Climbing out the DitchManaging the Politics of Managing the Politics of

Change: Leadership and the Change: Leadership and the Role of Institutions in East Role of Institutions in East

Asia ‘s Rapid GrowthAsia ‘s Rapid Growth

UnderdevelopedCountry

low per capita GDP

crushing poverty

high illiteracy

high high mortality mortality ratesrates

high high unemploymeunemploymentnt

political political instabilityinstability

inept inept governmentgovernment

wide rural-wide rural-urban urban disparitiesdisparities

weak weak capacitycapacity

poor poor governancegovernance

High per capita GDP

low poverty

high literacy

low mortality rates

Intermittent bouts with unemployment

long term long term political political stabilitystability

well functioning well functioning governmentgovernment

manageable regional disparities

well endowed capacity

good good governancegovernance

DevelopedCountry

The Real Challenge of Development

status quo

(underdeveloped)

DesiredDesiredStateState

(Developed)Managing the

Politics of Change

East Asia’s High PerformersTaking the bull by the horns . . .

. . . managing managing the the politics of politics of changechange

Requisites of Change Management

establishing a sense of urgency

creating a guiding coalition

developing a vision and strategy

communicating the change

vision

empowering broad based

action

generating short term

wins

consolidating gains &

producing more change

embedding change in the

culture

John Kotter, 1996

CHANGE

Requisites of Change Management

establishing a sense of urgency

creating a guiding coalition

developing a vision and strategy

communicating the change

vision

empowering broad based

action

generating short term

wins

consolidating gains &

producing more change

embedding change in the

culture

John Kotter, 1996

Threat of communist takeover

Requisites of Change Management

establishing a sense of urgency

creating a guiding coalition

developing a vision and strategy

communicating the change

vision

empowering broad based

action

generating short term

wins

consolidating gains &

producing more change

embedding change in the

culture

John Kotter, 1996

Shared growth

The Principle ofThe Principle of Shared GrowthShared Growth

The Wealth PieThe Wealth Pie

All share All share in in incrementincrements to the s to the piepie

The Principle ofThe Principle of Shared GrowthShared Growth

The Shared Growth Phenomenon

Gini Coefficient and GDP per Capita Growth Rate, Annual Average, 1970-1990

KoreaArgentina

Peru

Chile

Venezuela

Mexico

Philippines

Colombia Brazil

Thailand

Malaysia

Indonesia

SingaporeHong Kong

Taiwan

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08

GDP per capita growth rate, 1970-1990

Gin

i c

oeff

icie

nt,

1970-1

990

The Shared Growth Phenomenon

Region GNP per capita growth

(per year) 1965- 1990

Income share of bottom 20

percent of households

Income of highest 20 percent of households

Ratio of top 20 percent to bottom 20

percent

East Asia, Fast Growers

6.1 6.7 43.3 7.0

East Asia Slow Growers

3.6 6.1 47.5 8.3

Latin America 1.4 3.6 55.1 16.4

Africa 0.3 4.3 54.0 15.0

South Asia 2.2 8.0 43.5 5.5

Ratio(unweighted average) of Top to Bottom Quintile and per Capita Growth Rate, Selected Years: 1976-1988

The Shared Growth Phenomenon

Region Average Poverty Index

HPAEs 0.25

Other Asia 0.53

Latin America 0.42

Sub-Saharan Africa 0.52

Integrated Poverty Index, 1988

Requisites of Change Management

establishing a sense of urgency

creating a guiding coalition

developing a vision and strategy

communicating the change

vision

empowering broad based

action

generating short term

wins

consolidating gains &

producing more change

embedding change in the

culture

John Kotter, 1996

• Vision 2020• Annual awards for export performance

But Why Shared Growth?

History and path dependence

Thrust of Leadership

The Role of Institutions

status quo

(underdeveloped)

DesiredDesiredStateState

(Developed)Managing the

Politics of Change

democratic institutions

The Western World

East Asia post WWIIEast Asia post WWII ? ? ?

The Predicament of Leadership

Paradox of autocracy

Time inconsistency of economic

policies

The Paradox of AutocracyThe Paradox of Autocracy

Property rights ???

Time Inconsistency

Costs

“today”

Benefits

“tomorrow”

The Predicament of Leadership

Paradox of autocracy

Time inconsistency of economic

policies

credible commitmentcredible commitment

Institutional Foundations of Shared Growth

Deliberation councils

Wealth sharing mechanisms

Competent/functional bureaucracy

Requisites of Change Management

establishing a sense of urgency

creating a guiding coalition

developing a vision and strategy

communicating the change

vision

empowering broad based

action

generating short term

wins

consolidating gains &

producing more change

embedding change in the

culture

John Kotter, 1996

government - businessdeliberation councils

Institutionalizing Consultative Processes: the

Deliberation Council

Coordination and information “leveling”

Rent allocation

Credible commitment

Wealth Sharing Mechanisms

• land reform • developing rural infrastructure• investing in basic education• promoting SMEs/labor intensive manufacturing• allocating corporate equity• worker cooperatives• public housing programs

Land reform

Percent Distribution of owner-cultivated households

Size of Holding (chia) 1939 1960

Less than 0.5 43.2 20.7

Between 0.5 and 1 20.9 45.9

Between 1 and 3 24.6 30.1

Greater than 3 11.3 3.3

Total 100.0 100.0

Distribution of Land and Owner-Cultivated Households in Taiwan, by size of Holding, 1039 vs. 1960

Land reform/rural infrastructureOverall Effectiveness of Simulated Experimental Programs in South Korea, 1978

Simulated Program

Land Reform -4.6

Public works and

small scale industry

-4.7

All Programs -10.7

All Programs but

land reform

-9.6

28.7

30.4

77.6

63.5

RuralIncome ofBottom decile

RuralHouseholds inPoverty (percent)

(insert table 3-1 in Campos, p.32)

Basic education

Primary Secondary

Region/

Country

1965 1987 1965 1987

Indonesia 72 118 12 46

Thailand 78 95 14 28

Malaysia 90 102 28 59

Korea 101 101 35 88

Singapore 105 n.a. 45 n.a.

Hong Kong 103 106 29 74

Primary and Secondary Enrollment Rates in the High-Performing East Asian Economies

Labor intensive SMEs

Categories Value of exports

Export value of small and medium businesses

Percent of small and medium businesses

Manufacturing 436.89 264.26 60.49

Trade Business 235.25 120.96 51.42

Total 672.14 385.22 57.31

Exports of Small and Medium Enterprises in Taiwan (Hundreds of millions of U.S. Dollars)

Malaysia NEP

Year Bumiputra Other Malaysian residents

Foreign residents

1969 1.5 59.6 62.1

1970 2.4 34.3 63.4

1971 4.3 33.9 61.7

1975 9.2 37.5 53.3

1980 12.5 44.6 42.9

1982 15.6 49.7 34.7

1983 18.7 47.7 33.6

1985 19.1 54.9 26.0

1988 19.4 56.0 24.6

1990 19.2 46.8 25.4

Malaysian Ownership of Share Capital of Limited Companies (at par value 1969-1990)

Requisites of Change Management

establishing a sense of urgency

creating a guiding coalition

developing a vision and strategy

communicating the change

vision

empowering broad based

action

generating short term

wins

consolidating gains &

producing more change

embedding change in the

culture

John Kotter, 1996

well functioning bureaucracy

Merit based recruitment and career advancement

Adequate compensation

Implementation Capacity: the Bureaucracy

Implementation Capacity: the Bureaucracy

Country/Region GDP/Capita Senior Level (%)

A B

Singapore 14,920 114 114

South Korea 7,190 69.3 69.3

Taiwan, China 7,954 65.2 65.2

Malaysia 5,900 40 40

Thailand 4,610 47.1 47.1

Philippines 2,320 27.7 27.7

Chile 6,190 70.36 70.36

Trinidad and Tobago

8,510 63.53 63.53

Venezuela 6,740 29.54 29.54

Uruguay 6,000 n.a. n.a.

Argentina 4,680 24.11 24.11

Estimates of per Capita GDP and Ratio of Public to Private Sector Salaries, Developing Countries

Index of bureaucratic Index of bureaucratic capabilitycapability

0.0

0.5

1.0

Philippines Korea

0.2

0.6

Depth of political appointments

Political appointees

Philippines Korea

Secretary

Bureau Director

Service Director

Level 2

Assistant secretary

Regional Director

Under secretary

Minister

Division chief

Level 4

Level 3

Division chief

Ratio of public to private wages Ratio of public to private wages

0

20

40

60

80

100

Philippines Korea

66

26

Percent

Source: WDR 1997

Merit based recruitment and career advancement

Adequate compensation

Accountability

Implementation Capacity: the Bureaucracy

Economic growth and bureaucratic performance

Unexplained Growth Rate and Bureaucratic Effectiveness

Thailand

Korea

Malaysia

Japan

TaiwanSingaporeHong Kong

0

5

10

15

20

25

30

35

-10 -5 0 5 10

Unexplained growth rate (average: 1960-1989)

Ind

ex

of

bu

rea

uc

rati

c

eff

ec

tiv

en

es

s