Thom Friedman and Myths about East Asia

Thomas Friedman, whose thinking runs in the predictably shallow rut of American center-right establishment economic orthodoxy, has another piece in the NYTimes (reproduced here) that shows how an impoverished, upside-down construction of Taiwan's history is exploited to validate these economic ideologies. Let's take a look.....

Here is the center of Friedman's argument:

It is not this way everywhere. In East Asia, when the military regimes in countries like Taiwan and South Korea broke up, these countries quickly moved toward civilian democracies. Why? Because they had vibrant free markets, with independent economic centers of power, and no oil. Whoever ruled had to nurture a society that would empower its men and women to get educated and start companies to compete globally, because that was the only way they could thrive.

In the Arab-Muslim world, however, the mullah dictators in Iran and the secular dictators elsewhere have been able to sustain themselves in power much longer, without ever empowering their people, without ever allowing progressive parties to emerge, because they had oil or its equivalent — massive foreign aid.

We'll start with the second paragraph because that is the easier of the two. The final sentence of the second paragraph is the only one of interest there. Taiwan received about $5 billion in US aid between 1950 and 1965, about $1.5 billion was economic and the remainder, military. South Korea received $3 billion in grants during the initial phase of the US aid program, to the mid-1960s. To put these sums in comparison, the US gave $13 billion to Europe during the four years of the Marshall plan. Yes, Taiwan did receive massive foreign aid.

The US aid program to Taiwan ceased in 1965, but aid in various ways did not. Taiwan received special tariff status as a developing country until 1989. US companies were encouraged by the US to relocate there. Unlike Arab nations, Taiwan was entirely free of foreign invasion (though not the threat of it), protected by US armed forces. Over that same period the Middle Eastern states fought three wars with Israel and numerous wars with each other. Taiwanese students also received scholarships and other US government support to study in the US; there was no similar influx from the Arab world, and thus, no Arabs returning to their native lands to fight for freedom. Nor was there a massive population of Arabs in the US and Japan fighting for democracy in the Middle East, unlike the situation with Taiwan. Nor was there a flow of contracts from the US to the Middle East as there was during the Vietnam War between the US and Taiwan. Direct aid may have ceased, but many forms of economic aid both direct and indirect continued from the US. The US was anxious that Taiwan be a success, as it was Free China and thus, intended to be a model American client state during the Cold War. Without that constant flow of support from the US, Taiwan would never have been a success. There was indeed massive aid, and it was and is ongoing.

Let us now look at the first paragraph....

In East Asia, when the military regimes in countries like Taiwan and South Korea broke up, these countries quickly moved toward civilian democracies. Why? Because they had vibrant free markets, with independent economic centers of power, and no oil.

Taiwan's "vibrant free markets" consisted of a small and medium enterprise sector that operated in an OEM mode selling to foreign brand retailers. In "free market" Taiwan during the period of transition to democracy, 1986-1996, the petrol, rail, steel, phone, banks, electricity, airlines, sugar, salt, tobacco, alcohol, and many other industries were wholly or in part operated by the government. Rice, the crucial agricultural product, was planted by private farmers but prices for fertilizer and for harvested rice were set by the government. Unions were illegal and striking was a capital crime. The fact is that there was never a 'free market' in Taiwan and it is high time this myth was given a bullet to the head and buried in an unmarked grave. The "free market" in Taiwan was a small sector of Taiwan's market which was highly visible internationally. The real Taiwan was a complex interaction of tightly controlled state companies, ruling party-owned enterprises, and freewheeling family firms that were part of international trade networks. In many ways this sector was "free" not because the government did not intervene but because such firms were successful in ignoring, evading, or ameliorating government interventions. It was only after Taiwan began to democratize that working hours fell, privatization of government enterprises commenced, and government control of the market began to slacken. Taiwan's current "free market" is the result of, not the cause of, democratization.

Nor were there any "independent sectors of economic power" because all of them had been co-opted by the ruling party, which was probably the most completely interventionist outside the old Soviet bloc. The one possible independent sector of power, the local landlords, had been destroyed in the land reforms of the 1950s. Major Taiwanese industrialists such as Ku Cheng-fu and Wang Yung-ching had been created by US AID during its aid program in the 1950s and were thoroughly interwined with the ruling party (had to be, as there was no other game in town). Friedman has the story backwards -- it was the advent of democracy in the late 1980s that permitted the development of industry which was not beholden to the ruling party, and the emergence of independent economic centers of power as industrialists were able to pursue independent political action.

And no oil? Taiwan actually has small deposits. But they have no real economic effect, so in that area at least he is technically right. To continue:

Whoever ruled had to nurture a society that would empower its men and women to get educated and start companies to compete globally, because that was the only way they could thrive.

During the crucial period of 1958-60 this very notion was actually hotly debated in Taiwan. Although subsequent history would suggest that Taiwan has always been an export platform, in fact the 1950s were a period of import substitution policy, and Taiwan's exports were limited, as was foreign investment. Long before democracy, however, the technocrats and US experts convinced the old line Chinese officials that the economy had to opened, even at the risk of a loss of Kuomintang power. Opening the island to the outside economy was a move that had nothing to do with democracy and occurred long before it. As for empowering education, we're talking about a Confucian society here....Taiwan's striving for education has nothing to do with democracy either, as it dates from long before that.

I think it should also be noted that this debate about the nature of Taiwan's economic opening illuminates another word that Friedman uses: "thriving." Authoritarian states are interested in "thriving" economies to the extent that such economies do not undermine their own power. Consider for how many decades authoritarians in China, North Korea, the USSR, Spain, and other authoritarian states tolerated lame economies, because the alternative was a loss of control. If authoritarians choose to have an open economy, it is because they have specific political reasons, and not because it is the only way they can "thrive." Authoritarians aren't interested in thriving.

How backwards is Friedman? Completely upside down -- it was Taiwan's openness to the world that created the conditions under which a peaceful transition to democracy could occur. Taiwanese who moved to the US created a vibrant democracy movement there, while Taiwanese democracy advocates pressed for reform at home. Rising middle class disgust with KMT controls on the press and on movement, especially international travel, the suppression of local identity, and the manipulation of elections, eventually fueled a democracy movement. Taiwan was also aided again by pressure from the US, and by the international spotlight on the island, as the result of it calling itself Free China. This dynamic of links to the US, rising economic strength, a flourishing economy, and so on, enabled the creation of Taiwan's democracy. One might also note that Korea enjoyed a brief democracy in the early 1960s long before any of its current wealth.

The idea that there is any way to compare the experience of two US client states with the authoritarian states in the Middle East is absurd. Taiwan's colonial overlords, the Japanese Empire and the Republic of China, as well as its patron the US, were anxious to develop a vibrant local economy for reasons of their own. The British and the French by contrast had few such sustained designs in the Middle East. East Asia is also entirely free of the authority religions that have been such a curse in the Middle East and elsewhere. I could go on and on listing the major and pervasive differences in the history of the two areas.

To assign the lack of democracy in the Middle East to such a narrow range of causes is to write in ignorance of history. Friedman's uninformed screed highlights a desperate need for newspapers to draw on the writing of recognized experts in their fields, and more importantly, for academics to produce more works for popular audiences.

UPDATE: Kerim Friedman of Keywords writes in the comments below:

In the 1970s, the US threatened to cut off aid if Taiwan didn't open up its markets and shift to an export oriented economy. This had the effect of shifting the balance of power between the large state-owned enterprises (SOEs) and the small and medium sized enterprises (SMEs).

Kerim, you're a decade off. That aid cut-off was part of the 1960 aid delivery, not the 1970, and was eventually delivered almost in its entirety -- something like $20 million of the $120 M package was withheld as Taiwan did not open up enough. It was not for "market liberalization" but for switching from an import-substitution to an export-oriented economy. The reason the US withheld $20 million of the package is because the reforms did not liberalize the local market enough, they merely opened the nation to exports. The aid program terminated in 1965 (a few deliveries straggled on until 1967) and could not have been withheld in 1970. It didn't so much "shift the balance of power" as it enabled the SMEs to grow -- the state-owned sector did not shrink but in fact grew, only the private sector grew so mightily it soon made the state sector appear to shrink.

The point I would make is that in countries where there is not already an emergent middle class, market liberalization is likely to concentrate wealth and power even more into the hands of the elite, as we see happening now in the PRC. As such, liberalization is not some kind of magic bullet.

This is a seriously good point. Taiwan's advantage was that incomes were relatively high and the economy already geared to exporting during the Japanese period, and to a lesser extent, under the Qing. In China no such situation exists. Hence Thomas Friedman's assertions about the economy and democracy are -- as we already knew -- bogus.

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