East asian development foundations and strategies

Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

East Asian Development: Foundations and Strategies Hal Hill To cite this article: Hal Hill (2015) East Asian Development: Foundations and Strategies, Bulletin of Indonesian Economic Studies, 51:1, 151-153, DOI: 10.1080/00074918.2015.1023419 To link to this article: http://dx.doi.org/10.1080/00074918.2015.1023419

Published online: 30 Mar 2015.

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Date: 21 March 2016, At: 23:27

Bulletin of Indonesian Economic Studies, Vol. 51, No. 1, 2015: 151–57

BOOK REVIEWS

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East Asian Development: Foundations and Strategies. By Dwight H. Perkins.

Cambridge, MA: Harvard University Press, 2013. Pp. 213. Hardback: $35.00.

This volume is based on the author’s 2009 Reischauer Lectures, which themselves drew on his course taught at Harvard for many years. Focusing mainly on 1960–2010, the author asks three broad, interrelated questions: Why have several [East Asian] economies achieved rates of growth seldom witnessed elsewhere?

Why have some countries in the region done better than others? And why have the richest economies eventually slowed down? There can surely be no questions more important for scholars of East Asian economic development, and there is nobody better qualified to address them than Dwight Perkins, arguably the preeminent scholar in this field over the past half-century.

After a brief introduction and chapters on the history of East Asian economic growth and on key findings in the empirical literature, the author begins his country analysis in chapter 3. He provides a fascinating review of the industrialisation and policy experiences of South Korea and Taiwan, together with shorter summaries for Hong Kong and Singapore. The first two countries deviated significantly from any kind of ‘Washington consensus’ policy mix, and their experience is therefore attractive to non-neoclassical economists. Perkins recognises this but reminds the reader that exchange-rate policy played a crucial role (especially the early South Korean devaluation); that firms receiving government support had to quickly meet some sort of market test (generally export performance); that both governments prioritised high-quality education; and that there were special features of their governance, including the constant threat of invasion, that underpinned a ruthless commitment to economic growth and surprisingly little corruption.

The theme of chapter 4, which focuses mainly on Indonesia and Malaysia, is success and failure. Perkins develops his narrative for Indonesia around the ‘tug of war over development strategy’, with the technocrats successfully managing the macroeconomy, and on occasion also achieving microeconomic reform, but losing out to the economic nationalists and Soeharto-linked business interests in the years preceding the 1997–98 Asian financial crisis. Incidentally, this crisis receives little treatment in the country chapters; the factors underpinning Indonesia’s remarkable recovery from the deepest of economic and political crises are referred to only in passing. The author makes two general observations about Indonesia that are highly pertinent. The first concerns the country’s trade and industry policies: In Indonesia in particular an activist state industrial policy was mostly a disaster . . . Given Indonesia’s heritage and limited human capital, the Japanese/Korean approach to economic development [including its ‘interventionist industrial policy’] was particularly inappropriate.

ISSN 0007-4918 print/ISSN 1472-7234 online/15/000151-7

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Book Reviews

The second is an observation about the country’s recent economic leadership:

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Nothing in recent years . . . can be called a coherent development strategy. . . . There is no reforming vision comparable to the effort to promote export-oriented industries fostered under the leadership of Professor Widjojo.

Chapter 5 switches to territory in which Perkins is the world’s leading authority: the transition from a command to a market economy in China and Vietnam.

For anybody unfamiliar with China’s great transition, this is the most accessible summary of the drivers of the reforms and the resulting spectacular growth since 1978. Even though China’s growth strategy differed from that of Japan and those of Asia’s four newly industrialised economies (Hong Kong, Singapore, South Korea, and Taiwan), by 2000 its per capita income and economic structure were surprisingly similar to those of South Korea and Taiwan in the early 1970s. The triggers for Vietnam’s reforms were similar in some respects, but with the additional twist that Vietnam was motivated also by the imminent withdrawal of Soviet aid, and it studied China’s experience closely. The author also underlines Vietnam’s solid but slower growth, a key explanation for which, he argues, is the flagging reform effort over the past decade, especially its failure to undertake major reforms of its stateenterprise sector. A concluding section in this chapter links the experience of these transition economies to the broader themes of the volume, underlining the similarities between the latecomers China and Vietnam and the early success stories of Japan, South Korea, and Taiwan. These common elements include reasonably effective bureaucracies, limited arable land relative to population, and an emphasis on education.

The final chapter addresses East Asia’s economic slowdown, again with particular reference to China. Often neglected in such discussions is the observed empirical regularity that beyond some threshold level of per capita income—most likely in the range of $10,000 to $15,000 (in purchasing power parity)—the ‘easy phase’ of catch-up growth comes to an end and countries need to switch gears to achieve growth at the frontiers. This slowdown and reorientation has been a feature of all advanced East Asian economies, each with country-specific features and experiences. There is no reason to believe that China and Malaysia, both now on the threshold, will be any different.

A sub-theme of the book is the differences between Northeast and Southeast Asia, with Singapore and on occasion Vietnam analytically in the former camp.

This distinction emerges early in the volume, where the author investigates the two regions’ histories, cultures, and government experience. For example, in contrast to the extended colonial histories of Southeast Asia (except for Thailand), China and Japan were generally unified, self-governing states, in which, moreover, there was a ‘Confucian reverence for education’. China and Japan’s higher population densities and their absence of natural-resource wealth also brought greater attention to agricultural productivity and later drove the imperative of export-oriented industrialisation. Of course, there were differences within the regions, too, and the author succinctly reviews the evidence on why Japan modernised ahead of China, even though the pre-conditions for successful development were in some respects better developed in China. Perkins argues that Singapore, Malaysia, and Thailand were better prepared than other Southeast Asian countries for post-war economic development, in both education levels and bureaucratic capacity, and

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they did not suffer the conflict evident elsewhere in the region. The Philippines is frequently portrayed here as the puzzling exception in this and other respects.

Educational achievement is central to the analysis. Indonesia is singled out for its very low starting point, especially compared with the Northeast Asian countries. The author recalls how, in the 1980s and 1990s, he was associated with government programs to ‘identify younger officials who had a sufficient educational background to make it through graduate economics and management programs, mostly in third-tier American universities … but only a minority were able to reach a level needed to do reasonably well in these American programs’. Another key historical difference between Northeast and Southeast Asia was the regions’ business heritage, with commerce more highly developed in China and Japan. In Southeast Asia there has been a widespread ambivalence towards foreign investment and the ethnic-Chinese business community. Results include a willingness to tolerate mostly inefficient state enterprises as well as poorly implemented programs to support indigenous entrepreneurs.

This is a slim volume, but every page contains wisdom and insight. The author adds richness by providing personal anecdotes based on extensive first-hand observation and his policy advisory work as director of the long-running Harvard Institute for International Development. He writes in an accessible and elegant style, making the book a pleasure to read. The book will be of great interest to a lay audience, as well as being by far the best general text for a course on East Asian economic development.

The author emphasises that the analytical approach is historical and comparative, focusing on institutions and policies. Although most material in the volume concerns Northeast Asia, there is considerable coverage of Southeast Asia—particularly Indonesia and Vietnam. Given the readership of BIES, my review has drawn attention to several of the author’s Indonesian observations.

Perkins has had to make some hard choices on coverage. He has assembled a wealth of data, but offers no statistical analysis (owing to the small sample of countries). Agriculture is dealt with only briefly, on the premise that, while it was of great importance in the early stages of growth, ‘in only a few cases [China and Vietnam] were changes in agricultural policy significant in triggering high growth’. Indeed, the emphasis is very much on explaining economic growth; therefore, with the exception of education, broader indicators of human progress and associated social-welfare policies receive little attention.

It is not a criticism to observe that the author relies heavily on Harvard material and hardly refers to the regional literature, especially on and from Southeast Asia.

After all, Harvard has been Perkins’s intellectual home for most of his professional life and the centre of arguably the greatest intellectual contribution to modern economics over this period.

Hal Hill The Australian National University © 2015 Hal Hill http://dx.doi.org/10.1080/00074918.2015.1023419