 There is not much doubt that India's food grain availabilityper person per year de- clined; but thereis some disputeas to whethernonagricultural output increased fast enough to preventper capita incomefrom falling. Heston's calculationsshow stagnationin per capita income between 1911 and 1946, but most othersshow a decline. A. Heston, "National In- come," in Dharma Kumar, ed., The CambridgeEconomic History of India, vol. 2 (Cambridge: Cambridge UniversityPress, 1983). 47 Peter Bauer, WestAfrican Trade (1954; reprint,London: Routledge and Keegan Paul, 1963). EAST ASIA'S ECONOMIC SUCCESS 283 Africaneconomies, including the most successful cases, have grown subsequently under more interventionistregimes. Indeed, most sub-Saharan African economies grew between 1950 and 1970, even in per capita terms,and many grew fasterin the (postindependence,more interventionist)1960s than in the 1950s. Fourth, to say that there is "no obvious reason" for the differencein Africa's performancebetween the two periods other than greatergovernment intervention in the second is to ignore several importantpoints. (1) "External" factorshave impacted especially adverselyon Africaneconomies, for reasons that do not reduce to the characteristicsof Africangovernments. (2) At independence Af- rican economies suffereda major loss of skilled manpower froman already tinybase. (3) The problem is less "too much" governmentinter- ventionin Africathan thatgovernments are too weakly institutionalized to maintaincentralization and control-a combinationthat quickens the use of "primordial" connections to capture state resources and evade state demands.48In short,this evidence is shoddy,not suggestive;or if suggestive,then only in the sense of the pornographer.49 My own evidence, illustratedabove, suggests that neoliberal econo- mistshave been pioneeringa whole new principleof causal inference- that to explain superior economic performanceone may either simply ignoreeverything that is not in line withneoliberal prescriptions or assert that it hindered what would otherwisehave been an even betterperformance. When this principleis combined with a wider professionalpro- pensityto treat "power" as a third-rankconcept (the new 4,000-page PalgraveDictionary of Economicshas no entryfor "power"),50the result

48 Zambia at independencein 1964 had all of twelve hundred high school graduates. In Botswana in 1965, the year beforeindependence, thirteen students passed their0-level ex- ams. Most sub-Sharan countriesat independencewere taken over by governmentswhose leadershipgroup was comprisedmainly of people with a primaryschool education or less. Compare East Asia; see Wade (fn. 17), 64, 190, 217-25. One should (as Krueger does not) link the question of the appropriatetypes and amounts of governmentintervention to the educational competenceof the government.On the significancefor Africa'sgrowth of its debt burden, fallingterms of trade, unstable exchange rates,falling aid, and agricultural policiesand textileprotection in the West, see, e.g., Adrian Hewitt and Hans Singer,"How to Foster Diversification,Not Dependence,"Africa Recovery 4 (October-December1990), 36- 39; and Gerald K. Helleiner,"Structural Adjustment and Long-Term Developmentin Sub- saharan Africa" (Paper forworkshop on AlternativeDevelopment Strategies in Africa,Ox- ford,December 11-13, 1989); and idem,Sub-saharan Africa: From Crisis to SustainableGrowth (Washington D.C.: World Bank, 1989). On the "weak government"hypothesis, see Joel Migdal, StrongSocieties and Weak States:State-Society Relations and State Capabilitiesin the Third World(Princeton: Princeton University Press, 1986); the book is good on the "state" side but mischaracterizesAfrican "society" as "strong." 49 This is not to diminishKrueger's importantcontributions to economic knowledge,es- peciallyin the areas of rent-seekingbehavior and trade policy. 50 Robert Heilbroner,"Economics withoutPower," New YorkReview of Books,March 3, 1988. 284 WORLD POLITTCS is an aversion to serious investigationof the role of the statein economic development. Assertionslike "success has been achieved [in Korea] despite intervention"are put forthwithout a shred of evidence.5"In this way the circle is closed, the paradigm is protected,and minds can be set at rest. Although I have been talkingof neoliberaldevelopment economics, I do not mean to imply that these stricturesapply only to a small subsect of neoclassical economics. Most Anglo-American development economists have a mistaken understandingof Korea and Taiwan as "low- intervention"countries, especially with referenceto trade,and theyrely on this mistaken understandingto validate a low-interventionprescrip- tion elsewhere. But because the neoliberalsare both more extremeand more uniformthan otherneoclassicals, they make a sharpertarget; they also tend to be opinion leaders in the developmentfield, which makes it doubly importantto subject theirarguments to scrutiny.52 Neoliberals say thatgrowth is easy, provided governmentsdo not act to obstructthe natural growth-inducingprocesses of a capitalist econ-

51 Deepak Lal, The Povertyof DevelopmentEconomics (London: IEA, Hobart Paperback 16, 1983),46. Lal is an exponentof what I call the Ptolemaicfallacy; see Wade (fn. 17), 348- 49. 52 Ross Levine and David Renelt have recentlyprovided more evidence of insufficient standardsof proof,a problemthat applies not onlyto the work of the neoliberals;see Levine and Renelt, "A SensitivityAnalysis of Cross-CountryGrowth Regressions"(Mimeo, Mac- roeconomicAdjustment and GrowthDivision, World Bank, November 29, 1990). They examine the vast literatureon cross-countryregressions of long-rungrowth against various policy variables,with a view to determiningwhich conclusionsare robustand which are fragile.Robust conclusionsare thosethat survive small changesin the right-hand(i.e., independent) variables. "We find that there is not a strongindependent relationship between almostevery existing policy indicator and growth.. . . [T]he broad arrayof fiscalexpenditure variables,monetary policy indicators,political stability indexes, human capital and fertility measures consideredby the professionare not robustlycorrelated with growth;and newer indicatorsthat we have assembledto captureexchange rate, tax, and fiscalexpenditure policies are also not robustlycorrelated with growth"(p. 2). The one variable thatcould not be shaken offby fairlysmall changes in the specificationof the independentvariables was investment:"We found a positiveand robustcorrelation between average growth rates and the average share of investmentin GDP" (p. 26). I want to draw special attentionto their findingson trade and price distortions,the subject that occupies the core of neoclassical developmenteconomics: "When controllingfor the shareof investmentin GDP, we could not find a robustindependent relationship between any trade or internationalprice distortion indicatorand growth"(pp. 19-20). These findingssuggest that economists of all stripesought to be a littlemore modest than usual in claimingto understanddevelopment. But note that the Levine and Renelt findingsare based on an unusual notionof robustness;in theirwork robustnessrelates to which variables are included or excluded. More familiarnotions of robustnessrelate to changes in sample size, timeperiod, or functionalform. Unrobustness in theirsense is less significantthan unrobustnessin the othersenses, because accordingto their criterionany hypothesizedgrowth mechanism that depends essentiallyon several variables is likely to be found unrobust.For example, theirfinding that human capital variablesare unrobustis unsurprisingif one considersthat human capital and physicalcapital are comple- mentary,such that a high rate of human capital formationis unlikelyto be an important cause of growthin the absence of fairlyrapid physicalcapital accumulation. EAST ASIA'S ECONOMIC SUCCESS 285 omy. We come now to two recentbooks about the newly industrialized, late-industrializing,or semiperipheraleconomies, books that have in common an emphasison the difficulties-theunnaturalness-of growth.

ALICE AMSDEN'S INTERPRETATION OF SOUTH KOREA'S SUCCESS

Amsden builds an interpretationof East Asian, specificallyKorean, economic success on several kinds of stylizedfacts that run counterto neoclassical theoryand thatare ignored or treatedwith indifferencein neoliberal accounts of Korea. They include the following.(1) The Korean state has acted as entrepreneur,banker, and shaper of the industrial structure.(2) It has deliberatelydistorted the price structureby way of, among otherthings, subsidies, protection, price controls,and restrictions on incomingand outgoingmovements of financeand directinvestment. By means of these distortions,it has generated an industrialstructure differentfrom what unguided entrepreneurswould have produced on theirown. (3) The actions of the Korean statehave been complemented by those of large, diversifiedbusiness groups thathave come to occupy a dominant positionin the economy-so much so thatthe combined sales of the top ten rose from 15 percentof GNP in 1974 to (this is one of the most amazing of all Korean statistics)67 percentin 1984 (Amsden, Table 5.1).53 With firmsof this size and level of diversification,a ratherhigh proportionof transactionsin the Korean economyare intrafirm,less subject to the discipline of the market than to the disciplineof managerial hierarchies.(4) The state not only activelypromotes the growth of the business groups, it also disciplinestheir use of subsidies and other sup- ports,rewarding those who use subsidies "well" with furtherhelp and withdrawingsupport from those who do not. Its relationswith them are anythingbut the arm's-lengthrelations between governmentand firms sanctioned by neoclassical theory.These four factssuggest an economy in which governmentand firmsdepart quite substantiallyfrom the neoclassical model of a successfulindustrializer. There is, however,another striking fact about the Korean experience that is more consistentwith neoclassical precepts: whereas the government greatlyrestricted and channeled competitionin the domesticmar- ket, it also stronglyencouraged firmsto export,thereby subjecting them to intense competitionin foreign markets. Success in export markets came to be the main criterionof good use of subsidies (and hence of distributionof furthersubsidies); and neoclassical theorydoes suggest

53 Sales, of course,are not equal to value added. The trueshare of thesecompanies in GDP (total value added) is probablyone-third to one-halfof this67 percent. 286 WORLD POLITICS thatthat is quite a good proxyfor efficient use of resources.(To be more exact, neoclassical theorysays that success in export markets is a good proxyfor efficiencyin resourceuse provided thereis zero bias in incentives to sell abroad or at home; by contrast,a more classical theoryof long-rungrowth might sanction the same criterioneven in conditionsof net subsidies to exports.)

LATE INDUSTRIALIZATION Amsden suggeststhat these and certainother factsabout Korea can be explained as a response to the conditions of "late industrialization." These conditionsrefer to the handicaps and advantages experiencedby market-basedeconomies that initiateindustrialization when technologically more advanced firmsalready exist in othercountries. The firmsof the late industrializerthen have to compete with those establishedfirms that can introducenew technologiesfast enough to capture "technology rents" and therebyearn higher profits.This does, of course, allow the late industrializerto acquire, or "borrow,"the more codifiedelements of a given technologywithout having to develop them for itself.But there is generallya great gap between buyingor stealingthe codifiedelements and masteringthe technologyin production.The lower labor costsof the late industrializeroffer another partial advantage in such competition. But since its labor forceis much less skilled, the lower labor costs may not compensate for differencesin productivity.Late industrializersall tend to constructa similarset of institutionsto respond to the handicaps and advantages of lateness. In particular,they tend to develop an entre- preneurialstate and diversifiedbusiness groups.

THE STATE The state offerssubsidies and protection("subsidies" for short) both to offsetthe disadvantages faced by national firmsin internationalcompetition and to move the present industrial structuretoward one with highervalue-added, more technologicallydynamic activities. It does this fasterand perhaps along a differentpath than the free market might have done on its own. So, for example, as recentlyas the late 1960s the cost position of Ko- rean manufacturersof cottontextiles was less favorablethan thatof their Japanesecounterparts, despite lower wages. To enterexport markets on a sizable scale the Korean industryneeded subsidies. As Amsden puts it, "Subsidies in Korea were necessarynot because of 'distortions'[in particular, the exchange rate was not much distorted]but because the Koreans could not, initially,compete against the Japanese,even in industriessuch EAST ASIA'S ECONOMIC SUCCESS 287 as cottonspinning and weaving in which the least developed, most labor- intensivecountries supposedly have a comparative advantage" (p. 68). Afterseveral years of productionexperience, however, the cottontextile industrywas competitiveenough to be weaned offsubsidies-a striking fact,in lightof experienceselsewhere. Indeed, (unsubsidized) profitrates in cotton textilesand other light industrycame to be substantiallyhigher than those in capital-intensive industries,yet fromthe mid-1970sit was the capital-intensiveindustries thathad the highestrate of exportgrowth. "One may inferfrom all this," says Amsden, that

as the capital-intensiveindustries showed themselvesincreasingly capable of exporting,they became more attractivefor the governmentto promote. Their long gestationperiods and relativelylow profitabilitythrough adoles- cence,however, rendered them relatively less desirable investments to theprivate firm. The initiativeto diversify,therefore, fell to thestate. (p. 88 and Tables 4.1, 4.2; emphasis added)

And she shows furtherthat the leading firmsin light industry(notably textiles)did not grow into diversifiedbusiness groups and did not lead the way into the new heavy and chemical industries,as one mightexpect fromthe conventionaldynamics of comparativeadvantage. Instead,new firmswith strongstate support undertook the developmentof the heavy and chemical industry.According to Amsden, then, Korea's entryinto heavy and chemical industriesand the emergenceof cottontextiles as the leading export industrytogether provide graphic evidence of the need forstate dirigisme in conditionsof late industrialization.

BUSINESS GROUPS The businessgroups of the late industrializerdiversify into many different, oftenunrelated industriesin order to spread risks and allow cross- subsidizing of entryinto a varied portfolioof necessarilylow-end products. They also focusmore on the shop-floorlevel of organization-that is, on the production process itself-because that is where borrowed technologyis firstmade operationaland later optimized. This contrasts with more advanced firms,which tend to compete on the basis of innovation instead. The strategicfocus in those cases is less on the shop floor than on the corporate headquarters,especially the R and D complex, where the major profit-makingopportunities are made (and also, one should add, the financialasset managementcomplex, the source of much profitable"paper entrepreneurship").Amsden makes the point in the formof a hypothesis: 288 WORLD POLITICS Leading firms in late industrializingcountries, if they are to penetrate world markets, must adopt unusually pro-active production and opera- tions management policies. By pro-active we mean policies that assign high-qualitymanagers to the shopfloorand inspire initiativeon the part of such managers to develop the skills of the work force and to improve process performance.Otherwise the gap in productivitylevels with leading firmsin advanced countries will not be bridged while the advantage in wage levels narrows. (p. 160)

A disproportionate number of managers will have credentials in engineering, as distinct from a background in generic management or finance. What matters, then, is not so much the newness of an industrialization process (as in "newly industrized country"), as its lateness as compared with others. Amsden argues that the general propertiesof an industrializationprocess based on learning,or borrowing,technology are entirelydifferent from those of an industrialization process based on the generationof new productsor processes-the hallmark of the First and Second Industrial Revolutions. Thus, the late acquisition of internationalcompetitiveness has given rise to certain common tendencies in otherwise diverse countries-Japan, Korea, Taiwan, Turkey, Brazil and Mexico.54

(Elsewhere she adds India, p. v).55These common tendencies concern the role of the state, the role of the market, and the structure and competitive strategies of business firms. Insofar as there is a single symbol that cap- tures the difference, it is the subsidy.

The subsidy serves as a symbol of late industrialization.... The First Industrial Revolution was built on laissez-faire,the Second on infantin- dustryprotection. In late industrialization,the foundationis the subsidy- which includes both protectionand financialincentives. The allocation of subsidies has rendered the government not merely a banker, as Ger- schenkron (1962) conceived it, but an entrepreneur,using the subsidy to decide what, when, and how much to produce. The subsidy has also changed the process wherebyrelative prices are determined.(pp. 143-44)

WHY DOEs KOREA Do BETTER? Why has Korea, together with Japan and Taiwan, done so much better than the other late industrializers? Because, in a word, the institutions of late industrialization have functioned more effectivelythere than elsewhere. "It may be said thatgrowth has beenfaster in Korea not because marketshave been allowed to operatemore freely but becausethe subsidiza-

54 Alice Amsden, "Third World Industrialization:'Global Fordism' or a New Model?" New LeftReview 182 (1990), 14-15. 55 Also ibid.,5. EAST ASIA'S ECONOMIC SUCCESS 289

tion processhas been qualitativelysuperior: reciprocal in Korea, unidirec- tional in mostother cases" (Amsden, 145; emphasis added). By "reciprocal," Amsden means that in direct exchange for subsidies of various kinds, the state exacted certain performancestandards from firms,no- tablyin the fieldof exports.Most otherlate industrializersallocated subsidies withoutimposing any quid pro quo: "WhereKorea differsfrommost otherlate industrializingcountries is in the disciplineits state exercises over privatefirms" (p. 14; emphasis added). Generalizing, Amsden puts forth an audacious proposition:"The more reciprocitythat characterizes state- firm relations in these countries, the higher the speed of economic growth" (p. 146).

LEARNING AND INNOVATION This argumentabout Korean and Third World industrializationin general, says Amsden, differsnot only fromthe neoclassical,but also from the Schumpeterian,approach. Schumpeterrecognized that by his time market structureshad become less competitivethan was consistentwith the neoclassical paradigm. The new basis of competition-the new source of disciplineover firmbehavior-came fromthe creativegales of technologicaldiscoveries that uprooted old monopolies and raised productivity,not steadilybut in spurts.Late industrialization,however, in- volves not innovationbut "learning,"that is, borrowing,adapting, and improvingupon foreigndesigns. The new source of disciplineover firm behavior is the state itself,a factorto which the entrepreneuriallyand technologicallydriven Schumpeterianmodel had understandablypaid littleattention. Late industrialization,much more than early industrialization, has been a political process,shaped by the exigenciesof master- ing (or learning)already existingtechnologies. Some commentatorshave taken the Japanesecase as confirmationof the usefulnessof the Schum- peterianapproach, as in the Schmiegelows' statementthat "the evidence of massive penetrationof global marketsby JapaneseSchumpeterian en- trepreneurs,of theircompetitive edge, and of theirgrowing leadership in innovation is so unmistakable,and there is so littlethat mainstream economics can offerto explain it, that the Austrian [or Schumpeterian] approach enjoys prime facie validityin explainingJapan's impact on the structureof the world economy."56Amsden would presumablyreply that the Schumpeterianapproach is not the only alternativeto mainstream economics and thathers does a betterjob of explainingthe Japanesecase prior to the early 1970s; she would probablyagree with the Schmiege-

56 H. Schmiegelowand M. Schmiegelow,"How JapanAffects the InternationalSystem," InternationalOrganization 44, no. 4 (1990). 290 WORLD POLITICS lows that the Schumpeterianbetter handles the subsequent era, when Japanesefirms compete more than beforeon the basis of innovationand when the state has scaled back its "leadership" role in industrialtransformation.57

GLOBAL FORDISM Her approach also differsfrom world systemsinterpretations that present industrializationat the "periphery"(including Korea) as the reflex of problems of capital accumulation in the "core." In Alain Lipietz's formulation,58for example, industryin the Third World arises as capital fromthe core extendsthe "scale" of its operationsin search of new markets and cheap labor. Once installedby means of "primitiveTaylorist" modes of labor control,it may then evolve into "peripheral Fordism" when growth in the home market formanufactured goods plays a large part in the national "regime of accumulation,"as has been true in Korea since about 1973. At this point the tendency toward underconsump- tion-production exceeding the capacityto consume-becomes a stum- bling block to furthereconomic growth,as it is in the core. Amsden answers this sortof argumentwith several damaging factsabout Korea. (1) Even after 1973 Korean growth has not been centeredon the home market. (2) Korean wages have grown fasterthan in any otherprevious or contemporaryindustrialization, without undermining competitiveness, sustainedby even fasterproductivity growth. (3) Work in the large business firmshas not been managed in a Taylorist,top-down fashion. Technicalignorance at thehighest managerial level, and inexperienceon thepart of theworkforce, have made it impossiblefor borrowed technol- ogyto be optimizedthrough a top-down,Taylorist approach to productiv- ityand qualityimprovements. Instead, the standardizationof work has beenaccompanied by a moreparticipatory (and, as it turnsout, more productive)approach to workrelations, not forcultural reasons but forrea- sons related to technologytransfer.59

57 But while MITI's leadershiprole in the domesticeconomy has decreasedsubstantially, it has recentlybeen expandingthe reachof itsindustrial planning and coordinationinto foreign economies,in responseto the explosion of Japaneseinvestment abroad and the absence of coherentindustrial policy in receivingcountries. See Ivor Ries,"Japan's Mighty MITI Extend- ing Its Reach," Financial Review,December 18, 19, 20, 1990. I thankChalmers Johnsonfor this reference.On leadershipas applied to industrialpolicy, see Robert Wade, "Industrial Policy in East Asia: Does It Lead or Follow the Market?" in Gary Gereffiand Donald Wyman,eds., ManufacturingMiracles: Patterns of Industrializationin Latin Americaand East Asia (Princeton:Princeton University Press, 1990). 58 Lipietz, Miragesand Miracles:The Crisesof Global Fordism(London: Verso, 1987). See Amsden (fn.54) fora discussionof Lipietz. 59 Amsden (fn.54), 12-13. EAST ASIA'S ECONOMIC SUCCESS 291 (4) The state in Korea (and in other late industrializers)has gone well beyond its role in the Fordist model (largelyone of creatingboth effective demand in responseto crisisand protectionfor infant industries). So neitherthe Schumpeteriannor the global Fordism approaches can explain the common tendenciesof the late industrializers;still less can the neoclassical. Amsden's approach-which could be summarized as "industrializingthrough learning, learning through reciprocity between governmentand diversifiedbusiness groups, reciprocity involving price-distorting subsidiesin exchangefor performance"- constitutes, she says,a new paradigm for understandinglate industrialization,which is a new way of industrializing(p. 141). In a field plagued by stale thinkingAsia's Next Giant stands out as wonderfullyoriginal, powered by a militant,epigrammatic intelligence. The chapterstoward the end, on the firm-leveldynamics of the evolution of shipbuilding,textiles, cement, and steel,range fromoffering technical informationabout productionto tellingdetails about social organization. The author relates how, well beforethe firststeel plant had been com- pleted, workers were recruitedand trained-even taken out to open fieldsto rehearsetheir jobs, shoutingorders to one anotheralong imag- inaryproduction lines. For given its lack of the cheap natural resources thatother NICslike Mexico (gas) and Brazil (ore and hydro)could use to defraythe high start-upcosts of steel and other capital-intensiveindustries,Korea had no choice but to compensateby means of a supereffec- tive deploymentof its labor force,to discipline and train it as fast as possible. But there are some serious weaknesses in the argument. Some key propositionsare poorlysupported, some key conceptsare treatedas self- evident when theyare not, and some alternativemechanisms for which thereis reasonable evidence are not considered.Einstein's aphorism that "imagination is more importantthan knowledge" is taken a bit too lit- erally. In particular,Amsden misses many opportunitiesto incorporate neoclassical findingsinto her story,thereby rendering it much weaker than it need be in terms of economic analysis. Nowhere is this more apparent than in what she says about prices.

GETTING PRICES "WRONG" IN KOREA This is the phrase that Amsden emblazons upon her escutcheonas the essence of her theoryof economic development.60Reversing the conven-

60 Ibid., 23. 292 WORLD POLITICS tional injunction (converting "right" to "wrong" and the sense of"getting" from "letting" to "setting") produces an arresting paradox. But what evidence does she offer,first, for the proposition that relative prices were "wrong" and second, for the proposition that the structure of "wrong" prices was a key element in output growth? Although she does not present it systematically, the evidence seems to be as follows: 1. The exporteffective exchange rate,which includes subsidiesto export sales, was substantiallyabove the officialwon/dollar exchange rate between 1960 and 1965 (see her Table 3.4, p. 67), and during thistime exports took off. Amsden says that export subsidies, as indicated by the gap between the export effectiveexchange rate and the officialexchange rate, "turned the tide." So the volume of exportswas not determinedby market factorsalone, at least in the period covered by her numbers. Note several problems with this argument.First, six years and two sets of numbers are a slender base for causal inference.Second, she says that subsidies (as indicated by the gap between the two exchange rates) increased as exports increased, the formerdriving the latter.In fact,her own numbers show the opposite: the gap was greatestin 1960, when exports were small and stagnant,and least in 1964 and 1965, when exportswere booming. Third, this gap is in any case a poor measure of the bias of the system for or against exports.For that one has to compare the exporteffective exchange rate with the importeffective exchange rate. It is quite possible to increase export subsidies (as measured by her gap) while at the same time giving even more incentivesto import substitution(perhaps via quantitative restrictions),making a net increase in the bias against exports.It is this bias, not her gap, that might drive exports; but we are not given the information. Fourth, nor are we given informationabout the real exchange rate (relative price of traded goods-exports and import substitutes-vis-a-vis nontraded goods). Lacking informationon both export bias and the level and movement of the real exchange rate, we cannot make a judgment about whether these prices were "right" or "wrong." Certainly the fact that the export effectiveexchange rate differedfrom the officialexchange rate (as in most other developing countries)does not in itselfmean that either the officialrate or the export effectiverate was "wrong." In short, Amsden's evidence on this point does not support the conclusions she draws. 2. "Tariff barriersand nontariffbarriers have comprised a key ingre- dient of Korea's industrialpolicy," she says (p. 145). But we receive virtu- ally no informationon the magnitude of protectionover time,though such informationis available.6' 3. In the capital marketa multiplicityof prices prevailed forloans of the same maturity-one for foreignloans, more than one for domestic commercial bank loans depending on whetherthey were fora priorityuse, and one or more for "curb" or informalmarket loans. Not all of these prices

61 Wade (fn. 17), chap. 10. EAST ASIA'S ECONOMIC SUCCESS 293 could possiblyhave been "right,"she sayswithout further ado. This, too, is overlyhasty. For one thing,to theextent that the curb market is used forriskier loans thancan be grantedby commercialbanks, neoclassical analysiswould predictcurb market rates to exceedcommercial bank rates on accountof differential risk. 4. Pricecontrols have been extensive."At theend of 1986,as manyas 110 commoditieswere controlled, including flour, sugar, coffee, red pep- per,electricity, gas, steel,chemicals, synthetic fibers, paper, drugs, nylon stockings,automobiles, and televisions"(p. 17).A hundredpages later this expandsto "theEconomic Planning Board controls most prices" (p. 129). Is "most"really the same as "as manyas 110"? We have no idea of the shareof finaldemand that is price-controlledover time or of how much thecontrols bite. 5. Subsidiesto the cottontextile makers were neededfor quite a few yearsto enablethem to getestablished in exportmarkets against Japanese competition.Later subsidiesto someheavy and chemicalindustries were needed to induceprivate capitalists to forgohigher short-term profits in lightindustry. Amsden's evidence on thisscore is moreconvincing than therest.

Not stoppingwith the propositionthat Korea succeeded because it got prices wrong, Amsden makes a still more arrestingclaim: "Although Korea industrializedon the basis of relativeprices thatdeviated sharply from free-marketequilibria, such priceswere less 'distorted'and provided big businesswith fewer bonanzas than prices in India, Turkey,and theLatin- Americanlate-industrializing countries" (p. 145; emphasis added). Or in a slightlydifferent formulation, "In Korea the 'wrong' prices have been rightbecause governmentdiscipline over businesshas enabled subsidies and protectionto be less than elsewhereand more effective"(p. vi). This is an intriguingidea, but it is asserted without a shred of evidence. If Korean price distortionshave in factbeen less than in most other countries,how can we distinguishthis argument from the centralneoclassical claim that it is preciselybecause price distortionshave been less that Ko- rea was more successful?62 Furthermore,it is not self-evidentthat short-runequilibrium prices should be used as the standard of "right" against which actual Korean prices were correctly"wrong." Afterall, neoclassical theoryacknowl- edges that even markets that operate withoutgovernment interference

62 Perhaps Amsden's argumentcould be clarifiedby distinguishingthree senses of "distortion." One is deviationfrom the marketequilibrium price, which just offsetsdisadvantages due to "market imperfections"elsewhere in the system.Another is deviationthat pulls resources into uses expectedto be to the country'sfuture comparative advantage. The thirdis deviationthat providesbig windfallgains forlittle effort. Korea presumablyhad much less distortionin the thirdsense than other countries had, but presumablynot in the second sense. 294 WORLD POLITICS may experience"failures" due to externalities,complementarities, uncer- tain learning gains, imperfectcapital markets,and economies of scale, scope, and time. In such a case the configurationof marketprices, which no longer correspondsto economic values or opportunitycosts, may send the "wrong" signals,even in conditionsof freetrade. Neoclassicals argue thatempirically these sources of marketfailure tend to be less important than those caused by governmentintervention; they therefore prescribe freetrade as the way to achieve the bestresults in the real world of special interests.63 Moreover,there is a modifiedneoclassical interpretationof the role of the Korean government:that its various interventionshad the aggregate effectof compensatingfor these failures(as well as for those caused by the "politically driven" components of governmentintervention) and thus of creatingthe relativeprice structurethat would have prevailed in an ideal free market. I have elsewhere called this the "simulated free market" theoryof East Asian industrialsuccess.64 I do not find it very convincing,but it does have a place in the literature,and Amsden might have taken it up in an analytical dissection of "wrong" and "right" prices. Even if we grant that the governmenthelped to get prices (correctly) "wrong," there is still the separate question of the outputeffects of this rigged price structure.Again, this issue is barely raised, it being taken for granted that the effectswere not just positive but so positive as to constitutethe essence of why Korea did betterthan the rest. Perhaps Amsden would considerthe success of the heavy and chemical industry drive of the 1970s (and she certainlyconsiders it to have been highly successful)as evidence of benign output effects,for it was not the result of free-marketforces. But this same heavy and chemical industrydrive is routinelycited in the literatureas the clincherfor the maligneffects of Korean dirigisme.Amsden mightat least have responded to those who say that its costs swamped its benefits.(My own conclusion,incidentally, is that the medium- and long-termbenefits did exceed the costs.)65 All told, thiscentral plank in Amsden's theoryremains in urgentneed of empirical reinforcement.A generous reading mightsay that Amsden has done what many economistsbefore her have done, which is to pre-

63 See Colclough (fn.3). 64 Wade (fn. 17), 23-24. 65 For a briefdiscussion, see ibid.,chap. 10,esp. 319-20. For a veryuseful recent study, see Richard Auty,"Creating Comparative Advantage: South Korean Steel and Petrochemicals," Tijdschriftvoor Econ. en Soc. Geografie82, no. 1 (1991). EAST ASIA'S ECONOMIC SUCCESS 295 sent a series of "stylized facts" about how, in her understanding,the world works,leaving it to thosewho disagreeto mustercounterevidence. A less generous reading might say that Amsden displays the same dis- dain forestablished principles of scientificknowledge as do the neoliberals cited earlier.

THE STATE IN KOREA As the initiatorof major new investments,the distorterof prices,and the disciplinerof big firmsand labor, the state has a centralplace in Ams- den's story.Yet she takes what could politelybe called an "abstentionist" view toward it. She saysalmost nothingabout how the stateis organized, its base of support,its means of survival,and how it maintainsits discipline in the exerciseof huge discretionarypowers. So abstentionistis she, indeed, that the key agencies for industrialand trade policies, the Eco- nomic Planning Board and the Ministryof Trade and Industry,are given only threementions between them in the whole 329 pages. Perhaps it is unfairto expect otherwisein a work of economics.

ROLE OF MANUFACTURING PRODUCTIVITY GROWTH Amsden's argumentassumes, implicitly, that the drivingforce of Korean industrialization was fast growth of productivityin manufacturing (driven by fast "learning"). Thus, her emphasis on the structureand management of business groups. She might have addressed some of the evidence,from Hollis Chenery,Moshe Syrquin,Howard Pack, and others,66that partlyruns against this argument.To summarize,there is evidence to suggest that prior to the mid-1970s productivitygrowth in manufacturingwas by no means high as compared withgrowth in other countriesat roughlythe same income level. But (1) Korea had poor natural resource endowments in comparison with many other low- and middle-incomecountries; it thereforehad no comparativeadvantage in exportsof primaryproducts, which leftmanufactures as the only broad alternative.(2) It also had a high ratio of people with basic education to people withoutbasic education,again compared with other countriesat similarincome levels. (3) Agriculturalproductivity was much lower than in manufacturing.And (4) the physical infrastructurewas fairlygood. The combinationof middling productivity,a high ratio of basically ed-

66Chenery, "Growth and Transformation,"in Hollis Chenery,Sherwin Robinson,and Moshe Syrquin,eds., Industrializationand Growth:A ComparativeStudy (New York: Oxford UniversityPress, 1986); Syrquin,"Productivity Growth and Factor Reallocation,"in Che- nery,Robinson, and Syrquin; Pack, "Industrializationand Trade," in Chenery and T. N. Srinivasan,eds., Handbook of Development Economics (Amsterdam: North Holland, 1988). 296 WORLD POLITICS ucated to uneducated people, a big agriculture-manufacturinggap in productivity,and a fairlygood infrastructureallowed Korean manufac- turingto compete internationally.But the real driving forcebefore the mid-1970s,according to this argument,was the huge increase in capital and labor inputs into manufacturing(more and more young women behind more and more desks assemblingmore and more shirtsand circuit- boards). It was a scale effect,not a productivityeffect. These inputscame in substantialpart fromagriculture, and the economy-widelevel of pro- ductivitygrew fastas resourceswere reallocatedfrom lower productivity uses in agricultureto higher productivityuses in manufacturing.67But the only way to absorb such large amounts of capital and labor in man- ufacturingwithout running into rapidlydiminishing returns was to export the output,because the domestic market would have been able to absorb the extra outputonly at the cost of sharp fallsin price. This is the single most importantway thatexports helped Korea's industrialization. Since the mid-1970s,however, with the completion of the reallocation fromagriculture, the drivingforce has been productivitygrowth within manufacturing.68It may well be that the sortsof managementpractices and firmstructure that Amsden emphasizes have been an importantpart of this growth.But much of Amsden's own account of firmsand industries draws on data from beforethat time. This is not to suggest that Amsden is necessarilywrong for the earlier period-one can imagine ways in which her argumentcould be reconciledwith the otherevidence. But this otherevidence is simplynot addressed.

COMPARATIVE ADVANTAGE: RIGID, FLEXIBLE, OR IRRELEVANT?

Did Korea follow its prevailing comparativeadvantage (CA), or did it engage in activitiesthat were out of line with CA?Neoliberals implythat its industrializationwas governed by CA,except for the temporaryaber- ration of the heavy and chemical industrydrive that startedin the early 1970s and more or less terminatedaround 1980, as economic rationality again came to prevail. Amsden and also Governor Park (in the epigraph

67 For the agriculturalend of thesereallocations, see Moore (fn.5); on the politicalcontrol of Korean agricultureand the nonpricemethods of achievingrelatively high levels of agricultural productivity(cf. standard recipes for agriculturalgrowth and mechanismof Fei- Ranis-typemodels), see Wade (fn.5, 1983). 68 This is likely,but most of the evidence I cite stops shortof this period. Pack (fn. 66) suggeststhat even afterthe mid-1970stotal factorproductivity growth was not especially good, and he creditscontinued rapid absorptionof factors,including extra investment.But subsequent evidence suggeststo him that productivitygrowth within manufacturinghas indeed been more of a driverthan he thoughtwhen he wrote the article in Chenery and Srinivasan(fn. 66); Pack, personalcommunication with author. EAST ASIA'S ECONOMIC SUCCESS 297

to this article) implyeither that it went against CA or that CA was some- how irrelevant.What is at stake? Accordingto the standardtheory, spe- cializing according to CA makes for an efficientpattern of resource use, with more intensiveuse of the more abundant factorsand less of the scarcerfactors. A countrymay be able to produce goods out of line with its CA, but those goods, which require a lot of the scarce factorsand few of the abundant factors,will not be profitable.Stereotypically, a low- wage, labor-abundant countryshould concentrateproduction and exports on labor-intensiveproducts, while importingthe more capital- intensivegoods fromcountries where labor is scarcerand capital more abundant. (China can make and launch satellites,but such engineering- intensiveindustries are not in its CA.) So if Korea departed significantly from CA and yet was still outstandinglysuccessful, one could conclude that somethingis seriouslywrong with the theory.And since the theory formspart of the bedrock of neoclassical economics, this would sound the alarm in many quarters. There is remarkablylittle evidence on this centralquestion. It is true thatexports have been farmore labor-intensivethan overall production, a predictionin line with CA theory.But it is also true that fromthe early 1960s, capital-intensiveindustries producing intermediateshave experi- enced rates of growth much higher than the manufacturingaverage, a phenomenon liessreadily reconciled with CA theory.And we know, too, that most of these industrieshave had substantiallevels of protection, which is also sometimestaken to indicateinvestment out of line with CA. On the otherhand, PatrickMinford and Adrian Wood69have recently argued, contraryto the general understanding,that capital-intensityis almost irrelevantfor the determinationof CA, especiallybecause nonin- frastructuralcapital is mobile betweencountries. Rather, it is labor force skills that count. Product categoriescan be ranked in termsof skill requirements,and the categoriesthat are "appropriate"to a countryat any one time (in the sense of being in line with CA) can be read offby comparing theirskill requirementswith the ratios of highlyskilled to basically skilled to unskilled people in the labor force(these ratiosdetermine the scarcityand relativecost of more or less skilled people and therefore

69 See Minford, "A Labour-based Theory of InternationalTrade," in J. Black and A. MacBean, eds., Causesof Changesin theStructure of International Trade, 1960-85 (London: Macmillan, 1989); Wood, "A New-Old TheoreticalView of North-SouthTrade, Employ- mentand Wages," Discussion Paper 292 (Sussex: Instituteof Development Studies,Univer- sityof Sussex, 1991). Wood's paper is based on one chapterof his book, North-SouthTrade, Employmentand Inequality(London: OxfordUniversity Press, forthcoming). 298 WORLD POLITICS the viabilityof investmentsthat require differentcombinations of these people). If this is accepted,we have to say thatwe simplydo not know to what extentthe fastgrowth of capital-intensiveindustries in Korea was in line with CA, because no one has calculated theirskill intensities.We do know thatall capital-intensiveindustries are not skill-intensiveand thatwithin industriesdefined at the three-digitlevel (industrialchemicals, for example) there are huge variationsin skill requirements.We also know that the factthat these industrieshad protectiondoes not in itselfmean that they were against CA. Protection,that is, might have offsetmarket imperfectionselsewhere that would have renderedthe industriesfinan- cially unviable without the protection,even if they were economically viable with propershadow prices.Nor does the factthat these industries grew fasterthan the manufacturingaverage in itselfmean thatthey were out of line with CA, for all industrializationinvolves some growth of upstream sectors,for reasons of transportcosts and other advantages of local production. And this growthmay be very fast if it comes from a low base. The key question,then, is whetherthe capital-intensiveindustries grew fasteras a result of policy measures than they would have under conditionsof well-functioningfree markets. So one hypothesisis that Korea's industrialization-including the dual-track promotionof some capital-intensiveintermediate (and later final)goods alongside labor-intensivegoods forexport markets-did not depart from CA to any significantextent. This implies that the capital- intensive industriesremained within the (rapidly rising) limits of the skilled labor supply,which furtherimplies that the capital-intensiveindustries of the 1960s and early 1970s (before the heavy and chemical industrydrive) had ratherlow skill requirements. Another hypothesis,which is more consistentwith Amsden-Park, is (1) thatKorea stretchedits CA (as witha rubbermembrane) to cover more skill-intensiveindustries than would be "normal" in relationto its skill endowments70and (2) that this stretchingwas especially pronounced during the heavy and chemical industrydrive (thoughnot absentearlier, as seen in those subsidiesused to launch the cottonspinning and weaving industryagainst Japanese competition).By this interpretation,the Ko- reans excelled at "learning by doing," which increases the supply of scarce skills and therebystretches the CA membrane.More precisely,the Koreans excelled at learning by doing at low cost. It is as though those

70 I owe thisidea of stretchingCA to Adrian Wood. EAST ASIA'S ECONOMIC SUCCESS 299 men in the field shoutingorders at each other on their imaginarypro- duction lines were a microcosmof the whole labor force.In many other countriesefforts to stretchthe CA membrane by investingin advance of skills so as to generate learning-by-doingeffects have proved so costly that the projectshave eventuallyfolded. How then to interpretthe difficultiesthat beset many heavy and chemical industriesin the late 1970s and early 1980s? The neoliberal hypothesiswould say that these difficultiesindicate that the heavy and chemical industrydrive departed radicallyfrom CA. Another hypothesis suggests that the difficultieswere due less to the misallocation of resources between sectors,as in CA theory,than to a non-CA-basedmacro- economic mechanism.The sheer size and speed of the "big push," cou- pled with the long gestation period of these industries, caused inflationarypressures, depreciation in the exchange rate, deficitsin the balance of payments,and budget deficits.These prompted the government to institutea stabilization package, which caused deflation just when the output fromthe new industriescame on stream,shrinking the market and lowering the returns.The rebound of the Korean economy in the mid-1980s may have been due less to the economic liberalization of the early 1980s (the neoliberal position) than to a combinationof the earlier stabilizationplus the maturationof the heavy and chemical industries.7' The main point,however, is that littleis known about the answer to the centralquestion of whether,in what ways,and when Korea departed from its comparative advantage. This is a great handicap for political analysis of the role of the state.For a centralquestion of such analysis is how much, and by what methods,the governmentdetermined a pattern of investmentallocation that differedfrom what unguided privatebusinesspeople operatingin real marketswould have produced. And if there was a difference,to what extent did the governmentstick to projects that, though financiallyunviable for private businesspeople,were nev- erthelesseconomic at proper shadow prices? Or to what extentdid the governmentdisregard this constraint and undertakeprojects that looked to be economicallyunviable accordingto conventionalsocial cost/benefit analysis?This indicatesthe extentto which the governmentwent against "market forces,''and therebythe amount of statepower needed to effect the desired investmentpattern-the amount of "leadership" as distinct from"followership." Followership is indicated where governmentsup-

71 I owe thispoint to Richard Auty. 300 WORLD POLITICS port went to projectsthat looked to be more or less financiallyviable at the start.Type I leadershipis indicatedwhere governmentsupport went to projectsthat were financiallyunviable but economicallyviable ex ante. And type II leadership is indicated where governmentsupport went to projectsthat were economicallyas well as financiallyunviable ex ante. A project supportedby typeII leadershipthat turns out to be economically successful(for reasons other than unexpectedexogenous price changes) poses a greaterchallenge to economic theorythan does a successfulproj- ect helped by governmentfollowership or leadership of type I. This is not to say that the lattertwo roles are of minor significance.They still give scope for the governmentto formulatea vision of the appropriate development path and to choose commoditygroups within the wide band of CA-consistentproducts for intensified growth, coordinating entry to these industriesso as to reduce the risks of surplus capacity,thereby producinga different,but stillcA-consistent, growth path than would be produced by unguided privatebusinesspeople on theirown.72 MITI's role in Japan'ssupercomputer project (see the second epigraph to thisarticle) may have followed this logic. Amsden, and the literaturein general,pays too littleattention to these issues. And one other key part of her argumentis also insufficientlyde- veloped, as is also true of the wider literature.This concerns"learning."

INDUSTRIALIZATION THROUGH LEARNING In Amsden's schema the central differencebetween the early and late industrializersis that the formerwere driven by Schumpeterianinno- vation and the latter,by "learning." But what is "learning"? It has cer- tainlybecome a popular word in industrialeconomics over the past decade or so, for it exudes an aroma of fresh knowledge. Despite its popularity,however, there has been littleeffort to examine it analytically, to make clear whetherand how "learning" differsfrom or adds to what was talked about before.73It remainsa terminologicaldisaster area. Ams-

72 On governmentleadership and followershipof the market,see Wade (fn.57); and idem (fn. 17),chaps. 1, 10. See also JosephStern, "Industrial Targeting in Korea," Discussion Paper no. 343 (Cambridge: Harvard Institutefor InternationalDevelopment, 1990). The latter makes an importantcontribution to the analysisof industrialpolicy in general and to the literatureon Korea, and I regretnot comingacross it untilthis paper was going to press. 73 See Sanjay Lall, Learningto Industrialize:The Acquisitionof TechnologicalCapability by India (London: Macmillan, 1988). "Learning" makes a jazzy titlebut receiveslittle conceptual attention;it seems to be used as a single word to mean "technologicalchange thatleads to productivitygrowth." The problemis thatthe word seems to indicatesome specificmech- anism of causality,but this promiseis not fulfilledin Lall's (or Amsden's) discussion.For a usefuloverview of some of the problems,see MartinBell, " 'Learning' and the Accumulation of IndustrialTechnological Capacity in Developing Countries,"in Martin Fransman and EAST ASIA'S ECONOMIC SUCCESS 301 den sometimestalks of learning,implicitly, as any continuoustechnolog- ical change thatis not pushed by formalresearch and development,leaving R and D to be linked to innovation. But to oppose learning and R and D as in some sense mutuallyexclusive is misleading. Japan as a late industrializerin the 1950s was doing plentyof R and D. And the recentKorean upsurge in R and D does not signifythe end of Korea's status as a late industrializer(except in semiconductors).Most of its R and D is aimed at making it competitivein more advanced but still "follower" productsand processes,as occurred in Japan up to the early 1970s. R and D in these cases has the primaryfunction not of producing innovationsbut of allowing firmsto absorb and masternew knowledge produced elsewhere. If the distinctionbetween learning and innovationis less clear than Amsden would have it, the distinctionbetween various meanings of "learning" has to be made sharper. There is firstthe learning of "the learningcurve," the relationshipbetween output per unit inputand some measure of experienceof production(cumulative volume or time). The relationshipis describedas the "rate of learning."Then thereis the quite distinctsense of learning as an amassing of knowledge, of expertise-a change on theinputs side thatmay or may not be associatedwith changes on the outputs side. This in turn has to be subdivided. "Learning by doing," the focus of much work in industrialeconomics in recentyears, is oftenand probablymistakenly taken to be a relativelyautomatic process by which a firmbecomes more practiced,and hence more efficient, at what it is already doing. Finally, learningin the sense of "expanding absorptivecapacity" refersto the abilityof a firm,industry, or national set of industriesto identify,assimilate, and exploit already existingtech- nological knowledge about processesand productsnew to the firm,industry,or country.74Amsden is by no means alone in using the one label for the many concepts,but given that "learning" stands in her theoryas gasoline to the automobile, it would have been helpful to have some explanationof her own usage. The Korean experiencewould confirm,I suspect, that much of the improvementin productivitycommonly described as the result of "learning by doing" is the result of sustained, deliberate,and cost-fullefforts at improvements effortsto get more knowledge of productionmaterials and of the ways theymay be com-

Kenneth King, eds., TechnologicalCapability in the ThirdWorld (London: Macmillan, 1984). I am gratefulto Bell fordiscussion on some of thesepoints. 74 See Bell (fn.73); and W. Cohen and D. Levinthal,"Innovation and Learning: The Two Faces of R&D," EconomicJournal 99 (September1990). 302 WORLD POLITICS bined to permit machines to run at fasterspeeds, for example, efforts that are not (formal) R and D-intensive but that are certainlyproduc- tion-engineering-intensive.Indeed, Amsden's cases show thatsuch effort was a dominant concern of Korean managers. What drives learning in this sense is the frame of mind that asks how a particulartask can be performedbetter.75 What is it that helps this frameof mind to become pervasive? And to the extentthat learning is more than a matterof going out and acquiring a new machine, what other steps must be taken and how can public policy accelerate them? These questions should be central to a discussion of industrialization,comparative advantage, and industrial targeting.But beforethey can be asked, the distinctionshave to be made.76 To recap: Key concepts in Amsden's argument-the state,learning, and wrong prices-are underdescribedand underanalyzed. Key causal argumentsare not assessed againstother possibilities-"learning via con- ditional allocation of price-distortingsubsidies" against, for example, ''reallocation fromagriculture to manufacturing,'or "heavy investment in education plus learningby doing at low cost," or "lower price distortions than in other developing countries,"or some othersto be referred to below. Nonetheless,Amsden is surelyright to highlightthe synergy between stateindustrial policies and the strategiesof diversifiedbusiness groups,and she has conceptualizedthis synergy in a promisingnew way.

STEPHAN HAGGARD'S INTERPRETATION OF EAST ASIAN SUCCESS AND LATIN AMERICAN FAILURE

Whereas Amsden challenges the neoclassical mainstream of development economics by reinterpretingone unusuallysuccessful case, Stephan Haggard jumps offfrom a standardneoclassical conclusion and goes on

75 See JosephStiglitz, "Learning to Learn, Localized Learning and Technical Progress," in Partha Dasgupta and Paul Stoneman,eds., Economic Policy and TechnologicalPerformance (Cambridge: Cambridge UniversityPress, 1987). 76 Amsden is undertakingresearch in Thailand, Malaysia,and Indonesia to testan impor- tantbut unsupportedargument in the book: "The generalproperties of an industrialization process based on learning,or borrowingtechnology are entirelydifferent from those of an industrializationprocess based on the generationof new productsor processes.. . . Thus, the late acquisitionof internationalcompetitiveness has given riseto certaincommon tendencies in otherwisediverse countries."That is, the other,less successfullate industrializershave stateswith a set of roles broadlysimilar to Korea's thatthey carry out less effectively,price structuresthat are also "wrong" but less rightly"wrong," diversifiedbusiness groups that are less diversifiedthan Korea's but stillmore diversifiedand centrallymanaged than those of the West, and a strategicfocus withinfirms on the shop floorbut with fewerengineers and more top-downmanagement. EAST ASIA'S ECONOMIC SUCCESS 303 to address the left-outpolitics. "The crucial differencebetween the East Asian and Latin American NICs," he says,"is the differencebetween industrializationthrough exports and importsubstitution" (p. 27). Given this,why have governmentsof industrializingcountries adopted certain developmentstrategies, and why,more importantly,have theychanged them? For "the success of the East Asian NICs restednot only on certain discretepolicies but on the particularpolitical and institutionalcontext that allowed the NICS to adopt those policies in the firstplace" (p. 21). Conversely,the relativefailure of the Latin American NICs was due to a political and institutionalcontext that stronglyinclined their governments to adopt and maintain policies of secondaryimport substitution, despite the slower growthand income-unequalizingeffects of those policies. Haggard distinguishesthree development trajectories among the NICS: the import-substitution(is) trajectory,exemplified by Brazil and Mexico; the export-led(EL) trajectory,as in Korea and Taiwan; and the entrep t trajectory,as in Singapore and Hong Kong. Each trajectoryis in turn divided into phases. The is trajectorybegins with a primaryproduct- exportphase (Brazil, pre-1930; Mexico, prerevolution);that gives way to is phase 1 (Brazil and Mexico, 1935-55);then to is phase 2 (1955-65); then to is phase 3 (1965-present). The EL trajectoryalso begins with a primaryproduct-export phase (Korea and Taiwan, 1900-1945) thatgives way to an is phase 1 (Korea, 1945-64; Taiwan, 1945-60). That, however, is followed by EL phase 1 (through 1970) and next by EL phase 2 (1970- present). Each phase has an associated economic structure(or changes thereof)and associated economic policies. This schema highlightsthe disjunction between the two main trajectoriesat the end of is phase 1 (the two prior phases are much the same, as also is the final phase of both). But the sameness of the finalphase departs froma verydifferent base, namely,the growthmechanism in place at the end of the penulti- mate phase, one based on secondaryimport substitution (that is, domestic productionof capital and intermediategoods), the otherbased on exports of the consumer goods items whose importswere substitutedfor in is phase 1. The key analyticalquestion is thereforewhat accounts for the divergence. Why did the Latin Americans around 1955 continue to deepen theirindustry rather than exportthe consumergoods (and other light industrial goods) whose domestic production became well estab- lished in the prior phase? As the evidence came in during the late 1960s thatthe East Asians were doing better,why did the Latin Americansnot switchto the superiorpathway? 304 WORLD POLITICS Haggard's general answer is that fourkinds of factorsbear on policy choices of this type: internationalfactors, domestic coalitions, political institutions,and ideas. Further,he suggestson the basis of the six cases that theirgeneral causal weight can be statedas follows: Internationalpressures [e.g., balance of payments deficits, political conflicts withtrading partners] are the mostpowerful stimulus to policyreform. The strengthof differentsocial groups-agricultural interests, labor, and business-can constrainor widenthe feasible set of policyreforms, but it is difficultto explainpolicy outcomes by referenceto coalitionalinterests alone,particularly where social groups are poorlyorganized, interests are subjectto uncertainty,and statesare "strong.".. . [In addition]explaining thereform process demands we payattention to theinterests of politicians, the institutionalcontext in whichthey operate, and theideas availableto themconcerning economic growth. (pp. 28-29)

So in the Korean case, the fatefulshift to EL growthin the mid-1960s "can . . . be traced to externalpressures" (p. 61), namely,declining U.S. aid (which financedfour-fifths of importsin 1955) and greaterU.S. read- iness to press for economic policy reformsusing the threatof aid cutoff as leverage. This growing external pressureacted in conjunction with institutionaland political changes initiatedafter 1961 at the domestic level by the incomingPark regime,a militaryregime that enjoyed much greater "autonomy" than the precedingRhee regime. Using its greater autonomy,it concentrateddecision making in the executive,rationalized the economic policy-makingmachinery, and developed new policy in- strumentsfor steering industrialization. But even with theseinstitutional changes, the policies themselvesdiffered little at firstfrom those of the previous regime.In particular,the same lack of budgetaryand fiscaldis- cipline generated high inflation,as Park tried to buy support from key groups (notablyfarmers, with above-marketfood prices). As the imbal- ances grew, the U.S. in 1962 suspendedall aid in an effortto bringspend- ing and income into line. Unrestgrew. At thisdesperate point, the political and military leaders granted the technocrats in the newly restructuredpolicy-making apparatus more scope than before,and the latters'ideas about the industrializationprocess came to be a key factor in the determinationof subsequent policy. They and U.S. advisers had foryears been emphasizingthe importanceof stabilization,reform of the exchange rate,and promotionof exports;now, in crisis,their time came. Compare Brazil a decade before,in the early 1950s.It was at an equivalent point in its trajectory,at the end of its is phase 1. The fact that it plunged into is phase 2 instead of switchingto EL phase 1 is due, Hag- EAST ASIA'S ECONOMIC SUCCESS 305

gard suggests,to a combination of factors.First, frequentbalance-of- paymentsdeficits ("external shocks") in the late 1940s and early 1950s forcedthe governmentto considerchanges in economic policies. Second, the choice of is deepening was influencedby the balance of class forces. Landed elites stillconstituted an importantpolitical force (in contrastto East Asia), but prior industrializationhad spawned a substantiallabor movement(also in contrastto East Asia) and had created a sizable business and professionalmiddle class. A shiftto outward-orientedpolicies, involving devaluation and import liberalization,would have benefited the existingagro-exporting sector over manufacturing.But those whose income derived frommanufacturing "had an interestin continuingan inward-lookingindustrial course" (p. 172). Third, one importantsection of the agro-exportingelite also had an interestin avoiding outward-oriented policies,namely, the coffeegrowers. Since Brazil was a dominant supplier to the world marketand since the demand forcoffee was price inelastic,devaluation (instead of trade controlsas a responseto balance- of-paymentsdifficulties) would have meant lower receiptsfor coffee.77 Fourth, the commitmentof the leading politicians(Vargas, Kubitschek) to the new course was importantin overridingopposition to aspects of the is phase 2 package on the part of some of the middle class and some of the landed elite. (There was, forexample, oppositionto the expanded role of the stateand to the entryof foreignfirms.) That commitmentwas based upon the way thatthe various policies allowed politiciansto weave togethera supportbase froma coalitionof disparategroups. And finally, the technocratsbought the "structuralist"ideas, then associated with Raul Prebisch and the Economic Commission forLatin America (ECLA), that sanctionedan active staterole to promotesecondary is. So, too (sur-

77 Haggard does not say why he thinksthis is true. It would be wortha littleeconomic analysis,even in a work of politicaleconomy-if onlyto be able to distinguishbetween "real" economic objectionsto devaluationand thosethat conceal some otheragenda. A devaluation would increaselocal currencyreceipts from coffee at a constantworld price.But thenafter a lag Brazilian supply would increase (assuming no productioncontrols), pushing out the world supplycurve and loweringthe world price.Would thiswipe out the gains to Brazilian coffeeproducers? Suppose Brazil had 50 percentof the world coffeemarket. Suppose a given devaluation gives rise to a 10 percentincrease in Brazilian supply,making a 5 percentincrease in world supply.For Brazil to loose revenuein foreigncurrency, this 5 percentincrease in world supplywould have to cause a fall in world price by more than 10 percent(demand elasticityof less than 0.5). I do not know whetherthese values are accuratefor Brazil of the mid-1950s,but theycould easily enough be checked. There is then a furthercomplication. What matteredto Brazilian coffeegrowers was presumablynot coffeerevenues in foreign currencybut the value of theirdomestic currency receipts; devaluation would have lowered the value of each unit of domesticcurrency, other things being equal, because importswould cost more. So the economicsof the alleged oppositionof the coffeegrowers to devaluationis not entirelystraightforward. 306 WORLD POLITICS prisinglyin view of later trends),did U.S. advisers,who at thistime had a significantrole in Brazil, as in East Asia. So it is not the case that Brazil's new industrializationproject of the early to mid-1950s simply responded to, or followed,coalitional interests:"Developmentalist economic policies led, as much as followed,the interestsof this new coalition" (p. 173). The ideas of technocratsdo matter,sometimes. And that,in the contextof Korea and Brazil, is Haggard's answer to the "profound puzzle" posed at the beginningof his book: "If neoclassical [EL] policies are so superior,why are theyso infrequentlyadopted?'-' (p. 9). Haggard bringsthe trajectoriesup to the late 1980s and also traces the movement of Hong Kong and Singapore along theirown entrep t path. To my knowledge, this is the firstbook by a single author to make back-to-back,political as well as economiccomparisons between as many as six NICS in two regions.It outlinesa usable frameworkfor comparing and explaining developmentpaths and, in a brave departurefrom con- ventional assumptions,pays attentionto the importanceof ideas-all in under two hundred pages. (The last thirdof the book is taken up with three stand-aloneessays on the relationshipbetween developmentstrategy and foreigndirect investment, income distribution,and political regime, respectively.)Some of the weaknesses of the argumentcan be put down to the severe compressionof a mass of literatureon each country; conversely,its very brevity(and abundant citations of the literature) make it a good overviewof economic and politicaltrends in these countries.Let us considertwo of the weaknesses.

INDUSTRIALIZATION THROUGH EXPORTS AND IMPORT SUBSTITUTION One problem lies in the startingassumption that "the crucial difference" in economic performancebetween East Asia and Latin America is "the differencebetween industrializationthrough exports and importsubstitution." Since this distinctionis the key to the whole discussion, one would expect some clarificationof what it means as well as some discussion of the empiricalevidence on which it rests.There is none. In fact,a conceptual confusionbetween outcomesand policy-basedincentives per- meates the discussion. "Import substitution"can referto outcomes (a rising proportionof consumptionof a given item met from domestic production) or to incentives(net incentivesto sell a given item on the domestic market ratherthan abroad). Growth may be export-led(in the sense of export growth causing output growth) without an export or outward orientation;and an outward orientationmay not generate ex- EAST ASIA'S ECONOMIC SUCCESS 307 port-ledgrowth. Distinctions like theseneed to be made if thereis to be any objective basis for distinguishing between differentphases of growth,as thereis not in Haggard's discussion.78 I have discussed the empirical evidence about the importanceof the distinctionelsewhere.79 Suffice it to say that there is some evidence against the propositions that (1) Taiwan and Korea had export-led growth,(2) theyhad outward-orientedtrade regimes,and (3) theydid so much betterthan Brazil and Mexico largelyon account of eitheror both of these differences.80I do not say that this counterevidenceis either straightforwardor conclusive,still less thatthe tradeopenness of Taiwan and Korea had nothing to do with their superior performance.But it does seem importantto startthe politicalanalysis with a clear statement of what the economic dependentvariables are and with some discussion of the evidence about theirimportance. It is important,too, to fashion a political explanation that takes account of economic constraints.It is misleadingto implythat Latin Amer- ica could simplyhave switchedto EL phase 1 if only the balance of class forcesand the "politics" had been different.The economic constraints, especially Latin America's relativelygood endowment of natural resources and its effecton labor costs and labor skills, were much more limitingthan such a "political" explanationsuggests, as we shall shortly see.

THIN POLITICS A second problem with Haggard's argument is that the discussion of politicsis curiouslytruncated. There is of course a lot about how "external shocks" (generallynot specifiedas to magnitude) change the incentives facingincumbent or would-be politicalleaders and therebytrigger changes in strategy.There is also plentyabout how the EL reformswere helped by preceding "political" changes, such as centralizationof decision-making power and the greater autonomy of technocrats.But we never learn much about why these changes occur, although that would be a natural path to follow in doing politicalanalysis.

78 To be fair,there has been much confusion,conceptual as well as terminological,in the economicsliterature on trade policy.A firststep towardclarity is to distinguishmarket and nonmarketbias, tradablesand nontradablesbias, and exportand importbias, conceptsthat can be applied to many typesof policies (not just to trade policies but also, forexample, to labor marketpolicies). A helpfulpaper is Sebastian Edwards, "Openness, Outward Orien- tation,Trade Liberalization,and Economic Performancein Developing Countries,"PPR Working Paper 191 (WashingtonD.C.: World Bank, 1989). 79 Wade (fn. 17), pp. 15-21,chap. 5, p. 308. 80 Ibid., esp. chap. 1, pp. 15-21,chap. 5, chap. 10,pp. 307-9, 333-42. 308 WORLD POLITICS The most strikingomission has to do with "social coalitions," however. Coalitions are, as we saw, one of four major sets of factorsthat affectthe switchof developmentstrategy. Accordingly, there are dozens of referencesto coalitionsin Haggard's six countrystudies. Yet in not a single case is there any analysis of what the coalition is, how it is organized, what its role is, who its opponents are, how much influenceit wields, and so on. Generally the existenceof a "coalition" seems to be inferredfrom the fact that some economic categories (business, labor, landed elite) have some interestsin common, or at least appear to an- outsider as though they should have some interestsin common. This inferenceis then used to support a propositionabout their support or opposition to a particularpolicy. Take a small example. Haggard argues that during the 1970s and 1980s Taiwan followeda more "liberal" course than Korea. Why? Partly because Taiwan's greater dependence on trade created "an export-oriented coalition heavily dependent on world markets" (p. 139) that was presumablystronger than Korea's "export-orientedcoalition" (although thisis not stated).Of the six countriesin the sample I know Taiwan best, and I simply do not know what is meant by Taiwan's export-oriented coalition. Is it a set of organizations?If so, does it have significantauton- omy? Does it lobby the governmentto do thingsthe governmentwould not otherwisedo? Even withoutsuch a "coalition" would not the governmentin any event be responsiveto the needs of exportersbecause of the importanceof exportsfor growth and legitimacy?If yes,how important is the coalition in shaping Taiwan's more liberal course, assuming that it exists? Or take the argumentfor Brazil summarized above. The fatefulshift to is phase 2 occurred in part because of the commitmentof leading politiciansto the is phase 2 package. Why were theyso committed?Be- cause various parts of the package allowed them to "weav[e] togethera coalition of . .. disparategroups." But thisis the end of the analysis,not the beginning,and thus we have not a clue as to how the elementsof the package allowed the leaders to weave togetherthis coalition,whatever the coalition mighthave been. Given thatthe Latin American failureto go forEL phase 1 is the key focusfor a politicalanalysis (because, according to Haggard, the East Asian push into EL phase 1 was in line with economic rationality),the failureto analyze the coalitional basis for the transitionis a serious drawback. To be fair,"interest groups" and "coalitions" do lend themselvesto the sloppiest kind of reasoning in the whole of political science. Their EAST ASIA'S ECONOMIC SUCCESS 309 existence is often inferredfrom the asserted fact of common interests, and theirinfluence is in turninferred from policy outcomes in line with those interests,their influence then being used to explain the outcomes- to yield, in sum, one great tautology.But this is no excuse for perpetu- ating the practice.From Haggard's book we learn regrettablylittle about what should be at the heartof a politicsof economic growth: rulers' and would-be rulers'calculations, that is, how theyattempt to secure support, by what mix of policies,designed to appeal to which groups, with what political success, and at what economic cost.8' (Why, for example, was Park able to translate fast economic growth into political legitimacy whereas Chun was not?) Nor do we learn much about the circumstances in which "growth coalitions" formor the circumstancesin which rapid growthoccurs withoutgrowth coalitions or the circumstancesin which growthcoalitions exist withoutrapid growth. These questions should have been addressed in the missing conclusion. Moreover,the countryresults could have been testedagainst some explicitlyformulated hypotheses; for example:

1. Authoritarianregimes are more likely to succeed in switching and then sustaining development strategies,whatever the direction of the switch. 2. Newly formed governmentsare more likely to attempt to switch strategies. 3. A sudden worsening of economic conditions(say, a fall in per capita income by x percent over y years, or the near exhaustion of foreign exchange reserves)is likely to precede a switchin policy. 4. A strugglebetween "interestgroups" (outside the state) is also likely to precede a switch in policy,with a tendencyfor polarization into antire- formand proreformgroups, the lattereventually becoming dominant. 5. A sustained switch to EL strategyis likely to be accompanied by a sizable inflow of foreignaid or loans, to bridge the gap between the bad news of the adjustmentpolicies and the good news of the (expected) supply response.

The six case studies suggestadditional issues for consideration,as well. A study of the politics of policy change should address the paradox of reformfirst enunciated by Machiavelli and cited by Haggard in his epigraph but not referredto again, that the reformer"has for enemies all who have done well under the old order of things,and lukewarm de-

81 For a case studyalong these lines that providesa quantitativeestimate of how much economic benefitItaly's rulerswere preparedto give up in order to raise politicalsupport, see Wade, "Regional Policy in a Severe InternationalEnvironment: Politics and Marketsin South Italy,"Pacific Viewpoint 23 (October 1982). 310 WORLD POLITICS fendersin those who may do well under the new."82The balance can be tipped by such thingsas a short time between the costs being incurred and benefitsbeing received,confidence that the governmentwill persist in the new course, sizable expected benefitsto importantgroups, and limited channels forexpressing opposition.83 Amsden and Haggard have produced books that substantiallyad- vance our understandingof East Asian economic performance,one by proposinga new economic mechanism,the otherby elucidatingthe politics behind the mechanism of the economics mainstream.But they do have certain shortcomingsin common. Neither of them adequately ad- dresses the connectionbetween the world systemand the development experiencesof theirchosen countries,and neitherexplains why the East Asian statesremained relativelywell disciplinedin theiruse of an awe- some amount of public power. These are central issues. My own short answers are as follows.

WORLD SYSTEM AND NATIONAL CAPACITY

To the neoclassicaleye developmentis like a marathon:the determinants of each country'sposition are a functionof factorslargely internal to itself.All countriesshould be able, conceptually,to cross the finishline simultaneously.There is no inherentreason why some must remain behind others,no inherenthierarchical ordering. The experienceof Korea, Taiwan, and Japan is taken to validate the belief that the opportunities forrapid developmentare virtuallyunlimited and open to any economy. The authorsdealt with here,including Amsden, share thisbasic assump- tion. Of course, in Amsden's theorythe institutionsof latecomers are much shaped by the coexistenceof more developed countries.The effort to compete against firmsin the latterfosters the emergence of certain state roles and formsof businessorganization in the former.But beyond this Amsden says little about the impact of the world systemon late developers. She differsfrom the neoclassicalsmainly in her view of how latecomersavail themselvesof the limitlessopportunities: not by "market relaxation and state compression" but by "technological learning throughcondition-bound allocation of subsidies." We should distinguishbetween the questions of what caused, or allowed, the NIC phenomenonitself and what determinedwhich countries

82 N. Machiavelli,The Prince(London: J.M. Dent, Everymanedition, 1968), 29. 83 This paragraphdraws on JohnToye, "InterestGroup Politicsand the Implementation of AdjustmentPolicies in Sub-saharan Africa" (Mimeo, Instituteof Development Studies, Brighton,1991). EAST ASIA'S ECONOMIC SUCCESS 311 would become NICS. When Korea and Taiwan began theirrapid rise up the world wealth hierarchyin the early to mid-1960s, several circum- stancescame togetherin the world economythat facilitated the NIC phenomenon. First, transportcosts and trade barriers in core markets (North America and NorthwesternEurope) were tumbling. Second, competitionintensified within the U.S. market,especially with the entry of Japanese manufactures.Third, the accumulation of higher skills in the core work forcemade "unskilled" labor scarcerand thereforemore expensive,which enhanced the comparativeadvantage of lower-income countrieswith a less-skilledlabor forceand created a demand for im- portsproduced by such labor. All threefactors combined to promptU.S. buyersto search out low-costsuppliers in farawayplaces. Latin America might have been chosen. But its abundant natural resource endowment(crudely expressed in a high man/landratio) reduced the need to export any sort of manufactures,because enough foreign exchange came fromnatural resourceexports to financeimports. Its natural resources thereforesupported an exchange rate and wage rate too high to compete in world manufacturingmarkets against countriesat similar income levels but withoutnatural resources.This explains why the total volume of manufacturedexports from Latin America remained small. Moreover, within this small total volume, the composition was skewed toward products that required highlyskilled labor to produce and away fromcheap labor productsthat required large amounts of basically skilled labor. This is because of the skill mix of the labor force. Latin America had a relativelylow ratio of basicallyskilled to unskilled people and a relativelyhigh ratio of highly skilled to basically skilled people. This skill mix, in turn,may have been caused by the ownership patternof the natural resourcesand the resultingpolitics. Governments controlledby an elite thatowned the natural resourcessaw no particular need to extend basic education throughoutthe labor force,for the ex- ploitationof the natural resourcesdid not depend on a large supply of basically skilled people. But the elites did want to expand tertiaryeducation sufficientlyto professionalizetheir own children.Hence, second- ary education was oftenexpensive; tertiaryeducation was often cheap. For all these reasons,then, Latin America was an unlikelycandidate for supplier of cheap labor manufacturedexports. Notice that Latin Amer- ica's notoriousinward-looking trade regimeemerges fromthis explanation as more a result than a cause of the region's poor performancein manufacturedexports, quite contraryto the neoliberalargument.84

84 This sets up a puzzle about Malaysia, which has drawn on a good natural resource 312 WORLD POLITICS Korea and Taiwan benefitedfrom the converse.They had no natural resources to cause a "Dutch disease" effecton the exchange rate and wages or to cause a governmentcontrolled by owners of natural resources to neglect education. Labor was their only resource; and their populations were unusually greedy for (comparativeadvantage-changing) education. Moreover, theirtiming was lucky. They began to experience the limitsof furtherprimary import substitution later than Latin America, just as U.S. buyerswere beginningto hunt forforeign produc- ers using cheap labor. And by this time they had developed a highly productive agriculturefrom which resources for furtherindustrializa- tion could be squeezed withoutimperiling food security. In addition,they were blessed by geopolitics,located as theyare on the faultline of post-Second World War global politics,abutting communist Asia. They thereforetook on unusually great importancein U.S. eyes, which reinforcedU.S. concernfor their economic growth(more than for Latin America's), a concernthat translated into massive aid, good access to the biggest,richest market in the world, and U.S. tolerance of their import barriersand state support for U.S. companies wishing to invest there.Location on the faultline eventuallycame to matterless than did proximityto Japan,since 1960 the most dynamiceconomy in the world. Proximity,cultural affinity, and historicalfamiliarity all helped to create an important"neighborhood" growth effect,not just in termsof trade but also in termsof the plausibilityof Japanas a model foremulation. Of course, all these opportunitiesmight have been fritteredaway. That they were not had a lot to do with the existence in Korea and Taiwan of a stateapparatus thatwas both authoritarianin relationto its subjects and disciplined within itself,and that used its power to pursue the goals of militarystrength and nationaleconomic wealth. Why was it disciplined and competent? If it is true that bigger and bettermarkets (often)need bigger and betterstates, it is also true thatbigger states(often) seek to controlor remove markets.85 There is no simple answer. We need to thinkin termsof an interact- ing combinationof elements within which causal priorityis difficultto determine-more in termsof opening a combinationlock than a pad- lock. First,there was the disciplineof the marketand privateproperty. Un- like Russia, China, and North Korea, these states never carried their endowmentwith much less of thesepredicted effects. Its per capita income is about the same as Korea's. 85 Lipton,"The State-MarketDilemma, Civil Society,and StructuralAdjustment," Round Table 317 (1991). EAST ASIA'S ECONOMIC SUCCESS 313 admiration for the state to the point of having it provide haircuts and make shoes. Control of most of the economy'sproductive assets by private capitalistsmeant thatgovernment officials had to pay close attention to how theirdecisions affectedprofits. Second, there was the discipline of a rapidly growing pool of technicallyeducated manpower, which again differentiatesthem from the Asian communist cases and from most otherdeveloping countriesas well. This rapidlygrowing pool provided the civil servicewith an ample supply of well-educated managers and professionalsand at the same time provided a growing source of outside technicalcomment on governmentpolicies via a press that was fairlyfree to voice technical criticisms.Third, compared with many other developing countries,Korea and Taiwan were culturally fairly unified,removing a common source of indisciplineand making the cre- ation of a strongnation-state that much easier. The civil service could draw on an endowment of a long experience of staterule and well-institutionalizedprocedures. More than this,it had a culture of social responsibilityinculcated by the educational system. State officialswere products of a traditionin which the school played both roles that in Western societies are divided between school and church: developing the intellectand developing a conscience. The two were linked by the teachingof explicitethical rules, the demands of conscience being strengthenedby fearof angeringan amorphous deitywho demands not obedience but responsiblebehavior toward society.High prestige has accrued to public officialsbecause they are considered to embody this ideal of social responsibility;many of the best and brightest stillopt fora low-paid civil servicejob ratherthan a more lucrativeone in "basely self-seeking= neoclassical profit-maximizing"private industry.86 The structureof state-societyrelations allowed the civil serviceto op- erationalizea sense of social responsibilitywith relativelylittle concession to the demands of narrow interestgroups. Such groups were enfeebled or thwartedaltogether by both the Japanesecolonial and the postindependence governments(a result facilitatedby the lack of a natural resource-owningelite). What emerged was an unattractivekind of regime,

86 A studyof Hong Kong, the U.S., and France foundthat the Chinese respondentshad a significantlyhigher capacity "for understanding the abstractnotion of socio-politicalrespon- sibilityat the societallevel." A Taiwanese educatorhas writtenthat "social science ought to emphasize the developmentin childrenof moral concepts,group consciousness,patriotic thoughts,habits of cooperation,the attitudeof serviceand the spiritof sacrifice,etc."; see Richard Wilson, "Moral Behaviorin Chinese Society:A TheoreticalPerspective," in R. Wil- son, S. Greenblatt,and A. Wilson, eds.,Moral Behaviorin ChineseSociety (New York: Prae- ger, 1981). See furtherWade (fn. 17),chaps. 7, 10; and Ronald Dore, "Reflectionson Culture and Social Change," in Gereffiand Wyman (fn.57). 314 WORLD POLITICS promotinga blend of puritanicalnationalism and rule by police and mil- itarymight quite similar to China's and North Korea's, except that it also contained violentlyanticommunist measures reminiscentof pre- Second World War agrarian fasciststates like Portugal, Poland, and Hungary. On the other hand, at least Adam Smith's great fear of the invisiblehand of merchantsbehind the veryvisible hand of government had not much basis here. And not being perforatedand pressured by outside interestgroups, the bureaucracycould more easily demonstrate competence. Furthermore,the weakness of middle-class organization, compared with Latin America, meant that less foreignexchange had to be spent on importedconsumer goods, easing pressureon the balance of payments.At the same time the state created a varietyof channels of informationfeedback about privatesector capabilities and preferences. But why did the rulersand the bureaucracyelevate economicgoals to such importance?Here we have to bringin a numberof externalcontin- gencies to complementthe economic and bureaucraticendowments just described. First, the looming externalthreat: whereas the governments of most otherdeveloping countriesknow thatthey can fail economically and not riskinvasion, the governmentsand elitesof thesecountries knew that without fast economic growth and social stabilitythis could well happen. This led them to make an unusuallyclose coupling of national securityand economic strength.As earlier in Japan,the economic bu- reaucracywas given responsibilityfor directing resources to enhance the war potential of manufacturing,an objective subsequently extended, with the same "can do" orientation,to joining the advanced Western world as fastas possible.The constantsense of externalthreat also helped to discipline the bureaucracyand to elicitmore toleranceof measures of internalrepression on the part of the population at large. Second, the U.S. used its considerableinfluence to disciplinethe state's use of resourcesin line with economic (as well as military)goals. This reinforcedthe effectof the external threatby discouraging the rulers fromusing the state largelyas an instrumentof personal and group en- richment. Third, rulersand officialswere well aware of the Japaneseprewar and postwar experience.This provided them with a tangiblemodel of what a disciplinedstate could achieve both militarilyand economically,which contributedto the developmentof a mission-orientedorganizational culture in key governmentagencies. As the rulers came to see their survival as dependent on economic success, theystrengthened the hand of the economic technocratswithin EAST ASIA'S ECONOMIC SUCCESS 315 the state.The technocratsin turnwere able to implementindustrial policies that had been pioneered earlier in Japan but had not yet been tried by postwardeveloping countries. The key policyfeature was a "governed market,"a systemof mostlyprivate enterprises cooperating and compet- ing under state supervision,in the contextof heavy investmentin education. The state'sdirigisme was guided neitherby the half lightof economic theorynor by the preferencesof vote-seekingpoliticians. Rather, the technocratspaid attentionto (1) the industriesneeded to increase militaryself-sufficiency, (2) the Japanese model, down to very specific organizationaldetails, (3) resultsin exportmarkets, and (4) privatesector importsof capital and intermediategoods. With criteriaderived from these sources theydid plentyof what neoliberalssay bureaucratscannot do: theypicked particularindustries for special promotion,encouraging resources into them beyond what individuals were prepared to risk. They treatedparticular industries at any one time (latterlywithin information, electronics,and biotechnology)as the natural successorsof the bridgesand lighthousesof Smith'sday-items he thoughttoo criticalfor the general welfareto be leftto market forces.And the onrush of technicallyeducated people into the labor forcehelped to bufferthe government from making mistakes in picking the winners: as the proportion of skilled people in the labor force rose, projectsthat were initiallytoo advanced in relationto presentcomparative advantage soon ceased to be too advanced. No other developing countries achieved this combination. Korea and Taiwan alone managed to obtain not only the economies of scale that come from acting in a wide economic space and the innovations induced by competition,but also the advantages of protection and selective industrial promotion. Both were able to ride the wave of global internationalizationwhile at the same time imposinga politically determineddirectional thrust on resourceallocation withinthe national territory.They therebyintegrated and transformedthe productionstruc- ture faster than would have occurred had the controllersof capital been allowed to operate within an unconstrainedlogic of global profit maximization. The advantages of insertingsome wedges between the internationaleconomy and the national economy were not just economic in the narrow sense. Buffering(but not insulating)people from the disruptionsof market volatilityhelped to sustain the legitimacyof the market-basedsocial order.87That in turn helped to avoid the acute

87 See R. Bates, P. Brock,and J.Tiefenthaler, "Risk and Trade Regimes: AnotherExplo- ration,"International Organization 45, no. 1 (1991); and Wade (fn. 17), chaps. 10, 11. 316 WORLD POLITICS social and political instabilitythat otherwisetends to characterizehigh- speed economic growth,making Korea's and Taiwan's more sustain- able.88 What does this explanation suggest about the likelihood that other developing countriescan transformtheir economies and raise incomes sufficientlyfast to shoot up the hierarchyat somethingapproaching the ratesof Korea and Taiwan? It suggeststhe chances are a good deal slim- mer than the neoliberal account would have us believe. Not only is the world economy much less expansive (a point we returnto shortly),but also the politicalconditions needed to establishand sustainthe key policy combination of competition,dirigisme, and education are too stringent to be met by many others.The stringencyof this combinationis consistent with Arrighi and Drangel's data on the rarityof countrymobility fromperiphery to semiperipheryor semiperipheryto core over the past five decades.89As noted earlier,Korea is the only countryin theirlarge sample thatmoved fromperiphery in 1938-50 to semiperipheryin 1975- 83, and Taiwan would be in the same class had it been in the sample. On the otherhand, Malaysia, Thailand, and Indonesia (combined population 270 million) and the coastal provincesof China90grew rapidlyover the 1980s,though froma low base. Perhaps some Latin American countries, squeezed by debt and by Asian competititionin potentialexport markets, are moving fromthe semiperipheryto the periphery,leaving space in the semiperipheryfor some of the Asian newcomers to move into. Perhaps Britain,with the most ill-educatedlabor forceof all the core countries91 and with a long-standingand recentlyreaffirmed commitment to an overvalued exchange rate,is moving out of the core toward the semiperiphery.This mightleave space forsome others,such as Singapore,Tai-

88 This is obviouslya highlystylized account. In a longertreatment we would have to deal withthe dispersionaround thesetendencies-such as bureaucraticcorruption and infighting, the Rhee period in Korea, and the earlyChiang Kai-shek period in Taiwan. We mightlook at these questions in termsof the "Migdal effect"-the tendencyof insecurelyestablished leaders to pulverize the arms of the bureaucracyin order to preventchallenges to theirrule fromcenters of power within the state while at the same time relyingon those arms for policyeffectiveness and legitimacy.See Migdal (fn.48). For furtherdiscussion, see Wade (fn. 17),chaps. 7-10, esp. 333-42; idem (fn.5, 1982),chap. 8; and idem (fn.5, 1983).See also Bruce Cumings, "The AbortiveAbertura: South Korea in the Light of Latin American Experi- ence," New LeftReview 173 (1989). 89 Arrighiand Drangel (fn.22). 90See Ezra Vogel, One StepAhead in China: Guandongunder Reform (Cambridge: Harvard UniversityPress, 1989). 91 See the discussionbetween senior British economic policymakers and academic analysts of Britishdecline in Peter Hennessyand Caroline Anstey,eds., From Clogsto Clogs:Britain's RelativeEconomic Decline since 1851, StrathclydePapers on Governmentand Politics(Glas- gow: Departmentof Government,University of Strathclyde,1991). EAST ASIA'S ECONOMIC SUCCESS 317 wan, Korea, Spain, and parts of Eastern Europe, to move into as they intensifyworld competitionin corelikeactivities.

THE CUSP OF NEOLIBERALISM

Whether or not one accepts the idea of a more or less fixed hierarchy, there is no doubt that internationaltrade became more adversarial during the 1970s and 1980s. The escape upward of some of the low-income countriesis encounteringa more formidablechallenge fromexisting NICS and fromthe older industrializedcountries trying to hang on to existing markets.At the same time,some of the firmsthat are leading the escape are themselvesfinanced and partlyowned by firmsfrom countries higher up the ladder. And withinthe older industrializedcountries trade pres- sure fromlow-income countriesis fanningpolitical conflict. Those who speak for relativelyunskilled workers and their employersare pitted against representativesof those who (whetherbecause of their skills or for other reasons) are insulated from low-wage competitionand who reap the benefitsin cheaper consumergoods and services.This conflict is being intensifiedby the new flexibleautomation manufacturing technologies, with their reduced demand for both basically skilled and unskilled labor.92 In light of all this,it is curious that the neoliberal approach, with its emphasis on the mutualityof interestsbetween rich and poor "countries" (treatedas unitaryentities), became the mainstreamof developmenteconomics in the mid-1970s.For it was just then thatunemployment, inflation, falling profitability,and increasing instabilitybecame prominent featuresof the OECD economies and that NIC expansion looked as if it would lead to serious conflictsof interestwith groups in the industrialized economies. The vast outpouringof neoliberalresearch seems to dis- pel this fear. Yet as we have seen, the empirical basis for the neoliberal confidenceis open to question,as also is its theoreticalfoundation.93 This

92 For a carefulattempt to estimatethe effectof tradewith the "South" on workersof the "North," see Adrian Wood, "How Much Does Trade withthe South AffectWorkers in the North?" WorldBank ResearchObserver 6, no. 1 (1991). See also Manfred Bienefeld,"The InternationalContext for National Development Strategies:Constraints and Opportunities in a Changing World," in Bienefeldand MartinGodfrey, eds., The Strugglefor Development: National Strategiesin an InternationalContext (Chichester: John Wiley, 1982); Paul Streeten, "Comparative Advantage and Free Trade," in Azizur Rahman Khan and R. Sobhan, eds., Trade,Planning, and Rural Development(Basingstoke: Macmillan, 1990); and Evans (fn.35). 93 The quintessentiallyneoclassical Heckscher-Ohlin theory says clearlythat withineach countrysome gain and some lose fromthe opening of trade. This is overlooked by many neoliberal practitioners.I should emphasize that my argumentdoes not imply a blanket rejectionof freetrade policies. On thecontrary, in stressingthe importanceof certainpolitical 318 WORLD POLITICS includes the contentionthat, whatever the conditionof the world economy,economic liberalizationin poor (as well as rich) countriespromotes the mutual interestsof rich and poor countriesand within countries,of labor and capital, and further,that insofaras mutual interestsare not being served,it is generallybecause the degree of liberalizationis insufficient. I wonder to what extentthe continueddominance of thisset of beliefs is related to the factthat much of the researchhas been financedby the main internationalfinancial institutions or else has been carried out by people who look to such organizations for careers and consultancies. These organizations believe that theirability to ensure the servicingof outstanding loans depends on the debtor countries' maintaining their commitmentto liberalization,which is taken as the best way to promote the exports needed to repay the loans. So these organizations are well aware thatliberalizing reform is in theirinterest as well as in the interest of the main private commercial banks.94They have thus campaigned vigorouslyfor reforms of thiskind. These two pointstogether satisfy the requirementsof a "political" explanationof the broad unanimityof neoliberal researchfindings in developmenteconomics. But this particularexplanation is no doubt only a minor element in the overall assessment.A more importantfactor is the interestsof the controllersof transnationalcapital and finance.As capital became much more internationalizedafter the early 1970s,so the power of those whose income is derived fromtransnational capital and financemultiplied. As a categorythey have both common and opposed interests.Those based in the high-technologyindustries (the upstream sources of the radical technologicalchanges sweeping throughthe productionstructures of the industrializedcountries) have been seeking occult protectionand other state supportsin order to restrictthe corporateand countrydiffusion of these activities.At the same time they,together with theircounterparts in the medium- and low-technologyindustries (which include the down-

conditionsfor gap-reducing gains in nationalincome, it also suggeststhat free trade may be a second-beststrategy in cases wherethe state cannot even beginto approachthose conditions (as in some sub-SaharanAfrican countries, for example). There is afterall some truthto the neoclassicaleconomists' implicit theory of power (also Marx's, in his writingson India) that the possibilitiescreated by expandingmarkets erode existingpower structures,so powerful is the incentiveof profit;for that reason power structuresare more or less ignored in the neoclassicalanalysis. 94 This followsonly if evidence shows thatthe liberalizationof the structuraladjustment package is usually good for export capacity,export earnings, and hence debt servicing.A recentWorld Bank report,carefully read, casts doubt on this and hence on what is in the bank's self-interest.See World Bank, AdjustmentLending: An Evaluation of Ten Years of Experience,Policy and Researchno. 1 (Washington,D.C.: CountryEconomics Department, World Bank, 1988). EAST ASIA'S ECONOMIC SUCCESS 319 stream applications of the new technologies),have sought to open up thirdmarkets, especially in developingcountries, to allow them to move theirassets worldwide in search of the highestprofits. The firstof these two tracksinvolves confrontationsas well as alliances between the various technologyleaders, backed by theirgovernments; but the second- opening thirdmarkets-is somethingthat they can all agree on. So there has been a strongpush by transnationalcapitalists, by governmentsof countrieswhere transnationalcapitalists are powerful,and by international financialinstitutions to seek the removal of statecontrols over the use of economic assets in thirdmarkets and more generallyto compress the developmental role of governments.This push has more recently been accompanied by overt support for national political arrangements that facilitatethe abilityof these groups to influencegovernments. But theirinterests need to be presentedas entirelyconsistent with the common interestsof national populations-for which the doctrinesof "free trade and investment,""democracy," and "human rights"(including the rightto use one's propertyas one wishes) are veryconvenient.95 In particular,an explicit model of malign state-marketrelations is promoted in the contextof the technologicallydownstream activities, while occluding the implicitmodel of benignstate-market relations in technologically upstreamones (occluding,too, the practiceof nontariffprotection of un- competitive,low-technology, employment-intensive industries in industrialized countries). In ways that are anythingbut straightforward,the power gains of transnationalcapital in the 1970s and 1980s have reinforcedthe consensus within economics that mutual interestsare generallyserved by free trade96-reinforcedit sufficientlyto eliminate the earlier anomaly of a developmenteconomics that challenged thiscentral tenet. The low pro- fessionalesteem attached to empirical inquirythen serves to protectthe belief against contraryevidence. (Asked what attainmentscontribute to success in the profession,only 3 percentof 212 graduate studentsin economics said that "having a thorough knowledge of the economy was very important"; 68 percent thought it "unimportant.")97Only very compelling factsabout situationsclose to home will serve to breach the

95 I suggestno more than thatthe interestsof transnationalcapital are one importantset of causes of the wave of democratizationin developingcountries and of the salience of de- mocracyand human rightsin Northernstrategy for North-South relations. See World Bank, WorldDevelopment Report, 1991 (Washington,D.C.: World Bank, 1991),chap. 7. 96 Bruno Frey et al., "Consensus and Dissensus among Economists: An Empirical In- quiry,"American Economic Review 74, no. 1 (1984). 97 David Colander and Arjo Klamer, "The Making of an Economist,"Journalof Economic Perspectives1 (Fall 1987), 100. 320 WORLD POLITICS defenses. The examples of Japan, Korea, and Taiwan have not been enough to do so. How much worse will the long-termeconomic performance of the U.S. and the U.K. have to get beforethe mainstreamof the English-speakingeconomics professionbegins to sound less like Herbert Stein,chairman of the Council of Economic Advisorsduring the Reagan years ("If the most efficientway for the U.S. to get steel is to produce tapes of 'Dallas' and sell them to the Japanese,then producing tapes of 'Dallas' is our basic industry"),98and less like Sir Terence Burns, chief economic adviser during the Thatcher years ("If we can't make money by manufacturingthings, we'd bettterthink of somethingelse to do"),99 and more like Governor Park of the Korea Central Bank and the senior MITI officialquoted at the outset?100

98 See U.S. Congress,House of Representatives,Industrial Competitiveness Act House Report 98-697,98th Cong., 2d sess.,April 24, 1984,p. 83. 9 He was respondingto complaintsthat tight monetary policies were destroyingBritain's manufacturingindustry; "Profile: Sir Terence Burns,Not Merelya Civil Servant,"Indepen- dent,March 16, 1991,p. 16. 100This is not to endorse a "proindustry/antiservices"argument, nor is it to suggestthat comparativeadvantage is irrelevant.Rather, the point is that GovernorPark and the MITI officialbelieve thatgovernment has some responsibilityfor formulating a view of the appro- priateindustrial and tradeprofile of the economyand forusing public power to push in that direction,whereas Stein and Burns emphaticallydo not. It may be thoughtthat a new inter- ventionismhas alreadyarrived in mainstreameconomics, in particular,in the formof "strategic trade theory."But I am talkinghere of the developingcountry context, and most pro- ponents of strategictrade theorywould say it does not apply widely under developing countryconditions. The World Bank has certainlytried to neutralizeits pollutingeffect on neoliberalprescriptions. After summarizing strategic trade theoryit concludes,"The trade theoristswho helped develop the literatureon strategictrade theoryremain extremely scep- tical about its policy relevance.Most fear that,rather than being used to enhance national welfare,these new ideas will do damage in the hands of interventionistswho take cover behind the intellectualrespectability these ideas provide." Note the implicationthat "inter- ventionists"have no intellectualjustification for theirposition and hence need a cover of intellectualrespectability. See "StrengtheningTrade Policy Reform (Washington, D.C.: World Bank, November 1989),Box 1-2.See also E. Helpman, "The NoncompetitiveTheory of InternationalTrade and Trade Policy,"Annual Conferenceon DevelopmentEconomics, supplementto the WorldBank EconomicReview (1989). Helpman concludes,"Policy should be designed on a case-by-casebasis and . . . no intervention(free trade) remainsa good rule of thumb" (p. 193). Only the firstpart of the sentencereally follows from his analysis,the second being more the World Bank line. See also Wade (fn. 17), 14, 378. If a new interven- tionismhas not yetentered the mainstream,there are signsof a new defensiveness.Consider, forexample, the following.After the Economistpublished an unusuallyenthusiastic review of Governingthe Market (June 1, 1991,pp. 102-3),the reviewerreceived over six transatlantic phone calls fromWorld Bank officialsringing to complainabout theEconomist publishing a favorablereview of a book by an interventionist.Several said the journal was lowering its standards.Another said, "Don't you know he is an interventionist?"The reviewerasked each whetherhe had read the book or even glanced at it. Answer: No, in everycase. See James Fallows, "Economics of the Colonial Cringe," WashingtonPost, October 6, 1991, for an ex- actlyopposite interpretation of theEconomist's review.