The rise and fall of the developmental state thesis: rethinking the East Asian economic miracle

Discuss the theory and the role of the developmental state in the rise of the East Asian Miracle.

Executive Summery

Development ideas and the developmental state thesis over time

has fallen in and out of fashion and the key indicators for their

economic growth are either hailed as a success, or, are at the

heart of criticisms. In the book Asian States: Beyond the

Developmental Perspective editors Boyd and Ngo put together a

collection of ideas from authors who have re-examined the

theoretical claims and the empirical foundations of the

developmental state theory. The authors of Asian states argue

that regardless of the merits of the developmental state theory as

an explanation of economic growth it falls far short of being an

adequate theory of the state of Asia (Boyd and Ngo, 2005, p. 1).

Boyd and Ngo are dissatisfied with growth and development study

in Asia. They believe there are problems and issues that are not

reducible to economic success and failure. According to Boyd and

Ngo particular questions of the state, politics, and power cannot

be captured in measures of efficiency and effectiveness. (Boyd

and Ngo, 2005, Preface)

In order to analyse the criticisms and successes you need find out

what has inspired different attempts to develop different regions,

and study what overall effects these interventions have (Williams,

Meth, Willis, 2009, p. 120). When comparing state-led

development to market-led development we also need to

measure the social and environmental costs and see if there has

been a more efficient use of resources, or if having greater

autonomy is a positive for development, the economy and

increasing the standard of living (Williams, Meth, Willis, 2009, p.

120).

Boyd and Ngo take issue with the projection onto Asia of a

simplified Weberian concept of the modern state (Boyd and Ngo,

2005, p. 4). Much of their conjecture emerges from the claims

about developmental states coming from supporters who have

mislabelled or misrepresented certain definitions, characterised

developmental states as developmental when they should not be,

and using western ideology, rationality, and logic to try and

understand Asian states (Boyd and Ngo, 2005, p. 4). While it is

evident the popularity of development state theory has reduced

the study of Asian political economy to a study about economic

growth, it is still an important theory. In some cases, like South

Korea, even in an increasingly globalised market and against

conventional wisdom, state-led development has still proven to

be successful. Critics argue state-led development can lead to

inefficiency and authoritarian power, while market-led economies

have the effect of concentrating resources, money, and power in

the hands of the few already powerful, while exacerbating

inequality and institutionalising poverty. The main issue here

seems to be a lack of good governance which underpins

developmental state theory, and the fact that development state

theory is unable to encapsulate the entire socio-political and

economic landscape of Asia.

Development State Theory

Developmental state theory is a 'state-led growth' theorem for

economic growth that emerged in response to the failure of both

neoclassical economics and dependency theory accounting for the

spectacular growth of Japan (Boyd and Ngo, 2005, p. 1).

Efficacious instrumentality is a core element in the developmental

theory of the state (A. Kohli, 1999, p. 93). Governments were

implementing policies that opened up their economies to foreign

investment by reducing tariffs, subsidised premises and

infrastructure, and by reducing levels of taxation page (Williams,

Meth, Willis, 2009, p. 118). Modernisation was a key perspective

in the field of development studies, however, Critics like Hoselitz

(1952) say it holds up a Western model of high mass consumption

as a universal goal and see traditional society as irrelevant to the

transformation (Williams, Meth, Willis, 2009, p. 287). Boyd and

Ngo claim the developmental state is contained in the Weberian

tradition that emphasises legitimacy, rationality, and

instrumentality at the expense of monopoly, violence, and

domination (Boyd and Ngo, 2005, p. 2). Boyd and Ngo cite Moon

and Prasad who they believe have rightly criticised this view of the

state because it fails to uncover the complex and dynamic internal

workings of the state structure by depicting the state as an

internally coherent, unitary entity (Moon and Prasad, 1994, pp.

360-86). The potential risk is a country can revert to

authoritarianism, corruption, and cronyism while neglecting the

environment and human rights (Boyd and Ngo, 2005, p. 3)

Cronyism is a system of political or economic relationships which

favours personal relationships, often hidden elites, over merit

(Williams, Meth, Willis, 2009, p. 368). A market-led economy like

the Laissez-faire is favoured by capitalist who argue for minimal

state intervention and maximum market freedom (Williams,

Meth, Willis, 2009, p. 371). Free market ideas like the Laissez-faire

approach, associated with Adam Smith (1979) called for a reduced

government intervention in economic affairs, free trade, and a

division of labour. Free trade was vital to allow all the nations to

get the goods they required for success (Smith, 1979, pp. 1-3).

Since the 1980s, market-led approaches to development have

become dominant. Proponents of market-led development have

argued that these approaches are more efficient and equitable

than state-led development policies because they provide

technical and rational solutions to problems rather than being

caught up in politics (Williams, Meth, Willis, 2009, pp. 120-50).

Underlying the ideas of a developmental state are sets of

assumptions and aspirations about the role of the state can and

should play in changing society.

The role of the developmental state in the rise of the East Asian Miracle

The developmental state thesis hinges upon the claim that the

"plan rational" state with state-led technocrats enjoying a high

degree of political autonomy, government subsidies and

insulation from societal demands, can engineer economic growth

(Boyd and Ngo, 2005, p. 1). Advocates believe that this is precisely

what happened in East Asia and that the developmental state can

be a model for other developing regions in the world while critics

disagree pointing to the dangers and highlighting the substantial

risks. However, the Asian state is large and diverse and along with

the rise of newly industrialised countries the socio-political and

socio-economic landscape is much more complicated than simply

following both market-led or state-led theories and arguments.

This is because the Asian political economy encompasses a broad

spectrum of issues as well as the importance of economic growth

(Boyd and Ngo, 2005, p. 3). The East Asian experience also

exposes the risks of state-led development which can lead to

authoritarianism, corruption and a careless attitude toward the

environment and human rights.

Rapid economic growth, job creation, infrastructure development

and improved standards of living have been experienced by some

regions and social groups in East Asia, but not all and not equally.

Boyd and Ngo claim that ‘long before the East Asian miracle lost

something of its gloss in consequence of the Asian financial crisis

of the late 1990's, there were grounds for scepticism concerning

some of the claims made for the developmental state’ (Boyd and

Ngo, 2005, p. 2). Boyd and Ngo cite Miwa and Ramseyer who

believe the empirical foundations are less than secure and that

developmental state theory entails a certain romanticism of the

Asian experience (Miwa and Ramseyer, 2002, p. 2). The Asian

Financial Crisis brought down many of the miracle economies and

Asian capitalism became outmoded and dysfunctional as Asian

governments were urged to eliminate cronyism, abandon political

collusion and embrace the natural efficiency of the market

(Camdessus, 1997, p. 5). Boyd and Ngo believe the Asian Financial

Crisis in the early 1990's revealed some problems for the thesis

mainly because developmental states where no longer

characterised as developmental. Meaning, what was the recipe

for success and hallmarks of the state, institutions and their

relationships, was once hailed as 'close harmonious government

industry relations' became known has 'crony capitalism' (Kang,

2002, p. 2) which along with political collusion became the

ingredients for disaster, stagnation and decline. Boyd and Ngo

state their attention derives from the claim and status of the

thesis as an explanation of economic growth.

The political economy of Asia predicates upon the organisation

and logic of power, the relationship between the state and the

market, and power dynamics between social classes and other

groups (Boyd and Ngo, 2005, p. 3). All of these issues are related

to development; however, Boyd and Ngo believe they cannot be

understood exclusively in terms of development (Boyd and Ngo,

2005, p. 3). The danger highlighted by the authors is that the very

success of the developmental state thesis has reduced the study

of the Asian political economy to the study of economic

development. Boyd and Ngo cite Gerschenkron's idea of late

development which argues that latecomers to the world economy

need a centralised approach to industrialisation and economic

growth (Boyd and Ngo, 2005, p. 3). According to Gerschenkron, in

order to 'catch up' developing states demand a more centralised

mechanism for capital mobilization, industrial adjustment and

technology upgrading (Gerschenkron, 1962, p. 4). According to

Boyd and Ngo, they are concerned about how state centric

analysis is construed in western terms which either mislabel or

misrepresent their understanding which is then in turn projected

uncritically upon Asia. As such, the developmental state thesis

distorts and misrepresents the political economy of Asia (Boyd

and Ngo, 2005, p. 2).

Development is an important way by which we have since the

middle of the twentieth century described and analysed the East

Asian miracle (Williams, Meth, Willis, 2009, p. 275). East Asian

nations were able to catch up to the first world because of local

government policy, foreign direct investment, and state led or

intervention to develop and grow their economy. In 1993 the

World Bank published its report The East Asian Miracle which

compared the experience of East Asian countries to Latin America

and Sub-Saharan Africa during the period 1965-89. The main

conclusions were that the East Asian countries had been able to

achieve high levels of economic growth without increasing levels

of economic inequality (Bird and Milne 1999, Rigg 2003, Wade

1999, World Bank, 1993). These countries were classified into

what has been termed a 'flying geese' pattern with Japan at the

head followed by NICs Hong Kong, Singapore, South Korea and

Taiwan. The report ascribed success to the openness of the East

Asian economies to foreign investment and state involvement in

economic activities (Williams, Meth, Willis, 2009, p. 122).

Following the publication the report was criticised because it

implied that all countries in East Asia were the same and had

followed similar patterns. Another criticism was the word miracle

which implies something cannot be explained even though the

World Bank listed very obvious policies for success, however, the

World Bank’s report crediting neoliberal policies for economic

growth has caused various analysts to criticize the institution for

disregarding a number of state supported policies that assisted

growth, and discard the principles of neoliberalism (Derek, 2009,

p. 52).

The development state thesis and term 'newly industrialising

country' was applied to a number of countries in East Asia which

switched their focus from largely primary producing economies to

industry and manufacturing (Williams, Meth, Willis, 2009, p. 120).

For example Hong Kong, Singapore, South Korea and Taiwan were

called 'Tiger Economies' which perceived progress reflected by

opening up the economy to foreign direct investment, particularly

in electronics and clothing (Williams, Meth, Willis, 2009, p. 120).

The Tiger Economies of East Asia were able to benefit from the

post-war capitalism. The Cold War was favourable to the

developmental strategies of East Asian nations who allied with the

United States because they had goals for growth and provided

valuable aid and assistance (Boyd and Ngo, 2005, p. 4). South

Korea and Taiwan have subsequently managed to achieve rapid

rates of economic development and industrialisation by following

the Japanese blue-print of state-led development, rather than the

neoliberal, market-led development that has become influential

across much of the Western world (Moon and Prasad, 1994, pp.

360-86).

The flying geese paradigm is a model for the international division

of labour processes in East Asia based on dynamic comparative

advantage which refers to the shifts in a system’s competiveness

over time to change economic and domestic factors (Mody, A.

1990, pp. 291-95). Changing technologies meant that the

manufacture of goods and development of industry became

streamlined, gaining the most amount of profit with minimum

amount of risk. The developmental state thesis argues that East

Asia's 'economic miracles' depended on wide and effective state

intervention, targeted industrial policies, and the primacy of

economic performance over formal market forces (Boyd and Ngo,

2005, p. 23). The thesis fails to account for the economic miracles

and highlight the problems of conventional wisdom. Moreover,

although the notion of developmental state was initially used to

identify distinctive features of the national state of Japan and

then extended to first-generation late industrializing East Asian

economies and was used for states at any level that actively

pursued economic growth. The developmental state appears

more realistic than neoliberal market centred studies; however,

Jessop rejects the concept in favour of the Listian workfare

national state.

In Asia previous forms of Fordist productions were being replaced

by 'just-in-time' production. Just-in-time production is a 'flexible

accumulation' process as opposed to the perceived fixity of

Fordism which describes existing forms of global flexible

production. JIT is more flexible and responsive to market demands

and involves greater labour flexibility (Williams, Meth, Willis,

2009, p. 117). Import Substitution industrialisation is a

development strategy where the state plays an important role in

promoting domestic industry by replacing imported domestic

goods for domestically produced ones (Williams, Meth, Willis,

2009, p. 286). This in turn strengthens their industrial base and

moves away from depending on primary productions alone. This

was accomplished by placing high tariffs on imported goods and

by expanding the domestic market (Williams, Meth, Willis, 2009,

p. 286). One noted negative impact of ISI was the delivery of

second rate products while concentrating the power and

resources in the hands of political elites and technocrats

(Williams, Meth, Willis, 2009, p. 286). By the late twentieth

century South Korea became one of Asia's leading Tiger

Economies, between the 1960s and 70s its economy grew at an

average rate of over 8 per cent per year developing a global

presence in ship building, electronics and the automobile

industries (Williams, Meth, Willis, 2009, p. 286). Under Park

Chung-hee's leadership South Korea abandoned earlier policies of

ISI in favour of export led-growth with incentives like low interest

loans offered to companies with good performances. These

strategies turned the Korea's family-controlled business

conglomerates (chaebol’s), such as Samsung and Hyundai into

globally recognised brands known for innovation.

Boyd and Ngo question how far and how accurately the

developmental state thesis explains the state of Asia. They cite

Cummings who believes the developmental state theory is 'the

most formidable theory of the East Asian state’ (Cummings, 1999,

63). and Woo who defines the developmental state as 'a

shorthand for the seamless web of political, bureaucratic and

moneyed influences that structures economic life in capitalist

Northeast Asia (Woo and Cummings, 1999, p. 1). Along with

'Import-Substitution industrialisation' and other such policies the

developmental state thesis was hailed as a means for successfully

creating economic growth, however, since the 1970s critics have

blamed these policies for slowing down the economies (Williams,

Meth, Willis, 2009, p. 120).

Supporters use the developmental state theory to explain the

origins of the economic miracle in terms of the particular features

of a state apparatus; however, Jessop believes it ignores the

extent of economic growth outside East Asia (Boyd and Ngo,

2005, p. 9). To overcome these problems Jessop argues we need

to rethink the relation between the economic and the political. He

conceptualises East Asian states in terms of the 'Listian workforce

national state' and shows the limitations of these states

highlighting how new states emerge and adapt to new and

changing global circumstances (Boyd and Ngo, 2005, p. 10).

Underhill and Zhang argue that the fundamental weakness of the

developmental state theory stem from a failure to include

configurations of societal variables embedded in the market

which also forms the state and society dichotomy which is in

contrast to the nature of the market as mechanisms of

governance. Underhill and Zhang claim successful development

processes in East Asia have been based on political strategies

which involve the integration of a variety of active market agents

into the official realm of state projects (Boyd and Ngo, 2005, p.

10). Underhill and Zhang completed a comparative analysis across

Korea, Taiwan, Malaysia, and Thailand in order to demonstrate

the importance of interactive and reclusive state and market

relations in shaping core elements of the development process

(Boyd and Ngo, 2005, p. 10).

Ngo's examination of Taiwan's development planning and

implementation has also challenged the developmental state

thesis. Instead of finding a state with a high degree of unity and

concentrated agency he discovered institutional fragmentation,

imperfection, and even amorphous hierarchy. Ngo argues that

state agency in pursuing developmental projects was episodic

rather than constant. He claims agency derived from

circumstances that enabled specific power holders to register

their own agenda and the external threat of communist China not

characteristics of institutions and organisational resources.

Taiwan after WW2 experienced remarkable economic growth and

during the 1980s vied with South Korea for the fastest growing

economy. Taiwan's economic success can be attributed to

multiple factors including the legacy of colonial development

under Japan, the abilities of the Taiwanese people to industrialise,

the influx of skilled better educated mainlanders, the Kuomintang

policies that supported growth, American aid and the free market

discipline that accompanied it, and the open world markets,

especially America which took half of Taiwan's exports. American

aid began in the 1950s and its main goal was growth (Fairbank,

Reischauer, Craig, 1989, pp. 904-905). By the 1960s there was a

switch toward export industries and Taiwan welcomed foreign

investment. There is also the impact of the Korean War Taiwan

was secured as a United States client-state, and the Vietnam War

which boosted Taiwan's economy. Foreign industries were able to

use Taiwan's cheap labour in return Taiwanese labour force

learned new skills and acquired new technologies (Fairbank,

Reischauer, Craig, 1989, pp. 904-905).

Since the Asian Financial Crisis and the widespread adaption of

'Structural Adjustment Policies' majority of countries in East Asia,

besides North Korea, opened up their economies to Foreign Direct

Investment (Williams, Meth, Willis, 2009, p.121). In 1990 inflow of

FDI reached 8.791 US$m which increased to 125.774 US$m by

2006 (data from UNCTAD, 2008, Williams, Meth, Willis, 2009, p.

123). This means that as we are moving toward globalisation

national economies are becoming increasingly linked together,

along with multinational and transnational corporations who hold

significant amount of power. It is argued that the power of

corporations in East Asia and the global south is undermining the

power of the nation state, destroying national sovereignty and the

middle class, while overtaking the state as the main actor in

international relations (Williams, Meth, Willis, 2009, pp.120-28).

Countries attempting the same economic policies today would

face pressure from the international markets, especially if they

are reliant on foreign capital or FDI to kick start growth. According

to Boyd and Ngo what began as a claim that 'the state plays a

central role in promoting economic growth in some countries' has

been turned round to become the claim that 'the developmental

state can be found in countries which experienced economic

growth (Boyd and Ngo, 2005, p. 4). Boyd and Ngo are primarily

concerned with what they call a growth-paradigm-turned-state-

theory slippage which embodies a characterization and a

theorization of the state that go well beyond the original claim of

a theory of growth because it diminishes our account of the

political economy of Asia as a state defined and understood in

terms of its functionality for growth (Boyd and Ngo, 2005, p. 4).

The rise, fall and return of the developmental state

The idea that national governments should actively direct social

and economic change was a central theme in development

thinking during the decolonisation period. For a number of

reasons it was considered common sense and necessary. First,

following decolonisation was independence, national identity and

an expectation for a dramatic transformation of people's lives.

State-led development offered the most effective way to respond

to these expectations. Second, the 1929 stock market crash and

subsequent Great Depression had exposed that private markets

needed a degree of government regulation to avoid another

financial crisis. Writing against the background of the Great

Depression John Maynard Keynes argued that government should

have a more interventionist role in the economy, to regulate

demand for services and goods and lowering interest rates in

economic downturns (Williams, Meth, Willis, 2009, p. 280). Third,

the economies of many Asian countries at independence were still

based around primary industries, agriculture and mining,

containing an economic structure that reflected the colonial

needs for Asia to be seen as a source of raw materials and place

for marketing European manufactured goods (Williams, Meth,

Willis, 2009, p. 281). James Scott (1998) has argued that

centralising power in the hands of the state can lead to the

production of standardised, simplified solutions to development

problems that ignore local diversity and knowledge. Peter Evens

(1989) argued this also led to widespread corruption in high

places questioning whose interests are really represented within

state-led development. In 1997, economies across East Asia

suffered economic problems following the devaluation of the Thai

baht leading to the Asian Financial Crisis. In response to the AFC

the World Bank argued that it was a result of financial

mismanagement and what has been termed as cronyism or crony

capitalism. The interpretation of the state’s role in economic

success of the different East Asian countries including in

protecting particular family businesses like Samsung, Hyundai and

Mitsubishi was also challenged (Bird and Milne 1999, Rigg 2003,

Wade 1999, World Bank 1993).

Conclusion Asian States re-examines developmental state thesis, points out

the shortcomings of the theoretical approach, and attempts to

suggest how we might move forward. Boyd and Ngo question the

status of the development state theory and whether or not it is

really a theory of political economy or if it would be better

understood more restrictively as a theory of economic growth.

Concerned with the political economy of Asia, interrogating

developmental state thesis and recognise it is not reducible to the

question of economic growth. Failures of developmental states

has more to do with external international relations, the rise of

transnational and multinational corporations and terrorism comes

new security threats then internal politics. I do agree with Boyd

and Ngo that questions of the state, politics, and power cannot be

captured in measures of efficiency and effectiveness because

there are problems and issues that are not reducible to economic

success and failures. The World Banks good governance agenda,

globalisation and the rise to power of MNCs and TNCs has eroded

national sovereignty. Even where developmental states have been

successful it is important to ask whose interest have they served

and at what social and environmental costs. South Korea has

achieved the economic success other states aspire to; however,

this is not a result of developmental state policies which can be

copied and applied in any country.

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