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East Asia's Economic Success: Conflicting Perspectives, Partial Insights, Shaky Evidence

  • Robert Wade (a1)
Abstract

Neoliberal economists say that growth is easy, provided the state does not obstruct the natural growth-inducing processes of a capitalist economy. They point to the success of South Korea and Taiwan as evidence that this proposition also holds for quite poor economies. Using chapters of Helen Hughes's edited volume by way of illustration, this article shows that the neoliberals ignore so much contrary evidence as to suggest that the neoliberal paradigm has entered a degenerative stage, like classical economics in the years before Keynes's breakthrough and like much Marxist writing of the 1970s.

Two recent books about East Asia offer ways forward. The one by Alice Amsden argues that Korea has done better than other developing countries because it has created a more powerful synergy between a state that aggressively steers market competition and large, diversified business groups whose firms focus strategically on production processes at the shop floor. In conditions of “late development” this synergy is the key to success. Stephan Haggard's book accepts the core economic mechanism of the neoliberals but argues that the choice between sensible export-oriented policies, as in East Asia, or unsensible secondary import-substitution policies, as in Latin America, is determined by a complex conjunction of international pressures, domestic coalitions, political institutions, and ideas.

Both books make important contributions to the debate. But they are weakened by not situating the experience of their case studies within an account of trends in the world system and by not addressing the question of what prevented massive “government failure” in market interventions in the East Asian cases. The last part of this paper takes a short step in this direction.

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1 Quoted in Alagh, Yoginder, “The NIEs and the Developing Asian and Pacific Region: A View from South Asia,” Asian Development Review 7, no. 2 (1989), 116. I thank Devesh Kapur for this reference.

2 Cited in Fransman, Martin, The Market and Beyond: Cooperation and Competition in Information Technology in the Japanese System (Cambridge: Cambridge University Press, 1990), 176.

3 Niskanen, , Bureaucracy and Representative Government (Chicago: Aldine-Atherton, 1971); and Colander, , ed., Neoclassical Political Economy: The Analysis of Rent-seeking and DUP Activities (Cambridge: Ballinger, 1984). For an academic example of neoliberal development economics, see Lai, Deepak, The Poverty of Development Economics (London: IEA Hobart Paperback no. 16, 1983). For a policy paper based on neoliberal assumptions, see, e.g., Accelerated Development in Sub-saharan Africa: An Agenda for Action (Washington, D.C.: World Bank, 1981), commonly known as the Berg report. For an example of tendentious use of evidence in the neoliberal cause, see Michaely, Michael et al. , Liberalizing Foreign Trade: Lessons of Experiencefrom Developing Countries, vols. 1–7 (Oxford: Blackwells, for the World Bank, 1991), esp. summary volume. For a critique of neoliberalism, see Colclough, Christopher, “Structuralism versus Neo-liberalism: An Introduction,” in Colclough, and Manor, James, eds., States or Markets? Neo-liberalism and the Development Policy Debate (Oxford: Oxford University Press, 1991). For a critique of the study by Michaely et al., see Evans, David, “Institutions, Sequencing, and Trade Policy Reform” (Geneva: UNCTAD, May 1991).

4 Professor of economics and director of the National Center for Development Studies at the Australian National University, formerly a high-ranking official at the World Bank.

5 It is not clear what Hughes means at this point, but she presumably means that the government directed its attention to developing agriculture, among other sectors. But state policies toward agriculture in Korea and Taiwan differed greatly from standard market-based prescriptions. For an account of the highly dirigiste role of the state in developing Korean and Taiwanese agriculture, see Wade, , “South Korea's Agricultural Development: The Myth of the Passive State,” Pacific Viewpoint 24 (May 1983); idem, , Irrigation and Agricultural Politics in South Korea (Boulder, Colo.: Westview Press, 1982); Moore, Mick, “Economic Growth and the Rise of Civil Society: Agriculture in Taiwan and South Korea,” in White, Gordon, ed., The Developmental State in East Asia (London: Macmillan, 1988).

6 In addition to the chapters mentioned in this paper, the book includes papers by Chenery (on alternative views on industrialization in East Asia), Parry (on the role of foreign capital), Wade (on the role of government), Harberger (on growth, industrialization, and economic structure in East Asia and Latin America), Lai (on ideology and industrialization in India and East Asia), Hirono (on Japan as a model), Haggard (on the politics of industrialization in Korea and Taiwan), Mackie (on the politics of growth in ASEAN), O'Malley (on culture and industrialization).

7 Smith, , An Enquiry into the Nature and Causes of the Wealth of Nations, ed. Cannan, E. (New York: Random House, 1937).

8 Professor of international economics at The Johns Hopkins University.

9 It is possible to define a public good to permit huge amounts of state activity.

10 But Riedel also says (Hughes, 35) that the Hong Kong government “has confined itself largely to minimal functions,” from which we could infer that he intends the term “deeply involved” to cover involvement limited to “minimal [Smithian] functions.”

11 Director of the Resource Systems Institute at the East-West Center, formerly the chief economist of the Asian Development Bank.

12 There is, however, a neoclassical economics of induced innovation, both technological and institutional, that is serious and interesting, though lacking (1) a supply side of science, (2) a theory of government-directed institutional and technological innovation (powered by things other than factor scarcities), and (3) a theory of institutional inertia.

13 Foster-Carter, Aidan, “North Korea: Development and Self-reliance, a Critical Appraisal,” Bulletin of Concerned Asian Scholars 9, no. 1 (1977). See also McCormack, Gavin and Gittings, John, eds., Crisis in Korea (Nottingham: Bertrand Russell Peace Foundation, for Spokesman books, 1977). For more discussion on interpretations of South Korean development, see Wade (fn. 5, 1982).

14 World Bank, World Development Report 1988 (Washington, D.C.: World Bank, 1988), Table 1.

15 Economist, “The Environment: A Survey,” September 2, 1989, p. 7; Hepinstall, Sonya, “A Smell of Success in the Battle against Pollution,” Far Eastern Economic Review, July 18, 1989, p. 70. Cited in Bello, Waldon and Rosenfeld, Stephanie, “Dragons in Distress: The Crisis of the NICs,” World Policy Journal (September 1990).

16 Wade (fn. 5, 1982), 103 and chap. 5.

17 Wade, , Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton: Princeton University Press, 1990), 254.

18 Arrighi, Giovanni, “World Income Inequalities and the Future of Socialism” (Bing-hampton: Braudel Center, State University of New York, 1990).

19 The figure was $2,372 in 1986, as against $17,475 for the U.S. and $8,870 for the U.K.

See Wade (fn. 17), Table 2.1.

20 Note that use of per capita dollar income to measure increasing or decreasing gaps between countries or regions is always problematic because of the complications introduced by changing real exchange rates (to say nothing about intracountry income distribution). To get a gap measure that more accurately reflects welfare, one should use purchasing power parity measures of income (now available in the tables in the World Bank's annual World Development Report) or qualify the dollar gap by changes in real exchange rates (and add terms of trade changes as well). This is especially important in the context of the trend reported later in this paragraph, of a dramatic widening of the gap between core countries and almost everywhere else during the 1980s. The polarization would be less, though still serious, if either of these adjustments were made. Adrian Wood finds that for the period 1965–83 about two-thirds of the increase in the per capita GNP gap between industrial market economies and low-income countries, measured in current U.S. dollars, was due to real changes in the exchange rate; for middle-income countries the gap would have narrowed but for real changes in the exchange rate. See Wood, , “Global Trends in Real Exchange Rates, 1960–84,” World Development 19, no. 4 (1991); and idem, , “Puzzling Trends in Real Exchange Rates: A Preliminary Analysis” (Mimeo, Institute of Development Studies, Sussex University, Brighton, 1986). Arrighi's important work is marred by insufficient attention to these matters; the same holds for my own use of per capita income comparisons (fn. 17). Anyone concerned to explain trends in the distribution of world wealth or income must address the question of the real income effects of the secular appreciation of the exchange rates of industrial countries relative to those of the rest of the world. Have such changes caused systematic changes in income distribution between or within countries or regions?

21 Mason, Edward et al. , The Economic and Social Modernization of the Republic of Korea (Cambridge: Harvard University Press, 1980), 181. This claim, that many observers in the 1950s and into the early 1960s considered Korea a “basket case,” is often repeated, the better to highlight the subsequent success. I have not seen actual evidence from documentary or other sources. Larry Westphal says (in a personal communication) that Mason et al. drew on his own verbal report, based on U.S. documents that he saw but did not copy while employed as a foreign adviser in the Korean planning agency in the late 1960s. To my knowledge the “basket case” story rests on this.

22 Arrighi, and Drangel, J., “The Stratification of the World-Economy: An Exploration of the Semiperipheral Zone,” Review 10 (Summer 1986).

23 World Bank, World Development Report (Washington, D.C.: World Bank, 1978, 1990), Table 1.

24 South Asia is an exception. Its average income in relation to the core fell only slightly, from a dismal 2 percent in 1980 to 1.8 percent in 1988. But see fn. 20.

25 Arrighi (fn. 18).

26 See Dosi, Giovanni, ed., Technical Change and Economic Theory (London: Pinter, 1988).

27 For a brief account of Korea's automobile industry, see Wade (fn. 17), 309–12; on steel, see Amsden, chap. 12.

28 Fried, C., Right and Wrong (Cambridge: Harvard University Press, 1978).

29 Braudel, , Civilization and Capitalism, Fifteenth–Eighteenth Century, vol. 1, The Structures of Everyday Life (London: Collins, 1981), 135, chart 15. Note that the chart excludes the seventeenth century. And note the mistake in the vertical scale: the line marked 0 should be 10, the line marked 10 should be 20, the line marked 20 should be 30, and so on, in logarithmic order (using units of ten hours). Due to this mistake, I mistakenly reported the results in earlier Publications, saying that real wages “rarely” fell so low in western Europe as to cross the 200-hour line. In fact, between 1700 and 1860 about one-third of the observations are at or above 200 hours, and between 1560 and 1600, about two-thirds. This is not rare. See Wade, , Village Republics: Economic Conditions of Collective Action in South India (Cambridge: Cambridge University Press, 1988), 35; idem, , “What Can Economics Learn from East Asian Success?” Annals 505 (1989); and idem (fn. 17), 39.

30 Wade (fn. 17), Table 2.4 and p. 39. The figure for New Delhi in early 1991 was 140–67 hours (Rs. 25–30 per day, 7 hours a day, rice at Rs. 6/kg.); for Cape Town at the same time, about 50 hours (but there commuting costs would be unusually high). The difference highlights South Africa's industrialization problem.

31 Wade (fn. 29, 1988), 35.

32 North Korea may show a similar reduction in this indicator of hardship, via central planning, and may have eliminated poverty in food and savings earlier. If so, these are important achievements. But the capacity of the North Korean economy to provide rising real wages and a diversified consumption bundle is much lower than that of South Korea; its political and civil rights are also far more attenuated, and the conditions of work in agriculture and industry probably are far worse.

33 Another good case is Pahl and Winkler's 1974 prediction that a system of corporatism would be established in Britain “by 1980.” See Pahl, R. and Winkler, J., “The Coming Cor-poratism,” New Society 10 (October 1974). It would be interesting to hear from Gittings, McCormack, Foster-Carter, and the others why they think their predictions for South Korea and North Korea turned out to be so wrong.

34 By way of example, think of the scholasticism of much Marxist writing on a theory of the state. See Carnoy, Martin, The State and Political Theory (Princeton: Princeton University Press, 1984).

35 Evans, , Comparative Advantage and Growth: Trade and Development in Theory and Practice (Hemmel Hempstead: Harvester-Wheatsheaf, 1989), sec. 9.6.

36 Bradford, , “The NICS: Confronting U.S. ‘Autonomy,’” in Fienberg, R. and Kallab, V., eds., Adjustment Crisis in the Third World (New Brunswick, N.J.: Transaction Books, 1984), 125.

37 Singer, Hans, “The World Development Report 1987 on the Blessings of ‘Outward Orientation': A Necessary Correction,” Journal of Development Studies 24, no. 2 (1988).

38 Why has Jagdish Bhagwati, one of the most creative of trade theorists, not done more than an elliptical pirouette around the East Asian cases? See Bhagwati, , Protectionism (Cambridge: MIT Press, 1988). It is curious that so few of those who believe passionately in free trade have looked carefully at Japan's pre-1970 trade regime, which would seem to be a critical case. For further discussion, see Wade (fn. 17), chaps. 3, 5, 10; idem, “How to Manage Trade: Taiwan as a Challenge to Economic” (forthcoming); and idem, , “The Rise of East Asian Trading States: How They Managed Their Trade” (Mimeo, Trade Policy Division, World Bank, Washington, D.C., 1988). The latter was written while I worked in the same division of the bank that prepared the bank's policy paper on trade reform. The paper defined issues in import reform as being about how to lift restrictions; it ignored issues of how to manage imports better and said virtually nothing about the East Asian experience of import management.

39 Little formerly held a chair in economics at Oxford University.

40 Little, , “The Experience and Causes of Rapid Labour-intensive Development in Korea, Taiwan Province, Hong Kong and Singapore; and the Possibilities of Emulation,” in Lee, Eddy, ed., Export-led Industrialization and Development (Geneva: Asian Employment Programme, International Labour Organization, 1981). For the role of the Korean government in credit allocation, see IIJones, LeroySaKong, , Government, Business and Entrepreneurship in Economic Development: The Korean Case (Cambridge: Harvard University Press, 1980).

41 Galenson, , “How to Develop Successfully: The Taiwan Model,” in , Galenson, Experiences and Lessons of Economic Development in Taiwan (Taipei: Institute of Economics, Academia Sinica, 1982), 80. Galenson retired as professor of economics at Cornell University.

42 Little, , “An Economic Reconnaissance,” in Galenson, Walter, ed., Economic Growth and Structural Change in Taiwan: The Post-war Experience of the Republic of China (Ithaca, N.Y.: Cornell University Press, 1979).

43 Wade (fn. 17), Table 6.2.

44 The recent survey of development economics by Gustav Ranis and Theodore Schultz provides many more examples of how the neoclassical confidence is based on selective inattention–even when the data are in the same volume or the same paper; see Ranis, and Schultz, , eds., The State of Development Economics: Progress and Perspectives (Oxford: Black-well, 1988). The editors assert that “outward-looking [less developed countries] have achieved relatively rapid growth … and have withstood [shocks] better.” In the same volume T. N. Srinivasan destroys the evidence for the second part of the proposition; and Ronald Findlay finds the first part “incontrovertible” (p. 79) but then shows (pp. 90–93) that the normal sequence, in Germany, Japan, Britain, and Korea, involved not trade neutrality or “outward-lookingness” but heavily interventionist mercantilism, first protecting import substitutes and then promoting exports. See Lipton's, Michael review, Economic Journal (September 1989).

45 Krueger, , “Government Failures in Development,” Journal of Economic Perspectives 4, no. 3 (1990), 12. Krueger was the seniormost economist and the vice president for research at the World Bank between 1982 and 1986.

46 There is not much doubt that India's food grain availability per person per year declined; but there is some dispute as to whether nonagricultural output increased fast enough to prevent per capita income from falling. Heston's calculations show stagnation in per capita income between 1911 and 1946, but most others show a decline. Heston, A., “National Income,” in Kumar, Dharma, ed., The Cambridge Economic History of India, vol. 2 (Cambridge: Cambridge University Press, 1983).

47 Bauer, Peter, West African Trade (1954; reprint, London: Routledge and Keegan Paul, 1963).

48 Zambia at independence in 1964 had all of twelve hundred high school graduates. In Botswana in 1965, the year before independence, thirteen students passed their O-level exams. Most sub-Sharan countries at independence were taken over by governments whose leadership group was comprised mainly of people with a primary school education or less. Compare East Asia; see Wade (fn. 17), 64, 190, 217–25. One should (as Krueger does not) link the question of the appropriate types and amounts of government intervention to the educational competence of the government. On the significance for Africa's growth of its debt burden, falling terms of trade, unstable exchange rates, falling aid, and agricultural policies and textile protection in the West, see, e.g., Hewitt, Adrian and Singer, Hans, “How to Foster Diversification, Not Dependence,” Africa Recovery 4 (October-December 1990), 3639; and Helleiner, Gerald K., “Structural Adjustment and Long-Term Development in Sub-saharan Africa” (Paper for workshop on Alternative Development Strategies in Africa, Oxford, December 11–13, 1989); and idem, , Sub-saharan Africa: From Crisis to Sustainable Growth (Washington D.C.: World Bank, 1989). On the “weak government” hypothesis, see Migdal, Joel, Strong Societies and Weak States: State-Society Relations and State Capabilities in Third World (Princeton: Princeton University Press, 1986); the book is good on the “state” side but mischaracterizes African “society” as “strong.”

49 This is not to diminish Krueger's important contributions to economic knowledge, especially in the areas of rent-seeking behavior and trade policy.

50 Heilbroner, Robert, “Economics without Power,” New York Review of Books., March 3, 1988.

51 Lai, Deepak, The Poverty of Development Economics (London: IEA, Hobart Paperback 16, 1983), 46. Lai is an exponent of what I call the Ptolemaic fallacy; see Wade (fn. 17), 348–49.

52 Ross Levine and David Renelt have recently provided more evidence of insufficient standards of proof, a problem that applies not only to the work of the neoliberals; see Levine and Renelt, “A Sensitivity Analysis of Cross-Country Growth Regressions” (Mimeo, Macroeconomic Adjustment and Growth Division, World Bank, November 29, 1990). They examine the vast literature on cross-country regressions of long-run growth against various policy variables, with a view to determining which conclusions are robust and which are fragile. Robust conclusions are those that survive small changes in the right-hand (i.e., independent) variables. “We find that there is not a strong independent relationship between almost every existing policy indicator and growth.… [T]he broad array of fiscal expenditure variables, monetary policy indicators, political stability indexes, human capital and fertility measures considered by the profession are not robustly correlated with growth; and newer indicators that we have assembled to capture exchange rate, tax, and fiscal expenditure policies are also not robustly correlated with growth” (p. 2). The one variable that could not be shaken off by fairly small changes in the specification of the independent variables was investment: “We found a positive and robust correlation between average growth rates and the average share of investment in GDP” (p. 26). I want to draw special attention to their findings on trade and price distortions, the subject that occupies the core of neoclassical development economics: “When controlling for the share of investment in GDP, we could not find a robust independent relationship between any trade or international price distortion indicator and growth” (pp. 19–20). These findings suggest that economists of all stripes ought to be a little more modest than usual in claiming to understand development. But note that the Levine and Renelt findings are based on an unusual notion of robustness; in their work robustness relates to which variables are included or excluded. More familiar notions of robustness relate to changes in sample size, time period, or functional form. Unrobustness in their sense is less significant than unrobustness in the other senses, because according to their criterion any hypothesized growth mechanism that depends essentially on several variables is likely to be found unrobust. For example, their finding that human capital variables are unrobust is unsurprising if one considers that human capital and physical capital are complementary, such that a high rate of human capital formation is unlikely to be an important cause of growth in the absence of fairly rapid physical capital accumulation.

53 Sales, of course, are not equal to value added. The true share of these companies in GDP (total value added) is probably one-third to one-half of this 67 percent.

54 Amsden, Alice, “Third World Industrialization: ‘Global Fordism’ or a New Model?” New Left Review 182 (1990), 1415.

55 Also ibid., 5.

56 Schmiegelow, H. and Schmiegelow, M., “How Japan Affects the International System,” International Organization 44, no. 4 (1990).

57 But while MITI'S leadership role in the domestic economy has decreased substantially, it has recently been expanding the reach of its industrial planning and coordination into foreign economies, in response to the explosion of Japanese investment abroad and the absence of coherent industrial policy in receiving countries. See Ries, Ivor, “Japan's Mighty MITI Extending Its Reach,” Financial Review, December 18, 19, 20, 1990. I thank Chalmers Johnson for this reference. On leadership as applied to industrial policy, see Wade, Robert, “Industrial Policy in East Asia: Does It Lead or Follow the Market?” in Gereffi, Gary and Wyman, Donald, eds., Manufacturing Miracles: Patterns of Industrialization in Latin America and East Asia (Princeton: Princeton University Press, 1990).

58 Lipietz, , Mirages and Miracles: The Crises of Global Fordism (London: Verso, 1987). See Amsden (fn. 54) for a discussion of Lipietz.

59 Amsden (fn. 54), 12–13.

60 Ibid., 23.

61 Wade (fn. 17), chap. 10.

62 Perhaps Amsden's argument could be clarified by distinguishing three senses of “distortion.” One is deviation from the market equilibrium price, which just offsets disadvantages due to “market imperfections” elsewhere in the system. Another is deviation that pulls resources into uses expected to be to the country's future comparative advantage. The third is deviation that provides big windfall gains for little effort. Korea presumably had much less distortion in the third sense than other countries had, but presumably not in the second sense.

63 See Colclough (fn. 3).

64 Wade (fn. 17), 23–24.

65 For a brief discussion, see ibid., chap. 10, esp. 319–20. For a very useful recent study, see Auty, Richard, “Creating Comparative Advantage: South Korean Steel and Petrochemicals,” Tijdschrift voor Econ. en Soc. Geografie 82, no. 1 (1991).

66 Chenery, , “Growth and Transformation,” in Chenery, Hollis, Robinson, Sherwin, and Syrquin, Moshe, eds., Industrialization and Growth: A Comparative Study (New York: Oxford University Press, 1986); Syrquin, “Productivity Growth and Factor Reallocation,” in Chenery, , Robinson, , and Syrquin, ; Pack, , “Industrialization and Trade,” in Chenery, and Srinivasan, T. N., eds., Handbook of Development Economics (Amsterdam: North Holland, 1988).

67 For the agricultural end of these reallocations, see Moore (fn. 5); on the political control of Korean agriculture and the nonprice methods of achieving relatively high levels of agricultural productivity (cf. standard recipes for agricultural growth and mechanism of Fei-Ranis-type models), see Wade (fn. 5, 1983).

68 This is likely, but most of the evidence I cite stops short of this period. Pack (fn. 66) suggests that even after the mid-1970s total factor productivity growth was not especially good, and he credits continued rapid absorption of factors, including extra investment. But subsequent evidence suggests to him that productivity growth within manufacturing has indeed been more of a driver than he thought when he wrote the article in Chenery and Srinivasan (fn. 66); Pack, personal communication with author.

69 See Minford, , “A Labour-based Theory of International Trade,” in Black, J. and MacBean, A., eds., Causes of Changes in the Structure of International Trade, 1960–85 LondonMacmillan, 1989); Wood, , “A New-Old Theoretical View of North-South Trade, Employment and Wages,” Discussion Paper 292 (Sussex: Institute of Development Studies, University of Sussex, 1991). Wood's paper is based on one chapter of his book, North-South Trade, Employment and Inequality (London: Oxford University Press, forthcoming).

70 I owe this idea of stretching CA to Adrian Wood.

71 I owe this point to Richard Auty.

72 On government leadership and followership of the market, see Wade (fn. 57); and idem (fn. 17), chaps. 1, 10. See also Stern, Joseph, “Industrial Targeting in Korea,” Discussion Paper no. 343 (Cambridge: Harvard Institute for International Development, 1990). The latter makes an important contribution to the analysis of industrial policy in general and to the literature on Korea, and I regret not coming across it until this paper was going to press.

73 See Lall, Sanjay, Learning to Industrialize: The Acquisition of Technological Capability by India (London: Macmillan, 1988). “Learning” makes a jazzy title but receives little conceptual attention; it seems to be used as a single word to mean “technological change that leads to productivity growth.” The problem is that the word seems to indicate some specific mechanism of causality, but this promise is not fulfilled in Lall's (or Amsden's) discussion. For a useful overview of some of the problems, see Martin Bell, “‘Learning’ and the Accumulation of Industrial Technological Capacity in Developing Countries,” in Martin Fransman and I am grateful to Bell for discussion on some of these points.

74 See Bell (fn. 73); and Cohen, W. and Levinthal, D., “Innovation and Learning: The Two Faces of R&D,” Economic Journal 99 (September 1990).

75 See Stiglitz, Joseph, “Learning to Learn, Localized Learning and Technical Progress,” in Dasgupta, Partha and Stoneman, Paul, eds., Economic Policy and Technological Performance (Cambridge: Cambridge University Press, 1987).

76 Amsden is undertaking research in Thailand, Malaysia, and Indonesia to test an important but unsupported argument in the book: “The general properties of an industrialization process based on learning, or borrowing technology are entirely different from those of an industrialization process based on the generation of new products or processes.… Thus, the late acquisition of international competitiveness has given rise to certain common tendencies in otherwise diverse countries.” That is, the other, less successful late industrializers have states with a set of roles broadly similar to Korea's that they carry out less effectively, price structures that are also “wrong” but less rightly “wrong,” diversified business groups that are less diversified than Korea's but still more diversified and centrally managed than those of the West, and a strategic focus within firms on the shop floor but with fewer engineers and more top-down management.

77 Haggard does not say why he thinks this is true. It would be worth a little economic analysis, even in a work of political economy–if only to be able to distinguish between “real” economic objections to devaluation and those that conceal some other agenda. A devaluation would increase local currency receipts from coffee at a constant world price. But then after a lag Brazilian supply would increase (assuming no production controls), pushing out the world supply curve and lowering the world price. Would this wipe out the gains to Brazilian coffee producers? Suppose Brazil had 50 percent of the world coffee market. Suppose a given devaluation gives rise to a 10 percent increase in Brazilian supply, making a 5 percent increase in world supply. For Brazil to loose revenue in foreign currency, this 5 percent increase in world supply would have to cause a fall in world price by more than 10 percent (demand elasticity of less than 0.5). I do not know whether these values are accurate for Brazil of the mid-1950s, but they could easily enough be checked. There is then a further complication. What mattered to Brazilian coffee growers was presumably not coffee revenues in foreign currency but the value of their domestic currency receipts; devaluation would have lowered the value of each unit of domestic currency, other things being equal, because imports would cost more. So the economics of the alleged opposition of the coffee growers to devaluation is not entirely straightforward.

78 To be fair, there has been much confusion, conceptual as well as terminological, in the economics literature on trade policy. A first step toward clarity is to distinguish market and nonmarket bias, tradables and nontradables bias, and export and import bias, concepts that can be applied to many types of policies (not just to trade policies but also, for example, to labor market policies). A helpful paper is Sebastian Edwards, “Openness, Outward Orientation, Trade Liberalization, and Economic Performance in Developing Countries,” PPR Working Paper 191 (Washington D.C.: World Bank, 1989).

79 Wade (fn. 17), pp. 15–21, chap. 5, p. 308.

80 Ibid., esp. chap. 1, pp. 15–21, chap. 5, chap. 10, pp. 307–9, 333–42.

81 For a case study along these lines that provides a quantitative estimate of how much economic benefit Italy's rulers were prepared to give up in order to raise political support, see Wade, , “Regional Policy in a Severe International Environment: Politics and Markets in South Italy,” Pacific Viewpoint 23 (October 1982).

82 Machiavelli, N., The Prince (London: J. M. Dent, Everyman edition, 1968), 29.

83 This paragraph draws on John Toye, “Interest Group Politics and the Implementation of Adjustment Policies in Sub-saharan Africa” (Mimeo, Institute of Development Studies, Brighton, 1991).

84 This sets up a puzzle about Malaysia, which has drawn on a good natural resource endowment with much less of these predicted effects. Its per capita income is about the same as Korea's.

85 Lipton, , “The State-Market Dilemma, Civil Society, and Structural Adjustment,” Round Table 317 (1991).

86 A study of Hong Kong, the U.S., and France found that the Chinese respondents had a significantly higher capacity “for understanding the abstract notion of socio-political responsibility at the societal level.” A Taiwanese educator has written that “social science ought to emphasize the development in children of moral concepts, group consciousness, patriotic thoughts, habits of cooperation, the attitude of service and the spirit of sacrifice, etc.”; see Wilson, Richard, “Moral Behavior in Chinese Society: A Theoretical Perspective,” in Wilson, R., Greenblatt, S., and Wilson, A., eds., Moral Behavior in Chinese Society (New York: Prae ger, 1981). See further Wade (fn. 17), chaps. 7, 10; and Ronald Dore, “Reflections on Culture and Social Change,” in Gereffi and Wyman (fn. 57).

87 See Bates, R., Brock, P., and Tiefenthaler, J., “Risk and Trade Regimes: Another Exploration,” International Organization 45, no. 1 (1991); and Wade (fn. 17), chaps. 10, 11.

88 This is obviously a highly stylized account. In a longer treatment we would have to deal with the dispersion around these tendencies–such as bureaucratic corruption and infighting, the Rhee period in Korea, and the early Chiang Kai-shek period in Taiwan. We might look at these questions in terms of the “Migdal effect”–the tendency of insecurely established leaders to pulverize the arms of the bureaucracy in order to prevent challenges to their rule from centers of power within the state while at the same time relying on those arms for policy effectiveness and legitimacy. See Migdal (fn. 48). For further discussion, see Wade (fn. 17), chaps. 7–10, esp. 333–42; idem (fn. 5, 1982), chap. 8; and idem (fn. 5, 1983). See also Bruce Cumings, “The Abortive Abertura: South Korea in the Light of Latin American Experience,” New Left Review 173 (1989).

89 Arrighi and Drangel (fn. 22).

90 See Vogel, Ezra, One Step Ahead in China: Guandong under Reform (Cambridge: Harvard University Press, 1989).

91 See the discussion between senior British economic policymakers and academic analysts of British decline in Hennessy, Peter and Anstey, Caroline, eds., From Clogs to Clogs: Britain's Relative Economic Decline since 1851, Strathclyde Papers on Government and Politics (Glasgow: Department of Government, University of Strathclyde, 1991).

92 For a careful attempt to estimate the effect of trade with the “South” on workers of the “North,” see Wood, Adrian, “How Much Does Trade with the South Affect Workers in the North?” World Bank Research Observer 6, no. 1 (1991). See also Bienefeld, Manfred, “The International Context for National Development Strategies: Constraints and Opportunities in a Changing World,” in Bienefeld, and Godfrey, Martin, eds., The Strugglefor Development: National Strategies in an International Context (Chichester: John Wiley, 1982); Streeten, Paul, “Comparative Advantage and Free Trade,” in Khan, Azizur Rahman and Sobhan, R., eds., Trade, Planning, and Rural Development (Basingstoke: Macmillan, 1990); and Evans (fn. 35).

93 The quintessentially neoclassical Heckscher-Ohlin theory says clearly that within each country some gain and some lose from the opening of trade. This is overlooked by many neoliberal practitioners. I should emphasize that my argument does not imply a blanket rejection of free trade policies. On the contrary, in stressing the importance of certain political a second-best strategy in cases where the state cannot even begin to approach those conditions (as in some sub-Saharan African countries, for example). There is after all some truth to the neoclassical economists’ implicit theory of power (also Marx's, in his writings on India) that the possibilities created by expanding markets erode existing power structures, so powerful is the incentive of profit; for that reason power structures are more or less ignored in the neoclassical analysis.

94 This follows only if evidence shows that the liberalization of the structural adjustment package is usually good for export capacity, export earnings, and hence debt servicing. A recent World Bank report, carefully read, casts doubt on this and hence on what is in the bank's self-interest. See World Bank, Adjustment Lending: An Evaluation of Ten Years of Experience, Policy and Research no. 1 (Washington, D.C.: Country Economics Department, World Bank, 1988).

95 I suggest no more than that the interests of transnational capital are one important set of causes of the wave of democratization in developing countries and of the salience of democracy and human rights in Northern strategy for North-South relations. See World Bank, World Development Report, 1991 (Washington, D.C.: World Bank, 1991), chap. 7.

96 Frey, Bruno et al. , “Consensus and Dissensus among Economists: An Empirical Inquiry,” American Economic Review 74, no. 1 (1984).

97 Colander, David and Klamer, Arjo, “The Making of an Economist,” Journal of Economic Perspectives 1 (Fall 1987), 100.

98 See U.S. Congress, House of Representatives, Industrial Competitiveness Act House Report 98–697, 98th Cong., 2d sess., April 24, 1984, p. 83.

99 He was responding to complaints that tight monetary policies were destroying Britain's manufacturing industry; “Profile: Sir Terence Burns, Not Merely a Civil Servant,” Independent, March 16, 1991, p. 16.

100 This is not to endorse a “proindustry/antiservices” argument, nor is it to suggest that comparative advantage is irrelevant. Rather, the point is that Governor Park and the MITI official believe that government has some responsibility for formulating a view of the appropriate industrial and trade profile of the economy and for using public power to push in that direction, whereas Stein and Burns emphatically do not. It may be thought that a new interventionism has already arrived in mainstream economics, in particular, in the form of “strategic trade theory.” But I am talking here of the developing country context, and most proponents of strategic trade theory would say it does not apply widely under developing country conditions. The World Bank has certainly tried to neutralize its polluting effect on neoliberal prescriptions. After summarizing strategic trade theory it concludes, “The trade theorists who helped develop the literature on strategic trade theory remain extremely scep-tical about its policy relevance. Most fear that, rather than being used to enhance national welfare, these new ideas will do damage in the hands of interventionists who take cover behind the intellectual respectability these ideas provide.” Note the implication that “interventionists” have no intellectual justification for their position and hence need a cover of intellectual respectability. See “Strengthening Trade Policy Reform (Washington, D.C.: World Bank, November 1989), Box 1–2. See also E. Helpman, “The Noncompetitive Theory of International Trade and Trade Policy,” Annual Conference on Development Economics, supplement to the World Bank Economic Review (1989). Helpman concludes, “Policy should be designed on a case-by-case basis and .. . no intervention (free trade) remains a good rule of thumb” (p. 193). Only the first part of the sentence really follows from his analysis, the second being more the World Bank line. See also Wade (fn. 17), 14, 378. If a new interventionism has not yet entered the mainstream, there are signs of a new defensiveness. Consider, for example, the following. After the Economist published an unusually enthusiastic review of Governing the Market (June 1, 1991, pp. 102–3), the reviewer received over six transatlantic phone calls from World Bank officials ringing to complain about the Economist publishing a favorable review of a book by an interventionist. Several said the journal was lowering its standards. Another said, “Don't you know he is an interventionist?” The reviewer asked each whether he had read the book or even glanced at it. Answer: No, in every case. See Fallows, James, “Economics of the Colonial Cringe,” Washington Post, October 6, 1991, for an exactly opposite interpretation of the Economist's review.

* The author acknowledges Adrian Wood, Ronald Dore, Manfred Bienefeld, Olivia Cox-Fill, Julie Gorte, and Michael Lipton. The usual exoneration applies with more than usual force.

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World Politics
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