Industrial Structure, Democratic Transition and the Transformation of the Developmental State By Tian He Department of Political Science and International Relations University of Canterbury A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in Political Science at the University of Canterbury, New Zealand 2017 ii Abstract We have learned a lot about on how the developmental state successfully engineered rapid economic growth in the post-war period and how the developmental state transformed as a result of the emergence of socioeconomic forces in the development process. However, scholars have generally overlooked a theoretical puzzle: Despite similar levels of economic development engineered by the state, why is it that there are both cross-case and within- case variations in the transformation of the developmental state? My thesis introduces a theory of ‘the dynamics of the developmental state’ to narrow this theoretical gap in studies of the developmental state. I argue that the variations in the transformation of the developmental state are primarily produced by two factors: industrial structure and democratic transition. Both factors are shaped by strategic calculations of ruling elites who built and run the developmental state. Using methods of comparative historical analysis, I test my arguments in three typical cases of the developmental state (i.e. South Korea, Singapore and Taiwan), which have exhibited significant divergence in the transformation process since the early 1980s. The empirical evidence presented in this study offers strong support for my assertion. In the case of South Korea, where the strategic calculations of the ruling elites resulted in an industrial structure characterised by a high level of domestic private capital concentration (DPCC) and a rapid democratic transition carried out in 1987, the emergence of strong state policy constraints produced by a range of social actors (i.e., business elites, organised labour, and the middle class) led to a rapid transformation of the developmental state since the early 1990s. In contrast, in the case of Singapore, where the ruling elites’ strategic calculations resulted in an industrial structure characterised by a high level of FDI and SOE and an absence of a democratic transition, the transformation of the developmental iii state has not occurred because the state policy process has been largely immune from state policy constraints of social actors. The case of Taiwan offers further confirmation of my theory. Prior to 2000, when the strategic calculations of the ruling elites led to the formation of an industrial structure characterised by a low level of DPCC and a significantly slower process of democratic transition, a gradual transformation of the developmental state occurred as a result of the emergence of minor state policy constraints among business elites and the middle class. In the post-2000 period, the increase in the level of DPCC and the completion of the democratic transition led to the emergence of enormous state policy constraints, which eventually resulted in a rapid transformation of the developmental state in Taiwan. iv Table of Contents Abstract ii Table of Contents iv Figures and Tables vi Acknowledgements vii Chapter One Introduction 1 The Issues, the Puzzles and the Arguments 1 Research Design and Thesis Organisation 19 Chapter Two Literature Review and Theoretical Framework 31 Revisiting the Developmental State Model and its Transformation 32 Towards a Theory of the Dynamics of the Developmental State 47 Summary of the Chapter 82 Chapter Three The Rapid Transformation of the Developmental State in South Korea 86 Introduction 86 Political Origins of the State Policy Choices in South Korea 88 Transformation of the Political Foundation of the State in South Korea 99 Formulation of State Strategic Visions in South Korea 111 State Policy Constraints of Business Elites in South Korea 123 State Policy Constraints of Organised Labour in South Korea 133 Summary of the Chapter 144 Chapter Four The Non-transformation of the Developmental State in Singapore 147 Introduction 147 Political Origins of the State Policy Choices in Singapore 149 Transformation of the Political Foundation of the State in Singapore 160 Formulation of State Strategic Visions in Singapore 173 State Policy Constraints of Business Elites in Singapore 184 State Policy Constraints of Organised Labour in Singapore 196 Summary of the Chapter 207 v Chapter Five The Two-Phase Transformation of the Developmental State in Taiwan 210 Introduction 210 Political Origins of the State Policy Choices in Taiwan 211 Transformation of the Political Foundation of the State in Taiwan 223 Formulation of State Strategic Visions in Taiwan 235 State Policy Constraints of Business Elites in Taiwan 246 State Policy Constraints of Organised Labour in Taiwan 257 Summary of the Chapter 268 Chapter Six Conclusion 271 Brief Synopsis of the Research Question, Main Arguments, and Research Design 271 Summary of the Empirical Analysis: Industrial Structure, Democratic Transition and the Changing State 274 Theoretical Contributions and Future Research 284 Bibliography 289 vi Figures and Tables Figures Figure 1: The Transformation of the State Policy Mechanism 12 Figure 2: The Structure of the Main Argument in This Study 13 Tables Table 1: Variations in the Transformation Outcomes across the Three Developmental States 21 Table 2: Comparative Cases for External Comparison 24 Table 3: The Taiwan Case’s Internal Variations 26 Table 4: The Ruling Elites’ Strategic Decisions and Democratic Transition Outcomes 68 Table 5: Variations in the Types of Economic Interest Groups 79 vii Acknowledgements This thesis would not have been possible without the help I received from many people. I wish to express my gratitude to Professor Alexander Tan for initiating this project and keeping me on the right track. I am also grateful to Professor Anne-Marie Brady for her constant support and assistance. During my several fieldtrips, I met so many excellent scholars whose observations and insights were instrumental in shaping my understanding of the transformation of the developmental state in East Asia. A special word of thanks to my parents for offering unconditional support and to Jona for having faith in me. 1 Chapter One Introduction The Issues, the Puzzles and the Arguments An Overlooked Theoretical Puzzle in Studies of the Developmental State The concept of the developmental state has evolved out of the post-war development experience of East Asian New Industrialised Countries (NICs). Since the early 1980s, the theories of the developmental state have been the centre of scholarly attention in several academic fields including development economics, political economy and political sociology. Broadly speaking, studies of the developmental state proliferated between the late 1980s and mid-2000s have covered two specific areas:1 One area concerns the capacity of the developmental state to generate rapid economic growth; the other area concerns the decline of the developmental state in directing the state-led development process. Over the past three decades, these studies have made a significant contribution to our understanding of the rise and decline of the developmental state. My study addresses one theoretical puzzle that has largely been overlooked in these studies of the developmental state: Despite similar past economic successes engineered by the state, why is that the transformation of the developmental state not identical across East Asian successfully industrialised economies? My explanation for the variation in the transformation of the developmental state is a political one. Understanding why the developmental states have been locked onto 1 Two waves of research on the developmental state will be further examined in the next sub-section. 2 divergent transformation paths requires an exercise in comparative politics. The study intends to introduce the theory of ‘the dynamics of the developmental state’ to account for the variations in the transformation of the developmental state in East Asia. The state policy process is a dynamic process that is constantly shaped by specific policy constraints facing the ruling elites in the development process. The very successes and processes that their policies brought about generate new sets of constraints on the state policy-making process, which, in turn, reshapes the developmental state in the process of economic development. In this study, I focus on two types of policy constraints – structural constraints and institutional constraints – that have reshaped the transformation outcomes of the developmental state in East Asia. Providing an answer to the East Asian puzzles depicted above, I argue that the divergent levels of the state policy constraints have been primarily responsible for the divergence in the transformation of the developmental state. To account for the divergent policy constraints, I turn to two variables, i.e., industrial structure and democratic transition, both of which are shaped by the strategic consideration of the ruling elites. The former shapes the levels of state policy constraints by determining the types of economic interest groups emerging from the development process. The latter generates state policy constraints by transforming the political foundation of the developmental state. The variations in the two variables thus play crucial roles in producing the variations in the transformation outcomes