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The East Asian Growth Regime
and Political Development

Kenichi Ohno (GRIPS)
Sep.
Sep. 2007

Topics East Asia: performance and diversity
 Policy mix for fast growth Political regime The case of Vietnam
 East Asian lessons and Japan’s aid

Flying geese1High Performance
East Asia achieved high average
growth in recent decades
4000
3500
Per Capita GDP(Measured in 1990
international GearyKhamis dollars)

E as t A s i a

3000
2500
2000

A f ri ca

1500
1000
Source: Angus Maddison,
The World Economy: A
Millennium Perspective,
OECD Development Centre,
2001.

500
01950

1960

1970

1980

1990

1998

HongKong2

Per Capita GDP in 2004 (＄＄PPP) World Bank data
05000 10000 15000 20000 25000 30000 35000

Hong KongJapan
TaiwanSingapore
Brunei
S Korea
Malaysia
Thailand
China
Philippines
Indonesia
Vietnam
Cambodia
PNG
Mongolia
Laos
N Korea
MyanmarEast Timor

Diversity in Political andEconomic Development
Governance, WGI2005

High correlation(0.90) but
causality cannot
be argued fromthis diagram

600
Sin
500

Hkg
Jpn

S Kor
400

MalMong

Twn

Only circled
economies
participate inregional dynamism

Bru

Thai300
PhilVN

China

200
CambE Timor

IndoPNG
LaoN Kor
Mya1000100100010000100000

Per capita income ($PPP2004, log scale)

Sources: Compiled
from World Bank,Worldwide GovernanceIndicators, Sep. 2006;
and World Bank, WorldDevelopment
Indicators, 2006.

3

East Asia’s Uniqueness The region is like a big factory whereeconomies compete and cooperate Growth starts by participating in thisregional dynamism
 The sandwich effect—pressure fromabove and below to work harder FDI as relocater of industries
 Clear but shifting order and structure(“flying geese”)

Manufactured Exports
Manufactured exports / total exports
100%
Japan

90%

Taiwan

80%

Korea
70%
Singapore60%

Malaysia

50%

Thailand40%

Philippines
Indonesia

30%

China
20%
Vietnam10%

Myanmar

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

0%

Sources: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries, 1993 & 2006; Statistical Bureau,
Ministry of Internal Affairs and Communications, Japan Statistical Yearbook 2007.

4Structural Transformation in East Asia
3Country2Latestcomers

Latecomers

ASEAN4NIEs

1JapanSteelGarment

Popular TV

VideoDigital
CameraTimeForeign Direct Investment Flows(Billions of USD / year)[1st Half of 1990s][2nd Half of 1990s]

JapanJapan
2.4

2.4
2.6

NIEs

NIEs
8.7

4.8
2.2

7.8

8.5

ASEAN4ASEAN4
1.3

9.8

China

4.3
1.3

11.5

China

Source: Ministry of Economy, Trade and Industry, White Paper on International Trade 2002, p12.
Note: Flows less than $1 billion are not shown. The “NIEs to China” flow excludes Hong Kong.

5

East Asia's Trading Partners
100%

OthersEurope80%

N. America
60%

Japan
40%

East Asia
Large part ofintra-regional
trade ismachinery,parts andcomponents.

20%0%

1980

1985

1990

1995

In 2006, intraregional trade
was 50-60%

1996

Trade in Machine Parts(Billions of USD / year)[1990][1998]

Japan

Japan
8.5

18.6

NIEs

NIEs
7.2

5.0

ASEAN4

29.9

21.7

15.3

19.2

ASEAN4

7.6

6.9
5.5
6.8

China

China

Source: Ministry of Economy, Trade and Industry, White Paper on International Trade 2001, p12.
Note: Flows less than $5 billion are not shown.

6

Guaranteed Failure of Development?
Samuel P.Huntington and Joan M. Nelson, No Easy Choice: PoliticalParticipation in Developing Countries, Harvard Univ. Press, 1976.

Technocratic Model

Populist Model

Economic
growthEqualization

STARTSTART

Politicalsuppression(authoritarianism)

Risinginequality

Increased
participation(democracy)

Politicalinstability

Economicstagnation
Politicalinstability

END

END

Socialexplosion!!!

Politicalsuppression!!!

East Asia’s Policy Mix

7Growth policies—vision, strategy, technology,
HRD, infrastructure, SMEs, FDI, trade, finance,logistics, marketing, etc.
Social policies—inequality, pollution, traffic,
housing, urbanization, internal migration,
corruption, drugs, HIV/AIDS, etc.

--Rapid growth creates new problems
which destabilize society.
--Unless both policies are implemented,development will fail (Murakami 1994).
--Success depends on these policies,
rather than diligence or Confucianism
Cf. Not very successful--Indonesia, Philippines

Authoritarian Developmentalism
E. Asia chose authoritarian developmentalism(AD) for economic take-off.
Key ingredients of AD Powerful and economically literate top leader Development as a supreme national goal Technocrat group to support leader andexecute policies
 Political legitimacy derived from growthperformance
The leader, as primary force of change,
can create the other three conditions.

8Authoritarian Developmentalism in East Asia
1945

50

55

60

65

70

75

49

48

79 80

Park Chung-hee
75

Nationalist Party
46

48

53

Chiang Kai-shek

57

Quirino61

Magsaysay

49

57 58

Phibun

Razak

63

Sarit

73 75 76

Goh Chok-tong
03 Lee Hsien Loong

Mahathir

77

80

88

Kingdom of Laos
49

Protectorate
48

60

Independent
Kingdom
Associated State

62

57

Kimu Tu - bong

Chai YongKun

06

Thaksin
Chulanont

91

76

Khmer
Republic

79

Democratic Kaympuchea

62

98

Khamtai Sisavath89

Peple's Republic ofKampuchea

Burma Socialist Programme Party ･Ne Win

48

Chuan

Chatichai

Kayson Phom Vihane
70

MonarchyRegency

U Nu

Myanmar
North Korea

5301

Vietnamese Communist Party
75

Cambodia

97

ChuanKriangsak

Labor Party

Abdullah

91 92

PremThanom
76

Arroyo01
04
Megawati
04 Yudhoyono

81

Hussein51
Indochina
Communist
Party

99

Wahid

Lee Kuan-yew
76

01

Habibie90

UMNO / Rahman

Laos

98

Ramos Estrada

Aquino65

70

Roh Moohyun

Chen Shuibian

92

98

57

46 48

03

Suharto59

HuJintao

Kim Dae-jung

Lee Teng-hui

86

Marcos05
02

Kim Young-sam 04

88

Yen Chia-kan

Labor
People's
Party Action Party

Malaysia

2000

97

Macapagal 6755

Singapore

Vietnam78

SkarnoIndonesia

92

Noh Taewoo

Chiang Ching-kuo

65

GarciaLaurel Roxas

Thailand95

Jiang Zemin

87

Chun Doohwan

49

Taiwan90

Deng Xiaoping

60 61

Rhee Syngman

South Korea

85

97

Mao Zedong

China

Philippines

80

76

01
06
Bounnhang

93

Kingdom of Cambodia

88 State of Cambodia97

SLORC

SPDC/Than Shwe94

Kim Ⅱ Sung

Kim Jon-ilNotes: For China, the most influential leader among those holding highest positions is indicated. The Philippines' Marcos is classified as AD by Suehiro but not in this table.
Sources: Akira Suehiro, Catch-up Type Industrialization , Nagoya University Press, 2000, p115. Updated and expanded by author using Wikipedia and other sources.

Emergence of AD
 AD emerges through a coup as well asthrough election.
 AD is more likely to rise when the nation’s
existence is threatened by: External enemy
 Internal ethnic/social instability
 Incompetent and corrupt leader
 The rise and fall of AD is also influenced byinternational environment.
Eg. Cold War – reduced global criticism of AD

9Why Power Concentration isNeeded?
 Growth requires a critical mass of mutuallyconsistent policies. A strong state is needed tomobilize resources quickly and flexibly.
 If broad participation is allowed, policies are
too slow and can’t achieve critical mass due to:--Power struggle, party politics, interest groups--Processes requiring patience and compromise,
including parliamentary debate and consensus building--Some groups may refuse to cooperate with state
purposes

Adrian Leftwich (2005)“The institutional characteristics and requirements
for development and for democracy pull in
opposite directions.”“Democracies have great difficulty in taking rapidand far-reaching steps to reduce structuralinequalities in wealth.”
Development

Democracy

ChangeSpeed & flexibility
Accumulation

Compromise
Accommodation
Procedure

10Critiques of AD
Democracy and development are separate
issues:“I do not subscribe to the idea that you
need to delay democratization just so thatyou can actually have growth or that you
can have democracy only when you canafford it.” (Dani Rodrik, 2006)

Democracy is required for development:“Expansion of freedom is viewedM both as
the primary end and as the principal meansof development.” (Amartya Sen, 1999)

Korean Experience
N.T.T.Huyen “Is There a Developmental Threshold forDemocracy?: Endogenous factors in the Democratizationof South Korea” (2004)“Democracy as an advanced form of politics is
not independent from socio-economic
development.”“Developmental threshold for democracy [is]a point in the development process beyond
which democracy can be effectively installedand sustained.”

11Compiled fromHuyen 2004

Korea: Per Capita GDP in 1990 USD

10000
9000
8000
7000
6000
5000
80%
4000
farmers
3000
2000
100001960 62 64 66 68

90% middleclass

End ofAD7072

74

76

78

80

82

84868890

Catching-up
period(AD useful)

Exit of AD

92

94

High income
society
Democracy
Pluralism

Low
incometrap AD is a temporary regime of convenience,needed only to push up the country to a higherlevel.
 Once a certain level is reached, AD becomes anobstacle to further development.
 Watanabe (1998) argues that successful AD
melts away automatically through socialchange and democratic aspiration.
“if development under authoritarian regime proceeds
successfully, it will sow the seeds of its own dissolution”[improved living standards and diversified social strata]

12

Exit of AD:
A Less Optimistic View
 However, barriers do exit: stubborn leader,bureaucratic resistance, interest groups.
Therefore, leadership and strategy are alsoneeded for an exit.
 Strong leaders often refuse to step downbecause they will be revenged, jailed andeven executed after transition, with most or
all of their policies denied and reversed.

“Democratic Developmentalism”?
(Mild Form of AD)
 Can we separate resource mobilization fromfreedom and human rights?
 Countries that already have free election,functioning parliament, human rights—canthey adopt developmental policies without
throwing out their political achievements?
 Research on DD--Robinson and White eds (1998)--“The Democratic Developmental State inAfrica” (joint study by South Africa & Egypt)--Ethiopian Prime Minister Meles Zenawi

13Decomposing Democracy
Purposes

Freedom, human rights, equality,
social and economic benefits for all,security, peaceful coexistence

Procedures Legitimacy (election), rule of law,participation, multi-party system,
balance of power, local autonomy
Properties Tolerance, patience, compromise,fairness, transparency,
accountability--Democracy is not an all-or-nothing choice; nordoes it depend only on free election.
--Can some of the components be selectivelyadopted while ensuring rapid resource mobilization?

Conditional Restriction?
 Random and excessive oppression should

never be allowed.
 However, some democratic components may
be restricted if it is moderate, helpful for
economic policy execution, and well monitored.
--Freedom to criticize government--Free and competitive election--Multi-party system--Balance of power (strong executive branch)--Decentralization and local autonomy

14More Comments on DD Like market, democracy grows slowly

under unique local conditions.
 When income is low, a regime based on
mass support (poor farmers or workers) or
social democracy may not work—risk ofpopulism.
 More realistic--use East Asian AD model(top-down quick decisions with supporting elites)

as base but add more democraticelements.

Vietnam 2007
Good location, good workers, bad policy
 Income: $300 (1995)  $800 (2007) National goal: “Industrialization andModernization 2020”
 Growth driven by inflows of FDI, ODA,remittances, private foreign capital Social transformation underway
 Policy is improving, but still very
primitive by East Asian standard Local firms remain small and weak -industry dominated by FDI firms

15

10Real Growth%

8642
2004

2005

2006

2004

2005

2006

2003

2002

2001

2000

1999

1998

Appr o ve d

6Im ple m e n t e d42
2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

01992

Main exports:
Crude oil Garment
Electronics Rice
Footwear Coffee
Shrimp Furniture

8

1991

Ethnicity: Kinh (86%)

10

1990

Area 330,000km2

1997

FDI Inflow

USD bi ll io nPopulation 85 million

1996

1995

1994

1993

199219911990

016

Vietnam: Savings and Investment(Preliminary study by Nguyen Ngoc Son)

% of GDP
35.0--Savings = 30%+ of GDP--Investment = 40% of GDP--Foreign savings = nearly 10% GDP--Business is a large saver &investor: internal fund mobilization--Household net savings = 5%+30.0

Tỷ lệ tiết kiệm trong GDP

Saving/GDP25.0

Tỷ lệ tiết kiệm nhà nướctrong GDP

20.0

Business
15.0

HouseholdTỷ lệ tiết kiệm doanhnghiệp trong GDP

10.0

Government5.0

Tỷ lệ tiết kiệm hộ gia đìnhtrong GDP trong GDP0.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

15.0+et savings % of GDP

45.0

35.0

Household

10.0

40.0

Investment/GDP

5.0

30.0
0.0

25.0

Business

20.0

Government

15.0-5.0-10.0

10.0

Tỷ lệ đầu tư trong GDPTỷ lệ đầu tư nhà nước trong
GDP
1995
1996
1997
1998
1999
Tỷ lệ đầu tư DN trong GDPTỷ lệ đầu tư HGĐ trong GDP

Business
2000

2002

2003

2004

2005

(S-I)/GDPHousehold

5.0

2001

Government

-15.0

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

0.0
Chênh lệch S-IChênh lệch S-I của NNChênh lệch S -I của DNChênh lệch S -I của HGD

Stages ofCatch-up Type Industrialization
CreativityTechnologyabsorption
Agglomeration

STAGE ONE
Simplemanufacturing
under foreign
guidance

Vietnam

STAGE TWO
Have supporting
industries, but still
under foreign
guidance

STAGE FOUR
STAGE THREE
Technology &management
mastered, canproduce highquality goods

Full capability ininnovation andproduct design as
global leader

Japan, US, EU

Korea, Taiwan

Thailand, Malaysia
Glass ceiling for
ASEAN countries(Middle income trap)17

Vietnam’s Strengths
 At the heart of East Asia:

locational advantage in attracting
FDI, ODA and foreign capital Unskilled workers are very good(perhaps best in East Asia) if
they are given proper training
and incentives
 Political stability--no terrorism or
ethnic conflict

Biggest Problem:
Policy Inconsistency
 Inter-ministerial coordination isextremely poor.
 Politics, red tapes, and old planningmentality dominate.
 Laws and regulations often remainunimplemented.
 Industrial plans are drafted by a few
officials without business consultation.
 New taxes & regulations are suddenlyintroduced, angering businesses.

18Vietnam’s Challenges
 Reforming policy making process andadministrative mechanism
 Clear vision & strategies for industrialization
 Building infrastructure (power, transport) to
support fast growth Raising domestic capability--industrial humanresources and “supporting industries”
 Mastering “integral manufacturing” to become
Japan’s industrial partner
 Coping with growth-induced evils--inequality,
pollution, congestion, new crimes, etc.

General Lessons from East Asia
Way of thinking or methodology rather thanconcrete policy measures.
--Field-based concrete thinking in industrial
and agricultural sectors--Development as a holistic social process,not short-term technical problems(importance of leadership, social context, broad
scope, gradualism, political consideration, etc.)--No ready-made advice for all countries;
solution must be discovered locallyThese views should supplement morefunctional views of the West19

Development and Aid Strategy
There is a clear difference in developmental
thinking between Eastern practitioners andWestern aid community.

East Asia’s Way
Goal

Western Donors

Economic prosperity
and national pride

Poverty reduction(MDGs)

Policies Investment, trade,skills, technology
Key
Central government
actors and businesses

Health, education,
governance
Local communitiesand poor people

Wrong Lessons from East Asia Mindless copy of a policy adopted by some

E. Asian country in the past (cf. postal savings,
heavy industry drive, Green Revolution, etc).
 The view that strong government should
direct private sector activities (In East Asia,
private dynamism was primary and policy wassecondary).
 The idea that an authoritarian state isneeded for economic take-off (reality is much
more subtle and complex).

20How Japan Should Contribute Japan should not just repeat what Western

donors are doing (health & education, aid
harmonization, budget support, etc)
 Emphasize self-help and aid for graduation
 Japan’s comparative advantage: long andrich experience in industrial support--Physical infrastructure--Industrial human resources--Drafting industrial master plans Africa is different from East Asia: study
local conditions, learn from local officials,
researchers, private actors, other donors

Japanese ODA in Africa
 Japan should concentrate additional aid toAfrica on 1 or 2 countries with:--Strong political will (top leader)--Social stability--Reasonable administrative mechanism
 Policy dialogue for formulating concrete
national/regional growth strategy
 Mobilize available aid tools to implementagreed strategy
 Involve private sector and other donors(incl. emerging donors such as Malaysia)

21