The Edwin O. Reischauer Lectures. Cambridge, MA : Harvard University Press, 2013. 213 pp. (Figures, tables.) US$35.00, cloth. ISBN 978-0674-72530-0.
Expanded from the Edwin O. Reischauer Lectures given in 2009 at Harvard, the book offers a comprehensive overview of policies and institutions that have contributed to national economic growth and income inequality in postwar Northeast and Southeast Asia. Continuing in the best traditions of development economics and comparative institutional analysis, Perkins takes aggregate output growth as the top priority of development, intrinsically beneficial for the society, and responsive to appropriate national policies and institutions that improve the productivity of key factors of capital, labour and natural resources. One might point out that the notion of development in this traditional sense does not adequately account for major externalities such as environmental costs and human development and social justice trends. Furthermore, it does not venture to discuss how political-institutional development (e.g., democratic transition or intra-regime reforms in authoritarian states) and approaches to social justice (e.g., redistribution and anti-corruption) may condition economic growth except in a general, cross-country comparison of political commitment to effective government interventions. It would also be easy to criticize the book as being dated given the strong doubts of development economics by mainstream economists, advances in data analysis and the ever increasing sophistication of various measures of efficiency, market integration and innovation, and an expanding literature of local and non-Western diagnoses of economic problems in these countries.
I would urge readers to set aside these facile prejudices, and instead reflect on the book’s overarching analytical framework that offers an open architecture to build deeper, country- and issue-specific understandings. Within his clearly defined parameters, Perkins is eclectic and liberal in his perspective, constantly showing attention to new and updated interdisciplinary explanations—such as in his pointed critique of the influential book Why Nations Fail, by Darin Acemoglu and James Robinson (55).
The book is structured around country case studies (chapters 3 and 4) and economic systemic transitions (chapters 5 and 6). The general argument is that strategic government interventions, building on monopolistic resources of select state-owned enterprises and national resources in entrepreneurial culture and the educational system, have brought about high growth rates in Northeast Asia. Southeast Asia, hampered by the colonial legacy as well as weaker initial human resource and organizational endowments, has struggled with reform policies that could transcend the rent-seeking demands of powerful social interests. As Perkins has argued elsewhere, there is no common Asian model of growth, but there is a fundamental logic of growth that underpins both success and failure. In the following analysis, I discuss five issues emerging from his causal reasoning.
Perkins adopts Alwyn Young’s focus on total factor productivity (TFP) in assessing Asia’s growth rates. However, he departs from Young and Paul Krugman—who famously critiqued the East Asian miracle as “based on perspiration rather than inspiration” (Krugman, “The Myth of Asia’s Miracle,” Foreign Affairs, Nov/Dec 1994)—in three insightful ways. First, while Young and Krugman point to low and stagnant TFP in Asian tigers’ heydays of rapid growth as a result of the national developmental policies, Perkins argues that variations in the TFP of Asian countries, in particular in terms of human capital, have stemmed from deep cultural legacies and historical political choices made in postcolonial nation-building. These factors have supported sustained household investment in higher education in Korea and Taiwan, and inflicted discriminatory and inefficient social welfare allocative decisions in Malaysia and Indonesia. These differences in turn shape the effectiveness of national development policies.
Second, Perkins makes a key distinction within the “extensive” growth of the Asian countries: between those implementing rational, disciplined and limited industrial policies, and those trapped in private rent-seeking industrial favouritism and trade protectionism. The distinction contributes to the earlier theories of the critical transition from import-substitution industrialization to export-oriented development, but is not limited to that linear viewpoint. Perkins sees national politics in Thailand, the Philippines and Indonesia as pernicious to any sustained effort at industrial policy making, regardless of specific policy choices made to accommodate local endowments and legacies.
Third, Perkins makes a strong case for the inevitable deceleration after the high-growth periods. While he is mainly concerned with anticipating reforms to help usher in China’s “soft landing,” it would be additionally instructive to consider the current difficulties in structural reform of the previously successful Northeast Asian economies. While South Korea has been characterized as a successful example of IMF intervention in 1998, Japan and Taiwan have witnessed a further decline of manufacturing sectors, structural unemployment as university graduates could only find basic service jobs, service sectors lacking in international competitiveness, and asset bubbles. Overall, Asian growth since the late 1990s has neither resolved weak domestic consumption and widening income gaps and digital divides, nor sustained innovation and industrial upgrading. Consequently, Asia has suffered lower capital productivity leading up to the Asian Financial Crisis in 1997, and since the global financial crisis in 2007.
Generally speaking, Perkins deftly links key explanatory factors in his case studies. In addressing Robert J. Barro’s growth equation in chapter 2, he is quick to point out that crucial political institutional and policy variables are inadequately represented and related in conventional econometrics analyses (53). It would be useful to incorporate theoretical developments in the literature on Varieties of Capitalism (Peter A. Hall and David Soskice, 2001), and its emphasis on “system coordination” and the idea of “institutional complementarities.” This perspective could build on Perkins’ basic diagnosis to critically evaluate how Beijing has propped up the profitability of oligopolistic state-controlled corporations, provided liquidity for the housing construction boom and transport network expansion, and debated the path toward Renminbi internationalization—three current issues that necessitate major reforms of domestic financial institutions. Credit misallocation is arguably the greatest source of inefficiency and inequality in China.
Lastly, one is tempted to ask the author: “Is output growth going to be the big question in ten years?” It is possible to argue that the current interest in the more developed countries in Asia is not growth per se, but the quality of growth and the prospect for more sustainable and equitable engines of growth. The middle-income trap argument has often come up, as well as new growth accounting methods that take externalities into consideration. How would the initial advantages of the Northeast Asian population and governments contribute to facing the new challenges of the protracted downturn in Western markets? It’s been nearly seventy years since postcolonialism—that would be three biological generations, and China is on the fifth generation of post-Mao political leadership!
This accessible volume of distilled personal and scholarly knowledge from Perkins is highly recommended to undergraduates, postgraduates and the informed general public seeking an enduring perspective on the vast changes in Asia over the past half century.
Kun-chin Lin
University of Cambridge, Cambridge, United Kingdom
pp. 891-893