What are the ingredients for economic success? Examining Asia’s nine major economies – Japan, South Korea, China, Taiwan, Vietnam, Thailand, Philippines, Malaysia and Indonesia – Joe Studwell, freelance writer and journalist who has written for the Economist Intelligence Unit, The Economist, the Financial Times and the Wall Street Journal, offered some insights.
“In poor countries, three-quarters of the people live off farming. So, if you get farming right, you get a lot of things right,” stated Studwell. The key to success for developing countries is “getting the most out of human capital when skills are few.” Pointing to extensive land reforms that took place in Japan, South Korea, China and Vietnam, which resulted in high-yield household farming, he concluded that this fostered broad-based income growth, a consumption boom and, eventually, a “capitalist lab” that generated grassroots manufacturing and an emergent pool of farmer-entrepreneurs.
The second stage of such developmental catch-up involves policies to accelerate the manufacturing sector. In order for countries to grow competitive, Studwell asserted, it must trade. Manufactured goods make up 80% of global trade and, compared to services, require a flatter learning curve to produce. Policies designed to foster manufacturing, such as subsidies for infant industries conditioned on export discipline, are critical.
Studwell’s thesis of “2 policy tricks and 1 prerequisite” requires the last “trick” of development exemplified by the East Asian economies: financial repression. Unlike Southeast Asian economies, Japan, South Korea, China and Taiwan employed financial controls that trapped capital in the country to aggressively finance export lending.
For Studwell, the key to development is, thus, not laissez faire economics, but rather strategic policies implemented by political leaders that generate capital accumulation and, eventually, rapid growth. While eschewing suggestions that the following provides a cookie-cutter “formula” for developmental success, Studwell nevertheless did proffer that the following steps were exportable to other contexts, namely to parts of Africa where he has also done research.
Joe Studwell’s talk was based on his most recent book, How Asia Works: Success and Failure in the World’s Most Dynamic Region (2013).