The Political Economy of Industrialization: A Comparison of Latin American and East Asian Newly Industrializing Countries

Abstract

The paper analyses the industrial performance of two East Asian (South Korea and Taiwan) and three Latin American (Argentina, Brazil and Mexico) newly industrializing countries. It argues that the better performance in East Asia is not due simply to differences in trade orientation or the degree of state intervention, but rather to the effectiveness of intervention. This is explained in terms of the relative autonomy of the state and the structuring of the state apparatus in the two regions. The historically determined class structure and the international context led to much greater state autonomy in East Asia than in Latin America. The last part of the paper shows a number of ways in which this greater relative autonomy has contributed to rapid industrial growth in East Asia in comparison with Latin America.

The Political Economy of Industrialization

“…The main points of Lall (1993) and Wade (2014) are congruent with the argument made in the previously mentioned paper on 'Structural Change' by Servaas Storm (2015), which is also outspokenly Kaldorian in approach, emphasizing Kaldor's First and Second Empirical Laws, and which has many links with Sideri (1972), Jenkins (1991), Lawrence (2005), and Storm and Naastepad (2005). The 2015 paper should be read as a companion piece to Fischer's (2015) contribution on peripherality.…”

“…The differences between the success stories and the failures is not so much in terms of policies or strategies, but in the effectiveness of these policies, as Jenkins (1991) argues -in the ability of states to discipline and go against markets. How did some states manage to effectively guide the accumulation process needed for industrialization, while other states failed?…”

“…In this view, it is axiomatic that the state can only do wrong -and the only way to discipline the state is to allow it as little discretion as would be feasible by opening up economies to foreign trade competition and global capital markets. This critique was bolstered by the developmental success of South Korea and Taiwan, which were both held up as combining non-interventionist states and rapid market-led, outward-oriented industrialization -in a highly distorted account of what had actually happened, as Vos (1982), Jenkins (1991) and Storm and Naastepad (2005) make abundantly clear. Export-led growth, based on 'getting prices right' (in line with static comparative advantage under conditions of free trade) became the dominant policy paradigm in the 1980s and beyond, and it was, often rather uncomfortably, taken for granted that 'getting market prices right' would be enough to guide private initiative (as if by an invisible hand) towards 'development'.…”

“…Mandelbaum did not elaborate how an industrialization strategy could run into the deadlock of a demand constraint -this was done only a few years later by Michał Kalecki (1955) in an influential lecture delivered in Mexico City on what he called the problem of 'financing economic development in the mixed economy'. Let me add for the historical record that Kalecki's Mexico City lecture had a profound impact on the 'founding fathers' of Latin American structuralism as reviewed by Sideri (1972), Jenkins (1991) and Fischer (2015). Kalecki's demand constraint on industrialization operates thus.…”

“…While acknowledging the dangers of government failure, Lall's article sketches out, for developing countries and in great detail, the case for industrial technology development policies. Concurring with Jenkins (1991) and Storm and Naastepad (2005), Lall (1993: 748) concludes that the 'most useful lessons of the Korean experience are . .…”