Management Today

Here is a rather garbled review from Management Today, a British monthly. It is not particularly negative, just rather bad journalism. Mostly it claims that things are in How Asia Works that are not; it also misquotes the book.

If you have not read How Asia Works, there is no praise for Kim Il Sung, nor Chiang Kai-shek, in it.

The ‘heroic and contestable generalisation’ cited below is quoted as: ‘’Outside the offshore port financial havens of Hong Kong and Singapore, there are no economies in the world that have developed to the first rank through policies of free trade.’

In the actual book the text reads ‘offshore port financial havens such as Hong Kong and Singapore’, an important difference, and there is an endnote expanding on this point. More importantly, if the point is contestable, it ought to be possible to name a country other than an offshore haven that did develop through policies of free trade from the get-go. Why say something is contestable and not contest it?

Otherwise, I should point out that I have never fallen foul of ‘Singaporean bureaucracy’, I am not American, I don’t chew gum, and none of the text of How Asia Works has previously appeared as journalism.

Management Today

What if Kim Jong-un gets his hands on this?

Friday, 26 April 2013

Books: A study of how Asian nations can achieve rapid economic growth was a thought-provoking read for reviewer Howard Davies.

It is a safe bet that the average MT reader will digest few books this spring that praise Kim Il-sung.

Yet, for Joe Studwell, the Great Leader features in a group of far-sighted Asian decision-makers who understood how to kick-start growth in the region, along with General Park Chung-hee, the president of South Korea in the 1960s and 1970s, and the great Chinese leader Chiang Kai-shek, who also ruled Taiwan till his death in 1975.

They are the heroes of How Asia Works. On the dark side of the account are the faceless bureaucrats of the IMF and their American and British paymasters, President Marcos of the Philippines and his kleptocratic successors, and the Singaporeans. They are all excoriated for advocating or pursuing a faulty growth model.

Things have not gone so well for the Kim dynasty recently in economic terms. But Kim Il-sung is praised for distributing land to peasants in 1946 at a time when the Americans, and their South Korean stooges, were opposed to the idea.

To win hearts and minds after the war, they were obliged to follow suit, paving the way for a great leap forward in agricultural production.

The point Studwell wants to make is that agrarian reform, and especially the distribution of small plots of land to the peasantry, is the essential first of three key steps on the road of dynamic growth in Asia.

Smallholdings, he argues, are far more productive than large farms, even if more labour-intensive. They are by far the best model for countries with abundant labour. The alternatives of protecting the interests of large landowners, as was done in the Philippines, or of collectivisation, as practised by Mao’s China, are far less efficient.

The second step is the promotion of manufacturing, and for Studwell it is crucial how it is done. Successful countries prioritised exporters by protecting infant industries with tariffs and other systems of local preference, such as public purchasing.

These policies are at variance with the standard IMF toolkit, which emphasises competition and open goods and capital markets. Competition, on Studwell’s analysis, is important, but it must be carefully managed.

Prioritising exports makes sense, as if companies can succeed in export markets they must be producing good products (albeit perhaps uncompetitively early on).

It also makes sense to promote competing domestic firms, as long as the weaker brethren are ruthlessly culled. That happened in South Korea.

The third, closely linked, dish on this menu is the organisation of the finance sector to support the first two priorities. So there is a need for banks that are focused on financing small-scale agricultural development, and also on mechanisms to channel capital to large-scale manufacturing investments.

The argument is persuasive, but, like many polemicists, Studwell overdoes his criticism of anyone with a different view.

It also leads him into heroic and contestable generalisations: ‘Outside the offshore port financial havens of Hong Kong and Singapore, there are no economies in the world that have developed to the first rank through policies of free trade.’

He cannot type the letters IMF without a sneer, and has a well-developed dislike of Singapore, whose policies in ASEAN have, he maintains, been ‘developmentally deeply unhelpful’. I think he may have fallen foul of some part of Singaporean bureaucracy: perhaps like many Americans he has a chewing gum habit.

But the bigger problem with How Asia Works is that this strongly argued thesis is larded with anecdotes and war stories in which it is easy to get lost.

Studwell has followed the corporate histories of Japanese zaibatsu, Korean chaebol (types of conglomerates) and assorted Indonesian, Philippine and Thai tycoons for years from his perches at the Economist and the China Economic Quarterly.

Pages of upmarket journalism on these topics are shovelled into the book. There are also several ‘journeys’ in the region, which are supposed to illuminate the arguments, but they add more heat than light.

Studwell certainly offers a particular perspective on Asian development, which is a useful corrective to the Washington Consensus. At the same time, Studwell paints a vivid picture of business life in the region.

If a copy of the Korean edition finds its way across the demilitarised zone to Pyongyang and Kim Jong-un discovers steps two and three to complete grandpa’s vision, we may find we have yet another Asian Tiger in our midst.

Later:

Holy Moly. I assumed this guy was some under-paid hack trying to climb the greasy pole of small-time business journalism. Turns out he is Sir Howard Davies who was Director of the LSE when they were taking the Gadaffi buck. He is also a paid advisor to the Singaporean government, which might explain his concern that How Asia Works shows insufficient love and respect for that place. And he was Special Adviser to the British Chancellor of the Exchequer during one of the two most incompetent eras of financial management of my life, Nigel Lawson’s stoking of late 80s inflation (the other era being the pre-2008 one). And he was Executive Chairman of the Financial Services Authority from 1997 to 2003, the era when the FSA began to realise that the best approach to regulation was to let bankers and asset managers look after themselves, cos they are not the kind of people to create problems…

As Saul Bellow observed: there is nothing too rum to be true. I am going off for a run and a giggle.

 

5 May:

This wee story seems to have found its way into the Sunday Times Prufrock diary. Howard Davies has said he resigned from paid employment with the Singapore government in September last year (so that’s alright then) and he, or someone else, has swiftly amended his wikipedia entry.

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FT review

Reap what you sow

David PillingReview by David Pilling

How Asia Works: Success and Failure in the World’s Most Dynamic Region, by Joe Studwell, Profile, RRP£14.99, 288 pages
A woman plants rice seedlings in a flooded paddy field, Taiwan

 

Why are the northeast Asian states of Japan, South Korea and Taiwan rich, while the southeast Asian ones of Thailand, the Philippines and Indonesia are relatively poor? Is the failure of the latter because of their geography or climate, or is it because their leaders chose wrong-headed policies?

One of the many virtues of the pithy, well-written and intellectually vigorous How Asia Works is that Joe Studwell does not equivocate. South-east Asian nations have ended up on what he calls the “rubbish heap of industrialisation” because they failed to learn the lessons of history. Instead of taking what he presents as relatively simple steps to technological advancement, leaders were captured by their ruling elites or took bad advice from international institutions such as the World Bank. The latter pushed neo-liberal policies – including no protection for fledgling industries – that Studwell considers wholly inappropriate for countries trying to get on the first rung of the developmental ladder. His recommendation to poor nations is to emulate Park Chung-hee, the South Korean strongman who oversaw what became known as the miracle on the Han river: “make public pronouncements about the importance of free markets, and then go quietly about your dirigiste business.”

The measures taken by Japan, then South Korea, Taiwan and, after 30 years of Maoist missteps, communist China were, argues Studwell, threefold. They involved land redistribution, the development of an export-oriented manufacturing policy, and the formation of a closely controlled finance system. The three important development insights, he argues, are that “a country’s agricultural potential is most quickly released when its farming is transformed into large-scale gardening supported by agricultural extension services; that the technological upgrading of manufacturing is the natural vehicle for swift economic transformation … and that finance must be harnessed to both these ends”. Only the small city-states of Hong Kong and Singapore have successfully taken a different path.

The most original part of the book deals with farming. Studwell, whose Asian Godfathers (2007) dissected the failures of crony capitalism, argues convincingly that successful Asian nations were built on radical land reform. Japan began parcelling out land after the Meiji Restoration of 1868, a policy continued after the war when the US occupation oversaw a seemingly un-American exercise in land confiscation and redistribution. South Korea and Taiwan followed suit. Large farms are often considered more efficient because they can be highly mechanised to produce higher yields per farmer or per unit of investment. In other words, they are more profitable. But in poor, labour-abundant countries, Studwell contends, that is not the point. The goal should be to use available labour to maximise yield per hectare, something achieved on smaller, intensively farmed plots.

Maximising yields serves several broader development goals: farmers earn money to spend on local manufactures; higher food production means the state doesn’t have to waste precious foreign exchange on imports; and farmers’ savings can be recycled through the banking system into industry. Both the indulgent leaders of the Philippines, who left vast haciendas in the hands of absentee landlords, and Maoist ideologues, who collectivised land into unproductive large-scale co-operatives, ignored the basic insight on what he calls “the triumph of gardening”.

The sections on industrial policy and finance are more familiar, though the ideas remain controversial among free-market economists who argue that governments can’t “pick winners”. Such economists, says Studwell, misunderstand what Japan, and later South Korea, actually did. The key was to force manufacturers, whether of steel or cars, to export and thus compete on international markets. Those that couldn’t hack it were killed off. Korea, for example, had three putative car champions in 1973 at a time when local auto sales were only 30,000 cars a year. In the early years, the market leader was the now-forgotten Shinjin. Only later did Hyundai emerge as the last car company standing. “The economics of development requires nurture, protection and competition,” he writes. The alternative to such hard-headed, nationally driven policies, he says contemptuously of the Philippines, is “an authentic, technology-less Third World state with poverty rates to match”.

Studwell’s thesis is bold, his arguments persuasive, and his style pugnacious. It adds up to a highly readable and important book that should make people rethink the glib equation of free-market policies with economic success. He also writes with disdain for those who would peddle the “fairy tale” that poor countries can become rich by skipping industrialisation. Of India’s attempt to build wealth through IT services, which employ only a few million people, he says: “Punditry that likens India’s economic development to that of the more northerly countries is fatuous.”

The implication of Studwell’s analysis is that talk of globally converging living standards is overdone. Those countries that do not begin with comprehensive land reform or bully their entrepreneurs into nation-building – as opposed to rent-seeking – are bound to fail. Even the relatively successful ones won’t get further than Malaysia, he says, a country whose botched efforts at industrialisation he likens to attending school but not paying much attention.

That leaves China, which in many ways has emulated the successful northeastern model, through post-1978 land reform and the creation of state champions financed through policy banks. China’s biggest companies, he argues, are closing in on international standards in heavy industry. But consumer businesses are not. As demographics worsen and as vested interests worry more about personal gain than national development goals, he wonders whether China will get stuck.

Studwell’s book is a warning to those who believe that developing countries in Asia, Latin America and now Africa have cracked the secret of growth and will inevitably catch up with rich ones. Only those nations with good policies will make it, he argues. And good policies are out of fashion.

David Pilling is the FT’s Asia editor

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