It’s tough getting off the Asian development ladder

South Korea is now facing acute problems, but the model has also been applied in one form or another in Japan, Taiwan, mainland China, Malaysia and Vietnam

PUBLISHED : Wednesday, 12 April, 2017, 6:05pm
UPDATED : Wednesday, 12 April, 2017, 9:17pm

In one version or another, country after country in Asia has pursued industrial policy very much like Park Chung-hee’s nation-building. It is a story that has been played out in Japan, Taiwan, mainland China, Malaysia and Vietnam.

Contrary to Western free market thinking, the close interplay of state and private enterprise – of market incentives and government direction – has been an effective way to pull large swathes of the population out of poverty in many Asian countries in a relatively short time.

The dark side of the miracle of Asian economic growth

When Park took power in 1961, Korea, with an annual income per person of US$82, was much poorer than the newly independent Ghana (US$179). By the time he was assassinated in 1979, income per capita exceeded US$1,000. Today, it’s above US$37,000, making it slightly richer than the average for European Union member states.

But picking national champions also means favouring their bosses. This inevitably generates close ties and interlocking connections and interests between the government and the private sector.

China’s economic reform would take these connections to a whole new level with state-owned enterprises. Like the chaebols, it’s an open secret that the red aristocratic families – the princelings – and powerful factions of the Chinese Communist Party divide up the pie and dominate different sectors such as telecommunications, financial services, mining and power supply.

In one sense, the latest scandal is unique to South Korea. But with variations, it’s been a familiar story in the last three quarters of a century across Asia. Many Western economists and policymakers – especially those specialising in development and others of the once-fashionable “Washington Consensus” school – have built sophisticated models and theories to promote economic growth while trying to do away with corruption.

Successful Asian nation-builders – among them Park – were far more pragmatic and morally flexible. They have helped lift their countries out of poverty and into middle or even high-income status. But they have also left behind a legacy of perverse incentives that lead to widespread corruption.

So, after the glory, the disgrace. This Asian development model promotes domestic market dominance, creates inefficiencies and distortions, reduces competition and engenders endemic corruption. These in turn generate significant social discontent and unrest, from Seoul and Taipei to Hong Kong and the rich southern Chinese coastal cities.

It’s a ladder that needs to be kicked once a country reaches development status. Yet, as the latest scandal in Korea proves, it’s a hard ladder to get rid of.