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State and market in Economic Development. Southeast Asian industrial policy in comparative East Asian perspective

This paper offers a nuanced and variegated view of the Southeast Asian economic miracles in comparative East Asian perspective, i.e. by comparing and contrasting the Southeast Asian experiences with those of the other high performing (East) Asian economies, as the World Bank (1993) chose to describe them. It offers a critical look at the received wisdom via the World Bank of the region's rapid growth and structural change, before elaborating on the achievements and limitations of the Southeast Asian miracle economies, especially Malaysia, Indonesia and Thailand. After critically reviewing the World Banks (1993) influential study of the East Asian economic miracle, the diversity of East Asian experiences is stressed. (Recognizing this diversity enables us to draw appropriate lessons.) The inferiority of the Southeast Asian experiences compared to their other East Asian counterparts -- is then elaborated, with particular attention given to industrialization as well as other aspects. These limitations also enable us to understand why the region was more vulnerable to the currency and financial crises that rocked the region in 1997-8 as well as why there are grave doubts about the region's ability to get back on to the high growth path. The 1997-8 Southeast Asian currency and financial crises can therefore be seen as a consequence of socio-economic as well as policy changes, which also seem to raise important doubts about returning to and sustaining the Southeast Asian miracle. Finally, some reflections are offered regarding the urgent need for a new generation of industrial policy appropriate to current challenges. Economic liberalization at both national and international levels has seriously constrained the scope for government policy interventions, especially selective industrial promotion efforts. New policies are urgently needed to prevent developing economies already at a historical disadvantage in various respects from falling further behind, if not to begin to close the gap with the industrially more developed economies of the North as well as the newly industrial economies that have emerged in recent decades, i.e. during the last third of the twentieth century. The new circumstances imply that industrial policy strategies will have to be quite different from previous industrial policy in order to be able to address the new challenges. Economic liberalization, freer markets and more mobile economic resources do not render industrial policy obsolete, but rather require new feasible and viable industrial policy options in the face of the new challenges and constraints. All this is not to suggest that there is one industrial policy formula for all economies over time. Instead, precisely the contrary is true, i.e. context is all important. There is no room for dogma, but strategic pragmatism should prevail instead. Appropriate industrial policy will require selective interventions as well as effective co-ordination among firms, clusters and factor markets, which should presumably be consistent with a clear and coherent vision of the future as well as the road-map towards policy goals. The debate over the East Asian miracle from the late 1980s has tended to focus on the respective roles of the state and the market. Less attention has gone into analyzing the nature of the states and markets in question. In a sense then, like so many other categories in the social sciences, these terms have become reified, acquiring meanings well beyond what their actual significance in history. This, however, is not the place to enter into such a debate. Instead, the following discussion will focus on industrial policy, i.e. the selective promotion of certain economic activities, usually through state interventions, but often involving increasingly indirect means such as official endorsement or pro-active responsiveness to collective private sector initiatives. Arguably, industrial policy has been an important feature of the emergence and transformation of capitalism in most parts of the world with some possibly notable exceptions (early British and Belgian capitalism). It is now generally acknowledged that there is no single monolithic and homogenous capitalism. Capitalism has not only changed over time, but has manifested itself differently in various parts of the world owing to various factors. The rapid growth of East Asia in recent decades has led to a great deal of discussion of an ostensibly East Asian capitalism, sometimes described as part of a flock of flying geese following Japan. For different reasons, various observers in the nineties have suggested the distinctiveness of Southeast Asian capitalism in contrast to the rest of East Asia. From the eighties, and especially in the early and mid-nineties, there has been growing international recognition of the rapid economic growth, structural change and industrialization of the East Asian region, including four economies of Southeast Asia, namely Singapore, Malaysia, Thailand and Indonesia. There has been a tendency to see East Asia as much more of a coherent region than it actually is, and a corresponding tendency to see economic progress in the region as similar in origin and nature. Terms such as the Far East, Asia-Pacific, Pacific Asia, East Asia, yen bloc, flying geese, tigers, mini-dragons and so on have tended to encourage this perception of the region as far more economically integrated and similar than it actually is. Yoshihara Kunio (1988) argued that the fast growing Southeast Asian economies were characterized by ersatz capitalism because of the compromised and inferior role of their states, their treatment of ethnic Chinese and their failure to develop better technological capabilities. Ruth McVey (1992) developed a nuanced overview of the nature of Southeast Asian capitalists. The World Bank (1993) argued that the Southeast Asian high performing economies were the preferable model for emulation by other countries seeking late development. Jomo K. S. et al. (1997) criticized the World Bank's claims, suggesting instead various problems associated with the growth experiences of the very economies praised by the Bank. The East Asian currency and financial crises of 1997-8 radically transformed international opinion about the Southeast Asian capitalist models, with praise quickly transformed into condemnation. Jomo (1998) has characterized the crises as the consequence of international financial liberalization and related increases in easily reversible international capital flows. Yoshihara (1999) has since argued for the necessary conditions for achieving echt -- instead of ersatz capitalism. This paper focuses on the experiences of Malaysia, Indonesia and Thailand, three economies of Southeast Asia that have been considered high-growth economies, as well as second-tier or second-generation newly industrializing economies (NIEs) or countries (NICs). Sometimes referred to as the MIT economies, they share some common characteristics with Singapore, which is also in the region. However, they are not only far more advanced in developmental terms, but also quite different as a city-state heavily reliant on trade and financial services besides manufacturing. Although the MIT economies of Southeast Asia are quite heterogeneous, and at rather different levels of development, the high growth economies in the region have had some similar policies that distinguish them from the other high-growth economies of the East Asian region. Most importantly, the Southeast Asian high growth economies (including Singapore) have relied much more heavily on foreign direct investment to develop most of their internationally competitive industrial capabilities. Trade policy instruments in the region have been less well formulated and implemented, with rather mixed consequences, but have nonetheless been part of the region's industrial policy story. While Singapore, like Hong Kong, has eschewed trade policy instruments, it has used state-owned enterprises (usually referred to as government-linked corporations in the island republic) more than any other East Asian economy. Generally, government interventions in the region have, however, been influenced by a variety of considerations besides economic development and late industrialization. Consequently, industrial policy has also varied in nature, quality and effectiveness. Yet, it will be shown that the economies in the region would not have achieved as much as they have without selective government interventions, including industrial policy. The next part of this paper critically reviews the World Bank's (1993) influential study of the East Asian economic miracle, before the third section emphasizes the diversity of East Asian experiences and the significance of recognizing this diversity for drawing appropriate lessons. The following part stresses the inferiority of the Southeast Asian experiences compared to their other East Asian counterparts which is elaborated in the following two parts. The fifth section advances the critique of Southeast Asian industrialization, while the sixth part extends the critique of Southeast Asian economic development to other aspects besides industrialization. The seventh section elaborates on the 1997-8 Southeast Asian debacle in the form of currency and financial crises, which seem to have brought an end to talk of the Southeast Asian miracle. The concluding part identifies some new challenges for a contemporary development state, particularly in terms of industrial policy options available.

  • Authors: Jomo Kwane Sundaram
  • Year: 2002
  • Organisation: University of Malay
  • Publisher: n/a
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