The Asian Version

1. The Asian Version

2. Follows from the 4 tigers • Taiwan, South Korea, Singapore, Hong Kong • Other nations come later --- Malaysia, Indonesia ---- then a split China • What about Japan? Japan is the initiator of the Asian version of capitalism • These nations start from low per capita incomes ---- move to rapid rate of capital formation

3. Strong State Hand • Strong state hand needed to draw labor out of the rural and agricultural sector to the industrial sector • Strong state hand to make the transfer happen • Strong state hand to induce capital formation in the industrial sectors and exporting sectors --- raise the capital for the transformation

4. Go for high rates of capitalization • Allocate capital to the industrial sectors • So a high investment model here • Set up state industrial policy • Set up state export and import houses to control imports and push exports

5. The Types • The Stalinist Model --- • Use of extreme state control and power to force high rates of capital formation and rapid transfer of resources to defined state targets • Japanese – Southeast Asia Model --- • State industrial policy to direct investment to targets ---- industry-government partnerships --- bank-industry partnerships

6. There is a tendency to lump the nations together– but there are differences in how the high rate capitalization process unfolds and its effects on industrialization • Hong Kong and Singapore are city states like found in Roman rule • Thailand, the Philippines, Malaysia differ from Taiwan, Hong Kong and differ from another more poor class nation --- India

7. But India is now in the act --- several reforms and move to the outside world is transforming India • Some of the industrialization is spreading to Thailand, Malaysia • China has been growing now for 3 decades --- but this situation is more of market socialism approach since the 1978 reforms

8. Japan • Japan makes the move to industrialization from the 1953- 1971 period • The Gershenkron prediction --- the rural nations would get greater growth than industrial nations once they decided to transfer AG surplus to industry --- force saving via policy and leverage the growth • The savings also went from Japan to SE Asia

9. Japanese growth comes from a high rate of capital formation, availability of labor, catch-up in technology --- and the technology came through imports after Japan opened up to international business • The state gives direction to growth via genkyoku --- supervision of industry by industrial policy • Japan Development Bank – channel the savings

10. Confusianism and relationships • Confusianism was the religion of the educated in Japan and China • This ethic teaches qualities of loyalty, nationalism, social solidarity, collectivism, benevolence, faith, bravery --- virtuous government – so in Japan, China and Korea, a positive role for government • So we get strong government hand --- Park Chung Hee in Korea, Chaing Kai-shek, ChaingChing-Koo in Taiwan, strong symbolic monarchy in Thailand

11. Back to Japan • Do these nations accept notions from the West? Maybe--- they accept technology upgrade • Japan accepts the German notion of the German Historical School of economic thought --- “the Right of the State” ---- so state has priority over individuals --- combines the loyalty of confusianism with the European brand of capitalism

12. The 4 tigers • Exceptionally rapid growth ---starting in the 1970’s • Asian crises comes along in 1997-1998 • $ denominated debt --- strong $ -- payback of debt becomes a problem • The 4-tigers effect spreads to other SE Asian nations • Now we have an induced India starting in the late 1990’s

13. Industrial promotion • State induced policy of export promotion • Export promotion instead of domestic output protection, the latter of which is Import Substitution • Hong Kong, Singapore & Korea become classed as the world’s most outward economies --- Taiwan not far behind

14. Japan and the holding companies Holding company Few shareholders Family holdings Minority shareholders Conglomerate firm A Conglomerate firm G Conglomerate firm H

15. contracting • Relational contracting --- not based on formal rule of law --- based on trust --- personal relationship --- The Asian tradition • Much of the contracting is done this way • Problems arise if there is no two-way reflection of the trust --- problems with outside contracting • Market-based contracting based on formal rule of law – enforcement of contract

16. The capital markets • Based on leveraging ---- high debt • Not based on issuing of securities and equity • Causes some instability • We see savings coming into securities issuing capital markets to transfer from Asian currencies to $-denominated assets --- strong-weak $ issues with this trade

17. Banks initiate the capital venture investments ---- take over holding companies in some cases • Banks leverage in the debt driven capital markets of Asia • Part of the Asian crises was the leveraging and then non-payment of debt --- debt in $, so strong $ brings on the crises ---- cannot pay back the growing debt

18. Households have very high and strong savings rates • Ready supply of savings applied to the capital markets • Korean banks function as state enterprises --- garner the savings and allocate to industrialization --- but again debt drives the capital investment • Japan’s banks have suffered some from the debt and continued easier monetary policy --- they hold sour debt!

19. The labor markets in the Asian model • The Asian labor markets take some operations from both the Anglo-Saxon and the European versions of capitalism • There is paternalism toward workers --- the extended family approach to workers in the conglomerates • Japanese unions tend to be enterprise unions

20. The SONY union --- an enterprise union – not a nationwide union • In other nations of the Asian variety workers are poorly protected from the vagaries of hire and fire similar to the Anglo-Saxon operation of labor markets --- but receive some paternalistic treatement

21. The Japanese economy is sometimes characterized as the “Share” economy because distribution of income is more even relative to other nations even though families are big stake and shareholders in large complex conglomerates • But lifetime working contracts bring about inflexibility

22. The Anglo-Saxon model provides more flexibility to mobilize and move the labor force to changing industrial expansion goals • But there is much less work security--- so unions have organized to protect job security and the working conditions • Unions are more powerful currently in partnerships with government in Europe

23. Check out the Fei-Ranis-Lewis model of agricultural surplus and labor movement out of agriculture to the industrial sector • See pages 249-252 of the text • This is the Japanese model of rising in growth from the rural scene to the industrial scene in the 19th, 20th, and now 21 century --- but now declining

24. Workweek regulations exist in Singapore • East Asian policies developed growth and then shared the growth amongst classes and working groups ---- so more even income distribution see P. 265 of the Text