Masters Program for International Development Policy Understanding International Cooperation in East Asia

Term Paper - 2010 East Asian Developmental State: Essence, Experience and Relevance

Abstract:

The role of government in the East Asian economic development has been one of the most

controversial issues in development economics. The neo-classical economists claim that market

provides a mechanism for coordination of economic activities and they see market failures as an

exception. Counter arguments, on the other hand, stress the role of government in correcting

market failures in coordination. One such argument is the so-called ―developmental state‖.

Many studies have characterized the state in Japan, Taiwan, and Korea as ―developmentalist.‖

They were developmentalist in the sense that they mobilized domestic and, when necessary,

foreign resources for the development of the industries that were necessary for economic

development. Although it is true that governments in these countries engaged actively in

industrial development, there are great diversities among them with regards to the

implementation of policies. There are conflicting views about the role of government in

industrialization in East Asian experience. Anglo-Saxon economists showed no interest in

industrial policies at the beginning because they believed in the supremacy of neoclassical

prescriptions. At the other extreme, there are arguments emphasizing the role of government and

market failures. The proponents of this argument point out the importance of a centralized state in

institution-building to facilitate further growth.

Key words: developmental state, market failure, industrialization, institution-building, policies,

embeddedness

Submitted by: Khagendra Prasad Rijal

Submitted to: Prof. Young- Sook Kweon

Spring 2010

1

Introduction:

Economic development in East Asia has followed a remarkable pattern, unlike any other

developing regions in the world; and, as a region has offered a political, economic and social

model for the scholars, development experts and policymakers. The economic development of

certain East Asian economies over the last three to four decades has been dubbed the ―East Asian

Miracle.‖ This remarkable regional economic growth started in Japan in the 1960s and was

followed by the rise of South Korea and Taiwan in the 1970s and 1980s. Each of the East Asian

economies covered here began their economic rise from an agricultural base. This rise started in

the 19th century in the case of Japan and the 1950s for South Korea and Taiwan. These

economies expanded relatively rapidly into light industries such as textiles and clothing; and even

more rapidly into heavy industries such as steel, shipbuilding, and automobile manufacturing.

The move to electronics was especially rapid. In each of these cases, the state took an active role

in nurturing and guiding the process of industrialization.

East Asia chose authoritarian developmentalism for economic take-off in which the leader

functioned as primary force of change and the state intervention played a dominant role in

developmental decision making and resource allocation. The East Asian model of developmental

state presumed that growth requires a critical mass of mutually consistent policies. A strong state

is needed to mobilize resources quickly and flexibly. If broad participation is allowed, policies

are too slow and can‘t achieve critical mass due to power struggle, party politics and influence of

the interest groups.

Based on these backgrounds; it is noteworthy here, as argued about the importance of the market

economy by the neo-classical economists, for minimized intervention of the government in the

economic activities like resource allocation and benefits sharing. They plead that governmental

intervention in the economy is inevitably inefficient and distorting, and it also suggest that their

faith in the market mechanism without explicit policy direction is misplaced. Therefore, the

government should be concentrated only on public goods and correcting the market failures.

Some scholars also concede that state leadership and policy are relevant to East Asia

development history but they also argue that the nature of society, culture, market and evolving

international economy is also important. It is equally important to see and analyze how the

developmental state had most effectively and efficiently performed its role and how the static

approach was quite effective in these countries. A number of researches have been conducted and

much has been said and written about developmental state. Most of the researchers praised the

macroeconomic stability established in these economies as well as high savings rates, high rates

2

of human and physical capital accumulation, and the active role of the government in monitoring

development. The countries Japan, Korea and Taiwan in East Asia have received the largest

portion of the attention. Common characteristics of industrial development in these economies,

such as the incentives designed for selected firms, provision of public goods, superior

infrastructure, education, etc. are emphasized in most of the studies related to industrial

development in East Asia. Although it is true that governments in these countries engaged

actively in industrial development, there are great diversities among them with regards to the

implementation of policies. The goal in these countries was the same, altering the industrial

structure for further economic development through interventions in factor and product markets.

However, the ways this was realized were diverse.

East Asian model of developmental state succeeded to coordinate among the development elites,

and at the same time, relatively egalitarian income distribution was maintained in the

authoritarian regime in these countries. This paper puts some lights on the theoretical aspects of

developmental state, the experiences of the East Asian developmental state (Japan, Republic of

Korea and Taiwan) and also some implications of the East Asian model of developmental state.

Moreover, some challenges for the developmental state and its relevance is also explained in this

paper.

Developmental State: Concept

A defining feature of the developmental state thesis is the assumption of effective state

intervention. Developmental state, is a term used by international political economy to refer to

the phenomenon of state-led macroeconomic planning in which the state has more independent,

or autonomous, political power, as well as more control over the economy. A development state

is characterized by having strong state intervention, as well as extensive regulation and planning.

A developmental state plays an active role in guiding economic development and using the

resources of the country to meet the needs of the people. Theoretically, a developmental state

efficiently guides national economic development by mobilising the resources of society and

directing them toward the realisation of common goals to expand economic opportunities and to

improve the social well-being of the citizen. The concept of the developmental state was

popularized in 1982 by Chalmers Johnson.

The developmental state has not been a novel concept, but it came into particularly sharp focus in

Chalmers Johnson‘s account of Japan‘s Weberian ideal type of an interventionist state that joined

private ownership with state guidance. Though the provenance of the term ‘developmental state‘

3

goes back to Chalmers Johnson‘s study the Ministry of International Trade and Industry(MITI) in

Japan (Johnson 1982), there is now a substantial literature on these state. There is of course

debate as to when a state is a developmental state and when it is not based on the level of socio-

political emergence, economic advancement. Generally speaking, developmental states are those

states whose successful economic and social development performance illustrates how their

political purposes and institutional structures (especially their bureaucracies) have been

developmentally-driven, while their developmental objectives have been politically-driven; and

was able maintain a high and sustained growth in the economy.

A developmental state is characterized as a state with a strong and autonomous bureaucratic

leadership that directs the economy toward achieving developmental goals. ‗Developmental

State‘ where elite, economic bureaucrats take on developmental functions by ―guiding‖ the

national economy to promote economic growth (Johnson, 1995).

According to Loriaux, ‗developmental state is an embodiment of a normative or moral ambition

to use the interventionist power of the state to guide investment in a way that promotes a certain

solidaristic vision of national economy‘ (Lariaux & Woo-Cumings 1999). Ha-Joon Chang

underlines that ‗economic development requires a state which can create and regulate the

economic and political relationships that can support sustained industrialisation – or in short, a

developmental state‘ (Chang 1999). Consequently, a developmental state seems to be an

interventionist state. Castells defines ―a state is developmental when it establishes as its principle

of legitimacy its ability to promote and sustain development, understanding by development the

combination of steady high rates of economic growth and structural change in the productive

system, both domestically and in its relationship to the international economy.‖

The core idea of the theory on the developmental state is that the state authority should make

development its top priority and so by strategically intervening in the market, the state can

facilitate economic growth and an industrial transformation. The developmental state establishes

its autonomy through the creation of a rationalised (core) bureaucracy characterised by

meritocracy and long-term career outlooks. These traits make civil servants more professional

and more detached from powerful rent-seeking groups attempting to influence them. At the same

time, the state cannot be too insulated from society because it would then run the risk of

becoming self-serving rather than responsive to demands and needs for further development.

Thus, it must also be embedded in society that is, ‗connected to a concrete set of social ties that

4

binds the state to society and provides institutionalised channels for the continual negotiation and

renegotiation of goals and policies.

Peter Evans and other scholars have tried to define the concept of developmental state more

clearly-

Core aspect Emphasis on state capacity and ‗embedded autonomy‘

Political regime No normative commitment to any particular type of political regime,

though many examples of ‗successful‘ developmental states are

authoritarian

State legitimacy Derived from state achievements and performance

Political will Concern for national goals; commitment of core leadership is essential

Role of the

state

State should actively foster economic development but avoid capture

by particular groups

Model of social

representation

Exclusionary, based primarily on close relations between the state and

selected business groups; labour is controlled

What supportive aspect

need to create

Create meritocratic civil service in key areas, imbued by a strong esprit

de corps and concern for national goals.

The difference between the regulatory and developmental state is that the main actors for

economic development in the regulatory state are market and private enterprises whereas in the

developmental state, this role is actively played by the state. In the developmental state, the state

authority most rigorously identifies the development strategies, prioritize the projects, allocate the

resources and make a very strict judgement whether the performance is satisfactory. The

regulatory state regulates the enterprises only when the enterprises deviate from established

regulation. In short, the regulatory state can be characterised by market driven development.

Characteristics of the Developmental State The Developmental State is basically characterized by proactive intervening role of the state for

formulating development policies, prioritizing them, allocating the resources and distributing the

output through the directional as well as coordinating measures. The basic characteristics of the

developmental state can be explained as follow-

Identification of the strategic areas for investment,

Economic nationalism,

Protection of fledging domestic industries,

Minimizing the influence of the elites on state policy,

Efficient government bureaucracy,

Alliance between the state, labour and industry called corporatism,

Prioritization of economic growth over political reform,

Strictly discouraging the rent-seeking behaviour,

Coordination among the development elites,

5

Core Attributes of East Asian Developmental State Model

Although there are some disagreements in the literature regarding the core set of policies that

enabled the East Asian countries to achieve high levels of development and economic growth,

there is general consensus about the essential features that characterised these successful

developmental states.

Table: 1.1. Sectoral Shares in GDP at Current Market Prices in Japan, Korea and Taiwan

Sectors Economies 1960 1970 1975 1980 1985 1990 1995 2000 2005

Pri

mar

y Japan 9.0 5.0 4.5 3.2 2.6 2.1 1.7 2.0 1.6

Korea 36.9 26.9 24.5 14.2 12.6 8.5 6.2 4.6 3.0

Taiwan 28.7 15.5 12.8 7.8 5.9 4.2 2.4 2.1 1.7

Ind

ust

ry Japan 43.0 32.9 31.2 31.1 30.4 30.7 29.4 34.6 29.7

Korea 15.9 22.4 27.5 37.8 40.9 43.1 43.2 42.7 35.8

Taiwan 29.5 41.3 45.9 51.4 50.1 41.2 37.5 32.3 25.0

Man

ufa

ct

uri

ng

Japan 16.5 25.8 22.5 22.0 22.1 21.1 19.1 23.8 21.0

Korea 14.0 20.5 25.3 26.1 29.2 28.8 29.4 31.5 25.3

Taiwan 22.3 29.2 30.9 36.0 37.6 33.3 27.9 26.3 21.9

Ser

vic

es Japan 48.0 36.3 41.8 43.7 44.9 46.1 49.8 63.4 68.7

Korea 47.4 50.7 48.0 48.1 46.5 48.4 50.6 52.7 61.1

Taiwan 41.8 41.2 41.3 43.0 44.0 54.6 60.1 65.6 73.7

Sources: ADB Key Indicators (various years), DGBAS (2001), IMF International

Financial Statistics (various years), Li (1988), and World Bank World Development Report (various years).

Table1.1. shows that the sectoral structure of output has been quite low by the 1960s especially in

Japan; and has changed considerably in Korea and Taiwan from 1960 until the 1990s. The share

of primary sectors decreased gradually while the share of industry (i.e., manufacturing, mining,

and energy), especially the manufacturing sector, increased remarkably within two decades. This

happened at a time when Japanese sectoral structure of output reached maturity in the 1970s.

During this transformation, these countries were implementing what we call today ―industrial

policies.‖ The recent upwards surge of the share of services in these countries can be attributed to

the maturity achieved. In Korea, the decline in the share of agriculture has been accompanied

with an increase in the share of industry above 40 percent of GDP. These data are enough to see

that these East Asian economies realized a remarkable industrial progress.

Most of all, a strong core of state institutions with the capacity to promote economic growth

without being ‗captured‘ by particularist interests is regarded as having been essential. This is

what Peter Evans (1995) has called ‗embedded autonomy‘. Two factors are assumed to have

enabled such a bureaucracy embodying embedded autonomy and the developmental orientation

of the state to arise in the East Asian cases: a political leadership that was committed to

development and, in most cases, the uprooting of traditional elites. In East Asia and particularly

6

in Japan, South Korea and Taiwan, political leadership committed to development was often

motivated by regional competition, nationalism and the desire to ‗catch up‘ with the West. As a

result, development was regarded as a ‗national project‘ of the first priority. Such determined

political elites were either relatively uncorrupted or limited personal gains to non-predatory

corruption which did not impede investments and the expansion of national productivity. Ashton

(1999) identify four characteristic features on the East Asian developmental states: the politico-

economic strategy, the mechanisms to link trade and industry policy to education and training

policy, the centralised control over the education and training system and the ability to maintain

the links through time. Along with these apparatus, a development state also requires the

following attributes too -

Strategic capacity

Strategic capacity means the ability of the state to take the lead in defining a common national

agenda, to mobilise all of society to take part in the implementation of this agenda and to direct

society's resources towards this shared programme. The developmental state must be able to unite

the public sector, business, labour and civil society in a partnership geared to implement this

shared programme. The developmental state must also play a much stronger role in establishing

clear, measurable and time-bound targets for common programmes, and for monitoring their

implementation.

Organisational and technical capacity

The State needs the organisational capacity to ensure that it has the most effective and efficient

structures and systems to realise its goals. It has to improve systems and structures within each

sphere of government, and national government has to provide the necessary cohesion to deliver

the results needed. The developmental state‘s technical capacity is its ability to translate broad

objectives into programmes and projects and to ensure their implementation. Technical capacity

also involves the state's capacity to plan and monitor the implementation of its programmes. All

of these tasks require a stronger emphasis on the state's human capacity to carry out its work. The

success of a developmental state depends on the active involvement of social partners. The main

approach to governance places strong emphasis on building a broad front for development that

involves a strong relationship between government, labour, and business as well as other

organisations that are formed by different groups of citizens.

Developmentally driven institutions

In each case, the circumstances outlined above enabled the regimes to impose, or negotiate, an

agreed set of developmentally driven rules governing economy and polity in order to protect and

7

promote national interest. In short, their politics were developmentally driven and their

development was politically driven because growth was seen as important for national autonomy

and defence (in the slogan of the Meiji after 1870: ‗Rich country, strong army‘). External threat,

concern to avoid internal conflict, a need to ‗catch up‘ and a recognition that growth and equity

were not inconsistent but mutually re-enforcing policy goals were all part of the political

dynamics which shaped their developmentally effective institutions.

Emergence of the Developmental State

The period beginning from the end of the World War II until these days has seen unprecedented

levels of economic growth and development amongst the economies of states in East Asia; and

mostly the economies of Japan, South Korea and Taiwan. These success stories have come about

in the face of neo-liberal theory, as they have all had the common factor of an interventionist state

that has directed the economic development of these states. As a result of this successful form of

interventionist development, it has created a new theory in development studies, that of the

developmental state. The process of development that the East Asian states underwent involved a

lot of factors and different contexts, which worked as contributing factors for the emergence of

the developmental state; but the involvement of the state cannot be questioned.

Cold War

The context of the Cold War, during which much of East Asia‘s development took place, seems

to be particularly important to the emergence of the NIC‘s. The security threat that was faced by

the East Asian states during the Cold War helped to foster nationalism in these states, and with it

a commitment to a long-term transformation of the economy, in order to ensure the Communist

threat was not realised. States that were within reach of the communist threat were given special

treatment by the US, amongst others, and this enabled them to extract important advantages vis-à-

vis the core. These advantages were combined with continued expansion in the US market,

acting as a recipient for increased East Asian exports, creating a favourable situation for

development. As well as creating access to markets, the Cold War provided a more tolerant

climate for the developmental state approach. This meant that as long as the East Asian states

remained firmly anti-communist in their approach, the rest of the Western World turned a blind

eye to the authoritarian regimes and market intervention approach. The freedom and assistance

allotted to these states during the Cold War was crucial in the emergence of the developmental

state. Because of this, it may prove to be another limiting factor in ideas of applying the

8

developmental state to other regions. This is because the East Asian developmental state was the

product of a certain time and place.

Asian Culture - Unique East Asian Characteristics

It has been argued that one of the primary reasons for the rapid economic development occurring

almost exclusively in East Asia is that there are some unique aspects of Asian culture that make

development possible. Because of these unique values, it can be argued that it restricts the ability

of the developmental state to be transferred to other contexts, which may hold different values. It

is the Confucian values that are most commonly associated with the developmental state in East

Asia. One of the Confucian values that are identified with the developmental state is the idea that

‗Asian societies have always been more concerned with the welfare of the group over the

individual‘. This is relevant in the developmental state context because it suggests a willingness

to make personal sacrifices in order for the state as a whole to progress. In this vein, as long as

the state is making progress, individual loss of rights is not viewed as such an issue. Another

Asian value that contributes is the respect for a hierarchical society, so that state authority

whether sanctioned by free elections or not, is respected and hierarchy was held to be natural and

good. This means that even if the methods that a head of state utilised to obtain the position are

questioned, the respect for hierarchy will allow the citizens and the state to carry on with the

goals of developmental state. It can be observed that Confucian culture, with its emphasis on

high esteem to authority and hierarchical human relations, contributes to the social stability and

political order even though this alone is not a sufficient explanation regarding to coordinate

among different societal values in these selective countries.

External threat

If we see the situation in most East Asian countries, in all major cases, external threat was intense,

thus providing very powerful incentives for concerted policy, cooperation amongst elites and

commonly the encouragement of a nationalistic ideology often with economic, political and

cultural expression. Japan in 1870 was threatened by the intrusion of Western powers in Eastern

waters and the danger of sinking economically after the second world; the Republic of Korea was

not only under constant threat but attacked by its Northern neighbour; Taiwan had the People‘s

Republic of China glaring at it across the straits.

The coherence of a coalition of internal elites:

The coalition, cooperation and the political will, either of a dominant player such as the military

or in the form of a compromise amongst elites around a new set of rules, has commonly been

9

shaped by these circumstances, and radical opposition has often quickly and effectively been

neutralized or co-opted. That was certainly the case in the Republic of Korea after the military

coup of 1960. But another, softer version of this kind of settlement, occurs where rival elites or

interests have compromised around a new set of political and socio-economic rules – often

underpinned by a ‗social contract‘ – which enables growth to be promoted by the state without

massively threatening the dominant interests. Giving the state a major role in promoting

pragmatic cooperation between state and business, a ‗social contract‘ between business and

labour and a steady stream of welfare measures were all part of the political processes which

forged stability, promoted growth and tackled poverty.

Concentration of power and continuity of policy

In all the prime cases – Japan, Republic of Korea, Taiwan as a milder developmental state - there

was substantial concentration of political, military and ideological power in the hands of the state,

at least in the formative stage. In the case of the Republic of Korea and Taiwan de facto military

rule or military-backed rule ensured this. The continuity of political leadership ensured continuity

of policy and the ability to adjust policy where necessary. Indeed one of the more remarkable

features of the political regimes in all developmental states – prime and sub-prime – has been

their commitment to growth and equity, whether their reasons were ideological or based on

political pragmatism, or whether they saw that ensuring welfare, increasing opportunity and

containing if not decreasing inequality were necessary conditions not only for broad-based and

effective economic growth, but for the political stability that would ensure it could happen.

Synergistic’ relations among development elites

Given the urgency of their goals, developmental states were quick to develop effective

bureaucracies with the means to ensure infrastructural power (Mann 1986), that is the capacity to

devise, implement and achieve socio-economic and policy goals. But also, these bureaucracies

were generally well-trained and highly competitive with respect to entry and promotion. The

bureaucracies were located close to and protected by executive power and authority, and most

developmental states were able to build and maintain powerful, competent insulated specialist

economic bureaucracies, highly trained and largely insulated from the cloying demands of special

interests, avoiding, in the main, ‗capture‘ by such interests.

Financial Control and Channelling

The East Asian developmental states, in particular, exercised tight control over capital and

finance. In Japan, the Postal Saving plays significant role to finance for development whereas in

10

the Republic of Korea after 1960, for example, all financial institutions were controlled by the

state and hence it was able to direct loans to where it thought they would best serve national

strategic goals. As a consequence, these states were able to establish close and often influential

relations with emerging or aspirant private business and financial interests and also being able to

disciplining them, both domestic and foreign, and hence bring out a unified commitment to

capital accumulation and then investment.

External Supports

Most importantly, most developmental states enjoyed considerable moral, diplomatic, financial,

material and in some cases military support from major western powers in the context of the cold

war. Technical help, financial help, military help and diplomatic cooperation – without

contemporary governance or reform conditions – were given quite liberally to these states, even

though they all were adopting economic development strategies which would have been entirely

at odds with Washington consensus orthodoxy of the 1990s.

The following table more precisely presents what facilitating factors encouraged the

developmental state to be successive in the 1960s and 70s.

International National

Cold war

US aid to strong state

Anti communism as ideology

Sense of urgency

Social unity and consent

Weak Society

Weak land oligarchy

Weak industrial bourgeoisie

Weak labor class

Favourable economic environment

The golden period

Favourable access to export markets

Japanese restructuring

Korean and Vietnam wars

Suitable set of ideas

Neo-mercantilism (Stubbs)

Initial conditions

Land-distribution

Educational level

Positive Consequences of Developmental State

Catch-up Development

At the conclusion of World War II, the economies of Japan, Korea and Taiwan found themselves

near the bottom of the development ladder, a long way behind the advanced developed states of

the west. Therefore, they needed to find a strategy that would allow catching up with the

industrialised west. The government recognised the need to catch up with the west by

undergoing industrialisation process, but there were an absence of capitalists to kick starts this

process. Therefore, the government took the role of industrialist and took responsibility for

11

beginning construction of modern factory facilities. It was important for the government to

intervene in East Asian states that were late entries in the industrialisation race. Late arrivals do

not have the comparative advantage of new, innovative products and processes and thus

government intervention is essential to their competitiveness and survival. This theory comprises

the infant-industry model designed to make economy and industry globally competitive. The

idea of the infant-industry model is to ‗protect and nurture‘ industries until they have developed

sufficiently and have caught up with international standards. By implementing the ideas of the

infant-industry model, the East Asian states created the chance for their industrialisation to catch

up with the west.

Technology Transfer

Simply protecting domestic industry and hoping it catch-up with the west was not a rapid enough

development strategy for Japan, South Korea and Taiwan. More needed to be done to ensure that

domestic industry would rapidly develop to western standards, and thus it was necessary to

ensure that a transfer of innovation and technology took place. The catch-up position that East

Asian economies found themselves in allowed them to import technology from the developed

world to learn the ways of economic advancement not from scratch but by importing knowledge,

technology and economic know-how from abroad. This technology was gained from a number of

different sources; allow various technologies to be acquired through investing in foreign licensing

and technical assistance. The various technological processes that had been claimed from more

industrialised areas were then able to be applied to the East Asian context, in order to try and

obtain the most from the newly obtained theories. The state helped to facilitate this transfer of

technology, and this allowed the economies of East Asia to skip a few rungs on the development

ladder, and progress toward development and industrialisation at a more rapid rate.

State Protection and Subsidies

The provision of protection and subsidies was one of the most important strategies in the

industrialisation of East Asia, and remains a key component of the developmental state theory.

Subsidies were vital in assisting new industry as they began the development process, protecting

them from market forces and competition. These government subsidies were generally financed

by the state from taxation revenues, or from funds borrowed from overseas. State policy also

assisted the agricultural industry through subsidies and other mechanisms to increase output,

allowing surplus labour to be created that could be utilised in the industrialisation process. While

the subsidies and protectionism that was provided to new industry allowed it to develop without

the threat of global competition, it was made clear that state subsidies would not be present

12

permanently. It was always intended that the protected industry of East Asia would eventually

enter into the free market and so they must be ready to be competitive when this occurred. The

theory behind protecting industry at first before removing protectionism is ‗to ensure the initial

survival of strategic industrial sectors without forfeiting gains from trade or subsidising industries

that cannot compete globally‘. This strategy was effectively managed by the state in Japan, South

Korea and Taiwan economies, facilitating the rapid industrialisation that took place.

State Targeting of Industry

Another vital aspect to the state intervention in these three countries was not just that they

provided subsidies and protection, but that they only provided subsidies and protection to certain

industries. Only industries that were worthy of receiving this assistance received it. Reputation

building is thus an important part of the developmental state, in order to strengthen support in the

private sector towards the view that longer term projects are worthwhile. Protection offered by

the state to domestic firms was also targeted at certain industries, in the sense that protection was

tightly linked to export performance. What this amounted to was effectively a reward system,

where industry that performed well received more assistance from the government, and those that

failed were cut off from funds. In addition to making judgements on basis of performance, state

subsidy also targeted certain industries with potential for development, based on criteria such as

global demand elasticity and potential for technological progress. This created a portfolio of state

supported industry that was protected in order to allow them to develop, and stir the

industrialisation more generally. This was in effect a shortcut for industrialisation to target

selective industries, rather than all industries, and to develop them into first-rate competitors. By

selecting certain industries and not just providing blanket protection for all industry, the state

authority ensured that a sector of strong, competitive industry would develop.

Relationship between State Bureaucracy and Industry

It is crucial to the ability of the state to implement its policy directives that it has a close

relationship between the bureaucracy representing the state and the industries that policy is being

dictated to. While it is true that the developmental state lives on the fine line between productive

cooperation and rent-seeking collusion among state and business, this remains an essential

partnership for a developmental state. In order to minimise the risk of corruption in this

bureaucracy-industry partnership, these East Asian states ensured that the bureaucracy was

comprised of only the most elite, educated members of society. Rigorous standards of entry not

only ensured a high degree of bureaucratic capability, but also generated a sense of unity and

common identity on the part of the bureaucratic elite. Hence, the bureaucrats were imbued with a

13

sense of mission and identified themselves with national goals which derived from a position of

leadership in society. The strong loyalty that was felt by members of the bureaucracy of these

states meant that the bureaucracy was essentially an extension of state goals. This allowed

industry to be embedded in the policy of the state, and gave the state maximum control over the

decisions and direction of industrial policy. Being able to control policy direction, especially in

relation to industry was vital in a developmental state as it ensured maximum state control over

the industrialisation process.

State Autonomy from Society

The separation of the state from societal pressures is essential to the developmental state as it

allows the state to carry out its function in directing development without being subject to other

influences. Indeed, the developmental state is defined by its ability to balance strategic linkages

with, and relative autonomy from, different societal forces. This is a crucial aspect of the

developmental state because it allows the state to control the direction of the economy, the

direction of the development process. The poor level of autonomy restricts the capacity of the

state to develop. The impartiality achieved by having an autonomous state means that no bias

can be present in policy formation, and allows the state to focus on what is the best decision for

continued development which was actually effectively practised in these countries.

Negative Consequences of Developmental State

While there have been numerous positive consequences in the process of development that the

East Asian states have undergone, these have come at a price. This leads to the question of

whether it is even a good idea to try and apply the same strategy, to other states, regardless if it

works or not. Some of the problems associated with developmental state process will now be

outlined.

Labour Conditions in Developmental State

One of the ways that the governments of East Asian states pursued its development-at-all-costs

approach was to restrict the rights of workers. Policy in a developing state was aimed directly at

bringing about national development, no matter what the cost was to the population at the time.

One of the key strategies in this development quest was the removal of workers‘ rights, which

was manifested through attempts to ‗repress labour conditions to keep wages low and thereby

attract investment.‘ It was part of the state strategy to provide ‗corporations the cheapest, most

productive and least militant workers possible.‘ We can see then that the poor labour rights were

not just a side product of the developmental state, but actually a specific policy designed to attract

14

investment. This targeting of workers for exploitation led to poor working conditions in some

cases, where ‗hazardous and unhealthy working conditions and long work hours exact high costs

from workers‘. The developmental state set out to restrict the rights of workers and created

policy aimed to exploit workers as much as possible. Therefore it can be questioned whether this

is effective development policy.

Welfare System in Developmental State

When studying the extent of welfare available in the developmental state, we can observe that the

entire state was geared towards development, regardless of the consequences. Therefore, we see

that ‗the welfare state function has been virtually absent‘. The state had assumed no

responsibilities outside the domains of production and capital accumulation.‘ One of the main

duties from a state authority is to provide a level of welfare and support for its citizens, but this

responsibility was ignored by governments of developmental states. The view of the state

authority was that as long as social inequality did not become too large, and some semblance of

trickle down from overall growth was being felt, then this was an acceptable situation and the

state did not need to provide anything more. The only citizens who received some limited

welfare benefits were ‗those who were working and thus economically productive.‘ The citizen,

who needed assistance most, like the unemployed, did not receive any. Effectively, this was

treating humans in a similar way to other industrial policy, protecting those who were performing,

and leaving the failed to die off. This may be acceptable practice when dealing with industry, but

not with human life, and so the lack of welfare offered remains one of the problems of the

developmental state.

Democracy and the Developmental State

One of the most definitive characteristics of the developmental states of East Asia was their

authoritarian nature. Therefore, it can be argued that- the model of the developmental state was

inconsistent with the vision of a pluralistic form of democracy, in which a multitude of small-

scale interest groups enjoy broadly equal and unrestricted access to the state.

Yet despite the fact that the developmental state seems to be mutually exclusive of democracy,

the states of East Asia have still tried to portray a veil of democratic process in society. In the

wake of the Cold War and with renewed international pressure, East Asian states have found

themselves trying to prove their legitimacy by applying democratic processes and structures.

Despite these late attempts at democratic legitimacy, during the development years none of the

NICs have made much progress in creating democratic structures that would facilitate meaningful

15

political participation by the majority. The authoritarian nature of the developmental state

seemed being indifferent with the key concept of democratic values and practices.

Challenges of the Developmental State

As mentioned above, the East Asian developmental state model reflected a certain time and place.

The conditions that facilitated the birth of the East Asian model of state-led development no

longer exist. Moreover, the economic geography of development today looks very different than

it did during the immediate post-war period. The end of the Cold War, the onset of economic

globalization, and positive trends toward democratic deepening in Asia and the rest of the world

have together challenged the East Asian developmental state—as it exists in places such as Japan

and South Korea and Taiwan.

Exogenous Economic Pressures

The East Asian developmental states have become susceptible to the pressures of economic

globalization. Because places such as Japan, South Korea, Taiwan, and even China since the late

1970s have become so integrated into the world economy, they have felt the pressures for

international convergence in economic policy. They have less room in which to get the prices

wrong. With the deepening of GATT rules and the recent institutionalization of the World Trade

Organization, the East Asian developmental states have in fact long been unable to protect their

home markets and thus have been unable to shelter their infant industries from international

competition. The end of the Cold War has also meant that allies such as Taiwan and South Korea

can no longer ‗take advantage of‘ as it were, by distorting prices for the purposes of gaining

better terms of trade. Furthermore, the East Asian developmental states have become

increasingly plugged into global money flows. Japan in the mid-1980s, followed by Taiwan and

South Korea during the 1990s, and were compelled by the United States and the global

community more generally to liberalize exchange rates. Financial markets were also gradually

pried open by foreign investors and made more competitive.

The end result has been that the East Asian developmental state, be it in Taiwan or in South

Korea, has less flexibility and authority with which to strategically allocate domestic resources

along industrial sectoral lines—a key characteristic of the post-war developmental state model.

Strategies for catch-up development also do not apply to today‘s East Asian economies. Put

simply, the East Asian region is no longer economically backward. East Asian countries have, by

and large, caught up, and they are now moving toward developing high-tech sectors where mental

capital is more highly prized than cheap labor supplies. Openness to foreign ideas and knowledge

16

is certainly still crucial for those economies in the region trying to gain a foothold in the new

knowledge-based economy. However, openness and learning in today‘s industrial landscape are

more for the purposes of innovating new technologies rather than for importing existing

knowledge and technologies from abroad.

The East Asian developmental states have therefore embarked on a new innovation industrial

paradigm and have begun to replace past practices in industrial learning. The state still has an

important role to play. Private-sector initiatives and ‗accidental‘ discoveries in high-tech sectors

have outpaced the capacities of state-level policymakers. The post-industrial developmental state

in East Asia has had to learn to deal with the unpredictability and uncertainties inherent to

technological innovation, and the state‘s ‗big‘ leadership role, as defined by Wade, has

diminished considerably.

Endogenous Pressures

Pressures on the East Asian developmental state have also come from within. Peter Evans

elaborates on this when he warns that the developmental state is inherently degenerative and that

it in many ways the East Asian developmental state model unleashes its own endogenous

pressures for change and adaptation. Three are of particular significance. First, economic

modernization in the region has come with a major demographic shift. People are living longer

due to better overall health conditions. Added to that, the population replacement rates in many

East Asian countries have declined precipitously as lifestyles and norms surrounding the family

have changed and as many Asian countries continue to disdain unbridled immigration inflows.

The proportion of the Japanese population over the age of sixty-five years, already among the

highest in the world, is expected to reach 25 percent by 2020. Within East Asia more generally,

the gray population (over sixty-five) should account for 11 percent of the region‘s population by

2025. In other words, large ‗unproductive‘ portions of the population will need to be cared for, a

proposition that Peng argues runs against the productivist orientation of East Asian

developmental state model. Compounding these demographic pressures is the fact that traditional

family structures have also changed. Peng‘s study on Japan and Korea shows that more women

are entering the formal labor market, both by choice and because of economic necessity, meaning

that family care roles have been shifted onto the state. Therefore as she said that the East Asian

developmental state can no longer afford, politically or ethically, to remain welfare laggards, nor

can they be narrowly productivist in their approaches to social policy reform and development

more generally.

17

Second, the experiences of the East Asian developmental states during the late 1990s have clearly

demonstrated the ease with which cooperative relations between the state and business ultimately

degenerate into relationships based on unproductive rent-seeking. Evans‘s notion that the

developmental state is inherently degenerative is particularly striking in this respect. That the

conventional wisdom on the deep causes of the 1997 Asian financial crisis lays blame on the very

institutions that made up the developmental state has delegitimated the benevolent image of

authoritative state leadership in directing industrial transformation and economic growth. The

fine line between productive cooperation and rent-seeking collusion among state and business has

demonstrated itself to be just that.

In this context, Shih‘s opinion on China‘s attempts to develop its western frontier therefore

provides an important rejoinder to the assertion that the developmental state‘s control over the

allocation of resources in industrialization is necessarily productive. He finds that both the self-

interested temptations of individuals and the imperatives of political survival among China‘s

political elite are simply too overwhelming for the developmental state to check against

pernicious rent-seeking behaviour. Indeed, Pekkanen suggests that scandals within the Japanese

bureaucracy have also tarnished the image of the developmental state. Thus, for the East Asian

developmental state model to regain any sort of legitimacy and theoretical resilience, it must

contend with the challenges of corruption and collusion that, ironically, appear to be intrinsic to

state-led economic development.

Third, economic development in the Asian region coincided with a wave of democratic

deepening beginning in the 1980s. Indeed, with the end of the Cold War in sight, authoritarianism

among U.S. allies, especially those in Asia, was increasingly less tolerated. Economic

modernization also began to fuel demands for political reform in places such as Taiwan, South

Korea and other countries too. Though Japan was democratic throughout the post-war period, it

too experienced a major political realignment during the early 1990s when the ruling LDP was

defeated for the first time in 1993. The consequences of democratic reform have not been trivial.

As Peng and Pekkanen argue, democratic deepening has affected the political bases of the East

Asian developmental state in many significant ways. Once closed and tightly knit policy

networks have become more institutionally porous and pluralistic. The bureaucracy has become

delinked from the ruling parties. Legislatures have become increasingly accountable to voters.

Civil society has been reinvigorated, a legacy of prodemocracy activism within the region. As

Pekkanen points out in the case of Japan, groups have gradually become more professionalized

and have become increasingly engaged in policy agenda-setting and decision making processes.

18

Relevance or Applicability of Developmental State

While the developmental state was highly successful in bringing about industrialisation in East

Asia, and especially in Japan, South Korea and Taiwan, some challenges have begun to arise in

relation to its strategy. Circumstances have changed enough to prevent the developmental theory

being applied elsewhere, and so in a similar way those already under its prescription are facing a

new set of challenges. The conditions that facilitated the growth of the NIC‘s have gone, and

they have become so well integrated into the global economy, they have felt the pressures for

international convergence in economic policy as market forces have come to rule investment

logic. The end of the Cold War, along with economic modernisation has led to ever increasing

calls for NIC‘s to loosen authoritarian controls and participate in democratic deepening, allowing

for greater freedom of political expression and social action. Finally, the success of the

development of the growth program has improved quality of live for citizens in East Asia,

improving life expectancy and creating an ageing population. These all present a constant and

new set of challenges for the NIC‘s which successfully caught up development path in the past.

It would therefore be prudent to determine how the developmental state is able to deal with these

new ideas before claiming the developmental state process as a victory for development theory

that should be applied to other regions.

The scholarly debate on the developmental state has raised the issue of whether it is actually

possible to simultaneously achieve both human and economic development. In the case of the

developmental state and the so called East Asian miracle, it would seem that it is not possible that

both forms of development can be advanced at the same time. The developmental state is very

much a theory that focused solely on economic growth and industrial development.

The developmental state came about in East Asia as a result of numerous, unique and complex

factors. Because of this, it is needed to be very extensively analyzing the situation of every

components of political, social, economic, cultural and more importantly the human aspect of a

country to apply this model whether it is applicable to another region. So, the relevance and

replicability of the East Asian the developmental state should be judges on the basis of the

following context-

International National

The end of the Cold War The decline of anti-communist ideology

Lessening social unity

Less elite unity

US push for political liberalisation

Stronger and more internationalized industrial

bourgeoisie

Stronger working class

Stronger middle class

Stronger civil society

Technocrats up - bureaucrats down

Democratisation

19

Fragmentation

Corruption

Leadership discontinuity

Economic globalisation

Export of neo-liberalist ideas

US pressure for economic liberalization

Financial volatility

Increasing protectionism

Import of manufactures

Export of technology (JP)

The table also shows why the East Asian developmental state has been withered and same

developmental state modality is not applicable in the present era of globalization and

internationalization.

As the globalization effect for the countries in the world has been more and more intense and vast,

and the States are vastly interwoven and interconnected among themselves, countries are keen on

liberalizing their economies for enhancing their competitiveness so as to benefit from and

international trade and other forms of cooperation as well.

The increased innovation in

production technology and computer operated machinery has led to production returning to the

core in some instances, and less labour is required which does not benefit labour-rich developing

regions. The increase in the scope and number of trading blocs and regionalism such as the

European Union, and the North American Free Trade Agreement have been making it much more

difficult in today‘s climate for a newly industrialising state to penetrate a new market. Then, the

developmental state, as we know, has been in closely revisited before being applied to another

developing region.

Moreover, the socio-economic structure of countries has been so complex and heterogeneous that

any rule of thumb like developmental modality or mechanisms can hardly address the needs of

every section of society. Besides, today people are more concerned and informed about their roles

and stake in the process of development than in the past. The campaigning for values of

democracy and practice of participatory democracy have made people much aware about how the

political leadership has been dealing with the issues of collective benefits. The political

leaderships are in frequent change and even discontinuing in some countries because of transition

and political instability. On the one hand, the roles of the state have been more complex and

diversified that it has not only to produce but also to pursue every citizen that they have been

fairly distributed the benefits from the state and government. On the other hand, the emergence of

active private organizations and civil societies have added more synergy for the development

efforts that the state is unlikely to be success in development efforts unless it get the confidence

from these organizations and societies and work together. Undermining them and bypassing them

20

has almost been impossible these days. Therefore, the applicability of developmental state not

only depends on the international support and environment but how the domestic social structure

has been formed and how the citizens are responding on the state‘s policies also. But it does not

mean that the role of the government and state apparatus is minimal. The mechanisms of the state

especially in the least developed countries should be committed for development and pro-people

equally balancing the socio-cultural harmony and political stability. So, in this context, an

adapted developmental state model could likely be applied in some countries if appropriate

changes are carried out to make it a viable strategy for development. But one remarkable point is

that most developmental states in East Asia were initially authoritarian. This does not imply that

all authoritarian regimes are developmental and it also does not mean that states need to be

authoritarian in order to be developmental.

Conclusion

There is little doubt that government intervention in the East Asian economies was the vital to

their development and thus forms the key aspect in the developmental state theory. One cannot

coherently claim that the effect of government intervention in East Asia was residual, or that high

performing East Asian economies could have grown as fast or even faster if their governments

had intervened less or not at all.

In conclusion, developmental state, if referring broadly, is not only the collective economic and

human development, but also the state‘s essential role in harnessing national resources and

directing incentives through a distinctive policy-making process. The role of the state is vital in

fostering, guiding, and ensuring economic growth and technological modernization. The form of

ruling system may be either but the first and foremost the commitment on the part of the ruling

elites to develop the economy in a specific direction and to optimize the benefits and welfare for

the people. That is, a state capable of establishing efficient institutions, providing conducive

environment for them to play their roles and create synergy for socio-economic development is a

urge for the development of a state; which not only allow and encourage growth, but directly

foster it by a variety of active state measures of involvement, and also provide the social policy to

generate and sustain the legitimacy and ultimately maximize the welfare of the citizen.

21

References:

Alice Amsden, ‗Asia’s Next Giant: South Korea and Late Industrialization’, Oxford UP, 1989.

David Friedman, ‘Misunderstood Miracle: Industrial Development and Political Change in Japan’, Cornell UP.

1988.

Eun Mee Kim, ‘Big Business, Strong State: Collusion and Conflict in South Korean Development’, SUNY

Press, 1997.

Evans, Peter, ‘Predatory, Developmental and Other Apparatuses: A Comparative Political Economy

Perspective on the Third World State’, Sociological Forum, Vol. 4, No. 4, 1989

Evans, Peter, ‘Embedded Autonomy: States and Industrial Transformation’ Princeton UP, 1995.

Irma Adelman and A. Erinç Yeldan, ‗The End of the Developmental State?’ University of California, 1999.

Johnson, Chalmers, ‗MITI and the Japanese Miracle: The Growth of Industrial Policy’, Stanford UP. 1982.

Lawrence Greenwood, ‘Globalization and Economic Development in East Asia’ University of California, 2002.

Linda Weiss, ‘The Myth of the Powerless State’, Cornel UP. 1998.

Meredith Woo-Cumings, ‘The Developmental State’, Cornel UP. 1999.

Stephen Haggard, Institutions and Growth in East Asia, Studies in Comparative International Development,

Volume 38, No. 4

The East Asian Miracle: Economic Growth and Public Policy, World Bank.