THE WORLD BANK ON
THE EAST ASIAN MIRACLE
MARKET
FRIENDLY VIEW. The World
Bank 1993 Report on East Asia defends the view articulated in the World
Development Report of 1991 (WB 1991). WB calls the 1991 viewpoint as the
market-friendly view. The market-friendly view expands on the neo-classical
view that rapid growth in developing countries has been associated with
effective but carefully limited
government activism. As discussed, the market-friendly government activism
should:
ensure adequate investment in people
provide a competitive climate for private
enterprise
keep the economy open to international trade
maintain a stable macroeconomy
Beyond
the above role, the report argues, governments are more likely to do harm than
good, unless the interventions are market-friendly.
BASICS. The high performing asian economices (HPAEs)
achieved growth by getting the basics right
(p. 5):
private domestic investments and rapidly
growing human capital were the principal engines of growth
high level of domestic financial savings
sustained the HPAEs high investment level
agriculture, while declining in relative
importance, experienced rapid growth and productivity improvement
GOVERNMENT
INTERVENTION. The WB recognize
that the HPAE governments intervened---systematically and through multiple
channels---to foster development, and in some cases even the development of
specific industries. Policy
intervention took many forms (p. 5-6):
targeting and subsidizing credit to selected
industries
keeping deposit rates low and maintaining
ceiling on borrowing rates to increase profits and retained earnings
protecting domestic import substitutes
subsidizing domestic industries
establishing and financially supporting
government banks
making public investments in applied research
establishing firm and industry-specific
export targets
developing export marketing institutions
sharing information widely between public
and private sectors
some industries were promoted, while others
were not
PRE-REQUISITES
FOR SUCCESS IN SELECTIVE INTERVENTION. The WB argues that in some economices selective interventions
contributed to growth while in others it did not. The pre-requisites for
success in selective interventions are as follows (p. 6-7):
the selective interventions address problems
in the functioning of markets
good fundamental policies
ability of government to establish and
monitor appropriate economic performance related criteria to interventions
Among
the most important fundamental policies (p. 10-11) are those that encourage
macroeconomic stability, high investments in human capital, stable and secure
financial systems, limited price distortions, and openness to foreign
technology. The WB also pointed out
that for interventions the guiding principle to maintain is that they must address failures in the working of
markets. Otherwise, markets would
perform better (p. 11).
OTHER FACTORS FOR SUCCESS OF EAST ASIA
1. HPAEs
reportedly created contests in addition to market-based discipline. One
by-product of these contests (p. 14) was the reduction of rent-seeking
activities.
2. Relatively
honest and competent technocrats (p. 14).
3. Enhanced
communication between business and government (WBR/EA p. 14)
4. Using
deliberation councils (WBR/EA p. 14).
WB RECOGNITION OF EAST ASIA
vNON-CONVENTIONAL STRATEGIES FOR GROWTH
1.
All countries, except Hong Kong, began with a period of import
substitution, and a strong bias against exports. But each move to establish a
pro-export regime more quickly than other developing economies. First it was
Japan, in the 1950s and early 1960s, and then the Four Tigers in the late
1960s, shifted trade policies to encourage manufactured exports. (WBR on EA p. 12)
2.
In Japan, Korea, and Taiwan,China, governments established a pro-export
incentive structure that coexisted with moderate but highly variable protection
of domestic markets. (WBR on EA p. 13)
3.
The role of land reform in Korea and Taiwan (WBR on EA p. 13) is
recognized.
4.
The WB report recognized that the HPAEs promoted specific, including
heavy, industries. In p. 21, the WB report recognized Japan's manufactured
exports promotion of policies of the 1950s
and the subsequent imitation of these policies in Korea. Also in p. 21,
the WB report recognized that Japan and Korean policies included import protection
as well as subsidies for capital and other imported inputs. However, the WB
discounts the strategies taken by Korea and Japan and says in the 2nd to last
para of p. 21 that there is very little evidence that the actions are main
factors for their success. Yet, WB had
prescribed against these in all its "advices" in RP and Korea.
5.
While Lichauco argues in Nationalist Economics that the HPAEs pursued
protectionist policies (except Hong Kong and Singapore?), the WB report argues
that Hong Kong and Singapore adopted trade regimes that were close to free
trade. Japan, Korea, and Taiwan supposedly adopted mixed regimes that were
largely free for export industries.