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Kenichi OhnoNational Graduate Institute for Policy Studies

The Transferability ofthe East Asian Development

Experience

Photo by Saizou Uchida (location: Sakai-gun, Fukui Prefecture, Japan)

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

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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 perceivesOur advice for VietnamSub Saharan Africa?

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East Asian Development

Growth driven by trade and investmentCollective growth, not isolated or randomStaggered participation in regional production networkRegion as an enabling environment for catching up (model and pressure)Authoritarian developmentalism

“Asian Dynamism”(Also known as the Flying Geese Pattern)

Geographic diffusion of industrializationWithin each country, industrialization proceeds from low-tech to high-techClear order and structure (with a possibility of re-formation)<Warning> Not all success--crises, failures, instabilities also often occur

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Graph: GDP in EA vs AfricaPer Capita GDP

(In 1990 international Geary-Khamis dollars)

0

500

1000

1500

2000

2500

3000

3500

4000

1950 1960 1970 1980 1990 1998

Africa

East Asia

Source: Angus Maddison, The World Economy: A Millennial Perspective, OECD Development Centre, 2001

Graph: growth over time

Real Growth 1960-2001

-10

-5

0

5

10

15

20

1960

1965

1970

1975

1980

1985

1990

1995

2000

TaiwanKoreaHong KongSingapore

[Newly Industrializing Economies]%

Source: Economic Planning Agency, Asian Economic 1997 . For the data of 1997-2001, IMF, The World Economic Outlook (WEO) Database , April 2002.

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Real Growth 1960-2001

-15

-10

-5

0

5

10

1519

60

1965

1970

1975

1980

1985

1990

1995

2000

MalaysiaThailandIndonesiaPhilippines

[ASEAN4]%

Source: Economic Planning Agency, Asian Economic 1997 . For the data of 1997-2001, IMF, The World Economic Outlook (WEO) Database , April 2002.

Graph: wars and conflicts　

1949 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]

1961 Coup d'etat [Korea] 1973-74 1979-80 1997-98

1950-53 Korean War

Korean Peninsula Problem

1946-54 Indochina War [Vietnam] 1986 Doi Moi (Renovation) Policy begins

1954 Division of Vietnam into South & North1979-89 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

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]

20001990

Asia

n Cris

is

19751960 19951965 1970 1980 198519551950

Oil

Pric

e Dec

line

North-EastAsia

Oil

Shoc

k

End

of W

orld

War

II

Oil

Shoc

k

South-EastAsia:

MaritimeCountries

South-EastAsia:

Indochina

China

Wars, Crisis and Internal Troubles

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Graph: size comparison

SIZE (2000)

15%

65%

Japan65%

7%

Korea & Taiwan4%

Korea & Taiwan

10%10%

ASEAN24%

[Total $7,013 billion]

[Total 1,935 million]

at Actual Exchange Rate

Sources: World Bank, World Development Indicators 2002; For Taiwan, ADB, Key Indicators 2001 .

East AsianPopulation

East Asian GNP

(32% of World Total)

(22% of World Total)

China

China

Graph: per capita income

Per Capita Income (2000)

0

10,000

20,000

30,000

40,000

Japa

n

Hong

Kon

g

Sing

apor

e

Kor

ea

Mal

aysi

a

Thai

land

Phili

ppin

es

Chi

na

Indo

nesi

a

Viet

nam

Lao

PDR

Cam

bodi

a

US$

Source: World Bank, World Development Indicators 2002 .

at Actual Exchange Rate

at PPP

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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

Graph: manufactured exports

Manufactured Exports(% of total exports)

0%

20%

40%

60%

80%

100%19

7519

7619

7719

7819

7919

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

00

Japan

Taiwan

Korea

Singapore

Malaysia

Thailand

Philippines

Indonesia

China

Vietnam

Myanmar

Source: ADB, Key Indicators of Developing Asian and Pacific Countries , 2001/1993; IMF, International Financial Statistics Yearbook 1990 . ForJapan, Japan Statistical Yearbook 2002/1999 , Statistics Bureau/Statistical Research and Training Institute, Ministry of Public Management,Home Affairs, Posts and Telecommunications, Japan.

Structural Transformation in East Asia

Japan

NIEs

ASEAN4

Latecomers

Latestcomers

Country

Time

Garment Steel Popular TV VideoDigital

Camera

1

3 2

8

1 Japan

Garment SteelPopular

TV Video HDTVCom

petit

iven

ess

Time

Com

petit

iven

ess

Time

Com

petit

iven

ess

2 Garment

JapanNIEs

ASEAN4

LatecomersLatest comers

International Division of Labor3

Garment SteelPopular

TV VideoDigital camera

JapanNIEs

ASEAN4

LatecomersLatest comers

East Asia's Trading Partners

0%

20%

40%

60%

80%

100%

1980 1985 1990 1995 1996

Others

Europe

N. America

Japan

East Asia

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Foreign Direct Investment Flows(Billions of USD / year)

[1st Half of 1990s] [2nd Half of 1990s]

Japan

NIEs

ASEAN4

China

1.3

2.4

2.24.8

7.8

9.8

Japan

NIEs

ASEAN4

China

1.3

2.4

4.3

8.78.5

11.5

2.6

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.

Japan

NIEs

ASEAN4

China

18.6

7.25.0

Trade in Machine Parts(Billions of USD / year)

[1990] [1998]

Japan

NIEs

ASEAN4

China

6.9

29.9

6.8

15.3

21.7

5.5

19.2

7.6

8.5

Source: Ministry of Economy, Trade and Industry, White Paper on International Trade 2001, p12.Note: Flows less than $5 billion are not shown.

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Factors often cited: not true causes

High level of educationExport promotionHigh savings and investmentIncome equality and shared growthGood 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 growthA 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

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Basic Roles of East Asian States

Political stability and social integration(precondition for development)

Task 1: Create a market economy with competitivenessTask 2: Initiate and manage global integrationTask 3: Cope with negative aspects of growth(emerging income gaps, congestion, pollution, corruption, etc.)

“Technocratic Model” and its failure

Samuel P.Huntington and Joan M. Nelson, No Easy Choice: Political Participation in Developing Countries, Harvard Univ. Press, 1976.

Economic growth

Rising inequality

Political instability

Political suppression

Social explosion!!!

START

END

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“Populist Model” and its failure

Equalization

Economic stagnation

Political instability

Increased participation

Political suppression!!!

START

END

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

New social problems (inequality, crime, pollution...)

Political stability

Developmental state

Exit to a richer & more democratic society (examples: Korea, Taiwan)

START

END

Supplementing policies

(checked)

A few decades later

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1945 50 55 60 65 70 75 80 85 90 95 200060 61 79 87 88 92 97

Korea49 75 78 88 Kim Young-sam

TaiwanChenShui-bian

46 48 53 57 61 65 86 92 98

PhilippinesMagsaysay Macapagal 99

Indonesia55 59 65 90 Habibie

Singapore57 70 76 81

Malaysia46 48 57 58 63 73 75 77 80 88 91 97

Thailand51 76 Kriangsak Chatichai

Vietnam48 62 88

Myanmar

Source: Akira Suehiro, Catch-up Type Industrialization , Nagoya University Press, 2000, p115.

Kim Dae-jung

Nationalist Party Chiang Kai-shek Chiang Ching-kuo Lee Teng-hui

Rhee Syngman Park Chung-hee Chun Doo-hwan Noh Tae-woo

Ramos Estrada

Skarno Suharto Wahid

Quirino Garcia Marcos Aquino

LaborParty

People'sAction Party Lee Kuan-yew Goh Chok-tong

Vietnamese Communist Party

Authoritarian Developmentalism in East Asia

Phibun Sarit Thanom

UMNO / Rahman Razak Hussein Mahathir

U Nu Burma Socialist Programme Party / Ne Win SLORC

IndochinaCommunist Party Labor Party

Prem Chuan

Rise & Fall of Auth. Developmentalism

Established under severe threat to national security or unityOften by military coupReplaces a previous weak governmentEconomic growth legitimizes the regimeOver time, its own success undermines legitimacy and leads to democratic transition (Korea, Taiwan)

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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?)

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Development as Japan Sees It<Experiential & relational, not conceptual>Long-term, comprehensive, self-help, respect for local uniquenessReal sector and ingredients orientedUltimate goal: social pride & dynamism via industrial growth & competitivenessAid is not charityPoverty reduction as an ultimate goal???

--Set framework only--Don’t intervene individ-ually; let market decide

--Must intervene in individual industries under weak markets

Sectoral intervent-ion

--Competent state, not laissez-faire, is needed--Good governance: clean & transparent administra-tionis required

--Initiator/manager of development & integration--Hard, strong state for promoting growth

Role of state

--Generally desirable--Free trade, privatization--Level playing field for all

--Step by step--Competitiveness, not ownership, matters

Integration& liberaliz-ation

Dominant ViewJapanese View

Different Visions on Trade & Growth

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--Primary educ. & health--Training trade officials

--Engineers, managers--Factory OJTHRD

--Small rural infra. esp. feeder roads, water etc.

--Large-scale infra. esp. power & transportation

Infrastructure

--Trade impacts on poverty & employment--Supply chain mgt.

--In-depth studies of individual industries--FDI attraction policy

Typical research

--Poverty reduction--WTO accession--Open export markets for LDCs

--National dev. plan--Concrete strategies for each key industry--Factory checkups

Typical policy supports

Dominant ViewJapanese View

Contd.

“Pro-Poor Growth”?

Too small for a national devel. goalDesirability?--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.

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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)

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Some Key WordsBest-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, 2002-03Vietnam in E Asia: potential not fully realized due to bad business environmentInfrastructure + HRD + policy adviceRegaining leadership as top donor (from LMDG); linking with GoV; WB, AsDB, DfIDAdding “large-scale infrastructure” to PRSP (called CPRGS)

Projecting Japan’s ideas (we were too quiet previously)

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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 hospitalsJapan-Vietnam Joint Initiative for improving business environment for competitiveness (April 2003, agreed by prime ministers)

Launching “Growth Initiative” (Interim CG, June 2003)

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Silicon Valley

AgglomerationInitial concentration has an accelerating effect

FragmentationInternational division of labor in parts production & assembly

PB

PB

PB PBPB

SL

SL

SL

SL

SL: service linkPB: production block

SL

Vietnam’s Industrial Dualism

Local firms(SOEs & private)

FDI firms

FDI assemblers(located mainly in

EPZs and industrial zones)

Domestic Sector(Protected & weak)

Export Sector(Competitive under free

trade)

Missing link

Global Production N

etwork

Materials& parts

Assembledproducts

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Japanese E lectron ics FD I in ASEANCumulative number of manufacturing establishments

0

20

40

60

80

100

120

140

160

180

Malaysia Thailand Indonesia Singapore Philippines Vietnam

Parts & devices

Telecom & computers

Audio & visual

Source: Electronic Industries Association of Japan (2000), quoted by Yumiko Okamoto, "Electronics

and Electrical Industries,"in K. Ohno & N. Kawabata, eds, Industrialization Strategy of Vietnam ,

Nihon Hyoronsha (2003).

Japan e s e E le c tro n ic s F D I in AS EANNumber o f new manufacturing establishments by period

0

20

40

60

80

100

Before

1970

1970-1975 1976-1980 1981-1985 1986-1990 1991-1995 1996-2000

Malaysia

Thailand

Indonesia

Singapore

Ph ilippines

Vie tnam

Source: E lectronic Industries Association of Japan (2000), quoted by Yum iko Okamoto,

"E lectronics and E lectrica l Industries ,"in K. Ohno & N . Kawabata , eds , Industria lization Strategyof V ietnam , N ihon Hyoronsha (2003).

No FDI in to Vie tnambefore the 1990s

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Our Policy ProposalAttract critical mass of FDI; don’t be selective; remove localization requirementHelp local firms link with FDI’s networkFor 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 dialogueCreate elite team under prime ministerConcrete analyses and proposals for:

--Textile & garment --Electronics--Steel --Motorbike --Software

Many workshops with officials directly in charge

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Tariff Reduction Scenario for Long Products

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Tarif

f Rat

e

Bar and Wire Rod LA

Bar and Wire Rod LB

Billet

Tariff Reduction Scenario for Flat Products (FA)

0%

5%

10%

15%

20%

25%

30%

35%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Tar

iff Rat

e

Galvanized Sheet FA

Cold Rolled Sheet FA

Hot Rolled Coil FA

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Tariff Reduction Scenario for Flat Products (FB)

0%

5%

10%

15%

20%

25%

30%

35%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Tarif

f Rat

e

Galvanized Sheet FB

Cold Rolled Sheet FB

Hot Rolled Coil FB

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

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Our Effort to Move the Japanese Government into Action

JICA, JBIC, scholars interested in AfricaOur 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)

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THE END

Photo by Saizou Uchida (location: Sakai-gun, Fukui Prefecture, Japan)