Kicking Away the Ladder. Development Strategy in Historical Perspective

Despite all these developmental efforts, during the first half of the twentieth century, Japan was not on the whole the economic superstar that it became after the Second World War. According to the authoritative study by Maddison, Japan’s per capita income growth rate was only one per cent per annum between 1900 and 1950. This was somewhat below the average for the 16 largest now-OECD economies that he studied, which was 1.3 per cent per annum,[190] although it must be noted that part of this rather poor performance was due to the dramatic ,collapse in output following Japan’s defeat in the Second World War.[191]

After the Second World War, however, Japan’s growth record was unrivalled, particularly until the 1970s. Between 1950 and 1973, per capita GDP in Japan grew at a staggering 8 per cent per annum, more than double the 3.8 per cent average achieved by the 16 NDCs mentioned above (the 3.8 per cent average includes Japan). The next best performers among the NDCs were Germany and Austria (both at 4.9 per cent), and Italy (4.8 per cent); even the East Asian ‘miracle’ developing countries like Taiwan (6.2 per cent) or Korea (5.2 per cent) came nowhere near Japan, despite the bigger ‘convergence’ effect that they could expect given their greater backwardness.[192]

There has long been an ideologically-charged debate about the causes of the economic ‘miracle’ in postwar Japan and East Asian NICs over the last two to three decades. Despite some lingering disagreements, there is now a broad consensus that the spectacular growth of these countries, with the exception of Hong Kong, is fundamentally due to activist industrial, trade and technology (ITT) policies by the state.[193]

Surveying the postwar experiences of the East Asian countries, we are once again struck by the similarities between their ITT policies and those used by other NDCs before them, starting from eighteenth-century Britain, through to nineteenth-century USA, and late nineteenth and early twentieth-century Germany and Sweden. However, it is also important to note that the East Asian countries have not exactly copied the policies that the more advanced countries had used earlier. The ITT policies that they, and some other NDCs like France, used during the postwar period were far more sophisticated and fine-tuned than their historical equivalents. The East Asian countries used more substantial and better-designed export subsidies (both direct and indirect) and in fact imposed very few export taxes in comparison to the earlier cases.[194] As I have repeatedly pointed out, tariff rebates for imported raw materials and machinery for export industries were widely employed – a method that many NDCs, notably Britain, had themselves used to encourage exports.[195]

Coordination of complementary investments, which had previously been done in a rather haphazard way, if ever, was systematized through indicative planning and government investment programmes.[196] Regulations of firm entry, exit, investments and pricing were implemented in order to ‘manage competition’ in such a way as to reduce ‘wasteful competition’.[197] Once again, these regulations in part reflected the late nineteenth and early twentieth-century cartel policies, but displayed far more awareness than their historic counterparts of the dangers of monopolistic abuse, and more sensitivity to its impact on export market performance. There were also subsidies and restrictions on competition intended to help technology upgrading and a smooth winding down of declining industries.[198]

The East Asian governments also integrated human-capital-related and learning-related policies into their industrial policy framework far more tightly than their predecessors had done, through ‘manpower planning’.[199] Technology licencing and foreign direct investments were regulated in an attempt to maximize technology spillover in a more systematic way.[200] There were serious attempts to upgrade the country’s skill base and technological capabilities through subsidies to (and public provision of) education, training and R&D.[201]