Friday, October 19, 2007

What is the East Asian Growth Model?

A recent posting on the excellent China briefing blog on whether China's growth has/will hit a glass ceiling reminds me of another debate still in its opening stages: How will China's growth be refracted through the debates over East Asian growth?

China's growth trajectory might, on the surface, appear to be similar to that of South Korea, Japan, and Taiwan. Yet there are some key differences.

Land: In the Taiwan case, land reform is often identified as one of the leading factors in Taiwan's growth. In China land ownership remains mired in uncertainty and corruption, yet growth continues apace.

Authoritarianism: A business researcher friend of mine pointed out to me that in China it is often only the Taiwanese companies that make money. Run by people who grew up in Taiwan under the KMT, they understand how to work around the issues of conducting business in an authoritarian state. Both the KMT and the CCP shot/shoot people get in their way, but the "soft authoritarianism" of the LDP took a different approach. Korean authoritarianism had its own twists and turns... Commonalities? After Communism bankrupted itself, China turned to an artificial nationalism as a legitimating factor for authoritarian rule, an approach is not effectively different from similar approaches in Korea, Taiwan, and Japan. In the latter three one-party rule was also legitimated by rapid economic growth, a position that I expect the CCP will be taking soon enough.

Currency: here is a massive commonality -- the East Asian formula is really quite simple: trade with US, and keep currency artificially low.

Industrial development & Domestic consumption: OEM leads the way. Another commonality. Low domestic consumption relative to what is exported. In Taiwan consumption was artificially held down to promote development of a pool of savings to support export-oriented industries. People who point to the high savings rates of Asians often miss the fact that those savings rates are artificially inflated.

Fortress East Asia: Markets in Japan and Korea were heavily protected to serve as bases for expansion overseas, but Taiwan's domestic market was never large enough for this strategy to work. China seems to give foreign firms more latitude for production and marketing than Japan and Korea ever did. Some variation here.......

Rural-urban migration: Commonality.

wealth inequalities: In the miracle period Taiwan's economy was characterized by a remarkably equitable distribution of wealth. Korea, less so, and China today is a nightmare resembling Latin America or the US. Those glittering high-rises in Shanghai and elsewhere are not a sign of wealth, but of wealth inequality.

Rural impoverishment: The post over at ___ raised the interesting contrast between India and China, pointing out that India's democracy demands that legislators respond to rural development issues. In China the rural areas are experiencing negative growth, as even the CCP admits. Raping agriculture while feeding industry was an approach in the Taiwan case too -- through tax and price mechanisms (higher prices for industrial inputs to agriculture, lower prices for agricultural inputs to the industrial sector) the government moved something like 22% of the value of agricultural production into industry.

State Subsidies: commentators frequently kvetch about China's bloated state sector. Few now recall that when Taiwan began its ascent the State was the center of production, and that its share of the economy shrank only because the private sector's rose. As Robert Wade put it, writing in 1990, Taiwan's state ownership of business was probably the highest in the world outside the Communist bloc. This lead, at least in Taiwan, to heavy dependence of OEM firms on subsidized inputs from the State, including cheap electricity, cheap raw materials like plastic, and R&D work.

Worker rights: worker what? East Asia choruses.

mass education: I have no idea how Chinese production of workers and technologists compares to Taiwan's, Japan's or Korea's.

Access to US market: the fundamental factor, in so many ways. And the support and encouragement of the US. How different would the histories of Japan, Korea, and Taiwan be if the US had not desired to make them capitalist showcases to parade about during the Cold War? If the US did not trade with China, its economy would look a lot more like Cuba's.

Organized crime, gray markets, parallel economies: Across the East Asian cultural sphere, how much economic activity, productive and unproductive, is essentially illegal? Yet the necessity of illegality to the operations of OEM firms is generally only mentioned with respect to environmental policies, but it goes much deeper than that.

Construction-Industrial State: I don't know about Korea in this respect, but in Japan and Taiwan the local one-party state ran on flows of money to local politicians, who turned it into flows of concrete around the countryside. In Taiwan the KMT prevented local factions from operating at the national level, and prevented business from sending its tycoons into politics as independent political forces. In China, where the relationship between Beijing and its satrapies is not nearly so straightforward, how does the center-periphery political economy run, and where does it stand in relation to the economic development path?

Gender roles in business: Ever take a look at the masculinity rating for Hofstede on Taiwan and China compared to Japan and Korea?

Confucianism: Confuciuns say work hard, save money, explains East Asian growth, with the addition of China to as massive exclamation point for this "theory."

Another Gosling: Japanese scholars have pointed to the coincidence that all the growth areas of East Asia were Japanese colonies or occupied territories. So it is with China's growth areas. It's only matter of time before some brave right-winger in Japan advances the idea that because Japan raped and plundered its way across south China, the south Chinese are now rich....

Own branding: Japan, and to a lesser extent, Korea, have seen their OEM firms make the successful transition to own-brand operations. Many Taiwanese OEM firms are still trying to figure that trick out. Debate rages over the current status of Chinese firms in this respect.

Lots to think about. Reading political economy debates over the next three decades is really going to be fun....

1 comment:

Spencer said...

Great information and definitely a lot to think about.

The branding is something that caught my attention. I think there are a lot of family-owned companies that are struggling to compete against their cousins across the strait.

Why is this? I strongly feel it's because the Taiwanese business model is too afraid to take a risk and do something creative and "innovative" with their business.

They may throw the term around their marketing materials, but the domestic office environment remains as hierarchical as ever.

Many of my coworkers have studied overseas, and I'm sure they learned a lot, but when coming back to Taiwan they revert to the ways they were formed: quiet, bereft of creativity, and no sense of team.

Pretty much all of the ways NOT to be innovative.

Perhaps this turned into a personal rant but thought I'd share as I speak from the inside.

I just hope the educational system is slowly changing to help nurture the young minds so Taiwan will be able to compete in the future.