285
South Korea’s rapid development was
initiated by Park Chung-hee, an army
general, in 1961. He restored relations
with Japan, Korea’s former occupier,
and attracted Japanese investment.
Now a major center of international
finance, Hong Kong plays an important
role in China’s ongoing economic
success while preserving its own
system of government.
seemed to go far beyond anything
attempted in Western Europe.
However, their governments
preserved private enterprise, and
their new model had little in
common with the state planning
of the communist bloc. Asian Tiger
states shaped development by
steering investment toward
strategic industries and promoting
the technological upgrading of
producers. This induced a shift
of workers from agriculture to the
expanding industrial sector. Large
investments in education gave
workers the skills needed for new
industries, and industrial enterprises
soon began to export their products,
becoming the motors for sustained,
trade-driven growth.
A new kind of state
This type of state had never been
seen before. It challenged orthodox
views about government’s role in
the economy. Standard economics
sees the state’s job as correcting
market failures—governments
provide public goods, such as
defense and street lighting, which
private markets alone tend not to
deliver. They ensure that institutions
such as courts function properly so
that contracts can be enforced and
property rights protected, but
beyond that their role is minimal.
Once the basic prerequisites for
market activity are in place, classical
economics suggests that the state
should withdraw and let the price
mechanism do its work. It is
thought that market-friendly
institutions and a limited state
were key to Britain’s economic
success during industrialization.
Some economists contend that
this also occurred in successful
East Asian economies: when these
states fostered development, they
did so by supporting markets, not
by interfering with them. Their
interventions helped to allocate
resources and investment in ways
that were in line with markets: in a
sense the state “got prices right.”
To do this, governments cultivatedmacroeconomic stability, vital
for giving certainty to investors.
They intervened to correct market
failures through the provision of
defense and schooling. They also
built infrastructure such as ports
and railways, whose high set-up
costs deterred private firms. The
East Asian developmental states
were held to be successful because
they followed the market.Leading the market
The New Zealand economist
Robert Wade argues that the East
Asian development states both
led and followed markets. They
drove the expansion of favored
industries by providing cheap
credit and subsidies. By leading
markets their chosen allocation of
resources was markedly different
from what it would have been, had
it been dictated by markets alone.
US economist Alice Amsden
has characterized this as the state
deliberately “getting prices wrong”
in order to build new types of
competitive advantage. A crucial
part of this was that the new ❯❯See also: The emergence of modern economies 178–79 ■ Development economics 188–93 ■
Economic growth theories 224–25 ■ Market integration 226–31 ■ Trade and geography 312
CONTEMPORARY ECONOMICS