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Ha-Joon Chang provides an overview of the East Asian development model from the 1960s to the present day. He examines its relative success particularly in relation to industrial policy, in contrast to Africa. He takes a fresh look at the crisis that exploded in 1997, criticizing many mainstream explanations and looking in particular at the economy of South Korea.Looking to the future, he makes proposals for industrial policy and how local corporations in a country like Korea should be reformed.
• Part 1: Overview
• The East Asian Model of Economic Policy
• Part 2: The Miracle
• The Political Economy of Industrial Policy in Korea
• Explaining 'Flexible Rigidities' in East Asia
• The "Initial Conditions" of Economic Development - Comparing the East Asian and the Sub-Saharan Experiences
• Part 3: The Crisis
• The Hazard of Moral Hazard - Untangling the Asian Crisis
• Interpreting the Korean Crisis: Financial Liberalisation, Industrial Policy and Corporate Governance
• Part 4: The Future
• Industrial Policy and East Asia - The Miracle, the Crisis, and the Future
• The Triumph of the Rentiers?
• Evaluating the Post-Crisis Coporate Restructuring in Korea
Posted March 23, 2009
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This is a thought-provoking study of East Asian development post-1960s, which produced such great improvements in incomes, infant mortality, life expectancy and education in Japan, South Korea, Taiwan, Hong Kong and Singapore. In Part 1 Chang presents the East Asian model of economic policy; in Part 2 he looks at East Asia's development, in Part 3 the 1997 crisis and in Part 4 the subsequent 'reforms' making finance dominate industry.
East Asia's initial conditions for economic development were well behind Latin America and equivalent to those of above-average Sub-Saharan African countries. Chang examines and refutes the idea that markets emerge naturally and painlessly.
These countries used not liberalisation, deregulation, privatisation, anti-inflation macroeconomic policy, and a stock-market-based financial system, which have brought us to disaster. They did not have independent central banks, which as products of financial liberalisation, oppose all controls on capital flows, and have price stability as their sole aim, which prevents a pro-growth, pro-investment monetary policy.
Instead East Asia's countries used active trade and industry policies, a large-scale public sector, a pro-investment macroeconomic policy, controls on luxury consumption and on inward and outward capital movements, and a bank-based financial system. They have special purpose banks, like Korea's Housing Bank, its Korea Development Bank, and its Bank for Small and Medium-Sized Firms.
Their industry policies included coordination of investment across competing firms, policies to attain scale economy in key industries, directed and subsidised credit programmes, protection of infant industries, picking winners, promoting structural change by providing incentives for physical and mental retooling (equipment upgrades, retraining and relocation subsidies for workers), with specified performance targets.
It wasn't Japan's industry policies which caused its 1991 crash, but its financial liberalisation in the late 1980s. It wasn't South Korea's industrial investment and policy which caused its 1997 crisis, but its liberalisation in 1993 and the consequent real estate over-investment. So to escape the slump, countries need policies for industry, not liberalisation.