East Asia’s Economic Success: Conflicting Perspectives, Partial Insights, Shaky Evidence Robert Wade World Politics, Volume 44, Issue 2 (Jan., 1992), 270-320. ‘Your use of the ISTOR database indicates your acceptance of ISTOR’s Terms and Conditions of Use, A copy of ISTOR’s Tenis and Conditions of Use is available at huepctyww jstor.orgfabouvterms.html, by contacting JSTOR at jtor-info@umich.edu, or by calling JSTOR at (888)388-3974, (734)998-9101 or (FAX) (734)998-91 13, No part of a STOR transmission may be copied, downloaded, stored, further transmitted, transferred, distributed, altered, oF otherwise used, in any fort ot by any means, except: (L) one stored electronic andl one paper copy of any article solely for your personal, non-commercial use, or C2) with prior written permission of ISTOR and the publisher of the article or ater text. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the sereen or printed page of such transmission, World Potiies is published by Johns Hopkins University Press, Please eomtact the publisher for further permissions regarding the use of this work. Publisher contact information may be obtained at bttpsferww.)tor-org/jourmals/jup. html World Polisies ©1992 Johns Hopkins University Press ISTOR and the ISTOR logo are trademarks of ISTOR, and are Registered in the U.S. Patent and Trademark Office. For mote information on ISTOR contact jstor-inio@umich edu, ©2001 1sTOR hup:thrwwjstor.orgy Wed Aug § 16:21:38 2001Review Article EAST ASIA’S ECONOMIC SUCCESS Conflicting Perspectives, Partial Insights, Shaky Evidence By ROBERT WADE Alice Amsden, Asia's Next Giant: South Korea and Late Indutrialization New York: Oxford Univecsity Press, 1989, 379 pp. Stephan Haggard. Patheoays from the Periphery: The Politics of Growth in the Newly Industrialzing Countries, Ithaca, N.¥.: Cocnell University Press, 1990, 276 pp. Helen Hughes, ed. Achieving Induavialization in East Asia, Cambridge: ‘Cambridge Universcy Press, 1988, 377 pp. Don't fisten to “comparative advantage” advice. Whenever we wanted to do anything the advocates of comparative advantage said, “We donc have comparative advantage." In fact, we did everything ‘we wanted, but whatever we did, we did well. —Governor Park Korea Centeal Bank! 1 do aot believe thatthe firms could have organized a supercomputer project themselves because businesspeople did not believe in the feas- ibility and profitability of this kind of supercorapucer in the neae fix tre. Our pressure or promotion was necded. Senior arr aficia? ‘Tre Neouineras INTERPRETATION oF East ASIAN Success VER the past two decades a literature big enough to fill a small airplane hangar has been produced on the causes of East Asian economic suecess. Of that which is economically literate the mainsteeam adapes what could be called a “neoliberal” interpretation. This says that + The author acknowledges Adriao Wood, Ronald Dace, Menfred Bienfeld, livia Cox- Fill, ube Gore, and Michael Lipton, The usual exoneration applies with more chan usual force, "Quoted in Yoginder Alagh, “The wie and che Developing Asian and Pecifc Region: A View foe Sout Ana Aan Beloit Rees 700,298 16 [hank Deve Kap fa this reference "Cited ip Maren Fransman, The Market and Beyond: Cooperation end Competition in In fapmation Technology the Jopancr Sper (Cambrisge: Catnbridge University Press, (50), 76 World Palitice 44 (January 1992), 270-320EAST ASIA’S ECONOMIC SUCCESS va the East Asian countries were more successful chan others in terms of long-run growth because, in essence, they stuck more firmly to the pre- scriptions for short-run efficient resource allocation derived from the theorems of neoclassical economics. Neoliberal here refers to a subset of neoclassical economics. Its mem- bers believe that as a general rule the neoclassical prescriptions for short- run optimal resource allocation are also the core recipe for maximizing the rate of long-teem growth. Other neoclassicals, by contrast, draw more of a distinetion between the cwo kinds of analyses, introducing « more complex array of variables into growth issues than they use for questions of optimum resource allocation, Neoliberals are inclined co think that “getting the prices right” is both necessary and a nearly sufficient condition for maximizing the rate of long-term growth ("gei ting” in the sense of letting prices find their right levels, and “right” the sense of the relative prices established in freely operating domestic and international markets); other neoclassicals would say that it is no ‘more than necessary. Relatedly, ncoliberals believe that most market fail- ure is 2 result of government policies and that, even in those uncommon cases where market failure occurs for other reasons, the welfare costs of remedial government intervention can often be expected to be greater than the welfare gains. This weighting of probabilities is based on a rel- atively coherent theory of perverse government, as sct out, for example, in the works of William Niskanen and David Colander! In the neoliberal view, geowth is a natural or inherent property of capitalise economies. Governments have an important role in providing those “public goods,” such as physical infrastructure, law enforcement, macroeconomic stability, and perhaps education, that are difficult to ar- range through private concracts. But beyond that they should not go, except in those rare cases of market failure referred to above. ‘The prob- lem is that most governments have in fact gone well beyond these limits, 2 Naseanen, Bureaucracy and Represenutive Govertment (Chicago: Aldine-Asherton, 1971}; and Calandee, ed, Neolaical Pliicel Economy: The Anais of Re ieching and wut Acie fie (Cambrcge: Ballinger, 198). For an academic example of caliberal develapmncet eco frome, sce Deepak Laly Tie Poverty of Developmen Economics (London: IEA Habact Pa pechsek ‘no. 16, 1983). For = paicy paper based on acoliberal sumptions, sce, ef, Acceleaced Development in Sub-raharan Apres: An Agenda for Acton (Washingeon, Di ‘World Bank, 1981}, commonly known ss the Berg repnce For an example of tendentiaus se ‘of evidence in the neciberl cause, see Michsel Michaly et al, Liboalzing Foreign Trade ‘Lenont of Experience fom Developing Coumeit, ol. 1? ‘Oxfad Blackwels, for the World Bank, 1951), cap. sumerary volume: Fora critque of neolberaliam, see Chrgher Cal lough, “Serveelism verses Neo-iberalim: An lntcoduction,” in Calcough and Taryes Manor, eds, Sater or Market’? Neo-ibralim and che Development Policy Debate (Oxtord Onfard Univerry Psess, 191). For a ertique of the sry by Michsely etal, see David Evans, “Teuciutions, Sequencing, and Trade Policy Refoem” (Genevar UNCTAD, May renm WORLD POLITICS adopting policies that interfere, intentionally or not, with the free work- ing of markets. East Asian governments have stayed within these limits. Hence, East Asian economic success, which in turn resoundingly vindi- cates the general neoliberal prescriptions. ‘Those who outline this argument as a preliminary to a critique often find chemselves accused of setting up a straw man; no respected econo- rise is as simplistic as that, they are told. So it is important to establish. that this is a faie short summary of the core neoliberal position, that it is what respected economists say. Enter Helen Hughes, editor of Achieving Industrialization in East Asia, definitely nobody's idea of a straw man. ‘What policies have been eritical to economic success in East Asia? she asks, Her answer: “The conclusion is that “unshaclling exports” (dhat most of the East Asian countries had themselves at first shack(ed) has been the key 29 succes. How- ever it is also dear that successful performance needs several {other] policy strands, Poltieal stability and the rule of law are essential, Economic pot ‘cies apparenily distorted prices iss shan was the case in most other devel ‘oping couneries; macroeconomic management was relatively successful, all economic sectors, particulstly ageiculture? were developed, and public in vestment in social and physical infrastructural facilites was productive. Where these economic conditions did not prevail, asin the Philippines, the economy faltered. Governments thus provided the environment’ for ‘growth; but private enterprise, despite risk and uncertainty, made the in- vestments necessary and through exposure 0 international compection be- came efficient and profitable. (pp. x¥-xvi) As for replication by poorer countries, “There seems little doubt that if other developing countries had followed similar economic policies they ‘would also have geown more rapidly and would thus have been able to alleviate the poverty of their low income groups as well as avoiding high national indebtedness" (p. xvi). This is cast in the past tense—“if other + Profetor of economics and cer of the National Center for Develapinent Seas a she Atstcsn National Unversity, ormetiy a highcaking oa at the Wedd Bank “ee oot clear wha Hughes thenon at this pc, but she presumably means tat the governmenedieced ts atenton o developing sgieuture, among ether wees: But sate falcics toward agitate tn Rove apd Tawar ler renly fers stndaed marker Eelpsccripton. Por an account of the high dng fle of the wate in developing Kocean snd Taancieagricaltre, we Wade, ‘Sowth Koree's Agrcukural Development ‘The Myth ofthe Base Sate” Pj Viaepoie 1 (May 1983) dem, gain aad Ser Gulu Pic nS Kone (ee, Cae, Wess Pr, 183), Mick Mate, a= Some Gross rel the Rie of Civl Scietys Agrcultuce in Tawan 40d South Kosea,” 0 Seton White, cd The Deslipental Stein Ese Aris (London: Macnil, 198) "Te addon othe chapter mentioned inthis paper the ho includes papers by Chenery {on aternatve views an adustalization in Eat Atal Pas (onthe coe of ovo capa Widen the sale of oveeneneny, Harberger (on growth, ndustalveton, sod economic structure io Eas Asan Eats Armes) Fal (n sdealogy and indstazation in Tae nd East Asa, Hirano fon fapan as mae, Haggard (on the pois of induseaiationBAST AStA'S ECONOMIC SUCCESS ms developing countries had followed"—but it is clearly intended to apply today. ‘According to Hughes, then, economic development really is simple. ‘The experience of East Asia confirms Adam Smith’s insight of ewe hun- dred years ago that “little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, bus peace, easy caxes, and. tolerable administration of justice; all the rest being brought about by the natural course of things.” Conversely, governments of the less sve~ cessful developing countries stand condemned for holding back the es- cape from poverty and high national indebtedness, among other ills, by interfering with markets and undersupplying public goods James Riedel, also nobody's idea of a straw man, concludes his over~ view essay in the Hughes volume on che same note: “The policy lessons that derive from che experiences of the East Asian countries are simple and clear-cut, and for that reason are all too readily ignored of di missed” (p. 38). The lessons are, above all, that neo-classical economic peinciples are alive and well, and working patticu- larly effectively in the Fast Asian countries, Once public goods are pro- vided for? and the mast obvious distortians correeted, markets seem ro do the job of allocating resources reasonably well, and certainly bewer than centralized decision-making. That is evident in East Asia, and in most other parts of the developing and industrial world, and is afterall the main tenet of neo-classical economics. (p. 38) What evidence does Riedel provide? He readily admits that “govern- ments have been deeply ineolved in the economies of all che East Asian countries,” including Hong Kong."° They have been “actively engaged in managing the system of industrial incentives.” For example, “The level of protection in the Republic of Korea, apart from that faced by exporters, has remained Aigh” (p. 32; emphasis added). One might have expected him to address the obvious next question. Ifthe level of protec~ tion on domestic sales has remained high (not furcher specified), why has Korea’s econamie performance been s0 good, given that the most central of all neoclassical development prescriptions concerns the benefits of nearly free trade? Hie agrees that “the area of government involvement {WRovea and Taiwan), Mackie (on the police of growth lw sean), Malley (on cute and indusealtzaion). *'Simithy A Bury snto the Netue and Coucesof the Wealth of Nations, ed. E. Cannan, (New Yorks Random House, (937). * Professor af iniernational economics at The Jahns Hopkins Univectiy » Teis posable wo define 3 public gocd:o permit huge amounts of sae activity. "But Riedel also says Hughes, 35) dat the Hong Kong gaverament "hat confined ilf gey 19 minimal Functions," rom which we cad afer that he inten the term "deeply ‘valved to caver iovalvementlimied to “minimal {Smuthian} functions.”m WORLD POLITICS ‘most difficult co evaluate is the management of the system of incentives which guide private economic activity.” Nevertheless, he leaves the reader with the strong presumption that “governments’ main eontribu- tion to economic success in the East Asian countries was... principally in removing the obstacles to growth which they themselves put there in the. first place,” that East Asian governments made their task unnecessarily complicated by having to “anticipate and offset the market distortions that result from [their own] dirigiste stracegies of industeialization” 37; emphasis added). So while the fact of “government intervention” Fast Asia is acknowledged, it is given scant analysis; the effects of inter- vention are asserted with virtually o hasis in evidence. In particular, key challenges, such as the combination of Korea’s admitted high protection. with its admitted good performance, are ignored. The dirigiste strategies of industrialization are presented as mistakes that required further gov- ceenment intervention to offset them (such as export subsidies to offset import protection); the idea that those dlirigiste strategies might have Aelped industrialization is not even entertained. ‘The chapter in Hughes by Seiji Naya" displays the same habits of chought. Naya, too, cecognizes that “the incentive system applied in the ies was, of course, not entirely free of bias. Some industries, particularly inteemediate and engineering goods industries, enjoyed heavily pro- tected domestic markets at the expense of traditional consumer goods industries” (p. 84). But he gives no evidence for the magnitude of the incentive bias and says not a Word about its effects on oucput. He merely repeats the conventional conclusion that “the better performance of the nics with respect to economic growth, employment and income distri- bution compared to the resource-rich ASEAN countries can, €0 a large ex cent, be related to a combination of more thorough and timely adoption of outward-looking, market-oriented policies and rapid improvements, in human resource and institutional development” (p. 93). Neither he nor the other contributors to Achieving Industrilization in East Asia ex- amines issues having to do with technological change. As in mast simple neoclassical writing, technology is assumed away, treated implicitly as an intermediate dependent variable that adjusts easily once the correct (trade-policy-derived) incentive structure is set in place in the economy asa whole!” " Dicector of dhe Resource Spe Intute at che Este-Wese Center, farmesy the chief economia af the Avin Development Banke "Thetis, however, & nead areal econamice af induced innevstion, bath technological and instusiona, that fevous and interesting, tous aching () = supply side of Scene, G) a theory af government direced intsutional and technelogial innovation (powered by things ther than faetorsearcites, and) theory of iasttatonal ert,EAST ASIA’S ECONOMIC SUCCESS 5 ‘Much of what chese neoliberal authors say about the causes of East Asian success is unexceptional. Hughes is right to highlight the role of private enterprise—although ic has been a long time since any serious economist urged public enterprises as the main vehicle of development. She is right to imply that in many less developed countries publie policies have made matters worse, and that these countries could have done bet- ter had their policies been more like East Asia's. And Riedel is quite right to say that markets allocate resources better than do central decision makers without markets (if these are the only choices). But this is pretty ‘anodyne stuff. The problem is chat these and other neoliberal economists shy away from subjecting their beliefs ta serious empirical test, yet they are powerful enough to get those beliefs widely accepted, especially via international financial institutions like the rr and the World Bank. East Asia’s Success? Let us first consider the starcing point of the whole exercise, the claim that what is to be explained is the superiority of capitalist East Asta’s economic pecformance compared with that of other “newly industrial- ized," “late developing,” “intermediate,” or “semiperipheral” countries. We concentrate on South Korea, which has eeceived the bulk of the ac- tention, Has Korea really been outstandingly successful? Ik is to be re- merabered that as recently as the mid-1970s some prominent analysts on the Left were writing off Korea as “a house buile on sand,” a “tottering neo-colony," an export platform whose success would last only as long as wages were kept below those of competitors—this, in explicit contrast o the more viable communist economy of the North. The analysts lam- basted the South with chaptee titles like “er vs. the People” and “South Korean Society: The Deepening Nightmare.” Tis true that Korea's record contains plenty that could qualify a eu- logy of growth. Life expectancy at birth (sixty-nine years in 1986} is be- low Sri Lanka’s, yet Sri Lanka's per capita income is only a sixth of Korea's; and Korea is in the bottom half of a life expectancy ranking of upper-middle-incame countries." ‘The caviconment has become seri- ously polluted: Seoul's air is said to have one of the highest concentra- & Aidan Poster Carer, “North Korea: Development and Selteliance, » Critical Ape pris" Buln of Concomad Anan Scheie 9, na (1977. See aso Gavin McCormack aod John Ging, ed, Grain Korea (Nortingham: Beewand Russet Peace Poundation, For Spokesman books, 1972), For more ciseution on interpretations of South Kocean devclope iene Wade (i, 5, 1882) Waitd Bank, World Development Report 1988 (Washington, D.C.- World Bank, 1988), "Table I.176 WORLD POLITICS tions of sulfur dioxide in the world." Its traffic crawls at not much more than half the speed of traffic in New York or London. Much of the country's urban tap water is said to be unfic for drinking. There is some evidence that the application of exceedingly high levels of chemical fer- tilizer to meet government targets has harmed the chemical composition, of the soil And in terms of civil and political rights no one holds up South Korea as a model, except in comparison with the North, In the 1970s it came about halfway down a ranking of civil and political rights in middle-income countries; in 1983, about two-thirds of the way down.” Surveillance by the secret police has been pervasive, and a for- midable coercive eapacity remains in place. Independent labor unions have been repressed. The male-female industrial wage gap is, according to Amsden, about the biggest in che world, rivaled only by Japan’s. Whac 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 another Japan or Germany (as in Amsden's title, Asia's Next Gians), In fact, it accounts for only 0.87 per- cent of world population (against Japan’s 2.6 percent) and only 8 per~ cent of world oop (against Japan's 154 percent). In area i is a quarter the size of Japan and less than 2 quarter of California. Its per capita U.S. dollar incame, expressed as a percentage of the average of the Northwest European and North American core, was only 8 percent in 1960, 13 pee- cent in 1980, and 20 percent in 1988. These figuees pale alongside Japan's 23 percent in 1960, 76 percent in 1980, 118 percent in 1988." Korea is hardly a “miracle” in the Japanese context. And it remains, as in 1960, by far the poorest of the four Fast Asian newly industrialized countries (ites): per capita income in 1986 was only two-thirds of Taiwan's, one- third of Hong Kong's, and less than one-fifth of Japan’s; and it was one~ quarter of Britain's and 14 percent of the U.S.’'s.” ‘This having been said, Korea is nevertheless outstandingly successful by at least four key indicators. The first is the gain in its relative eco- ' Beomomast, “Phe Environment: A Survey,” September 2, 198, p. 7; Saya Hepinstall “A Smal of Success inthe Batle against Pollan,” Far Easers Beanorse Revew, July 1989; . 70, Cae a Weldon Bello and Stephenie Rosefeld,"Dragonsia Distress: The Crisis ofthe wos” Wrld Paley Journal Sepuember (950, 1 Wde (fa. 5, 1980), 103 and chap. 5 " Wate, Gouering the Marker: Beonomic Thcony and the Role of Government in East Aan Induaraieaton Princeton: Princeton University Pres, 1990), 238 hi "World Income Ioequalies and che Future of Socialism” (Bing- hampton: Braudel Center State University af New York, 1990) The fguce was §2,572 in 1986, ss against $17,475 forthe US. zod 68870 for the U.K. See Wace (17), Table 2.1EAST ASIA'S ECONOMIC SUCCESS 7 ‘nomic command over world resources, measured by the increase in pee capita income expressed in U.S, dollars.” In 1962 Korea ranked 99¢h in the world, and US. aid officials are said to have wondered audibly “whether fie] was to remain indefinitely a pensioner of the United States." A quarter century later, in 1986, it was 44th, In Giovanni Ar- righi and Jessica Drangel’s large sample of countries, Korea is the only country to have jumped from their “periphery” to their “semiperiphery" between 1938-50 and 1975-83 (Taiwan would have been there, too, had it been inctuded) [ts performance was especially good 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 figure of $3,600 was far above the figures for Malaysia, Mexico, and Brazil and about equal that for Portugal. Indeed, Korea (and Taiwan) stand out from virtually all other countries of Eastern Europe and the Third World for having reduced the income gap with the Northwest European and North American core between 1980 and 1988. Everywhere else the > Woue that use of per capita dollar income to messi inresing or decrecsing gape terpen contr op sana sways probate ncaa of the campbicsong inececed ‘by changing real exchange rates (ta say nothing about intracauntry income distribution). To erp mene mor cry eee mee on hl we prea Bet measures of face (aow avaiable in the tables in the World Bales nual World spment Report) oc qualify the dollar gap by changes i tel exchange eae and 24d term of cade Changes i well). This & expeclly snportaot i the context of the topd {pore Incr n ths paragraph of «drama widening ofthe pap hetwoen core counteee fet almost everythere ete during the 1980 The poarnation would be les, though sll Serious if ether of these acjormente were made, Adrian Wood finds tat forthe period 1348-85 about worded ofthe sazetse inthe pet caps eno gap betwee indus market feonomiet and low-income countries measeeed a curcae US. delle, war de tee) hunger isthe exchange rate; for mice snare counces the gop would have nerrowed bat fac tal changes the exchange rae. Soe Woody “Clabal Trent Rea} Eachange Rates 160" $4" Waris Deelomns 1 na 4 (181); and ery Puzling ends ia Real achat Race A Prelimioacy Anaya (Mirco, luce of Developme Studie, Soar Univer™ fry, Baphton, 1986) Archi eoportane wavs marred by inva rieeton these raters; de tame has for ey own use of er capt nccme comparisons (I7). Anyone ‘Strcerned totenplain tren ince duction of world sweat oy nem von dene the ‘question ofthe real income effets ofthe scealae appreciation ofthe exchange rtes of nde tral counties cat to those ofthe ret oF he word. Have sch changes caused systematic “Banges in income diibuton between or within counties or sepians> Edward Mason eel, The Economic and Saal Madernseion of the Repablic of Korea (Cambridge: Hareaed Universty Pree, 1980, I6l- Thi lnm hae many Serer a the 1980 and ta the cacy I considered Kotex “bist caus i afen repeated he tte te highlight the subsequent svezen T have not seen actual evidence Fam documentary 9° ‘Shortnes Lary Wea ty Gin peor cant) tar Savon sel eon isn verbal pave bared on US. docirnensthat het ut didnot copy ble ployed te foreign adver inthe Koreas planning ogeny inthe te D8 Tony Knowledge the "sket ate story rex oni 3 Acrigh! and |, Drangel "Tbe Seaicason ofthe World-Feanomy: An Exploration of she Semiperipheai Zone” Review 10 Gaener 1986) Wand Bank, World Descopmene Repos (Washington, D.C World Rac, 197, 1950), “Table |ve WORLD POLITICS dollar gap has widened calamitously.* Braail’s average income, for ex- ample, rose from 12 percent of the core’s in 1960 to 18 percent in 1980, only to drop like a stone back to 12 percent by 1988. This is the Brazilian “miracle”? ‘The second indicator of Korea’s success is trade performance: in 1962 Korea was the 40th biggest exporter of manufactures to the U.S.; in 1986, the fifth. ‘The third indicator is industrial transformation. This docs not refer to the rapid rise of industry in total an, for by the industey/an ratio even Eastern Europe does quite well, thanks partly to the odd way chese things are measured. (Ina highly protected economy the domestic prices at which industrial products are measured are not world market prices, so the less efficient a sector is in world prices the greater its apparent contribution to ove.) Rather, the indicator of industrial transformation refers to the rise of skill-intensive, high-value-added industries that are competitive at world market standards of cost and product specifications. The most spectacular Korean casc is the semiconductor industry, maker of the leading input of the new technological paradigm. Korea is the world’s third biggest producer, after Japan and the U.S., of advanced semiconductor memory chips. Most of the chips are produced by Ko- rean-owned firms, which are drafting closely behind the world leaders, well ahead of all European semiconductor makers. Several other Korean. industries—notably, computers, automobiles, steel, and construction— are also having a sizable impact on the world economy.” “The final indicator is the removal of poverty, the elimination of severe economic hardship, the expansion of positive rights. Consider the num- ber of hours of work it takes an adult male unskilled city laborer to earn the equivalent of one hundced kilograms of the basic food grain. (A com- posite measure for food plus shelter, qualified by cate of unemployment, would be much more accurate, but data are not available.) Fernand Braudel presents this figure for sites in Western Europe between 1400 and 1950, using wheat. In the fifteenth century and first half of the six- teenth the figure was 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.” T have made the calculation for Taiwan, not for Korea, % South Asia js an exception. Itz average income in eelasion tothe care fll ony slightly. frog a disnal2 percent in 1980 to 18 percene sn 1988, Hut see fo 20 "Arrigh fin 18. 2 See Giovani Desi, ed, Techaizel Change and Economie Theory (Landon: Pinter, 19) 2 Fae abrel account of Kareasautomntale indcaty, see Wade On. 17) 2-12, on steel, see Amden, chap 12 °C Fried, Right and Wrong (Cambridge: Harvard Univesity Pess, 1978, Braudel, Cinlinaon and Captain, Pion Bighicnth Centar, vol. 1, The SracturetEAST ASIA’S ECONOMIC SUCCESS 18 bur the Korean trend would 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 carly 1980s it had fallen to 40-60 hours, about the same as in France between 1920 and 1930." In Korea it was probably more 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 proportion of the pop- ulation has co put in 230 hours," and in che United States where the figure for those earning the minimum wage was about 15 hours in the mid-1980s (my own figure was half an hour), I give this huge reduction, in hardship a big weight in any notion of progress. Taking these several criteria together, I have no qualms about accept- ing the mainstream view that the question is, indeed, to explain why Korea and the other Asian wres have been more successful than other poor countries in the postwar era." As for what those eritics on the Lefe said in the mid 1970s, it is hard to think of a clearer refutation in the whole of social science.!! ‘Wrov vate, Neouinsrat. EXPLANATION [GNORES To say that the Left crities got i¢ wrong is not to say that the neoliberals ot it right. The neoliberals have tended either to ignore contrary evi- dence or to acknowledge it without thought for its theoretical implica- [Bray Tie ond’ Calin, 1A, 1, cha TL Nowe dha he cha exces the “tccoetnth cnr And note he tek te vera sent th ne med O hoc be Ioytheline roared 1f shuld be 2 the ine marked 30 shoal be 30, snd son, loge inl order ring unt of tn hours) Due toc mistake, Eiaelysepored the fess in edn gublcaions, sping that tel wages “aly” lo low in wentm Burp as ‘ont the Jo hour tin a, beveen 1900 ad IN6D abot one-third a theaters Seaver above 200 hovrs and Reeween 1960 and 160, sbour eworthds, The soe rave Set Wade ape Repub Benoa Condom Cae dio Sout nie amb Gambisdge Uninet Pen 1589, 351 etn What Can Economics Lea fom Eat Astin Succ al 3091989) ad ce 1), 39" Wace 7) Cable 18 ane p29. The gure for New Deh in ealy 1991 was 140-67 hours Re 2°30 ps day, 7 ours day, ee at Re Seg); foe Cape Town athe tre ine, Aboot 90 re Gt ete cmmmsiog te weld be sul gh. The eevee mg Fie South Avoca indotriaietion protean MW wede 75,198, 35- 2 Newt vet ay deve «sila redetian inthis indenter of hac via central running, and may hae eliminated over in food and saving ale, hea im Fovtant Scere apse of the Neh Bore sry tape png tea ‘Sige ant cued consrmpoon bande mich lower than that of South Korey tcl and eg ae sen tar move sense, and the cnditans of work in gece {igs ody ltl area wo * 1 Nother good cae Pal aed Wankler' 1974 prediction thee em of corporatiom sol be cals Btn “hy 1980" Se R Pla | Winkle The Conny Cor ovat New Socey 10 caper 1979 1c would be leeresting to bear frm Ging SteCormach, Pee Carer, and te athece why they think te predictors foe South Korea and North Roves cumed oe 1 be so wrong280 WORLD POLITICS tions, This selective inattention to data that would upset the approved way of interpreting things and the use of repetition as a chief weapon of argument are two strong signs that the acoliberal paradigm is in a de- generative stage, taking on attributes of a disciplined delusional system. Like much Marxist writing of the 1970s, in fact." And like classical cco- nomics during the Great Depression, before Keynes's theoretical break- through. Where are the responses to David Evans's finding that the height of protection and static efficiency are muich less important for economic performance than the exchange rate and the wage rate? Or to Colin Bradford's finding that “on average there is not any association between outward versus inward orientation and a general measure of price dis- tortion in the two key variables {the exchange rate and the real incerest rate)” Or to Hans Singer’s finding that per capita income is a better predictor of economic performance in a large crass section of countries than is inward or outward orientation?” Where ate the detailed exami- nations of the trade egimes of Korea, Taiwan, and especially pre-1970 Japan—of their inner workings and their effects on both the structure of incentives and oucput?™ Where are the detailed neoliberal analyses of the vigorous government efforts to expand national technological capacity in East Asia—efforts that are intended to be selective between industries and that thecefore conflict with the injunction against “target- ing”? Ie is not just that challenges from other scholars are often ignored. It is also that neoliberal interpreters of Bast Asia zre prone to avert their ° By way of example, thin of the shots of much Marit wing an theory of the sae See Miva Cavaay, The Sea and Paina! Then (Bricean:Petecon Univeey Pres 94 3 Esane, Comparative Adsaniage and Groth: Pride and Develops in Theory end Prace (Herel Hemparcsd Harvewet Whestvet, 1950s. 96 S Bradiocd, “The wae Confonting U8. ‘Autonomy. in R. Fe ee, Adjment Cr inthe Third Word (Neve Brvaawia, Ni}: Tessatton Books, YA i 9 tas Sigger, “The World Develypment Report 187 on the Blesungs of ‘Ourwacd Oxe ataton’ A Necessary Cvtestion” Journal of Belmont Sait 2, no 91988) "TMi has laps agus, ane fhe to cere of ade cra at done more than an elipaclprowcte Seoul the Eos Asan cus? See Bhagwat, Patcnonine (Cate bridges MET Prety i). ce canons that a ew of those wha eve pctocely ice teade have looked caefly st Japa prel900 ade regs which would em bet Stal ene For fore sas, ee Wade 7), chap 510s ie “ow o Manage “rade ‘Taiwan as Challenge wo Ecconcs” nice tng a4 ap “The Rie of Ee Asan Teacing Stes How They Managed Toe Trade" Misen Tle Paley Divison, ‘Weld Banks Washingt, D.C~ 988) he aver was writen whi Cwerked the se divin ofthe bak thst prepare the bank's pai paper on wade velorme The paper de fined ies in inprs refers being sou ht oUt Seon grand wane St ew ta manage report beer snd sid irsallyscchiag about the Bag Avan exptinee of Jrmpare managemeneEAST ASIA'S ECONOMIC SUCCESS. 281 eyes from conteary data even when it stares them in the face. So we find chat fan Litele,” as parc of his general argument that Korea succeeded in. large part because the government allowed the “right” prices to prevail, cites the fact that the government set high real interest rates through the banking system, as is “right” in a capital-searce economy. He relates how these high rates stimulated savings, which in turn permitced high levels of (labor-intensive) investment. And at that point in the discussion of the capital market, he stops. But markets, like scissors, have swo sides: a supply side and a demand side. Had Little moved from the supply side of the capital market to the demand side, he would have had to confront the way that credit was being allocated in Korea. At that point the de- tailed involvement of the government in credit allocation would have been hard to ignore. The government used “liberal” methods (high ad- ministered interest rates, which are liberal only in the sense of corre- sponding more closely to scarcity value) to get savings into the banking system; it then allocated those savings by “nonliberal” methods, being able to do so by virtue of the fact (not mentioned by Litele) chat it owned the banks. Its involvement hecame all the more intense after the carly 1970s, when the real interest rate on a large share of bank loans was made very low. For (another detail Little fails to note in a paper written nearly ten years later) the so-called liberal high real interest rate policy prevailed for only a shore time, from about 1967 to 1971. The literature on Taiwan resorts to the same device. In an overview of how Taiwan “did it," Walter Galenson says, “The government made a major contribution toward the facilitation of capital formation by keep- ing its expenditure down. . . . Taxes were maintained at a relatively low level, averaging about 14 to 15 percent of the on.” Although Galenson wrote these words in 1981, it had Jast been true in 1967; in the interim taxes were always higher. In another overview of Taiwan, Little writes that “public industry has uncil recently been of rapidly declining quan- titative importance." But he neglects to mention that from the early Litde formed held a che in economies 2x Oxford Universi, © Lite, “The Experience sed Causes af Rapid Labour Ineens ve Development ia Kores, ‘Taiwan Province, Hong Kong 2rd Singapore; and the Possible of Emulation,” in Eddy Lee, et, Exporeled Indusriataation and: Deselopment (Geneva: Axa Employeuene Peo gramme, International Labour Organization, 198), For the rle of the Koresn government Ub crediallocatian, see Leroy ones andl SsKong, Gancrarten, Businetcand Fnirepr fn Exonome Development. The Korean Case (Cambridge: Harvard Univetnty Poets, (980, SGalenson, "How ta Develop Succesflly: The Taiwan Model,” in Galenson, Esperi- eet and Leone of Economic Development in Tawa (Taipei Intute of Econornicn, Act ‘Semis Sinia, 1982), 60: Galenson cetred as profesor of ecaoamics at Cora! Uasversty. Lite, "An Economic Reconnaissance" in Walter Galensen, ed. Economic Growth snd Swuctural Change in Taasan: The Post-war Experience of the Repable of China lthacs, NY ‘Cornell Universey ren, 1979).232 ‘WORLD POLITICS 1950s onward Taiwan has had onc of the biggest public enterprise sectors outside the communist bloc and sub-Saharan Afric.” Both Galenson and Litde ignore or downplay facts that would obstruct the neat fit be tween Taiwan and neoclassical precepts." To see the same practice outside the East Asian context, consider what Anne Krueger offers as “suggestive evidence,” in her phrase, about the effcets of government intervention in developing countries, a subject of much interest to political scientists. “There is no evidence that living standards fell in the now-developing countries prior to 1950, a time which many observers associate with a period of laissez-faire,” she re- ports. “In many African councries, however, living standards have been falling —in some cases precipitously—since. The latter period has been one of active government intervention, and there is no other obvious reaton for the difference in performance in the two periods. Nore sev- tal things about this argument. First, for India (which contained more people than Africa and Latin America combined) there is evidence that per capita income fell in the several decades prior to independence;* and for Africa there is simply no good evidence one way or the other before 1950, Second, colonial governments often went well beyond laissez-faire: in West Africa marketing boards came to be highly extractive organi- zations;? in India the British colonial government used protection against non-UK. imports to stimulate industry and in this and other ways could not possibly be described as laissez-faire. Third, most non- 4 Wade 17, Tobie 62 Te sent trey of development cmos by Guay Rani and Theodore See proves ey cyte hampton nest conten los ia cere ace tn dane he sme sume or te sume fap ee Ran sed Soh ete Te Sof Drape Seam: Pgras sd Popo Oxtnd Bas Sen T3San The eto’ cr thar “outward leaking la, ceteloped. cours) hase “Tchitved relatively capid growth and have withrcod (shocks) bere." to the same vol- SATE Sinaloa! pro the pony St Ran “EtRraay hh thet pt contac (p bother shows lp 0-9) hate terms cjrnc,ia Geran, fpany Ben aad Koren ned ode seeaty or “Sted lke buchanan mec te psa gare stuart etng caper ec Michal Lipase Eno foal ope ra Kreger, “Goverment ales in Development" onal of Boronic Perper 4 ve, SOU 2 Renesas the stron ener ante pee foreach ce he _ These 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 lace industiaization. ... ‘The First Iodustcial Revelation was built on laissez-fte, che Sceond on infant in dustey protection. In late industrialization, the foundacion isthe subsidy— ‘which includes both peoteccion and financial incentives. The allocation of subsidies has rendered the government not mercly 2 banker, as Ger- schenkron (1962) conceived it, but an entrepreneur, using the Subsidy to decide what, when, and how rauch to produce, ‘The subsidy bas also changed the process whereby relative prices are determined. (pp. 113-44) Way Dots Konra Do Berren? ‘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 mare effectively there than else~ where. “Tt may be said that growth has been faster in Korea not because ‘markets have been allowed 10 operate more freely but because the subsidica- * Alice Amiden, “Third World fadustrsization: ‘Global Fordism’ or a New Model? News Left Ree 182 (198), (4-15. “F Alea ibid 8.EAST ASIA’S ECONOMIC SUCCESS 29 sion process has been qualitatively superior: recipracal in Korea, unidivee- tional in most other cases” (Amsden, 145; emphasis added). By “recipro- cal," Amsden means that in direct exchange for subsidies of various kinds, the state exacted certain performance standards from firms, no- ably in the field of exports, Most other late industrializers allocated sub- sidies without imposing any quid pro quo: “Where Korea differs from mast other late industrializing countries i in the dicipline its state exercises over Private firms" {p, 14; emphasis added). Generalizing, Amsden puts forth an audacious proposition: “The more recipracity that characterizes state- firon relations in these countries, the higher the speed of economic growth” (p. 146) Learnt ann xnovarton ‘This argument about Korean and ‘Third World industrialization in gen- eral, says Arasden, differs not only from the neoclassical, but also from the Schumpeterian, approach. Schumpeter recognized that by his time market structures had become less competitive than was consistent with the neoclassical paradigm. The new basis of competition—the new source of discipline over firm behavior—came from the creative gales of technological discaveries that uprooted old monopolies and raised pro- ductivity, not steadily but in spurts. Late industrialization, however, in- volves nat innavation but “learning,” that is, borrowing, adapting, and improving upon foreign designs. The new source of discipline aver firm bochavior is the state itself, 2 factor to which che entrepreneurially and technologically driven Schumpeterian model had understandably paid le attention, Late industrialization, much more than early industeial- ization, has been a political process, shaped by the exigencies of master ing (or learning) already existing technologies. Some commentators have taken the Japanese case as confirmation of the usefulness of the Schum- peterian approach, as in the Schmicgelows' statement that “the evidence ‘of massive penetcation of global markets by Japanese Schumpeterian cn.- trepreneuts, of their competitive edge, and of their growing leadership in innovation is so unmistakable, and there is so little chat mainstream economics can offer to explain it, that the Austrian [or Schumpeterian] approach enjoys prime facie validity in explaining Japan's impact on the structure of the world economy.” Amsden would presumably eeply that the Schumpeterian approach is not the only alternative ta mainstream economics and that hers does a berter jab of explaining the Japanese case Prior to the early 1970s; she would probably agree with the Schmiege- 2 Schmiegelow and M. Schmiegelow, "Have Japan Affects che International System,” Interatonal Organiaton 4, 20.4 (1950),290 WORLD POLITICS Jows that the Schumpeterian better handles the subsequent era, when Japanese firms compete more than before on the basis of innovation and ‘when the state has scaled back its “leadership” role in industrial trans formation.” Guonat. Forpism Her approach also differs from world systems interpretations that pre- sent industeialization at the “periphery” (including Karea) as the reflex of problems of capital accumulation in the “core.” In Alain Lipietz’s formulation, for example, industry in the Third World arises as capital from the core extends the “scale” of its operations in search of new mar kets and cheap labor. Once installed by means of “primitive Taylorist” modes of labor contol, it may then evolve into “peripheral Fordism" when growth in the home market for manufactured 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 undercansump- tion—production exceeding the capacity to consume—becomes a stare- bling block to farther economic growth, as it is in the core. Amsden answers this sort of argument with several damaging facts about Korea (1) Even after 1973 Korean growth has not been centered on the home market. 2) Korean wages have grown faster than in any other previous ‘of contemporary industrialization, without undermining competitive- ness, sustained by even faster productivity growth. (3) Work in the large business firms has not been managed in 2 Taylorist, top-down fashion. "Technical ignorance at the highest managerial level, and inexperience on the pare of the workforce, have made it impossible for borrowed technol- ‘ogy to be optimized through 2 top-down, Taylorist approach to product fay and quality improvements. Instead, the standardization of work has been accompanied by a more pasticipatory (and, as it turns out, more pro- ductive) appraach to work relations, not for cultural reasons but for rea~ sons related to technology transfer.” 5 Bue while sont’ leadeesip rae inthe domexic economy has deceeased substantially, i has eceraly been capaniding the seach of ts industial planning ad coordination inc Foseign eaemiee, a response co the explosion of Japanese investment abcoxd and the absence of Coherent industrial policy i reorving catcies. See var Ries, "epan’s Mighty mt Extenc ing ls Reach," Financial Review, Decetber If, 19, 20, 1990.1 thank Chalmers ohoson for {ik reference. On lesdership x applied to industial policy, see Robert Wade, “Tedusteial Policy in East Arist Dace Tt Lex oe Follow the Merket?” in Gary Gere and Donald ‘Wyman, cd, Manafacaring Mivacler Pater of Inducraination in Latin Ameria and East Auta (Peincetan: Princeton Universsy Pres, 19). Lipieta, Mirgger nd Miracle. The Crier of Global Fordim (London: Verso, 1987) See Anyaden (fa 54 ara dscusion of Lipiet2. Aensden (fo. 50, 12-18EAST ASIA’S ECONOMIC SUCCESS 21 (4) The state in Korea (and in other late industrializers) has gone well beyond its role in the Pordist model (largely one of creating both effec- tive demand in response to erisis and protection for infant industries) So neither the Schumpeterian nor the global Fordism approaches can explain the common tendencies of the late industrializers; still less can the neoclassical. Amsden’s approach—which could be summarized as “industrializing through learning, learning through reciprocity between gov- ‘ernment and diversified business groups, reciprocity involving price-distorting subsidies in exchange for performance" —constitutes, she says, a new para- digm for understanding late industrialization, which is a new way of industrializing (p. 141). In a field plagued by stale thinking Asia’s Nexe Giant stands out as wonderfully original, powered by a militant, epigrammatic intelligence. ‘The chapters toward the end, on the firm-level dynamics ofthe evolution of shipbuilding, textiles, eement, and steel, range from offering technical information about production to telling details about social organization. The author relates how, well before the first steel plant had been com- pleted, workers were recruited and trained—even taken out to open fields to rehearse their jabs, shouting orders to one another along imag- inary production lines. For given its lack of the cheap natural resources that other nrcs like Mexico (gas) and Brazil (ore and hydro) could use to defray the high start-up costs of steel and other capital-intensive indus- tries, Korea had no choice but to compensate by means of a supereffec- tive deployment of its labor force, to discipline and train it as fast as possible. But there are some serious weaknesses in the argument. Some key propositions are poorly supported, some key concepts are treated as self- evident when chey are not, and some alternative mechanisms for which there is reasonable evidence are not considered. Einstein's aphorism that “imagination is more important than knowledge” is taken a bit too lit- erally. In particular, Amsden misses many opportunities to incorporate acoclassical findings into 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. Gertine Paces "Wao" in Korea ‘This is the phrase that Amsden emblazons upon her escutcheon as the essence of her theory of economic development. Reversing the conven- © tid, 28.22 WORLD POLITICS tional injunction (converting “right” to “wrong” and the sense of “get ting” 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 oucput growth? Although she does ‘not present it systematically, the evidence seems to be as follows: The export effective exchange rate, which includes subsidies to export sales, was substantially above the official won/dollar exchange rate be tween 1960 and 1965 (4e her Table 34, p67), and during this cime exports took off. Amsden says that export subsidies, as indicated by che zap be- tween the export effective exchange rate and the official exchange rate, “uurned the tide.” So the volume of exports was not determined by market factors alone, atleast 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 in- dicated by the gap between the two exchange rates) increased as exports increased, the former driving the latter. In fact, hee own numbers show the apposite: the gap was greatest in 1960, when exports were small and stagnant, and least in 1964 and 1965, when exports were booming. Third, this gap is in any esse a poor meatuce of the bias of the system for or against exports, For that one has o compaee the export effective exchange rate with the import effective exchange rate. It is quite possible to increase export subsidies (as measured by her gap) while at che same time giving even more incentives to imporc substcution (perhaps via quantitative re= striction), making a net increase in the bias against exports. [tis this bias, not her gap, that might deive exports; buc we are not given the informa~ ton. Fourth, nor are we given information about the real exchange rate ((elative price of traded goods—exports and import substituces—vis-3-vis nontraded goods). Lacking information on both export bias and the level and movement of the real exchange rate, we cannot make a judgment bout whether these prices were “right” or “wrong.” Certainly the fact that the export effective exchange rate differed from the official exchange rate (a8 in most other developing countries) does not in itself mean chat cithec the official rate or the export effective rate was “wrong.” Tn short, ‘Amsdea's evidence an this point does not supporc the conclusions she draws 2. “Tarif barciers and nantariff barriers have comprised a key ingee- dient of Korea's industial poliey,” she says (p. 45). Buc we receive viet ally na information on the magnitude of protection overtime, though such information is available 5. In the capital market a multiplicity of prices prevailed for loans of the same maturity—one for forcign loans, more than one for domestic com- mercial bank loans depending on whether they were for a priority use, and ‘one or more for “curb oe informal market loans, Not all of these prices 1 Wade (fa. (7), chap, 10EAST ASIA’S ECONOMIC SUCCESS 2 could possibly have heen “right,” she says without further ado. This, too, Js overly hasty. For one ching, to the extent that the curb markee is used for riskier loans than can be granted by commercial banks, neoclassical analysis would predict curb market rates to exceed commercial bank rates on account of differential risk, 4. Price controls have been extensive. “At the end of I9H6, as many as 110 commodities were controlled, including flour, suger, coffee, red pep- per, electricity, gas, steel, chemicals, synthetic fibers, paper, drugs, aylon stockings, automobiles, and televisions" (p. 17). A hundred pages later this ‘expands to “the Economie Planning Board caateals most prices” (p. 129) Is “most” really the same 2s “as many 2s 110"? We have no idea of the share of final demand that is price-contralled over time or of how much. the controls bite, 5, Subsidies to the cotton textile makers were needed for quite a few years co enable them to ger established in export markets against Japanese competition. Later subsidies to some heavy and chemical industries were needed to induce private capitalists co forgo higher short-term profits in light éndustey. Amsden’s evidence on this score is more convincing chan, the rest. Not stopping with the proposition that Korea succeeded because it got prices wrong, Amsden makes a still more accesting claim: “Although Korea industrialized on the basis of relative prices that deviated sharply feom free-market equilibria, such prices were less ‘distorted’ and provided ‘ig business with fewer bonanzas than prices in India, Turkey, and the Latin- American late-industrializing countries" (p. 145; emphasis added). Or in a slightly different formulation, “In Korea the ‘wrong" prices have been right because government discipline over business has enabled subsidies and protection to be less than elsewhere and more effective” (p. vi). This is an intriguing idea, but it is asseeted without a shred of evidence. If Korean price distortions have in fact been less than in most other coun- tries, how can we distinguish this argument from the central neoclassical claim that it is precisely because price distortions have been less that Ko- rea was more successful? Furthermore, ic is not self-evident that short-run equilibrium prices should be used as che standard of “right” against which actual Korean prices were correctly “wrong.” After all, neoclassical theory acknowl- ‘edges that even markets that operate without government interference © Pechape Amaden'sargoenent could be clarified by distinguishing thece sense of “stor sion.” One is deviation fers the market equilibria price, which jst offiees disadvantages doe wo “macker mperfectons elsewhere 1a the sytem. Another is deviation that pulls ree Sources in uses expected ta beta the conntry's fare comparative advantage. The chied ve entice that provides big windFal. guns for lite effort. Korea pressmably had much lett iaorion ia the tied sense than other coundees had, but presumably notin she second sense24 WORLD POLITICs may experience “failures” due ta externalities, complementarities, uncer- tain learning gains, imperfect capital markets, and economies of scale, scope, and time, In such a case the configuration of market prices, which no longer corresponds to economic. values or opporcunity costs, may sead the “wrong” signals, even in conditions of free trade. Neoclassicals argue that empirically these sources of market failure tend to be less importante than those caused by government intervention; they therefore prescribe free teade as the way to achieve the best results in the real warld of special interests. Moreover, there is a modified neoclassical interpretation of the role of the Korean government: that its various interventions had the aggregate effect of compensating for these failures (as well 2s for those caused by the “politically driven” components of government intervention) and thus of creating the relative price structure that would have prevailed in an ideal free market. I have elsewhere called this the “simulated free market" theory of Fast Asian industrial success. 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 government helped to get prices (correctly) “wrong,” there is still the separate question of the ouput effects of this rigged price structure, Again, this issuc is barely raised, it being taken for granted that the effects were not just positive but so positive as (0 constitute the essence af why Korea did better than the rest. Perhaps ‘Amsden would consider the suecess of the heavy and chemical industry drive of the 1970s (and she certainly considers it to have been highly successful) as evidence of benign output effects, for it was not the result of free-market forces. But this same heavy and chemical industry drive is routinely cited in the literature as the clincher for the malign effects of Korean dirigisme. Amsden might at least have responded to those who say that its costs swamped its benefits. (My own conclusion, incidentally, is that the medium. and long-term benefits did exceed the costs.) All told, this central plank in Amsden’s theory remains in urgent need of empirical eeinforcement, A generous reading right say that Amsden hhas done what many economists before her have done, which is to pre- © Sce Collough n-3. 2 Wade fa. 19).25-24. © Bora bail discus see ibid, chap, 10, exp. 319-20, Fora very weil ecent ud 6 Richard Auty, "Creating Comparative Advaneage: South Kareaa Stel and Peteochemicl,” Tipdchrift sor Ezon. cn Soe. Geogr 82,00, | (99).EAST ASIA'S ECONOMIC SUCCESS 295 sent a series of “stylized facts” about how, in her understanding, the world works, leaving it to those who disagree to muster counterevidence. A less generous reading might say that Amsden displays the same dis- dain for established principles of scientific knowledge as do the neoliber- als cited earlier. Tue Stave on Korea As the initiator of major new investments, the distorter of prices, and the discipliner of big firms and labor, the state has a central place in Ams- den’s story. Yet she takes what could politely be called an “abstentionist” view toward it. She says almost nothing about how the state is organized, its base of suppor, its means of survival, and how it maintains its disci- pline in the exercise of huge discretionary powers. So abstentionistis she, indeed, chat the key agencies for industrial and trade policies, che Eco- nomic Planning Board and the Ministry of Trade and Industry, are given only three mentions between chem in the whole 329 pages. Perhaps ic is unfaie to expect otherwise in a work of economics. Rour of Mantracrunina Propucriviry Grown ‘Amsden’s argument assumes, implicitly, that the driving force of Korean industrialization was fast growth of productivity in manufacturing (driven by fast “learning”). Thus, her emphasis an the structure and management of business groups. She might have addressed some of the evidence, from Hollis Chenery, Moshe Syrquin, Howard Pack, and oth- ers that partly uns against this argument. To summarize, there is ev- idence to suggest that prior to che mid-1970s productivity growth in manufacturing was by no means high as compared with growth in other countries at roughly the same income level. But (1) Korea had poor nat- ural resource endowments in comparison with many other low- and middle-income countries; it therefore had no comparative advantage in ‘exports of primary products, which left manufactures as the only broad alternative. (2) It also had a high ratio of people with basic education to + people without basic education, again compared with other countries at similaz income levels. (3) Agricultural productivity was much lower than in manufacturing. And (4) the physical infrasteucture was fairly good. ‘The combination of middling productivity, a high ratio of basically ed- = Cheneey, "Growth snd Trzesformatin," in Hollis Chenecy, Sherwin Rebiason, and Meahe Syrqui, ec indutalaaton and Growth: A Comporatie Stay (New York: Oxford Univeesisy Press, 198), Syrquin, "Prodvetiviey Growth and Factor Realloction," in Che ery, Robinion, and Syrquiny Pack, “Industisitaton and Trade," in Chepery andT. N, ‘Srinlvetan, ede, Handbook of Development Economict (Amiterdam: North Holland, 1985).296 WORLD POLITICS, ucated to uneducated people, a big agriculture manufacturing gap in productivity, and a fairly good infrastructure allowed Korean manufac- turing co compete internationally. Buc the real driving force before the mid-1970s, according to this argument, was the huge increase in capital and labor inputs into manufacturing (more and more young women be- hind more and more desks assembling more and more shirts and ciccuit- boards). ft was a scale effect, not a productivity effect. These inputs came in substantial part feom agriculture, and the economy-wide level of pro- ductivity grew fast as resources were reallocated from lower productivity vses in agriculture to higher productivity uses in manufacturing.” But the only way to absorb such large amounts of capital and labor in man- lufacturing without running into rapidly diminishing cetucns was to ex- pport the output, because the domestic market would have been able to absorb the extra output only at the cost of sharp falls in price. This is the single most important way that exports helped Korea's industrialization. Since the mid-1970s, however, with the completion of the reallocation from agricultuce, the driving force has heen productivity growth within manufacturing. It may well be that the sorts of management practices, and firm steucture that Amsden emphasizes have beets an important part of this growth. Bur much of Amsden’s own account of firms and indus- tries draws on data from before that time. This is not to suggest that Amsden is necessarily wrong for the earlier period—one can imagine ways in which her argument could be reconciled with the other evidence. But this other evidence is simply not addeessed. Comparative Apvantace: Rictb, FLexiaie, on [nesi.bvant? Did Korea follow its prevailing comparative advantage (es), or did it ngage in activities chat were out of line with ca? Neolibecals imply that its industrialization was governed by ca, except for the temporary aber- ration of the heavy and chemical industry drive that started in the early 1970s and more or less terminated around 1980, as economic rationality again came to prevail. Amsden and also Governor Park (in the epigraph For the agricultural end of thee sellacations sce Moore 3); onthe piel canta cof Royeon agriculture and the ponpice mathe ofechenng relatively high evel of age tral peodectivny (ef sundaed recipe for agicleural growth aed mechanism of Fes= Ranineype model) see Wade (Fo, 5, 1983) EERE ibe bt mnt ofthe coerce Ute stopn short ofthis period. Peck. 6) suggests that eve aie the sn 900 tral factor prectey grow was not eipeialy fe snd he credits continued rapid absorption of face including extra mvesmene But Scbacquce evidence sugges to hn tat pouty growth within manufacturing hat {nuced been more ols diver than he shout when he wrote the ale in Cheer abd Stinivaan (fr 60} Pec, persona commnieaan with autor.EAST ASIA'S ECONOMIC SUCCESS, a7 to this article) imply either that it went against ca or that cx was some- hhow irrelevant. What is ar stake? According to the standard theory, spe~ calizing according to ca makes for an efficient pattern of resource use, with mare intensive use of the mare abundant factors and less of the scarcer factors. A country may be able to produce goods out of line with its ca, but those goods, which require a lot of the scarce factors and few of the abundant factors, will not be profitable, Stereotypically, a low- wage, labor-abundanc country should concentrate production and ex- ports on labor-intensive products, while importing the more capital- intensive goods from countries where labor is scarcer and capital more abundant. (China can make and launch satellites, but such engineering intensive industries are not in its ca.) So if Korea departed significantly from ca and yet was sill outstandingly successful, one could conctude that something is seriously wrong with the theory. And since the theory forms part of the bedrock of neoclassical economics, this would sound the alarm in many quarters. ‘There is remarkably litte evidence on this central question. It is true that exports have been far more labor-intensive than overall production, a prediction in line with ca theory. But itis alsa teue that from the early 1960s, capital-intensive industries producing intermediates have experi- enced rates of growth much higher than the manufacturing average, a phenomenon less readily reconciled with ca theory. And we know, t00, that most of these industries have had substantial levels of protection, which is also sometimes taken to indicate investment out of line with ca ‘On the other hand, Patrick Minford and Adrian Wood* have recently argued, contrary to the general understanding, that capital-inteasity is almost irrelevant for the determination of ea, especially because nonin frastructural capital is mobile between countries. Rather, itis labor force skills that count. Product categories can be ranked in terms of skill re- ‘quirements, and the categories that are “appropriate” to a country at aay ‘one time (in the sense of being in line with <4) can be read off by com- paring their skill requirements with the ratios of highly skilled to basi- cally skilled to unskilled people in the labor force (chese ratios determine the scarcity and relative cast of more or less skilled people and therefore © See Minford, “A Labour based ‘Theory of teternationsl Trade," ie J. Black and ‘A, MacBean, ed, Cane of Changer in she Sirctare of International Trade, 1960-85 (London: Macmillan, 1989), Wood, “A New Old Theoredeal View of North Sox Trade, Employ ment snd Wages," Disesition Paper 292 (Sunes estate of Devclopment Studies, Univer= sity of Susser, 1990. Wood's paper é based on one chapter of his book, Nonh-South Trade, Employment and Inequaiy (Lancon: Oxtard Universi Press, forthcoming).8 WORLD POLITICS the viability of investments that require different combinations of these people). If chis is accepted, we have co say that we simply do not know to what ‘extent the fast growth of capital-intensive industries in Korea was in line with ca, because no one has calculated their skill intensities. We do know that all capital-intensive industries are not skill-intensive and thac within industries defined at the three-digit level (industrial chemicals, for ex- ample) there are huge variations in skill cequirements, We also know that the fact that these industries had protection does not in itself mean that chey were against ca. Protection, that is, might have offset market imperfections elsewhere that would have rendeced the industries finan- cially unviable without the protection, even if they were economically viable with proper shadow prices. Nor does the fact that these industries ‘grew faster than the manufacturing average in itself mean that they were cout of line with 4, for all industrialization involves some growth of Upstream sectors, for reasons of transport costs and other advantages of local peoduetion. And this growth may be very fast if it comes from a low base. The key question, then, is whether the capital-intensive indus- ies grew faster as 4 result of policy measures than they would have under conditions of well-functioning free markets. So one hypothesis is that Korea’s industrialization—including the dual-track promotion of some capital-intensive intermediate (and later final) goods alongside labor-intensive goods for export markets—did not depart from c& to any significant extent. This implies chat the capical- intensive industries remained within the (rapidly rising) limits of the skilled labor supply, which forcher implies that the capical-intensive in- dustries of the 1960s and early 1970s (before the heavy and chemical industry drive) had rather low skill requirements. ‘Another hypothesis, which is more consistent with Amsden-Park, is (1) that Korea stretched its ca (as with a rubber membrane) ro cover more skill-intensive industries than would be “normal” in relation to its skill endowments” and (2) that this stretching was especially pronounced during the heavy and chemical industry drive (though nat absent eaclier, as scen in those subsidies used to launch the cotton spinning and weaving industry against Japanese competition). By this interpretation, the Ko- teans excelled at “learning by doing,” which increases the supply of searce skills and thereby stretches the cA membrane. Mote precisely, the Koreans excelled at learning by doing at low cost. It is as though those > Lowe ths ides of seething cx to Adeian WoodEAST ASIA'S ECONOMIC SUCCESS 29 men in the field shouting arders at each other on their imaginary pro- duction lines were a microcosm of the whole labor force. In many other countries efforts to stretch che ca membrane by investing in advance of skills so as co generate learning-by-daing effects have proved so costly that the projects have eventually folded. How chen to interpret the difficulties that beset many heavy and chemical industries in the late 1970s and carly 1980s? The neoliberal hypothesis would say that these difficulties indicate that the heavy and chemical industry drive departed radically from ca. Another hypothesis suggests that the difficulties were due less to the misallocation of re~ sourees between sectors, as in ca theory, chan to a non-ca-based macro- economic mechanism. The sheer size and speed of the “big push,” cou- pled with the long gestation period of these industries, caused inflationary pressures, depreciation in the exchange rate, deficits in the balance of payments, and budget deficits. These prompted the govern- ment 0 institute a stabilization package, which caused deflation just ‘when che output from the new industries came on stream, shrinking the market and lowering the returns. The rebound of the Korean economy the mid-1980s may have been due less ca the economic liberalization of the early 1980s (the neoliberal position) than to a combination of the earlier stabilization plus the maturation of the heavy and chemical in- dstries.” The main point, however, is that little is known about the answer to the central question 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, Far a central question of such analysis is how much, and by what methods, the government determined a pattern of investment allocation chat differed from what unguided private busi- nesspeople operating in real markets would have produced. And if there was a difference, to what extent did the government stick to projects that, though financially unviable for private businesspeople, were nev- ceetheless economic at proper shadow prices? Or to what extent did the ‘government disregard this constraint and undertake projects that looked to be economically unviable according to conventional social cost/benefit, analysis? This indicates the extent to which the government went against “market forces,” and thereby the amount of state power necded to effect the desired investment pattern—the amount of “leadership” as distinet from “followership.” Followership is indicated where government sup- Towe this point to Richard Auy.300 WORLD POLITICS, port went to projects that looked to be more or less financially viable at the start. Type [ leadership is indicated where government support went to projects that were financially unviable bat economically viable ex ante. And cype II leadership is indicated where government support went a projects that were economically as well as financially unviable ex ance. A project supported by type Il leadership that curns out to be economically successful (for reasons other than unexpected exogenous price changes) poses a greater challenge to economic theory than does a successful proj- ect helped by government followership or leadership of type I. This is not to say that the latter two roles are of minor significance. They still give scope for the government to formulate a vision of the appropriate development path and to choose commodity groups within the wide band of ca-consistent products for intensified growth, coordinating entry to these industries so as to reduce the risks of surplus capacity, thereby producing a different, but still ca-consistent, growth path than would be produced by unguided private businesspeople on their own.” mrnr's role in Japan's supercomputer project (see the second epigraph to this axticle) may have followed this logic ‘Amsden, and the literature in general, pays too litte attention to these issues. And one other key part of her argument is also insufficiently de- veloped, as is also true of the wider literature, This concerns “learning.” Ixpustaiacizarion rixovan LEaRnixc In Amsden’s schema the central difference between the early and lace industrializers is that the former were driven by Schurnpecerian inno- vation and the lateer, by “learning.” But what is “learning”? Tt has cer tainly become a popular word in industrial economics over the past de- cade or so, for it exudes an aroma of fresh knowledge. Despite its popularicy, however, there has been litde efforc to examine it analytically, to make clear whether and how “learning” differs from ar adds to what was talked about before.” It remains a terminological disaster area, Ams- Om government leadership sad fllowership of the market, ce Wade (a. 57) and idem Gn. 17), cap. 1, 10. See also Joseph Stern, “Industrial Tatgetng in Kores," Discusion Paper fo. 43 (Cambridge: Harvard fasctute Tor International Development, 1990). The later kes an important contrition 49 the analysis of industrial policy vm general and tothe sam Kora ad gr coming cr lS pew me e Sanjay Lal, Leming to dndasealise: The Acgutiion of Technological Capability by India (London: Macinlla, 198). "Lescaing” rakes + jazzy cle but eeceves litle concep tal attention; it wcems ta he uted a4 single word Co mean “technalagieal change shat leads to productivity growth The problem s that the word seems a ndiete some specific mech fnlsm of causality. but this promise s et fufiled in Lall's (or Amsden's) dscusion. For 8 ‘seful overview af some ofthe problems, see Maria Bel," ‘Leacning' andthe Accumulation ‘of Industral Technological Capaciy ia Developing Countnes," aa Maran Franenaa andEAST ASTA'S ECONOMIC SUCCESS sor den sometimes talks of learning, implicitly, as aay continuous technolog- ical change that is not pushed by formal research and development, leav- ing R and D to be linked to innovation. But to oppose learning and R and Das in some sense mutually exclusive is misleading. Japan as a late industrializee in the 1950s was doing plenty of R and D. And the recent Korean upsurge in R and D does not signify the end of Korea's status as a late industrializer (except in semiconductors). Mast of its R and D is aimed at making it competitive in more advanced but still “follower” products and processes, as occurred in Japan up to the early 1970s. R and D in these cases has the primary function not of producing, innovations but of allowing firms to absorb and master new knowledge produced elsewhere. If the distinction beeween learning and innovation is less clear than Amsden would have it, the distinetion between various meanings of “learning” has to be made sharper. There is first the learning of “the learning curve,” the relationship between output per unit input and some measure of experience of production (cumulative volume or tite). The relationship is described as che “rate of learning.” Then there is the quite distinct sense of learning as an amassing of knowledge, of expertise—a change on the inputs side that may ar may not be associated with changes ‘on the ourputs side. This in curn has (o be subdivided, “Learning by doing,” che focus of much work in industrial economics in recent years, is often and probably mistakenly taken to be a relatively automatic pro- ‘cess by which a firm becomes more practiced, and hence more efficient, at what itis already doing. Finally, learning in the sense of “expanding, absorptive capacity” refers to the ability of a firm, industry, or national set of industries to identify, assimilate, and exploic already existing tech- nological knowledge about processes and products new to the firtn, in- dustry, or countey.” Amsden is by no means alone in using the one label for the many concepts, but given that “learning” stands in her theory as gasoline to the automobile, it would have been helpful to have some explanation of her own usage. The Korean experience would confirm, suspect, that much of the improvement in productivity commonly de- sctibed as the result of “learning by doing” is the resule of sustained, deliberate, and cost-full efforts at improvements—efforts to get more knowledge of production materials and of the ways they may be com- ‘Keaneth King, ole, Technical Copabiing the Tard World (London: Macmillan, 1988). Fam graf to Bel for diacuaion on some ofthese pats. * See Bal (9.78); and W. Cabea sad D. Levinchal,"tanovation andl Learaing: The Twa Faces of aD,” Econom Journal 9 (Sepuember 1550)nz WORLD POLITICS bined to permit machines to run at faster speeds, for example, efforts that are not (formal) R and D-intensive but that are certainly produc- cion-engineering-intensive. Indeed, Amsden's cases show that such effort was a dominant concern of Korean managers. What drives learning in this sense is the frame of mind that asks how a particular task can be performed better.” What is it that helps this frame of mind to become pervasive? And to the extent that learning is more than a matter of going ‘out and acquiring a new machine, what other steps must be taken and hhow can public policy accelerate them? These questions should be cen- teal ta a discussion of industrialization, comparative advantage, and in- dustrial targeting, But before they can be asked, the distinctions have to bbe made.” To recap: Key concepts in Amsden’s argument—the state, learning, and wrong prices—are underdescribed and underanalyzed. Key causal arguments are not assessed against other possibilities—“learning via con- ditional allocation of price-distorting subsidies” against, for example, “reallocation from agricultuce to manufacturing,” or “heavy investment in education plus learning by doing at low cost,” or “lower price distor- tions than in other developing countries,” or some others to be referred to below. Nonetheless, Amsden is surely right to highlight the synergy between state industrial policies and the strategies of diversified business groups, and she has conceptualized this synergy in a promising new way. SrepHan Haccano’s Iwrenpaeration of East Asian Strocess anp Larty AMERICAN FAILURE Whercas Amsden challenges the neoclassical mainstream of develop- ‘ment economics by reinterpreting one unusually successful case, Stephan. Haggard jumps off from a standard neoclassical conclusion and goes on. 1 eng Sah, “Lingo td Ling ae Teal ran” capa Sid Sabet ctu pa ek eee Dame el See Eee ee tts nina mince vc arena ann ern Man on inde premiere he Dh ner ean lon Een cc Sct Pca ata om ah ign pees nee Pes oc te Ca ee ee Ara ean Per bee eee Mie aad mpedotion ert resell dn el cae le ea FP a See ee a ae a eeEAST ASIA'S BCONOMIC SUCCESS sos to address the left-out politics. “The crucial difference between the East Asian and Latin American wics," he says, “is the difference between in dustrialization through exports and import substitution” (p. 27). Given this, ahy have governments of industrializing councries adopted certain development strategies, and why, more importantly, have they changed them? Pot “the success of the East Asian ntct rested not only on certain discrete policies but on the particular political and inscieutional context that allowed the Ntcs to adopt those policies in the first place” (p. 21). Conversely, the relative failure of the Latin American nics was duc a political and institutional context that strongly inclined their govern- ‘ments to adopt and maintain policies of secondary import substitution, despite the slower grawth and income-unequalizing effects of those pol- icies Haggard distinguishes three development trajectories among the xcs: the import-substitution (t) trajectory, exemplified by Brazil aad Mexico; the export-led (61) trajectory, as in Korea and Taiwan; and the entrepoc tajectory, as in Singapore and Hong Kong. Each trajectory is in rurn divided into phases. The ts trajectory begins with a primary product- export phase (Brazil, pre-1930; Mexico, prerevolution); that gives way to ts phase 1 (Brazil and Mexico, 1935-55); then to 1s phase 2 (1955-65); then to ts phase 3 (1965—present). The £1. trajectory also begins with a primary product-export phase (Korea and Taiwan, 1900-1945) that gives way to an ts phase 1 (Korea, 1945-64; Taiwan, 1945-60). That, however, is followed by et phase I (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 highlights the disjunction between the two main trajectories at che end of 1s phase 1 (the ewa prior phases are much the same, as also is the final phase of both). But the sameness of the final phase departs from a very different base, namely, the growth mechanism in place at the end of the penulti- ‘mate phase, one based on secondary import substitution (that is, domestic production of capital and intermediate goods), the other based on exports of the consumer goods items whose imports were substieuted for in 1s phase 1. The key analytical question is therefore what accounts for the divergence. Why did the Latin Americans around 1955 continue to deepen their industry rather than export the consumer goods (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, that the East Asians were doing better, why did the Latin Americans not switch to the superior pathway?0 WORLD POLITICS Haggard’s general answer is that four kinds of factors bear on policy choices of this type: international factors, domestic coalitions, political institutions, and ideas. Further, he suggests on the basis of the six cases that their general causal weight can be stated as follows: International pressures [e.g balance of payments deficits, politcal cont with trading parcners] are the most powerful stimulus to policy ceform. The strength of different social groups—agricultural interests, labor, and bbusiness—-can constrain of widen the feasible set of policy reforms, but it is difficul 10 explain policy outcomes by reference to coaltional interests alone, particularly where social groups ate poorly organized, interests are subject o uncertainty, and states are “strong.” .. In addition] explaining the reform process demands we pay attention 0 the interests of politicians, the insticational context in which chey operate, and the ideas available to them concerning economic growth. (pp. 28-29) So in the Korean case, the fateful shift to #e. growth in the mid-1960s “can . .. be traced to external pressures” (p. 61), namely, declining U.S. aid (which financed four-fifths of imports in 1955) and greater US, read- iness to press for economic policy reforms using the threat of aid cutoff as leverage. This growing external pressure acted in conjunction with insticutional and political changes initiated after 1961 at the domestic level by the incoming Park regime, a military regime that enjoyed much greater “autonomy” than the preceding Rhee regime. Using its greater autonomy, it concentrated decision making in the executive, rationalized the economic policy-making machinery, and developed new policy in- struments for steering industrialization. Buc even with these institutional changes, the policies themselves differed little at first from those of the previous regime. In particular, the same lack of budgetary and fiseal dis- cipline generated high inflation, as Park tried co buy support from key ‘groups (notably farmers, with above-market food prices). As the imbal- ances grew, the U.S. in 1962 suspended all aid in an effort to bring spend- ing and income into line. Unrest grew. Ac this desperate point, the palit- ical and military leaders granted the technocrats in the newly restructured policy-making apparatus more scope than before, and the latters’ ideas about the industrialization process came to be a key factor in the determination of subsequent policy. They and U.S, advisers had for years been emphasizing the importance of stabilization, reform of the exchange rate, and promotion of exports; now, in crisis, cheir time came. ‘Compare Brazil a decade before, in the early 1950s, It was at an equiv- alent point in its trajectory, at the end of its 1s phase |. The fact that it plunged into 1s phase 2 instead of switching to x1. phase I is due, Hag-EAST ASIA’S ECONOMIC SUCCESS 05 gard suggests, to a combination of factors. First, frequent balance-of- payments deficits (“external shocks") in the late 1940s and carly 1950s, forced the government to consider changes in economic policies, Second, the choice of 1s deepening was influenced by the balance of class forces, Landed elites still constituted aa importane political force (in contrast to East Asia), but prior industrialization had spawned a substantial labor movement (also in contrast to Fast Asia) and had created a sizable busi- ness and professional middle class. A shift to outward-oriented policies, involving devaluation and import liberalization, would have benefited the existing ageo-exporting sector over manufacturing. But those whose income derived from manufacturing “had an interest in continuing an inward-looking industrial course” (p, 172). Thied, one importane section of the agro-exporting clite also had an interest ia avoiding outward-ori- ‘ented policies, namely, the coffee growers, Since Brazil was a dominaat supplier co che world market and since the demand for coffee was price inelastic, devaluation (instead of erade controls as a response to balance- ‘of payments difficulties) would have meant lower receipts for coffee.” Fourth, che commitment of the leading politicians (Vargas, Kubitschek) to the new course was important in overriding opposition to aspects of the 1s phase 2 package on the part of some of the middle class and some of the landed elite. (There was, for example, opposition to the expanded role of the state and to the entry of foreign firms.) That commitment was based upon the way that che various policies allowed politicians to weave together a support base from a coalition of disparate groups. And finally, the technocrats bought che “steucturalist” ideas, then associated with Raul Prebisch and the Economic Commission for Latin America (ct), that sanctioned an active state role to promote secondary 18. So, too (sur Haggard docs not say why he thinks thi iste. It would be worth aie econamie analy even ina work of palicaleconomny—ifanl o beable a ditinguith between “veal” Economic obections o devaluation and thote that conceal some oaer agenda, A devaluation ‘would ireate local currency recs fom coffe sts constant world price But then afer lag Brazilian supply would increase Gtuming no production contol). pushing ovt the ‘wore supply curve 20d lowering the sols price. Would this wipe ou ehe gene to Broan

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