Jake's View

Northeast Asia's development success story conceals a threadbare reality

PUBLISHED : Sunday, 16 June, 2013, 12:00am
UPDATED : Sunday, 16 June, 2013, 2:25am

It's hardly a liberal approach, but it's worked a treat for Asia north of the 20th parallel.

Monitor column, June 13

That's my colleague Tom Holland summing up his views of the latest book by big-thought thinker Joe Studwell, who says that Northeast Asia's development model is the way to go for poor countries wanting to get ahead fast.

Mr Studwell apparently argues that South Korea, Taiwan and Japan did just fine by telling the World Bank to get lost and instead reorganising their agricultural sectors, picking industrial winners to support and then manipulating their financial systems to ensure that these chosen favourites had all the money they needed.

I say "apparently" argues as I haven't read the book and must take my colleague's word it. Write it shorter next time, Joe. That's my advice. Too many people these days are writing books that should be no more than academic papers. I haven't the time for a full book on this thesis when I already have a tall stack of books I want to read.

It may thus be rank presumption to offer a critique, but I shall do it anyway as the basic arguments are not new and, in my opinion, miss a point or two.

Let's start with agriculture. I can think of very little to describe as reorganised and efficient in Japanese agriculture. It remains concentrated in inefficient smallholdings and Japanese farmers, who have disproportionate voting power, are rewarded with high farm prices for supporting the ruling party.

Urban Japanese pay dearly to have electoral arrangements rigged against their interests in this way and national borders have only recently begun to let in lower priced food imports.

This sets the general tone for a model of economic development. It says that what you do is concentrate your population in urban centres, whip up nationalist (often racist) sentiment to tell them to work hard for their country's good and then enslave them in their tens of millions to tedious, low-paid, low-skill, long-hours jobs assembling consumer gadgetry.

At the same time, the model calls for you to rob them of the rewards of what meagre savings they can amass by forcing them to put that money into only institutions you control. You then direct the money to your favoured industries on very favoured terms.

It works. Whether you have chosen ship-building, cars or compact disc players, you can make things very cheaply this way and guarantee yourself export markets around the world. Your gross domestic product will go way up and you will be praised for it by foreign investors and consumers who have shared in the benefits of the enslavement of your people. You will even be able to make steadily fancier gadgetry, proof positive of a more cultivated state of being.

What you will ignore is that the real drivers of export success since the second world war have been (1) much easier terms for technology transfer, (2) growing availability of international finance, (3) rapid advances in communications and (4) steadily falling freight costs.

Any country willing to open up to these liberalising forces has been rewarded with growing wealth. The tragedy is that so few have been willing.

But no regime has been rewarded as rapidly as those that thought of prosperity only in terms of big GDP numbers and, in order to get there, have been willing to cheat their own people of the rewards on specious promises of a better tomorrow.

Look at Japan today - more than 20 years of effective recession because, having reached a high GDP per capita, the going got tougher and no-one had any new ideas about where to go next, except to incur huge public debt in going there.

Tens of millions of people have sacrificed themselves to get where they are only to find there isn't much there except more sacrifice. That's what you get from the Studwell model, fulsome praise for the bureaucrats and continued relative poverty for everyone else. Visit working class districts in Tokyo and you quickly find yourself wondering how a country so rich lives so poorly.

So, no, Tom, it hasn't really worked a treat. The liberal approach may seem slower but it is still better.