The Wages of Containment: State-Building, American Grand Strategy, and the

Cold War in Europe and East Asia

James Lee1

jal013@ucsd.edu

Postdoctoral Research Associate

University of California, San Diego
Ph.D., Princeton University

09/24/2020

Draft. Please do not cite or circulate.

1 I would like to thank Thomas Christensen, Christina Davis, Atul Kohli, and Helen Milner for their advice and
guidance throughout the course of this research. The Lynde and Harry Bradley Foundation, the Princeton Institute
for International and Regional Studies, the East Asian Studies Program, and the Center for International Security
Studies at Princeton University provided generous support for language study and archival research. Any errors are
my own.
2

Introduction

(This section is from my current work on the book manuscript.)

In 1949, the Chinese Nationalists (KMT) were at the nadir of their fortunes. The

Communist forces of Mao Zedong had shattered the old regime. But even as Mao declared the

founding of the People’s Republic, Chiang Kai-shek was preparing for another maneuver. He

ordered the government of the Republic of China to retreat to Taiwan, where it was joined by

millions of soldiers and refugees in a state of panic and fear. Attempting to salvage hope from bleak

despair, Chiang conjured a vision of the future: the fate of the Nationalists, he said, was not to

spend the rest of their days in exile, but to launch a counteroffensive and return to the mainland.

The state of heightened tension in the Strait of Taiwan presented a formidable strategic

challenge for the United States. After the outbreak of the Korean War, President Truman

interposed the Seventh Fleet in the Strait and renewed the United States’ commitment to Taiwan’s

security, but the peace between the rival Chinese governments was fragile. The United States had

to not only deter the Chinese Communists from invading Taiwan, but also deter the Chinese

Nationalists from invading the mainland. This objective placed limits on how much support the

United States could provide to Chiang’s regime.2 The strategic challenge was compounded by a

fear among American officials that Taiwan might come under PRC control for purely

psychological reasons: if the Nationalists suffered a loss of morale, they might be tempted to

negotiate a settlement with the Communists.3

2 Tucker, Nancy Bernkopf. 1996. Taiwan, Hong Kong, and the United States, 1945-1992: Uncertain Friendships. New York:
Twayne Publishers, pp. 62-64; Christensen, Thomas. 2011. Worse than a Monolith: Alliance Politics and Problems of
Coercive Diplomacy in Asia. Princeton, NJ: Princeton University Press, pp. 155-156.
3 Taylor, Jay. 2011. The Generalissimo: Chiang Kai-shek and the Struggle for Modern China. Cambridge, MA: Harvard

University Press, pp. 469-470. “National Intelligence Estimate.” 19 Mar. 1957. Document 244. Foreign Relations of the
United States, 1955-1957, Volume III. Washington, D.C.: U.S. Government Printing Office. Available at
https://history.state.gov/historicaldocuments/frus1955-57v03/d244.
 3

Economic development became the cornerstone of the United States’ strategy toward

Taiwan. American officials believed that industrialization and growth would lift the spirits of the

Nationalists, provide them with another claim to legitimacy, and strengthen them against the threat

of Communism – all without the risk of abetting a regime that was already steeled for war. The

confrontation between the ROC and the PRC, between “Nationalist China” and “Communist

China,” would move to the theater of ideological rivalry, to the competition between capitalism

and communism as opposing systems of social, economic, and political organization.

But the type of capitalism that the United States sponsored was not the free market

capitalism that the United States is usually known for. It was state-led capitalism, with four-year

plans being formulated and implemented by national planning agencies. Similar initiatives were

unfolding elsewhere in the region, and indeed the world. Like Taiwan, Japan and South Korea

were on the front lines of the Cold War in East Asia, and the United States was supporting state-

led capitalism among those allies in order to maintain stability and promote rapid industrialization.

And in Europe, the other frontline region of the Cold War, the United States was supporting

national development planning on a grand scale under the provisions of the Marshall Plan.

The statist element in U.S. foreign economic policy had deeper historical origins. Ever since

the First World War, the United States’ own political economy had been evolving toward a

synthesis between free markets and central planning.4 The historian Michael Hogan shows how

this historical trend in American political development, culminating in the activist programs of the

New Deal, came to influence the formulation and administration of the Marshall Plan. 5

Corporatist ideas influenced the United States’ involvement in postwar state-building in Northeast

4 Hogan, Michael J. 1987. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947-1952.
Cambridge: Cambridge University Press, p. 3
5 Hogan, The Marshall Plan.
4

Asia as well, so that, for example, one can see important similarities between the bilateral planning

ministries created under the Marshall Plan and the Council on U.S. Aid in Taiwan.6

These ideas were not applied uniformly, however, because the Cold War itself was not

uniform. Northeast Asia was believed to be unstable: even after the United States concluded

alliance treaties, U.S. officials continued to harbor concerns that the Chinese Communists might

use non-military methods (such as political subversion, economic coercion, and psychological

warfare) to undermine the security of Japan, South Korea, and Taiwan, and that those allies were

especially vulnerable to those methods. In response to this perception of insecurity, the United

States adopted repressive policies against the left and organized labor, even as it empowered

economic bureaucracies and sponsored conservative regimes. In Western Europe, on the other

hand, U.S. officials were confident in the security of American allies after the crisis of the late 1940s.

The recovery of European economies in the wake of the Marshall Plan and the buildup of NATO

after the outbreak of the Korean War gave American officials confidence that the Cold War

division of Europe was stable. In response to this perception of security, the United States helped

to establish institutions that were less centralized and more democratic than institutions in

Northeast Asia. Over time, democratic corporatism came to be the prevailing model of political

economy in Western Europe, while Northeast Asia acquired a distinctive type of authoritarian

corporatism often known as the developmental state (Taiwan and South Korea being overtly

authoritarian and Japan being “soft authoritarian,” in the words of Chalmers Johnson).7

6 Wade, Robert. 2004. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization.
Princeton, NJ: Princeton University Press, p. 199, n. 8. On the Marshall Plan ministries, see Price, Henry Bayard.
1955. The Marshall Plan and Its Meaning, Ithaca, NY: Cornell University Press, pp. 103-105. On the influence of the
New Deal on U.S. occupation policies in Japan, see Cohen, Theodore (edited by Herbert Passin). 1987. Remaking
Japan: The American Occupation as New Deal. New York: The Free Press.
7 Johnson, Chalmers. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford, CA:

Stanford University Press; Johnson, Chalmers. 1987. “Political Institutions and Economic Performance: the
Government- Business Relationship in Japan, South Korea, and Taiwan” in The Political Economy of the New Asian
 5

This book shows how the difference in U.S. strategy unfolded over the course of the Cold

War. It shows how U.S. assessments of Communist security threats affected the United States’

preferences toward three aspects of state-building: the power of the economic bureaucracy, the

degree of political competition, and the political influence of organized labor. The greater the

perceived threat, the more the United States exhibited a preference for centralized control,

manifested by U.S. interventions to empower the economic bureaucracy, constrain political

competition, and weaken organized labor. Without claiming that the United States created the

differences between Western Europe and Northeast Asia, this book argues that the United States

had distinctive strategies in the two regions and that this distinction can be attributed to differences

in how U.S. officials assessed the threat of Communism.

The book focuses on Western Europe and Northeast Asia because they were the most

comparable regions of the Cold War in U.S. grand strategy. Having been the main theaters of the

Second World War, Western Europe and Northeast Asia began the Cold War with the United

States in the position of an occupying power, and the United States had a paramount interest in

the security of those regions owing to the concentration of industrial power in Western Europe and

Japan. The two regions also had similar tensions surrounding divided states, inviting comparisons

between how U.S. officials assessed the security of West Germany during the Berlin Crises and

Taiwan during the Taiwan Straits Crises. From the perspective of economic development,

Northeast Asia was probably more similar to Latin America in this period; but from a strategic and

geopolitical perspective, there was a vast difference between the strongpoint strategy in Northeast

Asia and the defense of the Americas. One strategy was focused on preventing the rise of a Eurasian

hegemon, while the other was focused on maintaining the United States’ hegemony and economic

Industrialism by Deyo, Frederic C. (ed.). Ithaca, NY: Cornell University Press. 136-164. See Wade, Governing the
Market, pp. 27, 294-296 for further discussion of these concepts.
6

interests in what it considered to be its traditional sphere of influence.8 The strategic calculations

for Western Europe and Northeast Asia were more similar, and this broad similarity allows for a

more focused consideration of the differences in the perceived severity of Communist security

threats.

Within the two regions, this book focuses on France, Italy, West Germany, Austria, Japan,

South Korea, and Taiwan. The case selection strategy is based on the strategic challenges that

these allies and security partners presented for the United States: they raised similar questions, but

American officials arrived at different answers. For example, the United States endorsed the formal

neutrality of Austria under the provisions of the Austrian State Treaty, with U.S. officials believing

that Austria would remain part of the “West.” NSC 5603, which was approved after the conclusion

of the State Treaty, declared that Austria was “an integral part of free Europe” with a “pro-

Western orientation” even though it had become formally neutral.9 For Japan, on the other hand,

a guidelines paper from the State Department warned in 1962 that “continued conservative rule”

could “not be taken for granted,” and that the only alternative to conservative rule was rule by

Socialists who would seek “not only drastic social revolution in Japan, but a neutralist policy leaning

very much in the direction of the Sino-Soviet bloc.” 10 By engaging in this kind of focused

comparison, this book shows how U.S. officials debated similar issues in the two regions but

consistently arrived at assessments for Northeast Asia that were more pessimistic than assessments

for Western Europe.

8 On U.S. interests in Latin America, see Brands, Hal. 2010. Latin America’s Cold War. Cambridge, MA: Harvard
University Press, pp. 10-13.
9 “National Security Council Report.” 23 Mar. 1956. Document 19. Foreign Relations of the United States, 1955-1957,

Volume XXVI. Washington, DC: U.S. Government Printing Office. Available at

https://history.state.gov/historicaldocuments/frus1955-57v26/d19.
10 “Department of State Guidelines Paper.” Undated. Document 354. Foreign Relations of the United States, 1961-1963,

Volume XXII. Washington, DC: U.S. Government Printing Office. Available at

https://history.state.gov/historicaldocuments/frus1961-63v22/d354.
 7

For all of the sophisticated arguments that appeared in American intelligence estimates,

the heart of the issue in Northeast Asia for U.S. officials was that “they” were not like “us.” The

fear of Communist subversion, economic coercion, and psychological warfare reflected the deeper

fear that Northeast Asia would be receptive to the spread of a totalitarian ideology. At a time when

American officials characterized the Cold War as an “East-West” conflict, when one of the authors

of the speech that articulated the Truman Doctrine characterized the Soviet threat as a

“fundamental challenge of Western civilization,” American officials were uncertain about the

loyalty of Asian allies to the “West.”11 American officials thought of European allies as part of not

only an alliance, but also a shared culture and civilization that created a common set of interests

and, in turn, made their membership in the alliance more secure. No notion of a common identity

was extended to Asian allies, even though leaders like Chiang Kai-shek and Syngman Rhee were

vociferously anti-Communist. The United States’ support for centralization and authoritarianism

in Northeast Asia can be bluntly attributed to the belief among American officials that Asian allies

needed to be tightly controlled in order to ensure their continued loyalty. 12 In that sense, the

findings in this book support David Lake’s observation that the United States historically supported

authoritarianism in order to manage the statebuilder’s dilemma, prioritizing the state’s loyalty to

the statebuilder over its legitimacy in the eyes of its people.13

To prevent this tension between loyalty and legitimacy from resulting in state failure (which

often occurs in U.S.-sponsored state-building, as Lake shows) the United States imbued Northeast

Asian states with two features: a high degree of state capacity and a developmental orientation that

11 Jones, Joseph M. 1955. The Fifteen Weeks: February 21 – June 5, 1947. San Diego, CA: Harcourt Brace Jovanovich,
p. 9.
12 For a related argument about how the United States sought to control its Asian allies through the design of its

alliance treaties, see Cha, Victor D. 2016. Powerplay: The Origins of the American Alliance System in Asia. Princeton, NJ:
Princeton University Press.
13 Lake, David. 2016. The Statebuilder’s Dilemma : On the Limits of Foreign Intervention. Ithaca, NY: Cornell University

Press, p. 6.
8

could deliver side payments. 14 Just as deterrence involves both threats and assurances, these

features were intended to prevent an outbreak of rebellion or subversion by giving states the ability

to both control and compensate actors who might have challenged their rule.15 State capacity and

the provision of side payments have, of course, been emphasized in the existing literature on the

developmental state (the former by Atul Kohli and the latter by Richard Doner, Bryan Ritchie,

and Dan Slater); but their significance should also be understood in terms of the United States’

involvement in state-building in East Asia.16 The survival of the strong state and the engineering

of the strong state to become a provider of side payments were both processes in which the United

States played a significant role. U.S. interventions to create developmentally-oriented strong states

amounted to an attempt to manage the statebuilder’s dilemma by creating loyal regimes that would

compensate for their lack of popular legitimacy through economic development.

Western European states, on the other hand, were neither as strong nor as narrowly focused

on growth. They adhered more closely to Kohli’s concept of fragmented multiclass states that had

“fragmented political institutions and defined the public good more broadly” to include welfare

and redistribution.17 The United States endorsed these characteristics because U.S. officials were

not concerned about the legitimacy of Western European states: the United States had intended

for those states to enjoy popular legitimacy through the democratic process, because U.S. officials

believed that the peoples of Western Europe held innate preferences that would naturally bring

them into alignment with the United States and the “Free World.” Western Europe was a region

where U.S. officials did not believe that the United States faced the statebuilder’s dilemma, but

14 On state failure and the statebuilder’s dilemma, see Lake, The Statebuilder’s Dilemma, pp. 3-4.
15 Schelling, Thomas. 1966. Arms and Influence. New Haven, CT: Yale University Press, pp. 2-3, 74.
16 Kohli, Atul. 2004. State-Directed Development: Political Power and Industrialization in the Global Periphery. Cambridge:

Cambridge University Press; Doner, Richard F., Bryan K. Ritchie, and Dan Slater. 2005. “Systemic Vulnerability
and the Origins of Developmental States: Northeast and Southeast Asia in Comparative Perspective.” International
Organization 59(2): 327-361.
17 Kohli, Atul. 2004. State-Directed Development, p. 14.
 9

that was not true of Northeast Asia. It was imperative for the United States’ strategic interests that

there should be viable states in both of these regions, however, and this imperative led the United

States to support the creation of welfare states in Western Europe and developmental states in

Northeast Asia.

This book will be divided into two parts. Following a presentation of the theory, Part One

will examine the Cold War in Northeast Asia by discussing U.S. policies toward Japan, South

Korea, and Taiwan. Part Two will examine the Cold War in Western Europe by discussing U.S.

policies toward West Germany, Austria, France, and Italy. Beginning the book with Asia rather

than Europe may be an unusual approach, since the Cold War began with the tensions between

the United States and the Soviet Union surrounding the occupation and division of Germany and

Soviet actions in Eastern Europe. Beginning with Asia better serves the purpose of this book,

however, because the importance of U.S. policies in Europe can be best appreciated by first

considering U.S. policies in Asia. Seemingly minor episodes, which are often given only a brief

treatment in existing studies of the Cold War in Europe, acquire a new significance when viewed

in light of decisions taken in Asia.

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Table of Contents

Introduction

Ch. 1: State-building and U.S. Grand Strategy

Part One: The Cold War in Asia

Ch. 2: Japan

Ch. 3: South Korea

Ch. 4: Taiwan

Part Two: The Cold War in Europe

Ch. 5: West Germany

Ch. 6: Austria

Ch. 7: France

Ch. 8: Italy

Conclusion
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This section is based on chapters from my dissertation as well as my ongoing research for the book. Parts of this
section have appeared in an article published in the Journal of Strategic Studies, 27 February 2019, © Taylor &
Francis, available online: https://www.tandfonline.com/doi/full/10.1080/01402390.2019.1579713.

The Origins of the Developmental State

East Asia has been characterised as a region of miracles.18 Long before the rise of China,

East Asian countries experienced a sustained period of rapid economic growth that propelled them

to the ranks of the advanced industrial economies. This phenomenon attracted considerable

scholarly attention. While Hong Kong and Singapore were sui generis on account of their status as

island city-states, scholars considered Japan, South Korea, and Taiwan to be comparable cases

that shared a model of state-led development.19 The term ‘developmental state’ was first coined by

Chalmers Johnson and became the classic expression of this thesis.20 This model served as the basis

of a theoretical literature in Comparative Politics on the political causes of economic growth and

the role of the state in industrialisation. In accounting for the origins of the developmental state,

previous studies have emphasised domestic politics or the legacy of Japanese colonialism.21 While

18 World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press 1993).
19 Johnson, Chalmers, ‘Political Institutions and Economic Performance: the Government-Business Relationship in
Japan, South Korea, and Taiwan’ in The Political Economy of the New Asian Industrialism by Deyo, Frederic C. (ed.)
(Ithaca: Cornell University Press 1987), 136-164; Pempel, T.J., ‘The Developmental Regime in a Changing World
Economy’ in The Developmental State by Woo-Cumings, Meredith (ed.) (Ithaca: Cornell University Press 1999), 137-
181.
20 Johnson, Chalmers, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975 (Stanford: Stanford

University Press 1982).

21 Vu, Tuong, ‘State Formation and the Origins of Developmental States in South Korea and Indonesia,’ Studies in

Comparative International Development 41/4 (2007) 27-56; Doner, Richard F., Bryan K. Ritchie, and Dan Slater,
‘Systemic Vulnerability and the Origins of Developmental States: Northeast Asia and Southeast Asia in
Comparative Perspective,’ International Organization 59/2 (2005) 327-361; Cumings, Bruce, ‘The Legacy of Japanese
Colonialism in Korea’ in The Japanese Colonial Empire by Myers, Ramon H. and Mark R. Peattie (eds.) (Princeton:
Princeton University Press 1984), 478-496; Kohli, Atul, ‘Where Do High Growth Political Economies Come From?
The Japanese Lineage of Korea’s Developmental State,’ World Development 22/9 (1994) 1269-1293; Kohli, Atul, State-
Directed Development: Political Power and Industrialization in the Global Periphery (Princeton: Princeton University Press 2004).
12

those factors were important, they only tell half of the story. The international context was another

important factor, but one that has received far less attention in the literature.

This essay examines how the United States fostered state-led capitalism in Japan, South

Korea, and Taiwan in order to contain the spread of Communism. With the onset of the Cold

War, there was an urgent need for the United States to integrate the economic, military, and

diplomatic elements of its foreign policy in a grand strategy for defending its sphere of influence.

That strategy played a critical role in the creation of the developmental state, and I argue that it

was a response to a distinctive challenge that the United States faced in Northeast Asia: a long-

term Communist threat against U.S. allies that began with a period of emergency.

Economic development in Japan, South Korea, and Taiwan would serve U.S. interests by

changing the distribution of capabilities and enhancing U.S. allies’ resilience to Communist

subversion. In the pursuit of that objective, the United States supported economic planning to

render its foreign aid programs more effective. American aid agencies became deeply involved in

the process of state-building and contributed to the creation of powerful, autonomous economic

bureaucracies that would spearhead rapid industrialisation. Along with subsequent pressure on

Japan, South Korea, and Taiwan to pursue export-oriented development, these U.S. policies

contributed to a hybrid model of planned capitalism that scholars would later characterise as a

developmental state.

This finding makes an important contribution to the literature. Studies in Comparative

Politics have credited the economic miracles of Japan, South Korea, and Taiwan to the

transformative role of the state, but they have not systematically explored how the state itself was

transformed by the rivalry between the great powers.22 Studies in International Relations have

Johnson, MITI and the Japanese Miracle; Johnson, ‘Political Institutions and Economic Performance’; Kohli, ‘Where
22

Do High Growth Political Economies Come From?’; Kohli, State-Directed Development; Evans, Peter, Embedded
 13

examined how the United States provided economic aid to its allies in East Asia, but most of those

studies have not examined how U.S. aid programs entailed a high degree of U.S. involvement in

economic planning. The few that have are largely silent on the question of American strategy and

decision-making.23 Historians have recognised the role of the United States in promoting statism

in Northeast Asia, but their analyses have focused on U.S. relations with individual allies instead

of adopting a comparative or regional perspective. Moreover, the historiography is weighted

toward understanding the effects of U.S. policies rather than their determinants.24

The great unanswered question in this literature is why the United States supported the

creation of developmental states specifically in Northeast Asia in the context of the global Cold

War. The United States had many allies that were threatened by Communism, but only Japan,

South Korea, and Taiwan became developmental states. 25 Even within East Asia, the United

States’ policy toward Japan, South Korea, and Taiwan was sharply at odds with its policy in the

Philippines. This essay identifies the strategy behind the United States’ support for planned

Autonomy: States and Industrial Transformation (Princeton: Princeton University Press 1995); Woo-Cumings, Meredith
Jung-en, ‘National security and the rise of the developmental state in South Korea and Taiwan’ in Behind East Asian
Growth: The Political and Social Foundations of Prosperity by Rowen, Henry S. (ed.) (New York: Routledge 1998), 319-340);
Wade, Robert, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization, Second Edition
(Princeton: Princeton University Press 2004).
23 Haggard, Stephan, Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries (Ithaca: Cornell

University Press 1990); Krueger, Anne O., The Developmental Role of the Foreign Sector and Aid (Cambridge, MA: Harvard
University Press 1979); Jacoby, Neil H., U.S. Aid to Taiwan: A Study of Foreign Aid, Self-Help, and Development (New York:
Frederick A. Praeger 1966); Christensen, Thomas J., Useful Adversaries: Grand Strategy, Domestic Mobilization, and Sino-
American Conflict, 1947-1958 (Princeton: Princeton University Press 1996); Stubbs, Richard, ‘War and Economic
Development: Export-Oriented Industrialization in East and Southeast Asia,’ Journal of Comparative Politics 31(3)
(1999): 337-355; Stubbs, Richard, Rethinking Asia’s Economic Miracle: The Political Economy of War, Prosperity and Crisis
(New York: Palgrave MacMillan 2005); Pempel, T.J., ‘The Developmental Regime in a Changing World Economy’
in The Developmental State by Woo-Cumings, Meredith (ed.) (Ithaca: Cornell University Press 1999), 137-181; Stubbs,
Richard, ‘The Origins of East Asia’s Developmental States and the Pressures for Change’ in Asia after the Developmental
State: Disembedding Autonomy by Carol, Toby and Darryl S.L. Jarvis (eds.) (New York: Cambridge University Press
2017), 51-71.
24 Dower, John W., Embracing Defeat: Japan in the Wake of World War II (New York: W.W. Norton and Company

1999); Brazinsky, Gregg Andrew, ‘From Pupil to Model: South Korea and American Development Policy during the
Early Park Chung Hee Era’ Diplomatic History 29/1 (2005) 83-115; Cullather, Nick, ‘“Fuel for the Good Dragon”:
The United States and Industrial Policy in Taiwan, 1950-1965,’ Diplomatic History 20/1 (1996) 1-25.
25 As this essay will discuss later, the United States also attempted to create a developmental state in South Vietnam,

but its policies ultimately failed.

14

capitalism in Northeast Asia and shows how that support contributed to the distinctive features of

the developmental state.

At the heart of the concept of the developmental state is a strong state that plays a leading

role in guiding capitalist development. Using an economic pilot agency, the state intervenes in the

pursuit of national goals while maintaining a cooperative relationship with the private sector.

Scholars have argued that these interventions historically led to higher rates of economic growth

than what would have been possible under the unfettered operation of free markets.26 The concept

of the developmental state is more specific than the discussion of state-led development in

Gerschenkron (1962) and can be distilled into the following criteria, which are based on previous

research and my own observations of the nature of state-led development in Northeast Asia.27

1) Economic development is a political priority, not as an end in itself or only

as an index of welfare, but in order to maintain national security.
2) The emphasis of development is on the growth of domestic industry as the
basis of national power.
3) An economic bureaucracy, led by a pilot agency or an economic general
staff, stands at the apex of the political economy and possesses instruments
for guiding development.
4) Although the state intervenes in the economy, there is a fundamental respect
for private property and exposure to competition, as evidenced by early
success in land reform and later orientation toward international trade.
5) There are institutions in place for the state to engage in consultation and
coordination with the private sector.
6) The political system is characterised by one-party rule and a weak labour
movement.

26 Amsden, Alice, ‘The State in Taiwan’s Economic Development’ in Bringing the State Back In by Evans, Peter B.,
Dietrich Rueschemeyer, and Theda Skocpol. (New York: Cambridge University Press 1985), 78-106; Amsden, Alice,
Asia’s Next Giant: South Korea and Late Industrialization (New York: Oxford University Press 1992); Evans, Embedded Autonomy;
Woo, Jung-En, Race to the Swift: State and Finance in Korean Industrialization (New York: Columbia University Press 1991).
27 The studies that this definition draws on are Johnson, MITI and the Japanese Miracle and Wade, Governing the Market.
 15

Previous studies of the origins of the developmental state have generally focused on post-

war domestic politics or on colonial legacies.28 Although those factors were important, an account

of their significance is incomplete without also considering U.S. policies. For example, in the case

of South Korea, the United States played a critical role in maintaining the continuity between the

Japanese colonial era and the post-war state. Korean nationalists would have succeeded in

dismantling the colonial legacy had they not been thwarted by the American Military Government,

which saw in the nationalist movement the potential for Communist infiltration and subversion.29

U.S. foreign policy interacted with the legacy of Japanese colonialism to produce a developmental

state in South Korea.

In a number of important studies, Richard Stubbs has also pointed to the impact of the

Cold War on development in East Asia. 30 He focuses most on the effects of military conflict,

arguing that ‘the outbreak of the Korean War changed everything’ in terms of the U.S.

commitment to Taiwan’s security and that, as part of this commitment, the United States played

an important role in the creation of Taiwan’s economic general staff.31 However, the United States

had already demonstrated an interest in supporting state-led capitalism on Taiwan well before the

outbreak of the Korean War in 1950. The China Aid Act of 1948 had contained the legislative

28 On domestic politics, see Doner, Ritchie, and Slater, ‘Systemic Vulnerability and the Origins of Developmental
States’; Stubbs, ‘War and Economic Development’; Vu, ‘State Formation and the Origins of Developmental States’;
Woo-Cumings, ‘National security and the rise of the developmental state in South Korea and Taiwan’; and Zhu,
Tianbiao, ‘Developmental states and threat perceptions in Northeast Asia,’ Conflict, Security, and Development 2/1
(2002) 5-29. On colonial legacies, see Cumings, Bruce, The Origins of the Korean War, Volume I: Liberation and the
Emergence of Separate Regimes, 1945-1947 (Princeton: Princeton University Press 1981); Cumings, ‘The Legacy of
Japanese Colonialism in Korea’; Kohli, ‘Where Do High Growth Political Economies Come From?’; and Kohli,
State-Directed Development.
29 Kohli, State-Directed Development, 63-64; Jeon, Sang Sook, ‘U.S. Korean Policy and the Moderates’ in Korea Under the

American Military Government, 1945-1948 by Oh, Bonnie B.C. (ed.). (Westport: Praeger Publishers 2002), 83; Park,
Chan-Pyo, ‘The American Military Government and the Framework for Democracy in South Korea’ in Korea Under
the American Military Government, 1945-1948 by Oh, Bonnie B.C. (ed.) (Westport: Praeger Publishers 2002), 125-126;
Lie, John, Han Unbound: The Political Economy of South Korea (Stanford: Stanford University Press 1998), 6-7.
30 Stubbs, ‘War and Economic Development’; Stubbs, Rethinking Asia’s Economic Miracle; Stubbs, ‘The Origins of East

Asia’s Developmental States and the Pressures for Change.’

31 Stubbs Rethinking Asia’s Economic Miracle, 74-78. The quote appears on page 74.
16

provision that required the creation of a counterpart institution in the Nationalist government for

administering U.S. aid, which served as the progenitor of one of the institutions of Taiwan’s

economic general staff. 32 U.S. officials had also exhibited an interest in the creation of the

Economic Stabilisation Board on June 10, 1950, before the North Korean invasion of South Korea

on June 25.33 Although the Korean War changed the Truman administration’s decision about

whether or not to use military forces to defend Taiwan, the United States had maintained a

consistent interest in preserving Taiwan’s security through non-military means.34 Oliver Edmund

Clubb, the Consul General at Beijing, wrote to Secretary of State Dean Acheson on June 16 that

‘the desirability of denying Formosa [Taiwan] to the Communists is beyond dispute.’35

In examining the effect of the international context on the creation of the developmental

state, this essay argues that U.S. support for state-led capitalism was not the result of warfare

specifically nor of the Cold War generally. Instead, I point to the strategic challenge that the United

States faced in Northeast Asia, a challenge that became apparent well before the onset of military

conflict: a long-term Communist threat against U.S. allies that began with a period of emergency.

International Rivalry and the Strong State

This is a theory of how the United States sought to defend its sphere of influence during

the Cold War. There are three actors in the theory: the United States itself, which acts as a patron;

32 Jacoby, U.S. Aid to Taiwan, 30, n.2, 60-61.

33 See ‘Embassy in Taipei to the ECA Administrator,’ 10 June 1950, Confidential U.S. State Department central files.
Formosa, Republic of China, 1950-1954 internal affairs, decimal numbers 794A, 894A and 994A, and foreign affairs, decimal
numbers 694A and 611.94A by United States Department of State and Davis, Michael C. (ed.) (Frederick: University
Publications of America 1986), Reel 7.
34 On the debate surrounding U.S. military intervention in the Taiwan Strait before the outbreak of the Korean

War, see Christensen Useful Adversaries, 133-137.

35 ‘Clubb to Rusk,’ 16 June 1950, Confidential U.S. State Department Central Files: Formosa, Republic of China, Reel 1.
 17

the client, which is a country in the American sphere of influence (i.e., an ally or security partner);

and the adversary, which is a country in the international Communist movement or a sub-national

actor, such as an insurgency or radical political party, that is being directed by international

Communism. I argue that the patron will support the creation of a developmental state in the client

when the patron believes that the client faces a distinctive type of threat from the adversary. First,

the perceived threat must reach a state of emergency, defined as the imminent prospect that the

client will be detached from the patron’s sphere of influence through an act of aggression (which

may take the form of coercion, subversion, or military attack). The second condition is that the

perceived threat from the adversary must persist over the long term, so that after the period of

emergency, the threat declines but is sustained over an extended time horizon.

During the period of emergency, the patron deploys military and economic resources to

prevent its client from falling victim to aggression. Although it may promote limited reforms in this

stage, the patron’s main concern is not with reform but with stability. In the pursuit of that end,

the patron encourages the formation of a strong state because a client that enjoys a high degree of

state capacity is better able to maintain political and economic stability. This is best exemplified by

U.S. policy during the occupation of southern Korea, in which the fear of Communist subversion

led the American Military Government to deliberately preserve a police force, civil service, and

judiciary from the colonial era to maintain political stability. 36 The patron supports the

centralisation of state control over economic resources, such as rationing foreign exchange and

applying import and export restrictions, because it is during a crisis that shortages of resources

become most acute and have immediate consequences for national security. I therefore

characterise this stage of the theory as the period of stabilisation.

36 Kohli, State-Directed Development, 63-68.

18

After the client successfully weathers the crisis, the patron is faced with a dilemma: it needs

to continue to preserve the client’s security over the long term, but it cannot afford to continually

shoulder the economic burden of maintaining stability. The patron’s interests will be better served

if it can create the conditions that obviate the need for economic aid, such as the growth of an

export sector that, by producing for international markets, generates an alternative source of

foreign exchange. The patron’s interests will be even better served if the client experiences

economic growth that alters the distribution of capabilities and increases the client’s power vis-à-

vis the adversary. Therefore, after the threat declines from its initial peak, the patron begins to lay

the foundations of self-sustaining growth by sponsoring economic reform and industrialisation – a

stage of the theory that I refer to as the period of expansion.

The specific policies that the patron advocates will naturally reflect the patron’s own

understanding of the causes of economic growth; because the United States was capitalist, it

advocated providing incentives for private industry and reducing trade and foreign exchange

controls.37 However, in the face of a continuing security threat, imposing a sudden and sweeping

program of laissez-faire reform would be detrimental to the patron’s interests because of the

potential for instability. Instead, the patron adopts a more gradual approach, in which it sponsors

incremental reforms while continuing to support economic planning. By defining regular

macroeconomic targets in collaboration with the client’s economic bureaucracy, the patron is able

to ensure that the client’s economic viability will not be jeopardised if the patron reduces (and

eventually eliminates) aid. This mixture of planning and capitalism leads to public-private

cooperation along with the exposure of domestic firms to competition on world markets.

37For an account of the policies that the United States advocated in the case of Taiwan, see Jacoby, U.S. Aid to
Taiwan, 129-149, 174-193.
 19

It is implied in this discussion of the second stage of the theory that the client successfully

weathers the period of emergency – that is, that the client’s security is not compromised during the

initial crisis. This is the critical factor that distinguishes Japan, South Korea, and Taiwan from

South Vietnam. Many of the developmental reforms that contributed to rapid industrialisation in

Northeast Asia were not repeated in South Vietnam because the government of South Vietnam

was overwhelmed during the period of emergency. However, this theory does imply that the

United States would attempt to implement statist measures, and this is indeed what one observes.

Considerations of space preclude a more detailed account of U.S. policies in South Vietnam, but

it may be briefly said that U.S. officials advocated for the establishment of an elite economic

planning agency that would operate autonomously to prevent political manipulation.38

This section has presented the argument in a relatively general and stylised form because

the exact policies that the patron sponsors will naturally reflect the economic and political

characteristics of the client, and Japan, South Korea, and Taiwan varied considerably when they

began to receive U.S. aid. What they did share, at least in the view of U.S. officials, was the type

of Communist threat that I have highlighted in this section: a long-term threat that began with a

period of emergency. In the following section, I explain why that condition was fulfilled in all three

cases and why it distinguished them in the context of the global Cold War.

See The Postwar Development of the Republic of Vietnam: Policies and Programs, Volume One, (New York and Saigon: Joint
38

Development Group 1969), x, 152-153, available at <https://pdf.usaid.gov/pdf_docs/PNABJ230.pdf>, accessed 31

May 2018.
20

Threat Perceptions and the Cold War

I define a threat perception as the patron’s estimate of the probability of a reduction of its

sphere of influence through an act of aggression by the adversary against a client. This ‘reduction’

may occur because the adversary successfully employs military attack or subversion against the

client, leading to enemy occupation or effective control, or it may occur because the adversary

coerces the client into abandoning its alliance with the patron. The probability that either of these

outcomes will occur depends both on the power and hostility of the adversary and on the

vulnerability of the client.39 From the perspective of the patron, a threat has two salient qualities:

its durability (the time horizon over which the threat is likely to persist); and its severity (its magnitude,

relative to its target, in any given year during the probable time horizon).

In Northeast Asia, the threat was unusually durable and severe for three reasons: U.S.

officials believed that Communist China and North Korea harboured a high degree of hostility

toward Japan, South Korea, and Taiwan, especially during the first decade of the Cold War; U.S.

officials believed that those allies were highly vulnerable to Communist subversion; and the United

States could not use military force to neutralise the Communist threat in Northeast Asia as it did

in Latin America and Africa. The United States government was consistently opposed to the use

of military force against Communist China, and the Truman administration had learned during

the Korean War that using military force against North Korea would trigger Communist Chinese

intervention.40 In other words, the United States had to defend highly vulnerable allies against

highly aggressive adversaries while facing constraints on its ability to use its military assets.

39 This definition of threat therefore differs from that found in Walt’s The Origins of Alliances, which focuses exclusively
on the policies and characteristics of the adversary – specifically, aggregate power, geographic proximity, offensive
power, and aggressive intentions (Walt, Stephen M. The Origins of Alliances (Ithaca: Cornell University Press), 21-26).
40 See Christensen, Thomas J., Worse than a Monolith: Alliance Politics and Problems of Coercive Diplomacy in Asia (Princeton:

Princeton University Press 2011).

 21

The Communist threat against Japan (as it was perceived by U.S. officials) was equally

potent as the threat against Taiwan and South Korea, though perhaps less obvious. In addition to

the fear of Communist subversion in Japan, which began during the period of the so-called ‘reverse

course’ and continued for the next two decades, there was also a fear among U.S. officials that

Japan was vulnerable to economic coercion and that the Communist powers would exploit that

weakness. Believing that China was Japan’s ‘natural’ trading partner, U.S. officials feared that

Communist China would demand political concessions in exchange for market access, leading to

Japanese neutrality or even alignment with the Communist bloc.41

That the Communist threat in Northeast Asia was more severe than in Western Europe is

a debatable point, so some discussion of the European theatre is warranted. Since Europe and Asia

were frontline regions of the Cold War, the United States’ approach to economic reconstruction

in Western Europe had many similarities to its approach to economic reconstruction in Northeast

Asia. In both regions, the United States encouraged its allies and security partners to engage in

economic planning: Paul Hoffman, who served as the Administrator for the Marshall Plan, later

stated that ‘in order to get an effective program, each country would need to bring in its own plan,

and the OEEC [Organisation for European Economic Cooperation] would have to bring in a plan

for coordination.’ 42 While the OEEC carried out planning functions at the multilateral level,

national planning agencies were created to carry out planning functions at the bilateral level.43

Though Hoffman claimed that the United States would avoid ‘imposing a proposition on either’

the multilateral or bilateral agencies, there were strings attached to U.S. aid, and those strings were

41 Schaller, Michael, Altered States: The United States and Japan Since the Occupation (New York: Oxford University Press
1997), 19-21; Kapur, Nick, ‘Mending the “Broken Dialogue”: U.S.-Japan Alliance Diplomacy in the Aftermath of the
1960 Security Treaty Crisis,’ Diplomatic History 41/3 (2017) 498-500.
42 Price, The Marshall Plan and its Meaning (Ithaca: Cornell University Press, 1955), 73, 74.
43 Price, The Marshall Plan and its Meaning, 103-104.
22

not always clearly in support of free market capitalism. 44 For instance, counterpart funds (a

matching contribution by the aid recipient) were used to finance the Monnet Plan, but with the

requirement from the United States that the French government administer ‘quantitative controls

over private credit.’45 The support for national development planning featured prominently in the

Marshall Plan, as it did in U.S. aid to Japan, South Korea, and Taiwan.

But there were differences between the two regions. At the end of the Cold War, Asia was

characterised by far less economic integration than Europe, a factor that arguably contributed to

the U.S. perception that Japan was highly vulnerable to economic coercion. 46 Perhaps most

significantly, there was a persistent fear among U.S. officials that the United States’ allies in

Northeast Asia were highly vulnerable to Communist subversion. In Japan, this fear led the

Occupation authorities to adopt repressive policies toward organised labour that came to be known

as the ‘Red Purge.’ 47 Along with covert financing from the CIA – financing that effectively

bankrolled the Liberal Democratic Party and had the goal of ‘obstructing the Japanese

opposition’ 48 – these policies played a significant role in the conservative hegemony that

characterised post-war Japanese politics; that this hegemony contributed to the ‘autonomy’ of the

Japanese state only serves to underscore the tension between the concept of the developmental

state and the principle of liberal democracy.49 In Western Europe, the United States exhibited less

suspicion toward labour unions; for example, in a cable to the Department of the Army in March

1948, Lucius Clay, the American military governor, stated that ‘as the German economy improves,

additional facilities will be made available to the trade unions and to other worthy organisations

44
Price, The Marshall Plan and its Meaning, 74.
45 Price, The Marshall Plan and its Meaning, 105.
46 On the contrast in the level of integration, see Friedberg, Aaron L., ‘Ripe for Rivalry: Prospects for Peace in a

Multipolar Asia,’ International Security 18/3 (Winter 1993-1994): 5-33.

47 Dower, Embracing Defeat, 271-272.
48 Schaller, Altered States, 136.
49 For more on this tension, see Johnson, ‘Political institutions and economic performance.’
 23

needed to fulfill our objectives and to prevent the spread of communism.’50 Considerations of space

prevent a systematic examination of each of the cases, but generally speaking, U.S. officials

supported more repressive policies toward the left in Northeast Asia than in Western Europe

because of a greater fear of Communist subversion.

The United States and Taiwan’s Developmental State

The Nature of the Threat

The Chinese Civil War ended in 1949 with the establishment of two regimes in Taipei and

Beijing that both claimed to be the sole legitimate government of China. However, without even

an armistice to bring an end to hostilities, the peace between the Chinese Nationalists (Kuomintang,

or KMT) and the Chinese Communists was fragile for most of the 1950s. In two crises in 1954-

1955 and 1958 that arguably represented the height of military tensions between the rival Chinese

states, the People’s Liberation Army shelled the Nationalist-held islets of Quemoy (Jinmen) and

Matsu (Mazu) off the coast of Fujian Province.51 In seeking to prevent Taiwan from falling under

Communist control, U.S. strategy was concerned not only with the obvious military threat from

the Beijing, but also with subversion; American officials believed that a decline in morale would

lead Nationalist officials to defect to the Chinese Communists.52

50 ‘From Clay to the Department of the Army,’ 18 Mar. 1948, The Papers of General Lucius D. Clay, Volume Two: Germany
1945-1949, by Smith, Jean Edward (ed.) (Bloomington: Indiana University Press, 1974), 586.
51 Taylor, Jay, The Generalissimo: Chiang Kai-shek and the Struggle for Modern China (Cambridge, MA: Belknap Press 2011),
477-478, 495
52 On the fear of subversion, see ‘Memorandum From the Director of Central Intelligence to the Secretary of State,’

16 Mar. 1955, FRUS: 1955-1957, Volume II, 381-383; ‘National Intelligence Estimate,’ 19 Mar. 1957, FRUS: 1955-
1957, Volume III, 508; and ‘Special National Intelligence Estimate,’ Mar. 13 1959, FRUS: 1958-1960, Volume
XIX, 550.
24

The Communist threat to Taiwan declined after 1958, but there remained a fundamental

problem for the United States: although the Nationalists had been able to defend their offshore

territories, the internal stability of Taiwan that had enabled successful military action had required

substantial U.S. assistance. As late as April of 1958, NSC 5723 indicated that ‘there was no

substantial change in the basic dependence of Taiwan on external economic aid.’53 This situation

was unsustainable for the United States given that economic aid deliveries had averaged almost

$600 million a year from 1951-196554 and constituted the largest per capita aid program in the

world during that period; 55 yet neither could the United States have afforded to immediately

withdraw its assistance. To have done so would have severely weakened the Nationalist state,

raising the potential for subversion and tempting Beijing to launch another offensive. American

officials had to devise a strategy that would address a long-term security threat to Taiwan at

minimal cost to the United States. Economic development allowed them to achieve that objective.

Statism in U.S. Aid to Taiwan

The United States viewed the adoption of a state-led approach to development as an

expedient measure in its assistance programs to Taiwan. In providing aid to Chiang Kai-shek’s

government, the United States encouraged economic planning both to enforce stability and to

ensure that U.S. officials would be able to exercise oversight over the use of economic aid. In the

53 ‘Operations Coordinating Board Report on Taiwan and the Government of the Republic of China,’ 16 Apr.
1958, FRUS: 1958-1960, Volume XIX, Microfiche, China, xvi.
54 Jacoby, U.S. Aid to Taiwan, 38 reports an average figure of approximately $80 million a year. Assuming that this

figure in 1966 dollars, I adjust for inflation using the Bureau of Labor Statistics’ CPI inflation calculator
(https://data.bls.gov/cgi-bin/cpicalc.pl) to arrive at a figure of approximately $600 million.
55 Tucker, Nancy Bernkopf, Taiwan, Hong Kong, and the United States, 1945-1992: Uncertain Friendships (New York:

Twayne Publishers 1994), 54

 25

early years of the aid program, the director of the aid mission ‘practically ran the Island.’56 Even

as late as 1956, when economic conditions had improved considerably, American officials stated

that ‘no four year plan for Taiwan can hope to be successful under present circumstances unless it

receives the concurrence and full support of U.S. Government agencies operating in Taiwan.’57

Statism was integral to the U.S. strategy of creating a bulwark against Communism on Taiwan.

The China Aid Act of 1948 had mandated the creation of a counterpart institution within

the Nationalist government known as the Council on U.S. Aid (CUSA) for administering economic

assistance in close coordination with the U.S. aid mission.58 It was the progenitor of Taiwan’s

economic general staff, for after the official termination of the aid program in 1965, the CUSA’s

successor institutions continued to engage in economic planning. In fact, all of the institutions of

Taiwan’s economic general staff that Robert Wade examined in Governing the Market originated in

the bureaucratic machinery for administering U.S. aid.59

From 1951-1958, CUSA shared its planning functions with another institution known as

the Economic Stabilisation Board (ESB). The purpose of ESB was ‘to review and coordinate trade,

payments, and monetary and fiscal policies, in the interests of stabilizing the price level.’60 Although

American officials did not serve on the ESB in an official capacity, they were able to influence the

Board’s policies through their regular attendance at ESB meetings.61 The creation of this economic

planning agency reflected the desire of the United States to administer its aid program effectively

56 [College Park, MD, USA, National Archives] Central Decimal Files, Department of State, 1950-1954, R[ecord]
G[roup] 59, Box 5637, Folder 893.00R/8-250, ‘Memorandum on Moyer’s Letter of July 12 to Cleveland on New
Approach to Aid for Taiwan,’ 2 Aug. 1950.
57 Central Decimal File, Department of State, 1955-1959, RG 59, Box 5073, Folder 893.00-Four Year/4-1756,

‘Transmitting Memorandum Commenting on ‘Four Year Plan for Economic Development of Taiwan,’ 17 Apr.
1956.
58 Jacoby, U.S. Aid to Taiwan, 60-61.
59 See Kuo, Tai-Chun and Ramon H. Myers, Taiwan’s Economic Transformation: Leadership, Property Rights and Institutional

Change 1949-1965 (New York: Routledge 2012), 87 and Wade, Governing the Market, 202.
60 Jacoby, U.S. Aid to Taiwan, 59.
61 Jacoby, U.S. Aid to Taiwan, 59-60.
26

– to ‘bolster [the] government’s efforts [to] strengthen [the] economy and provide mission with

more reliable means [to] measure [the] effectiveness [of the] aid program [and] appraise economic

conditions.’62

Through their collaboration on programming economic aid, U.S. officials were able to

persuade technocrats in the Nationalist economic bureaucracy of the need for more liberal

economic policies. U.S. officials regularly attended ESB meetings as ‘observers,’ though in practice

they had much greater influence than is implied by their nominal role.63 The United States was

involved in CUSA meetings and assisted Nationalist officials in planning industrial projects. Based

on their interviews with former officials who had served in the economic bureaucracy, Tai-chun

Kuo and Ramon Myers conclude that the U.S. emphasis on capitalism had a lasting impact on the

Nationalists. 64 The technocrats represented an influential body of opinion within Chiang Kai-

shek’s government that Taiwan should adopt a capitalist model of development.

Autonomy of the State and the Economic Bureaucracy

As Chalmers Johnson argues, two essential features of the developmental state are that both

the state and the bureaucracy are autonomous.65 The United States played a critical role in the

formation of both of these features in Taiwan’s political economy. To forestall the likelihood of

unrest in Taiwan, the United States collaborated with the Nationalist government in an ambitious

62 ‘Embassy in Taipei to the ECA Administrator,’ 10 June 1950, Confidential U.S. State Department central files. Formosa,
Republic of China, Reel 7.
63 Wade, Governing the Market, 388.
64 Kuo and Myers, Taiwan’s Economic Transformation, 115-117.
65 See Johnson, ‘Political Institutions and Economic Performance.’
 27

and highly successful land reform program, as it also did in Japan and South Korea.66 Land reform

contributed to the autonomy of the developmental state by weakening landed elites and creating a

basis of support for the KMT among farmers, which, as in Japan, prevented the Nationalist state

from being captured by business interests.67 Land reform also contributed to the formation of a

capitalist system in Taiwan insofar as the Nationalists compensated landowners with shares in

state-owned enterprises that were later privatised.68

The United States designed the institutions that oversaw aid projects to be relatively

autonomous from political influence. The Council on U.S. Aid was chaired by the Premier of the

Nationalist government and was founded as a separate institution from the Nationalist economic

bureaucracy with a direct line to the Executive.69 Eventually, after the KMT formally integrated

CUSA into the economic bureaucracy, CUSA and its successor institutions preserved the

autonomous nature that they had acquired during the aid period.70

U.S. Support for Capitalist Development

In addition to supporting the emergence of the private sector through land reform, the

United States used aid to finance the establishment of new enterprises through the Small Industry

Loan Fund and the Model Factory Program.71 American advisors were often directly engaged in

efforts to recruit private investors, and U.S. technical assistance to the Nationalists improved the

66 Wade, Governing the Market, 196-197

67 See Johnson, ‘Political Institutions and Economic Performance,’ 156 for a discussion of the significance of land
reform in the case of Japan.
68 Taylor, The Generalissimo 413-414, 484-485; Gold, State and Society in the Taiwan Miracle, 71.
69 Jacoby, U.S. Aid to Taiwan, 60-61.
70 Wade, Governing the Market, 198-201.
71 Gold, State and Society in the Taiwan Miracle, 71-72.
28

government’s ability to generate private investment. American advice contributed to the

liberalisation of investment regulations and the establishment of export-processing zones, which

began as an American proposal.72 At times the aid agencies took a more confrontational approach.

They blocked state-run projects by the Nationalist government, including a nuclear reactor, a steel

mill, and an airline, and they resisted attempts by state socialists in the Kuomintang to establish

new firms as public enterprises.73 Industrial production rose from a baseline metric of 100 in 1952

to 422 by 1964, of which the composition was increasingly weighted toward private enterprise.74

The final stage in the U.S. effort to set Taiwan on a capitalist development strategy

occurred in the economic reforms of the late 1950s and early 1960s. In keeping with the theory

that I have advanced, the decline in the threat against Taiwan following the Second Taiwan Straits

Crisis in 1958 was attended by a flurry of economic reforms initiated by the United States. The

U.S. promoted export-oriented industrialisation to enable Taiwan to earn foreign exchange,

allowing for a gradual reduction in economic aid.75 These policies were similar to U.S.-sponsored

reforms that South Korea enacted at around the same time.76 By the end of the official aid program

in 1965, Taiwan had acquired a developmental state, in which the instruments of state guidance

remained but the basis of development was private industry.

72 Jacoby, U.S. Aid to Taiwan, 189-192; Tucker, Uncertain Friendships, 57.

73 Wade, Governing the Market, 83.
74 Jacoby, U.S. Aid to Taiwan 282
75 Cullather, ‘“Fuel for the Good Dragon,”’ 20-21
76 Cumings, ‘The Legacy of Japanese Colonialism in Korea,’ 27.
 29

Conclusion

This paper has argued that in response to its belief in a severe and durable Communist

threat in Northeast Asia, the United States played a critical role in the creation of the

developmental state in Japan, South Korea, and Taiwan. That the United States would not only

accept but even actively support central economic planning runs counter to the received wisdom

about the origins of the developmental state and the nature of American economic diplomacy.

American support for statism in Northeast Asia was due not to a lesser commitment to capitalism,

but to the greater urgency of politics.

The finding of this essay offers a contrast to the prevailing pessimism surrounding the

history of the United States’ attempts at nation-building. James F. Dobbins, who previously served

as Assistant Secretary of State for Europe and Ambassador to the European Community (among

other positions), stated in 2003 that ‘the cases of Germany and Japan set a standard for post-conflict

nation-building that has not since been matched’ and that ‘for the next 40 years, there were few

attempts to replicate these early successes.’77 When the United States did attempt to engage in

nation-building, as it did in South Vietnam, many of the results were mixed or disastrous.78 In

Northeast Asia, the United States’ support for authoritarian regimes and its role in perpetuating

the legacy of Japanese colonialism in South Korea must be weighed against what it was able to

77 Dobbins, James F., ‘America’s Role in Nation-Building: From Germany to Iraq,’ Survival 45/4 (Winter 2003-
2004): 88.
78 On the repressive results of U.S. efforts at nation-building, see Kuzmarov, Jeremy, ‘Modernizing Repression:

Police Training, Political Violence, and Nation-Building in the “American Century,”’ Diplomatic History 33/2 (2009):
191-221. On how the social sciences influenced the U.S. approach to nation-building in South Vietnam, see
Marquis, Jefferson P., ‘The Other Warriors: American Social Science and Nation Building in Vietnam,’ Diplomatic
History 24/1 (2000): 79-105 and Berger, Mark T., ‘Decolonisation, Modernisation, and Nation-Building: Political
Development Theory and the Appeal of Communism in Southeast Asia, 1945-1975,’ Journal of Southeast Asian Studies
34/3 (October 2003) 421-448.
30

achieve in the economic realm. 79 But certain aspects of U.S. policy in Northeast Asia were

successful, and the United States’ role in reforming the institutions of national development

planning is one of them.

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