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East Asia's Economic Success: Conflicting Perspectives, Partial Insights, Shaky Evidence Author(S): Robert Wade Source: World Politics, Vol Trustees of Princeton University 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 fu- ture. 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 ("get- ting" 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 fail- ure 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 prob- lem 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 eco- nomics,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 devel- opingcountries; 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 be- came 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
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