Share the Christmas spirit, “Buy Samoan local, think global” like the “Asian Tigers.” Part II

Dear Editor,

Allow me to continue. Let’s start with Taiwan.

Taiwan shares a similar story to Korea, although at least in economic terms its origins are marginally less humble.

Our story again begins at the end of a war, but Taiwan itself was left relatively unscathed by the fighting and still bearing the remnants of Japanese colonial attempts at development: some established agricultural exports in rice, sugar and pineapples, basic food processing plants and a handful of textile factories.

Leadership initially adopted a policy of ISI in pursuit of subsistence, but due to bad experiences with inflation on the mainland a more aggressive growth policy was not adopted until the USA threatened to reduce aid in the 1950s. Only then did Jiang and the GMD begin to industrialise along the lines we saw in Korea.

Before this period the primary sector (mainly agriculture and fishery) accounted for nearly a third of GDP before rapidly dropping to just 7% in the industrial explosion, and food processing (the dominant industry on GMD occupation) fell from 47% of manufactory output in the 1950s to just 31% in the industrialised 60s, finally dropping to 12% in the early 1980s (the end of the heavy industry era).Interestingly after the initial boom of light industry (particularly textiles) we would expect to see from Korea’s experience, light industry remained statistically significant all the way into the 1980s.

Heavy industry was quickly established, in particular steel, electronics and petrochemical, as soon as the state ascertained that domestic and international demand was sufficient. While other state firms were privatised during the development process to encourage foreign investment and expertise, these industries were always seen as essential to reconquest of the mainland and so remained firmly nationalised.

While Yongping Wu points out that small- to mid-sized firms had an important role to play during this phase of development,the state never lost its firm grip over the direction of the economy. A key measure here was control of foreign exchange, limiting the access of private firms to imported materials and serving both to keep up domestic demand for processed raw materials (which was done in state firms and sold to selected firms) and to reduce capital risk.

Vincent Chang describes the final phase in economic development, to fully-fledged technological state. Once the competitive advantage in labour-intensive products seemed to be slipping (both as a result of a more educated workforce and the rising competition from China in the late 1970s) the state essentially decided to jump before they were pushed: “the export-oriented economic structure… must be upgraded to become more technology- and skill-intensive.

”The state’s role in “the inception of pivotal technologies and in the export vigour of Taiwan’s information industry,” as well as in key large-scale industries like semiconductor production was immense, and as in Korea led to the development of a substantive skilled-labour population who with their increased disposable incomes stimulated both domestic consumption and the service industry.

Taiwan followed a similar trajectory to Korea in its progression through four distinct stages of development, though with two exceptions of note: first that light industry played a key role in the economy all the way into the 1980s, and second that leadership did not seek to move beyond the first phase until threatened with aid reductions by the US.

The unexpected lack of decline in light industry once heavier industries were developed could perhaps be attributable to the role of small- and mid-sized industries as discussed by Chang – with most heavy industries nationalized but small-scale entrepreneurship tolerated, this is a logical industry to gravitate towards. The second point is by far more significant, and may contain a clue as to the underlying reason that the Asian Tigers successfully developed through state-led, rather than market-led or interventionist, methods.

The City-States: Singapore and Hong Kong

Singapore was perhaps the most “democratic” of the Tigers in its early life, if in name only: so charismatic was the leadership of Li Guangyao that in the words of a British diplomat “politics disappeared” leaving only an “administrative state.”After reluctantly accepting Singapore’s independence from Malaysia in 1965, Li took control of Singaporean politics in “soft authoritarianism” until his retirement in 2011 and much of Singapore’s success is directly attributed to his personal vision and ability.

Singapore’s development follows a now-familiar path. While not facing the challenges of rebuilding after a war, Singapore stood alone as a modern city-state with too little land to effectively feed its citizens.

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Food and water had to be provided for by imports, necessitating a quick push towards export-oriented light industries to balance trade.Interestingly Singapore sought to supplement the local lack of technical and managerial knowledge by attracting international firms, albeit in a limited fashion, using their capital and resources to kick-start the light industry that would provide the backbone of Singapore’s economy for the next few decades.

The 1970s saw a dramatic change in the structure of Singapore’s economy, with manufacturing and heavy industry becoming increasingly more of a priority throughout the 1970s and 80s.

This was largely in response to the challenge that China’s burgeoning light industry under Deng posed to Singapore’s output, and was pushed forward by the central government through a combination of reinvestment of wages in industry, infrastructure, housing and communications through the Central Provident Fund and an increase in minimum wage, forcing employers to seek more efficient modes of production.

Unlike Taiwan and South Korea, Singapore’s move to the final phase of development was not marked by the establishment of the high-tech industry but rather by fulfillment of Stamford Raffles’ original vision for Singapore as the trading and financial hub of Southeast Asia. 

Trade, import refinement and finance all require skilled labour, much like high tech industry, and Singapore’s unique geographic position and recent market liberalization allow this to serve as the high-level industry that cements its position as a fully developed nation, just as high tech industries do for South Korea and Taiwan.

Given today’s liberal markets, and the nominal democracy of Singapore’s modern history, it is tempting to think of Singapore as an example of liberal market-led development in action.

However the importance of the Central Providence Fund in establishing the infrastructure needed for heavy industry and the dominant role of Li in both politics and economic direction both suggest that the state was the principal mover in the development of Singapore’s economy, with liberal elements only being introduced in the late phases of development to pave the way to a financial and trade hub.

Hong Kong is similar in many ways to Singapore, although it is notable for being the most consistently laissez-faire (and therefore market-led) of the Tigers. As in Singapore the pressing need to balance trade deficits due to poor agricultural potential led to a rapid development of light industry, but then advocates of market-led development would argue that the next steps through to trade and financial services would have been a logical step for market actors to take, given the proximity to China and the historical nature of Hong Kong as a trade port.

The importance of market actors in the development of Hong Kong cannot be denied, but there are some features of development (glossed over in Neoliberal accounts) that suggest that the state had a not-insignificant role in guiding the economy.

In particular Vogel points to the allocation of public funds, with the vast majority diverted to developing the infrastructure that would be required by heavier industries – roads, universities, and most interestingly land development specifically for the use of factories; and all this a good decade before there was any significant market-led demand for these public goods. The state may have left market actors to find their own way, but they were not subtle about putting a map in their hands.

Hong Kong, like Singapore, ended up as a financial Centre for its region as well as a major industrial producer – not bad for a former entreport.It is unusual among the Tigers for having a fairly consistent laissez-faire approach to the market, and is by far the closest to a market-led model of development. However this is not to say that the state had no hand in pushing development forward when the market might have been content to stay in one phase.

When taken into consideration with the other Tigers, we have a clear idea of how their economies developed. In all cases barring to an extent Hong Kong, a strong central state created a long-term plan for development that saw it through from the early days of ISI all the way to the establishment of advanced technological or financial industries.

The state was able to implement these plans through a range of policy tools, without considerable domestic challenges and with the ability to adapt the details of the plans to the challenges they encountered along the way.

Rather than dwell in any particular phases of development, the Tigers pushed forward, aggressively reinvesting in the infrastructure needed to establish the next phase and protect it from the advantages of the international market until it was ready to shoulder the burden of economic growth.

This saw them through, with some variation, from backwards islands, peninsulas, and losers in war, to four of the most powerful economies in East Asia. But can this success be replicated elsewhere? The question would be are there some good lessons to learn from the Asian Tigers?

 

Stephen Musubire

Vaitele

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