The Asian Version

Follows from the 4 tigers

• Taiwan, South Korea, Singapore, Hong Kong

• Other nations come later --- Malaysia, Indonesia ---- then a split China

• What about Japan? Japan is the initiator of the Asian version of capitalism

• These nations start from low per capita incomes ---- move to rapid rate of capital formation

Strong State Hand

• Strong state hand needed to draw Strong state hand needed to draw labor out of the rural and labor out of the rural and agricultural sector to the industrial agricultural sector to the industrial sectorsector

• Strong state hand to make the Strong state hand to make the transfer happen transfer happen

• Strong state hand to induce capital Strong state hand to induce capital formation in the industrial sectors formation in the industrial sectors and exporting sectors --- raise the and exporting sectors --- raise the capital for the transformationcapital for the transformation

• Go for high rates of capitalizationGo for high rates of capitalization• Allocate capital to the industrial Allocate capital to the industrial

sectorssectors• So a high investment model hereSo a high investment model here• Set up state industrial policySet up state industrial policy• Set up state export and import Set up state export and import

houses to control imports and houses to control imports and push exportspush exports

The Types

• The The Stalinist Model ---Stalinist Model ---– Use of extreme state control and Use of extreme state control and

power to force high rates of capital power to force high rates of capital formation and rapid transfer of formation and rapid transfer of resources to defined state targetsresources to defined state targets

• Japanese – Southeast Asia Model Japanese – Southeast Asia Model --- --- – State industrial policy to direct State industrial policy to direct

investment to targets ---- industry-investment to targets ---- industry-government partnerships --- bank-government partnerships --- bank-industry partnershipsindustry partnerships

• There is a tendency to lump the nations together– but there are differences in how the high rate capitalization process unfolds and its effects on industrialization

• Hong Kong and Singapore are city states like found in Roman rule

• Thailand, the Philippines, Malaysia differ from Taiwan, Hong Kong and differ from another more poor class nation --- India

• But India is now in the act --- But India is now in the act --- several reforms and move to the several reforms and move to the outside world is transforming outside world is transforming IndiaIndia

• Some of the industrialization is Some of the industrialization is spreading to Thailand, Malaysiaspreading to Thailand, Malaysia

• China has been growing now for China has been growing now for 3 decades --- but this situation is 3 decades --- but this situation is more of market socialism more of market socialism approach since the 1978 reformsapproach since the 1978 reforms

Japan

• Japan makes the move to industrialization from the 1953- 1971 period

• The Gershenkron prediction --- the rural nations would get greater growth than industrial nations once they decided to transfer AG surplus to industry --- force saving via policy and leverage the growth

• The savings also went from Japan to SE Asia

• Japanese growth comes from a high rate of capital formation, availability of labor, catch-up in technology --- and the technology came through imports after Japan opened up to international business

• The state gives direction to growth via genkyoku --- supervision of industry by industrial policy

• Japan Development Bank – channel the savings

Confusianism and relationships

• Confusianism was the religion of the Confusianism was the religion of the educated in Japan and Chinaeducated in Japan and China

• This ethic teaches qualities of loyalty, This ethic teaches qualities of loyalty, nationalism, social solidarity, nationalism, social solidarity, collectivism, benevolence, faith, collectivism, benevolence, faith, bravery --- virtuous government – so in bravery --- virtuous government – so in Japan, China and Korea, a positive role Japan, China and Korea, a positive role for government for government

• So we get strong government hand --- So we get strong government hand --- Park Chung Hee in Korea, Chaing Kai-Park Chung Hee in Korea, Chaing Kai-shek, Chaing Ching-Koo in Taiwan, shek, Chaing Ching-Koo in Taiwan, strong symbolic monarchy in Thailandstrong symbolic monarchy in Thailand

Back to Japan

• Do these nations accept notions from the West? Maybe--- they accept technology upgrade

• Japan accepts the German notion of the German Historical School of economic thought --- “the Right of the State” ---- so state has priority over individuals --- combines the loyalty of confusianism with the European brand of capitalism

The 4 tigersThe 4 tigers

• Exceptionally rapid growth ---Exceptionally rapid growth ---starting in the 1970’sstarting in the 1970’s

• Asian crises comes along in 1997-Asian crises comes along in 1997-19981998– $ denominated debt --- strong $ -- $ denominated debt --- strong $ --

payback of debt becomes a problempayback of debt becomes a problem• The 4-tigers effect spreads to The 4-tigers effect spreads to

other SE Asian nationsother SE Asian nations• Now we have an induced India Now we have an induced India

starting in the late 1990’sstarting in the late 1990’s

Industrial promotionIndustrial promotion

• State induced policy of State induced policy of export export promotionpromotion

• Export promotion instead of Export promotion instead of domestic output protection, the domestic output protection, the latter of which is latter of which is Import Import SubstitutionSubstitution

• Hong Kong, Singapore & Korea Hong Kong, Singapore & Korea become classed as the world’s become classed as the world’s most outward economies --- most outward economies --- Taiwan not far behindTaiwan not far behind

Japan and the holding companies

Holding companyFew shareholdersFamily holdings

Conglomerate firm A Conglomerat

e firm G

Conglomerate firm H

Minority shareholder

s

contractingcontracting

• Relational contracting --- not Relational contracting --- not based on formal rule of law --- based on formal rule of law --- based on trust --- personal based on trust --- personal relationship --- The Asian traditionrelationship --- The Asian tradition– Much of the contracting is done this Much of the contracting is done this

wayway– Problems arise if there is no two-way Problems arise if there is no two-way

reflection of the trust --- problems reflection of the trust --- problems with outside contractingwith outside contracting

• Market-based contracting based on Market-based contracting based on formal rule of law – enforcement of formal rule of law – enforcement of contractcontract

The capital marketsThe capital markets

• Based on leveraging ---- high debtBased on leveraging ---- high debt• Not based on issuing of securities Not based on issuing of securities

and equityand equity• Causes some instabilityCauses some instability• We see savings coming into We see savings coming into

securities issuing capital markets securities issuing capital markets to transfer from Asian currencies to transfer from Asian currencies to $-denominated assets --- to $-denominated assets --- strong-weak $ issues with this strong-weak $ issues with this tradetrade

• Banks initiate the capital venture Banks initiate the capital venture investments ---- take over holding investments ---- take over holding companies in some casescompanies in some cases

• Banks leverage in the debt driven Banks leverage in the debt driven capital markets of Asiacapital markets of Asia

• Part of the Asian crises was the Part of the Asian crises was the leveraging and then non-payment leveraging and then non-payment of debt --- debt in $, so strong $ of debt --- debt in $, so strong $ brings on the crises ---- cannot pay brings on the crises ---- cannot pay back the growing debtback the growing debt

• Households have very high and strong Households have very high and strong savings rates savings rates

• Ready supply of savings applied to the Ready supply of savings applied to the capital marketscapital markets

• Korean banks function as state Korean banks function as state enterprises --- garner the savings and enterprises --- garner the savings and allocate to industrialization --- but allocate to industrialization --- but again debt drives the capital again debt drives the capital investmentinvestment

• Japan’s banks have suffered some from Japan’s banks have suffered some from the debt and continued easier the debt and continued easier monetary policy --- they hold sour monetary policy --- they hold sour debt!debt!

The labor markets in the Asian model

• The Asian labor markets take some The Asian labor markets take some operations from both the Anglo-operations from both the Anglo-Saxon and the European versions of Saxon and the European versions of capitalismcapitalism

• There is paternalism toward There is paternalism toward workers --- the extended family workers --- the extended family approach to workers in the approach to workers in the conglomeratesconglomerates

• Japanese unions tend to be Japanese unions tend to be enterprise unionsenterprise unions

• The SONY union --- an enterprise The SONY union --- an enterprise union – not a nationwide unionunion – not a nationwide union

• In other nations of the Asian In other nations of the Asian variety workers are poorly variety workers are poorly protected from the vagaries of protected from the vagaries of hire and fire similar to the Anglo-hire and fire similar to the Anglo-Saxon operation of labor Saxon operation of labor markets --- but receive some markets --- but receive some paternalistic treatementpaternalistic treatement

• The Japanese economy is The Japanese economy is sometimes characterized as the sometimes characterized as the “Share” economy because “Share” economy because distribution of income is more even distribution of income is more even relative to other nations even relative to other nations even though families are big stake and though families are big stake and shareholders in large complex shareholders in large complex conglomeratesconglomerates

• But lifetime working contracts bring But lifetime working contracts bring about inflexibilityabout inflexibility

• The Anglo-Saxon model provides more flexibility to mobilize and move the labor force to changing industrial expansion goals

• But there is much less work security--- so unions have organized to protect job security and the working conditions

• Unions are more powerful currently in partnerships with government in Europe

• Check out the Fei-Ranis-Lewis model Check out the Fei-Ranis-Lewis model of agricultural surplus and labor of agricultural surplus and labor movement out of agriculture to the movement out of agriculture to the industrial sectorindustrial sector

• See pages 249-252 of the textSee pages 249-252 of the text• This is the Japanese model of rising This is the Japanese model of rising

in growth from the rural scene to the in growth from the rural scene to the industrial scene in the 19industrial scene in the 19thth, 20, 20thth, and , and now 21 century --- but now decliningnow 21 century --- but now declining

• Workweek regulations exist in Workweek regulations exist in SingaporeSingapore

• East Asian policies developed East Asian policies developed growth and then shared the growth and then shared the growth amongst classes and growth amongst classes and working groups ---- so more even working groups ---- so more even income distribution see P. 265 of income distribution see P. 265 of the Textthe Text