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The book argues there are three critical government interventions that can accelerate economic development in East Asia: maximizing agricultural output through labor-intensive smallholder farming; directing investment towards export-oriented manufacturing; and channeling finance towards agriculture and manufacturing rather than consumption.
These policies were most effectively employed in Japan, South Korea, Taiwan and China, leading to the fastest transitions from poverty to prosperity in history. Other East Asian countries saw initially fast but ultimately unsustainable growth by not fully adopting these policies.
The policy prescriptions were confused for a time by the presence of fast-growing but not fully comparable economies like Hong Kong, Singapore, Malaysia, Indonesia and Thailand.
The World Bank controversially used flawed case studies to argue for minimal government intervention, sparking academic debate where overstated claims were sometimes made.
The key point is that rapid economic transformation requires an integrated approach of interventions in agriculture, manufacturing and finance rather than laissez-faire policies or isolated reforms. The East Asian experience shows this when properly understood.
There was debate in the 1980s-90s about whether East Asian economic success was due to unique government policies or simply fast growth rates.
High growth rates alone do not guarantee real development, as shown by Brazil’s experience.
The 1997 Asian financial crisis revealed that Japan, South Korea, Taiwan, and China had implemented effective agricultural, manufacturing, and financial policies that led to long-term transformation. In contrast, Southeast Asian countries like Malaysia, Indonesia, and Thailand did not fundamentally restructure their economies, leading them to fall behind.
In agriculture, Northeast Asia redistributed land and supported small farms, boosting productivity. Southeast Asia did not implement thorough land reform.
In manufacturing, Northeast Asian states nurtured competitive firms through subsidies and export requirements. Southeast Asia supported state firms without export discipline, failing to build strong companies.
In finance, Northeast Asia directed credit to support agriculture and manufacturing priorities. Southeast Asia opened up financially too early without this strategic lending.
The different policy choices created a developmental divide between a successful Northeast Asia and a struggling Southeast Asia that began decades before the “miracle” debate and continues today.
The book focuses on the economic development strategies of nine major East Asian economies: Japan, South Korea, Taiwan, China, Thailand, Malaysia, Indonesia, the Philippines, and Vietnam.
It examines their policies in three key areas - agriculture, manufacturing, and finance - and how these policies contributed to economic growth.
Other influential factors like demographics and education are acknowledged but not directly addressed, as the author believes policy choices in the three main areas were more decisive.
The book simplifies the narrative by excluding failed states like North Korea and offshore financial centers like Hong Kong and Singapore, which are not representative of normal economic development.
Taiwan is discussed separately from China due to its distinct economic history since 1949, although some of its earlier history is connected to the mainland.
China’s development is dealt with across different parts of the book based on relevant historical periods, but its post-1978 reforms are mostly covered in a dedicated section.
The book aims to highlight the similarities in developmental strategies across East Asia, countering arguments that policies were fundamentally different between regions.
There is no consistent correlation between democracy/authorism and economic development in East Asia. At times authoritarian policies have produced results (e.g. Park in South Korea), while at other times democracy has been important (e.g. land reform committees in Japan/Taiwan). Overall, political system alone does not determine economic success.
Amartya Sen argues that democracy and institutional development are part of the development process, not drivers of it. Lack of institutional progress causes misery even with economic growth (e.g. China and Italy). So democracy and rule of law should be seen as elements of development rather than prerequisites.
Rule of law in particular has a mixed relationship with development in East Asia. China has boomed with ambiguous property rights and politically-directed courts. South Korea grew rapidly despite biased legal system favoring big business. Rule of law better in Japan, but the Philippines and Indonesia have been relatively poor despite stronger legal institutions.
Factors like culture, geography, and colonial history seem to have little consistent impact on development in East Asia. There are both authoritarian and democratic successes and failures across Confucian and non-Confucian societies in the region.
The key factors determining economic success in East Asia appear to be government industrial policy, export orientation, high savings and investment, land reform, and educational focus on science, engineering and vocational skills. Formal political institutions play a secondary role.
Agriculture is critical to economic development in poor countries where most people still work in farming. However, without land reform, yields tend to stagnate as landlords charge high rents and interest rates rather than invest in yield improvements.
Post-WW2, China, Japan, Korea, and Taiwan undertook major land reforms to redistribute land equally among the farming population. This created incentives for smallholder farmers to maximize yields through labor-intensive “gardening” techniques on plots around 1 hectare in size.
Though economists believe large-scale farms are more efficient, smallholder farms maximized output by using abundant labor in poor countries. Their intensive techniques - like close planting, intercropping, targeted fertilizing etc - dramatically increased yields, akin to high-yield home gardening.
So while capitalist farms may have higher returns on cash invested, smallholder farms better served developing states by maximizing crop production using their surplus labor. This “gardening approach” generated huge yield increases across the four countries.
The land reforms and smallholder farming model were thus critical to boosting agricultural output and broader development in parts of East Asia, with no equivalent policy changes of such impact anywhere else.
Small-scale household farming can achieve very high yields, as demonstrated by organic farmer Curtis Stone who harvests over $100k revenue per acre. However, this requires immense labor input.
In contrast, large American farms use big tractors and average 170 hectares to efficiently grow corn, a staple crop.
After WWII, Asian countries like Taiwan had abundant agricultural labor and were well-suited for high-output small-scale farming. Taiwan increased work days invested per hectare by over 50% after land reform, boosting yields of rice, mushrooms, etc. despite little mechanization.
Small farms also outcompeted plantations for crops like sugar, banana, and rubber in Asia and Africa. Plantations often restricted smallholder competition rather than winning through pure efficiency.
Big yield gains from small farms increased rural consumption and demand, benefiting early industrial companies. They also reduced food imports, preserving foreign exchange for importing technology.
Household farms play a welfare role, absorbing unemployed migrant workers in downturns. Land reform avoided indigent poor in successful Asian countries.
Equal distribution of land created near-perfect competition and capital access. This allowed Asia’s stellar growth, unlike landed elites dominating elsewhere. Egalitarian land policy strongly predicts future growth.
Klaus Deininger, an economist at the UN’s Food and Agriculture Organization, found that only one major developing country with very unequal land distribution has achieved long-term growth over 2.5% - Brazil.
Deininger concluded that land inequality leads to low long-term growth, and low growth reduces income for the poor but not the rich.
If poor countries are to become rich, an equitable division of land early in development is very helpful, as seen in Japan, Korea, and Taiwan.
However, efforts to create equitable land distribution often fail due to resistance from elites.
Ancient Asian states like Tang dynasty China and 7th century Japan implemented land reforms to ensure fair access to resources, though elites often resisted.
Modern land reform in Northeast Asia is based on rediscovery of this wisdom during Japan’s Meiji Restoration in 1868.
The Meiji government pensioned off feudal lords, gave small farmers title to their lands, allowed legal mortgaging/selling, and fixed taxes in cash terms.
This incentivized investment in land and created more liquid crop markets, boosting yields and output. Land reform enabled industrialization despite Japan’s rural population.
However, inequities remained between small and large landowners. By WWII, almost half of arable land was tenanted and most farmers were in debt. Land inequality had returned.
Japan has very little cultivable land due to its mountainous terrain. As you travel northwest from Tokyo, dense urban sprawl gives way to forests and steep hills. Flat land gets built up intensely with houses, malls, etc.
The Shinano River delta near Niigata is one of the few sizeable flat areas, making it Japan’s major rice producing region. But even here, fields are squeezed into a narrow coastal strip.
Historically, Japan saw rising landlordism, tenancy rates, and rural poverty into the early 1900s, culminating in farmer rebellions. After WWII, more thorough land reform broke up large estates.
Pre-communist China had even more severe rural poverty and exploitation. Land was concentrated in a few hands while most farmed tiny plots. Famines, slavery, abuse were common.
In the 1920s-30s, the Chinese Communist Party began redistributing land in areas it controlled, eventually enacting nationwide land reform after taking power in 1949. This “turning of the body” (fanshen) of peasants was a metaphor for the socioeconomic revolution brought by land reform.
The Chinese Communist Party (CPC) expanded its ‘land to the tiller’ policy in its Jiangxi base area in the 1930s, redistributing land from landlords to peasants.
When war with Japan broke out in 1937, the CPC shifted to demanding ‘double reduction’ in rents and interest by landlords, as part of a ‘united front’ with the Nationalists.
In practice, strong bottom-up pressure for land reform continued during and after the war with Japan. Revenge against landlords who had collaborated and redistribution went hand-in-hand.
The CPC’s Draft Agrarian Law of 1947 committed to universal uncompensated land expropriation and cancellation of rural debts.
Land reform was often violent, with beatings, killings, and rape of landlords and their families. Estimates of deaths range from hundreds of thousands to millions.
Nevertheless, land reform boosted agricultural production and rural economic activity in the late 1940s and early 1950s.
This progress was reversed when Mao imposed agricultural collectivization in the late 1950s, resulting in mass famine.
Meanwhile, land reform in China and North Korea posed a political challenge to the US in Asia after WWII. American policy oscillated between protection of property rights and promoting stability through reform.
Early US support for land reform in Japan gave way to acquiescence to the status quo in South Korea. Kim Il Sung’s 1946 land reform in North Korea proved more popular.
After World War II, the U.S. supported land reform in defeated Japan, occupied South Korea, and Nationalist-controlled parts of China, aiming to undermine communist support by distributing land to poor farmers.
In Japan, General MacArthur’s administration imposed redistributive land reform in 1946-47, limiting farm sizes and transferring land from landlords to tenants via local committees. This helped spur Japan’s postwar economic boom.
In South Korea, the U.S. initially dragged its feet on pressing its ally Syngman Rhee to implement land reform. After the Korean War, with communism ascendant, the U.S. insisted Rhee carry out redistribution.
In China, a U.S. program began land redistribution too late in 1948-49 to compete with the communists, who won the civil war. The U.S. later ensured land reform was implemented in Taiwan.
Agrarian expert Wolf Ladejinsky was influential in designing U.S.-backed land reforms in Japan, Korea, and Taiwan. Though the U.S. commitment was uneven, land reform helped stabilize East Asia against communism and aided development.
Before land reform, inequitable land distribution in Korea meant less than 4% of households owned 55% of agricultural land, while there were many landless families. Japan invested less in Korean agriculture compared to Taiwan.
After WWII, the US military government resisted land reform in South Korea at first, seeing it as socialist. But the threat of land reform in North Korea forced their hand. South Korea’s elected government passed substantive land reform in 1949, though Syngman Rhee stalled implementation.
The reforms allowed tenant farmers to purchase land, with a 3 hectare retention limit. Landlords received relatively little compensation. Over 50% of farmers ended up with less than 0.5 hectares.
Agricultural output did not increase as quickly as in Japan or Taiwan at first, due to Rhee’s policies. It was only in the 1960s-70s under Park Chung Hee that yields improved substantially with state investment in infrastructure and fertilizers.
In Taiwan, land reform was encouraged by the US. The KMT government was persuaded to pass reforms in 1953 similar to Japan and Korea’s - expropriation over 3 hectares with compensation to landlords. This allowed tenants to buy land.
Taiwan saw the best developmental outcomes from land reform. Agricultural productivity rose remarkably. Taiwan shows successful land reform was possible in SE Asia’s climate, not just NE Asia’s.
In Taiwan, land reform implemented in the 1950s was a major success. It redistributed land from large landlords to smallholder farmers. By 1960, 64% of agricultural land was farmed by owner-cultivators, up from 30% in 1945.
The land reform was modeled on the reforms in post-war Japan. Tenants effectively paid nothing for the land they received, as payments to the government were offset by no longer having to pay rent. Forced sellers lost out.
The reforms created a more equal distribution of income and wealth. Taiwan’s Gini coefficient fell dramatically from over 0.55 to 0.33.
Agricultural productivity increased substantially. Yields of traditional crops rose 50-100%. Farmers diversified into new high-value export crops like mushrooms and asparagus.
In contrast to Taiwan, land reform largely failed in Southeast Asia. The Philippines is a prime example. Sugar plantations continued to dominate the agricultural landscape, worked by landless laborers on very low wages.
Successive Philippine governments promised land reforms but implemented them half-heartedly. Landlord elites found ways to avoid real redistribution. The unequal distribution of land and wealth persisted.

Here is a summary of the key points about land reform and the Catholic Church in the Philippines:

The Catholic Church was a major landowner in the Philippines during the Spanish colonial era, controlling friar estates worked by tenants.
After the Spanish-American War in 1898, the Americans purchased the friar estates from the Catholic Church, but then sold the land to elite Filipino families rather than redistributing it to tenants. This preserved the concentrated land ownership patterns.
Periodic agrarian unrest and peasant rebellions occurred in the Philippines due to poverty and landlessness, culminating in the rise of the communist Huk rebels in the 1930s-1940s. Land reform was seen as necessary to quell the unrest.
Successive Philippine governments pursued limited land reforms, doing the minimum to prevent outright civil war but not fundamentally changing the agricultural economy or land distribution.
Under the Marcos dictatorship (1965-1986), land reform promises were largely unfulfilled, with less than a quarter of stated targets met.
After Marcos fell, the Comprehensive Agrarian Reform Law of 1988 was passed but implementation has been slow and loopholes allow landowners to avoid redistribution.
The Catholic Church did not take a strong stand in support of radical land reform, and major landowning families like the Aquinos and Cojuangcos were able to avoid breakup of their estates.
The Comprehensive Agrarian Reform Law (CARL) in the Philippines aimed to redistribute 10.3 million hectares of land, but only about 5% has been redistributed through compulsory acquisition. Most redistribution has occurred through direct negotiations between landowners and tenants, often on terms unfair to tenants.
Large commercial farms and estates owned by wealthy families like the Cojuangcos have been largely unaffected. Land redistribution has been overseen by under-resourced bureaucrats susceptible to bribes.
Eduardo “Danding” Cojuangco, cousin of former president Corazon Aquino, is the largest landowner in Negros Occidental province. He evaded CARL through “corporative land reform” where tenants were nominally given shares but he retained control.
Attempts at compulsory acquisition, as with the Hacienda Esperanza estate, have usually failed. Tenant farmers lack support and resources, ending up leasing land back to owners and falling into debt.
Philippine land reform has failed to significantly reduce rural poverty and increase agricultural productivity compared to successful reforms in East Asia. The feudal landownership system largely remains intact.
In the Philippines, land reform beneficiaries have greater need for credit, marketing, and agricultural support than in northeast Asia, but receive almost no government support.
Philippine land reform gave land rights to weak farm laborers rather than more autonomous tenants, as in northeast Asia.
Land reform only works when NGOs provide the necessary support the government fails to give. Two examples are given of successful farmer cooperatives aided by the NGO Alter Trade.
But these are exceptions - most beneficiaries get no NGO support. NGOs can only help hundreds, not the hundreds of thousands the government claims to have helped.
The Philippine state is extremely weak compared to northeast Asia in providing agricultural support. NGOs try to fill the gap but on a small scale.
Philippine agriculture remains highly inefficient and oligarchic. A few elite families still control most of the land.
Yields are far lower than in household farming systems in Taiwan and China. Land reform fails to raise yields due to lack of state support and landlord resistance.
The cost of Philippine sugar production is higher than global prices. Equipment is outdated. The industry outlook is poor.
Landlords do relatively well only due to access to banking and sugar quotas. The poverty amid natural abundance in the Philippines is striking.
The Philippines has failed to implement effective land reform, leaving agricultural productivity low. Average farm sizes are tiny while a wealthy landlord class persists.
Rice and corn yields in the Philippines are far below those of Taiwan and other more productive Asian economies.
Indonesia also failed to implement meaningful land reform under Sukarno and Suharto. Ladejinsky observed that Java’s land reform redistributed little land and rice yields were one-third of Japan’s.
Indonesia nationalized foreign plantations after independence but they were run inefficiently. The country remained focused on cheap food for urban consumers rather than rural development.
Both Indonesia and the Philippines implemented resettlement programs to relieve population pressure rather than fundamental land reform.
In Malaysia, British colonial policy was structured around profitable plantations at the expense of smallholder farms. Rubber and palm oil boomed through alienation of native customary land.
Thailand avoided colonization but still failed to address land inequality. A landlord class persisted and yields remained low. Thailand eventually focused on resettlement like Indonesia.
In summary, land policy failures meant most of Southeast Asia never achieved an equitable, productive small farm sector like Northeast Asia.
In colonial Malaysia, the British heavily favored large plantations over smallholder farmers in land policy, infrastructure investments, and access to credit. Hundreds of thousands of hectares were converted to plantations, even though smallholders were found to be significantly more productive.
The Stevenson rubber restriction schemes from the 1920s-1930s explicitly limited smallholder output below their actual yields to protect less efficient plantations, costing smallholders an estimated £40 million in losses.
After independence in 1957, Malaysia continued to neglect smallholder interests in land reform and agricultural policy. Land concentration and tenancy/landlessness increased, perpetuating poverty and low yields.
Thailand’s more equal distribution of land ownership and investment in smallholder agriculture from the 1970s showed an alternative model was viable and brought rapid rural development.
The experience across Southeast Asia demonstrates that lack of political will, not lack of land, has been the key obstacle to more equitable rural development favoring productive smallholder farmers. Leaving the agricultural status quo in place has had high costs.
Thailand has faced repeated peasant-based revolutionary and terrorist groups due to cyclical rural poverty, including communist movements in the 1960s-70s and the recent Red Shirt protests.
Thailand can be divided into two agricultural regions - the rice-growing central plains and the less fertile north/northeast.
In the central plains, smallholder rice farming initially prevailed. But population growth and repressive policies led to rising landlessness and inequality by the post-WW2 era.
In the north/northeast, the government supported large agribusinesses rather than smallholders after WW2. This led to an impoverished peasantry dependent on low-wage work.
Export manufacturing provided some relief in the 1980s-90s but the Asian Financial Crisis caused mass layoffs and renewed rural poverty.
The rural-urban divide and urban policy bias have been constant themes, with elites showing little interest in resolving rural issues. Recent political turmoil relates to tensions over recognition of rural masses.
In contrast to Southeast Asia, Northeast Asia (Japan, South Korea, Taiwan, China) implemented successful land reform which boosted agricultural productivity and created markets. However, these policies should have evolved over time as the economies developed.
As countries industrialize, agriculture needs to shift towards larger, more mechanized farms and specialization to raise farmer incomes. But Northeast Asian governments maintained small, subsidized farms to support incomes and avoid rural-urban inequality.
Japan began subsidizing farmers in the 1950s as incomes declined relative to cities. Subsidies caused farmers to stay on small plots rather than consolidate. South Korea and Taiwan also moved to subsidizing and protecting agriculture in the 1970s-80s.
The subsidies were paid by consumers through higher food prices. Japan and South Korea spend over 1% of GDP on agricultural subsidies now, despite agriculture being a small share of GDP. This maintains tiny, unproductive farms beyond their useful developmental period.
The failure to transition policies hurt agricultural productivity and caused misallocation of resources. But governments prioritized income equality over optimal development policy.
Agricultural policy in northeast Asia has become rigid, as evidenced by extremely high prices for agricultural products like apples and strawberries in Japan. This ossification of policy points to limited political capacity to cope with changing economic conditions.
Despite recent issues, the initial land reforms in northeast Asia had enormously beneficial economic and political impacts. Household farming maximized rural labor and output, boosting purchasing power for early industrialization. Land reform also promoted social mobility, as successful leaders often came from farming backgrounds.
In contrast, Southeast Asia largely failed to institute effective land reform. Common excuses given are that cash crops require plantations and that the favorable conditions in northeast Asia can’t be replicated. But these excuses don’t stand up to scrutiny - cash crops can often thrive on small farms, and there’s no inherent reason land reform can’t work in Southeast Asia.
The US failed to consistently push land reform after the 1950s due to domestic politics. But land inequality and dysfunction remain at the root of many global conflicts and dangers. Overall, land reform delivered huge benefits where implemented in northeast Asia, but its potential has been neglected elsewhere.
Manufacturing is critical for rapid economic transformation of poor countries for two main reasons:

Manufacturing allows for productivity gains through use of machines and technology, which can be operated by less skilled workers. This allows for economic gains without waiting to educate the workforce.
Manufactures can be freely traded internationally more easily than services. This allows poor countries to learn skills and acquire technology from advanced economies through trade.

Services are harder to trade internationally due to practical constraints and political barriers. There is not free movement of labor for services work.
Even though services dominate rich country economies now, manufacturing still enables major productivity gains. Output expands even as employment shrinks dramatically.
However, manufacturing tasks needing low-skilled, cheap labor are best suited to poor countries at early stages of development. This is where the opportunity lies for them to industrialize through export-oriented manufacturing.
Historically, manufacturing has played a central role in rapid catch-up growth of developing countries. Arguments that service sectors can lead development are flawed.
Export-oriented industrialization should be a priority for poor countries seeking rapid economic transformation. Agricultural development alone is not sufficient.
Manufacturing and trade are critical for emerging economies to develop. Poor countries can utilize low-cost labor to build manufacturing capacity, even if not as efficient as advanced economies.
Governments nurture manufacturing firms through protectionist policies and subsidies. This allows domestic firms to develop while shielded from global competition.
However, protection and subsidies risk rent-seeking, where firms focus on securing government favors rather than building competitiveness. The key is to align business interests with national development.
Successful East Asian states like Japan, South Korea, and Taiwan forced domestic firms to export. Export performance provided feedback on competitiveness and dictated government support. Laggard firms were culled.
Export discipline prevented uncompetitive firms from rent-seeking. It revealed which firms merited state support to reach global standards.
East Asian states also provided bureaucratic support for technology acquisition to help firms export. Concentrating industrial policy in agencies like MITI, EPB, and IDB aided execution.
Historically, all successful economies used protectionism and subsidies to nurture domestic industry. Free trade policies alone have not yielded development. Forcing firms to export was key to avoid rent-seeking and align business with national interests.
Southern plantation owners in the U.S. objected to protectionist policies like high tariffs because they preferred exporting cash crops and importing manufactures. But leaders like Alexander Hamilton pursued these policies anyway to promote industrialization.
Protectionism has historically been used by industrializing countries to help their infant industries develop and become competitive. Measures included tariffs, export subsidies, infrastructure support, acquiring foreign technology, etc.
The learning and temporary tradeoffs involved in industrialization are akin to investing in a child’s long-term education. Protectionism makes possible the acquisition of vital manufacturing knowledge and skills.
Countries like Germany and Japan copied each other’s successful developmental policies. Japan modeled its strategy on Germany, while its former colonies Korea and Taiwan copied Japan’s approach.
China drew lessons from Germany, Russia, and Japan. Southeast Asian states learned from the historical examples of developed nations.
However, later economic theories prescribed uniform policies for countries irrespective of their development levels. This led some countries astray, disconnecting them from the proven lessons of history.

In summary, industrialization has historically relied on protectionist policies, with countries learning from and emulating their more developed peers. Deviating from these demonstrated lessons often proved detrimental.

The German Historical School of Economics emerged from political economy and jurisprudence departments in German universities in the mid-19th century.
The group believed that for a successful developing state like Germany, protectionist industrial policies were needed to nurture domestic manufacturers, rejecting the free market theories of Adam Smith and David Ricardo as unsuitable.
Friedrich List, a leading thinker, argued that free trade should be the ultimate goal but only after building up industry through protectionism. He studied Alexander Hamilton’s protectionist policies in the US.
Japan closely studied the German model, with many leaders traveling there and translating works. They implemented industrial policies by opening state pilot factories in basic industries, encouraging technology transfer, and later privatizing firms.
As in Germany, Japan focused on scaling up investments and output through mergers rather than radical innovation at first. Exports took off, rising eightfold between 1880-1913.
In the 1880s, Japan began building large modern factories, starting with textiles. The government nurtured big business groups like Mitsubishi with subsidies and limited competition. Japan closely followed the German model of state-led economic development.
Japan’s industrialization in the late 19th century was led by the government working closely with business leaders like Shibusawa Eiichi. The government invested in and protected strategic industries like cotton spinning to help them achieve economies of scale.
This succeeded in reducing Japan’s reliance on imported cotton and helped make textiles a major export. However, the big zaibatsu conglomerates focused on domestic industries and avoided exports.
In the 1920s recession, smaller manufacturers went bankrupt while zaibatsu profited. Japan eventually copied Germany’s export subsidy system to impose export discipline on big business.
After WWII, the US occupation broke up the zaibatsu. MITI gained extraordinary powers over industry and trade policy. It rigorously promoted exports through subsidies and tax breaks.
MITI systematically built up Japan’s manufacturing capabilities across many industries. It forced business cooperation through export targets, mergers, and control of raw material imports. This took infant industry policies to a new level.
After WWII, Japan aggressively applied infant industry techniques and had huge manufacturing and mining growth, becoming the first state with sustained double-digit economic growth. This showed the power of old ideas like List’s.
South Korea’s industrialization was led by General Park Chung-hee, who drew lessons from Japan’s colonial industrialization of Korea, Germany’s postwar re-industrialization, and the experiences of leaders like Sun Yat-sen.
Park promoted exports through subsidies and cheap credit. This built up the chaebol business groups. The state Economic Planning Board also drove heavy industry growth, against most expert advice. By the mid-1980s, Korea was a force in steel, shipbuilding, semiconductors, and autos.
Korean officials studied Friedrich List’s ideas on national development systems. List’s ideas were adapted for a small country like Korea. Park persisted with state-led industrial policy against US and IMF advice.
Public ownership differed in China and Taiwan. China nationalized industry under Communist Party control. Taiwan balanced public and private sectors under the KMT party-state. Both approaches succeeded in rapid industrialization.
The defeated Kuomintang (KMT) party in Taiwan gave a big role to state ownership due to the legacy of republican China from 1911-1949. Sun Yat-sen opposed private ownership, and China was influenced by Russia and Germany, leading to public ownership as the norm before 1949.
The National Resources Commission (NRC), a huge industrial planning agency, directed China’s industrial policy from 1935. It expanded state control of mining, manufacturing, and electricity. By 1944, most registered business capital was in state firms.
NRC bureaucrats stayed on in communist China after 1949, helping transfer control to the CPC. They later suffered in political campaigns. The NRC plans informed China’s State Planning Commission, now the National Development and Reform Commission.
In Taiwan, NRC personnel had greater influence, supplying economic leadership. They created a large state sector focused on industries like the NRC targeted. But export discipline, unlike in Maoist China, limited the impact on growth.
Like prewar Germany and Japan, small firms accounted for most exports in Taiwan. Big state firms lacked export discipline and support for private exporters lagged Korea’s. This contributed to Taiwan’s GDP per capita trailing Korea’s.
Still, Taiwan, Japan and Korea used state management of manufacturing for development. Their export discipline helped drive industrialization and exporting. But Taiwan’s policy was second-best to Korea’s.
Agricultural growth laid the foundations for industrialization in Meiji Japan, postwar Japan, Korea, and Taiwan. Expanding agricultural output created domestic markets for basic manufactured goods, which were later exported successfully.
In these countries, industrial policy was driven by practical generalists and engineers, not neoclassical economists. The US sent economists advocating free market policies, but they were kept at a distance.
Walt Rostow brought a Listian historical perspective on development to the US government. Some industrialization was tolerated in Korea and Taiwan, aided by US grants and loans.
In Southeast Asia, neoclassical economists dominated policymaking, at the expense of an historical understanding of development. The World Bank and IMF pushed free market prescriptions.
Korea and Malaysia both aimed to industrialize but had very different outcomes. This comparison illuminates key lessons about industrial policy and development.
The article argues developing countries can take control of their own destiny by looking out at the world, as Japan did, not depending on others’ advice.
Korea and Malaysia started off with similar colonial economic structures after WWII, dominated by a small compradore business class.
After independence, Korea’s government under Park Chung-hee pursued aggressive export-oriented industrialization, disciplining businesses and building up large conglomerates like Hyundai and Samsung. Malaysia retained more of its colonial economic features and did not push domestic firms to export.
In the 1980s, Mahathir in Malaysia tried to emulate Korea’s model but failed to understand the need to discipline businesses. Malaysia ended up lacking a strong exporting industrial base.
Korea succeeded in steel and autos through state direction and export discipline. Malaysia’s state steel firm was inefficient and its auto industry focused domestically, unlike Korea’s tough private sector exporters.
The key difference was Korea compelled private companies to meet developmental goals through export discipline, while Malaysia allowed crony capitalism to thrive without contribution to development.
Seoul is a hilly, chaotic city with some tidy areas around City Hall but overall shoddy construction and urban sprawl. The food is great but the high suicide rate reflects socioeconomic problems.
Three important locations illustrate Park Chung-hee’s relationship with businessmen who industrialized Korea in the 1960s:

The Blue House compound where Park based his government after the 1961 coup. He met with top entrepreneurs like Hyundai’s Chung Ju-yung regularly to get progress reports and align them with his industrial objectives.
Chung Ju-yung’s modest personal residence nearby, reflecting the culture of austerity Park imposed on the business elite even as they made fortunes.
The Seodaemun prison where Park locked up dozens of top businessmen in 1961 to force them to invest in his chosen manufacturing industries and banks. This established Park’s authority over the business elite.

Park allowed entrepreneurs to get rich if they followed his rules. His regime kept tight control of business through continued threats of imprisonment. This shaped the course of Korean economic development differently than in Southeast Asia’s oligarchic economies.
Chung Ju Yung, founder of Hyundai, avoided arrest after Park Chung Hee’s 1961 coup and was able to get involved in manufacturing through building a cement factory with US aid in 1962. This was Hyundai’s first factory.
Hyundai learned quickly and within a few years was exporting cement and building cement factories internationally. Chung lobbied the government successfully for infrastructure projects like the Seoul-Pusan expressway in the late 1960s.
The government’s development plans and incentives encouraged businessmen like Chung to get into new industries like automobile assembly. Chung started assembling Ford car kits in 1967 at the Ulsan Industrial Complex.
The Number One expressway linked Seoul to the industrial centers in the southeast like Pusan, Ulsan and Pohang. Pohang is now home to POSCO, one of the world’s most efficient steel plants, built with Japanese war reparations in the 1970s after the World Bank declined to finance it.
The expressway and POSCO illustrate Park Chung Hee’s program of forced-pace industrialization and export-led growth, which brought rapid economic development but also high social costs. Businessmen like Chung worked closely with the government to build Korea’s industries.
Park Tae Joon, a 43-year-old general, was in charge of the Pohang steel mill, which was financed by Japanese reparations money. Workers were motivated by a sense of national pride to not waste the money.
Pohang was planned as Korea’s largest steel mill but built in phases, starting small and expanding. More complex technologies were left until later to allow for learning. Construction was done rapidly to start earning returns quickly.
Technical advice from Japan was constantly reviewed by third parties like BHP. POSCO worked to learn everything about steelmaking themselves.
Export discipline was crucial - 30-40% of steel produced was exported. Government subsidies helped launch POSCO.
Employee productivity rose dramatically. POSCO became an innovator, exporting technology by 1986. Today it is among the world’s largest steelmakers.
The Pohang mill served as a vocational school, training Korea’s first generation of steel specialists.
Similar story at Hyundai’s Ulsan auto factories, which started small and grew into the world’s largest integrated car plant. Facilities constantly upgraded - little original equipment remains to trace origins.
Hyundai Motor Company (HMC) has become highly automated in car production through the use of industrial robots, reducing the human labor required. For example, robots can install windscreens and seats much faster than humans.
This automation has allowed HMC to produce more cars with fewer workers. In 1994, 41,000 workers produced 1 million cars, versus 34,000 workers producing 1.6 million cars today.
The Korean government provided strong, sustained support for the auto industry over decades through incentives, loans, protectionism, and export requirements. This forced domestic automakers like HMC to continuously improve quality and become globally competitive.
HMC obtained foreign technology through licensing deals and hiring foreign experts, while avoiding joint ventures that could have made it dependent on foreign partners. This allowed it to learn skills and develop its own technologies.
After an initially rocky start, HMC eventually succeeded at exports and broke into the U.S. market aggressively in the 1980s, leading to rapid growth. Government support stayed constant despite early struggles.
Hyundai Motor Company (HMC) was founded in 1967 by Chung Ju-yung with no prior experience in auto manufacturing. The company grew rapidly thanks to extensive support from the Korean government, which wanted to develop a domestic auto industry.
HMC acquired foreign technology through licensing deals, bringing in foreign experts as consultants, and reverse engineering. It focused on absorbing and adapting external knowledge rather than relying on joint ventures, avoiding being technologically dependent on foreign partners.
The government protected the domestic market, subsidized exports, and encouraged competition between HMC and other fledgling Korean automakers. This forced the pace of technological advancement.
HMC became an export success, breaking into the US market in the late 1980s despite initial losses. It eventually overtook rivals like Daewoo and Kia to dominate the Korean auto market.
By 2010, HMC was the 4th largest automaker globally, having reached the scale and technological sophistication to compete head-to-head with the likes of Toyota and Honda. This rapid rise was enabled by effective Korean industrial policy.
In contrast, countries like Malaysia had less successful industrial policies. Leader Mahathir Mohamad tried to foster development by building on resource exports and low-end manufacturing, but did not implement the same long-term strategic focus on technological upgrading as in Korea.

Here are the key points from the passage:

Mahathir Mohamad became prime minister of Malaysia in 1981 and launched an ambitious industrialization program called Look East, modeled after the rapid industrialization of Northeast Asian countries like South Korea and Japan.
However, Mahathir’s program deviated from best practices in several critical ways:
He neglected export discipline, leading to balance of payments problems as export earnings lagged behind foreign borrowing.
He relied heavily on state enterprises rather than private sector competition, making it hard to cull losers.
He mixed industrial policy with affirmative action for the bumiputera, sending inexperienced Malay managers to lead industrial ventures.
He undermined the bureaucracy, making industrialization too much of a one-man show.
When debt and balance of payments problems emerged in the mid-1980s, Mahathir blamed external factors and currency speculators rather than fixing fundamental policy issues.
Overall, while inspired by East Asia’s development, Mahathir failed to understand the details and discipline required to replicate its industrial success in Malaysia. His program was undermined by deviations from best practices in export orientation, private sector competition, meritocracy, and bureaucracy.
Mahathir initially pursued infant industry policies to develop manufacturing in Malaysia, but later shifted to a confused mix of protectionism and free market policies.
This led to a surge in low value-added, export-oriented foreign investment, giving the illusion of progress in industrialization. But Malaysia was not moving up the technological ladder.
Mahathir was influenced by futurist Kenichi Ohmae’s book The Borderless World, which argued national policies were becoming less important in a globalized world. This thinking distracted from effective infant industry policies.
Malaysia’s private entrepreneurs like Francis Yeoh and Lim Goh Tong made fortunes in construction, privatized infrastructure, and gambling. But they were never compelled to invest in exporting manufactures.
In contrast, Korea’s Chung Ju-yung was forced by the government to move into auto, shipbuilding, semiconductors etc. Malaysia’s entrepreneurs remained in services, limiting the country’s industrial progress.
Mahathir invested heavily in the national car company Proton, which succeeded in producing models like the Waja. But this represented a developmental peak Malaysia struggled to surpass.
The Lims of Genting continued to receive favorable government deals and amassed huge wealth, but invested passively in real estate rather than contributing to economic development.
Mahathir awarded big construction projects to foreign firms like Hyundai and Japanese companies rather than developing local expertise.
The Asian financial crisis of 1997 changed little - Mahathir continued to support tycoons like Syed Mokhtar without requiring manufacturing or exports.
Many major Malaysian companies and tycoons prospered through government deals and concessions without developing export industries, including Ananda Krishnan, Robert Kuok, and Vincent Tan.
Mahathir’s attempts at state-led industrialization like the Perwaja steel plant failed and left unfinished projects across Kuala Lumpur.
The crony capitalist system persisted, with the government failing to foster capable private entrepreneurs or commercially integrated smallholder agriculture.
Unlike Korea’s POSCO steel plant which was designed for efficiency, Malaysia’s Perwaja steel plant was located based on political considerations and placed in an area not well-suited for steel production.
Mahathir made errors in not having export requirements or properly vetting the unproven technology recommended by Perwaja’s Japanese partner Nippon Steel. This led to technological failures.
Mahathir brought in Eric Chia as CEO, who claimed to be taking the role as national service but instead bilking the company through suspect contracts. Perwaja failed to produce high-grade steel as claimed.
After Chia left, Mahathir privatized Perwaja to Chia associates rather than more qualified entrepreneurs. The new owners manipulated payments owed.
While bumiputera like the Perwaja owners have entrepreneurial skills, Malaysian private entrepreneurship often does not benefit the country due to policy failures. Perwaja management did not change.
In contrast, Korea’s POSCO rapidly ramped up quality steel production for export through a government-business partnership. Malaysia’s Perwaja project soaked up billions with little benefit.
Malaysia invested USD20 billion in the state-owned steelmaker Perwaja in the 1980s, but it was a failure that produced little steel or technological learning.
Malaysia also launched a national car project, Proton, in a joint venture with Mitsubishi. But Mitsubishi provided outdated technology and was not interested in helping Proton become an export-competitive global player.
Proton did increase local content and some exports, echoing Hyundai’s early success. But it remained focused on the protected domestic market rather than becoming globally competitive.
In the mid-1990s, Proton tried to increase its technological capacity by acquiring Lotus and other partners. But it still lacked Hyundai’s export discipline and competitiveness.
Some cite other policy failures like steel as holding Proton back, but others argue Proton itself failed to pursue an aggressive export strategy that could have driven competitiveness.
Mahathir Mohamad started an ambitious national car project in Malaysia, establishing Proton in the 1980s. After early successes, Proton struggled to become internationally competitive and profitable.
A key weakness was the lack of export discipline and competition. Proton was protected from imports behind high tariffs but not required to export and compete globally. There was also insufficient competition from other domestic carmakers.
In contrast, South Korean automakers like Hyundai faced greater pressure to export and intense domestic competition, which drove technological upgrading.
After Mahathir resigned in 2003, government support for Proton waned under new leadership. Without continued protection and subsidies, Proton lost domestic market share.
Malaysia failed to develop a strong institutional commitment to infant industry protection like in South Korea. Mahathir did not enforce export discipline or competition, nor empower a bureaucracy focused on industrial development.
The contrast between Malaysia and South Korea illustrates a wider divergence between Southeast Asia and Northeast Asia in effectively promoting technological development through infant industry policies.
The north-east Asian states of Japan, South Korea, and Taiwan used a combination of infant industry protection and export discipline to successfully build domestic manufacturing capabilities and become industrialized. This involved subsidizing and protecting new industries while still exposing them to export markets.
In contrast, south-east Asian countries like Indonesia, Thailand, and the Philippines failed at industrialization. Their import substitution policies lacked the export push and competitive dynamics that drove technological learning in north-east Asia.
Contrary to what some economists claim, macroeconomic stability (low debt, deficits, inflation) was not a decisive factor separating success from failure. Both relatively prudent Taiwan and profligate South Korea industrialized successfully.
Ownership structure (public vs private firms) also did not determine outcomes. Successful countries used state-owned enterprises when needed to drive industrialization, but also had thriving private sectors. The key was the learning and technological mastery, not the ownership.
Economists often overcomplicate development with theoretical efficiency considerations rather than studying the historical experience of how countries actually industrialized. The focus should be on technological learning and capability building first, before worrying about textbook economic models.
Japan, Korea, Taiwan, and China all used state-owned companies to achieve rapid industrialization and technical progress, particularly in the early stages of development. China today relies more heavily on state firms than any previous successful developer.
This does not prove state ownership is superior, just that it is not as important as developing countries have been told. The real issues in failed states like the Soviet Union were lack of export discipline and competition, not state ownership.
Multilateral institutions argue for linear deregulation and opening up in developing countries. But Japan, Korea and Taiwan actually increased regulations and protections at key moments to defend new industries, like Japan in the 1960s.
Industrial policies have historically led to trade surpluses once countries become leading industrial powers. This makes for damaging global imbalances. But surpluses are a political choice after development, not inevitable.
Industrial policies bring problems once countries become richer. Japan neglected services and agriculture despite manufacturing prowess. Rapid growth brought hubris. Demographic shifts created pension crises.
Korea provides an alternative model with IMF-mandated reforms after the Asian financial crisis, like deregulating services. The key is knowing when to transition from infant industry policies.
The IMF’s structural reforms in South Korea after the 1997 Asian financial crisis, including reduced corporate debt, restrictions on chaebol business groups, and moves towards a more market-driven “Anglo-Saxon” model, were predicted to undermine Korea’s technological capacity. However, a decade later, Korea’s major firms appear to be prospering.
The timing of the IMF reforms in Korea was better than in Southeast Asia, where IMF policies undermined national industrial policies at an early stage of development. Southeast Asia risks becoming an “oasis of backwardness” due to premature financial deregulation.
Industrial policy remains essential for technological progress and economic development. Manufacturing, not services, is key to broad-based development that creates many jobs. India’s IT sector employs only a fraction of the workforce after 20 years of reforms.
Big firms play a leading role in development and require state support, but also discipline to avoid oligarchy. The state must get the timing right to transition from infant industry policies to free market policies.
The US supported early development in Northeast Asia but pressed inappropriate deregulation too early in Southeast Asia, acting as an irresponsible adult rather than helping nations progress through stages.

Here are a few key points about the role of finance in economic development:

Finance policy can help direct resources towards productive investments in agriculture and manufacturing that support economic development goals. This may involve accepting lower short-term returns to build up industries and capabilities.
In contrast, an unregulated financial system tends to seek the highest immediate returns, which may not align with long-term development needs. This can lead to excessive consumer lending rather than productive investments.
Successful historical cases like Germany and the U.S. combined state-directed industrial policies with control over finance to catalyze development. Finance followed and supported state policy.
Post-WWII, developing states had unprecedented financial power to support development through high savings and investment rates. However, some like Southeast Asia invested in ineffective policies and projects.
The rise of the Washington Consensus pushed deregulation of finance in developing countries. But this often led to unproductive lending booms without building up the real economy. It did not resolve previous policy failings.
Overall, the key lesson is that finance should be kept on a “short leash” by the state and directed towards long-term development priorities like agriculture and industry. Unregulated finance often undermines development.
In the 1990s, the Washington Consensus argued for liberalizing capital flows and expanding stock markets, believing this would direct capital to productive investments.
However, financial liberalization in Southeast Asia in 1997 led to a catastrophic financial crisis, similar to Latin America’s crisis after 1982.
Liberalization led to private banks being controlled by business interests who invested in unproductive areas like real estate rather than agriculture and industry. This was warned against by looking at Latin America’s experience.
Southeast Asia also removed capital controls on IMF advice, leading to escalating short-term foreign debt, unlike Japan, Korea and Taiwan which resisted this for longer.
Foreign money poured into Southeast Asia, attracted by pegged exchange rates, but was not invested productively. This paralleled Latin America’s foreign debt buildup pre-1982.
The 1997 Asian financial crisis showed the risks of premature financial deregulation and the need to align finance with developmental priorities.
Japan also learned this lesson after losing control of banks to zaibatsu families pre-WW2, leading to unproductive lending. Post-war reforms created a financial system more aligned with state-led industrial policy.
Japan’s post-war financial system was tightly controlled by the state, with banks holding shares in industrial companies but limited to 10% stakes. Banks formed close relationships with their corporate borrowers, providing support and even management.
The central Bank of Japan influenced lending via ‘rediscounting’, whereby it provided loans to commercial banks against loans they had already made. This allowed the central bank to direct funds towards exporters and priority sectors. Japanese firms relied heavily on bank finance.
Over time, large firms found ways to access cheaper finance internationally, eroding the power of the state and banks. Deregulation and yen appreciation in the 1980s contributed to a bubble economy and asset price inflation. The bubble burst from 1990, leaving lasting economic impacts.
Korea pursued more aggressive financial policies under Park Chung-hee, using rediscounting and directed credit to fund the heavy and chemical industries drive. Unlimited export loan rediscounting fueled rapid export growth despite high inflation. Cheap directed credit was key for industrialization.
The developmental, export-driven approach to financial sector policy in Japan and Korea, despite risks, delivered economic transformation. This contrasted with loose policies lacking industrial direction in Southeast Asia, which often ended in crisis.
From 1974-1980 during Korea’s heavy industrialization drive, the banking system offered cheap loans (-6.7% real interest rate) while the informal “kerb market” charged high rates (18.5%). Loans from banks were reserved for exporters and large firms leading industrialization.
The IMF, World Bank, and US government economists opposed Korea’s financial approach and pushed for deregulation, but had little success initially.
Korea grew rapidly despite foreign debt crises in the 1970s by increasing borrowing and exports. The government invested heavily to maintain growth.
Eventually the chaebols became very large and powerful, gaining excessive influence over the banking system. Deregulation in the 1980s did not discipline the chaebols as intended.
In the 1990s, capital account liberalization allowed a surge in short-term foreign borrowing. When this funding dried up in the 1997 Asian Financial Crisis, it triggered a major crisis in Korea.
But Korea recovered more quickly than other countries due to less overinvestment in non-productive assets like real estate.
In South Korea, repeated financial crises led the government to orchestrate mergers and business unit swaps among the chaebol conglomerates to pare underperforming units. As a result, Hyundai gained control of Kia and dominance of the auto sector.
After the 1997 Asian financial crisis, South Korea reformed its financial system based on IMF advice, adopting an independent central bank, independent commercial banks, and increased rights for investors. This helped avoid further crises.
Taiwan took a very conservative approach to financial management, with higher interest rates, savings rates, and fewer non-performing loans than South Korea. It avoided the 1997 crisis. However, its financial policies supported suboptimal manufacturing policies, causing it to lose its GDP per capita lead over South Korea.
In Southeast Asia, banking systems did not effectively support industrialization due to lack of export discipline and pressure on businesses to manufacture. Attempts at industrial promotion created bad debt.
Financial deregulation from the 1980s in Southeast Asia led to loss of control over finance, contributing to the 1997 crisis.
The Philippines followed a different path from South Korea and other East Asian countries in its financial and economic policies after gaining independence, leading to very different outcomes.
The Philippines had a tradition of the national elite plundering the financial system that began when the US gave it more autonomy in 1916. The Philippine National Bank was created to support development but ended up lending to oligarchs who failed to repay loans.
After independence in 1946, the Philippines squandered rehabilitation funds from the US and became reliant on IMF and World Bank programs to try to fix its financial system.
The banking system was privatized in the 1950s but without export discipline, banks became the personal sources of funding for business families. Bank failures were common.
Under Marcos from 1965, the abuse of preferential credit from the central bank to fund business cronies with no export discipline worsened. Banks of top cronies were hugely reliant on central bank rediscounting.
Unlike Korea, there was no export information loop to provide feedback and discipline. Philippine entrepreneurs could “take the money and run” unlike in Korea where loans were tied to export performance.
As US interest rates rose in the 1980s, the Philippines could not afford its foreign debts. With no exports to earn foreign currency, the central bank printed more money, leading to financial collapse.
The Philippines under Marcos suffered a severe financial and economic crisis in the 1980s due to excessive foreign borrowing, capital flight, and money printing to finance the regime. This led to high inflation, a collapsing currency, bank failures, and a contraction of the economy.
In contrast, Malaysia and Thailand were financially prudent but still struggled to industrialize and upgrade technologically. Malaysia’s central bank was capable and conservative but did not direct credit to support export-oriented industries. Mahathir circumvented the central bank to fund industrial projects, leading to bad debts. He also deregulated interest rates, causing a property lending boom rather than industrial lending.
Mahathir also deregulated Malaysia’s stock market, which grew rapidly in the 1990s but did not bring shareholder discipline or contribute to development. Insider trading and pyramid schemes were common.
The key lesson is that developmental success requires an acute focus on technological upgrading through coherent policies, not just financial prudence. Mobilizing funds alone is insufficient without directing them strategically to support industrialization and exports.
Thailand was never colonized and has a history of accepting bad economic advice from foreign powers, such as low import tariffs advised by the British in the 19th century. This prevented the development of globally competitive domestic firms.
During WWII and after, local entrepreneurs finally entered banking and other capital-intensive sectors. But import substitution policies failed to produce internationally competitive firms due to lack of export discipline.
Thailand licensed many non-bank financial institutions from the 1970s, leading to financial system capture. Despite seeing risks materialize in the 1980s, Thailand continued accepting IMF/World Bank advice on financial deregulation.
Abundant Thai savings, combined with speculative foreign capital inflows after deregulation, financed unproductive sectors like real estate rather than technological upgrading.
The Thai government remained an obedient follower of IMF/World Bank policies, in contrast to Malaysia’s Mahathir who sometimes criticized such policies. But Thailand has fallen farther than Malaysia since the 1997 Asian Financial Crisis.
In Indonesia, two massive financial crises occurred under different leaders with opposing economic views - the 1965 crisis under the socialist Sukarno, and the 1997 crisis under the capitalist Suharto.
However, both crises were caused by the same fundamental issue - the failure of the state to control the financial system and direct it towards manufacturing and export development.
This is illustrated by the story of tycoon Liem Sioe Liong, who was given banking and domestic monopoly concessions by both Sukarno and Suharto, without any requirement to develop exports or industry.
Liem became fabulously wealthy from sectors like cigarettes, noodles and cement that did nothing to advance Indonesia’s technological progress. His banks fueled credit to his own monopolies rather than exporters.
So despite Sukarno’s socialism and Suharto’s capitalism, both allowed an uncontrolled financial system that bred economic crises and did not support developmental goals. The issue was not the ideology, but the lack of directed credit and discipline on the banks.
In the lead up to the 1997 Asian financial crisis, Bank Central Asia (BCA) lent 60% of its funds to businesses linked to tycoon Liem Sioe Liong, and 30% to businesses linked to President Suharto.
BCA’s lending was highly cronyistic, though it focused on cash-generating monopolies rather than risky ventures like real estate. As a result, it had fewer non-performing loans than other banks when the crisis hit.
However, BCA was part of a broader financial system that channeled credit towards unproductive, non-export activities. This system eventually collapsed when the crisis spread to Indonesia.
Liem lost control of BCA and much of his business empire, though he retained a portion of his wealth. Even the smartest tycoon could not fully insulate himself from systemic failure.
Flashback to Sukarno’s presidency - he prioritized grand monuments over industrial development and exports. The financial system he oversaw fueled unproductive lending.
Suharto restored macroeconomic stability but also did little to focus entrepreneurs on manufacturing and exports. Instead he relied on the “Berkeley Mafia” of Western-educated economists to court foreign investment.
Suharto had doubts about the free market recommendations of his American-trained economic advisors, known as the Berkeley Mafia, but lacked his own strong development ideology.
In the 1970s oil boom, against their advice Suharto increased public investments in heavy industries, but without export discipline or developing manufacturing.
When oil prices fell in the 1980s, Suharto turned back to the Berkeley Mafia who further liberalized the economy.
In the late 1980s, the Berkeley Mafia pushed radical financial deregulation and privatization, believing free markets would curb crony capitalism. This led to a proliferation of poorly regulated private banks.
Financial deregulation also enabled a real estate boom in Jakarta, exemplified by the SCBD financial district developed on cleared squatter land by tycoon Tomy Winata.
Major conglomerates all established banks which came to dominate the system, but lending remained directed to insiders rather than productive investments.
The Berkeley Mafia and international institutions believed Indonesia’s economy was strong, overlooking the risks of short-term capital flows and weaknesses in the export sector. Their faith in free markets failed to address cronyism and misdirected lending.
Indonesia belatedly told its biggest conglomerates to do more manufacturing for export, but this did not lead to serious technological progress or a general export focus. The conglomerates opened some basic processing operations but did not make major investments.
Indonesia’s central bank governor contends export rediscounting was not needed since most exports came from small firms that self-financed. But this misses the lesson from Northeast Asia about using control of money to push leading entrepreneurs into exporting.
Indonesia in the 1990s showed what happens with financial deregulation and no export discipline. A series of bank collapses and scandals occurred after 1988 deregulation. Loans went to real estate rather than productive investments.
When the 1997 Asian crisis hit, the IMF prescribed austerity but this worsened the crisis caused by private speculation, not budgets. Financial deregulation had fueled short-term borrowing.
The IMF restructured the financial system after the crisis. Private banks were sold off and state banks limited. The system now lends reluctantly and expensively, focused on profits over development.
The key lesson is that finance responds to its environment shaped by government, not the other way around. Control directs finance at needed policies. Deregulation just encourages short-term profits over development. The developmental emphasis on deregulation by the IMF and others has undermined countries’ capacity to steer development.
The history of East Asian development provides useful context for understanding China’s development. Looking at agriculture, industrial policy, and financial regulation in Japan, South Korea, and Taiwan can help benchmark China’s progress.
After the Communist revolution in 1949, China was held back by two socialist fallacies: collectivization of agriculture and a policy of industrial autarky. This stifled agricultural productivity and technological upgrading.
Under Deng Xiaoping’s leadership from the late 1970s, China rejected these fallacies. It restored household farming and opened up to foreign trade and investment. This allowed China to absorb foreign technologies and participate in global markets.
The Chinese government has been wary of Western advice on economic policy from the World Bank, IMF, and US. It has maintained control over its financial system rather than pursuing rapid deregulation. This paranoia has served China’s development well.
Since 1978, China has enjoyed rapid growth, transforming into a major industrial power. It is now the second largest economy in the world. Its developmental model combines state direction of the economy with increasing private sector dynamism.
China’s agricultural output increased dramatically after allowing household farming again in the late 1970s, reversing the disastrous collectivization policies. Grain production rose from 305 million tonnes under collectivization in 1978 to 407 million in 1984 under household farming.
Household farming enabled high yields for rice, wheat, and cash crops like sugar. Chinese farmers shared machinery and had state support. This allowed them to compete with global scale producers.
However, inequality between rural and urban areas widened dramatically in the 1990s and 2000s as fiscal policies favored cities. The rural-urban income gap grew to be among the largest in Asia.
Starting in the 2000s, leaders like Hu Jintao pledged to create a “harmonious society” and reduce the rural-urban gap. Measures included banning local taxes on farmers, increasing subsidies, and spending on rural infrastructure and services.
But the rural-urban income gap remains over 3 times, one of the largest in Asia. A key difference from Northeast Asia is Chinese farmers do not own their land, which remains collective property from the Mao era collectivization.
China did not privatize farmland after decollectivization in the 1980s. Instead, it gave farmers 15-30 year “use rights” for their plots. Legally the land still belongs to collectives, not individuals.
This means farmers cannot sell their land, unlike in Japan/Korea/Taiwan where land sales made some farmers rich. In China, local governments take land from farmers, convert it to state land, and sell it for development at a huge markup.
Land takings from farmers have accelerated since the 2000s as local governments need revenue but face restrictions on taxing farmers directly. Now 1 in 10 villages loses land annually, usually around 100 families’ plots.
The compensation given to displaced farmers is inadequate for their living costs. Their migrant children in cities have to cover the gap. This rural-urban divide is unfair but not yet destabilizing.
However, commercial farming on leased collective land is reducing staple food output. At some point this may raise alarms about food security and lead to clampdowns on land conversion.
On manufacturing, in the 1980s rural industry flourished while big state firms incrementally reformed. In the 1990s smaller state firms struggled and were rationalized, often pushing losses onto local governments.
Since the 2000s, there has been rapid growth of private manufacturing, including foreign-invested firms. But state favoritism persists, with cheaper loans and subsidies going disproportionately to state firms.
The state sector’s share of assets is now 70%+ and its inefficiency drags on China’s development. However, vested interests make large-scale privatization unlikely.
In the late 1990s, China initiated major reforms to make state-owned enterprises (SOEs) more efficient and profitable under Zhu Rongji’s leadership. This included closing down many loss-making operations and laying off workers.
Competition was increased among the largest SOEs in key sectors like oil, telecoms, electricity etc by creating oligopolies of a few firms rather than monopolies. This led to higher efficiency and profits.
The most profitable SOEs were placed under the State Asset Supervision and Administration Commission (SASAC) which oversees around 122 large business groups. SASAC pushes for consolidation and profitability, with most profits coming from oil and telecom giants.
This leaves China with efficient, profitable SOEs in upstream industries and services that help cushion against global price shocks. The manufacturing focus is on large state producers’ goods firms that can compete globally. However, private firms get less policy support.
The oligopolies in upstream industries are hugely powerful but the government tries to maintain control through price controls, rotating top management, and interventions. The oligopolies want more freedom but the state remains in charge for now.
Du Shuanghua, a businessman in China, concluded he could not operate independently when the government was against him. This reflects the broader phenomenon of “guo jin, min tui” (the state sector advances, the private sector yields) in China.
The public sector upstream firms use their cash flows to acquire private businesses, extending their control. It is uncertain if the acquisition targets will benefit.
China’s infant industry policy is focused on public sector and state-linked manufacturers of producers’ goods, who are becoming globally competitive in many industries.
China’s bureaucrats have made sensible decisions in nurturing these state manufacturers. The firms benefit from export discipline and domestic competition.
State producers’ goods firms are supported by industrial planning agencies like SASAC and NDRC, and benefit from government procurement and localization campaigns.
China Development Bank enforces export discipline on public sector manufacturers by financing their exports and overseas projects that use their products.

So in summary, Du Shuanghua’s experience reflects how private businesses can struggle when the state sector expands its control, even though China’s public sector manufacturers are seeing success through state support and export discipline.

China has rapidly built up its export capabilities in producer goods like power equipment, shipbuilding, construction equipment, and telecom equipment since the 1970s/80s through a combination of technology acquisition, domestic competition, and export discipline.
Chinese firms started by importing core technologies and mastering them in the domestic market. Export discipline then pushed them to reach the global technology frontier.
Firms like Shanghai Electric in power equipment, China Shipbuilding, and Huawei and ZTE in telecom now rival or surpass multinationals in their industries in market share and technology level.
However, state-linked firms have succeeded mainly in business-to-business, mid-stream industries. They struggle in consumer markets due to lack of flexibility and understanding consumers.
Even successful firms like Huawei may lack innovation capability and rely heavily on foreign technology. The long-term challenge is for China to originate more of its own innovations.
Overall, China’s model has shown considerable success in industrial catch-up and technology mastery through public firms and industrial policy. But uncertainty remains over its ability to transition to an innovation leader.
China’s state-linked midstream companies like Huawei have struggled to expand in consumer markets compared to private firms like Samsung. Huawei grew up selling to governments and businesses, not consumers.
Midstream firms rely on state procurement and government approval, which can be a disadvantage in developed countries with open tender systems. Huawei has faced barriers in the US and Europe.
Massive investment makes it hard to assess China’s real technological progress in areas like high-speed rail. Technology is still often imported and adapted, not innovated.
Private firms get much less policy support than state companies. They account for most exports but lack subsidies, state procurement orders, and protection that firms in Japan and Korea enjoyed.
As a result, there are doubts whether private Chinese firms can become global consumer brands like Samsung and Hyundai did in Korea. The policy focus has been on state midstream firms instead.

In summary, China’s state industrial policy has favored midstream companies focused on business and government customers rather than supporting private consumer firms, limiting their global success. Technological progress is overstated in some sectors due to huge investment.

Private Chinese firms face major obstacles compared to state-owned enterprises, making it extremely difficult for them to compete and advance technologically.
The state car firms dominate the higher-margin, larger car segment while private firms are stuck in the lower end with thin margins and limited credit/capital.
Private firms lack the resources and government support to move up the value chain and gain pricing power. This ‘smiling face’ problem squeezes their margins.
Well-known private firms like BYD and Suntech initially showed promise but struggled to invest in R&D and new technologies without sufficient capital and subsidies.
Private firms can acquire foreign technology by purchasing companies but often lack the funds to properly integrate and digest these acquisitions.
Stock markets provide insufficient long-term capital for major technological advancement. After initial hype, private Chinese firms often see their stocks crash as profits stall.
Overall, private Chinese firms face constraints on capital, technology, subsidies and support compared to SOEs. This makes it extremely difficult for them to compete globally at the technological frontier without greater government backing.
China’s financial system structure has met two key conditions that allowed effective agricultural and manufacturing policies in Japan, Korea, and Taiwan: control over banks to align lending with national priorities, and capital controls to manage domestic investment and foreign capital flows.
China’s largest banks are state-owned and follow government lending priorities, though smaller banks have gained market share. Policy banks like China Development Bank play a key role in financing agriculture and manufacturing objectives.
Like other East Asian states, China guarantees banks large margins by setting interest rate floors and ceilings. This provides funds for policy banks and offsets losses from developmental lending priorities.
Capital controls, enforced by China’s central bank, prevent capital flight and give China control over investment funds despite some leakage.
However, history shows that over time, financial institutions and companies find ways to circumvent lending rules and capital controls in pursuit of higher profits. The state ultimately loses its ability to direct investment for long-term learning.
There has been a growth in ‘shadow banking’ and non-bank lending in China as wealthy Chinese look for higher returns outside the formal banking system. However, this does not mean the state has lost control - it parallels similar systems in Japan, Korea and Taiwan during development.
Stimulus lending doubled bank credit during the 2009 crisis, and some of this will not be repaid. However, it is not as bad as lending in the 1990s to unreformed state firms. Infrastructure investment can still bring economic gains.
Property speculation has increased due to stimulus policies, but the government is determined and able to rein it in. Mortgage debt is still low compared to countries like the US pre-crisis.
Adding up different debts, China’s total public debt may be around 80% of GDP. But this is offset by assets, capital controls prevent insolvency fears, and savings have stayed in the banking system.
China has made major industrial gains thanks to its financial repression and controls, but its growth is slowing. It now needs less wasteful investment and industrial policies.
Aggressive currency undervaluation, echoing Taiwan, has likely been an unneeded inefficiency. But overall, China’s developmental policies have progressed despite external shocks.
China’s economic development has followed tried-and-tested policies used in other East Asian countries like land reform, export-oriented manufacturing, and financial repression. Its scale is exceptional due to its large population, not the originality of its policies.
China’s state sector plays a leading role, showing that ownership structure is not critical if competition and export discipline are in place. However, China’s bias against the private sector is not an advantage.
China has yet to create truly world-leading firms. History suggests a state’s size is no guarantee of success - quality of governance and policy making are key.
Recent political developments like the rise of ‘princelings’ are worrying as they may be less inclined to make difficult policy decisions.
Demographic trends will slow China’s growth as the workforce shrinks and ages. It is reaching an aging population at a lower GDP per capita than other Asian nations.
Institutional deficiencies in areas like pluralism, rule of law, and dissent will eventually create economic friction and costs. Repression has increased despite economic changes.
China needs both technological capacity and institutional systems to reach the front rank of nations. Its trajectory risks it becoming a middle-income, institutionally retarded state.
Neo-classical economists favor free markets and oppose government intervention. But historical evidence shows markets are often shaped by political power, as seen in East Asia’s state-led development policies.
There are two types of economics - the economics of development, which requires state nurturing and protection, and the economics of efficiency for later-stage development, requiring less intervention. The issue is where these two stages meet.
Poor countries have to lie and pretend to support free markets while actually pursing interventionist policies for development. This intellectual tyranny makes honest debate about development difficult.
Governments pursuing state-led policies claim economic development defines progress, when political and social freedoms matter too. China justifies resisting reforms by claiming racial exceptionalism.
Land reform enabled sustained 7-10% growth in East Asia but is now off the agenda. Microfinance and small plots are promoted instead of serious reform.
Southeast Asia could cooperate on industrial policy but doesn’t, and is signing FTAs with more advanced economies. Bad advice from rich nations and institutions has immiserated many poor countries. Serious policies like land reform are needed to address global poverty and instability.

The World Bank’s East Asian Miracle report was weak because it only considered industrial policy and protectionism at the national level, not the sectoral level. Sectoral manufacturing policies varied widely within countries, especially Japan, South Korea, and Taiwan during their high-growth periods. The report’s review of economic history was also controversial. It highlighted British deregulation in the mid-19th century after it became the technological leader, but ignored its earlier protectionism. It glossed over US protectionism in the 19th and early 20th centuries, only mentioning the 24% tariff low point in 1857 versus the 40% average. It had little discussion of German industrial policy and cartels, but much discussion of 19th century French laissez-faire policies that left it economically inferior to Germany. Overall, the report was ideologically biased, downplaying the importance of state intervention and sectoral industrial policies in East Asia’s growth.

Here is a summary of the key points made in the passages:

Agricultural development and land reform were critical to the economic take-off and industrialization of Meiji Japan, Taiwan, and early communist China. In each case, land reform helped boost agricultural productivity which provided food, taxes, and labor for industrial growth.
In Japan, land reform broke the power of the landlord class, reduced tenancy, and created a class of owner-cultivator farmers. This stimulated productivity growth in agriculture.
In Taiwan, land reform increased average farm size and allowed mechanization, boosting agricultural productivity. It also reduced social tensions.
In China, land reform and collectivization increased agricultural output markedly in the early 1950s before the disasters of the Great Leap Forward. It eliminated landlordism and created a more egalitarian countryside.
Wolf Ladejinsky, an American expert on land reform, argued it was essential for agricultural and broader economic development in Asia. He criticized the delayed land reform in Japan under the U.S. Occupation.
The passages highlight how land inequality impedes agricultural development in poor countries. Land reform can be a powerful policy tool to spur rural growth, as evidenced by the cases of Japan, Taiwan, and China.
The Allied Council for Japan, an advisory body to the Supreme Commander of the Allied Powers (SCAP), played an important role in supporting land reform in Japan after WWII. British advisor Wolf Ladejinsky pushed for a 3-hectare retention limit, which was pivotal in making land reform transformative.
In Taiwan, land reform under the Joint Commission on Rural Reconstruction (JCRR) was highly successful in reducing tenancy and boosting agricultural productivity after WWII. Redistributed land went to owner-cultivators rather than landlords.
In the Philippines, efforts at land reform have been much less successful. Reform was first proposed in the 1950s but was blocked by landlords. Under Marcos some reform occurred but was limited. After Marcos fell, the Comprehensive Agrarian Reform Program (CARP) was passed but large landowners exploited loopholes to evade expropriation.
A key problem was the 5-10 hectare retention limit, which exempted most commercial farms and 75% of farms overall. Landlords also coerced tenants into deals that made the tenants worse off. As a result, landlessness remains pervasive.
The Cojuangco family, backed by Ferdinand Marcos, was able to use political influence to circumvent CARP and maintain control of the vast Hacienda Luisita estate, preventing meaningful reform there.
Enrique “Danding” Cojuangco Jr., a powerful oligarch in the Philippines, used illegal means to reacquire land that had been redistributed to small farmers under the Comprehensive Agrarian Reform Program (CARP). This included bribing farmers to sign over land titles and having them sign blank legal documents.
The Communist Party of the Philippines and its armed wing exploited grievances over land reform failures to gain support, showing the high stakes around land redistribution.
Ineffective land reform has held back agricultural development in the Philippines compared to countries like Taiwan and South Korea that implemented thorough reforms. Philippine rice yields remain far below their potential.
In Indonesia, land reform under Sukarno was limited and reversed by Suharto. Smallholder agriculture has persisted through home gardens, but landlessness is now around 70% on Java.
In colonial Malaya, smallholder rubber farmers were highly productive but faced restrictions to benefit estates. Post-independence, land concentration increased while yields stagnated.
In Thailand, limited land reform allowed landlords to reconsolidate holdings. Insecurity of tenure has discouraged tenant investment in land improvements.
Manufacturing has historically been the most important sector for economic development and job creation in poor countries. Services tend to develop later as countries get richer.
Theories downplaying manufacturing’s importance emerged in the 1970s-80s and underpinned policy prescriptions for developing countries to open up and deregulate their economies.
However, historical evidence shows that all of today’s rich countries actively supported and protected manufacturing industries in their early stages of development.
Post-war Japan and South Korea are prime examples, using industrial policies like subsidies, credit allocation, and trade protection to nurture manufacturing firms and industries.
Land reforms that boosted domestic agricultural productivity enabled the shift of labor and capital from farm to factory. This agrarian transition supported industrialization in Japan, Korea, and elsewhere in Asia.
China, Vietnam, and other recent east Asian developers also followed this export-oriented industrialization model, contradicting theories that manufacturing no longer matters.
Services liberalsation in developing countries has not delivered comparable results to manufacturing-led development. Manufacturing remains vital for mass job creation and rapid growth.
Successful industrialization has historically required some degree of government protection and support, contrary to free market ideology. Examples include Britain, the United States, Germany, and Japan.
In the late 19th century, Japan explicitly modeled its industrialization policies after Germany’s, adopting ideas like Friedrich List’s National System to promote domestic industry through tariffs, subsidies, and other support.
The Meiji government in Japan played an active role in industrialization through model factories, technology acquisition from abroad, infrastructure investment, education reform, and the zaibatsu business conglomerates.
Japan focused on developing heavy industries like steel and chemicals through state enterprises and then privatizing them. The zaibatsu emerged as large, diversified business groups that worked closely with the government.
The Ministry of International Trade and Industry (MITI) later emulated Germany’s experience of state planning and industrial coordination. Both countries demonstrate that activist government policies, not just free markets, have driven successful industrialization.

Here is a summary of the key points about ayer and the Aniline Dyes Manufacturing Co.:

Ayer was an American businessman who founded the Aniline Dyes Manufacturing Co. in New York in 1877. This was one of the first companies to manufacture synthetic dyes in the United States.
At the time, the synthetic dye industry was dominated by German firms like BASF and Hoechst. Ayer aimed to challenge their dominance by establishing a domestic US industry.
The Aniline Dyes Manufacturing Co. focused on producing inexpensive dyes like magenta and Bismarck brown for the textile industry. It struggled to compete with the superior quality dyes from Germany.
In 1880, Ayer brought in German chemists and equipment to try to improve quality. This helped the company start producing more sophisticated dyes.
However, the company continued to struggle against German competition. It went through various mergers and reorganizations in attempts to stay viable.
Ultimately, the Aniline Dyes Manufacturing Co. failed to achieve Ayer’s goal of establishing a successful US-based synthetic dye industry that could challenge the German dominance. But it was an early pioneer in this field.

Here is a summary of the key information in the passages:

After taking power in 1961, Park Chung-hee moved aggressively to direct South Korean businesses towards export-oriented manufacturing. He arrested and intimidated the leaders of major chaebols (conglomerates) like Samsung and Hyundai.
Park set up institutions like the Presidential Committee on Export Promotion to coordinate government planning with businesses. The government provided incentives for exports and restricted imports.
Conglomerates like Hyundai expanded from domestic construction into new export industries like shipbuilding through government direction and subsidies. They also won contracts related to the Vietnam War.
The collaboration between government and big business drove rapid industrialization and export growth, though it was an illiberal and authoritarian model. The chaebols became dominated by a few extremely wealthy families.
The original Thai highway project was handled by Nit Noi executives, including the recent ROK president Lee Myung Bak.
POSCO became the most efficient steelmaker in the world within a decade of being founded in 1968. It received strong government support and technology from Japanese steelmakers.
Hyundai Motors was founded in 1967 and started exporting to the US in 1986 despite initial poor quality. It received government support and technology from Mitsubishi to quickly become an auto exporter.
Several Korean conglomerates (chaebols) like Hyundai, Samsung, and Daewoo expanded aggressively in the 1970s-80s with government backing, low-interest loans, and technology licensing deals, though some joint ventures failed.
Hyundai focused on exports while protecting the domestic market. It overcame initial quality problems to become one of the top 5 automakers globally by 2010.
The Korean government promoted exports and technological learning by chaebols through incentives and discipline. This rapid catch-up growth later contributed to the 1997 financial crisis.
Hathir is credited with undermining the Malaysian bureaucracy through his strong leadership and ambitious industrial projects. However, Malaysia’s concentrated industrial planning under Hathir makes it a useful case study.
Hathir admired the rapid development of Japan and Korea and introduced the Look East policy in 1981 to emulate their state-led industrialization.
Major projects included the national car company Proton, modeled after Korea’s automotive industry, and the steel company Perwaja. However, these projects faced challenges due to lack of private sector involvement and experience.
After an economic downturn, Hathir opened up to foreign investment again in the late 1980s. Export-oriented electronics firms invested heavily, benefiting from Malaysia’s low wages.
Hathir focused on a few high-profile heavy industry projects, while neglecting rural development and agriculture. His thinking was heavily influenced by one book on Japan’s industrial policy.
In summary, Hathir’s strong leadership drove Malaysia’s industrialization, with mixed results. Concentration of power undermined checks and balances, but facilitated quick action on priority projects.
The Multimedia Super Corridor (MSC) project in Malaysia has not created significant value for the country despite government support.
Proton’s locally designed Waja model in the early 2000s cannot be fairly compared to Hyundai’s latest models, but rather to Hyundai’s first generation models in the 1990s. Proton took a similar time to develop in-house engine production as Hyundai did.
Malaysian tycoons like Lim Goh Tong and Ananda Krishnan prospered through political connections rather than technological competence.
Mahathir’s push for heavy industries in the 1980s often failed due to lack of expertise, such as the mess with Malaysia’s first steel mill.
Overall, Malaysian industrial policy has focused on short-term profits rather than long-term technological development.
Perwaja Steel was a massive heavy industry project championed by Mahathir in the 1980s to kickstart industrialization. However, it was plagued by huge losses and mismanagement under Eric Chia.
By the mid-1990s, over RM10 billion had been lost on the project. Perwaja was then sold off cheaply to Abu Sahid, an associate of Chia’s.
In contrast, South Korea’s Pohang Steel was developed successfully into a world-class steelmaker. This highlights the flawed implementation and lack of accountability in Malaysia’s heavy industrialization push.
Proton was established as Malaysia’s national car company through a joint venture with Mitsubishi. However, Proton suffered from poor productivity and uncompetitive models.
Proton’s experience shows how Malaysia’s national car project failed to develop a globally competitive auto industry, unlike South Korea’s Hyundai which became an international player.
The failures of Perwaja Steel and Proton exemplify missteps in Mahathir’s heavy industrialization drive, which cost billions with little to show. Poor oversight and cronyism were part of the problem.
Malaysia’s national carmakers Proton and Perodua received preferential market access and government support compared to automakers in Thailand. However, Proton struggled to become globally competitive despite high levels of localization.
In contrast, Korea’s Hyundai Motor Company rapidly expanded production volumes and exports, aided by an export-focused industrial policy.
The ambitious but failed aerospace projects in Indonesia and Malaysia contrast with the more successful, albeit still limited, aerospace subcontracting work secured by Japan through industrial policy.
Thailand focused on attracting foreign investment through incentives, but this led to industries that lacked roots and left when incentives changed.
Effective industrial policies tend to emerge through a collaborative “conspiracy” between government and business.
Protection levels often increase during critical phases of industrial development, as seen in Germany, Japan, and Korea historically.
Japan’s industrial policy has had mixed results since the 1980s, with successes in automotive but failures in biotech, aerospace, and banking.
Corporate restructuring after the Asian financial crisis was more effective in Korea than Japan, aided by greater political will.

Here is a summary of the key points in parts 3-4:

Financial systems played a crucial role in the development strategies of East Asia’s high-growth economies. These systems were tightly regulated and controlled to support industrial policy goals.
High domestic savings rates provided a pool of capital that was channeled by policymakers towards strategic industries. This relieved dependence on foreign finance.
Interest rates were kept artificially low through policy and regulation. Credit was rationed and directed towards industries selected for growth.
Governments exercised significant control over finance via state-owned banks, capital controls, and regulations. This allowed them to harness finance for development while insulating economies from destabilizing flows of foreign capital.
Excessive deregulation and opening of financial sectors to foreign capital in the 1990s contributed to the Asian Financial Crisis. This demonstrated the risks of liberalizing finance before the prerequisites for stable, market-based systems are in place.
The developmental states of East Asia used finance as a strategic tool, leveraging it to accelerate industrialization and economic growth. However, this required strong governance and institutional capacity to be effective.
Korea and Taiwan developed strong export-oriented industries through state-directed credit and incentives, while the Philippines failed to do so under crony capitalism.
In Korea, state-controlled banks channeled credit to favored chaebol conglomerates to develop strategic export industries. This was coordinated through indicative planning.
Taiwan also used state-controlled finance and tax incentives to foster export industries. Credit was allocated based on export performance.
In contrast, Philippine banks like PNB lent primarily to cronies of ruling elites. Loans were not conditional on export discipline and many became non-performing.
By the 1980s, Korea and Taiwan had hugely successful export industries, while the Philippines remained inward-looking with weak manufacturing.
Both Korea and Taiwan eventually liberalized their financial systems, but this led to problems in Korea prior to the 1997 Asian financial crisis.
Protectionist policies helped Korea and Taiwan build internationally competitive industries in a way the Philippines failed to achieve. Export orientation imposed discipline and upgraded industries.
The Philippines, Malaysia, Thailand, and Indonesia all engaged in various forms of preferential lending and credit allocation that favored well-connected business groups and sectors like real estate over export-oriented industries.
In the Philippines, crony capitalists like Eduardo Cojuangco and Roberto Benedicto received cheap credit from government-controlled banks. Marcos also used forced deposits and foreign loan guarantees to direct credit.
In Malaysia, the government mandated that banks lend to bumiputera borrowers. Credit was directed to real estate more than manufacturing. Well-connected tycoons exploited loose regulation.
In Thailand, the government did not aggressively direct credit. But banks lent heavily to real estate in the 1990s boom years.
In Indonesia, Liem Sioe Liong cultivated ties to the military in the 1950s, gaining favor with Suharto. The Salim Group and Suharto family got preferential access to credit from Bank Central Asia.
Across these countries, loose regulation and poor credit allocation set the stage for the Asian Financial Crisis when short-term capital inflows reversed. Cronyism and weak governance were major factors.

Here is a summary of the key points about Liem’s son Andree in the 1990s:

Andree was given control of BCA, one of Indonesia’s largest private banks, by his father in the early 1990s.
Under Andree’s management, BCA expanded rapidly, fueled by connections to the Suharto regime. It had the fastest loan growth in Indonesia in the 1990s.
However, BCA’s loan portfolio became increasingly concentrated in the risky real estate sector. By 1997, real estate loans accounted for over 15% of BCA’s portfolio.
This real estate exposure made BCA vulnerable when the Asian financial crisis hit Indonesia in 1997. Andree struggled to manage the crisis at BCA.
Ultimately, the central bank had to take over management of BCA in 1998 to prevent its collapse. The Liem family lost control of the bank.
Andree’s management of BCA illustrates the high-risk, cronyist lending practices that were common amongst Indonesian banks linked to the Suharto regime in the 1990s. These practices contributed to the severity of the Asian crisis in Indonesia.
Traditional vertical kilns were used for cement and glass production in China due to the lack of modern technology.
The World Bank organized conferences in the 1980s to introduce new economic ideas to China, but China filtered out neo-liberal influences and maintained control over the interaction.
Agricultural reforms focused on household farming led to large increases in grain output in the early reform era. Yields of key crops like rice and wheat are now among the highest in the world.
Issues have emerged more recently such as stagnant rural incomes, loss of farmland to development projects, and a rural-urban divide. Government policies to address these have had mixed results.
The dual-track approach allowed market reforms while maintaining state protections in the initial reform period. This changed in the 1990s with aggressive state-sector restructuring and privatization, resulting in large layoffs.
State-owned enterprises remain influential, though now more commercially-oriented. Resource and service oligopolies with state backing have emerged as national champions.
China has built enormous state-owned companies in industries like oil, telecoms, banking, steel, autos, and construction. Many are now among the biggest companies globally in their sectors.
The state guides these companies’ strategies, requiring them to meet goals like market share targets and technology acquisition. The firms are vehicles to achieve China’s industrial policy aims.
China’s approach has achieved rapid growth in industrial capability and productivity. However, there are concerns over inefficiency, as firms compete and over-invest.
Recently, private Chinese companies have emerged as innovators in areas like solar power and electric vehicles. But many still rely on government support and subsidies in their early stages.
It remains to be seen if China’s state capitalism model can transition to a more efficient, innovation-driven economy as costs rise. But so far, it has rapidly built industrial capacity and technology.
Lenovo spent USD6 billion acquiring IBM’s personal computer business in 2005. This expanded Lenovo’s global footprint and brand recognition.
Huiyuan spent USD0.84 billion acquiring the fruit juice assets of Coca-Cola in 2008. This allowed Huiyuan to expand beyond its traditional juice offerings.
Mengniu spent USD7 billion in 2011 to acquire Yashili and other dairy producers. This cemented Mengniu’s position as China’s leading dairy company.
New Hope spent USD1.1 billion acquiring four overseas agribusiness companies between 2009-2011. This allowed New Hope to expand internationally in animal feed and other agri-products.

In summary, major Chinese companies in technology, beverages, food, and agriculture made significant overseas acquisitions valued between USD0.84 billion and USD7 billion during the 2000s. This expanded their business reach globally.

The books and articles provide an overview of the role of government policy and institutions in the economic development of East Asian countries like Japan, South Korea, China, Thailand, Indonesia, Malaysia, Taiwan, and the Philippines.

Key themes include:

The importance of land reform and redistribution in facilitating industrialization in Japan, South Korea, Taiwan, and China. Authors like Dore, Francks, and Hinton detail these land reforms.
The critical role of state-directed industrial policy, export promotion, and protectionism in Japan, South Korea, Taiwan, and China’s development. Authors like Amsden, Wade, and Chang highlight this.
The rise of business-government ties and politically-connected conglomerates in many East Asian countries. Books by Gomez and Studwell examine these connections.
Contrasts with Southeast Asian countries like the Philippines and Indonesia, where land inequality persisted and economic policy was less effective. Works by Balisacan, Bello, and Billig analyze these cases.
The origins and impacts of the 1997 Asian Financial Crisis. Chang and Palma provide analysis.
Debates over the applicability of the East Asian development model to other regions. Authors like Amsden, Wade, and Chang engage with this topic.

The readings emphasize how policies and institutions shaped East Asian economic outcomes, challenging laissez-faire orthodoxies. They highlight both the successes and limitations of state-led development.

Here is a summary of the key points from the books and articles:

Oligarchs in Russia:

After fall of USSR, privatization allowed small group to gain control of state assets and become super wealthy oligarchs with outsized political influence

Capitalism in China:

China combined authoritarian political system with market economy
Pragmatic, experimental approach to reforms like dual-track system
Local state-owned firms promoted to compete with private firms

Credit Policy in Philippines:

Preferential loans to cronies damaged financial system
Lack of prudential regulation led banks to lend heavily to privileged interests

Land Reform:

Land reform in Taiwan, Korea improved equity and agricultural productivity
Slow and uneven land reform in Philippines failed to achieve similar results
Malaysia initially focused on rural development but later emphasized urban industrialization

Industrial Policy:

Japan’s MITI successfully guided postwar industrial development
Korea and Taiwan also used industrial policies to promote strategic sectors
Malaysia tried similar policies but with more mixed results

Financial Liberalization:

Opening capital markets to foreign funds without adequate regulation contributed to Asian Financial Crisis

Thailand and Indonesia:

Rapid growth but persistent inequality, cronyism
Backlash led to populist political movements

China’s Reforms:

Gradual transition from planned to market economy
Local experiments and special economic zones
Retain authoritarian system with one-party rule

Here is a summary of the key points from the book excerpts:

The book examines the economic development trajectories of several Asian countries including Japan, Taiwan, South Korea, China, Indonesia, Malaysia, Thailand, and the Philippines.
It contrasts the successful state-guided capitalist development models of Northeast Asia (Japan, Taiwan, South Korea) with the failed neoliberal models of Southeast Asia.
In Northeast Asia, the states played a guiding role in promoting industrialization, directing credit to strategic industries, overseeing technology transfer, and using land reform to create a class of entrepreneurial smallholder farmers.
In Southeast Asia, most countries failed to achieve successful development due to lack of effective state intervention, crony capitalism, and poor land reform records.
The Philippines provides a striking example of failed development due to poor land distribution and oligarchic control over the economy. Its experience contrasts sharply with Taiwan’s successful land reform and state-led development.
The book argues that an effective developmental state that directs industrial policy and finance is essential for rapid economic transformation in developing countries.
It challenges prevailing neoliberal orthodoxy by showing the successes of state-guided capitalism in Asia versus the failures of neoliberal models reliant on free markets and deregulation.

Here is a summary of the key individuals mentioned in the prompt:

y - Author of the book “How Asia Works.”

K.S. Jomo - Helped turn academic material into a published academic addendum to y’s book.

Edmund Terence Gomez, Henry Barlow, Barry Wain, Asgari Stephens, Steve Hagger, Tan Tat Wai, Jamie Mackie, Kevin O’Rourke, Adam Schwarz, Endy Bayuni, John McBeth, Edwin Soeryadjaya, Gene Galbraith, Paul Hutchcroft, Rosanne Rutten, Philip Bowring, Roy Prosterman and Li Ping - Provided academic material that was turned into an addendum to y’s book.

Lucy McMahon and Will Rowlands - Helped turn academic material into a published academic addendum to y’s book.

In summary, y wrote “How Asia Works” and was aided by K.S. Jomo, Lucy McMahon, Will Rowlands and others in publishing an academic addendum to the book. The addendum drew on academic material provided by a range of experts on Asia.

Hirobumi Ito: Japanese statesman who played a key role in the Meiji Restoration and Japan’s modernization.
Ito family: Prominent Japanese clan active in politics and business during the Meiji period.
Iwasaki Yataro: Founder of Mitsubishi, helping establish it as major zaibatsu conglomerate in modern Japan.
Jagger, Mick: Lead singer of the Rolling Stones, influential rock musician.
Jakarta: Capital and largest city of Indonesia.
Japan: Went through rapid industrialization and economic development after Meiji Restoration. Known for strong state role in guiding development, as well as close government-business ties.
Korea: Also experienced rapid industrialization and growth under authoritarian leaders like Park Chung-hee. Relied on major conglomerates called chaebol.
Malaysia: Under Mahathir, pushed industrialization through ‘Look East’ policy drawing lessons from Japan and Korea. Aimed to nurture domestic conglomerates.
Manufacturing: Vital for development of Japan, Korea, Taiwan, Singapore. Required nuanced government policies beyond free trade.
Philippines: More troubled development history. Suffered from crony capitalism under Marcos.
Thailand: Experienced boom and bust cycles. Pioneered localized auto industry through joint ventures.

Let me know if you would like me to expand or clarify any part of this summary.

Here is a summary of the key points about business, agriculture, manufacturing, and finance in South and Southeast Asia from the book:

Business District (SCBD) 212 in Jakarta, Indonesia is an upscale commercial area with many multinational companies and luxury brands.
Sugar production and exports were important agriculturally and economically in several countries: Philippines, Indonesia, China, Taiwan. Land reform impacted sugar production in Taiwan.
Manufacturing grew dramatically from the 1960s in South Korea, Taiwan, Malaysia, Thailand, and elsewhere through state support, technology transfer and foreign investment. Notable companies included Hyundai, Toyota, POSCO.
Finance liberalization in the 1980s-90s was promoted by the IMF and World Bank. Family conglomerates played a big role in many countries, like Liem’s Salim Group in Indonesia. China’s finance modernization started in the 1990s under Zhu Rongji.

So in summary, the countries developed state-led industrialization in the post-war decades, then moved towards liberalization and connections with global finance and manufacturing in the 1980s onwards, with prominent family businesses throughout. Agricultural exports like sugar declined in importance.

#book-summary

How Asia Works - Joe Studwell