Political Economy of Growth: East Asia and Latin America Compared Bert Gilbert 3/16/2006 Bert Gilbert 3/16/2006

Haggard: Explaining Developmental Strategies  Developmental Strategies  “Packages of policies aimed at steering economic activity into a particular mixture of ownership and sectors (23)”  Based on more than factor endowments  Developmental Strategies  “Packages of policies aimed at steering economic activity into a particular mixture of ownership and sectors (23)”  Based on more than factor endowments

Comparing East Asian and Latin American NICs  Three Patterns of development  Import-Substitution (ISI)  Mexico, Brazil, several other large LDCs  Export-Led Growth (ELG)  Korea, Taiwan  Entrepôt Growth  Singapore, Hong Kong  Virtually all developing countries begin international trade as exporters of primary products  Three Patterns of development  Import-Substitution (ISI)  Mexico, Brazil, several other large LDCs  Export-Led Growth (ELG)  Korea, Taiwan  Entrepôt Growth  Singapore, Hong Kong  Virtually all developing countries begin international trade as exporters of primary products

Difference Between East Asian and Latin American NICs  Industrialization through exports versus industrialization through import substitution  Haggard uses comparative analysis to:  Weigh competing explanations of policy change  Generate some contingent generalizations  Develop more convincing explanations of particular cases  Four levels of analysis  The International System  Domestic Coalitions  Domestic Institutions  Ideology  Industrialization through exports versus industrialization through import substitution  Haggard uses comparative analysis to:  Weigh competing explanations of policy change  Generate some contingent generalizations  Develop more convincing explanations of particular cases  Four levels of analysis  The International System  Domestic Coalitions  Domestic Institutions  Ideology

Comparing East Asian and Latin American NICs  Haggard uses these analyses in order to explain variation across Korea, Taiwan, Singapore, Hong Kong, Brazil, and Mexico.

The International System  Table 2.2 pg. 33  Constrain state choices in two ways:  Market Pressures  Depression of 1930s hit Latin America but not Korea and Taiwan  External economic shocks likely to influence outward-oriented policies  Political Pressures  Latin America independent for longer, increased freedom to maneuver  U.S. more concerned with East Asia, importance of aid flows on foreign policy  Table 2.2 pg. 33  Constrain state choices in two ways:  Market Pressures  Depression of 1930s hit Latin America but not Korea and Taiwan  External economic shocks likely to influence outward-oriented policies  Political Pressures  Latin America independent for longer, increased freedom to maneuver  U.S. more concerned with East Asia, importance of aid flows on foreign policy

Domestic Coalitions  Weak private sector combines with export-led policies to provide opportunities for national firms.  MNCs and Local Firms coexist without threat of denationalization  Latin America  Role of FDI involved greater potential for political conflict  East Asia, labor controlled for the purpose of pursuing export-led growth  Weak private sector combines with export-led policies to provide opportunities for national firms.  MNCs and Local Firms coexist without threat of denationalization  Latin America  Role of FDI involved greater potential for political conflict  East Asia, labor controlled for the purpose of pursuing export-led growth

Domestic Institutions  Characteristics of the State as an Institution:  Degree of autonomy from social forces  Corporatist structures in democracies have proved successful in extracting restraint from labor and business  Cohesion of the policy-making apparatus  Larger states of Latin America more difficulty than East Asian NICs  Available policy instruments  Hong Kong, few instruments of intervention, relied on market- oriented system of adjustment  Characteristics of the State as an Institution:  Degree of autonomy from social forces  Corporatist structures in democracies have proved successful in extracting restraint from labor and business  Cohesion of the policy-making apparatus  Larger states of Latin America more difficulty than East Asian NICs  Available policy instruments  Hong Kong, few instruments of intervention, relied on market- oriented system of adjustment

Ideology  Table 2.5 pg. 48  Chicago Boys in Chile  Korea and Taiwan  Declining U.S. aid  Various ideas about how to respond  American advisors influenced developmental thinking.  Table 2.5 pg. 48  Chicago Boys in Chile  Korea and Taiwan  Declining U.S. aid  Various ideas about how to respond  American advisors influenced developmental thinking.

Evans: Class, State, and Dependence in East Asia: Lessons for Latin Americanists  Using analysis of East Asia to further the dependency approach  Insights of East Asianists may lead us to a better understanding of dependent capitalist development  East Asia’s different history than Latin America allows us to apply dependency theory elsewhere, test the theory  Using analysis of East Asia to further the dependency approach  Insights of East Asianists may lead us to a better understanding of dependent capitalist development  East Asia’s different history than Latin America allows us to apply dependency theory elsewhere, test the theory

Differences between Dependence of East Asian NICs and Latin American NICs  Most important difference: Role of FDI  Latin American Industrialization maximized the consequences of FDI  Foreign economic domination  East Asian Industrialization occurred during a period of little FDI  Flows of FDI to East Asia still significantly lower than to Latin America  Most important difference: Role of FDI  Latin American Industrialization maximized the consequences of FDI  Foreign economic domination  East Asian Industrialization occurred during a period of little FDI  Flows of FDI to East Asia still significantly lower than to Latin America

Aid & Trade  East Asian countries highly dependent on international trade  Does not seem to have slowed down their economic growth or distribution of benefits  East Asian NICs, aid has little to do with the interests of U.S. transnational corporations  Strengthen ability of states to confront Communist neighbors  Consequences of trade between rich and poor countries depends on the specific social structure in which trade takes place  East Asian countries highly dependent on international trade  Does not seem to have slowed down their economic growth or distribution of benefits  East Asian NICs, aid has little to do with the interests of U.S. transnational corporations  Strengthen ability of states to confront Communist neighbors  Consequences of trade between rich and poor countries depends on the specific social structure in which trade takes place

The State and the Local Bourgeoisie  Japanese colonialism left little space in East Asia for the emergence of even the relatively weak industrial bourgeoisies found in Latin America  Relations between state and local bourgeoisie make it more difficult for the state to smoothly impose such policies as EOI  Absence of rural elite influence from the formation of state policy unites East Asian cases and seperates them from those of Latin America  Japanese colonialism left little space in East Asia for the emergence of even the relatively weak industrial bourgeoisies found in Latin America  Relations between state and local bourgeoisie make it more difficult for the state to smoothly impose such policies as EOI  Absence of rural elite influence from the formation of state policy unites East Asian cases and seperates them from those of Latin America

Inequality in East Asian Dependent Development  Latin America characterized by large scale inequality  East Asian development has been very equal  Long unbroken historical experience of FDI produces a greater likelihood of inequality  Confirms suspicions regarding the negative welfare consequences of transnational dominated industrialization  Latin America characterized by large scale inequality  East Asian development has been very equal  Long unbroken historical experience of FDI produces a greater likelihood of inequality  Confirms suspicions regarding the negative welfare consequences of transnational dominated industrialization

Evans -- Conclusions  Triple Alliance  East Asia: State is dominant partner  Latin America: TNC and Local Private Capital more important  Suggestions  Latin Americanists should be careful not to overemphasize industrial class relations  We don’t really understand the consequences of a relatively more autonomous state machine  Avoid false parallels  Careful analyses of concrete historical situations must precede any expectations about results from policy.  Triple Alliance  East Asia: State is dominant partner  Latin America: TNC and Local Private Capital more important  Suggestions  Latin Americanists should be careful not to overemphasize industrial class relations  We don’t really understand the consequences of a relatively more autonomous state machine  Avoid false parallels  Careful analyses of concrete historical situations must precede any expectations about results from policy.

Silva: State-Business Relations in Latin America  Latin America  Political and Economic calamities culminating in debt crisis of early 1980s  Replace state-led, ISI, populism, and authoritarian regimes with free-market economic reform, fiscal sobriety, and political democracy.  Latin America  Political and Economic calamities culminating in debt crisis of early 1980s  Replace state-led, ISI, populism, and authoritarian regimes with free-market economic reform, fiscal sobriety, and political democracy.

Structural Adjustment and Business-System Change  Common view: Developmentalist state generated weak, state-dependent private sectors  Free-market reforms: fiscal restraint, macroeconomic stability, privatization, financial-sector liberalization, and opening to international competition  Personal and Family Ownership, closed-property firm, interlocking directorships in conglomerates prevail. Banks more than capital markets for financing long-term investment.  Privatization: 1) Adopt Anglo-American business practices 2) Conglomerate expansion too rapid 3) expand in regional economic blocs 4) difficulty in extracting state from some enterprises  Common view: Developmentalist state generated weak, state-dependent private sectors  Free-market reforms: fiscal restraint, macroeconomic stability, privatization, financial-sector liberalization, and opening to international competition  Personal and Family Ownership, closed-property firm, interlocking directorships in conglomerates prevail. Banks more than capital markets for financing long-term investment.  Privatization: 1) Adopt Anglo-American business practices 2) Conglomerate expansion too rapid 3) expand in regional economic blocs 4) difficulty in extracting state from some enterprises

Economic Change and Recasting Business-State Relations  Management of economic change benefits from centralized state that is autonomous from social and political forces  Business-state relations founded on established conglomerate more stable than newly created, competing conglomerates  No “Latin American” model of business-state relations  Management of economic change benefits from centralized state that is autonomous from social and political forces  Business-state relations founded on established conglomerate more stable than newly created, competing conglomerates  No “Latin American” model of business-state relations

Business and Democracy in Latin America  Absence of state control of organized interests creates space for a vibrant civil society which is a crucial feature of democracy  Institutionalized Tripartite negotiating system of societal corporatism provides a meaningful channel for the civil society’s participation in public policy  LA not ripe for societal corporatism  Institutional element underdeveloped  LA closer to U.S. pluralist model  Exclusionary business-state relationships that work now may contribute to economic and political difficulties in the future  Absence of state control of organized interests creates space for a vibrant civil society which is a crucial feature of democracy  Institutionalized Tripartite negotiating system of societal corporatism provides a meaningful channel for the civil society’s participation in public policy  LA not ripe for societal corporatism  Institutional element underdeveloped  LA closer to U.S. pluralist model  Exclusionary business-state relationships that work now may contribute to economic and political difficulties in the future

Questions  How applicable is the developmentalist model to East Asian development?  From what we have seen, what is the most important factor in predicting a country’s development strategy?  What is the biggest problem in comparing East Asian development to Latin American development?  How applicable is the developmentalist model to East Asian development?  From what we have seen, what is the most important factor in predicting a country’s development strategy?  What is the biggest problem in comparing East Asian development to Latin American development?