How Asia Works exists in a liminal space between the usually distinct worlds of first-person reporting, economic literature reviews, and contemporary history. And what a wonderful estuary it is.
Studwell sets out to answer a simple question: Why did some east Asian economies develop rapidly in the twentieth century, while others stagnated?
His answer is lucid, brief, and fits into three bullets.
All of the successful economies executed three critical policies (linked to details below):
<aside> 🌾 Agriculture was structured as a series of small, family owned farms able to reap the rewards of higher yields — The Wealth of a Garden
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<aside> ⚙️ Infant industrial policy was practiced to develop manufacturing for export, channeling subsidies from the growing agricultural sector to support nascent manufacturers during an initial inefficient period of technological learning — Nurturing an Export Industry
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<aside> 💴 Financial management was practiced to provide preferential financial conditions for export-oriented manufacturers in the form of subsidized loans and other forms of quantitative easing — Directing capital toward long-term development
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By Studwell's analysis, each of these three policy prescriptions is justified by a somewhat unintuitive insight. Each as well carries with it an economic heterodoxy.
While Studwell's policy prescriptions are detailed and well-backed by empirical evidence, he places less emphasis on political and governmental factors that permeate sub rosa throughout the developmental stories of east Asian economies.
By way of analogy, the policy prescriptions may be a fuzzy, high-level algorithm for progressing early in the developmental trajectory, but they require an effective compiler and computational hardware to execute the code. The interpreter might be an effective legislative body that is capable of translating the prescriptions into locally appropriate policies, and the hardware itself might be an effective state bureaucracy that can execute the legislation.
These two factors — the effectiveness of a legislative body (in authoritarian systems, often just the executive), and the capacity of the state bureaucracy linger as latent variables beneath much of Studwell's analysis.
Why wasn't Malaysia's export-oriented manufacturing process successful, even though the state followed almost all of the specified policy prescriptions, including international exports for some industries? The apparent answer seems to be that the legislative system was slow to adapt to changing economic circumstances and cronyism allowed state supports to flow toward favored political sons rather than effective entrepreneurs.
It is therefore insufficient for a developing economy to adopt the east Asian development playbook in legislation if the bureaucratic capacity of the state is insufficient to effectively execute and enforce these policies. There seems to be room for adding a few more variables to Studwell's regression, perhaps taking a page from Tyler Cowen's discussion of key elements for state capacity.
The synthesis of Studwell's observations from developing east Asian economies and the broader empirical evidence of economic productivity in the developed world leads one to conclude that economic development occurs in at least two broad tranches. Early in the development process, unfashionable policies like protectionism and land redistribution are highly effective and maybe required, whereas in more developed economies these same policies mask useful price signals generated by open markets and prevent economies from reaching their full productive potential.
In this two-tranche model then, it seems intuitive that different policy prescriptions are called for at different stages in development. Could this notion be formalized in a more continuous fashion, perhaps using a set of dynamic policies that adapt to economic conditions based on empirical metrics? Similar ideas have been proposed for social programs in the form of automatic stabilizers. It seems reasonable to imagine that empirics could guide industrial and financial policy in a similar manner.
Dynamic policies in this fashion may soften some of the state capacity requirements highlighted above. If policies can adapt to changes in circumstances without rapid iteration from a governmental body, even a somewhat inefficient or sclerotic bureaucracy could execute the east Asian policy prescription, so long as the system functioned well enough to enact the dynamic policies at one point in time.