East Asia's developmental states in evolution: the challenge of sustaining national competitiveness at the technological frontier

Sung-Young Kim

Introduction

The dramatic industrial transformation ot East Asia, which includes Japan, Korea, Taiwan and Singapore (and now, China) has gained wide attention over the last five decades. From the perspective of one ot the leading authorities in the field, Keun Lee, the scale of this development cannot be underestimated, holding special historical significance (Lee 2013: 131). By the 1980s, Korea’s and Taiwan’s individual per capita gross domestic product (GDP) had not only caught up with the Latin American countries but, from 1980s to 2000, while Latin America stood still, Korea and Taiwan more than tripled their per capita real incomes. East Asia’s economic rise is all the more fascinating when contrasted against the continuing economic backwardness of today’s least developed countries (LDCs). African countries like Ghana or Mozambique exhibited greater economic promise than Korea and Taiwan in the 1950s as Ha-Joon Chang’s (2008) seminal book on economic development, Bad Samaritans, reminded us. Yet, the contrast in development outcomes today is striking.

Identifying the causes of economic success of the ‘miracle economies’ became an enormous academic industry in itself with many (especially international development agencies) emphasizing the role of free markets while some drew links with pre-modern features of a ‘national culture’ (Song 1990). Others were uncompromising in their view of the classical tiger economies as the beneficiaries of US support during the geo-politics of the Cold War (Cumings 1998). All these factors undoubtedly mattered (to varying extents) but, in the search for an explanation, the state’s activist role in the economy came to be seen as the defining element — from critics and protagonists alike. This did not mean any type of interventionist government but, a state capable of pursuing and executing strategic industry policy or ‘developmental states’ — a concept coined by the late Chalmers Johnson (1982) in his seminal study ot Japan.

States with strategic industry development objectives in East Asian countries climbed the ladder ot economic development through establishing labour-intensive industries such as textiles, then more capital-intensive industries like shipbuilding and automobiles. In the mid- 1980s/1990s onwards, these firms moved into ever more rapidly changing, technology-intensive industries such as digital televisions, semiconductors and telecommunications. This transition is what Lee refers to as specializing in higher-tech ‘short-cycle technologies’ after first pursuing

lower-tech ‘long-cycle technologies’ (Lee 2013: 19). Today, firms such as Korea’s Samsung and Taiwan’s AU Optronics (ACER) operate at the cutting edge of advanced technologies. Their successful rise in global markets have helped enrich the countries from which they emanate. East Asia has now successfully caught up (as China is currently emulating) with the advanced industrial countries, facing many of the same challenges as those of other industrially mature economies competing at the technological frontier.

Developmental states may have facilitated the rapid rise of high-technology firms, but to what extent is this form of state-guided industrialization still useful as innovation-led development takes precedence over imitation-led development? In this chapter, I cannot hope to provide conclusive answers to this big question. My more modest aim is to highlight the ideational, institutional and political sources of the state’s capacity to drive technological catch-up, and their evolution, as countries compete at or close to the technology frontier in a globalized economy. However, the extent to which developmental states can sustain their relentless drive for national techno-economic competitiveness at the technological frontier remains deeply contested. There are four key issues at stake in the debate, which I discuss in sequential order in this chapter.

The first issue concerns the ability of governments to strategize for competing at the technological frontier. The second relates to the existence of wide political support for sustaining high- risk innovation and/or uncertainty. The third is on the organizational features of the state, specifically on the utility of centralized or decentralized structures. The fourth concerns the relationship between large transnational corporations and the state in driving technological innovation. I conclude with the observation that the developmental state debate is far from settled, not least because of the state’s propensity to adapt to new challenges in unexpected and creative ways. Before delving into these issues in more depth, let us begin with a brief overview of the role of the developmental state in facilitating East Asia’s economic catch-up and the sources of the state’s capacity to do so.

 
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