Development Policy and Its Determinants in East Asia and Latin America

Development Policy and Its Determinants in East Asia and Latin America Author(s): James W.
McGuire Reviewed work(s): Source: Journal of Public Policy, Vol. 14, No. 2 (Apr. - Jun., 1994), pp. 205-242 Published by: Cambridge University Press Stable URL: http://www.jstor.org/stable/4007572 . Accessed: 04/11/2012 15:36
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Jnl Publ. Pol.,
I4,
2, 205-242
Copyright ? 1994 Cambridge University Press
Development Policy and Its Determinants in East Asia and Latin America
JAM E S W. M c G U I RE *, Political Science,WesleyanUniversity
ABSTRACT A policy-focused human capital approach to development, incorporating industrial policy but stressing land reform, education, and labor-intensive production, is used to explain why South Korea and Taiwan have developed more successfully since i 960 than Argentina, Brazil, or Mexico. The policy-focused human capital approach is contrasted to free-market and cultural-values approaches.
Since I960, South Korea and Taiwan have done better than Argentina, Brazil, or Mexico in achieving sustained economic growth, equitable income distribution, and better living standards for their populations. To explain why these East Asian Newly Industrializing Countries (NICs) have developed more successfully than their Latin American counterparts, this analysis takes a policy-focused human capital approach to development. This approach holds that government policies aimed at redistributing land, skills, and jobs, as well as at guiding and sometimes overriding market forces, are crucial to growth, equity, and poverty reduction; and that the volitions of political actors, shaped and constrained (but never fully determined) by historical legacies and social-structural conditions, decide whether or not such policies will be implemented. To explain the better development performance of the East Asian NICs, this study stresses five policies: comprehensive land reform, universal basic education, promotion of labor-intensive production, a shift to light manufactured exports before heavy import substitution, and performance-based incentives to industry. To explain why these policies were enacted in East Asia's NICs, but neglected in Latin America's, the study highlights differences in colonial experience,
The author thanks Christopher Anderson, David Collier, Nancy Gallagher, James Mahon, William J. McGuire, Basil Moore, Peter Rutland, Nancy Schwartz, Amartya Sen, Andrew Sobel, Bruce Western, and anonymous reviewers for helpful comments on earlier drafts of this article. A Fulbright Summer Seminar in Korea in June and July 1992 contributed significantly to the author's understanding of East Asian development.
206
James W. McGuire
geopolitical situation, market size, resource endowment, and class structure. The policy-focused human capital approach to development may be contrasted to the cultural-values approach. The cultural-values approach attributes the positive features of East Asian development to a Sinic ethos, while tracing the negative features of Latin American development to an Iberian ethos. The main problem with the culturalvalues approach is that it cannot explain important development outcomes. If East Asia has benefitted from a development-promoting Sinic ethos, why were South Korea and Taiwan so poor until ig60? If Latin America has suffered from a development-stifling Iberic heritage, why did Brazil and Mexico grow so fast until 1g80? If cultural values are the main determinants of development success, why have some Latin American countries, as well as some East Asian countries, developed more impressively than others? It is tricky to explain change, or cross-national variation, with a constant. Some writers have tried to modify the cultural-values approach to get around this objection, but such modification, as will be argued below, has only underscored the importance of non-cultural factors. It would be foolish to deny that cultural values have shaped development policy or that they have influenced the resources available to policy-makers. Taoist frugality has boosted savings rates in the East Asian NICs; Confucian respect for public officials has helped planning agencies attract top talent; and Sinic concern with teaching and learning has raised educational attainment. Similarly, the cultural shadow of the United States, which has fallen longer and more heavily on Argentina, Brazil, and Mexico than on South Korea or Taiwan, has encouraged Latin American governments to enact policies favorable to capital-intensive production of expensive consumer goods. It is true that cultural values shape the design and impact of policy, but it is not true that such values make or break the prospects for development. The policy-focused human capital approach may also be contrasted to the free-market approach. The free-market approach holds that the East Asian NICs are better off than the Latin American NICs not because their governments have guided their economies better, but because their governments have guided their economies less. This claim is unsustainable. Governments in the East Asian NICs have guided their economies more adeptly, but no less minutely or persistently, than governments in the Latin American NICs. It is true that South Korean and Taiwanese policy makers, even as they have manipulated or overridden market forces to redistribute assets and stimulate new industries, have avoided the huge budget deficits, sharply negative real interest rates, and persistently overvalued currencies
Development Policy in East Asia andLatinAmerica
207
that have led to economic bottlenecks in the Latin American NICs. The development success of the East Asian NICs does owe something to good macroeconomic management. However, it provides not the slightest evidence for the central claim of the free-market approach: that the smaller the state's role in the economy and the more open the economy to world market forces, the faster the rate of economic growth and (through a rise in overall affluence) the faster the rate of poverty reduction. The free-market approach has been challenged by several studies (e.g. Deyo 1987, Amsden I989, Gereffi and Wyman I990, Haggard
I990,
Wade I990) which adopt what BarbaraGeddes (i99i,
6o-62)
has called a 'state-centric political economy' approach to development. Practitioners of the state-centric political economy approach trace the development achievements of the East Asian NICs primarily to industrial policies that shaped, constrained, and sometimes overrode market forces, as well as to the state autonomy from class forces that aided in the design and implementation of such policies. State-centric political economy analyses recognize that redistribution of land, skills, and jobs contributed to East Asian development success, but tend in practice to downplay the significance of these factors relative to industrial policy. Following the analysis of South Korea in Dreze and Sen (1989, I93-197), the policy-focused human capital approach gives more systematic attention to land reform, support for basic education, and promotion of labor-intensive industry, and to historical and socialstructural factors that promoted these human capital-enhancing policies. By specifying the causal mechanisms by which land reform, education, and labor-intensive production processes contributed to growth, equity, and poverty reduction in South Korea and Taiwan, and by noting the ways in which the relative neglect of such policies in Argentina, Brazil, and Mexico limited the development achievements of those countries, the policy-focused human capital approach incorporates these previously under-emphasized factors, along with factors stressed in state-centric political economy analyses, into a systematic analysis of development differences between the regions. The policy-focused human capital approach used in this study embodies an apparent contradiction. On the one hand, it claims that policy choice can affect development performance. On the other hand, it argues that historical legacies and social-structural conditions are important in determining policy choice - raising the question of whether policy decisions are really 'choices' in any meaningful sense. If such policy 'choices' are strongly shaped by forces beyond the control of policy-makers themselves, can the policy-focused human capital approach really be more useful to development practitioners
208
James W. McGuire
than, say, the cultural-values perspective, which gives little role to human agency in shaping the prospects for development? It can. From the assertion that a given set of conditions favored a policy in one context, it does not follow that the same set of conditions is necessary to apply that policy in another context. Policy choices matter, and will matter even more if political actors understand the opportunities and constraints that others have faced. A grasp of these opportunities and constraints can help such actors identify, and thus more easily overcome, historical legacies and social-structural conditions that might otherwise confine them. The analysis begins by showing that East Asia's NICs have, in fact, developed more successfully than Latin America's (Section i). Next, it analyzes how policy choices have affected development outcomes (Section 2), and how historical legacies and social-structural conditions have shaped policy choices (Section 3). Finally, it develops the claim that the policy-focused human capital approach explains the divergent development outcomes better than free-market or cultural-values explanations (Section 4) and returns to the assertion that this approach is more useful to political actors who are trying to promote development (Section 5).
i.
Social and Economic Development in East Asia and Latin America
South Korea in I962 was one of the poorest countries on earth. Its per capita GNP of $iio placed it ggth in the world, between Sudan and Mauritania. Taiwan was not much wealthier: its capita GNP of $170 placed it 85th, between Zaire and Congo. Far richer were Brazil, Mexico, and Argentina, with respective per capita GNPs of $240,
$340, and $6io (67th, 5Ist, and 29th) (Wade
1990,
35). But in the
early ig6os, capitalist East Asia began to experience spectacular economic growth. From i965 to I990, annual GNP growth reached 9.8 percent in South Korea and 9.3 percent in Taiwan, compared to 6.5 percent in Brazil, 4.3 percent in Mexico, and i.9 percent in Argentina (Table I). By I990, South Korea and Taiwan had passed Argentina, Brazil, and Mexico in per capita income. Each owed foreign creditors less than i5 percent of annual GDP, and each exported more manufacturers than all Latin American countries combined (Wade I990, 34). Besides growing faster, more sustainably, to higher levels, the East Asian economies did so more equitably than their Latin American counterparts (Table 2). Around I980, the gap between rich and poor was smaller in Taiwan than in any other capitalist country - including all the industrialized countries. South Korea's income distribution was less even than Taiwan's, but more even than Argentina's or Mexico's
Develobment Policy in East Asia and LatinAmerica

TABLE I:
200
Countries andDebt in FiveNewlyIndustrializing Growth, Exports,

Latin America East Asia Mexico 88.6
5,69I
Countty Indicator Population in millions,

1990a
Argentina
32.3
4,310
Brazil
150.4
South Korea
42.8 6,1I7
Taiwan
20.4
7,341
GDP per capita in purchasing power parity

US$, 199ob
4,951
Average annual GDP

growth in percent,
I965.9oc
3.4
-0.4
9.0
2.7
6.5
1.0
9.9 9.7 39
(7)
9.8 8.4 48
(i8)
Average annual real GDP growth in percent, I98o-go' Exports as percent of GDP,
I987
(i965)d
Manufacures as percent of exports, I990 (X96o)e Debt service as percent of exports, 1990 (1970)f Total foreign debt as percent of GNP, I990
(I98o)g
9 (9) 39 (6)
34.1 (21.6)
9
(8)
56
(2) 2o.8 (12.5) 25.1 (31.2)
15 (5) 46
(12)
93
(14) 10.7 (19.5) 14.4
94
(32)
27.8 (23.6)
42.1 (30.5)
not available
1.2
6i.7
(48.4)
(48.7)
(n.a)
Sources: (a) World Bank I992, Table i, except Taiwan, from DGBAS 1992, Table 8. (b) UNDP I992 Table i, except Taiwan, from DGBAS I992, Table 99. (c) World Bank 1992 Table i, except Taiwan, calculated from Gereffi iggoa, ii and Economist16 November 199I, 4. (d) Gereffi 9ggoa, 13. (e) Figures for iggo from World Bank I992, Table i6, except Taiwan (actual figure from I987), from Gereffi iggoa, 13. Figures from 1960 from Gereffi iggoa, 13, except Argentina (actual figure from 1965), from World Bank 1992, Table i6. () UNDP 1993, Table 20. (g) World Bank 1992, Table 24, except Taiwan, calculated from Lau I990, I83, and DGBAS I992, Table 8.
and much more even than Brazil's. By I990, South Korea and Taiwan had surpassed Brazil and Mexico, and matched Argentina, in most educational and health status indicators. Whereas Taiwan had the fourth-lowest child mortality rate in the world, Brazil, the fastestgrowing Latin American NIC, had a low life expectancy and child survival rate for its level of GNP, and showed less progress in these areas than did the average developing country between I960 and I990. Mexico did better than Brazil, but not as well as South Korea, at raising life expectancy and improving child survival, while Argentina, despite maintaining health status indicators on a par with up-and-coming South Korea, showed disappointing progress over time, considering that it had more doctors per inhabitant than Japan, Sweden, or the United States (UNDP I992 Tables 4, 12, 33; DGBAS
1992
Table
I5).
The achievements of South Korea and Taiwan should not obscure the costs of their paths of development. South Korea from I961 to I987 had a heavily militarized state. General Park Chung-hee, presi-
210 TABLE
James W. McGuire
2:
in Five Newly IndusIncome Distribution, Health, and Education trializing Countries

Latin America East Asia Mexico
20:1
Countty Indicator Income ratio: top to bottom 20% of households, 1970S' Gini Coefficient of
household income distribution, 1ig60sb Gini Coefficient distribution, of
Argentina
7:1
Brazil
33:1
(1972)
SouthKorea
8:i (1976)
Taiwan
5:1 (i973)
(1961)
(I977)
>0.41
(196I)
0.53
(1960)
0.56 (1963)
0.34 (1965)
0.33
(1 964)
>0.43
0-57
0.44
0.36
0.29
household income
1g80oc
(1981) 71
(65)
(i 983) 66 (55) 59
(ii6)
( 984) 70
(57)
(1984) 70 (54)
22
( 984) 73
(6o)
Life expectancy at birth,

1990
(196o)d
Infant mortality per iooo live births, igg9 (ig6o)' Under-s mortality per
1ooo
30 (6o) 35
(75)
37
(92)
(85)
30
(120)
6 (33) 7
(38)
83
(159)
49
(140)
live births,
1ggo
(I96o)' Percent adult literacy,

I990
95
(91)
8i
(6x)
(I96o)l
87 (65) 53
x5
96
(7I)
90
(54) 94
45
Secondary enrolment ratio (gross) I988i989h

University i988-i989' enrolment ratio,
74
41
38
It
87
39
Mean years of schooling,

1990'
8.7 .833
(.784)
3.9 .739
(.569)
4.7 .804
(.675)
8.8 .871
(.589)
8.o .875
-
Human Development
Index, I990 (1970)k
Sources: (a) Gereffi igga, i6, except Argentina, from data in Altmir 1986, 545. Argentina's income distribution had worsened by the early 1970s. (b) Haggard 1990, 226, except Argentina, from Marshall I988, 87 (Gini for non-agricultural households only, nationwide Gini presumably higher), and Taiwan, from estimates in Moll 1992. (c) Argentina: Altmir 1986, 535 (Gini for Greater Buenos Aires only; Altmir argues that nationwide Gini would be higher). Brazil: UNDP 1992, Table 17. Mexico: Lustig 1993, 23. South Korea: Kwack iggo, 233. Taiwan: Fields 1992, 399. (d) UNDP 1992, Table 4, except Taiwan, from DGBAS 1992, Table I6 (earlier figure from 1962). (e) UNDP I993, Table 4, except Taiwan, from DGBAS 1992, Table IS (earlier figure from 1962, later figure from I990). (f) UNDP 1992, Table 4, except Taiwan, from DGBAS 1992, Table i5 (earlier figure from I962). (g) 1990: UNDP 1992, Table 4, except Taiwan, from DGBAS 1992, Table 51. I960: World Bank 1979, Table 23. (h) UNDP 1992, Table i, except Taiwan, from DGBAS 1992, Table 51. (i) UNDP 1992, Table 14, except Taiwan, from DGBAS 1992, Table 47. (j) UNDP I992, Table i, except Taiwan, from Economist 14 July I990, 19. (k) UNDP 1992, 94, except Taiwan, calculated from data in Tables x and 2. The Human Development Index is a composite of life expectancy, literacy, means years of schooling, and per capita income (with little credit for per capita income above US $5000 PPP). A higher figure means better human development.
Policyin East Asia andLatin America Development
211
allowed restricted elections from I963 to 1979, but in 1972, citing security threats, he decreed a 'self-coup' and entrenched himself in the presidency, where he remained until the head of the Korean Central Intelligence Agency assassinated him in
197I, 1979.
dent from I96I to
In
I98I
GeneralChun Doo-hwaninstalledhimself as president,
banned his political opponents, and announced that he would stay in office until February I988 (Eckert et al. I990, 362-384). From I961 to 1987 South Koreans toiled under the watchful eye and heavy hand of a militarized state. In I964, when South Korea's population was no more than 25 million, the Korean Central Intelligence Agency
employed370,000
Johnson 1987,
157).
In May I980, an army division
assigned to quell student protest in the city of Kwangju killed an estimated 2,000 people (Eckert et al. 1990, 375). In I988, intra-military conflict, strikes, and student protest led Chun's successor, Roh Taewoo, to begin a transition to democracy. In December 1992, for the first time in three decades, South Koreans elected a civilian president, Kim Young-sam. While generals ruled South Korea, the Kuomintang, a single party, ruled Taiwan. Despite its intense anti-communism, the Kuomintang party retained the Leninst organization imparted to it in 1923 by an agent of the Comintern (Spence 1990, 337-338; Tien I992, 5). The Kuomintang occupied Taiwan after World War II, but their imperious treatment of the locals generated antagonism. In response to mild expressions of protest, the party in May I947 unleashed more than ten thousand soldiers against the native Taiwanese, killing an estimated ten to twenty thousand people (Gold I986, 51). In December 1949, defeated by the Communists on the mainland, the Kuomintang moved their capital to Taiwan. Since 1949 the island has had only three presidents: Generalissimo Chiang Kai-shek until his death in 1975, his son Chiang Ching-kuo until his death in I988, and Lee Teng-hui to present. Martial law was in effect from I949 to I987, and although Lee is extending the democratizing reforms initiated by Chiang Ching-kuo, Taiwan at the end of I993 had yet to hold a free presidential election. Authoritiarianism and human rights violations have plagued Latin America as well as East Asia. Argentina has been democratic since 1983, but preceding years were marred by electoral proscription, political violence, or military dictatorships - the last of which, from 1976-i983, was responsible for the 'disappearance' of more than 9,ooo
persons. Brazil had a weak democracybetween 1945 and
I964,
but
officers committed serious human rights violations during the I9641985 period of military rule. Brazil began to democratize in I985, but the military kept control of important policy areas and human rights
212
James W. McGuire
violations continued, including forms of servitude approaching slavery and widespread unpunished killings of Amerindians, rural union organizers, prisoners, urban street children, and women murdered by
their husbands 'in defense of honor' (Brooke i99oa,
I99ob,
I99I,
1993a, 1993b; Preston I99I). Mexico has been governed since I929 by the Party of the Institutionalized Revolution, which holds regular but rigged elections. Human rights violations continue in Mexico, including detentions without trial, extrajudicial executions, and torture. One effort to rate human rights conditions in the late I98os using criteria from United Nations treaties (with o worst and 100 best) gave Korea 59, Mexico 64, Brazil 69, and Argentina 84 (Taiwan was not rated) (Humana 1992). Other flaws in the development models of the East Asian NICs also afflict the Latin American NICs. South Korea and Taiwan have high levels of air and water pollution, but so do Mexico (air pollution in Mexico City is legendary) and Brazil (notoriously from mercury used in purifying gold in the Amazon). The initial manufactured export success of the East Asian NICs was based on the exploitation of poorly-paid female labor, but the same is true for Mexico's border industries, for millions of women who work as domestic servants in the homes of Latin America's middle and upper classes, and for tens of millions who toil at home and in the fields in rural areas throughout Latin America. Argentina's pollution and labor exploitation problems are less severe than Brazil's or Mexico's, but are not negligible. In short, the development models of the East Asian NICs have flaws, but similar deficiencies plague those of the Latin American NICs. On the whole, the East Asian NICs have promoted development more effectively than their Latin American counterparts.
2.
Policies and Development Outcomes
East Asia's success at reducing poverty and at minimizing the gap between rich and poor stems mostly from three policies: land reform, basic education, and the promotion of labor-intensive industry. East Asia's success at generating sustainable economic growth stems from these and two additional policies: the promotion of light manufactured exports before heavy import substitution, which brought in foreign exchange and encouraged efficiency, and the use of efficiency and export criteria to allocate economic incentives among industries and firms, which raised productivity and also helped to bring in foreign exchange. By improving human capital, the policies that helped to alleviate poverty also spurred economic growth, and by enlarging the size of the economic pie, the policies that generated economic growth
Policy in East Asia and LatinAmerica Development
213
also helped to alleviate poverty. This virtuous circle was largely absent in the Latin American NICs. Only Mexico altered land tenure, only Argentina made basic education universal, and none of the Latin American NICs encouraged labor-intensive production. Moreover, Latin America's shift to heavy import substitution drained foreign exchange and failed to spur competitiveness with foreign producers, while its use of patronage or political criteria to allocate economic incentives drained public funds without an offsetting rise in efficiency or exports. Land Reform,Education,and Labor-Intensive Industry After Japanese colonial rule ended in 1945, South Korea and Taiwan carried out land reform. In South Korea, the U.S. Army Military Government seized about 500,ooo acres of land from Japanese landlords and distributed it to about 500,000 tenants, reducing the tenancy rate from 75 to 33 percent of farm families (Henderson I968, I56; Eckert et al. 1990, 339; Macdonald I988, 134). In June 1949 South Korea's National Assembly, encouraged by U.S. officials, sanctioned the distribution of about 8o percent of remaining Korean-owned land, but none actually changed hands until 1951, when invading North Korean troops caused many South Korean landlords to flee (Cumings I990, 472, 677-680). In Taiwan, the Kuomintang redistributed land confiscated from Japanese (representing, as in Korea, about a quarter of total cultivated area) and then land bought from Taiwanese owners, reducing tenancy from 38 percent of farm families in I949 to 17 per
cent in
I953
(Ho
1978,
159-174;
Fei, Ranis, and Kuo
1979,
38-46;
Wade I909, 241). In Argentina, by contrast, land reform has been non-existent, although there has been no great demand for it there, and in Brazil it has been notoriously absent, despite decades of pressing need and violent conflict around the issue. In Mexico, land reform has benefited an estimated 2.5 million peasant families, mostly but 3 to 4 million during the Cardenas presidency (1934-I940), peasants who have petitioned for land have yet to receive it (Hansen 197I, 64; Riding 1984, 273). Land reform has thus been more extensive in East Asia's than in Latin America's NICs. Redistribution of this basic asset put South Korea and Taiwan on the road to equity and poverty reduction. Policy-makers in the East Asian NICs have also taken steps to give all citizens a decent education. After World War II, many young South Korean and Taiwanese men acquired basic literacy through military service (each country had a huge army, numbering about 6oo,ooo soldiers in the I950s) (Cumings 1987, 6o). Civilian education
214
James W. McGuire
also improved - for girls as well as for boys, contributing eventually to a high rate of female labor force participation. In Taiwan, public education spending rose from I.7 percent of GNP in 1952 to 5.2 percent in I988. Taiwanese children have received six years of free schooling since before I950, nine years since I968, and twelve years since 1993 (Liu 1992, 368-369; Fields 1992, 421). In South Korea, public education spending rose from 2.0 percent of GNP in I960 to 3.7 percent in I 988. South Korean children receive free primary schooling, and because needy students can get a government subsidy to pay for secondary education, nearly all graduate from high school
(UNDP 1993, Table
I5;
Macdonald I988, 85-88). Education in the
East Asian NICs has redistributed skills and knowledge, improving equity and reducing poverty. Mexico and Brazil have made some gains in education. Between
I960
and I990, public educationspendingrose from I.9 to 3.9 percent
of GNP in Brazil and from 1.2 to 4.0 percent in Mexico. Although these percentage increases were similar to those in the East Asian NICs, educational attainment in Brazil and Mexico continued to lag behind educational attainment in South Korea and Taiwan (Table 2). At least three factors contributed to this discrepancy. First, because GDP grew faster in South Korea and Taiwan than in Brazil or Mexico, roughly equivalent rises in public education spending as a percent of GNP translated into higher rises in public education spending in absolute terms. Second, because population grew slower in South Korea and Taiwan than in Brazil or Mexico, this higher spending was distributed over a smaller number of students. Third, because a smaller proportion of families were very poor in South Korea and Taiwan than in Brazil or Mexico, a higher proportion of families could afford to equip their children for school (World Bank In Argentina, by contrast to Brazil and Mexico, levels 1993, 192-203). of educational attainment resemble those of South Korea and Taiwan, but public spending has not been a priority in recent decades. Between
I960
and
1990,
the share of GNP allocated to public education
dropped from 2.I to I.5 percent. Consistent with its top-heavy health care system (featuring three times as' many doctors as nurses), Argentina in I990 allocated 47 percent of public education spending to universities, the highest proportion in the world. By contrast, universities got I8 percent of such spending in Mexico, 17 percent in Brazil, and only 7 percent in South Korea (UNDP 1993, Tables I5 and 36). The initial phase of export-oriented industrialization in the East Asian NICs was labor-intensive in character. Industries like textiles, wigs, and stuffed toys in South Korea and textiles, processed food,
2I5
and electronics assembly in Taiwan used large amounts of labor per unit of capital. By contrast, heavy import-substitution industrialization in the Latin American NICs, which focused initially on steel, oil refining, automobiles, and consumer durables, was capital-intensive, using small amounts of labor per unit of capital. Latin America's industrialization was more capital-intensive than East Asia's partly because of higher wages (Table 3) and lower interest rates, but also because multinational corporations, which tend to build capitalintensive factories, had more access to Latin American than to East Asian markets. Moreover, the cultural shadow of the United States, with its emphasis on bigness and modernity, has fallen more heavily on Latin America than on East Asia, although its weight in the latter region should not be underestimated. Because it gave employment to persons who might otherwise have lacked it, East Asia's labor-intensive strategy was better than Latin America's capital-intensive strategy for equity and poverty reduction. By subsidizing labor-intensive export
industries in the early I96os (Amsden I989,
143;
Wade
I990,
79),
East Asian governments contributed indirectly to these development outcomes. Land reform, universal public education, and labor-intensive industry contributed in East Asia not only to equity and poverty reduction, but also to sustainable economic growth. Land reform boosted agricultural productivity: small farms worked by resident owners tend to yield more per acre than big farms worked by dependents of absentee It also discouraged property speculandlords (Dorner 1992, 23-29).
lation, freeingcapital for industrialinvestment(Wade 1990,
301),
and
dispersed agricultural clout, facilitating the transfer of resources to industry, raising the state's economic steering capacity, and softening the struggle between industrial and agricultural interests (which led to erratic policy shifts in postwar Argentina). Universal basic education improved labor productivity and mobility, facilitating adjustment to new technology and world market shifts. Labor-intensive industry made efficient use of factor endowments in South Korea and Taiwan, where labor was plentiful and capital was scarce, whereas capitalintensive industry made inefficient use of factor endowments in the Latin American NICs, where capital was also scarce. All other things being equal, efficient use of factor endowments promotes economic growth. vs. and Performance vs. ImportSubstitution Export Orientation Incentives Patronage-Based Before I960, East Asian and Latin American industrialization went through three successive stages: from processing agricultural products
2I6
James W. McGuire 3: Labor Strengthand Wage Rates in Five Newly Industrializing Countries
Latin America East Asia Mexico
31
(22)
TABLE
Countty Indicator Percent of labor

force in industry, Iggo (1965)
Argentina 34
(34)
Brazil
25
(20)
SouthKorea 34
(15)
Taiwan
41
(12)
Percent of labor force in unions, I 97OS-198os' Percent of wage earners in unions,

1970s-I 980s-
36 (1986) 57 (1986)
ig60-66:
29
( 988) 61* (1988) 1960-64: some 1964-68:

high i968-78:
14 (O975)
7
(1984)
22
(1986)
45
I975)
I3
1984) Severe except moderate

i964-197I
34 (1986) Severe until 1988, then

high
Restrictions on right to strike,

196o-i993d
few 1966-73:
high 1976-83:
Few, but most unions tied to

governing PRI party
and
1987-
severe 1983-93: few Manufacturing wage in current n.a.

(0.27)
severe 1978-93: some i.68

(o.19)
1-45 1.29
i.6
(0-38)
(0.I0)
(o. Io)
$US per hour,

1983 (1962)'
Index of real
70
84
83
276
191
non-agricultural
wage (1970=100),
1 984'
Sources: (a) UNDP 1993, Table I7, except Taiwan, from Deyo 1989, 30 (Taiwan figures from 1962 and i985). (b) Argentina: Godio and Palomino I987, 50. Brazil: Fundacao Instituto Brasilero de Geografia e Estatistica 1991: 424. Mexico: Zapata i989, i8o. South Korea and Taiwan: Deyo 1989, 70-73. (c) Argentina, Brazil, and Mexico: economically active population (EAP) from Wilkie (ed.) i989; wage and salary earners calculated by multiplying EAP times proportion of wage and salary earners in EAP as reported in Mesa-Lago I990. Note (*): Brazilian figure includes members of rural (8,314,004) as well as urban (6,364,oI4) sindicatos Millions of rural sindicatomembers are smallholders but not wage and salary earners (Pereira I994, note 26), misleadingly inflating the numerator but not the denominator of this union density quotient. South Korea and Taiwan: Deyo I989, 70-73. (d) Author's estimate based on various sources, including (for East Asia) Deyo I989 and Banuri and Amadeo i991. (e) For 1986: Balassa I986, 73: For 1962: Mahon 1992, 254. () Amsden i989, i96, for all countries except Argentina, whose real nonagricultural wage was computed from Wilkie and Contreras (eds.) 1992, Tables 1410 and 1411.
for export, to manufacturing previously imported light consumer goods, to producing limited quantities of heavy intermediate goods like chemicals, refined oil, and steel. As this industrialization process progressed, ever-increasing quantities of foreign exchange, which came
Policyin East Asia and Latin America Development
21
mainly from agricultural and mineral exports (plus U.S. foreign aid in East Asia), were needed to finance imports of machines and raw materials for the import-substituting industries. By the mid- I95os, foreign exchange supplies in each region had begun to fall short of demand because of current overvaluation, higher European tariffs on Latin America's agricultural exports, and U.S. reluctance to keep supplying East Asia with massive foreign aid. At this point, industrialization strategies diverged. Latin American governments tried to reduce the long-term demand for foreign exchange, whereas East Asian governments tried to increase the short-term supply of foreign exchange. To achieve these ends, Latin American governments encouraged heavy import-substitution industrialization (production for domestic use of previously imported consumer durables, intermediate goods, and capital goods), whereas East Asian governments promoted light export-oriented industrialization (production for export of inexpensive consumer goods, especially textiles). The contrast should not be exaggerated: during the i g60s, manufactured exports rose in Argentina, Brazil, and Mexico, while import substitution advanced in South Korea and Taiwan (Kaufman I979, 221, 236; Amsden I989, I55, 268; Wade 1990, 87, 90). In many respects, import substitution and export promotion are complementary development strategies. Import substitution creates industrial plant and technical skills for export promotion, while export promotion generates foreign exchange for import-substitution(Wade 1990, 363; Gereffi i ggoa, i 8). The question is one of sequence and emphasis. East Asia's initial adoption of a mainly light export-oriented strategy proved better for growth, equity, and poverty reduction than Latin America's initial adoption of a mainly heavy import-substitution approach. One beneficial feature of East Asia's export-oriented strategy was that it generated an immediate influx of foreign exchange. This influx helped to maintain macroeconomic stability and allowed for a gradual build-up of heavy industry, which after gaining a foothold in the domestic market was encouraged to export. In the Latin American NICs, by contrast, governments relied during the I960s on agricultural and mining exports to meet the heavy foreign exchange requirements of their more immediate and single-minded pursuit of heavy importsubstitution. Reliance on such exports was risky: besides being subject to climatic and price fluctuations, commodity (and manufactured) exports were discouraged by currency overvaluation, which was allowed so that the heavy import-substitution industries could buy foreign inputs at artificially low prices. Overvaluation was a key flaw in the heavy import-substitution strategy. Exporters, finding that foreign receipts were buying less in overvalued domestic currency (which they
2I8
James W. McGuire
needed to buy domestic inputs), hesitated to expand output. Foreign customers, finding that they had to pay a premium for commodities that had become more expensive in their own currencies, sometimes switched to alternative suppliers. Overvaluation thus aggravated the foreign exchange shortage. A second beneficial feature of East Asia's export-oriented strategy was that it encouraged efficiency and flexibility. Plying their trades in international markets, the East Asian export firms had to keep costs low, and quality consistent, in order to compete. They also had to learn to anticipate and respond to changes in technology and international market conditions. In Latin America, by contrast, governments maintained an inward-looking industrial strategy by means of currency overvaluation, high tariffs, and subsidized credit and inputs. These policies produced, in Carlos Waisman's apt phrase, a 'hothouse capitalism' (Waisman 1987, 264). The industries that matured under these fertile but insular conditions not only failed to become internationally competitive (and thereby to generate foreign exchange that might have been used to sustain the import-substitution drive), but also produced consumer goods below the standards that many Latin American elites were willing to accept. These elites either paid the premium for imported goods or went on shopping sprees abroad, draining more foreign currency. The East Asian strategy proved successful partly because the I96os were years of rapid world economic growth, relatively few low-wage export competitors, and fairly easy (though not unrestricted) access to markets in the United States, whose political leaders sought to bolster the economies of countries they viewed as particularly threatened by communism. By the late 1970S these conditions had vanished: world economic growth was slowing down, new competitors were entering the bottom end of the export market, and the U.S. public was becoming more concerned with import competition and less attuned to the Cold War. These new international conditions, together with rising domestic incomes, encouraged a new stage of East Asian development based on the manufacture of capital, intermediate, and expensive consumer goods for both domestic and export markets. The capital needed to initiate the new stage of industrialization came mostly from private domestic savings, which were higher in East Asia's than in Latin America's NICs (Stallings I990, 70). Exportoriented firms supplied crucial foreign exchange, while households contributed high levels of savings in domestic currency - not just because of traditional Sinic frugality, but also because of the need to make a huge down payment on housing purchases, the expense of the much sought-after college education, and the pre-1970s paucity
219
of unemployment, medical, and retirement insurance (Wade i 990, 62-63). Low and fairly stable inflation, together with confidence in government economic policy, also boosted savings rates in the East Asian NICs. South Korea obtained additional capital via heavy foreign borrowing, but avoided a debt crisis by investing much of the borrowed capital in export production. Between 1983 and 1987 South Korea doubled its export revenues, allowing it to reduce its debt in absolute terms and from 53 to 30 percent of GDP (Kwack 1990, 232). Taiwan's foreign exchange reserves - a world-high $82 billion in i99I (DGBAS 1992, Table i6o) - dwarfed its foreign debt, partly because its push into heavy and chemical industrialization was more gradual than South Korea's, partly because it responded to the 1979 oil price hikes with economic contraction instead of foreign borrowing, and partly because it was more open than South Korea to direct foreign investment in areas that promised technology transfer, new exports, or sales for targeteddomestic suppliers (Stallings I990, 8o; Cheng I990, I63I64; Wade 1990, I5I-I56). Meanwhile, higher incomes in South Korea and Taiwan enlarged the domestic market for cars and other consumer durables, while good nutrition, decent housing, and universal education contributed to a productive labor force and to effective shopfloor management, facilitating the move into higher value-added sectors (Amsden 1989, 5, io). Because East Asia's wage rates were still well below those in Europe, Japan, and the United States, and because many newly-built factories in South Korea and Taiwan incorporated state-of-the art technology and production processes (one of Gerschenkron's 'advantages of backwardness'), the new heavy industries could sell their products abroad as well as on the expanding domestic market. In Latin America's NICs, as foreign exchange shortages recurred, some governments began to do more to encourage exports, beginning around 1970. Using tax rebates and subsidies, Brazil began to promote exports of manufactured goods and of such non-traditional primary products as iron ore, soybeans, and orange juice concentrate. Mexico, taking advantage of new-found oil reserves and of the rise in world petroleum prices, became one of the world's leading oil exporters. Argentina's export drive was less consistent and less successful than Brazil's or Mexico's, but it too increased exports of oilseeds and non-traditional grains. In none of these countries were the added revenues sufficient, however, to meet the ever-expanding need for foreign exchange. Brazil launched a range of massive construction projects, including highways through the Amazon, hydroelectric dams, nuclear power plants, oil refineries, and automobile factories. On a less titanic scale, Argentina also stepped up construction of highways,
220
James W. McGuire
dams, and nuclear power plants, while Mexico initiated expensive offshore exploration and drilling projects. With export revenues insufficient to pay for these projects, Latin America turned increasingly in the mid-I970s to international banks. Direct foreign investment financed some of the industrial projects, especially in Brazil, but foreign borrowing was the main source of funds for the development of the Mexican oil sector and of Argentine and Brazilian infrastructure. In all three Latin American NICs foreign borrowing was also put to less productive purposes, financing luxury imports, the hypertrophy of an increasingly concentrated banking sector, and capital flight. With export revenues insufficient to pay back a debt inflated by high interest rates, the Latin American NICs, as foreign loans dried up, experienced high inflation and bouts of severe recession throughout the I98os. Responsibility for the debt crisis did not lie solely with the borrowers. Flush with petrodollars and discouraged by low interest rates in developed countries, the banks lent vast amounts to developing countries with incomplete credit analysis and inadequate monitoring procedures (Roddick 1988, 23-34). East Asia's dynamic growth resulted not only from its investment in human capital and its emphasis on export promotion, but also from its allocation of incentives to industries on the basis of performance rather than patronage criteria. The South Korean government, like those of the Latin American NICs, subsidized private corporations via cheap credit and tariff production, but did so in return for successful export performance - unlike in Argentina or Brazil, where subsidies and performance were not so closely linked (World Bank I993, 93I02; Lim I989). In contrast to its Latin American counterparts, moreover, the South Korean government closely monitored and minutely directed the behavior of the firms it protected and subsidized. The major vehicles for South Korea's industrial policy were huge privately-owned conglomerates called chaebol,the largest of which Samsung, Hyundai, Daewoo, and Lucky-Goldstar - became household names in the United States. In 1987 the sales of the ten biggest South Korean corporations, nine of which were (or belonged to) chaebol, made up 63.5 percent of South Korea's GNP (Gereffi iggob, 93-96). The ten biggest chaebols also accounted for 23 percent of value added and i i percent of employment in South Korea in 1987 (SaKong 1993, This figure apparently indicates a high concentration of 247-248). economic power in private hands, but the government used credit policy, loan guarantees, foreign exchange allocation, and import licenses to encourage the chaebolto move into industries its planners had targeted for export development or import substitution (Woo 1991, 148-175; Mason et al. 1980, I8, 209). State enterprises, although
Development Policy in East Asia and Latin America

TABLE
221
4: Economic Role of the State and ForeignIndustrial Firms in Five Newly Industrializing Countries
Latin America East Asia SouthKorea Taiwan
15
Country Indicator Public consumption as percent of GNP, 1986

( I 965)a
Argentina
12
Brazil
12 (I)
Mexico
10
(8)
26
(20)
(7)
27
(12)
(9)
18 (i8) 6.4
(1974)
25.1
10 (7)
25
(22)
Central government expenditure as percent of

GNP,
I986
(1972)a
26 (I7)
Percent share of state firms in GDP' Percent share of state firms in fixed investment' State control of interest ratesb Percent of stock market open to foreigners
(October 1993)b
4.6 (1978) i9.6 (

980)
11.0 (1982)
26.o
(1982) 29.4 (1978)
13.5
(1978)
32.4
22.8 (1980)
(1977)
(1980)
not available not available 31

(1972)

(1977)

(1970)
Mainly Partly Controlled Controlled 6 4
Percent share of foreign firms in industrial

productiona
I9
i6
(1973)
(1978)
Sources: (a) Jenkins 1991, 48-50.
(b) Economistii December
1993,
92.
less important than chaebol,accounted in the mid-1970s for about a quarter of South Korea's fixed investment and for more than six percent of its GDP (Table 4), and served as an additional mechanism for stimulating targeted industries. Pohang Iron and Steel, the largest state firm, became one of the world's most efficient steel producers and exported technology to the United States (Amsden I989, 291Taiwan's industrial sector was less concentrated than South 292). Korea's, with the ten largest firms accounting in I987 for only 14.3 percent of GNP (Gereffi iggob, 96). Taiwan steered its economy primarily via public enterprises (Table 4); in i987 the Taiwanese state owned seven of the ten largest industrial firms and controlled 35 percent of industrial assets. State companies like the Chinese Petroleum Corporation and China Steel (respectively the first and fourth largest firms in the country) supplied intermediate goods to privately-owned downstream industries producing plastics, synthetic fibers, motor vehicles, and heavy machinery. By regulating prices for these goods, the government stimulated production in targeted areas of the private sector and led the drive toward heavy import substitution and heavy manufactured exports in the 1970S and I980s (Wade iggo,
175-I82).
222
James W. McGuire
3. Policy Determinants These contrasting East Asian and Latin American development policies can be traced in part to historical differences between the regions, especially in colonial heritage and geopolitical situation. In East Asia, colonialism left a legacy of weak landlords, strong state bureaucracies, and well-developed human and physical capital. In Latin America, colonialism left a legacy of strong landlords, weak state bureaucracies, and poorly-developed human and physical capital. Geopolitics also affected the choice of development policies and the resources available to policy-makers. After 1945, the rise of communism in mainland China and North Korea gave Taiwan and South Korea an influx of capital and entrepreneurial talent, enormous U.S. foreign aid, an excuse to weaken unions and suppress wages, and an incentive to enact comprehensive land reform. The communist threat was much less immediate in Latin America, which helps to explain why the United States was less generous with foreign aid, why some Latin American governments formed coalitions with labor, why wages remained relatively high, and why land reform seemed less pressing. Social-structural conditions also affected policy choice. Around I960, internal markets in East Asia were too small, and natural resource endowments too poor, to support an industrial strategy oriented toward import substitution and financed by commodity exports. In Latin America, internal markets were big enough, and natural resources sufficiently plentiful, to make such a strategy seem viable. Class structure, itself strongly conditioned by the colonial legacy and the impact of post-World War II geopolitics, was also important in shaping policy decisions. In the post-ig60 period, landlords, industrialists, and workers were relatively weak in East Asia, giving government policy-makers considerable leeway in their attempts to steer their economies. These social classes were stronger in Latin America, placing more constraints on policy design and implementation. These divergent historical legacies and social-structural conditions had diverse and sometimes paradoxical effects on policy choice. On the whole, however, they promoted policies more favorable to growth, equity, and poverty reduction in East Asia than in Latin America. ColonialLegacy Argentina and Mexico became colonies of Spain, and Brazil a colony of Portugal, during the early o500s. Each remained under colonial rule until the early I8oos, when pro-independence forces liberated Argentina (i8io-i6) and Mexico (I8I 1-2I) from Spanish rule and when Brazil gained independence from Portugal (I822). Taiwan and
Development Policy in East Asia andLatin America
223
Korea became colonies of Japan in i 895 and i 9I0 respectively,and remained under Japanese rule until the end of World War II. Iberian and Japanese colonial rule had divergent effects on the subsequent strength of landed classes and on land tenure. In the territories that became Argentina, Brazil, and Mexico, land grants by Iberian monarchs produced powerful landowning families. In Argentina and Brazil, many of these families kept their land into the post-independence era. In Mexico, most lost their properties during the Revolution (I9I01929)
or during the Cardenas reforms (1934-1940),

263-67).
but some pre-
revolutionary estates survived while others fell into the hands of
victoriousgenerals (Riding I984,
In East Asia, by contrast,
colonialism helped directly or indirectly to weaken the landed elite, paving the way for the land reforms of the post-World War II era. In Taiwan, the Japanese in 1905 required many absentee landlords to give up their holdings to semi-permanent tenants in return for government bonds. The colonial regime taxed the new smallholders but supplied an agricultural extension service that raised the productivity of the newly re-titled land. Japan turned Taiwan into a major sugar producer, but unlike the Portuguese in northeastern Brazil, whose sugar production was based on plantation slavery, Japan built fifty sugar mills and bought cane from surrounding small farmers (Gold I986, 36-38). The colonial sugar industry thus led to land concentration in Brazil but to a degree of land dispersion in Taiwan. No similar dispersion occurred in Korea; in fact, a Japanese land-use survey soon after colonization led to tax hikes and stricter definitions of property rights that pushed marginal farmers off the land (Cumings
1981, 4I-48).
Yet Japanese replacedKoreansas owners of the largest
holdings, and Koreans who kept large properties were compromised by association with Japanese rule. The Korean landed class was thus fairly weak when colonial rule ended in 1945, facilitating postwar land reform and increasing the South Korean state's autonomy from the dominant social classes. It would be unwise to exaggerate the Japanese contribution to a more equitable pattern of landholding in Taiwan, particularly in comparison to the more extensive reforms that took place after World War II. Moreover, the only contribution the Japanese made to more equitable landholding in Korea was to facilitate the post-World War II reform by discrediting members of a landholding class they actually helped to entrench. But even these small and (in the Korean case) indirect contributions present a stark contrast to colonialism in Argentina, Brazil, and Mexico, where Iberian rule led to a highly concentrated pattern of landholding. A second major difference between the colonial experiences of the future Latin American and East Asian NICs involved the degree to which each colonizing power created an effective state bureaucracy,
224
James W. McGuire
coordinated from the homeland, that penetrated throughout the colonial territory. The Iberian powers were disadvantaged in this regard because of their great distance from their colonies, the underdevelopment of transport and communication at the time of colonial rule, and the vastness of the areas they had to administer. Due partly to transport and communication problems, Latin American colonial administrators developed considerable autonomy from authorities on pero no the Iberian peninsula, as evidenced by the dictum obedezco cumplo('I obey but do not execute') in reference to orders from the Spanish monarch. The legacy of this autonomy gave rise, in Argentina and Mexico, to post-independence wars among regional strongmen, and in Brazil to a highly decentralized pattern of political authority. Brazil's federal government still holds little sway over remote parts of the country, where guns matter more than laws. Unlike Iberian colonialism in Latin America, Japanese colonialism in Korea and Taiwan implanted a strong, centralized bureaucracy. Before Japanese rule, political power had been relatively decentralized in Korea. Regional rivalries date back at least 2000 years, and formal centraliz-
ation duringthe Yi dynasty (1392-191 0) maskeda realityof decentralized power in the hands of local aristocrats (Cumings I98I, 9-I0; Eckert et al. 1990, 256). Similarly in Taiwan, few officials sent by the Ch'ing to govern the prefecture actually lived there, and local strongmen came to exercise real authority on the island (Gold 1986, 25). Japan, by contrast, set up in both Korea and Taiwan 'a highly articulated, disciplined, penetrating colonial bureaucracy' (Cumings
1987,
54). In 1938 France used 3,000 officials to govern I7 million
Vietnamese; Japan used 250,000 to govern 21 million Koreans (Cumings I98I, 11-12). In both Korea and Taiwan the colonial state improved tax collection, mapped territory, controlled diseases, built infrastructure, distributed farm technology and inputs, and began systematic economic planning (Peattie 1984, 31-37; Ho I984, 352355). The strong, centralized bureaucracies often credited with a pivotal role in the East Asian economic 'miracle' are direct descendants of the Japanese colonial state. A third difference in the colonial era that gave East Asia a developmental advantage over Latin America involved investment by the colonizing power in human capital. In an age when public education had not progressed far on the Iberian peninsula, not much could be expected for the Latin American colonies. No more than ten per cent of the colonial population was literate, and it was not until I8o8 that Brazil acquired its first printing press. Schooling was occasionally made available to the sons of Amerindian chieftains, but Blacks, and girls and women of all races, were excluded from formal education
Development Policy in East Asia andLatinAmerica
225
In Burkholder and Johnson, 1990, 225-226). (Gibson 1987, 391-392; Korea and Taiwan, by contrast, Japan expanded public education, intending thereby to train an educated labor force and to create loyal subjects by exposing the locals to Japanese language and culture (Tsurumi 1984). Whereas in i906 only 5 percent of Taiwanese 6 to 14 year-olds had been enrolled in school, by 1944 the proportion had increased to 70 percent (Gold I986, 38-39; Ho I984, 353). In Korea primary school enrolment rose from 20,000 in I 9 I 0 to go I,000 in 1937, although the latter figure still represented only I7 percent of 5 to 14 year-olds (Eckert et al. 1990, 263). Japanese initiatives in education enhanced welfare and improved productivity in Korea and Taiwan, with positive implications for subsequent economic development. A fourth key difference between the colonial powers involved the degree to which each built infrastructure and industry in its colonies. The Iberians dug mines, established plantations, expanded transport, and built cities, but discouraged manufacturing. Textile production gained a toehold in Mexico and in northwestern Argentina, but the Spanish monarchy on various occasions banned colonial production of silk, wine, and olive oil in order to preserve these markets for its own producers. In a stark example of mercantilist practice, the Queen of Portugal in 1785 issued a decree banning textile production throughout Brazil, destroying Sao Paulo's textile industry (Frank I967, 189I90). Here again Japanese colonialism differed. In addition to modernizing agriculture and engineering improvements in ports, roads, railways, and hydroelectric power generation, Japan, particularly in the late 1930s and early 1940S, built steel, aluminium, chemical, and other factories in its colonies (Cumings I987, 55-56). The Taiwanese plants suffered heavy bombing during World War II, and because most of Korean heavy industry was located in the north, it did not become part of the South Korean industrial base. Nonetheless, the Japanese did more than other powers - including their contemporaries, e.g. the French in Southeast Asia or the British in Africa - to build industry and infrastructure in their colonies, facilitating subsequent development. Japanese colonialism was thus more propitious than Iberian colonialism for future industrialization. The Japanese ultimately weakened powerful landlord classes; the Iberians created them. The Japanese introduced a strong, centralized bureaucracy; the Iberians introduced a weak, decentralized one. The Japanese built industry, in their colonies; the Iberians banned it in theirs. The Japanese improved education and health by building schools and controlling infectious diseases; the Iberians neglected education and spread diseases that
226
James W. McGuire
killed millions. This comparison is not meant to suggest that Japanese colonialism was benign. Especially in Korea, it was harsh. The Japanese killed an estimated 2000 people during nationalist student demonstrations in I9I9, mobilized hundreds of thousands of Koreans to work under harsh conditions in mines and industries, forced all Koreans to adopt Japanese names and to use Japanese as an official language, and compelled Korean women (as well as women of other nationalities) to work as sex slaves for the Japanese army (Eckert et al. 1990, 276-279; Tsurumi 1984, 302). Colonial rule was harsh in both East Asia and Latin America, but the Japanese colonial legacy was more conducive to economic development. Situation Geopolitical During the immediate post-World War II period geopolitical factors, particularly the triumph of Communist parties in mainland China and North Korea, strongly shaped development in South Korea and Taiwan. When the Chinese Communist Party gained control of the mainland in 1945, the Kuomintang retreated to Taiwan, established a dictatorship, and dealt harshly with suspected opposition. Korea, meanwhile, was occupied by U.S. forces in the agriculture-rich south and by Soviet forces in the heavy-industry rich north, leading to the division of the country in August 1948. At this time, the North moved towards a Leninist state under Kim II Sung while the South established an electoral regime (of dubious quality) under Syngman Rhee. In 1950 North Korea invaded South Korea, launching three years of bloody war that cost an estimated four million lives. The rise of communism and anti-communism in East Asia led to devastating wars and gave political elites in South Korea and Taiwan an excuse to maintain authoritarian rule and repress political opponents. However, it also contributed to growth by generating an influx of capital and entrepreneurial talent from economic elites fleeing the new communist regimes, by creating a siege mentality and a countersurge of nationalism that helped to mobilize the population for development, and by triggering massive foreign aid from the United States. The rise of East Asian communism also promoted land reform. In South Korea, the U.S. pressed for land reform partly .in an attempt to reduce rural instability and undermine Communist influence (Henderson I968, 156; Eckert et al. 1990, 339; Macdonald I988, 134). In Taiwan, the Kuomintang carried out the I949-I953 land reform partly because, as outsiders, they needed domestic allies, but also because they wanted to avoid repeating their experience on the main-
227
land, where land reform had generated peasant support for their communist adversaries. The rise of communism and anti--communism in Vietnam, which led to a bloody war in that country, produced an economic bonanza for contractors and suppliers in South Korea and
Taiwan (Eckertet al.
1990,
398-399; Gold I986, 86-87). Finally, the
rise of East Asian communism, by providing an excuse for the repression of unions, helped keep wages low and thus facilitated the shift from light import substitution to light manufactured exports. In Latin American countries, by contrast, unions in the I940S and 1950S had much more freedom to organize, forming part of governing coalitVargas in Brazil ions under Peron in Argentina (I946-I955), (Collier in Mexico (1934-1940) (especially 1950-1954), and Cairdenas and Collier I99I). Partly because of this difference in union capacity, the average hourly manufacturing wage in I962 was only $.io in South Korea and in Taiwan, compared to $. I9 in Brazil, .27 in Argentina, and .38 in Mexico (Table 3). Low wages formed a permissive condition for East Asia's turn to light manufactured exports (Mahon 1992, 253-256), but pressure from U.S. advisers, motivated by economic as well as geopolitical factors, helped impel the shift. By the late 1950s, the United States was looking for a way to get Taiwan and South Korea to reduce their balance of payments deficits, which were being financed by the U.S. Treasury. In I958, U.S. advisers used the aid carrot to induce the Kuomintang to enact an economic program involving devaluation, import liberalization, export incentives, rules favorable to foreign investment, and other measures aimed at improving the balance of payments (Gold i986, 77; Wade I988, 34-35). In I963, U.S. advisers pressed similar reforms on the newly-installed Park government in South Korea. When private exporters of light manufacturers responded to these incentives more enthusiastically than anticipated, the government turned its unexpected success into policy (Haggard i990, 68A communist threat and U.S. policy pressure also shaped development in Latin America, but less than in East Asia. As Che Guevara's failure in Bolivia showed, Castro's capacity to 'export' the Cuban Revolution was considerably less than Kim II Sung's capacity to threaten South Korea or Mao Tse-tung's capacity to threaten Taiwan. Guerrilla groups emerged in the late I96os in Argentina and Brazil, but neither country faced a real revolutionary threat. Concern that poverty could lead to support for communism in Latin America encouraged the U.S. Alliance for Progress to fund anti-poverty programs and spurred some Latin American governments to pass land
70;
Cheng I990, 156-157).
228
MicGuire James WV
reform laws during the I960S, but because a peasant revolution did not seem imminent, the anti-poverty measures were tepid and land reform was never fully implemented anywhere (Dorner 1992, II).
Endowment MarketSize and Resource In the East Asian NICs, market size and resource endowment discouraged a shift toward heavy import-substitution industrialization. The massive production facilities associated with heavy import-substitution involve economies of scale that are hard to achieve in a small market. In I960, South Korea's population was about 25 million and Taiwan's was about I0 million, and few people in either country could afford to buy anything apart from what they needed for immediate survival. The populations of Argentina, Brazil, and Mexico were, by contrast, much larger and/or much richer. Enough Latin Americans could buy enough manufactured products that it was more reasonable to try to develop a domestic capacity to produce the machines and intermediate goods required to make these items. Domestic demand for industrial products would rise as East Asians grew richer, but in the early I96os it was too small to propel an industrial strategy stressing heavy import-substitution. A large domestic market does not rule out the export-oriented strategy (Japan is a case in point), but a small domestic market makes the heavy import-substitution strategy difficult (neither Taiwan nor Kora embarked on this strategy until overall affluence had expanded significantly). Resource endowments were even more important than the size of the domestic market in determining the direction of industrial policy after the end of the light importsubstitution phase. The Latin American NICs had substantial agricultural and mineral resources whose export earnings could be put toward the purchase of imports for heavy import substitution, whereas the East Asian NICs were poorly endowed with exportable commodities. The 'resource curse' afflicting the Latin American NICs, several authors have argued, facilitated overvalued exchange rates, encouraged the perpetuation of the import-substitution model, and discouraged a shift toward the export of manufactured goods (Diamand I986, Ranis
I990,
Mahon 1992, Auty 1994). Paradoxically, then, the small internal
markets and poor natural resource endowments of the East Asian NICs favored an ultimately successful industrialization strategy based on the export of light manufactures, whereas the large internal markets and rich natural resource endowments of the Latin American NICs facilitated an ultimately problematic emphasis on heavy import substitution.
Development Policy in East Asia and LatinAmerica The Strength of Social Classes
229
The development success of the East Asian NICs is often attributed to a 'strong state', a concept that combines various attributes of authoritarianism with the capacity of government officials to devise and execute economic policy with relative autonomy from class forces. The strong state concept seems too broad. Not every aspect of authoritarian rule is functional, let alone necessary, for economic growth, much less equity and poverty reduction. It seems better to use the concept of a 'hard state', restricting the definition to bureaucratic insulation - a modicum of which is compatible with free elections and the preservation of basic rights (as in postwar Japan). Development success can be related concretely to state 'hardness': the capacity of central planners and administrators to enact and implement policy with a degree of autonomy from the sectoral pressures of landowners, industrialists, and urban workers. The East Asian NICs have had harder states than the Latin American NICs. As noted earlier, the East Asian NICs inherited a strong, centralized bureaucracy from the Japanese, whereas the Latin American NICs inherited a weak, decentralized one from the Iberians. But state 'hardness' is a relational concept that depends not only on the characteristics of the state bureaucracy, but also on the 'softness' of key social classes. The weaker these classes, the higher the state's steering capacity. Landowners, industrialists, and workers have been much weaker in East Asia's NICs than in Latin America's. Landowners in the Latin American NICs have blocked or circumvented land reform; those in the East Asian NICs have not. Industrialists in the Latin American NICs have pressed successfully for overvalued currencies and for subsidies regardless of performance; those in the East Asian NICs have not. Workers in the Latin American NICs (especially Argentina) have kept wages high, resisted industrial restructuring, and derailed stabilization policies; those in the East Asian NICs have not. The power of Argentine landowners is legendary. Cattle Landowners. barons exercised political hegemony from i88o to I912, when electoral reforms eliminated the fraud by which they and their commercial and professional allies had monopolized the presidency. But even after these reforms, landowners continued to wield enormous political influence until the mid-1940s (Smith I967, 49), when Peron was instrumental in passing laws freezing rural rents, protecting agricultural workers, and creating a state monopsony that diverted agricultural export income to industry and social welfare. Per6n promised land reform during his 1946 presidential campaign, but backed away from this commitment after being elected, perhaps because he recognized that
230
James W. McGuire
many generals aspired to landownership or had family ties to cattle ranchers. After Per6n's ouster in I955 landowners failed to regain their former political clout, but continued to exercise enough influence to thwart a variety of taxation, price control, import liberalization, and local land reform initiatives, contributing to the erratic policy
shifts of the era (Manzetti 1993, 257-277; O'Donnell 1978). The main
source of landowners' ongoing political influence was their lock on Argentina's supply of foreign exchange. In I990, agricultural goods still comprised 59 percent of Argentina's total exports, compared to 31 percent of manufacturing giant Brazil's and I3 percent of oil-exporting Mexico's (World Bank 1992, Table i6). The Brazilian political system has long been heavily influenced by agricultural interests, notwithstanding the rapid growth of its industries in recent years. From the end of empire in I889 until the military coup of 1930, Brazilian politics was dominated by coffee growers from Sao Paulo and dairy farmers from Minas Gerais, with cattle ranchers from Rio Grande do Sul sometimes able to tip the balance. The key Brazilian political figures from 1930 to I960, presidents Getulio Vargas and Juscelino Kubitschek, emphasized industrial development, but neither tried to promote land reform and both maintained subsidies to coffee growers (Skidmore I967, 87; Skidmore 1979, X50-15I). Even when tepid land reform bills have been enacted into law, as under president Jose Sarney in 1985, military opposition and landowner vigilantism have blocked their implementation. Between I964 and I989, land conflicts in Brazil took the lives of I,566 people. According to Americas Watch, most of these killings have involved 'carefully and selectively targeted murders of rural activists struggling to redress the imbalance in land tenure'. Only eight convictions have been handed down in these cases, all in instances where the victims had powerful outside political allies (Brooke I99I). Mexico's agrarian elite has been less influential than Argentina's or Brazil's, but its political clout has been far from negligible. The Mexican Revolution destroyed most of the preceding landlord class, and extensive agrarian reform took place under president Lazaro Cairdenas (1934-1940). Most of the land distributed in this reform was allocated to communal production under the ejido system, which dated from pre-Columbian times. Nonetheless, some large estates survived both the revolution and the Cairdenas reforms, and the maximum acreage a single landowner could possess was raised substantially in 1947 under president Miguel Alemain. Since the 1930s, moreover, big landowners with connections to the governing party have used various means to get around the legal maximum: some have divided their holdings among family members or trusted farmhands; a
Policyin East Asia and LatinAmerica Development
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few have illegally invaded and fenced off land owned by ejidos; and others have leaned on local officials to delay the distribution process, sometimesfor decades (Riding 1984, 265; Hansen 1971, 119-120). Landed elites in the Latin American NICs, with the partial exception of Mexico, have thus been strong enough to resist land reform and to constrain other state policy initiatives. In South Korea and Taiwan, by contrast, landed elites were in a weaker position at the time the government decided to implement land reform. In Taiwan, the Japanese colonial regime had expropriated many absentee landlords, and the Kuomintang government bought off most who remained with bonds redeemable for stock in industrial firms. In South Korea, many big landowners who survived Japanese rule were viewed as collaborators, and U.S. pressure and the North Korean invasion sufficed to force them to give up their land. The strength of industrialists has also shaped developIndustrialists. ment policy in East Asia and Latin America. The stronger the industrialists who emerged during light import-substitution, the weaker the will and capacity of state policy-makers to engineer a shift toward export promotion and to make the flow of state benefits contingent on efficiency or export performance. Industrialists accustomed to cheap inputs and healthy sales can be counted on to oppose devaluation and other forms of export promotion that raise production costs and depress domestic demand, and those who have received state subsidies on the basis of patronage or political criteria will naturally be annoyed if those subsidies are subsequently made contingent on performance criteria. If these industrialists have sufficient political clout to translate this opposition into effective resistance, export promotion and performance-based incentives will be harder to enact and implement. In South Korea and Taiwan, import-substitution industrialists lacked such clout (Haggard 1990, 39-40). In South Korea, a coddled industrial class emerged in the I950S when the Rhee government sold former Japanese firms at concessionary prices to politically-connected merchants and ex-managers. In return for political contributions to Rhee and his associates, industrialists received import licenses and foreign exchange, which they often resold at a good profit (Cheng
1990, I47-151).
Few such industrialistssurvived Rhee's resignation
and the subsequent military coup. Soon after General Park Chung-hee seized power in May I96I, 'those who had profited from import substitution were marched through the streets, carrying sandwich signs with slogans like 'I was a parasite on the people', (Cumings 1987, 69). With the import substitution-linked industrialists discredited, it was easier to engineer a shift toward manufactured exports (e.g. by
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ending currency overvaluation) and to substitute performance for political criteria in allocating industrial benefits. Taiwan never developed a big industrial class linked to import substitution because the Kuomintang kept most former Japanese firms under state control. The closed and hierarchical organization of the governing party, the absence of competitive elections, and distrust between mainland-born government officials and Taiwan-born business leaders also facilitated the allocation of subsidies, foreign exchange, import licenses, protection, and tax exemptions on the basis of performance rather than
patronagecriteria (Cheng 1990,
152-153).
Import substitution-based industrialists were stronger in the Latin American NICs. After i88o first Argentina, then Mexico, and then Brazil began to industrialize, so that by the late 1920S each already had a fairly large productive capacity in textiles, food and beverages, and other non-durable consumer goods. Industrialization got a push when import capacity fell during the depression, and after import capacity recovered governments continued to promote industrialization through subsidies and protective tariffs. The light import-substitution
phase thus lasted longer in Latin America (about 1930 to
1955)
than
in East Asia (about 1950 to Ig6o), entrenching expectations of state support and strengthening vested interests in the import-substitution model. To try to control industrialists who benefited from tariff protection and subsidies, state elites forced or encouraged them to join centralized employers' organizations. Once created, however, such organizations put reciprocal pressure on policy-makers to preserve the model of inward-looking industrialization and to keep dispensing benefits on the basis of political and patronage criteria. Urban workers.Substantial labor unionization occurred in each of the Latin American NICs in the early 2oth century and expanded significantly under populist presidents like Argentina's Peron, Brazil's Vargas, and Mexico's Cardenas. By contrast, when South Korea made its critical switch from light import substitution to light manufactured exports, less than one percent of its labor force belonged to unions. Eight percent of the Taiwanese labor force was unionized in I958, but Taiwanese unions were hamstrung by rules restricting strikes, forbidding collective bargaining over wages, requiring new unions to get Kuomintang approval, and granting membership to managers and supervisors (Deyo I989, 70-73, II5-I I8). Unions have been much stronger in the Latin American NICs (Table 3). Argentina has long had one of the strongest labor movements in the world (McGuire 1995). Unions in Brazil and Mexico have been subject to significant state controls, but around I960, when Latin American and East Asian industrialization strategies diverged, both were more heavily unionized
Policy in East Asia andLatinAmerica Development
233
than either of the East Asian NICs and both were experiencing high levels of labor protest (Collier and Collier 1991, 553-555, 559-600). The stronger the organized working class, the more resilient the development models in which unionized workers have built up vested interests. A shift from import substitution and patronage-based incentives to light manufactured exports and performance-based incentives may eventually create more jobs and bring higher wages, but in the short run such a shift is likely to cause layoffs and plant closings in previously coddled industries, encouraging workers to protest. If such workers are organized into powerful unions, government officials are likely to think twice before provoking them, making a change in development strategy less likely. A strong labor movement also tends to push wages up, making labor-intensive production methods less attractive and transferring resources from investment to consumption. For all of these reasons, a powerful labor movement has the potential to impede economic growth. On the other hand, strong unions can also have positive effects on equity and poverty reduction. Strong unions help their members win higher wages and better working conditions, redistributing income away from the rich. Moreover, evidence from industrialized countries suggests that the strength of national labor movements is associated with more redistributive government policies and more egalitarian macroeconomic outcomes (Stephens 1979, Ch. 4;
Korpi I983,
195-199;
Cameron I984). In less developed countries,
however, policies that help (or hurt) unionized workers may have the opposite effect, or no effect, on the very poor. Higher wages for unionized workers can mean fewer jobs for the unemployed, and low food prices hurt impoverished rural producers (Bates I98i, Ch. 2). Conversely, anti-inflation programs in middle-income countries typically impose high costs on unionized workers, but may have little effect on the very poor, who tend to have benefited little from the controls, subsidies, and services that such programs target for cuts (Nelson 1992, 232). In short, strong unions, which seem to promote equity and poverty reduction in industrialized countries, do not do so unambiguously in developing nations. This conclusion may help explain the seemingly paradoxical finding that East Asia's NICs, with their weak labor movements, have done better at equity and poverty reduction than Latin America's NICs, with their stronger labor movements. Outcomes ValuesExplanations and Culturalfor Development 4. Free-Market One strand of popular wisdom holds that the East Asian NICs are better off than the Latin American NICs not because, as argued here, their governments have guided their economies better, but because
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their governments have guided their economies less - and, in so doing, have given freer play to market forces, especially those emanating from the global economy (authors who have made such claims include Edward Chen, David Aikman, and Milton and Rose Friedman, all quoted in Wade 1990, 22). A strong version of the free-market thesis would suggest (a) that in the East Asian NICs, as compared to the Latin American ones, the state has played a smaller role, and international market forces a bigger role, in resource allocation, and (b) that this difference goes a long way toward explaining why the East Asian NICs have experienced more rapid economic and human development. Part (a) of this claim turns out to be hard to sustain, mooting part (b). The South Korean and Taiwanese governments consume as much, spend nearly as much, and utilize public enterprises as extensively as the governments of the Latin American NICs. The South Korean and Taiwanese governments also restrict foreign capital, resulting in a small share for foreign firms in industrial production and in a tiny share for foreign investors in stock markets (Table 4; More than see also Jenkins I99I and Amadeo and Banuri I99I). their Latin American counterparts, the South Korean and Taiwanese governments restrict the flow of labor: each of the Latin American NICs has employed hundreds of thousands of foreign workers, whereas South Korea and Taiwan, despite labor shortages, have made it illegal under most circumstances to employ foreigners. South Korean and Taiwanese markets have been slightly more open to foreign imports than Latin American markets, but not in a way consistent with free trade. South Korean and Taiwanese tariffs are high by developing country standards, and are as minutely differentiated as Latin American tariffs. Effective protection is lower than in Latin America, but primarily because of another form of state 'intervention': import-duty rebates to targeted export firms (Wade I990, 113-I58; Jenkins 1991,
40-42).
As Robert Wade (I990, 52-6I) has pointed out, some aspects of East Asian economic policy are consistent with fiscal austerity and a conservative approach to exchange rates and interest rates. Fiscal deficits have generally been lower in East Asia than in Latin America. Both Taiwan and Argentina had lots of public enterprises during the I96o-i990 period, but unlike their Argentine counterparts, the Taiwanese firms set their prices high enough, and performed efficiently enough, to make money rather than lose it (Amsden 1989, 296; Wade I 8o; Lewis 1990, 1990, 490). The South Korean government, like those of the Latin American NICs, subsidized private corporations (and thus distorted relative prices) with cheap credit and other policies, but did so within the limits of macroeconomic stability, and
235
usually according to efficiency criteria. The East Asian NICs also refrained from allowing their currencies to become grossly overvalued and from flooding the market with credit at negative real interest rates. Although the South Korean government kept the interest rate on bank loans below the rate of inflation for six of the seven years after I974 (Woo 199I, i6o), the interest rate on deposits fell below the rate of inflation for only four of the fifteen years after I970, as compared to fourteen of the fifteen years after 1970 in both Argentina and Mexico (World Bank 1993, I 2). Such relatively tight macroeconomic policies in East Asia hardly constitute a laissez-faire approach to economic development, however. Far from always 'getting prices right', South Korea and Taiwanese governments and bureaucrats have deliberately intervened, early and often, to 'get prices wrong' (Amsden 1989, 139), conspicuously by targeting for export development industries and sectors that would never have blossomed on the basis of natural resource endowments. South Korea lacks iron and coal but has become a major producer of ships and automobiles. Taiwan lacks petroleum but has become a major producer of petrochemicals and plastics. Even more important to the East Asian 'miracle' than industrial-sector targeting, particularly in promoting equity and poverty reduction (but also growth), has been the state's role during the 1950S and I960s in redistributing private goods like land (via land reform), jobs and incomes (via the initial promotion of labor- over capitalintensive industries), and skills and knowledge (via education) (Dr?eze and Sen I989, 195). East Asian states have thus been more adept, not less involved, than Latin American ones in promoting economic and human development. They have consumed as much, spent nearly as much, and relied on public enterprises about as heavily as Latin American states. They have opened their borders slightly more to goods, but less to labor and capital, than their Latin American counterparts. And although it was only in the mid-I 970s that they initiated extensive public health, housing, and social security programs, the South Korean and Taiwanese states intervened heavily in the 1950S and I960s to help the poor with land reform, education, and employment. By contrast, only Mexico among the Latin American NICs had undertaken land reform (and with only partial success), only Argentina has provided basic education for the poor, and none of the Latin American NICs have opted for labor-intensive production processes. Had the South Korean and Taiwanese states not intervened in these ways, it is inconceivable that the East Asian NICs would have made such progress on equity and poverty reduction, and unlikely that they would have achieved such high rates of sustainable growth.
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Since Max Weber, many scholars have looked to religious and cultural values as a key to economic development. Some have argued that Latin America's Iberic cultural heritage has inhibited its economic progress. According to Lawrence Harrison (1985, i65), 'in Latin America we see a cultural pattern, derivative of traditional Hispanic culture, that is anti-democratic, anti-social, anti-progress, antientrepreneurial, and, at least among the elite, anti-work'. According to Seymour Martin Lipset (I967, 8-I5), the Iberian colonizers and their descendants shared an aversion to risk-taking, competition, and long-term planning, as well as a disdain for labor, pragmatism, materialism, and commerce. Michael Novak (I982, 66, 71) contends that Latin America's economic development fell behind North America's because its 'Ibero-Catholic' heritage stressed 'luck, heroism, and status' and 'personal rather than civic and economic values'. If such values really are widely diffused throughout Latin America, they could perhaps help explain why the region's economic development has been less impressive than North America's, Northern Europe's or (since I960) capitalist East Asia's. By the same token, however, it is hard to square the existence and hypothesized negative economic effects of an Iberic cultural heritage with Latin America's observed economic achievements. In 1913, when the impact of the Iberic heritage was presumably greater than it is today, Argentina's per capita GNP matched that of Switzerland, the birthplace of Calvinism, and exceeded those of France and Sweden (Waisman 1987, 6). It fell way behind these countries in subsequent years, but as Carlos Waisman has pointed out, 'since culture changes more slowly than other parts of a society, it is not likely to account for a rapid reversal in economic and political development' (Waisman 1987, 95). Waisman notes that a defender of the cultural explanation for Argentina's 'reversal of development' could argue that Iberic values and attitudes permit growth in a simple pastoral economy, but not in the context of a complex manufacturing system. But as Waisman also points out, the kinds of manufacturing that most Argentine industrialists undertook in the thirty years after 1930, when the 'reversal' occurred, required little more in the way of entrepreneurial skills than the modern large-scale agriculture that formed the basis for the pre-1930 rural export economy (Waisman I987, 95-106). A more generic problem with the cultural explanation is that Latin America's economic development has varied significantly over time and across countries. Because the legacy of Iberic colonialism is shared by all Latin American countries, and because its effects are presumed to have diminished only slowly (if at all), it seems ill-suited to explain this cross-national and cross-temporal variation. Over extended per-
237
iods of time, some Latin American countries have turned in economic performances much better than would seem compatible with a development-stifling Iberic heritage. According to one estimate, Brazil grew faster between I870 and I980 than any other country in the world (Winn I992, I9I). From 1940 to I980, Brazil and Mexico, Latin America's largest countries, each grew at an impressive annual rate of more than 6 percent. In Brazil, manufactures rose from 2 percent of exports in I960 to 56 percent in I990 (Table i). The economic achievements of the Latin American NICs suggest either that the Iberic heritage does not have the content ascribed to it, or that it is diffused less widely than defenders of the cultural thesis suggest, or that its negative effects on development are less severe than has been claimed. Sinic culture, which originated in mainland China but continues to suffuse South Korea and Taiwan (albeit with differing nuances; see is often held to be propitious for economic Pye I985, 216-236), 112), 'the Condevelopment. According to Lawrence Harrison (1992, fucian emphasis on education, merit, hard work, and discipline, combined with the achievement-motivating tradition of ancester-worship and the Tao emphasis on frugality, constitutes a potent, albeit largely latent, formula for growth comparable in its potential to Weber's view of Calvinism'. Ronald Dore (1990, 363-365) adds a sense of dutifulness, high levels of interpersonal trust, the ability to defer gratification, and an 'inability to tolerate black boxes without wanting to take them apart'. Peter Berger (I986, I63) points to values and attitudes like 'a highly developed sense of practicality or pragmatism, an active rather than contemplative orientation to life, great interest in material things (emphatically including a positive valuation of wealth), and, last but not least, a great capacity for delayed gratification and discipline (especially on behalf of one's family)'. None of these writers gives Sinic culture all of the credit for East Asia's economic success, but Harrison regards it as more important than and the other authors imply that it any other factor (1992, 107-109) is among the most important sources of East Asian growth. When applied to East Asia, the cultural thesis raises the same problem it raised in Latin America: it is tricky to use a constant (culture) to explain a change (sudden growth). The East Asian NICs with their Sinic cultures developed spectacularly after I960, but their economic performances during the preceding 2000 years, when the Sinic culture presumably worked its effects even more strongly, were not as impressive. Sinic culture, moreover, involves attitudes and practices that inhibit as well as promote economic growth. Weber saw aspects of Confucian culture as impediments to economic ration-
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ality, and Harrison is fully cognizant that some Sinic attitudes and values do not encourage growth. One feature of the Confucian ethos that seems particularly inimical to growth is a disdain for industry and trade. In traditional Confucian society not only the scholarbureaucrat, but also the peasant, was held in higher esteem than the merchant. Even aspects of Sinic culture that seem in some ways to be conducive to economic dynamism seem in other ways to inhibit it. For example, a stress on harmony and hierarchy may contribute to growth-promoting political stability, but may also reduce inventiveness. Strong family ties may contribute to the aggregation of capital, but excessive filial piety is likely to inhibit individual initiative. Harrison answers the 'can't explain a change with a constant' objection to the cultural thesis by arguing that external factors, like an oppressive mandarin, colonial, or Leninist bureaucracy, long suppressed the growth-promoting traits of Sinic culture, and that immediately upon their removal those traits begin to flourish. To support this argument he notes, among other things, that many East Asians have succeeded economically after emigrating to countries where entrepreneurship is held in high esteem. 'Neutralize the forces that suppress entrepreneurship, above all bureaucratic suffocation, but also promote entrepreneurship's prestige, and you have a critical mass of achievement motivation that approximates that of Weber's Calvinists' (Harrison 1992, 113). This way of defending the Sinic culture explanation against the 'can't explain a change with a constant' objection is not entirely satisfactory. First, it relies on the extinction of a core trait of Sinic culture, the low regard for entrepreneurship. Second, it raises the absence of bureaucratic suffocation to a causal status equivalent to that claimed for Sinic culture. Third, it would be remarkable if so blunt a change as the removal of bureaucratic suffocation neutralized precisely those aspects of Sinic culture inimical to economic development and activated precisely the traits propitious for it. Finally, South Korea and Taiwan, it would be difficult to argue that post-I960 or pOst-1979 mainland China, are prime examples of countries newly free of bureaucratic suffocation. 5. Conclusion If, as argued here, policy can have profound effects on development outcomes, then that is good news for proponents of public action to promote development. But if, as is also argued here, policy is heavily shaped and constrained by historical legacies and social-structural factors over which contemporary actors have little control, then such action faces serious limitations. Given these opportunities and con-
Development Policy in East Asia and Latin America
239
straints, social science research can best contribute to human development by identifying which policies worked in certain contexts, by specifying why they worked, and by illuminating forces and conditions that helped to bring them about. Such research gives actors in new contexts a better grasp of the costs and benefits of alternative policies, as well as a better appreciation of the opportunities for, and constraints upon, their implementation. This article has identified several policies as having worked well in the East Asian NICs, but as having been neglected in the Latin American NICs. They include land reform, provision of basic education, promotion of labor-intensive production processes, the export of light manufactures before heavy importsubstitution (leading to plentiful foreign exchange and more efficient and adaptable firms), and the allocation of incentives according to performance rather than patronage criteria. Some of these policies will be harder to implement outside East Asia, and some may even be inappropriate or counterproductive in other contexts. It is likely, however, that some of them will be both appropriate and feasible in a variety of situations. Therein lies the value of the policy-focused human capital approach as opposed to perspectives that imply a more pessimistic view of the role of human agency in improving the human condition.
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Development Policy and Its Determinants in East Asia and Latin America Author(s): James W.

Jnl Publ. Pol.,

Copyright ? 1994 Cambridge University Press

Development Policy in East Asia andLatinAmerica

Wade I990) which adopt what BarbaraGeddes (i99i,

Social and Economic Development in East Asia and Latin America

35). But in the

Develobment Policy in East Asia and LatinAmerica

Countries andDebt in FiveNewlyIndustrializing Growth, Exports,

Countty Indicator Population in millions,

GDP per capita in purchasing power parity

Average annual GDP

in Five Newly IndusIncome Distribution, Health, and Education trializing Countries

Life expectancy at birth,

(I96o)' Percent adult literacy,

Secondary enrolment ratio (gross) I988i989h

Mean years of schooling,

Policyin East Asia andLatin America Development

dent from I96I to

GeneralChun Doo-hwaninstalledhimself as president,

In May I980, an army division

persons. Brazil had a weak democracybetween 1945 and

their husbands 'in defense of honor' (Brooke i99oa,

Policies and Development Outcomes

Policy in East Asia and LatinAmerica Development

Fei, Ranis, and Kuo

(UNDP 1993, Table

Macdonald I988, 85-88). Education in the

and I990, public educationspendingrose from I.9 to 3.9 percent

the share of GNP allocated to public education

Policy in East Asia and LatinAmerica Development

industries in the early I96os (Amsden I989,

lation, freeingcapital for industrialinvestment(Wade 1990,

Countty Indicator Percent of labor

Percent of labor force in unions, I 97OS-198os' Percent of wage earners in unions,

( 988) 61* (1988) 1960-64: some 1964-68:

1984) Severe except moderate

34 (1986) Severe until 1988, then

Restrictions on right to strike,

Few, but most unions tied to

severe 1983-93: few Manufacturing wage in current n.a.

severe 1978-93: some i.68

$US per hour,

Policyin East Asia and Latin America Development

Policy in East Asia and LatinAmerica Development

Development Policy in East Asia and Latin America

Country Indicator Public consumption as percent of GNP, 1986

Central government expenditure as percent of

4.6 (1978) i9.6 (

not available not available 31

not available not available 44

not available not available 35

Mainly Partly Controlled Controlled 6 4

Percent share of foreign firms in industrial

Sources: (a) Jenkins 1991, 48-50.

(b) Economistii December

Development Policy in East Asia andLatin America

or during the Cardenas reforms (1934-1940),

but some pre-

revolutionary estates survived while others fell into the hands of

victoriousgenerals (Riding I984,

In East Asia, by contrast,

Yet Japanese replacedKoreansas owners of the largest