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

Dear Editor,

The other day I came across this kid near EPC.This kid has consistently been there selling popcorn and other small stuff for as long as I can recall. He always approaches vehicles in a very polite expectant way trying to sale his merchandise.

His spirit is consistently humble and polite even when buyers don’t buy. Now obviously there are many like him out there trying to sale a thing or two to make that extra buck that means so much for their families in terms of paying for utilities and other essential necessitates.

Christmas season for the more fortunate ones, means that time when there is enhanced shopping for them. Although this is a free personal choice on who or what to spend on, let’s keep in mind those out there that have explored ways to produce locally and supply the market. I am taking about the food vendors that you find strategically positioned at the doors of most supermarkets, the kids saleing flowers and other necessitates.

Let Christmas be that time when we emphatically place ourselves in their situation and try to support them and their businesses as much as we can.See like that kid I mentioned earlier perhaps a good Samaritan surprising him and buying all the popcorns before xmas could mean a lot for his family at perharps a cost of 20tala for the whole lot of popcorns or the vendors saleing that those healthy organic foods perhaps a boost in purchase could go a long way in stimulating more production of the local produce and also make a big difference for their christmans.

There are so many  hardworking producers in the economy that strive so hard every day in their gardens, on their boats to provide the rest a healthy and organic diet, plus those involved in other creative production activities such as making designs etc. Those in the tourism section especially accommodations would be very crucial here if for instance they focused on encouraging more consumption of locally sourced foods on their menus for the season. 

When one looks at how some economies steadily enabled this process of strengthening the local economy, what are known as the “Asian Tigers”( South Korea, Taiwan, Singapore and Hong Kong)comes to mind.

These countries not only encouraged local production but also advocated for local consumption, pushing for import substitution and investment in machinery that would strengthen and enable their population become more effective in production of local products. Specifically below, a country snapshot courtesy of Bruno Marshall Shirley (Ref: http://www.e-ir.info/2014/10/16/the-asian-tigers-from-independence-to-industrialisation/) of how the Asian Tigers did it could be quite interesting food for thought and not too distant from progressive steps underway in Samoa.

South Korea

In 1945 South Korea was finally made independent of Japanese rule, only to immediately be placed under US military occupation.[18] The long-awaited autonomy it achieved was rapidly overshadowed by the Korean War (1950-3) with the North, which destroyed two-thirds of existing production facilities worth some three times the GNP.[19] The long road from these humble origins to its current position in the G20 can be analyzed as a systemic movement in four discrete phases, beginning in the Rhee era but mostly taking place under the Park government (both before and after the establishment of yushin government).

The first phase of development constituted recovery from the devastation of the war, with an average of 15.9% of GNP coming from US aid (with a peak of 22.9% in 1957).[20] 64% of investment savings were US-owned, and Import Substitution Industrialization was adopted with 30% of aid going towards agricultural equipment.[21] Worker’s unions were suppressed by the Rhee government to keep labour cheap.[22] Korean economic growth in this period was highly dependent on US aid and investment savings and vulnerable to intense fluctuations.

The Park coup in 1961 demarcates the second phase of Korean economic development: the development of light industries and export-oriented growth. Having recovered from the war and no longer entirely reliant on US aid to pay for imports, the Korean economy could now begin to utilise its cheap labour force to grow through exportation of light industrial goods. 

Here we begin to see the first clear departure from the Market-led or even Interventionalist models of growth in the adoption of the First Five-Year Economic Development Plan (1962). This established clear macro-economic growth targets in investment, industrial structure and trade balance, and established trade policy, industrial policy, and macro-economic policy in pursuit of these goals. This was called “guided capitalism,” in which “the state shall either directly participate or indirectly render guidance” to key industries, particularly the labour-intenstive light industries that would lead to rapid export growth.[24]

To return to classical terminology, the optimum activity at this phase in Korean history for an individual actor to participate in would be those same light industries. Unfortunately if this were the case then the Korean economy would have been perpetually stuck in the same phase with no high-value-added industries being developed. Obviously this did not happen.

While growth in the early 1960s was fantastic, as high as 10% in some years, the Park government did not see this as a sustainable means of growth. The foreign currency earned through this explosion of export was reinvested in the advanced technologies and machinery which was necessary to progress to the next stage of development, while tariffs and subsidies were used to shield growing advanced industries from the international market.

This set up the third stage of development, articulated in Park’s second Five-Year Plan: the development of heavy and chemical industries, supported by legislation and key policy instruments. Foreign capital, though still under heavy government restrictions, was sought to help bolster growth and exports grew at almost 39.2% per annum.

This phase of development has lasted the longest of any thus far, with export-driven growth from heavy industry carrying Korea forwards until the early nineties. During this period factor input increases, both in capital accumulation and in quality of labour through education, accounted for a massive degree of growth in industrial output, setting up Korea well for the next phase of development.

The 1990s saw a number of significant changes in the South Korean economy and marked the fourth and current phase of development, the push into high tech industry. The World Bank data on high-technology exports sadly only extends as far back as 1988, but even this shows a dramatic change.

In 1988 high-technology exports made up only 15% of total export, but this number increases almost by an entire percentile every following year.This international demand for Korean goods, coupled with a dramatic increase in domestic consumption and higher standards of living across society, marked the definite movement of Korea into “successful state” status.

In Korea’s economic history we can identify four discrete phases of development: a period of Import Substitution Industrialisation; the development of light industry and export-led growth while reinvesting in and protecting heavy industry; the development of heavy industry, increases in labour quality through education and permissal of limited degrees of foreign capital; and finally the development of the high-tech industry, the skilled labour required for which stimulating domestic consumption. The second through fourth phase show remarkably steady GDP growth in all but three years: the year of Park’s assassination and the 1997 and 2003 crises.

All of this was driven by the central state with a clear end-goal in mind and a range of effective legislative and policy tools for implementation. Aggressive reinvestment in infrastructure, state-owned industries and clearly communicated economic plans over a long period of time allowed for a progression through distinct phases of development even when reinvestment in the newer phases would have appeared the less optimal to individual market actors.It was this incessant push forward that eventually led to Korea’s development as a fully industrialised and technological economy.

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. 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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