Masters Program for International Development Policy

Understanding International Cooperation in East Asia

Term Paper - 2010

East Asian Developmental State: Essence, Experience and Relevance

Submitted by: Khagendra Prasad Rijal

Submitted to: Prof. Young- Sook Kweon
Spring 2010

Abstract:
The role of government in the East Asian economic development has been one of the most
controversial issues in development economics. The neo-classical economists claim that market
provides a mechanism for coordination of economic activities and they see market failures as an
exception. Counter arguments, on the other hand, stress the role of government in correcting
market failures in coordination. One such argument is the so-called ―developmental state‖.

Many studies have characterized the state in Japan, Taiwan, and Korea as ―developmentalist.‖
They were developmentalist in the sense that they mobilized domestic and, when necessary,
foreign resources for the development of the industries that were necessary for economic
development. Although it is true that governments in these countries engaged actively in
industrial development, there are great diversities among them with regards to the
implementation of policies. There are conflicting views about the role of government in
industrialization in East Asian experience. Anglo-Saxon economists showed no interest in
industrial policies at the beginning because they believed in the supremacy of neoclassical
prescriptions. At the other extreme, there are arguments emphasizing the role of government and
market failures. The proponents of this argument point out the importance of a centralized state in
institution-building to facilitate further growth.

Key words: developmental state, market failure, industrialization, institution-building, policies,

embeddedness
Introduction:
Economic development in East Asia has followed a remarkable pattern, unlike any other
developing regions in the world; and, as a region has offered a political, economic and social
model for the scholars, development experts and policymakers. The economic development of
certain East Asian economies over the last three to four decades has been dubbed the ―East Asian
Miracle.‖ This remarkable regional economic growth started in Japan in the 1960s and was
followed by the rise of South Korea and Taiwan in the 1970s and 1980s. Each of the East Asian
economies covered here began their economic rise from an agricultural base. This rise started in
the 19th century in the case of Japan and the 1950s for South Korea and Taiwan. These
economies expanded relatively rapidly into light industries such as textiles and clothing; and even
more rapidly into heavy industries such as steel, shipbuilding, and automobile manufacturing.
The move to electronics was especially rapid. In each of these cases, the state took an active role
in nurturing and guiding the process of industrialization.

East Asia chose authoritarian developmentalism for economic take-off in which the leader
functioned as primary force of change and the state intervention played a dominant role in
developmental decision making and resource allocation. The East Asian model of developmental
state presumed that growth requires a critical mass of mutually consistent policies. A strong state
is needed to mobilize resources quickly and flexibly. If broad participation is allowed, policies
are too slow and can‘t achieve critical mass due to power struggle, party politics and influence of
the interest groups.

Based on these backgrounds; it is noteworthy here, as argued about the importance of the market
economy by the neo-classical economists, for minimized intervention of the government in the
economic activities like resource allocation and benefits sharing. They plead that governmental
intervention in the economy is inevitably inefficient and distorting, and it also suggest that their
faith in the market mechanism without explicit policy direction is misplaced. Therefore, the
government should be concentrated only on public goods and correcting the market failures.

Some scholars also concede that state leadership and policy are relevant to East Asia
development history but they also argue that the nature of society, culture, market and evolving
international economy is also important. It is equally important to see and analyze how the
developmental state had most effectively and efficiently performed its role and how the static
approach was quite effective in these countries. A number of researches have been conducted and
much has been said and written about developmental state. Most of the researchers praised the
macroeconomic stability established in these economies as well as high savings rates, high rates
1
of human and physical capital accumulation, and the active role of the government in monitoring
development. The countries Japan, Korea and Taiwan in East Asia have received the largest
portion of the attention. Common characteristics of industrial development in these economies,
such as the incentives designed for selected firms, provision of public goods, superior
infrastructure, education, etc. are emphasized in most of the studies related to industrial
development in East Asia. Although it is true that governments in these countries engaged
actively in industrial development, there are great diversities among them with regards to the
implementation of policies. The goal in these countries was the same, altering the industrial
structure for further economic development through interventions in factor and product markets.
However, the ways this was realized were diverse.

East Asian model of developmental state succeeded to coordinate among the development elites,
and at the same time, relatively egalitarian income distribution was maintained in the
authoritarian regime in these countries. This paper puts some lights on the theoretical aspects of
developmental state, the experiences of the East Asian developmental state (Japan, Republic of
Korea and Taiwan) and also some implications of the East Asian model of developmental state.
Moreover, some challenges for the developmental state and its relevance is also explained in this
paper.

Developmental State: Concept

A defining feature of the developmental state thesis is the assumption of effective state
intervention. Developmental state, is a term used by international political economy to refer to
the phenomenon of state-led macroeconomic planning in which the state has more independent,
or autonomous, political power, as well as more control over the economy. A development state
is characterized by having strong state intervention, as well as extensive regulation and planning.
A developmental state plays an active role in guiding economic development and using the
resources of the country to meet the needs of the people. Theoretically, a developmental state
efficiently guides national economic development by mobilising the resources of society and
directing them toward the realisation of common goals to expand economic opportunities and to
improve the social well-being of the citizen. The concept of the developmental state was
popularized in 1982 by Chalmers Johnson.

The developmental state has not been a novel concept, but it came into particularly sharp focus in
Chalmers Johnson‘s account of Japan‘s Weberian ideal type of an interventionist state that joined
private ownership with state guidance. Though the provenance of the term ‘developmental state‘

2
goes back to Chalmers Johnson‘s study the Ministry of International Trade and Industry(MITI) in
Japan (Johnson 1982), there is now a substantial literature on these state. There is of course
debate as to when a state is a developmental state and when it is not based on the level of socio-
political emergence, economic advancement. Generally speaking, developmental states are those
states whose successful economic and social development performance illustrates how their
political purposes and institutional structures (especially their bureaucracies) have been
developmentally-driven, while their developmental objectives have been politically-driven; and
was able maintain a high and sustained growth in the economy.

A developmental state is characterized as a state with a strong and autonomous bureaucratic

leadership that directs the economy toward achieving developmental goals. ‗Developmental
State‘ where elite, economic bureaucrats take on developmental functions by ―guiding‖ the
national economy to promote economic growth (Johnson, 1995).

According to Loriaux, ‗developmental state is an embodiment of a normative or moral ambition

to use the interventionist power of the state to guide investment in a way that promotes a certain
solidaristic vision of national economy‘ (Lariaux & Woo-Cumings 1999). Ha-Joon Chang
underlines that ‗economic development requires a state which can create and regulate the
economic and political relationships that can support sustained industrialisation – or in short, a
developmental state‘ (Chang 1999). Consequently, a developmental state seems to be an
interventionist state. Castells defines ―a state is developmental when it establishes as its principle
of legitimacy its ability to promote and sustain development, understanding by development the
combination of steady high rates of economic growth and structural change in the productive
system, both domestically and in its relationship to the international economy.‖

The core idea of the theory on the developmental state is that the state authority should make
development its top priority and so by strategically intervening in the market, the state can
facilitate economic growth and an industrial transformation. The developmental state establishes
its autonomy through the creation of a rationalised (core) bureaucracy characterised by
meritocracy and long-term career outlooks. These traits make civil servants more professional
and more detached from powerful rent-seeking groups attempting to influence them. At the same
time, the state cannot be too insulated from society because it would then run the risk of
becoming self-serving rather than responsive to demands and needs for further development.
Thus, it must also be embedded in society that is, ‗connected to a concrete set of social ties that

3
binds the state to society and provides institutionalised channels for the continual negotiation and
renegotiation of goals and policies.

Peter Evans and other scholars have tried to define the concept of developmental state more
clearly-
Core aspect Emphasis on state capacity and ‗embedded autonomy‘
Political regime No normative commitment to any particular type of political regime,
though many examples of ‗successful‘ developmental states are
authoritarian
State legitimacy Derived from state achievements and performance
Political will Concern for national goals; commitment of core leadership is essential
Role of the State should actively foster economic development but avoid capture
state by particular groups
Model of social Exclusionary, based primarily on close relations between the state and
representation selected business groups; labour is controlled
What supportive aspect Create meritocratic civil service in key areas, imbued by a strong esprit
need to create de corps and concern for national goals.

The difference between the regulatory and developmental state is that the main actors for
economic development in the regulatory state are market and private enterprises whereas in the
developmental state, this role is actively played by the state. In the developmental state, the state
authority most rigorously identifies the development strategies, prioritize the projects, allocate the
resources and make a very strict judgement whether the performance is satisfactory. The
regulatory state regulates the enterprises only when the enterprises deviate from established
regulation. In short, the regulatory state can be characterised by market driven development.

Characteristics of the Developmental State

The Developmental State is basically characterized by proactive intervening role of the state for
formulating development policies, prioritizing them, allocating the resources and distributing the
output through the directional as well as coordinating measures. The basic characteristics of the
developmental state can be explained as follow-
 Identification of the strategic areas for investment,
 Economic nationalism,
 Protection of fledging domestic industries,
 Minimizing the influence of the elites on state policy,
 Efficient government bureaucracy,
 Alliance between the state, labour and industry called corporatism,
 Prioritization of economic growth over political reform,
 Strictly discouraging the rent-seeking behaviour,
 Coordination among the development elites,

4
Core Attributes of East Asian Developmental State Model
Although there are some disagreements in the literature regarding the core set of policies that
enabled the East Asian countries to achieve high levels of development and economic growth,
there is general consensus about the essential features that characterised these successful
developmental states.
Table: 1.1. Sectoral Shares in GDP at Current Market Prices in Japan, Korea and Taiwan
Sectors Economies 1960 1970 1975 1980 1985 1990 1995 2000 2005
Japan 9.0 5.0 4.5 3.2 2.6 2.1 1.7 2.0 1.6
Primary

Korea 36.9 26.9 24.5 14.2 12.6 8.5 6.2 4.6 3.0
Taiwan 28.7 15.5 12.8 7.8 5.9 4.2 2.4 2.1 1.7
Japan 43.0 32.9 31.2 31.1 30.4 30.7 29.4 34.6 29.7
Industry

Korea 15.9 22.4 27.5 37.8 40.9 43.1 43.2 42.7 35.8
Taiwan 29.5 41.3 45.9 51.4 50.1 41.2 37.5 32.3 25.0
Japan 16.5 25.8 22.5 22.0 22.1 21.1 19.1 23.8 21.0
Manufact

Korea 14.0 20.5 25.3 26.1 29.2 28.8 29.4 31.5 25.3
uring

Taiwan 22.3 29.2 30.9 36.0 37.6 33.3 27.9 26.3 21.9
Japan 48.0 36.3 41.8 43.7 44.9 46.1 49.8 63.4 68.7
Services

Korea 47.4 50.7 48.0 48.1 46.5 48.4 50.6 52.7 61.1
Taiwan 41.8 41.2 41.3 43.0 44.0 54.6 60.1 65.6 73.7
Sources: ADB Key Indicators (various years), DGBAS (2001), IMF International
Financial Statistics (various years), Li (1988), and World Bank World Development Report (various years).
Table1.1. shows that the sectoral structure of output has been quite low by the 1960s especially in
Japan; and has changed considerably in Korea and Taiwan from 1960 until the 1990s. The share
of primary sectors decreased gradually while the share of industry (i.e., manufacturing, mining,
and energy), especially the manufacturing sector, increased remarkably within two decades. This
happened at a time when Japanese sectoral structure of output reached maturity in the 1970s.
During this transformation, these countries were implementing what we call today ―industrial
policies.‖ The recent upwards surge of the share of services in these countries can be attributed to
the maturity achieved. In Korea, the decline in the share of agriculture has been accompanied
with an increase in the share of industry above 40 percent of GDP. These data are enough to see
that these East Asian economies realized a remarkable industrial progress.

Most of all, a strong core of state institutions with the capacity to promote economic growth
without being ‗captured‘ by particularist interests is regarded as having been essential. This is
what Peter Evans (1995) has called ‗embedded autonomy‘. Two factors are assumed to have
enabled such a bureaucracy embodying embedded autonomy and the developmental orientation
of the state to arise in the East Asian cases: a political leadership that was committed to
development and, in most cases, the uprooting of traditional elites. In East Asia and particularly

5
in Japan, South Korea and Taiwan, political leadership committed to development was often
motivated by regional competition, nationalism and the desire to ‗catch up‘ with the West. As a
result, development was regarded as a ‗national project‘ of the first priority. Such determined
political elites were either relatively uncorrupted or limited personal gains to non-predatory
corruption which did not impede investments and the expansion of national productivity. Ashton
(1999) identify four characteristic features on the East Asian developmental states: the politico-
economic strategy, the mechanisms to link trade and industry policy to education and training
policy, the centralised control over the education and training system and the ability to maintain
the links through time. Along with these apparatus, a development state also requires the
following attributes too -

Strategic capacity
Strategic capacity means the ability of the state to take the lead in defining a common national
agenda, to mobilise all of society to take part in the implementation of this agenda and to direct
society's resources towards this shared programme. The developmental state must be able to unite
the public sector, business, labour and civil society in a partnership geared to implement this
shared programme. The developmental state must also play a much stronger role in establishing
clear, measurable and time-bound targets for common programmes, and for monitoring their
implementation.

Organisational and technical capacity

The State needs the organisational capacity to ensure that it has the most effective and efficient
structures and systems to realise its goals. It has to improve systems and structures within each
sphere of government, and national government has to provide the necessary cohesion to deliver
the results needed. The developmental state‘s technical capacity is its ability to translate broad
objectives into programmes and projects and to ensure their implementation. Technical capacity
also involves the state's capacity to plan and monitor the implementation of its programmes. All
of these tasks require a stronger emphasis on the state's human capacity to carry out its work. The
success of a developmental state depends on the active involvement of social partners. The main
approach to governance places strong emphasis on building a broad front for development that
involves a strong relationship between government, labour, and business as well as other
organisations that are formed by different groups of citizens.

Developmentally driven institutions

In each case, the circumstances outlined above enabled the regimes to impose, or negotiate, an
agreed set of developmentally driven rules governing economy and polity in order to protect and

6
promote national interest. In short, their politics were developmentally driven and their
development was politically driven because growth was seen as important for national autonomy
and defence (in the slogan of the Meiji after 1870: ‗Rich country, strong army‘). External threat,
concern to avoid internal conflict, a need to ‗catch up‘ and a recognition that growth and equity
were not inconsistent but mutually re-enforcing policy goals were all part of the political
dynamics which shaped their developmentally effective institutions.

Emergence of the Developmental State

The period beginning from the end of the World War II until these days has seen unprecedented
levels of economic growth and development amongst the economies of states in East Asia; and
mostly the economies of Japan, South Korea and Taiwan. These success stories have come about
in the face of neo-liberal theory, as they have all had the common factor of an interventionist state
that has directed the economic development of these states. As a result of this successful form of
interventionist development, it has created a new theory in development studies, that of the
developmental state. The process of development that the East Asian states underwent involved a
lot of factors and different contexts, which worked as contributing factors for the emergence of
the developmental state; but the involvement of the state cannot be questioned.

Cold War
The context of the Cold War, during which much of East Asia‘s development took place, seems
to be particularly important to the emergence of the NIC‘s. The security threat that was faced by
the East Asian states during the Cold War helped to foster nationalism in these states, and with it
a commitment to a long-term transformation of the economy, in order to ensure the Communist
threat was not realised. States that were within reach of the communist threat were given special
treatment by the US, amongst others, and this enabled them to extract important advantages vis-à-
vis the core. These advantages were combined with continued expansion in the US market,
acting as a recipient for increased East Asian exports, creating a favourable situation for
development. As well as creating access to markets, the Cold War provided a more tolerant
climate for the developmental state approach. This meant that as long as the East Asian states
remained firmly anti-communist in their approach, the rest of the Western World turned a blind
eye to the authoritarian regimes and market intervention approach. The freedom and assistance
allotted to these states during the Cold War was crucial in the emergence of the developmental
state. Because of this, it may prove to be another limiting factor in ideas of applying the

7
developmental state to other regions. This is because the East Asian developmental state was the
product of a certain time and place.

Asian Culture - Unique East Asian Characteristics

It has been argued that one of the primary reasons for the rapid economic development occurring
almost exclusively in East Asia is that there are some unique aspects of Asian culture that make
development possible. Because of these unique values, it can be argued that it restricts the ability
of the developmental state to be transferred to other contexts, which may hold different values. It
is the Confucian values that are most commonly associated with the developmental state in East
Asia. One of the Confucian values that are identified with the developmental state is the idea that
‗Asian societies have always been more concerned with the welfare of the group over the
individual‘. This is relevant in the developmental state context because it suggests a willingness
to make personal sacrifices in order for the state as a whole to progress. In this vein, as long as
the state is making progress, individual loss of rights is not viewed as such an issue. Another
Asian value that contributes is the respect for a hierarchical society, so that state authority
whether sanctioned by free elections or not, is respected and hierarchy was held to be natural and
good. This means that even if the methods that a head of state utilised to obtain the position are
questioned, the respect for hierarchy will allow the citizens and the state to carry on with the
goals of developmental state. It can be observed that Confucian culture, with its emphasis on
high esteem to authority and hierarchical human relations, contributes to the social stability and
political order even though this alone is not a sufficient explanation regarding to coordinate
among different societal values in these selective countries.

External threat
If we see the situation in most East Asian countries, in all major cases, external threat was intense,
thus providing very powerful incentives for concerted policy, cooperation amongst elites and
commonly the encouragement of a nationalistic ideology often with economic, political and
cultural expression. Japan in 1870 was threatened by the intrusion of Western powers in Eastern
waters and the danger of sinking economically after the second world; the Republic of Korea was
not only under constant threat but attacked by its Northern neighbour; Taiwan had the People‘s
Republic of China glaring at it across the straits.

The coherence of a coalition of internal elites:

The coalition, cooperation and the political will, either of a dominant player such as the military
or in the form of a compromise amongst elites around a new set of rules, has commonly been

8
shaped by these circumstances, and radical opposition has often quickly and effectively been
neutralized or co-opted. That was certainly the case in the Republic of Korea after the military
coup of 1960. But another, softer version of this kind of settlement, occurs where rival elites or
interests have compromised around a new set of political and socio-economic rules – often
underpinned by a ‗social contract‘ – which enables growth to be promoted by the state without
massively threatening the dominant interests. Giving the state a major role in promoting
pragmatic cooperation between state and business, a ‗social contract‘ between business and
labour and a steady stream of welfare measures were all part of the political processes which
forged stability, promoted growth and tackled poverty.

Concentration of power and continuity of policy

In all the prime cases – Japan, Republic of Korea, Taiwan as a milder developmental state - there
was substantial concentration of political, military and ideological power in the hands of the state,
at least in the formative stage. In the case of the Republic of Korea and Taiwan de facto military
rule or military-backed rule ensured this. The continuity of political leadership ensured continuity
of policy and the ability to adjust policy where necessary. Indeed one of the more remarkable
features of the political regimes in all developmental states – prime and sub-prime – has been
their commitment to growth and equity, whether their reasons were ideological or based on
political pragmatism, or whether they saw that ensuring welfare, increasing opportunity and
containing if not decreasing inequality were necessary conditions not only for broad-based and
effective economic growth, but for the political stability that would ensure it could happen.

Synergistic’ relations among development elites

Given the urgency of their goals, developmental states were quick to develop effective
bureaucracies with the means to ensure infrastructural power (Mann 1986), that is the capacity to
devise, implement and achieve socio-economic and policy goals. But also, these bureaucracies
were generally well-trained and highly competitive with respect to entry and promotion. The
bureaucracies were located close to and protected by executive power and authority, and most
developmental states were able to build and maintain powerful, competent insulated specialist
economic bureaucracies, highly trained and largely insulated from the cloying demands of special
interests, avoiding, in the main, ‗capture‘ by such interests.

Financial Control and Channelling

The East Asian developmental states, in particular, exercised tight control over capital and
finance. In Japan, the Postal Saving plays significant role to finance for development whereas in

9
the Republic of Korea after 1960, for example, all financial institutions were controlled by the
state and hence it was able to direct loans to where it thought they would best serve national
strategic goals. As a consequence, these states were able to establish close and often influential
relations with emerging or aspirant private business and financial interests and also being able to
disciplining them, both domestic and foreign, and hence bring out a unified commitment to
capital accumulation and then investment.

External Supports
Most importantly, most developmental states enjoyed considerable moral, diplomatic, financial,
material and in some cases military support from major western powers in the context of the cold
war. Technical help, financial help, military help and diplomatic cooperation – without
contemporary governance or reform conditions – were given quite liberally to these states, even
though they all were adopting economic development strategies which would have been entirely
at odds with Washington consensus orthodoxy of the 1990s.
The following table more precisely presents what facilitating factors encouraged the
developmental state to be successive in the 1960s and 70s.

International National
Cold war Weak Society
 US aid to strong state  Weak land oligarchy
 Anti communism as ideology  Weak industrial bourgeoisie
 Sense of urgency  Weak labor class
 Social unity and consent
Favourable economic environment
Suitable set of ideas
 The golden period
 Neo-mercantilism (Stubbs)
 Favourable access to export markets
Initial conditions
 Japanese restructuring
 Land-distribution
 Korean and Vietnam wars
 Educational level

Positive Consequences of Developmental State

Catch-up Development
At the conclusion of World War II, the economies of Japan, Korea and Taiwan found themselves
near the bottom of the development ladder, a long way behind the advanced developed states of
the west. Therefore, they needed to find a strategy that would allow catching up with the
industrialised west. The government recognised the need to catch up with the west by
undergoing industrialisation process, but there were an absence of capitalists to kick starts this
process. Therefore, the government took the role of industrialist and took responsibility for
10
beginning construction of modern factory facilities. It was important for the government to
intervene in East Asian states that were late entries in the industrialisation race. Late arrivals do
not have the comparative advantage of new, innovative products and processes and thus
government intervention is essential to their competitiveness and survival. This theory comprises
the infant-industry model designed to make economy and industry globally competitive. The
idea of the infant-industry model is to ‗protect and nurture‘ industries until they have developed
sufficiently and have caught up with international standards. By implementing the ideas of the
infant-industry model, the East Asian states created the chance for their industrialisation to catch
up with the west.

Technology Transfer
Simply protecting domestic industry and hoping it catch-up with the west was not a rapid enough
development strategy for Japan, South Korea and Taiwan. More needed to be done to ensure that
domestic industry would rapidly develop to western standards, and thus it was necessary to
ensure that a transfer of innovation and technology took place. The catch-up position that East
Asian economies found themselves in allowed them to import technology from the developed
world to learn the ways of economic advancement not from scratch but by importing knowledge,
technology and economic know-how from abroad. This technology was gained from a number of
different sources; allow various technologies to be acquired through investing in foreign licensing
and technical assistance. The various technological processes that had been claimed from more
industrialised areas were then able to be applied to the East Asian context, in order to try and
obtain the most from the newly obtained theories. The state helped to facilitate this transfer of
technology, and this allowed the economies of East Asia to skip a few rungs on the development
ladder, and progress toward development and industrialisation at a more rapid rate.

State Protection and Subsidies

The provision of protection and subsidies was one of the most important strategies in the
industrialisation of East Asia, and remains a key component of the developmental state theory.
Subsidies were vital in assisting new industry as they began the development process, protecting
them from market forces and competition. These government subsidies were generally financed
by the state from taxation revenues, or from funds borrowed from overseas. State policy also
assisted the agricultural industry through subsidies and other mechanisms to increase output,
allowing surplus labour to be created that could be utilised in the industrialisation process. While
the subsidies and protectionism that was provided to new industry allowed it to develop without
the threat of global competition, it was made clear that state subsidies would not be present

11
permanently. It was always intended that the protected industry of East Asia would eventually
enter into the free market and so they must be ready to be competitive when this occurred. The
theory behind protecting industry at first before removing protectionism is ‗to ensure the initial
survival of strategic industrial sectors without forfeiting gains from trade or subsidising industries
that cannot compete globally‘. This strategy was effectively managed by the state in Japan, South
Korea and Taiwan economies, facilitating the rapid industrialisation that took place.

State Targeting of Industry

Another vital aspect to the state intervention in these three countries was not just that they
provided subsidies and protection, but that they only provided subsidies and protection to certain
industries. Only industries that were worthy of receiving this assistance received it. Reputation
building is thus an important part of the developmental state, in order to strengthen support in the
private sector towards the view that longer term projects are worthwhile. Protection offered by
the state to domestic firms was also targeted at certain industries, in the sense that protection was
tightly linked to export performance. What this amounted to was effectively a reward system,
where industry that performed well received more assistance from the government, and those that
failed were cut off from funds. In addition to making judgements on basis of performance, state
subsidy also targeted certain industries with potential for development, based on criteria such as
global demand elasticity and potential for technological progress. This created a portfolio of state
supported industry that was protected in order to allow them to develop, and stir the
industrialisation more generally. This was in effect a shortcut for industrialisation to target
selective industries, rather than all industries, and to develop them into first-rate competitors. By
selecting certain industries and not just providing blanket protection for all industry, the state
authority ensured that a sector of strong, competitive industry would develop.

Relationship between State Bureaucracy and Industry

It is crucial to the ability of the state to implement its policy directives that it has a close
relationship between the bureaucracy representing the state and the industries that policy is being
dictated to. While it is true that the developmental state lives on the fine line between productive
cooperation and rent-seeking collusion among state and business, this remains an essential
partnership for a developmental state. In order to minimise the risk of corruption in this
bureaucracy-industry partnership, these East Asian states ensured that the bureaucracy was
comprised of only the most elite, educated members of society. Rigorous standards of entry not
only ensured a high degree of bureaucratic capability, but also generated a sense of unity and
common identity on the part of the bureaucratic elite. Hence, the bureaucrats were imbued with a

12
sense of mission and identified themselves with national goals which derived from a position of
leadership in society. The strong loyalty that was felt by members of the bureaucracy of these
states meant that the bureaucracy was essentially an extension of state goals. This allowed
industry to be embedded in the policy of the state, and gave the state maximum control over the
decisions and direction of industrial policy. Being able to control policy direction, especially in
relation to industry was vital in a developmental state as it ensured maximum state control over
the industrialisation process.

State Autonomy from Society

The separation of the state from societal pressures is essential to the developmental state as it
allows the state to carry out its function in directing development without being subject to other
influences. Indeed, the developmental state is defined by its ability to balance strategic linkages
with, and relative autonomy from, different societal forces. This is a crucial aspect of the
developmental state because it allows the state to control the direction of the economy, the
direction of the development process. The poor level of autonomy restricts the capacity of the
state to develop. The impartiality achieved by having an autonomous state means that no bias
can be present in policy formation, and allows the state to focus on what is the best decision for
continued development which was actually effectively practised in these countries.

Negative Consequences of Developmental State

While there have been numerous positive consequences in the process of development that the
East Asian states have undergone, these have come at a price. This leads to the question of
whether it is even a good idea to try and apply the same strategy, to other states, regardless if it
works or not. Some of the problems associated with developmental state process will now be
outlined.

Labour Conditions in Developmental State

One of the ways that the governments of East Asian states pursued its development-at-all-costs
approach was to restrict the rights of workers. Policy in a developing state was aimed directly at
bringing about national development, no matter what the cost was to the population at the time.
One of the key strategies in this development quest was the removal of workers‘ rights, which
was manifested through attempts to ‗repress labour conditions to keep wages low and thereby
attract investment.‘ It was part of the state strategy to provide ‗corporations the cheapest, most
productive and least militant workers possible.‘ We can see then that the poor labour rights were
not just a side product of the developmental state, but actually a specific policy designed to attract
13
investment. This targeting of workers for exploitation led to poor working conditions in some
cases, where ‗hazardous and unhealthy working conditions and long work hours exact high costs
from workers‘. The developmental state set out to restrict the rights of workers and created
policy aimed to exploit workers as much as possible. Therefore it can be questioned whether this
is effective development policy.

Welfare System in Developmental State

When studying the extent of welfare available in the developmental state, we can observe that the
entire state was geared towards development, regardless of the consequences. Therefore, we see
that ‗the welfare state function has been virtually absent‘. The state had assumed no
responsibilities outside the domains of production and capital accumulation.‘ One of the main
duties from a state authority is to provide a level of welfare and support for its citizens, but this
responsibility was ignored by governments of developmental states. The view of the state
authority was that as long as social inequality did not become too large, and some semblance of
trickle down from overall growth was being felt, then this was an acceptable situation and the
state did not need to provide anything more. The only citizens who received some limited
welfare benefits were ‗those who were working and thus economically productive.‘ The citizen,
who needed assistance most, like the unemployed, did not receive any. Effectively, this was
treating humans in a similar way to other industrial policy, protecting those who were performing,
and leaving the failed to die off. This may be acceptable practice when dealing with industry, but
not with human life, and so the lack of welfare offered remains one of the problems of the
developmental state.

Democracy and the Developmental State

One of the most definitive characteristics of the developmental states of East Asia was their
authoritarian nature. Therefore, it can be argued that- the model of the developmental state was
inconsistent with the vision of a pluralistic form of democracy, in which a multitude of small-
scale interest groups enjoy broadly equal and unrestricted access to the state.
Yet despite the fact that the developmental state seems to be mutually exclusive of democracy,
the states of East Asia have still tried to portray a veil of democratic process in society. In the
wake of the Cold War and with renewed international pressure, East Asian states have found
themselves trying to prove their legitimacy by applying democratic processes and structures.
Despite these late attempts at democratic legitimacy, during the development years none of the
NICs have made much progress in creating democratic structures that would facilitate meaningful

14
political participation by the majority. The authoritarian nature of the developmental state
seemed being indifferent with the key concept of democratic values and practices.

Challenges of the Developmental State

As mentioned above, the East Asian developmental state model reflected a certain time and place.
The conditions that facilitated the birth of the East Asian model of state-led development no
longer exist. Moreover, the economic geography of development today looks very different than
it did during the immediate post-war period. The end of the Cold War, the onset of economic
globalization, and positive trends toward democratic deepening in Asia and the rest of the world
have together challenged the East Asian developmental state—as it exists in places such as Japan
and South Korea and Taiwan.

Exogenous Economic Pressures

The East Asian developmental states have become susceptible to the pressures of economic
globalization. Because places such as Japan, South Korea, Taiwan, and even China since the late
1970s have become so integrated into the world economy, they have felt the pressures for
international convergence in economic policy. They have less room in which to get the prices
wrong. With the deepening of GATT rules and the recent institutionalization of the World Trade
Organization, the East Asian developmental states have in fact long been unable to protect their
home markets and thus have been unable to shelter their infant industries from international
competition. The end of the Cold War has also meant that allies such as Taiwan and South Korea
can no longer ‗take advantage of‘ as it were, by distorting prices for the purposes of gaining
better terms of trade. Furthermore, the East Asian developmental states have become
increasingly plugged into global money flows. Japan in the mid-1980s, followed by Taiwan and
South Korea during the 1990s, and were compelled by the United States and the global
community more generally to liberalize exchange rates. Financial markets were also gradually
pried open by foreign investors and made more competitive.

The end result has been that the East Asian developmental state, be it in Taiwan or in South
Korea, has less flexibility and authority with which to strategically allocate domestic resources
along industrial sectoral lines—a key characteristic of the post-war developmental state model.
Strategies for catch-up development also do not apply to today‘s East Asian economies. Put
simply, the East Asian region is no longer economically backward. East Asian countries have, by
and large, caught up, and they are now moving toward developing high-tech sectors where mental
capital is more highly prized than cheap labor supplies. Openness to foreign ideas and knowledge

15
is certainly still crucial for those economies in the region trying to gain a foothold in the new
knowledge-based economy. However, openness and learning in today‘s industrial landscape are
more for the purposes of innovating new technologies rather than for importing existing
knowledge and technologies from abroad.

The East Asian developmental states have therefore embarked on a new innovation industrial
paradigm and have begun to replace past practices in industrial learning. The state still has an
important role to play. Private-sector initiatives and ‗accidental‘ discoveries in high-tech sectors
have outpaced the capacities of state-level policymakers. The post-industrial developmental state
in East Asia has had to learn to deal with the unpredictability and uncertainties inherent to
technological innovation, and the state‘s ‗big‘ leadership role, as defined by Wade, has
diminished considerably.

Endogenous Pressures
Pressures on the East Asian developmental state have also come from within. Peter Evans
elaborates on this when he warns that the developmental state is inherently degenerative and that
it in many ways the East Asian developmental state model unleashes its own endogenous
pressures for change and adaptation. Three are of particular significance. First, economic
modernization in the region has come with a major demographic shift. People are living longer
due to better overall health conditions. Added to that, the population replacement rates in many
East Asian countries have declined precipitously as lifestyles and norms surrounding the family
have changed and as many Asian countries continue to disdain unbridled immigration inflows.
The proportion of the Japanese population over the age of sixty-five years, already among the
highest in the world, is expected to reach 25 percent by 2020. Within East Asia more generally,
the gray population (over sixty-five) should account for 11 percent of the region‘s population by
2025. In other words, large ‗unproductive‘ portions of the population will need to be cared for, a
proposition that Peng argues runs against the productivist orientation of East Asian
developmental state model. Compounding these demographic pressures is the fact that traditional
family structures have also changed. Peng‘s study on Japan and Korea shows that more women
are entering the formal labor market, both by choice and because of economic necessity, meaning
that family care roles have been shifted onto the state. Therefore as she said that the East Asian
developmental state can no longer afford, politically or ethically, to remain welfare laggards, nor
can they be narrowly productivist in their approaches to social policy reform and development
more generally.

16
Second, the experiences of the East Asian developmental states during the late 1990s have clearly
demonstrated the ease with which cooperative relations between the state and business ultimately
degenerate into relationships based on unproductive rent-seeking. Evans‘s notion that the
developmental state is inherently degenerative is particularly striking in this respect. That the
conventional wisdom on the deep causes of the 1997 Asian financial crisis lays blame on the very
institutions that made up the developmental state has delegitimated the benevolent image of
authoritative state leadership in directing industrial transformation and economic growth. The
fine line between productive cooperation and rent-seeking collusion among state and business has
demonstrated itself to be just that.

In this context, Shih‘s opinion on China‘s attempts to develop its western frontier therefore
provides an important rejoinder to the assertion that the developmental state‘s control over the
allocation of resources in industrialization is necessarily productive. He finds that both the self-
interested temptations of individuals and the imperatives of political survival among China‘s
political elite are simply too overwhelming for the developmental state to check against
pernicious rent-seeking behaviour. Indeed, Pekkanen suggests that scandals within the Japanese
bureaucracy have also tarnished the image of the developmental state. Thus, for the East Asian
developmental state model to regain any sort of legitimacy and theoretical resilience, it must
contend with the challenges of corruption and collusion that, ironically, appear to be intrinsic to
state-led economic development.

Third, economic development in the Asian region coincided with a wave of democratic
deepening beginning in the 1980s. Indeed, with the end of the Cold War in sight, authoritarianism
among U.S. allies, especially those in Asia, was increasingly less tolerated. Economic
modernization also began to fuel demands for political reform in places such as Taiwan, South
Korea and other countries too. Though Japan was democratic throughout the post-war period, it
too experienced a major political realignment during the early 1990s when the ruling LDP was
defeated for the first time in 1993. The consequences of democratic reform have not been trivial.
As Peng and Pekkanen argue, democratic deepening has affected the political bases of the East
Asian developmental state in many significant ways. Once closed and tightly knit policy
networks have become more institutionally porous and pluralistic. The bureaucracy has become
delinked from the ruling parties. Legislatures have become increasingly accountable to voters.
Civil society has been reinvigorated, a legacy of prodemocracy activism within the region. As
Pekkanen points out in the case of Japan, groups have gradually become more professionalized
and have become increasingly engaged in policy agenda-setting and decision making processes.

17
Relevance or Applicability of Developmental State
While the developmental state was highly successful in bringing about industrialisation in East
Asia, and especially in Japan, South Korea and Taiwan, some challenges have begun to arise in
relation to its strategy. Circumstances have changed enough to prevent the developmental theory
being applied elsewhere, and so in a similar way those already under its prescription are facing a
new set of challenges. The conditions that facilitated the growth of the NIC‘s have gone, and
they have become so well integrated into the global economy, they have felt the pressures for
international convergence in economic policy as market forces have come to rule investment
logic. The end of the Cold War, along with economic modernisation has led to ever increasing
calls for NIC‘s to loosen authoritarian controls and participate in democratic deepening, allowing
for greater freedom of political expression and social action. Finally, the success of the
development of the growth program has improved quality of live for citizens in East Asia,
improving life expectancy and creating an ageing population. These all present a constant and
new set of challenges for the NIC‘s which successfully caught up development path in the past.
It would therefore be prudent to determine how the developmental state is able to deal with these
new ideas before claiming the developmental state process as a victory for development theory
that should be applied to other regions.

The scholarly debate on the developmental state has raised the issue of whether it is actually
possible to simultaneously achieve both human and economic development. In the case of the
developmental state and the so called East Asian miracle, it would seem that it is not possible that
both forms of development can be advanced at the same time. The developmental state is very
much a theory that focused solely on economic growth and industrial development.

The developmental state came about in East Asia as a result of numerous, unique and complex
factors. Because of this, it is needed to be very extensively analyzing the situation of every
components of political, social, economic, cultural and more importantly the human aspect of a
country to apply this model whether it is applicable to another region. So, the relevance and
replicability of the East Asian the developmental state should be judges on the basis of the
following context-

International
The end of the Cold War
 The decline of anti-communist ideology
 Lessening social unity
 Less elite unity
 US push for political liberalisation
National
 Stronger and more internationalized industrial
bourgeoisie
 Stronger working class
 Stronger middle class
 Stronger civil society
 Technocrats up - bureaucrats down
 Democratisation

18
  Fragmentation
 Corruption
 Leadership discontinuity
Economic globalisation
 Export of neo-liberalist ideas
 US pressure for economic liberalization
 Financial volatility
 Increasing protectionism
 Import of manufactures
 Export of technology (JP)

The table also shows why the East Asian developmental state has been withered and same
developmental state modality is not applicable in the present era of globalization and
internationalization.

As the globalization effect for the countries in the world has been more and more intense and vast,
and the States are vastly interwoven and interconnected among themselves, countries are keen on
liberalizing their economies for enhancing their competitiveness so as to benefit from and
international trade and other forms of cooperation as well. The increased innovation in
production technology and computer operated machinery has led to production returning to the
core in some instances, and less labour is required which does not benefit labour-rich developing
regions. The increase in the scope and number of trading blocs and regionalism such as the
European Union, and the North American Free Trade Agreement have been making it much more
difficult in today‘s climate for a newly industrialising state to penetrate a new market. Then, the
developmental state, as we know, has been in closely revisited before being applied to another
developing region.
Moreover, the socio-economic structure of countries has been so complex and heterogeneous that
any rule of thumb like developmental modality or mechanisms can hardly address the needs of
every section of society. Besides, today people are more concerned and informed about their roles
and stake in the process of development than in the past. The campaigning for values of
democracy and practice of participatory democracy have made people much aware about how the
political leadership has been dealing with the issues of collective benefits. The political
leaderships are in frequent change and even discontinuing in some countries because of transition
and political instability. On the one hand, the roles of the state have been more complex and
diversified that it has not only to produce but also to pursue every citizen that they have been
fairly distributed the benefits from the state and government. On the other hand, the emergence of
active private organizations and civil societies have added more synergy for the development
efforts that the state is unlikely to be success in development efforts unless it get the confidence
from these organizations and societies and work together. Undermining them and bypassing them

19
has almost been impossible these days. Therefore, the applicability of developmental state not
only depends on the international support and environment but how the domestic social structure
has been formed and how the citizens are responding on the state‘s policies also. But it does not
mean that the role of the government and state apparatus is minimal. The mechanisms of the state
especially in the least developed countries should be committed for development and pro-people
equally balancing the socio-cultural harmony and political stability. So, in this context, an
adapted developmental state model could likely be applied in some countries if appropriate
changes are carried out to make it a viable strategy for development. But one remarkable point is
that most developmental states in East Asia were initially authoritarian. This does not imply that
all authoritarian regimes are developmental and it also does not mean that states need to be
authoritarian in order to be developmental.
Conclusion
There is little doubt that government intervention in the East Asian economies was the vital to
their development and thus forms the key aspect in the developmental state theory. One cannot
coherently claim that the effect of government intervention in East Asia was residual, or that high
performing East Asian economies could have grown as fast or even faster if their governments
had intervened less or not at all.
In conclusion, developmental state, if referring broadly, is not only the collective economic and
human development, but also the state‘s essential role in harnessing national resources and
directing incentives through a distinctive policy-making process. The role of the state is vital in
fostering, guiding, and ensuring economic growth and technological modernization. The form of
ruling system may be either but the first and foremost the commitment on the part of the ruling
elites to develop the economy in a specific direction and to optimize the benefits and welfare for
the people. That is, a state capable of establishing efficient institutions, providing conducive
environment for them to play their roles and create synergy for socio-economic development is a
urge for the development of a state; which not only allow and encourage growth, but directly
foster it by a variety of active state measures of involvement, and also provide the social policy to
generate and sustain the legitimacy and ultimately maximize the welfare of the citizen.

20
References:
 Alice Amsden, ‗Asia’s Next Giant: South Korea and Late Industrialization’, Oxford UP, 1989.
 David Friedman, ‘Misunderstood Miracle: Industrial Development and Political Change in Japan’, Cornell UP.
1988.
 Eun Mee Kim, ‘Big Business, Strong State: Collusion and Conflict in South Korean Development’, SUNY
Press, 1997.
 Evans, Peter, ‘Predatory, Developmental and Other Apparatuses: A Comparative Political Economy
Perspective on the Third World State’, Sociological Forum, Vol. 4, No. 4, 1989
 Evans, Peter, ‘Embedded Autonomy: States and Industrial Transformation’ Princeton UP, 1995.
 Irma Adelman and A. Erinç Yeldan, ‗The End of the Developmental State?’ University of California, 1999.
 Johnson, Chalmers, ‗MITI and the Japanese Miracle: The Growth of Industrial Policy’, Stanford UP. 1982.
 Lawrence Greenwood, ‘Globalization and Economic Development in East Asia’ University of California, 2002.
 Linda Weiss, ‘The Myth of the Powerless State’, Cornel UP. 1998.
 Meredith Woo-Cumings, ‘The Developmental State’, Cornel UP. 1999.
 Stephen Haggard, Institutions and Growth in East Asia, Studies in Comparative International Development,
Volume 38, No. 4
 The East Asian Miracle: Economic Growth and Public Policy, World Bank.

21