The East Asian Experience of Economic Development and Cooperation Kenichi Ohno

The East Asian Experience of Economic Development and Cooperation

• Kenichi Ohno

• National Graduate Institute for Policy Studies

Background

• Polarization of the developing world into high and low performers

• East Asia as a high performing region

• --Diversity in size, income, culture, etc.
• --Failures and bad periods also existed
• --But high growth was sustained in most countries and over the long run

Graph: GDP in EA vs Africa

Graph: growth over time

Graph: size comparison

Graph: wars and conflicts

• 　

East Asian Development

• Growth driven by trade and investment

• Collective growth, not isolated or random

• Staggered participation in regional production network

• Region as an enabling environment for catching up (model and pressure)

“Asian Dynamism”

• Geographic diffusion of industrialization

• Within each country, industrialization proceeds from low-tech to high-tech

• Also known as the Flying Geese Pattern

• Clear order and structure (with a possibility of re-formation)

Flying Geese 1

Flying Geese 2

Flying Geese 3

Graph: per capita income

Graph: manufactured exports

The Role of Government

• In low-income or transition economies with undeveloped markets, privatization and free trade alone may not lead to prosperity

• Unregulated markets may be unstable and polarize income (domestically and globally)

• Escape from the vicious circle of low income, low saving and low productivity

Factors often cited: not true causes

• High level of education

• Export promotion

• High savings and investment

• Income equality and shared growth

• Good government-business relationship

• “Selective intervention”

• These are tools needed to join the regional production network, which each country must prepare

Basic Roles of East Asian States

• Political stability and social integration

• (precondition for development)

• Task 1: Create a competitive market economy

• Task 2: Initiate and manage global integration

• Task 3: Cope with negative aspects of growth

• (emerging income gaps, congestion, pollution, corruption, etc.)

Authoritarian Developmentalism

• What if the government is weak?

• East Asian answer: install a 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: not necessarily “democratic” by Western standards

Rise & Fall of Auth. Developmentalism

• Established under severe threat to national security or unity

• Often by military coup

• Replaces a previous weak government

• Economic growth legitimizes the regime

• Over time, its own success undermines legitimacy and leads to democratic transition (Korea, Taiwan)

Redefining “Good Governance”

• To initiate trade-driven growth, different and narrower conditions are needed

• --Strong leadership with ownership
• --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?)

Role of Regional Cooperation

• To maintain Asian dynamism, regional efforts are essential

• Avoid or remove difficulties and crises

• Support the private sector from sidelines

• Present visions to reduce uncertainty

From Market-led to Institution-led

• Previously,

• --Integration by private sector (trade, FDI)
• --Open regionalism
• --Informal and voluntary

• Now, institutionalization has begun

• --“ASEAN+3” is the main framework
• --AFTA, ARF, ASEM, AIA, IAI, Chiang Mai Initiative...
• --Bilateral and regional FTAs are proposed (some concluded)
• --Initiative for Development in East Asia (IDEA)

Remaining Issues for East Asia

• Maintaining regional peace and security

• Narrowing the gap between early developers and latecomers

• Promoting globalization while mitigating its negative impacts

• HRD, institution building, governance for strengthening competitiveness

East Asia Should Also:

• Project its views to the world

• --Markets must be managed properly
• --Diversity, not uniformity, in development strategies
• --IMF’s wrong response to the Asian crisis

• Study the new modality of industrial promotion in the age of globalization

• --Neither laissez-faire nor protectionism

Japan’s Role in East Asia

• 1. By far the largest ODA donor

• 2. Large trading partner (together with US, EU)

• 3. Japanese firms are chief architects of regional production network through FDI (especially in electronics)

• 4. Regional leadership?

• 5. Economic vitality?

Japanese ODA

• Two-track principle

• (1) For the prosperity of Japan and East Asia
• (2) For solving global issues (poverty, health, education, environment, refugees...)

• Helping the “self-help” effort of LDCs

• --To grow and become equal trading partners

• Supplementing private dynamism

• --Infrastructure, HRD, policy/institutional support
• --Coping with growth-induced problems

Poverty Reduction in East Asia

• Extreme poverty in East Asia already halved

• (1990: 27.6%  1999: 14.2%)

• National strategy for equitable growth in place

• (even before PRSP)

• Aid coordination centered on pro-poor measures unlikely to work in East Asia

• Vietnam: strong ownership, growth and equity, PRSP under existing national strategy

• (Does Vietnam really need an externally imposed PRSP?)

Implications for Africa

• Simple replication will not work

• --Different situations, no regional network
• --However, methodology for policy formulation can be transferred

• Africa must balance:

• --Fight against poverty (humanitarian)
• --Growth generation (for long-term self support)

• Concrete growth strategy needed, in addition to PRSP

Japan’s Approach Emphasizes:

• Respect for each country’s uniqueness

• Long-term and holistic perspective

• Real-sector concern (trade, investment, key industries, technology...)

• Help in good times as well as bad

• This can complement the current approach based on short-term conditionality, frequent monitoring and globally common framework

Steps to Japanese Involvement

• First, build domestic support for more aid to Africa (but ODA is being cut)

• Select a few countries and study deeply

• --New selectivity criteria for growth
• --Create a permanent policy research team
• --Work with government, IFIs, other donors
• --Support “growth” component of PRSP

• Propose a concrete and realistic strategy, with additional ODA

Last Words

• Japan already extends such policy support to Vietnam, Laos, Myanmar, Mongolia...

• (but it must be further improved)

• Ad hoc, short-term involvements are unlikely to produce lasting results