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Introduction:
Developmental state, a notion aroused from the exponential growth of Asian tigers, refers to the state-led economic planning. Such a state envisions projecting itself as an autonomous body through increased political power and effective control over the economy to imbibe its ideals in the economic system. It is characterized by strong state interventions in the economy, rigorous regulations and centralized economic planning. At the other extreme, there lies a weak or predatory state which entrusts private profit seekers and the market with the role of raising prosperity levels by increasing economic efficiency. Developmental state is focused on the protection of domestic industries through technology transfers, import substitution, export promotion and emphasis on technical education policies. It exhibit narrow institutionalism as opposed to broader institutionalism and has extensive focus on statist paradigm with little importance given to public-private collaboration. (Hundt, 2008)

These rationales of state dominance in the economic development are challenged by reciprocal consent. It holds that though state help structure the market choices but public/private negotiation also structure state and market choices alike. The mechanism of relationship is defined by the type of market structure, extent of centralization, timing of the development, openness of the economy, policies of the ruling coalition and nature of administrative tradition explains the nature and extent of state intervention. (Samuels, 1987) Developmental state is characterized by few pilot agencies guiding the overall process of intervention with policy tool are linked to the private sector performance through a structure of incentives. Civil society is weak and easily subordinated. States builds extensive coalition with industry and plays down leftist elements. This paper deals with the developmental state and reciprocal consent arguments in explaining the development trajectories across Japan, Korea and Taiwan over the course of Post-War period.

Korea:
Korean economic bureaucracy has played a central force in the shaping of the development. It has informed Korean political leaders of policy options that may undermine state power creating a tension by simultaneous pursuit of maximal state autonomy and socio-economic development. This has created a web of bureaucracy power reinforcing in the economic decision making of the country. Pilot agencies has defined the direction for the overall intervention in targeted industries in the economy, coordinated investment decisions for them and devised intervention policies. In Korea, Economic Planning Board, had assumed the role of pilot agency, and had driven the course of the economic development under the auspices of strong bureaucracy. It has extensively promoted labor-intensive manufacturing in the 60’s, heavy industries in the late 70’s and technology and services in the 1980’s.


Korean states placed strict performance benchmarks for the firms participating in the priority sectors. Incentives had been designed for the firms to participate in these sector with certain threads attached to them. State bore the extensive risk of economic development and bestowed business leaders with privileged position in the political economy. As put forth by James West, Korean state’s relationship with business is like a practical dialectic of power and profit with power playing the role of senior partner. (Hundt, 2008)

However the trends have changed. After the 1990s, the relationship between pilot agencies and private firms has characterized by firms deciding about entering into certain industries rather than state dictating their preferences. However once industry has received enough entrants, it becomes logical as well as possible for the pilot agency to exercise regulations in the industry.  More over, trade unions have emerged in the 1980’s and have assumed extensive power since then. This trends plays down the predominance of the developmental state notion which assumes weak civil society. Extensive openness of the economy has been augmented with democratization of the polity. Increased degree of contestation in Korean political economy and the declining trends in the continuous development elements of the Korean state can’t be explained with developmental state presumptions.

Business leaders are endowed with structural power of capital which is the ability to resist changes as imposed by the state. The capital enjoys ample mobility and is not concentrated into few geographic places. Firms can withdraw their resources from the economy on the account of deleterious changes and hence have the ability to resist changes. Beside these, large firms also possess considerable market power. In the Korean developmental alliance, Chaebols, large business investors, have extensive role in the economy. Chaebols have over-invested in the economy. In 1980’s Korea political economy underwent radical changes. In this period Chaebols gained at the expense of state.  For Korean state, the quality of the investment is of prime consideration. Therefore challenge for the state is to prevent irresponsible behavior on the part of the Chaebols in the form of redundant or speculative investments. This transition of role toward private businesses in the developmental alliance can be aptly put forth as state dominance to interdependence. It can be safely said that state’s developmental capacities helped its own decline as civil society and Chaebols gained strength. However in the aftermath of Asian crises, state oversaw a range of industrial and financial restructuring programs which renewed the state capacity to discipline the open market.

According to Amsden, as in the case of South Korea, the state has promoted late industrialization through subsidies as well as through promoting discipline. (Smith, 2000) Subsidies have become the policy tool for the state to decide the extent and nature of production and the type of strategic industries to favor. These allocations of subsidies have rendered South Korean state from acting as mere banker to become a shrewd entrepreneur. The state has set stringent performance requirement in return for the subsidies it provides. Subsidies and discipline introduce consistency in the carrot and stick policy. The policy objective of the government are rationalized through granting or withholding industrial licensing, government bank loans, advanced technology acquired by the government through foreign licensing and technical assistance.

Korea has focused toward further deepening of the industrial sector. Deepening of the industrial sector require generation of additional supplies of factor of production. Physical and human capital accumulation is required for the industrialization to proceed.

Japan:
Japan faced strenuous economic situations immediately after the world war two. Destruction of production facilities, loss of the territory were augment by constraints such as spiraling population and reduced supply of  the raw materials. In the post-war Japan, ministry of trade and industry was the pilot agency to set interventionist policies for the targeted industries. It is now regarded as the key institution in helping the Japanese emergence as a major economic power. It took control of Japanese “industrial policy” and guided public and private sector firms in the direction of rapid economic growth. However in this regards, as has been argued by many commentators, the economic development was not monopolistically dominated by the state. It has been argued that reciprocal consent holds true as well because the state actively elicited support from firms in its energy sector. State’s bureaucracy is not the dominant force in the development, rather it negotiated with business.

MITI was not extensively focused on directing investments and trade in particular sector of the economy but aimed to persuading Japanese manufacturing and trading companies to enter new areas of economic activity and exporting through consensus building measures. MITI was run by pragmatic bureaucrats to spot new trends, assess strengths and weaknesses of the Japanese producers. (Thompson, 1998) The growth of the Japanese economy from 1920s to 1970s is attributed to the economic bureaucracy of the MITI. MITI had extensively contributed toward reorganization of productive structures to meet its goals. The policy tools to its discretion were technology transfers, joint venturing, patent rights, royal conditions and licensing agreement. These policy considerations were subject to its jurisdiction during the rapid phase of industrial development.

MITI is the considerate as the main instrument of Japan’s developmental state. However, in the recent past, this pilot agency has failed to spot trends in key development areas such as information technology. The golden era of MITI power and influencing came to a steady end after liberalization schemes of the Japanese economy were introduced in the 1960s. More ever, in the IT sector, Japan’s success depended on the collaboration of the state with the market forces for industry’s development. The presumption that state dominates or at-least directs development portrays business and the markets as objects managed by state elites. However this creates a false dichotomy between the economy and the state. The state needs to be considered as an economic actor that operates within the market, though in more authoritative manner. (Hundt, 2008) The ability of MITI to encourage private companies especially in the petro-chemical industry has at best been truncated.

Some commentators have argued that the Japanese Miracle was not the result of industrial policy rather it was the result of the dynamism of the private sector toward responding to the economic growth ideals. The dynamism aroused for the structural change endeavor of the industrial policy. Efforts were geared toward the transformation of Japan into an industrial society as a response the situation prevailing in the postwar contexts.

Japan after the 1980s distinguishes itself from most of the Western Europe states because of the near absence of state ownership. Powerful private actors established alliances with politicians and bureaucrats in development of commerce and industry. Market conforming actions of the Japanese state has led to the market structure transformation in Japan. These notions are in stark contrast to the bureaucratic dominance and the developmental state in Japan. The Japanese state is characterized by a high level of public-private cooperation, balance of bureaucratic autonomy and linkages with private sector.

In Japan, market and state structure is the product of negotiation and opportunity different from bureaucratic dominance and developmental state notions. The frame work of interaction can aptly be explained by the framework of “reciprocal consent”. In this framework, states do drive the structure of market choice but this direction of interaction is not unilateral. Rather public/private negotiation irresistibly structure state and market choices alike.

Taiwan:
In 1949, Nationalist-mainlander poured into Taiwan facing no internal opposition. Land reforms were instituted for increase agricultural yields to produce sizeable exports and generate linkage effects. Extensive investments in rural infrastructure and irrigation were undertaken in 1950’s. Exchange rate was kept over-valued to benefit industrialist in keeping the food prices low as well as their import costs minimal for the promotion of exports. Multiyear development plans were initiated to inculcate growth in the economy.

Agri-Producer prices were low and technology and heavy tax policy were used for the use in industrialization. Quantitative restrictions on imports and high tariffs were used to control external competition. The process of import substitution was complete by 1957. Market-distortion as well as market-replacing methods was used for the establishment of textile sector to imbibe vertical integration and economy of scale. State played an active role in the establishment of plastic sector. Developmental plans were designed to direct investments in targeted industries.

State has been continued to concentrate on the development of large-scale firms of the upstream industries while leaving the small-scale firms relatively freer. The factories were handed over to selected private entities or were turned into public enterprises. In Taiwan case, notion of the centrality of the state in the development of the country holds true. However, State has at times not only been a leader in the development but it has also become a follower actively assisting the private enterprise in their success whilst pursuing its goal of economic development. Moreover it was not the state pushing the firms into different sectors of the economy. It was the private enterprises which demanded for assistance and hence pulled the state in the direction toward certain sectors.

In light of numerical researches, price distortion score for Taiwan is lower in comparison with other developing countries whereas it has exhibited a highest growth giving splendidly consistent results for a strong inverse correlation between price distortion and economic growth.  Government has been actively intervening to alter the trade and industrial profile of the economy as deemed desirable.

Taiwan along with Korea is among the standing out countries benefiting from the import substitution to the overall growth in the manufacture output. Industrialist who emerged in the 1950s remained the industry giants till 60s and 70s. Taiwan has witnessed its resource being shifted from agriculture into industry and with-in industry from labor-intensive, low technology activities toward more capital intensive and higher technology activities. Though Taiwanese state has been able to achieve success in increase the accumulation of factor of production, Industrial targeting policies has largely been a failure with displacing growth from one industry to another without raising the aggregate output.  

Small and medium sized firms dominate the Taiwan export manufacturing sector which makes the centralized coordination by developmental state less conducive. Political schism between Nationalist party (Kuomintang or KMT) and Taiwanese small entrepreneurs make cooperation difficult discounting the notion of reciprocal consent. Taiwan has extensively focused on the widening of its industrial sector which is important in the early stages of industrialization. Widening of the industrial sector require generation of additional supplies of factor of production. Physical and human capital accumulation is required for the industrialization to proceed. The state had a directive role in 1960s which accelerated move into heavy and skill intensive industries. In the 1970s government resorted to promotional role driving away from labor-intensive industries toward heavy and skill-intensive industries. The push into the new capital and technology intensive industries in the mid 1970s supports the self regulating nature of market rather and anticipating these changes in advance.  During this era state, along with reaffirming its leadership role, was signaling about the value of profitable private sector. However, according to Galenson, Taiwan big push into capital and technology-intensive industries was state-led and not market led.

In the early 1970s Taiwan exports started facing protectionist threats. Increasing wages and competition in different sectors along with over-stretching of infrastructure were formidable obstacles to be faced by the industrialists. The sixth fourth-year plan aimed to address them through increased political leadership and political control initiated renewed emphasis on export orientation and signaling state support of targeted sectors and their subsectors. It also undertook huge increase in public sector investments for improving the physical infrastructure. Hence 1970s saw expansion in the role of public enterprise sector. In 1973 to 1975, Taiwan government was determined to reduce Taiwan’s vulnerability to the fluctuations in the prices of key factors of productions through increasing the capacity in heavy and chemical industries.
           
Conclusion:
Developmental state is characterized by few pilot agencies guiding the overall process of intervention with policy tools linked to the private sector performance through a structure of incentives. Civil society is weak and easily subordinated. States builds extensive coalition with industry and plays down leftist elements. The extent of state intervention and logic of developmental state depends upon five variables. These are extent of control by bureaucracy, social pressures, national security imperatives, economic conditions and globalization. Developmental state has commitment to private property and the market. The market is closely regulated by the state institutions which are responsible for the development of the economy. The mechanism of relationship is defined by the type of market structure, extent of centralization, timing of the development, openness of the economy, policies of the ruling coalition and nature of administrative tradition explains the nature and extent of state intervention.

In Japan, Korea and Taiwan has undergone industrialization through aggressive government intervention. Market has been guided by the authorities and competitive processes have been moderated. The nature of the government-business relation has changed irreversibly from the state led economic decision making to an increased emphasis on private sector taking more initiatives. Coordination, communication and cooperation have increased between the public and private sector over the course of time.         
 As the Japan’s economy matures, the role of MITI has declined with companies transforming themselves into world class operations with extraordinary competitive success. Japan distinguishes itself from most of the Western Europe states because of the near absence of state ownership. It prefers to have regulatory or predatory nature as compared to going for outright ownership, because regulation affords greater flexibility without the loss of state authority. Powerful private actors established alliances with politicians and bureaucrats in development of commerce and industry. Market conforming actions of the Japanese state has led to the market structure transformation in Japan. Japanese state has intervened into the market only to enable the private actors to limit and enchase state power simultaneously Control has been retained though jurisdiction of the state has been surrendered. These notions are in stark contrast to the bureaucratic dominance and the developmental state in Japan. The Japanese state is characterized by a high level of public-private cooperation, balance of bureaucratic autonomy and linkages with private sector.

South Korea entry into heavy industries and cotton textile exports provide evidence for the state intervention under the condition of late industrialization. It has actively pursued measures to solicit the change in the business behavior of the firms in light of the public objectives. In Taiwanese state is opposed too open market system actively helping to insure that resources went into the industries important of the future growth and military strength.  Multinational players may assume the role of being an important player but it can only happen after the state had a well established presence and has assumed leadership role from where it can direct activities rather by being driven the rationale for global profits.

Developmental state paradigm can no longer explain the postdevelopmentalism phase of Japan, South Korea or Taiwan. Bureaucracy is now relinquishing its self entrusted role of economic development and giving way powerful private sector which it can’t control. 

About The AuthorHamid Khan is a current student of Economics at lums. His areas of interest includes religion, developmental studies and South Asian economies..

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