Lessons on development from Southeast Asia
OF the 10 fastest growing economies since 1960, eight are in East Asia. Two main competing explanations claimed to explain this regional concentration of catch-up growth since the late 20th century, often referred to as the East Asian miracle.
The dominant “neo-liberal” Washington Consensus that sought to establish minimalist “night-watchman” states attributed this regional performance to macroeconomic stability, public goods provision, and openness to trade and investment.
More heterodox economists focused on the need for states to adopt pragmatic, experimental “trial and error”, selective approaches to overcome market and coordination failures to accelerate growth, especially through industrialisation.
In this view, the developmental states of Northeast Asia used their “embedded autonomy”, vis-a-vis the private sector, to accelerate technological catch-up and achieve rapid growth. But what then is to be learnt from the more modest and mixed progress in Southeast Asia? autonomy from the private sector, more corruption and rent-seeking. Yet, they have avoided the growth slowdowns and lost decades experienced by many of the Rest.
How did MIT succeed while the Rest did not? Economic take-offs in MIT were preceded by rentier capitalist political elites gaining state control and pragmatically implementing industrial development strategies.
The successes were certainly not primarily about free trade, laissez faire, or being FDIfriendly and export-oriented. They were also not easy, took time, and encountered political resistance, instability and violence.
Development did not emerge on the political agenda until elites needed to protect their conservative “nation-building” projects. To consolidate power, they recognised that development and growth were in their longterm political interest.
The inability of political elites to successfully complete their nation-building projects is crucial to understanding “failed states”. Such conservative nation-building projects were typically led by “centre right” coalitions of monarchies, the military, police, bureaucracy and business elite.
The losers were the Left and popular groups. With the defeat of the Left and histories of openness to foreign trade and investment, elites forged pro-growth political coalitions enabling an open capitalist but interventionist growth strategy to work. has important implications for development policy. MIT’s favoured capitalists generally responded by substantially increasing the investment to GDP ratio.
MIT growth was thus investment, rather than export-led. The shares of manufactures in GDP and exports are larger than expected while export concentration indices are less than believed, suggesting that selective industrial policies worked, albeit unevenly.
This strategy has influenced the size distribution of firms as a small number of very large conglomerates dominate governmentpatronised conglomerates, which dominate the MIT economies and, exceptionally, Malaysia’s government-linked companies.
This political economy “ecosystem” could have failed if MIT governments were not developmentalist, or if the elites were too greedy, or if the private sector did not invest, or if there were no checks or balances.
Ruling political elites in MIT have been opportunistically or pragmatically nationalistic despite quasi-neoliberal rhetoric. They pursued economic development as necessary for regime consolidation, national power and achieving their goals.
Many observers correctly argue that MIT economies have not been consistently good at catching-up, which is only to be expected from experimenting. Nevertheless, their industrial policies have been effective in upgrading some firms and industries.
There is evidence of learning in aircraft, wood processing and automotive industries in Indonesia, and of substantial learning in palm oil processing and electronics in Malaysia, and agro-processing, cement, automotive parts, and component supplies in Thailand.
MIT governments and capitalists also learned from setbacks and failures without necessarily admitting to them, eg, when governments took too much, or when government incentives failed, and policies had adverse consequences, even if unintended.
Sustaining growth, industrialisation and technological progress remain preconditions for continuing income increases. Yet, all three now seem caught in “middle income traps”. Escaping these traps will depend on the governing elites’ understanding of past progress. – IPS