*How Asia Works*

The author is Joe Studwell and the subtitle is Success and Failure in the World’s Most Dynamic Region.  That’s an excessively bland title and subtitle, but so far this is perhaps my favorite economics book of the year.  Quite simply, it is the best single treatment on what in Asian industrial policy worked or did not work, full of both analysis and specific detail, and covering southeast Asia in addition to the Asian tiger “winners.”

Studwell explains that South Korean policy was based in a notion of “export discipline” and that policymakers were quite ready to see leading chaebol go bankrupt, which indeed they did often.  Everything was directed toward export capacity and they didn’t worry about what rate of price inflation, often in double digits, the cheap credit policies might create.  It was a gamble on a world-historical scale, noting that South Korea engaged in much more borrowing than did the other Asian tigers.  His p.111 account of how Park and his cronies started arresting most of the nation’s leading businessmen, to teach them a lesson and to skew corruption in nation-building directions, is sobering and thought-provoking reading.

Here is one instructive bit of many:

Thailand holds the record for the most consistent import substitution industrialisation (ISI) policy in south-east Asia, running from the early 1950s into the 1980s.  Industrial policy also was led by probably the most competent, professional bureaucracy in the region.  But, as the Japanese scholar of development Suchiro Akira observed, there was almost no pressure for favoured manufacturers to export…Unlike in northeast Asian states, the Thai bureaucracy never  brought export discipline to bear because the Thai generals and politicians who ran the country did not prioritise it.

In other words, industrial policy has to work with the market and rely on market discipline, not try to circumvent such constraints.  That is hard to pull off, although clearly it happened in South Korea.

It is also an excellent book on the agrarian pre-histories of East Asian industrialization and why South Korea, Japan, and Taiwan pulled off successful land reforms and Indonesia and the Philippines did not.

I would wish for more coverage of education and labor markets, and the final section on China still awaits me.  Think of it as a kind of “tweener” book: too specific and analytic to be truly popular, too broad, historical, and anecdotal to count as formal economic research.  That is not a complaint.

Definitely recommended, you will learn lots from it, and it will upset people of virtually all ideologies.

Addendum: Here is a good FT review.


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