The East Asian Miracle
The official pre-crisis interpretation; read alongside Studwell to see what it missed.
Summary
The World Bank published this study in 1993 under pressure from the Japanese government, which had funded it and which wanted the Bank to acknowledge that East Asian governments had intervened successfully in their economies. The result is a negotiated document that reflects the internal conflict.
The study examines eight high-performing Asian economies and asks what produced their growth. Its conclusions attribute most of the outcome to what it calls the fundamentals: macroeconomic stability, high savings and investment, investment in primary education, agricultural policies that did not tax farmers heavily, and openness to foreign technology. It then examines selective interventions, including directed credit, export promotion, and industrial targeting, and reaches a mixed verdict: export promotion is judged successful, directed credit judged possibly beneficial in some cases, and industrial targeting judged unsuccessful.
The document's central concept is the market-friendly approach, in which government intervention is acceptable where it addresses a market failure and where results are monitored against export performance. Critics from the developmental state tradition, including Robert Wade and Alice Amsden, argued that the study systematically understated the interventions and that its methodology was designed to reach a predetermined conclusion. Critics from the other direction argued that it conceded too much. Paul Krugman's contemporaneous argument that East Asian growth reflected factor accumulation rather than productivity is a separate challenge. The report matters as an institutional document as much as an analysis.
Key takeaways 7
- The report attributes most East Asian growth to macroeconomic stability, high savings, primary education and agricultural policy rather than to industrial policy.
- Export promotion is judged successful because export performance supplied an objective test that governments could apply to firms.
- Industrial targeting is judged unsuccessful, and the report finds little evidence that targeted sectors outperformed.
- The market-friendly framework permits intervention where a market failure exists and where results can be monitored.
- Directed credit produced mixed results and worked only where allocation was tied to measurable performance.
- The report is a negotiated institutional document produced under pressure from its Japanese funder, which shaped its conclusions.
- Critics from the developmental state tradition argue the methodology understated the interventions it examined.
Who should read it
Analysts of industrial policy who need the institutional statement that framed the debate, read with awareness of how it was produced.
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