lecture six, development

the developmental State

Gershenkron + Amsden/Evans/Wade are the bookends to an interesting period in the study of late development.

In the 50s and 60s, when Gershenkron was writing, it was understood that a developmental agenda will need a helping hand from the State. this was policy reality at the time. this was a mainstream assumption of social science.

up until the mid 70s, this consensus starts to come under attack. the economics profession, in particular, was starting to shift towards Keynesianism – that paradigm was coming into crisis not because of its intellectual infirmities (those were clear), but because of the failure of Keynesian policies.

Milton Friedman, domestically, and Anne Kruger in the WB/IMF (in '79, she publishes a three-volume study of trade regimes—systematically falsifying the history of trade regimes)

the turning point comes with the debt crisis. LA countries accumulated debt through the 60s and 70s which resulted, in the early 80s, in almost universal default. this was the opportunity for the whole State-led paradigm to be called into question. by the end of the decade, it became received wisdom that the whole post-war policy paradigm had been a failed argument.

the intellectual case that was made was partly empirical. the economic difficulties of LA were pointed to as a consequence of misconceived State-led policies. what this was contrasted to was the example of E. Asia.

the mainstream argument re: E. Asia was that it had escaped the crisis of the 80s because of an underlying difference—a model which more closely approximated free markets and free trade.

so the alleged contrast was clear: a tarriff regime in LA resulting in slow growth/economic collapse, and 'market fundamentalism' resulting in stellar growth in E. Asia.

it was in this context that Amsden/Wade/Evans emerged.

Amsden's Asia Next Giant (SK) and Wade's Governing the Economy (Taiwan) were very influential, 1989. In the background to these books was Chalmers Johnson's book MITI and Japan, which came out in 1982—but exploded in 1989. Johnson argued that the Japanese miracle (1954-1976) was the result of enlightened bureaucrats—this didn't make much of a splash in the literature, but it influenced Amsden and Wade, who both stressed that they copied Japan.

Amsden and Wade were both funded by the WB. SK and Taiwan actually eclipsed Japanese growth rates in the period of the Japanese miracle.

What they both found was that the free-market description of the development model adopted by Taiwan and SK was wrong. Taiwan and SK both were about as close to a planned economy as you could get—especially SK. They differed in every crucial respect (Taiwan is a bit enigmatic—sometimes met with a 'discreet silence' re: institutional configuration).

States not only refused to be nightwatchmen States, but they were thoroughly interventionist. Note that they don't turn the neoliberal narrative on its head—LA is still interventionist. LA was characterized by pervasive intervention by the State in trade policy and domestically.

This generated a claim: clearly, the difficulty of LA did not arise from the fact that they relied on State intervention. If that were the case, you should have had problems in E. Asia.

This premise grounded their investigations—why did State intervention lead to success in one case, or another?

Neither Amsden or Wade really answer this, except insofar as they provide certain truisms [?]

Evans comes closer. It's the 'quality' of State intervention that distinguishes LA from SK. And the quality of State intervention has to do with the 'institutional capacity' of the State—the degree of capacity that the State has distinguishes 'good' States from 'bad' States. Evans tries to specify the components that add to State capacity: (1) the relevant State agencies have to have strong ties to the relevant economic actors (embeddedness); (2) those links have to be such that they do not degenerate into cronyism/clientilism—in this sense, they have to have the right kind of autonomy from State actors.

His term for this is 'embedded autonomy'

Amsden does describe the kinds of intervention that this State has to make, despite not saying very much about the institutions that produce it—good intervention is distinguished by a certain kind of outcome (Evans is less clear about 'outcome'). The kinds of protection and subsidies that States give to capitalists have to be characterized by reciprocity—there has to be discipline. In both LA and E. Asia you had subsidies and tarriffs. But in LA those subsidies became gifts. In E. Asia the subsidies came with a condition attached to them—the firm had to abide by certain performance standards. Firms couldn't make easy, 'soft' profits.

Amsden and Evans together provide this interesting answer—in one case, intervention imposed discipline; In the other case, States did not (and could not) impose discipline.

This gave critical policy wonks something to hang their hat on. the Left in the 80s was in crisis, of course; the whole collapse of LA had called State-centric arguments into question.

Evans is a descendant of Gershenkron. Of course, Gershenkron said very little about institutional capacity. Evans improves on this—he talks about the nature of the institutions that would be necessary.

The influence of this work was unmistakable. In '93 the WB comes out with a report, The East Asian Miracle. for the first time since the 1970s, the Bank agrees that 'industrial policy' played a very important role. it still makes fictitious distinctions (they call it 'market-conforming' rather than 'market-distorting'), but it was still an extremely important intellectual concession.

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WB responded to 'industrial policy' in Japan argument by agreeing that it was a success—the proviso was that had they not intervened growth would have been better.

SK in two spurts: 1961-1973 (textiles, etc.) to 1973- (heavy and chemical industry: automobiles, steel, synthetics, etc.). The latter are given protection from outside imports, but not made to export right from the start (which was untrue of textiles). Automobiles were given ten years to export—in those ten years, there are administrative ways in which they impose discipline [How is Korea able to discipline capital in these years?]

Vernon's theory of the product cycle – selling commodity with innovative technology in the home market for a while; over time technology diffuses, and initial disadvantages start to disappear; the initial producer takes his technology and starts to sell in another country; that technology, while uncompetitive in the home market is still competitive in an export market. now, diffusion starts to occur in the secondary market.

what the 'flying geese' theory doesn't explain well is 'diffusion'; it's more complicated. consider a natural experiment—Japan invested in N. E. Asia and in S. E. Asia, but N. E. Asia succeeded (b/c they were able to compel the diffusion of the technology). this developmental disjuncture is rich for possibilities for research.

were L-reforms important for State capacity? or important for growth? or both? certainly important for the size of the domestic market, but not for State capacity.

Evans is right to say that we have middle-ground between the State overrunning the private sector and the private sector overrunning the State. we're concerned in a 'joint-project'

for Weiss, cooperation matters. OK – but this only matters when antecedent discipline is in place, it seems. in which case the institutions that Weiss specifies might be insufficient, or misguided.