State structure and economic adjustment in East Asia and Latin America

Colonial Histories Shape Future Development Paths

Do colonial histories in fact provide a preview into the future for developing nations? Can scholars and researchers look into a nation's past and gain an understanding of why its modern economy and culture exist in the present form? When researching historical circumstances can an alert student see how a nation in development stages achieved the economic success -- at least set the pattern -- it enjoys today? How has structural adjustment worked for nations in Asia and in Latin America? Is the historical use of neoliberalism the answer in terms of jump-starting economies in the developing world?

In the readings there are solid examples that bring these issues into brighter focus, and this paper will review and critique those materials. Yun-han Chu's article, published in 1989, goes deep into economic specifics to explain how some Asian states are restructuring their economies based on some concepts that are historical and some that are inventive and dynamic in response to changing global markets. One wonders at the start how relevant Chu's arguments and assertions could be 20 years removed from the global realities today, and yet he has scholarly instincts and presents an enormous amount of detail that is pertinent to this topic. Atul Kohli discuses the demise (apparent demise) of the so-called Washington Consensus, the idea that if government keeps its hands off the economy of a given nation -- and basically lets the economy do what it will do in the global environment -- economies will soar. That flies in the face, according to Kohli, of the reality that when states intervene with "judicial and unorthodox combinations" of solutions the economic growth is far more vigorous. To read Kohli's scholarly work, one can fairly ask the question, even though the United States is not a "developing nation" is it in fact a prime example of what Kohli terms a fragmented-multiclass state? This further question will be examined -- not to contradict Kohli but rather to put forward the idea that in this global economy, there are states that can be categorized in narrow economic descriptions, but sometimes what one scholar defines as limited to one particular government can spill over into others just as easily.

Yun-Han Chu -- State Structure and Economic Adjustment in East Asia

Yun-han Chu writes in the International Organization journal that newly industrializing countries in East Asia have adjusted their economic policies in order to respond to challenges that have threatened their potential for sustainable, long-term growth. Chu is talking about Hong Kong, Singapore, Taiwan and South Korea as newly industrializing countries (NIC). Those challenges included the "labor-intensive, export-oriented policies" that the so-called "second-tier NICs" of southeast Asia put in place in the 1970s. Another challenge was the "rise of the 'new protectionism' in the more fully industrialized nations, Chu explains.

Chu, Professor of Political Science at National Taiwan University, explains that basically economic adjustment is a "nation's response to changes in the comparative costs of production" along with the conditions and demands that exist in the global market, the "patterns of the international flow of money and credit," and the foreign economic policies adopted by other nations (Chu, p. 649).

Hence there was a need for restructuring of the industrial economies of these East Asian NICs, and Chu's article goes into great detail as to the issues and successes of those restructuring efforts. He points out (p. 648) that the above-mentioned challenges were made all the more difficult because the international economic environment was less than stable -- oil price hikes, monetary instability, and "recurring world recessions."

There are three dimensions that are part of an adjustment strategy, Chu continues. Firstly, the "defining dimension" is the "intensity of state intervention" -- the extent to which a given state directs private domestic firms to go into a strategic change. The way a state pushes private companies into making adjustments is by changing the existing incentives in the marketplace in order to achieve "specific adjustment objectives" (p. 649). One of those objectives include changing credit policies that hands direct control of those private firms over to the state.

The second defining dimension of an adjustment strategy Chu calls "pattern of preference in ownership" -- that is, the state selects which private firms, or transnational corporations (TNCs) and/or state enterprises to go after. There are limitations as to what adjustments a state can ask a transnational corporation to make, so it often boils down to state enterprises in most cases.

Chu's third defining dimension regarding a state's adjustment strategy links the "short-term macroeconomic management and long-term industrial policy" (p. 651). If the state decides on long-term industrial restructuring it must "bear or reduce some of the private sector's risks" that are connected with "external supply shocks" and frequent recessions (p. 651). On the other hand if the state decides to give policy priority to stabilizing prices, some kind of fiscal parity they then are shifting the burden on the private sector.

The decisions that have been made vis-a-vis restructuring for the four NICs are outlined by Chu on page 652. Hong Kong elected to go with a marketer strategy with Minimal intervention in markets, minimal interest in national control and macroeconomic management only. Singapore launched an internationalist strategy and took "Discretionary control of structural incentives," pushing joint ventures and inviting foreign participation, and managing structural changes in industrial restructuring. Taiwan went with a statist strategy, taking discretionary control of structural incentives, initiating state ownership of companies and managing industrial restructuring. South Korea has taken a Nationalist strategy by intervening in the market, assuming national control where it believes it is needed and macromanaging industrial restructuring.

In the recent past, Chu reminds, East Asian NIC governments have shown tenancies to adopt neoclassical economies however now they turn to more rational and market-oriented policies. The idea is that industrial change should be driven by the market and by price dynamics, not necessarily by government interference. That said, Chu turns to a description of state structure and its three dimensions, as a way of understanding how a state bureaucracy can help "shape, constrain, and enable societal and governmental actors" while at the same time bring together different levels and varieties of institutional arrangements" -- all designed to restructure the economy.

Is the United States a Fragmented-Multiclass State?

The more Kohli describes fragmented-multiclass states the more that description seems to fit the United States in many respects. To wit, the fragmented-multiclass leader faces a more politicized situation when trying to make policy -- and anyone watching the current vigorous (and sometimes mean-spirited) debate in the U.S. Congress over health care reform can clearly see a politicized and highly polarized dynamic. So far in this debate only one member of the opposition party (the Republicans) have signed on to the possibility of the government offering a "public option" for those with no insurance. The private sector (lobbyists for insurance companies) flexes muscle and influence in national political workings and that could be seen to be helping in the fragmentation of the American society -- a "multiclass" dynamic in action.

Meantime, Kohli (p. 217) explains that fragmented-multiclass is more "normal" than the other two. This is true, he asserts, because it is normal for a government to have a hard time getting the citizens to accept higher taxes. And having the society accept certain priorities on public spending that goes beyond national security and the growth of the economy is difficult across the board in many societies. Moreover, the "normal" description fits well because power at the top of the political ladder often "evolves into cronyism" (p. 217). It is disheartening to admit that cronyism is "normal" but alert readers and students of governments have to side with Kohli's explanations in this regard.

And so, where does colonialism come into this discussion? Chu barely mentioned colonialism albeit on page 665 he alludes to South Korea in the 1970s when the military "elite" pushes aside a democratically elected government. That takeover by the military stifled student dissent but it did reorganize the state structure "around the task of bringing about rapid industrialization" (Chu, p. 665).

Meantime Kohli (p. 220) states that the "bald emphasis on colonialism as a determinant of state forms in the developing world needs to be qualified." Not all the countries he and Chu have alluded to and examined have colonial histories that in positive ways link to the present economic and political realities. But India, certainly, is an example of a country whose colonial past relates to the present. The postcolonial India of course managed to become a powerful player in the global economy. But Kohli reminds readers that the nationalist movement in India -- which in the end proved to be powerful enough to push Britain out -- "…was itself not unrelated to the character of British colonialism." In other words, the Indian nationalist movement learned enough from what went into the British Empire to use those tactics for its own liberation.

The bottom line when it comes to linking colonialism with how a given country behaves economically and politically in the new millennium, every country has its own devices and distractions to stand in the way of progress. As Kohli puts it (p. 227), the problems of "growth and distribution" are totally different in India compared with Brazil. What it takes to best grasp and pursue solutions to developmental problems are "committed national leaders" blessed with "effective state machineries and with some room to maneuver in a global political economy."