XIV International Economic History Congress, Helsinki 2006 Session 79

Transcription

1 XIV International Economic History Congress, Helsinki 2006 Session 79 6/30/2006 The Human Resource Path of Economic Development: A Perspective from Asian Experiences Kaoru Sugihara (Kyoto University) 1 Introduction This paper discusses how Asian countries developed the human-resource-intensive path of economic development, especially since the 1960s, in comparative historical perspective. In my paper for the Buenos Aires session (which is a predecessor of this session) and elsewhere, I have argued that labour-intensive industrialisation, first systematically attempted in Meiji Japan and subsequently diffused in other East Asian countries, constituted one of the two major routes for the global diffusion of industrialisation since the nineteenth century, and that East Asia played a vital role in this diffusion (Sugihara 2002b, 2003). This route utilised cheap labour rather than capital whenever they were substitutable, and, by specialising in labour-intensive industries, successfully created an international division of labour with high-wage economies of western Europe and the United States, which produced the more capital-intensive goods. Although western economies continued to take a lead in technological and managerial innovation, manufacturing firms requiring a large number of relatively unskilled workers increasingly moved to low-wage countries during the second half of the twentieth century, as the conditions for relocation, such as the availability of the basic infrastructure, government support and political stability, were met by many developing countries. Today, the majority of world manufacturing employment is located in developing countries of Asia, especially in China and India (see Table 1). Labour-intensive industrialisation does not automatically lead to the fuller use of human resources or the accumulation of human capital. Interestingly, successful industrialisation in East and Southeast Asian countries during the second half of the twentieth century critically depended on the improvement of the quality of labour, both in human development in general (including per capita income, literacy and life expectancy), and education and training in particular. The East Asian workforce as a whole became an educated one within a relatively short space of time, and the quality of labour of high-wage East Asian countries, such as Japan and Singapore, came to match the western counterpart. Thus, compared to western economies 1

2 where capital-intensive industries remained proportionately greater, East Asian economies became relatively human-capital-intensive. In resource terms, East Asian high-growth economies were often resource-poor, as a result of which, compared to western economies, especially the United States, where resource-intensive industries remained competitive, East Asian economies became visibly human-resource-intensive. This paper outlines the ways in which labour-intensive industrialisation was turned into the human-resource-intensive path of economic development in Japan, East Asia and Southeast Asia, and argues that the discovery of this path opened up the possibility for convergence between resource-rich economies (such as the United States) and resource-poor economies (such as Japan), in spite of continued uneven allocation of resources. It is towards the human-resource-intensive path (hereafter human resource path, for the sake of simplicity), rather than a capital-intensive or resource-intensive one, that the world economy has been converging during the last half century. The next section reviews the improvement of the quality of labour in Asia s industrialisation before the age of formal schooling, and argues for the significance of both the initial quality of labour at the time of recruitment and labour management, in addition to formal schooling. The third section outlines the emergence of labour-intensive industrialisation strategy in postwar East and Southeast Asia with the use of relatively unskilled labour, while the fourth section traces the emergence of human resource path of economic development along the way. The final section discusses the implication of the development of this path for global history. 2 Formal Schooling and the Quality of Labour The role of formal schooling In response to the mainstream thinking behind the theory of modern economic growth and development economics, economic historians have discussed the role of education for economic development, mainly in relation to formal schooling. The following three articles, all of which appeared in the Journal of Economic History, represent the current trend. In his 1981 article Why Isn t the Whole World Developed?, Richard Easterlin suggested that the acquisition and application of a body of knowledge concerning new production techniques by different countries has been governed largely by whether populations have acquired traits and motivations associated with formal schooling. And the establishment and expansion of formal schooling has depended in large part on political conditions and ideological influences. Thus, he argued, the limited spread of modern economic growth before World War II has been due, at bottom, to important political and ideological differences throughout the world that affected the timing of the establishment and expansion of mass schooling (Easterlin 1981/2004: 1). Asia did not possess political and ideological aptitude for it as much as the west 2

3 did, perhaps with the exception of Japan. Colonialism has often been thought as a major deterrent to the growth of mass education, but the cases such as the American take over of the Philippines and the Japanese rule in (Taiwan and) Korea suggest reasons against too hasty generalisation (ibid. 7, 11-12). The possible causal relationships between democracy, formal schooling and economic growth have since attracted much attention. Focusing on postelementary education, Claudia Goldin suggested that the American system of education, established in the early twentieth century, led the world to become rapidly accustomed to postelementray education during that century. The newly emerged American template was shaped by New World endowments, republican ideology, the frame of mind that was open and forgiving, academic yet practical, secular and gender neutral, and was funded and controlled by small districts rather than by centralised administration. As such, general schooling in the United States produced more flexible and transferable skills across place, occupations and industries than European counterparts, which tended to offer more specific skills in terms of class, occupations and industries (Goldin 2001: 263, ). Goldin s vision of the twentieth century being the human-capital century, makes a point that it is the degree of human capital accumulation that distinguishes that century from all the previous centuries. This vision clearly encompasses the rapid diffusion of postelementary education in the non-european world, especially in East Asia during the second half of the century, although no discussion is offered as to how important the American template was to that diffusion. Most recently, Peter Lindert distinguished the two institutional channels linking democracy, or voice, to economic growth. He argued that until the early nineteenth century, the key institutional link was property-rights and contract enforcement. The establishment of the property-rights channel, such as elite franchise democracy demanding secure property rights to the state, was the main route through which voice promoted growth. Since then, however, the human-capital (policy) channel has assumed an ever-greater role. Investment in mass primary education in particular was a vital channel through which capability of the ordinary people was enhanced and was linked to growth. According to Lindert, elite rule damages growth by underinvesting in egalitarian human capital, especially primary schooling, when compared to historical norms for successful economies (Lindert 2003: 315). One of the central examples to prove his case is India. Since independence, India has had a higher democracy index than France. Her property-rights institutions are not bad in investors eyes, compared to those of other developing countries. On the other hand, she has consistently undersupplied primary school education while being much more generous at higher levels. A consensus of in-depth studies, such as works of Dreze and Sen and the World Bank (Dreze and Sen 1995; World Bank 1992; see also Dreze and Sen 1997), has found a serious distortion of 3

4 Indian public funding in favour of higher education at the expense of mass primary education, and this anomalous educational policy stands out in an overall Asian comparative perspective (Lindert 2003: 334). The only possible explanation for this, according to Lindert, is that India is not a full democracy, which its (electoral) franchise rate would suggest. Much of the Indian population has been systematically excluded from having any real voice in tax and educational policy, and this has been the case throughout modern Indian history (ibid ). In other words, property-rights channel has been relatively well established since the period of British rule, but human-capital channel to economic development has been consistently underplayed. Industrialisation in prewar Asia While these observations and hypotheses have directed our research agenda broadly in the right direction, it remains the case that the vast majority of employment in modern factories during the initial stage of industrialisation did not require any formal schooling. Modern textile factories, the main stay of Asia s industrialisation and by far the largest employer of modern industrial workforce in the late nineteenth and the early twentieth centuries, do not appear to have encouraged the advancement of formal schooling in any major way. Japanese factory workers in the late nineteenth century were recruited from poor and remote areas lacking employment opportunities, and were mostly young girls, one of the least educated among the same age group. A sample survey in 1897 found that only 15 per cent of male workers and eight per cent of female workers completed primary schooling, and that most dormitory-based workers depended on the assistance of factory clerks for their postal communication with their parents and relations at home (Noshomusho 1971/1903: ). An overwhelming proportion of textile workers in India and China in this period received no primary education. Nor were modern textile industries particularly responsive to postelementary education. As Goldin notes with regard to the advancement of the high school enrollment rates in the United States during the 1920s, the states with strongly agricultural and cohesive communities or those with the emerging new economy, which offered employment to those with clerical or mechanical skills, led the high school movement, while many industrial states lagged behind because the youth could find employment more easily in the old industries such as textiles (Goldin 2001; 279). In this respect Karl Marx s conceptualisation of the alienation of human being from work as a fundamentally purposive activity, which industrial capitalism would inevitably bring with it (Marx 1990/1867), or more specifically a tendency for deskilling, holds best in the mechanised part of old industries. It was precisely those industries, which employed a large number of unskilled workforce, that acted as a driving force of Asia s industrialisation. The Asian developmental path was conditioned by the need to adjust to comparative advantage vis-à-vis advanced western 4

5 countries, and its industrial growth depended on the use of cheap labour far more critically than its western counterparts. Serious efforts were made to minimise the input of capital and maximise the input of labour in achieving higher labour productivity. The replacement of labour with machinery was therefore accompanied by the simultaneous effort of replacing capital with labour wherever technology was thought to be biased towards capital, in the light of local factor endowment options. In the cotton textile industry in Meiji Japan, for example, the iron frame for power-loom was partially replaced by the less strong but cheaper wooden frame, while the night-shift system lowered the capital-labour ratio of spinning mills (Sugihara 2003). Thus labour-intensive technology and labour-absorbing institutions were improved and refined, and labour-intensive industrialisation became a distinctive feature of Asia s industrialisation. The growth of modern cotton textile industry in Bombay in the second half of the nineteenth century was followed by the Japanese effort, and by the early twentieth century cotton mills spread to China, Korea and beyond. The growth of intra-asian trade connected Indian short-stapled raw cotton, Japanese machine-made cotton yarn and Chinese hand-woven cloth, as well as rice and sugar from Southeast Asia, to develop a range of culturally framed Asian regional commodity chains (Sugihara 1996, 2005a). Along the way, these chains created vast numbers of employment, especially among the rural population. Some of these regional goods competed directly with western goods in the international market. By the mid-1930s the Japanese mills competed well with Lancashire and temporarily gained a large share in the world market of textiles. The improvement of the quality of labour In other words, the Asian context of the deployment of unskilled industrial labour came primarily from its response to western impact, rather than from the establishment of the property-rights channel of their own or that of the human-capital channel expressed in the form of formal schooling. Yet the quality of labour visibly improved between the late nineteenth century and the 1930s. Three points can be made to account for this, referring to the case of prewar Japan. First, labour recruited from the countryside to modern factory was of a relatively good quality. During the Tokugawa period ( ) peasants were encouraged to respect the order set out by the shogunate, in exchange for which they were given a considerable administrative autonomy in the village. As a result, the peasant household had an incentive to improve their economic and social capabilities, and a high level of social stability was achieved over a long period of time. The accumulation of human capital, especially that of general, managerial and inter-personal skills relevant to the control of their immediate surroundings and the administration of the village community, became an engrained value in Japanese society, and contributed to a slow 5

6 but steady economic progress. The Japanese developmental path after the Meiji Restoration largely retained these characteristics. There was a capability enhancement channel within the society, and the development of ideologies and institutions was essentially directed towards creating an order which would promote this channel (Sugihara 2004b). Second, labour management played an important role in the improvement of the quality of labour. The Japanese workers responded well to various incentive schemes organised by the management. For example, there were many kinds of prize or bonus available; if you worked for a full month without any absence you would get a small sum of money, if you worked for three continuous months, another bonus, if you worked for a full year, another bonus, and so on. The results were often publicised and workers were encouraged to compete with each other on a group basis. In the case of piece workers, the system simply operated on the basis of each worker s achievement. These incentive devices were by no means original, but the fact is that an almost entire workforce was responding to them vigorously. For instance, most factories reported that a huge number of workers (70 or 80 per cent in some factories) got these attendance prizes (see Table 2). There are a large number of complaints in the Report that the amount of prize money was smaller than previously promised, but hardly anybody questioned its existence. I quote a piece of oral evidence of a female worker, when she was asked why her co-workers did not stop and take a rest in the rest time, Nobody takes a rest because it is not nice to be beaten by others (Noshomusho 1971/1903: 550). This is not something you can easily find in any factory at this stage of economic development. The Japanese workers by that time were already willing to express themselves, not by sticking to their manners in which they were brought up, but by accepting the new rules of the factory community as the most relevant values for them to adhere to. Under the ideological banner of industrial paternalism, many schemes were tried and have been successfully carried out. There were classes in reading and writing, tea ceremony, flower arrangement, cooking and moral lectures by Buddhist monks. Some factories had a system where workers clothes were regularly checked to see if they were clean. Others asked workers to report to the management on their daily expenditure on a weekly or monthly basis, and those who did not spend too much on drinking and entertainment won some prizes. Workers were encouraged to write to journals which were published by the factories under the title of Operatives Friends or some such name, and one can see many devices here again. For instance, one of the essays which won a prize talked about how to save time in the preparation of classes in the morning and at night, and argued that time is money not only in the factory but all through your life. The improvement of the quality of labour did not directly make a great impact on labour 6

7 productivity. The more literate, the more hygiene-conscious and the more disciplined workforce were of course better able to attend to larger numbers of spindles and power-looms, but the skills required to carry out these tasks remained simple, at least for the majority of workers on the shop floor. In fact it often looked as if the management had been taking pains to offer workers incentives, better wages and welfare facilities in the hope of preventing the penetration of trade union movements, rather than for direct productivity gains. Along the way, however, their efforts resulted in a greater sense of dignity to unskilled work and a greater sense of respect to modern social values. This in turn raised the social profile of the cotton mills as a decent place to work, and the mills were successful in recruiting the daughters of the more respectable rural households. Essentially, this was the Japanese solution to the problem of reconciling the need for unskilled (and often manual) labour with human development during industrialization (Sugihara 2005b). Third, formal schooling was part of this development. In per cent of the working age population did not complete primary school, while 42 per cent completed primary school only. By 1935 these figures changed to 7 per cent and 82 per cent respectively (Hazama 1978, 194). By 1930 more than 90 per cent of industrial workers completed primary school (Table 3). Although starting from a low base, the level of education of female textile workers also vastly improved by this time. Nevertheless, we need to look beyond the realm of formal schooling, if we are to understand the ideologies and institutions that supported the entire process of industrialisation. As far as Japan is concerned, a remarkable development of formal schooling in the twentieth century institutionalised the capability enhancement channel that had been set for centuries, rather than created it. Moreover, in spite of a much slower pace, and from a lower base, than Japan s, human development (in the forms of the improvement in per capita income, health and education) did occur in Indian cotton textile industries as well, and the quality of labour improved as a result (see Sugihara 2005b). During the 1920s and the 1930s, there were earnest attempts to improve the work and living environment, offer education, encourage the sense of commitment to unskilled work, change factory legislations and, to some extent, foster the more cooperative relationship between management and labour. Table 4 shows the level of literacy in Bombay mill hands, which was unmistakably higher than that before World War I. Conspicuously missing was an attempt to intervene in and change the worker s ethos directly, as was seen in Japan. But all other methods were deployed, though to a more limited degree. If this understanding is roughly correct, it could be argued that countries proceeding with labour-intensive industrialisation had a tendency to deal with the issue of discipline and human development of unskilled workforce as an inseparable whole. It related not only to incentives at the shop floor but to the improvement of the lives of their workers outside their working hours, 7

8 especially aspects of health and education. Thus the linkage between production and other aspects of economic and social activities was made, not just by acquisition of technical skills and training and contribution to labour productivity, or by contacts with the market economy, but through the more holistic interactions between the improvement of the quality of labour and human development. During Asia s labour-intensive industrialisation not only the quality of labour of industrial workers improved but their human development occurred. This contributed to economic development, not so much by increasing the workers ability in the production process, as by raising the expectations of their lives and economic and social capabilities. This in turn underpinned the changes in social values towards modernisation. There was a dynamic relationship between the increase of the quality of labour and human development, which was to be institutionalised more fully after World War II. 3 The Emergence of the Postwar Labour-Intensive Industrialisation Capital-intensive route to industrialisation After 1945, in spite of the disruptions caused by the war, industrialisation efforts in Asia accelerated. The single most important factor was decolonisation. During the late 1940s and the 1950s most Asian countries achieved independence and began implementing their own programme of industrialisation. The efforts were invariably affected by the international framework of the Cold War, however. The prewar pattern of intra-asian trade was replaced by a rather strict division between the United States-led regime of free trade, and the other countries either under the influence of the Soviet-led socialist regime or following the non-alliance movement led by Nehru and Sukarno. The latter groups substantially withdrew from world trade, and only a small number of countries along the Pacific Rim, Japan, South Korea, Taiwan, Hong Kong and Malaya remained fully integrated into the international economy. During the 1950s and the 1960s, a number of South and Southeast Asian countries attempted import-substitution industrialisation, trying to shift their status from the primary producer to the industrial economy. But it was not easy to alter the pattern of international division of labour where developed countries exported manufactured goods and developing countries exported primary products. At UNCTAD in 1964, Raul Prebish stressed the need for import-substitution industrialisation, in order to respond to the worsening of the terms of trade for primary producers (Esho 1998). In most cases, import-substitution was thought to be possible through heavy protection, low interest rates, overvalued exchange rates and fiscal concessions. Emphasis was placed on the development of capital-intensive industries, which were expected to bring the benefit of technology and industrial linkages to the rest of the economy. In India and Indonesia, but also in China and South Korea and Taiwan under very 8

9 different political settings, the idea of industrialisation led by the leading (capital-intensive, heavy industry) sector was influential at a certain stage of their development (Oshima 1987). Among the most influential were India s five-year plans. However, by the mid-1960s, India already fell behind many East and Southeast Asian countries, measured in terms of per capita GDP (see Table 5). The trickle-down effects from heavy industry-led development were not forthcoming; In the countryside, poverty and disguised unemployment were on the increase. These observations led Indian economists to conceptualise and estimate underemployment, and the issue of employment came to be included as part of the Fifth ( ) and the Sixth ( ) plans. Nevertheless, the idea of capital-intensive-industry-led industrialisation and the strict interpretation of import-substitution (imports of a commodity was not allowed if the country could make it, even if its price and quality was vastly inferior) proved resilient. Even after the ILO adopted the basic needs strategy, and Robert McNamara, President of the World Bank, anounced on the Bank s policy change towards targeting specifically at poverty alleviation, mainstream Indian economists maintained that imbalances between developed and developing countries could only be overcome through a comprehensive industrialisation, and that poverty must be tackled within the framework of industrialisation programme (ARTEP 1980, 43-54). They argued that developed countries were trying to limit their aid programme to poverty alleviation, for fear of the competition arising from the industrialisation of the Third World; The poverty alleviation programme would meet the moral priorities of developed countries, but such a programme would result in the persistence of the North-South divide. Here, not only were the gains from trade effectively ignored, but the more specific but equally critical point that selective imports of capital goods should be allowed to quicken the catching up process (e.g. machine tools should be imported to achieve the import-substitution of the machinery up to a point where the efficient production of machine tools becomes possible) was also denied. To them, the Chinese success under Mao s leadership seems to have proven that poverty alleviation and industrialisation are simultaneously achievable (Singh 1979). It is not difficult to detect the ideological background to this line of thinking. According to Lindert, the economic development of western Europe up to the mid-nineteenth century was based on the establishment of private property rights and technological innovation (Lindert 2004). In this route, the role of science and technology was well understood, but that of human capital was not recognised as a priority. Not only was there no consensus for mass education, but even the poor law was not made effective, if the ruling class did not find it attractive from their point of view. The Indian approach has been deeply influenced by such a tradition, even after independence. Thus growth, not income distribution, remained the main target in these plans. K. N. Raj, one of the best economists of the time, commented that the commitment to the 9

10 basic needs in these plans was no less casual than the history of the poor laws in England in the nineteenth century (ARTEP 1980, 13-14). Labour-intensive route and its expansion By contrast, since the late nineteenth century, mass education was widely adopted in western Europe (and Japan a little later), and a comprehensive human-capital channel became prevalent during the twentieth century. The diffusion of democracy was of course behind the greater political voice demanding education and welfare (Lindert 2003, 2004), but this was not the only cause. Equally important was the realisation that a comprehensive upgrading of the level of education of the whole population was necessary, if a country was to raise the quality of labour, carry out technological innovation and sustain its competitive advantage. Indeed this understanding became the key ideology of the East Asian miracle. The first part of this miracle was played out by Japan and NIEs. After its defeat in World War II, the Japanese government was determined to pursue a programme of full economic modernisation, primarily through expansion of the domestic market. But the problem of resource constraints remained a critical bottleneck. On the face of it, when world resources came to be freely allocated through trade and the pressure on land eased, Japan and NIEs could have converged with the west, as the simple convergence theory predicts. In practice, however, the population of developing countries, at that point including Japan and NIEs, was so large that it would have been impossible to raise their standard of living to the western level, given the level of technology and available world resources. In any case, American technology was so heavily biased towards resource-intensive and capital-intensive technology that it was ill-suited to the needs of developing countries. But to lower western standards of living for a more egalitarian world would have been politically unacceptable to the population of advanced western countries. Thus, a much more likely scenario would have been the persistence of the North-South divide, and the continued struggle for a greater share of income and resources among nations, leading to military and political tension. The miracle occurred because of the presence of two highly contingent factors; the Cold War regime accidentally creating a vacuum which allowed Japanese industrial growth, and the Japanese determination to achieve full economic modernisation using the fewest possible additional resources, which was an instinctive reaction to the self-inflicted consequences of the Asia-Pacific War. A resource-saving and human-resource-intensive path of economic development thus emerged. As it happened, technology was freely transferred from the United States under the Cold War environment, while Japan (and later NIEs) was allowed to import all the natural resources they needed from all over the world. While the United States specialised in resource- and capital-intensive, military, space, aircraft and petro-chemical industries, she was happy to help 10

11 Japan enlarge its industrial structure from light industries (such as cotton textiles) to the non-military and relatively labour-intensive segments of heavy and chemical industries. These included shipbuilding, cars and consumer electronics. Although heavy and chemical industrialisation was attempted in Japan during the 1930s and in some ways accelerated during the period of the wartime controlled economy, it was at this point that the range of internationally competitive industries expanded and the Japanese strength began to include technological and managerial innovation across a wide range of industrial sectors, while at the same time retaining the path-dependent characteristics of its domestic market orientation, a relatively egalitarian profile and the will to raise the quality of labour across the society. According to Eddy Lee (Lee 1981), South Korea also achieved a high-speed growth of a good quality, in the sense that it not only expanded its exports to developed countries, but it linked export growth to the domestic expansion without the worsening income distribution. Lee was not satisfied with Ann Krueger s explanation that export growth worked in favour of equal income distribution (Krueger 1978). He emphasised that this mechanism was possible, because of the high initial conditions, especially egalitarian agriculture, as a result of a thorough land reform (Lee 1979). Labour-intensive industrialisation in Southeast Asia Both Taiwan and South Korea had a large sector of labour-intensive industries at an early stage, and proceeded with export-led industrialisation, importing intermediate goods and capital goods from Japan, processing them with the use of cheap labour, and exporting them to the United States (Hattori and Sato 1996). Around the middle of the 1960s Southeast Asian countries, later to form ASEAN, began to change their industrialisation strategy. Broadly speaking, it was accompanied by the more open economic policy with emphasis on the exports of labour-intensive industrial goods. One key issue was whether the labour-intensive route could be adopted in countries where the level of human development was relatively low, the quality of labour relatively poor, and income distribution was uneven. Most parts of Southeast Asia were colonised, and, while the system of private property rights was introduced and the region experienced the growth of export economy and high real wages during the boom period, it never went through the process of industrialisation, comparable to India, China and Japan (Sugihara 2001b). Thus when some Southeast Asian countries began adopting the policy of export-led industrialisation, many economists argued that export-orientation, especially the establishment of export-processing zones with tax exemption and other incentive schemes, would only benefit multinational corporations. Export zones, while providing the employment for unskilled labour, would not lead to technological transfer and domestic capital formation. Industrialisation of this 11

12 kind would be a shallow one, without any implication for a full economic and political independence. The two Oil Crises during the 1970s exposed the vulnerability of the export-led development strategy in many developing countries, which appeared to confirm this view. On the other hand, there also seemed to be a strong case for learning from the success of NIEs. After all, South Korea and Taiwan are former colonies too, and were comparable in population size to Malaysia and the Philippines. The ASEAN countries could also count on the international support in terms of an access to the American market, direct investment from the United States, Europe and Japan, and the U.S. economic aid in view of preventing communist penetration. In its stylised form which emerged in Southeast Asia during the 1980s, the labour-intensive industrialisation strategy advocated the following (Amjad 1981; Sugihara 2005c): The main barrier to the growth of labour-intensive industries in Southeast Asia had been a policy bias in favour of capital-intensive, large-scale industries, such as heavy protection through tariffs, low interest rates, overvalued exchange rates and fiscal subsidies: The removal of this bias would promote the growth of small-scale, labour-intensive industries, both rural and urban, as well as the more informal networks of rural byemployment: A lower exchange rate would promote exports: A greater access to capital (through the removal of effective discrimination against small-scale industries) would enhance investment and efficiency: A greater reliance of large-scale industries on small ones (through the lower exchange rate making foreign imports more expensive) would create firmer domestic industrial linkages, leading to the expansion of the domestic market. Although small-scale industries in Southeast Asia were generally inefficient and their labour-output ratio and the capital-output ratio extremely low, the policy change would improve these ratios. These ratios of small-scale industries were better than those of large-scale ones in Japan when the country went through a high-speed growth in the 1960s. The reality of ASEAN was that the rapid population growth was producing an ever larger labour force, and that, in the absence of manufacturing employment opportunities, the young able-bodied were moving in large numbers to the outer islands of Indonesia, the Middle East and the informal sectors of large cities. Together with the neglect of agriculture, underemployment, real wage stagnation and the unequal distribution of income resulted. The rate of labour absorption into industry in total employment (see Table 6) was much less than the contribution of manufacturing to GDP, shown in Table 5 (the definition of industry here is broader than that of manufacturing). The policy change in favour of labour-intensive industries, it was argued, should improve this situation. Thus various policies to foster labour-intensive industries were proposed and partially 12

13 implemented, primarily with employment concerns in mind. The establishment of export processing zones in Malaysia and Thailand could be seen as part of the much broader effort of manufacturing employment generation, rather than as a superficial response to attract direct foreign investment. Indeed by 1985 the proportion of manufacturing value added to GDP in four ASEAN countries was already to exceed that of South Asia. Starting from a heavy orientation towards food processing, the type of manufacturing also became reasonably broad-based, including sizable sectors of textile and apparel, machinery, transport, and chemicals. During the 1980s ASEAN went through the phase of industrialisation with unskilled labour (Ariff and Hall 1986). After the policy shift of 1979, China also became an important exporter of labour-intensive industrial goods (see the next section), and this was followed by India s policy shift of 1991 (Sugihara 2001a. For India s labour-intensive industrialisation, see Roy 2005: ch.6). Looking back, it looks as if labour-intensive industrialisation in Asia as a whole had continued in the second half of the twentieth century, with a relatively short period of interruption in which capital-intensive industrialisation strategy was dominant. Judging by economic performance, a tendency was that a country like India, which had pursued capital-intensive industrialisation strategy for a long time, lagged behind, while a country like Taiwan, which had quickly shifted to the labour-intensive industrialisation strategy, grew very fast. 4 The Path for Human Resource Development The rise of Asia in the world economy As the Cold War turned to long peace, military demand flattened, while the mass consumer goods market in which East Asia specialised expanded, and the region s industrial exports to the United States, as well as intra-asian trade, rapidly increased. The growth of postwar trade was driven by the leadership of the United States and the high-speed growth of Japan and other Asian countries. Within Asia the fusion between the traditional commercial skills of overseas Chinese and Japanese technology helped the diffusion of industrialisation. This diffusion has been captured in terms of the flying geese pattern of economic development (Akamatsu 1962). In this scheme, the relatively labour-intensive, low-technology industry of a more advanced country (such as Japan) would be very rapidly transferred to the country next in line (such as Taiwan), which in turn, within the space of ten years or less, would transfer it to others (such as Malaysia). The more advanced county would be under constant pressure to restructure its industries by the competition from the low-wage countries. Yet East and Southeast Asian open economies, particularly Japan, were far more committed to free trade than Europe and the 13

14 United States, and were willing to let international competition rule the region s economics and politics. State intervention through the formulation of industrial policy was essential to this process. The income gaps that had been successively created, first between Japan and NIEs, then between NIEs and ASEAN, between ASEAN and China, and now between China and other parts of Asia, provided major opportunities for technological transfer and cultural fusion. By the 1980s the centre of world trade had decisively shifted from the Atlantic to the Pacific. The economic success of Japan, NIEs and ASEAN prompted the change in Chinese policy in the late 1970s, which vastly enlarged the population and market of the Asia-Pacific region. In turn, economic forces based on East and Southeast Asia s industrial strength, rather than the Cold War regime, began to dominate international relations. With the collapse of the Soviet Union in 1989, the United States began to reduce its commitment to military industry, and developed a strong will for financial supremacy, which resembles the relationship that existed between the City of London and the Whitehall, which dominated international relations during the late nineteenth and early twentieth centuries (Sugihara 2002a). The new complementarity between the American financial interests and East (and Southeast) Asia s industrialisation replaced the old (military/non-military) division of labour, and provided the basis for a continued growth of trade during the 1990s (Sugihara 2003b). At the same time, Japan and NIEs became high-wage economies since the 1970s, while during the 1990s the American economy became less militaristically-oriented (the share of the military expenditure to GDP significantly declined), so high technology industries of the Unites States and East Asia came to compete much more directly than before. But, while labour-saving technology, such as industrial robots, quickly developed in East Asia, it did not lead to a general switch to capital-intensive and resource-intensive industries. The capital-labour ratio tended to stay put, as wages rose. The new technology required more better-educated people rather than more capital and resources. The impact of microelectronics revolution There was a significant change in industrial structure in developed countries since the 1970s. Table 7 shows the difference in growth rates in various industrial sectors during the 1970s and the first half of the 1980s. It is clear that industries directly linked to the introduction of microelectronics technology (computers, consumer electronics, telecommunications, machine tools etc.) showed the rapid growth, while the old industries, including both textiles and other light industries and capital-intensive, heavy industries, struggled. The same table also makes it clear that Japan, rather than the United States, led this change, which meant that the impact of this change was felt in the developing economies of East and Southeast Asia more keenly than almost anywhere else in the world. 14

15 The new technology rapidly fused with the conventional skills of mechanical engineering, and a wide range of electronics-related industries emerged, creating a large number of relatively simple jobs (such as assembling) in addition to the employment of highly skilled workers. It also became a technological linchpin of some old industries (such as textiles and apparel) and many service industries (such as education, medical care and leisure) (Zhou 1997). More important, the new industries did not necessarily require industrial concentration and the kind of infrastructure, which heavy industries needed (such as an access to ports and other transport to carry heavy material). They did not necessarily need the supply of a large amount of capital either. As long as competitive labour, an access to information and commercial and financial networks were available, they would move to any location where the best combination of factor endowments and policy packages was on offer. Conversely, if conditions in a particular location changed, due to higher wages or change in government incentive schemes, for example, the industry could move to another location within a short space of time. Yet the potential linkages these new industries could make with domestic labour-intensive industries in employment terms were quite large. Besides political stability and incentive packages, therefore, what was required in developing countries hosting these new industries was the flexible supply of various types of labour, ranging from unskilled to skilled, all of a good quality. Even if the host country had a pool of highly skilled workers, the quality of unskilled workers engaged in photocopying or simple repair work was unsatisfactory, due to the lack of discipline or literacy, competitiveness of that location would be affected. In other words, the availability of the whole range of workforce of a good quality became a key determinant of the country s competitive advantage. By the 1980s even rural industries engaged in conventional lines of business often required educated labour (van Liemt 1992: 12-13). Reflecting such a change, ASEAN countries implemented various human resource development policies. The issue of human resource development moved to the centre stage of development priorities (Amjad 1987: 1). From the perspective of employment (manpower) policy, the conventional forecasting of the number of engineers, teachers, doctors and nurses in accordance with population growth and urbanisation was joined by the need to predict the requirement of the type of workforce in accordance with future changes in industrial structure. Some argued that labour absorption to the industrial sector would not be large enough, in view of the rapid population growth, and suggested the promotion of skill-intensive service sector employment. Others discussed human capital investment form the perspective of the cost-benefit analysis. One of the most interesting outcomes of this was a study which suggested that primary education had higher returns on investment than tertiary education. It has to be said that such studies had limited influences on 15

16 policy decisions. More generally, however, the realisation that the nature of future skilled work is extremely unpredictable tended to counter the tendency for specialisation and favour the investment in the more general education, which would produce workers with multiple and the more flexible skills. The manpower policy had to be matched by the education policy. Table 8 suggests that by 1985 primary schooling became more or less a norm, and secondary school enrollment rates vastly improved between 1965 and 1985, matching or exceeding the level of China and India. In higher education too, the rates of the Philippines and Thailand exceeded that of India. Although the ASEAN figures were clearly behind those of Japan and NIEs, the rapid progress is impressive, when one is reminded of the fact that the level of education of this region was similar to or lower than that of South Asia, immediately after World War II (Sugihara 2005c). Thus, with time-lags and at a different pace, four ASEAN countries went through the phase of labour-intensive industrialisation, and gradually moved to the human resource path of economic development. The improvement in primary and secondary education played an important role there. It is suggestive that the human development index (a mix of per capita income, education and life expectancy) of these countries rose steadily as well (Sugihara 2003b). The nature of human resource path We have looked at the case of ASEAN, to identify the issues relating to the transition from labour-intensive industrialisation to the human resource path of economic development. It seems obvious that both manpower policy and education policy played a role in this transition, especially when the Southeast Asian experience is compared to the South Asian one. At the same time, there was an equally obvious difference with the East Asian experience, which built on higher initial conditions and the more proactive labour management styles (at least in the case of Japan). The emergence of the human resource path across East and Southeast Asia is likely to have been a result of a combination of high initial conditions, favourable international circumstances and state policy enforcement, especially with regard to primary education. There remain three issues that need to be discussed with regard to the nature of the human resource path in postwar Asia. First, there is the question of voice and growth. During industrialisation a number of NIEs and ASEAN countries were under politically repressive authoritarian regime. Under the Cold War regime the American strategy, conceived by Millikan and Rostow, embraced the idea of state-promoted development programme, to counter the Soviet challenge (Milikan and Rostow 1957). It supported the authoritarian-government-led economic and social development, so long as it respected the international rule of free trade and investment, and did not involve nationalisation or the abolition of property rights. The 16

17 government was expected to form a national consensus, across different income groups and ethnic divisions, on the basis of anti-communist ideology and nationalism. As nationalism was injected from above with the support of technocrats, such a regime was sometimes termed bureaucratic authoritarianism. At the same time, the regime had a distinctive character of developmentalism where the government was committed to development and industrialisation. Successful growth in turn legitimatised their authoritarian rule. This required the national consensus on growth, so growth ideology was not only injected upon the people, but attempts have been made to show them some fruits of growth along the way. While the government was generally repressive in its handling of the labour movement, it was often keen on mobilising farmers for political support. An important result of such a political effort was the improvement of roads and other infrastructure, education and the level of social welfare in rural areas. It was crucial for the leadership to win mass support for focusing on growth, rather than on freedom. With the end of the Cold War regime, the need for the government to mobilise the anti-communist sentiment lessened somewhat, but developmentalism continued to play a central role in Asian politics. Because growth ideology had been nationally shared during the period of authoritarian regime, it was relatively easy for countries like South Korea and Taiwan to transform their political structure from the authoritarian to the more democratic one. Developmentalism appears to be capable of accommodating democracy in these countries, and remains a dominant force in East Asia to this day (Suehiro 1998, 2000). Amartya Sen criticised these regimes from the perspective of development as freedom, arguing that individual freedom was fundamental to economic and social development (Sen 1999). While accepting this statement as fundamentally correct, the legitimacy of these regimes critically depended on the national consensus for growth, which was another mechanism to promote education and human development. In Asia, it was not just the voice but the national pursuit for the competitive advantage that moved the society forward. Second, development economics had to adjust itself to a new age of high technology and globalisation. As late as the mid-1960s, Arthur Lewis commented that the arguments on human capital put forward by Gary Becker (Becker 1993: originally published in 1962) and George Schultz (Schlutz 1961) had fundamental problems of measuring the value of education in terms of returns on investment. In his view, the rate of primary education in developing countries should be raised gradually in accordance with the changes in industrial structure. When a country had no choice but to depend on agriculture for most of labour absorption, a sudden increase of primary school enrollment would encourage young people to migrate to cities, which could check the rise of agricultural productivity and lead to the growth of the urban informal sector. As for higher education, most developing countries were already unable to offer 17