Tuesday, March 28, 2017

LET US NOT REINVENT THE WHEEL OF DEVELOPMENT


BOOK: HOW ASIA WORKS: SUCCESS AND FAILURE IN THE WORLD’S MOST DYNAMIC REGION
AURTHOR: JOE STUDWELL
PP: 402


We hear a lot about the Asian tigers and the development miracle that took place in that part of the world over the second half of the last century.  We hear stories how about almost all Asian nations were at the same level as sub-saharan Africa 50 years ago. The divergent paths of their economies with Asia becoming more and more prosperous and sophisticated while sub-saharan Africa descended into chaos and poverty serve as a useful study of what to do or not to do to drive development.

In this book Studwell, a long time financial journalist in Asia, distils the path to the region’s prosperity down to the jumping in agricultural yields, export driven manufacturing and the directing of financial resources to those two goals.

But first he debunked previous theories about the Asians being congenitally frugal or disciplined people as the basis of their superlative success. In doing so he makes the distinction between Japan, South Korea and Taiwan on the one hand and Malaysia, Thailand and Indonesia on the other. The former being the success stories – The Asian Tigers, while the latter, while having experienced growth have fallen far short of the other three as far as being development models is concerned.

"At the base of their – Asian Tigers,  launches were land reforms, which were successful to varying degrees and served as a signal of the respective political classes’ commitment to long term, equitable development...

Once land reform was done the “gardenisation” of Asia begun in earnest. This was the process of increasing the farm yields, which had several advantages for the underdeveloped nations. One, it was labour intensive creating employment. Two, the improved food yields saved the country valuable foreign currency that would have been spent on food importation and relatedly it created demand for the budding industries which served as the bedrock of these countries next level of development.

The Tigers then pushed into manufacturing, but did not succumb to the seduction of import substitution industries. They developed an industrial policy that emphasised export discipline. Import substitution just promotes inefficiency and entrenched local interest that are not competitive abroad. In their drive to build their manufacturing base they not only supported only companies that were producing for export but also supported several companies in the same industry. This created competition as they favoured these that succeeded in export markets and shut down or merged the unsuccessful ones with the successful companies.

Contrary to popular belief they did not attempt to pick winners but more the policy served to cull inefficient producers. Failure or success was determined by the objective tastes of foreign markets.
And finally they directed financing strategically towards boosting agriculture production and supporting firms to prosper abroad. In the case of Japan and Taiwan through a determined effort to build their internal savings but in South Korea’s case by borrowing abroad.

Studwell also points out that it does not matter much if the banks are state owned banks as in the case of Taiwan and now China or are in private hands as in the case of Japan and South Korea. What matters is whether they are persuaded to support the government’s development agenda.

"This was an interesting finding that stretched to companies as well. That it did not matter whether they were state owned or privately owned but whether they could be compelled to support the development agenda...

One other interesting finding, a distinction between the Asian Tigers and such basket cases as Philippines is that their development agenda were driven by “historians” rather than economists. Technocrats who had studied the process of development in Germany, England and even the US and adopted to their local circumstances rather than kowtowing to liberal economic theorists whose prescriptions had little precedent – and still don’t, to back them up as successful developmental models.

Compelling, hard to refute  case is made for differing economic models at the different stages of development countries have to go through.

The books cuts to the heart of the many developmental questions we are currently grappling with. How do we drive growth? How do we make it more equitable? Which economic forces should the government be aligned with? How can agriculture be supported? And why economic orthodoxy is bound to fail all the time and is the wrong prescription for developing economies?


It is a book on a complicated subject that is written simply enough for anybody to understand.  A priceless handbook, worth its weight in gold and which everybody who is interested in the development questions of our time should, No! Must read.

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