The Transferability of the East Asian Development Experience Kenichi Ohno National Graduate Institute for Policy Studies Three Levels of Transferability (1) Blindly copying East Asian policies to different soil (main banks, postal saving, priority production system...) NOT ADVISABLE (2) Selective transfer of theories and policies (distinguish common features from specific, international comparison studies...) (3) General philosophy and methodology: East Asian approach to development and its problems
A lot of confusion occurs if we mix these levels... --This presentation focuses on the third (general transferability) --No need to adopt East Asian policies exclusively (most suitable international experience for each country should be adopted) The Menu for Discussion East Asian experience (as viewed by Japan s aid ministries & aid executing agencies) --Economics --Political economy and leadership --New selectivity? Development as Japan perceives Our advice for Vietnam Sub Saharan Africa?
East Asian Development Growth driven by trade and investment Collective growth, not isolated or random Staggered participation in regional production network Region as an enabling environment for catching up (model and pressure) Authoritarian developmentalism Asian Dynamism (Also known as the Flying Geese Pattern) Geographic diffusion of industrialization Within each country, industrialization proceeds from low-tech to high-tech Clear order and structure (with a possibility of re-formation) <Warning> Not all success--crises, failures, instabilities also often occur
Graph: GDP in EA vs Africa 20 15 % Real Growth 1960-2001 [Newly Industrializing Economies] Graph: growth over time Taiwan Korea Hong Kong Singapore 10 5 0-5 1960 1965 1970 1975 1980 1985 1990 1995 2000-10 Source: Economic Planning Agency, Asian Economic 1997. For the data of 1997-2001, IMF, The World Economic Outlook (WEO) Database, April 2002.
15 10 % Real Growth 1960-2001 [ASEAN4] Malaysia Thailand Indonesia Philippines 5 0-5 1960 1965 1970 1975 1980 1985 1990 1995 2000-10 -15 Source: Economic Planning Agency, Asian Economic 1997. For the data of 1997-2001, IMF, The World Economic Outlook (WEO) Database, April 2002. 1949 Graph: wars and conflicts China Wars, Crisis and Internal Troubles Independence 1979 Policy of Reform and Opening Up begins 1958-60 Great Leap Forward 1976 Death of Mao Tse-tung 1997 Hon Dea 1966-76 Cultural Revolution 1989 Tiananmen Square Inc China-Taiwan Problem 1947 Riots against Government [Taiwan] 1979 Assassination of President Park [Korea] North-East Asia 1950-53 Korean War 1961 Coup d'etat [Korea] 1973-74 1979-80 1997-98 Oil Shock Oil Shock Asian Crisis South-East Asia: Indochina End of World War II Korean Peninsula Problem 1946-54 Indochina War [Vietnam] 1986 Doi Moi (Renovation) Policy begins 1954 Division of Vietnam into South & North 1979-89 Vietnam invades Cambodia 1965-75 Vietnam War [Vietnam] 1976 Reunification of Vietnam 1958 Coup d'etat by Sarit [Thailand] 1971 Military coup d'etat [Thailand] 1960-61 Coup d'etat [Laos] 1975-78 Khmer Rouge - Pol Pot Regime [Cambodia] 1962 Coup d'etat by Revolutionary Council [Myanmar] 1988 Military coup d'etat by SLOR South-East Asia: Maritime Countries 1957 Independence as Malaya [Malaysia] 1985-86 1963 Federation of Malaysia [Malaysia/Singapore] 1965 Coup d'etat - End of Sukarno years [Indonesia] 1965 Independence from Malaysia [Singapore] 1969 Riots [Malaysia, Singapore] 1965-86 Marcos Dictatorship [Philippines] Oil Price Decline
SIZE (2000) Graph: size comparison East Asian Population [Total 1,935 million] (32% of World Total) 65% Korea & Taiwan 4% 7% ASEAN 24% East Asian GNP [Total $7,013 billion] at Actual Exchange Rate (22% of World Total) 15% Japan 65% Korea & Taiwan 10% 10% Sources: World Bank, World Development Indicators 2002; For Taiwan, ADB, Key Indicators 2001. US$ 40,000 30,000 Per Capita Income (2000) Graph: at Actual per Exchange capita Rate income 20,000 at PPP 10,000 0 Japan Hong Kong Singapore Korea Malaysia Thailand Philippines China Indonesia Vietnam Lao PDR Cambodia Source: World Bank, World Development Indicators 2002.
100% 80% 60% 40% 20% 0% Manufactured Exports (% of total exports) Graph: manufactured exports Japan Taiwan Korea Singapore Malaysia Thailand Philippines Indonesia China Vietnam Myanmar 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: ADB, Key Indicators of Developing Asian and Pacific Countries, 2001/1993; IMF, International Financial Statistics Yearbook 1990. For Japan, Japan Statistical Yearbook 2002/1999, Statistics Bureau/Statistical Research and Training Institute, Ministry of Public Management, Home Affairs, Posts and Telecommunications, Japan. S ADB K I di t f D l i A i d P ifi C t i 2001/1993 IMF I t ti l Fi i l St ti ti Y b k 1990 F J J Structural Transformation in East Asia Country 3 2 Latest comers Latecomers ASEAN4 NIEs Japan 1 Garment Steel Popular TV Video Digital Camera Time
Competitiveness Garment 1 Japan Steel Popular TV Video HDTV Competitiveness Japan 2 Garment NIEs Latecomers ASEAN4 Latest comers Time Time Competitiveness 3 Garment International Division of Labor Steel Popular TV Video Digital camera Latest comers ASEAN4 Latecomers Japan NIEs 100% 80% 60% 40% East Asia's Trading Partners Others Europe N. America Japan East Asia 20% 0% 1980 1985 1990 1995 1996
Foreign Direct Investment Flows (Billions of USD / year) [1st Half of 1990s] [2nd Half of 1990s] Japan Japan NIEs 2.4 2.6 NIEs 2.4 7.8 4.8 2.2 8.5 8.7 ASEAN4 ASEAN4 4.3 9.8 1.3 11.5 1.3 China China Source: Ministry of Economy, Trade and Industry, White Paper on International Trade 2002, p12. Note: Flows less than $1 billion are not shown. The NIEs to China flow excludes Hong Kong. Trade in Machine Parts (Billions of USD / year) [1990] [1998] Japan Japan 18.6 8.5 29.9 NIEs NIEs 15.3 5.0 7.2 21.7 19.2 ASEAN4 7.6 ASEAN4 5.5 6.9 China China 6.8 Source: Ministry of Economy, Trade and Industry, White Paper on International Trade 2001, p12. Note: Flows less than $5 billion are not shown.
Factors often cited: not true causes High level of education Export promotion High savings and investment Income equality and shared growth Good government-business relationship Selective intervention These are tools for participating in the regional network which each country must prepare How to escape the vicious circle and start the growth process? Authoritarian developmentalism as a temporary regime to realize high growth A strong state with economic capability --National obsession with industrialization and export competitiveness --Powerful and economically literate leader --Elite team to support the leader --Top down and agile: not necessarily democratic by Western standards
Basic Roles of East Asian States Political stability and social integration (precondition for development) Task 1: Create a market economy with competitiveness Task 2: Initiate and manage global integration Task 3: Cope with negative aspects of growth (emerging income gaps, congestion, pollution, corruption, etc.) Technocratic Model and its failure Economic growth START Political suppression Rising inequality END Social explosion!!! Political instability Samuel P.Huntington and Joan M. Nelson, No Easy Choice: Political Participation in Developing Countries, Harvard Univ. Press, 1976.
Populist Model and its failure Equalization START Increased participation Economic stagnation END Political suppression!!! Political instability Samuel P.Huntington and Joan M. Nelson, No Easy Choice: Political Participation in Developing Countries, Harvard Univ. Press, 1976. East Asia s Developmentalism Economic growth START Developmental state New social problems (inequality, crime, pollution...) END Political stability A few decades later Exit to a richer & more democratic society (examples: Korea, Taiwan) (checked) Supplementing policies
Authoritarian Developmentalism in East Asia 1945 50 55 60 65 70 75 80 85 90 95 2000 Korea Taiwan Philippines Indonesia Singapore Malaysia Thailand Vietnam Myanmar 60 61 79 87 88 92 97 Rhee Syngman Park Chung-hee Chun Doo-hwan Noh Taewoo Kim Dae-jung 49 75 78 88 Kim Young-sam Chen Nationalist Party Chiang Kai-shek Chiang Ching-kuo Lee Teng-hui Shuibian 46 48 53 57 61 65 86 92 98 Quirino Garcia Marcos Aquino Ramos Estrada Magsaysay Macapagal 99 Skarno Suharto Wahid 55 59 65 90 Habibie Labor People's Lee Kuan-yew Goh Chok-tong Party Action Party 57 70 76 81 UMNO / Rahman Razak Hussein Mahathir 46 48 57 58 63 73 75 77 80 88 91 97 Phibun Sarit Thanom Prem 51 76 Kriangsak Chatichai Indochina Communist Party Labor Party Vietnamese Communist Party 48 62 88 U Nu Burma Socialist Programme Party / Ne Win SLORC Chuan Source: Akira Suehiro, Catch-up Type Industrialization, Nagoya University Press, 2000, p115. Rise & Fall of Auth. Developmentalism Established under severe threat to national security or unity Often by military coup Replaces a previous weak government Economic growth legitimizes the regime Over time, its own success undermines legitimacy and leads to democratic transition (Korea, Taiwan)
Transferability? Direct replication is impossible --Weak domestic capability (both state and market) --Regional production networks don t exist elsewhere Growth policy formulation can be taught --Demonstration effect of excellence --By long-term commitment to work together --Not by imposing conditionality or policy matrix Leadership quality is key --We (donors) can t change governments but can choose good ones to work with Redefining Selectivity and Good Governance To initiate trade-driven growth, different and narrower conditions are needed --Strong leadership with ownership & commitment --Administrative mechanisms for policy consistency and effective implementation High-performing East Asia did not have --Transparency, accountability, participatory process, clean government, privatization, free trade (maybe not necessary for initiating growth?)
Development as Japan Sees It <Experiential & relational, not conceptual> Long-term, comprehensive, self-help, respect for local uniqueness Real sector and ingredients oriented Ultimate goal: social pride & dynamism via industrial growth & competitiveness Aid is not charity Poverty reduction as an ultimate goal??? Different Visions on Trade & Growth Integration & liberalization Role of state Sectoral intervention Japanese View --Step by step --Competitiveness, not ownership, matters --Initiator/manager of development & integration --Hard, strong state for promoting growth --Must intervene in individual industries under weak markets Dominant View --Generally desirable --Free trade, privatization --Level playing field for all --Competent state, not laissez-faire, is needed --Good governance: clean & transparent administra-tion is required --Set framework only --Don t intervene individually; let market decide
Contd. Typical policy supports Typical research HRD Infrastructu re Japanese View --National dev. plan --Concrete strategies for each key industry --Factory checkups --In-depth studies of individual industries --FDI attraction policy --Engineers, managers --Factory OJT --Large-scale infra. esp. power & transportation Dominant View --Poverty reduction --WTO accession --Open export markets for LDCs --Trade impacts on poverty & employment --Supply chain mgt. --Primary educ. & health --Training trade officials --Small rural infra. esp. feeder roads, water etc. Pro-Poor Growth? Too small for a national devel. goal Desirability?--is more equality always good? Should we not balance equality and incentive? Channels and linkages--many ways to cut poverty, direct and indirect. Strategy should be geared to each country.
Three Channels of Pro-Poor Growth (1) Direct channel (impacting the poor directly) --Health, education, gender, rural jobs & development, etc. (2) Market channel (growth helps poor via economic linkages) --Inter-sectoral and inter-regional labor migration (cf. Chinese TVEs) --Increasing demand (cf. proto-industrialization, multiplier effect) --Capital accumulation & improved productivity --Reinvestment (3) Policy channel (supplementing the market channel) --Price support, taxes, subsidies --Fiscal transfer, public works, infrastructure --Micro & SME credit, other financial measures --Proper design of trade & investment policies --Coping with social/market divisions --Pro-poor legal framework Need to broaden the scope of pro-poor growth (not just direct channel)
Some Key Words Best-mix approach multi aid modality (grants, TA, loans), not uniformity or convergence Non-fungibility -- some ideas & methods are not fungible; which donor does it matters Self-help effort -- for a long time, the key idea in Japanese ODA; broader than ownership Japan in Vietnam, 2002-03 Vietnam in E Asia: potential not fully realized due to bad business environment Infrastructure + HRD + policy advice Regaining leadership as top donor (from LMDG); linking with GoV; WB, AsDB, DfID Adding large-scale infrastructure to PRSP (called CPRGS) Projecting Japan s ideas (we were too quiet previously)
Japan s Growth Support Package Large infrastructure projects (e.g. 40% of new power capacity, 1992-2001) Ishikawa Joint Research Project (1995-2001); other research projects New Miyazawa Initiative (1999: PSD, SOE audits, tariffication of NTBs) Japan-Vietnam Investment Working Group for regular government-business dialogue Scholarship for studying in Japan Contd. TA & training for market economics, factory operation, telecom, construction, agriculture... Building 200 primary schools & upgrading 2 central hospitals Japan-Vietnam Joint Initiative for improving business environment for competitiveness (April 2003, agreed by prime ministers) Launching Growth Initiative (Interim CG, June 2003)
Agglomeration Initial concentration has an accelerating effect Silicon Valley Fragmentation International division of labor in parts production & assembly PB SL PB SL PB PB: production block SL: service link SL PB SL PB SL Vietnam s Industrial Dualism Domestic Sector (Protected & weak) Export Sector (Competitive under free trade) Local firms (SOEs & private) FDI firms FDI assemblers (located mainly in EPZs and industrial zones) Missing link Materials & parts Assembled products Global Production Network
Our Policy Proposal Attract critical mass of FDI; don t be selective; remove localization requirement Help local firms link with FDI s network For protected IS-type industries, (1) Pre-announce tariff reduction schedule (2) Let market ultimately decide (3) Offer tentative help to eligible firms only Intensive policy for creating parts industries (before WTO bites) Contd. Improve business-government dialogue Create elite team under prime minister Concrete analyses and proposals for: --Textile & garment --Electronics --Steel --Motorbike --Software Many workshops with officials directly in charge
Tariff Rate
Tariff Rate Japan in Sub Saharan Africa Domestic support for aid to Africa needs to be secured (under severe fiscal crisis) HIPCs/PRSP/MDGs/aid coordination: too much attention on poverty & modality, less on growth content (now agreed by many) East Asian emphasis on growth & trade is also valid in Africa, but sectors and goals must be adapted to local reality
Our Effort to Move the Japanese Government into Action JICA, JBIC, scholars interested in Africa Our two goals: (1) Adjust Japan s aid system to fully participate in new aid modality (soon!) (2) Launch growth initiative in a small number of countries (medium to long-term endeavor) --Preliminary selection of candidate sectors & countries started --Offer growth package, not isolated projects --Jointly with Gov, NEPAD, other donors Selection and Prioritization Selectivity criteria --Social and political stability --Strong will & solid understanding by leader(ship) --Policy mechanism for consistent design & effective implementation --Japan s existing local knowledge & policy capacity Other Considerations --HIPC completion point (CP) countries? --ODA yen loans can t be used in HIPCs countries --TICAD3 Conference (Oct. 2003)