Learning to Industrialize This book proposes a new, pragmatic way of approaching economic develop- ment which features policy learning based on a comparison of international best policy practices. While the important role of government in promoting private sector development is being recognized, policy discussion often remains general without details as to what exactly to do and how to avoid common pitfalls. This book ¼lls the gap by showing concrete policy contents, procedures, and organizations adopted in high-performing East Asian economies. Natural resources and foreign aid and investment can take a country to a certain income level, but growth stalls when given advantages are exhausted. Economies will be caught in middle-income traps if growth impetus is not internally generated. Meanwhile, countries that have soared to high income levels introduced mindset, policies, and institutions that encouraged, or even forced, accumulation of human capital – skills, technology, and knowledge. How this can be done systematically is the main topic of policy learning. However, government should not randomly adopt what Singapore or Taiwan did in the past. A continued march to prosperity is possible only when policy makers acquire the capability to formulate policy suitable for local context after studying a number of international experiences. Developing countries wanting to adopt effective industrial strategies but not knowing where to start will bene¼t greatly from the ideas and hands-on examples presented by the author. Students of development economics will ¼nd a new methodological perspective which can supplement the ongoing industrial policy debate. The book also gives an excellent account of the national pride and pragmatism exhibited by of¼cials in East Asia who pro- duced remarkable economic growth, as well as the serious effort by an African country to emulate this miracle. Kenichi Ohno is Professor at the National Graduate Institute for Policy Studies, Tokyo. He was born in Kobe, Japan and holds a PhD in Economics from Stanford University, California. He worked at the International Monetary Fund and taught at the University of Tsukuba and Saitama University before assuming his current position. Routledge-GRIPS Development Forum Studies Edited by Kenichi Ohno and Izumi Ohno National Graduate Institute for Policy Studies, Japan 1. The Rise of Asian Donors Japan’s impact on the evolution of emerging donors Edited by Jin Sato and Yasutami Shimomura 2. Learning to Industrialize From given growth to policy-aided value creation Kenichi Ohno Learning to Industrialize From given growth to policy-aided value creation Kenichi Ohno First published 2013 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2013 Kenichi Ohno The right of Kenichi Ohno to be identi¼ed as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identi¼cation and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Ono, Ken’ichi, 1957– Learning to industrialize : from given growth to policy-aided value creation / by Kenichi Ohno. p. cm. – (Routledge-GRIPS development forum studies; 2) Includes bibliographical references and index. 1. Economic development. 2. Industrialization. 3. Industrial policy. 4. Industrialization–East Asia. 5. Industrialization–Developing countries. I. Title. HD82.O586 2012 338.9–dc23 2012014602 ISBN 13: 978-0-415-59570-4 (hbk) ISBN 13: 978-0-203-08553-0 (ebk) Typeset in Times New Roman by Graphicraft Limited, Hong Kong Contents List of ¼gures vi List of tables viii Preface ix Acknowledgments xiv PART I Ideas and methods 1 1 The developmental trap 3 2 Industrial policy in the age of globalization 25 3 Ingredients of proactive industrialization 52 4 Policy procedure and organization 89 PART II Country studies 121 5 Meiji Japan: from feudalism to industrialization 123 6 Singapore: national productivity movement 169 7 Taiwan: policy drive for innovation 192 8 Malaysia: trapped in upper middle income 218 9 Vietnam: growth without quality 240 10 Ethiopia: the Growth and Transformation Plan 268 Notes 299 Bibliography 311 Index 323 Figures 1.1 Per capita income relative to US: East Asia 1 6 1.2 Per capita income relative to US: East Asia 2 7 1.3 Per capita income relative to US: Latin America 8 1.4 Per capita income relative to US: Russia and Eastern Europe 9 1.5 Per capita income relative to US: Africa 9 1.6 Per capita income relative to US: South Asia 10 1.7 Growth and natural resource endowment 16 1.8 Per capita income and commodity price: (A) Zambia, (B) Côte d’Ivoire, (C) Venezuela, (D) Uganda 19 2.1 Authoritarian developmentalism in East Asia 48 2.2 Political regimes in Africa 49 3.1 Japan: Shindanshi exam and registration scheme 70 3.2 Kuchiki’s ½owchart approach to industrial clusters 77 4.1 Standard policymaking procedure 93 4.2 Technocrat team supporting top leader 97 4.3 South Korea 1960s–1970s: Economic Planning Board 98 4.4 National council or committee 99 4.5 Singapore: National Productivity and Continuing Education Council 100 4.6 Malaysia: National SME Development Council 102 4.7 Korea: presidential committees 103 4.8 Japan: organizational structure of MITI 105 4.9 Japan: MITI’s policy formulation 106 4.10 Thailand: specialized institute approach 110 4.11 Standard ingredients of an industrial master plan 112 4.12 Vietnam: a proposal for the National Competitiveness Council 119 5.1 Umesao’s view of the world 128 5.2 Coalition and competition among political leaders, 1868–1881 145 6.1 Evolution of Singapore’s productivity movement 174 6.2 Stakeholders of the productivity movement, 1980s 179 Figures vii 6.3 JICA-supported productivity development project (after restructuring) 182 7.1 Organizational structure of the Ministry of Economic Affairs 198 7.2 Organizational structure of the Industrial Development Bureau, MoEA 199 7.3 Organizational structure of the Industrial Technology Research Institute 206 8.1 Malaysia: evolution of industrial policy 220 8.2 Manufacturing plus plus 222 8.3 Malaysia: a summary of national transformation strategy 227 9.1 Savings and investment balance 245 9.2 Investment-driven growth without productivity increase 248 9.3 Stages of catching-up industrialization 254 10.1 Linkages in Core ADLI 283 10.2 Resource transfers between agriculture and industry (other than linkages in Core ADLI) 285 10.3 GRIPS–JICA industrial policy dialogue and industrial support projects 289 Tables 1.1 Selected indicators of innovativeness 12 3.1 Japan: policy dialogue with developing countries (selected list) 58 3.2 Korea: Knowledge Sharing Program (summary) 59 3.3 Standard policy menu for industrial capability enhancement 63 3.4 JICA’s cooperation for systematic introduction of kaizen 67 4.1 Thailand: specialized institutes 108 4.2 Zambia: action plan matrix format for the Triangle of Hope project 115 5.1 Origins of political leaders in late Edo and early Meiji 147 5.2 Number of engineers by type of education 160 5.3 Number of engineers by sector 161 5.4 Machinery imports in the Meiji period 163 6.1 History of core organizations for productivity improvement 178 7.1 Taiwan: key economic indicators 195 7.2 Components of small and medium enterprise policies 213 9.1 Vietnam: key economic indicators 243 9.2 Vietnam–Japan bilateral policy dialogue for industrial competitiveness 264 10.1 Ethiopia: basic data 274 10.2 Export performance of targeted industrial products 275 10.3 Numbers of farmers training centers and agricultural extension workers 279 10.4 Numbers of extension workers and service delivery stations (allocated or established) 280 10.5 Agricultural production 280 10.6 Land productivity of major crops 281 10.7 Issues discussed at high-level forums (phase 1) 291 10.8 GTP’s visions, objectives, and strategic pillars 293 Preface Learning without thinking is useless; thinking without learning is insecure. (Confucius, 551–479 bc, chapter on politics, Lun-yu) This book proposes a way to learn pragmatic policymaking for developing countries that must cope with the strong pressure of market-orientation and globalization of our time. It points to a realistic method of overcoming a low- or middle-income trap into which many countries seem to have fallen. Such a strategy is not only possible but also already practiced in many parts of the world, especially in East Asia, with different degrees of success. Our main focus is the productive sector of the economy which includes manufacturing, agriculture, services, and logistics, but the general principle advanced here should be applicable to all policy making. This study should be useful for people who are seriously interested in the practice of development policy, such as national leaders, economic ministers, directors and of¼cials of govern ment ministries and agencies, development experts and consultants, policy researchers and students, and even ordinary citizens who are yearning to know what goes wrong with the policies of their motherland and how this can be remedied. Industrial policy debate is receiving revived attention. The days of minuscule government and unfettered markets are over. It is now widely recognized that free-market crusaders can do much harm to the global economy, and the appropriate involvement of government is essential for sustained growth.