Political Economy of Growth: East Asia and Latin America Compared

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

2. 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

3. 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

4. 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

5. 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.

6. 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

7. 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

8. 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

9. 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.

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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.

16. 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.

17. 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

18. 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

19. 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

20. 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?