The Asian Version

Follows from the 4 tigers Taiwan, South Korea, Singapore, Hong Kong Other nations come later --- Malaysia, Indonesia ---- then a split China What about Japan? Japan is the initiator of the Asian version of capitalism These nations start from low per capita incomes ---- move to rapid rate of capital formation

Strong State Hand Strong state hand needed to draw labor out of the rural and agricultural sector to the industrial sector Strong state hand needed to draw labor out of the rural and agricultural sector to the industrial sector Strong state hand to make the transfer happen Strong state hand to make the transfer happen Strong state hand to induce capital formation in the industrial sectors and exporting sectors --- raise the capital for the transformation Strong state hand to induce capital formation in the industrial sectors and exporting sectors --- raise the capital for the transformation

Go for high rates of capitalization Go for high rates of capitalization Allocate capital to the industrial sectors Allocate capital to the industrial sectors So a high investment model here So a high investment model here Set up state industrial policy Set up state industrial policy Set up state export and import houses to control imports and push exports Set up state export and import houses to control imports and push exports

The Types The Stalinist Model --- The Stalinist Model --- – Use of extreme state control and power to force high rates of capital formation and rapid transfer of resources to defined state targets Japanese – Southeast Asia Model --- Japanese – Southeast Asia Model --- – State industrial policy to direct investment to targets ---- industry- government partnerships --- bank- industry partnerships

There is a tendency to lump the nations together– but there are differences in how the high rate capitalization process unfolds and its effects on industrialization Hong Kong and Singapore are city states like found in Roman rule Thailand, the Philippines, Malaysia differ from Taiwan, Hong Kong and differ from another more poor class nation --- India

But India is now in the act --- several reforms and move to the outside world is transforming India But India is now in the act --- several reforms and move to the outside world is transforming India Some of the industrialization is spreading to Thailand, Malaysia Some of the industrialization is spreading to Thailand, Malaysia China has been growing now for 3 decades --- but this situation is more of market socialism approach since the 1978 reforms China has been growing now for 3 decades --- but this situation is more of market socialism approach since the 1978 reforms

Japan Japan makes the move to industrialization from the period The Gershenkron prediction --- the rural nations would get greater growth than industrial nations once they decided to transfer AG surplus to industry --- force saving via policy and leverage the growth The savings also went from Japan to SE Asia

Japanese growth comes from a high rate of capital formation, availability of labor, catch-up in technology --- and the technology came through imports after Japan opened up to international business The state gives direction to growth via genkyoku --- supervision of industry by industrial policy Japan Development Bank – channel the savings

Confusianism and relationships Confusianism was the religion of the educated in Japan and China Confusianism was the religion of the educated in Japan and China This ethic teaches qualities of loyalty, nationalism, social solidarity, collectivism, benevolence, faith, bravery --- virtuous government – so in Japan, China and Korea, a positive role for government This ethic teaches qualities of loyalty, nationalism, social solidarity, collectivism, benevolence, faith, bravery --- virtuous government – so in Japan, China and Korea, a positive role for government So we get strong government hand --- Park Chung Hee in Korea, Chaing Kai-shek, Chaing Ching-Koo in Taiwan, strong symbolic monarchy in Thailand So we get strong government hand --- Park Chung Hee in Korea, Chaing Kai-shek, Chaing Ching-Koo in Taiwan, strong symbolic monarchy in Thailand

Back to Japan Do these nations accept notions from the West? Maybe--- they accept technology upgrade Japan accepts the German notion of the German Historical School of economic thought --- “the Right of the State” ---- so state has priority over individuals --- combines the loyalty of confusianism with the European brand of capitalism

The 4 tigers Exceptionally rapid growth ---starting in the 1970’s Exceptionally rapid growth ---starting in the 1970’s Asian crises comes along in Asian crises comes along in – $ denominated debt --- strong $ -- payback of debt becomes a problem The 4-tigers effect spreads to other SE Asian nations The 4-tigers effect spreads to other SE Asian nations Now we have an induced India starting in the late 1990’s Now we have an induced India starting in the late 1990’s

Industrial promotion State induced policy of export promotion State induced policy of export promotion Export promotion instead of domestic output protection, the latter of which is Import Substitution Export promotion instead of domestic output protection, the latter of which is Import Substitution Hong Kong, Singapore & Korea become classed as the world’s most outward economies --- Taiwan not far behind Hong Kong, Singapore & Korea become classed as the world’s most outward economies --- Taiwan not far behind

Japan and the holding companies Holding company Few shareholders Family holdings Conglomerate firm A Conglomerate firm G Conglomerate firm H Minority shareholders

contracting Relational contracting --- not based on formal rule of law --- based on trust --- personal relationship --- The Asian tradition Relational contracting --- not based on formal rule of law --- based on trust --- personal relationship --- The Asian tradition – Much of the contracting is done this way – Problems arise if there is no two-way reflection of the trust --- problems with outside contracting Market-based contracting based on formal rule of law – enforcement of contract Market-based contracting based on formal rule of law – enforcement of contract

The capital markets Based on leveraging ---- high debt Based on leveraging ---- high debt Not based on issuing of securities and equity Not based on issuing of securities and equity Causes some instability Causes some instability We see savings coming into securities issuing capital markets to transfer from Asian currencies to $- denominated assets --- strong-weak $ issues with this trade We see savings coming into securities issuing capital markets to transfer from Asian currencies to $- denominated assets --- strong-weak $ issues with this trade

Banks initiate the capital venture investments ---- take over holding companies in some cases Banks initiate the capital venture investments ---- take over holding companies in some cases Banks leverage in the debt driven capital markets of Asia Banks leverage in the debt driven capital markets of Asia Part of the Asian crises was the leveraging and then non-payment of debt --- debt in $, so strong $ brings on the crises ---- cannot pay back the growing debt Part of the Asian crises was the leveraging and then non-payment of debt --- debt in $, so strong $ brings on the crises ---- cannot pay back the growing debt

Households have very high and strong savings rates Households have very high and strong savings rates Ready supply of savings applied to the capital markets Ready supply of savings applied to the capital markets Korean banks function as state enterprises --- garner the savings and allocate to industrialization --- but again debt drives the capital investment Korean banks function as state enterprises --- garner the savings and allocate to industrialization --- but again debt drives the capital investment Japan’s banks have suffered some from the debt and continued easier monetary policy --- they hold sour debt! Japan’s banks have suffered some from the debt and continued easier monetary policy --- they hold sour debt!

The labor markets in the Asian model The Asian labor markets take some operations from both the Anglo-Saxon and the European versions of capitalism The Asian labor markets take some operations from both the Anglo-Saxon and the European versions of capitalism There is paternalism toward workers - -- the extended family approach to workers in the conglomerates There is paternalism toward workers - -- the extended family approach to workers in the conglomerates Japanese unions tend to be enterprise unions Japanese unions tend to be enterprise unions

The SONY union --- an enterprise union – not a nationwide union The SONY union --- an enterprise union – not a nationwide union In other nations of the Asian variety workers are poorly protected from the vagaries of hire and fire similar to the Anglo-Saxon operation of labor markets --- but receive some paternalistic treatement In other nations of the Asian variety workers are poorly protected from the vagaries of hire and fire similar to the Anglo-Saxon operation of labor markets --- but receive some paternalistic treatement

The Japanese economy is sometimes characterized as the “Share” economy because distribution of income is more even relative to other nations even though families are big stake and shareholders in large complex conglomerates The Japanese economy is sometimes characterized as the “Share” economy because distribution of income is more even relative to other nations even though families are big stake and shareholders in large complex conglomerates But lifetime working contracts bring about inflexibility But lifetime working contracts bring about inflexibility

The Anglo-Saxon model provides more flexibility to mobilize and move the labor force to changing industrial expansion goals But there is much less work security--- so unions have organized to protect job security and the working conditions Unions are more powerful currently in partnerships with government in Europe

Check out the Fei-Ranis-Lewis model of agricultural surplus and labor movement out of agriculture to the industrial sector Check out the Fei-Ranis-Lewis model of agricultural surplus and labor movement out of agriculture to the industrial sector See pages of the text See pages of the text This is the Japanese model of rising in growth from the rural scene to the industrial scene in the 19 th, 20 th, and now 21 century --- but now declining This is the Japanese model of rising in growth from the rural scene to the industrial scene in the 19 th, 20 th, and now 21 century --- but now declining

Workweek regulations exist in Singapore Workweek regulations exist in Singapore East Asian policies developed growth and then shared the growth amongst classes and working groups ---- so more even income distribution see P. 265 of the Text East Asian policies developed growth and then shared the growth amongst classes and working groups ---- so more even income distribution see P. 265 of the Text