From How Asia Works: Success and Failure In the World's Most Dynamic Region. Joe Studwell. 2013. Kindle online sample. Section 1.

From introduction:

In How Asia Works, Joe Studwell distills his extensive research into the economies of nine countries - Japan, South Korea, Taiwan, Indonesia, Malaysia, Thailand, the Philippines, Vietnam, and China - into an accessible, readable narrative that

-debunks Western misconceptions

-shows what really happened in Asia and why

-MAKES CLEAR WHY SOME COUNTRIES HAVE BOOMED WHILE OTHERS HAVE LANGUISHED

…

Studwell’s in-depth analysis FOCUSES ON THREE MAIN AREAS: LAND POLICY, MANUFACTURING, AND FINANCE.

Land reform has been essential to the success of Asian economies, giving a kick-start to development by utilizing a large workforce and providing capital for growth.

With manufacturing, industrial development alone is not sufficient, Studwell argues.

Instead, countries need “export discipline,” a government that forces companies to compete on the global scale.

In finance, effective regulation is essential for fostering, and sustaining growth. To explore all of these subjects, Studwell journeys far and wide, drawing on fascinating examples from a Philippine sugar baron’s stifling of reform to the explosive growth at a Korean steel mill.

….

From book sample:

This is a book about how rapid economic transformation is, or is not, achieved.

It argues there are THREE CRITICAL INTERVENTIONS GOVERNMENTS CAN USE TO SPEED UP ECONOMIC DEVELOPMENT.

1-maximize output from agriculture

2-direct investment and entrepreneurs towards manufacturing

3-focus capital on intensive agriculture and manufacturing development

…

Where these interventions HAVE BEEN EMPLOYED MOST EFFECTIVELY IN EAST ASIA – IN JAPAN, SOUTH KOREA, TAIWAN AND NOW CHINA – they have produced the quickest progressions from poverty to wealth that the world has seen.

When, by contrast, other east Asian states have set off with the same ambitions and equal or better endowments, but have not followed the same policies, they have achieved fast growth for a period but the progress has proved to be unsustainable.

…

1-The first intervention – and the most overlooked – is to maximize output from agriculture, which employs the vast majority of people in poor countries.

Successful east Asian states have shown the way to do this is to restructure agriculture as highly labor-intensive household farming – a slightly larger-scale form of gardening.

This makes use of all available labor in a poor economy and pushes up yields and output to the highest possible levels, albeit on the basis of tiny gains per person employed.

The OVERALL RESULT IS AN INITIAL PRODUCTIVE SURPLUS THAT PRIMES DEMAND FOR GOODS AND SERVICES.

…

2-The second intervention – in many respects, a second ‘stage’ – is to direct investment and entrepreneurs towards manufacturing.

This is because manufacturing industry makes the most effective use of the limited productive skills of the workforce of a developing economy, as workers begin to migrate out of agriculture.

Relatively unskilled laborers create value in factories by working with machines that can be easily purchased on the world market.

In addition, in east Asia successful governments pioneered new ways to PROMOTE ACCELERATED TECHNOLOGICAL UPGRADING IN MANUFACTURING THROUGH SUBSIDIES that were conditioned on export performance.

This combination of subsidy and what I call ‘export discipline’ took the pace of industrialization to a level never before seen.

…

3-Finally, interventions in the financial sector to focus capital on intensive, small-scale agriculture and on manufacturing development provide the third key to accelerated economic transformation.

The state’s role is to KEEP MONEY TARGETED AT A DEVELOPMENT STRATEGY THAT PRODUCES THE FASTEST POSSIBLE TECHNOLOGICAL LEARNING, and hence the promise of high future profits, rather than on short-term returns and individual consumption.

This tends to pit the state against many businessmen, and also against consumers, who have shorter strategic horizons.

…

The policy prescription for rapid economic development was confused for a time in east Asia by the presence of other fast-growing economies that did not conform to the pattern of Japan, Korea, Taiwan and China.

In the 1980s and early 1990s, the World Bank seized on the performance of the offshore financial centers of Hong Kong and Singapore, and the suddenly faster-growing south-east Asian economies of Indonesia, Malaysia and Thailand.

The World Bank argued economic development was in fact fostered by laissez-faire policies, with a minimal role for government.

Despite the fact, with their tiny, dense populations and absence of agricultural sectors to drag on productivity, are THESE SMALLER ECONOMIES ARE NOT REALLY COMPARABLE TO REGULAR COUNTRIES.

…

THE WORLD BANK USED HONG KONG AND SINGAPORE AS TWO OF ITS THREE ‘PROVING’ CASE STUDIES IN A HIGHLY CONTROVERSIAL 1987 REPORT.

After widespread academic criticism of the report, the World Bank followed up with another one in 1993, The East Asian Miracle, which admitted the existence of industrial policy and infant industry protection in some states.

But it downplayed the significance of such policies, avoided discussion of agriculture altogether, and added Hong Kong and Singapore to Malaysia, Indonesia and Thailand, thereby leaving Japan, Korea and Taiwan as the statistical minority among its ‘High Performing Asian Economies.’

China was omitted from the report.

…

This was the ideologically charged era of the so-called Washington Consensus, when the World Bank, the International Monetary Fund and the US Treasury were UNITED IN THEIR DETERMINATION THE FREE MARKET POLICIES IN THE U.S. AND BRITAIN WERE APPROPRIATE TO ALL ECONOMIES, no matter what their level of development.

The vitriol of the debate was such that academic rigor was frequently a victim, as with the World Bank reports.

Even the academic specialists on Japan, Korea and Taiwan who opposed the Washington Consensus position on economic development made suspect claims in order to bolster their case.

This only added to confusion.

…

Chalmers Johnson wrote in the preface to his seminal study of Japanese development, published in 1982:

“THE JAPANESE DEVELOPMENT MODEL IS BEING REPEATED TODAY IN NEWLY INDUSTRIALIZING STATES OF EAST ASIA – Taiwan and South Korea – and in Singapore and South and Southeast Asian countries.”

Alice Amsden, who produced the defining deconstruction of Korean development, referred in the introduction to a follow-up book to ‘the model used by Japan, Korea, Taiwan and Thailand’.

Even W. W. Rostow, author of one of the earliest and most historically informed post-war books on economic development, The Stages of Economic Growth, declaimed in the foreword to a new edition in 1991 Malaysia and Thailand were following Korea and Taiwan towards technological maturity.

…

In the argument over east Asia, everyone started to talk beyond their turf in an effort to win the debate.

The disagreement about the nature of economic development was only made possible by continued fast growth rates around the region.

However, in the early 1980s Brazil – the outstanding fast growth story of 1960s’ and 1970s’ Latin America – had shown how dangerous it is to judge economic progress by growth rates alone.

Brazil is the only major economy outside east Asia which has managed to grow by more than 7 pe=r cent a year for more than a quarter of a century.

But, with the onset of the Latin American debt crisis in 1982, Brazil crumbled amid currency depreciation, inflation and years of zero growth.

It turned out too MUCH OF BRAZIL’S EARLIER GROWTH HAD BEEN GENERATED BY DEBT THAT DID NOT TRANSLATE INTO A MORE GENUINELY PRODUCTIVE AND COMPETITIVE ECONOMY.

(end of section 1)

… …

(own comment)

“There are three critical interventions governments can use to speed up economic development:

1-maximize output from agriculture

2-direct investment and entrepreneurs towards manufacturing

3-focus capital on intensive agriculture and manufacturing development”

This leaves out the most important government intervention of all – open the country up to government-non-intervention free trade, need economic boom quickly not eventually.

Free trade has been the key to the successes of Hong Kong and Singapore, and probably to all the east Asian countries mentioned in this book.

It’s likely government economic intervention has slowed down not sped up economic growth in east Asian countries and everywhere.

Goal must be to make politicians and bureaucrats less busy not more busy.