State-market realignment in post-crises East Asia: From GNP developmentalism to welfare developmentalism?

As a critique of the neoclassical economic perspective, the statist literature (Johnson 1982; Amsden 1989; Wade 1990; Evans 1995) argues that the developmental state-not the market-that explains the success of East Asian development. The following features distinguish developmental states: • Active Intervention in the Economy. For example, a pilot agency, the Economic Planning Board (EPB), in South Korea or the Ministry of International Trade and Industry (MITI) in Japan established to develop a range of policy tools which ensure the nurturing and management in the overall "national interest" of indigenous business. The developmental state serves as the engine that powers economic growth. It allocates resources for strategic development; sets prices and regulates capital movement; and shares risks and underwrites research and development. • A Competent and Meritocratic Bureaucracy. Analysts describe the developmental state as approaching the ideal of a Weberian bureaucracy, with bureaucratic elites recruited from among the technically most highly-qualified in the system. Highly selective, meritocratic recruitment and long-term career rewards create commitment and a sense of corporate attachment among them. A highly competent bureaucracy dedicates itself to devising and implementing planned economic development. • Embedded Autonomy. The state must establish institutionalized channels for the continued negotiation and re-negotiation of goals and policies, sufficiently close to allow it to implement policy, but not so close that it risks "capture" by vested economic interests. The state has powerful policy tools at its disposal which make the co-operation of indigenous business more likely: access to cheap credit, protection from external competition and assisted access to export markets all act as levers that states can use to ensure business compliance with governmental goals. • Control of the Finance Sector (the nerve centre of the developmental state). In South Korea, the state nationalized the banking system, controlling 96 percent of the country's financial assets by 1970. Through it, the Korean developmental state found a method of developing a set of "carrot and stick" policies to implement its strategic polices and developmental plans. It used subsidies or cheap credits to promote strategic industries or firms, and penalized those unable to meet targeted goals. In the 1950s and 1960s, South Korean exporters received a 50 percent tax cut on earnings, while any large exporting firm could easily obtain subsidized credit. Since the South Korean firms had high debt/ equity debt ratios, even the threat of the withdrawal of subsidized credit would result in serious consequences (Minns 2001). In highlighting the techniques and economic success of East Asian developmental states, the statist literature may have unintentionally overlooked their configuration of power, their authoritarianism and their historical geo-political origins (Lie 1991; Berger 2004). Instead of taking East Asian developmental states for granted, the following section will critically examine the nature of a developmental state, the reasons some states want to establish economic growth as their highest priority, and factors that make East Asian developmental states strong and autonomous. Before we move on to a discussion of the transformation of developmental states in the 1980s and 1990s, however, we first provide a brief sketch of their distinctive features in the post-World War II era.