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The irrelevance of economic liberalization in the Third World
World Development,
0305-750x/89
Vol. 17, No. 10, pp. 1523-l-530,1989.
$3.00 + 0.00
0 1989 Pergamon Press plc
Printed in Great Britain.
The Irrelevance of Economic Liberalization in the Third World CLIVE HAMILTON*
National Centre for Development Studies, Canberra - This essay argues that policies of economic liberalization may inhibit growth and development in Third World countries. The idea that government intervention stifles entrepreneurial initiative and leads to misallocation of resources is often inappropriate to the institutional conditions and economic structures of Third World countries. In these countries, the adversarial relationship between private business and government is foreign. Consequently, the impact of interventionist policies-as well as their form-differs from that alleged for the West.
Summary.
1. THE DOCTRINE
OF LIBERALIZATION
The doctrine of liberalization argues that economic welfare will be improved by freeing private business from regulation by the state. In particular, the state should dismantle regulatory structures in financial markets, markets for traded goods and in labor markets.’ Financial markets, it is argued, have their efficient operation impeded by regulation of interest rates and by controls on entry. These inhibit the free flow of capital through the economy, flows which are guided by the profits which attach to the most efficient enterprises. The liberalization argument has been heard particularly loudly in favor of freeing international trade from the distortions caused by tariff and nontariff barriers. These distortions lead to inefficiency in the allocation of investible resources, bringing about a net decline in economic welfare for all trading partners. This welfare loss is suffered principally by consumers of protected goods. In labor markets, distortions are brought about as a result of various types of government legislation which affect labor costs, including minimum wage laws, employment taxes and laws regulating working conditions. By interfering with the tendency of the labor market to clear at equilibrium wage levels, so the argument goes, a country cannot pursue its comparative advantage and the gains from trade are diminished. Several important ideas underlie the liberalization argument. First, it assumes (and sometimes argues) that economic growth is paramount; that welfare can be maximized by its single-minded pursuit. This is the trickle-down argument and expresses the belief that the distributive (and 1523
other) benefits of regulation do not outweigh the net efficiency losses. Second, there is the proposition that rapid growth is best achieved when economic decisions are left to private, competing individuals or firms. Third, and most important for the present argument, the case for liberalization is centered on the belief that government regulation particularly in the markets for capital, labor and traded goods - interferes with the freedom of individuals and firms to choose the financially most profitable avenues for investment and thereby causes misallocation of resources. The doctrine of economic liberalization spread very rapidly in the 1970s and in the 1980s to the point where it now dominates professional economic thought. It is also at the very center of political debate in the West; deregulation and privatization have become the foundation stones of economic policy in the manifestos of conservative, and even some social democratic, parties. The doctrine has also spread to the Third World largely as a result of the efforts of the International Monetary Fund (IMF), and more recently the World Bank, in imposing on debtor countries policies of economic liberalization as a condition of further credit.
*I would like to acknowledge D. P. Chaudhri of the University of Delhi and Rod Tyers of the University of Adelaide for stimulating comments. Neither, however, can be held responsible for any of the views expressed here. Address for correspondence: Bureau of Industry Economics, Dept. of Industry, Technology and Commerce, 51 Allara Street, Canberra ACT 2601, Australia.
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The validity of the doctrine of liberalization in the economies of the West will not be challenged in this essay. It will be argued, however, that the third idea above - that government intervention stifles entrepreneurial initiative and constrains the pursuit of profitable opportunities - is a concept of Western origin and is singularly inappropriate to the institutional conditions and economic structures of some parts of the Third World, and especially of those countries which have had more successful policies of industrial development. For this reason (in addition to others) the implementation of policies of liberalization may have a seriously detrimental effect on growth and development in the Third World. Before elaborating, it is worth pointing out that the first two ideas which underlie the doctrine of liberalization are not self-evident in the Third World context. In the case of the first, while economic growth is of foremost importance in relieving poverty and deprivation, growth does not guarantee that living conditions for the poor majority will be improved. The trickle-down idea is often more a convenient article of faith than an economic reality. Moreover, in recent years the obsession with growth has been tempered in the Third World, as in the First, by a recognition of the welfare effects of “externalities” such as environm
market. Financial controls have been imposed by government to protect the debtor from usury and the creditor from default, to channel investible resources into productive rather than speculative ventures and to dampen monetary fluctuations. Restrictions on foreign trade have been imposed to protect sections of business from undue competition, to protect jobs and to preserve national productive capacity. These restrictions cause the costs of business to rise. Government sees them as necessary to protect national interests from foreign companies. In his 1943 essay, “Political Aspects of Full Employment,” Kalecki discussed the antagonistic relationship between business and government in the context of fiscal policy. Business opposes the policy of full employment through state spending for three reasons. First, business dislikes government intervention as such because the countercyclical nature of fiscal policy usurps the economic and political influence of “business confidence,” This is a political weapon still employed by business leaders when they oppose certain government policies. Second, if public spending goes beyond the provision of public goods it will compete with private capital for profitable ventures. More recently it has been claimed that governments are “crowding out” private investors in the competition for funds. Third, a state of full employment maintained by public spending will rob business of some of its power in the work place by removing the severe consequences of dismissal and by increasing the confidence of organized labor. While essentially based on economic discipline, this often takes on a moral tone. It has appeared most recently in the form of conservative opposition to welfare payments, the argument being that “handouts” undermine the incentive to work. Kalecki’s arguments accurately capture some of the most important sources of conflict between government and business in advanced Western countries.* Parallel with these practical reasons for business opposition to many forms of government intervention, there has developed a body of economic theory which supports the notion of laissez faire, or at least of minimum government interference. Although Adam Smith defined some necessary areas of government intervention - the duties of the sovereign - he believed that optimal social welfare could be maximized by competitive markets in which agents are motivated by self-interest. Since then the tradition of laissez faire has become well established. The theoretical justification for unconstrained markets is highly sophisticated. The regulations and constraints which are the target of liberalization have developed in response to political pressures
IRRELEVANCE
OF ECONOMIC
from various economic classes which have seen unconstrained activity as inimical to their interests. It is possible that in the West the opposition between business and government is emphasized more by economists than business leaders, since the latter are aware that a large amount of regulation and intervention is designed to protect business from foreign competition, from labor, and from itself. It is now apparent that much of the pressure from businesses for deregulation in the 1970s and 1980s was riding the back of a bull market. Soon after the stock market crash of October 1987 there were calls for governments to step in to shore up companies in financial difficulties.
2. THE INDIVIDUAL
AND THE STATE
So far as one can generalize, the adversarial nature of the relationship between business and government in the West is foreign to large parts of the Third World, and especially to those countries that have been successful in pursuing growth and industrial development. Although not in the Third World, Japan is a country which exemplifies this. A great deal has been written about the cooperative relationship between big business and the state in Japan. The literature also abounds with analyses that show a similar pattern in many parts of the underdeveloped world, especially in Asia but also in Africa and Latin America. An essential ingredient of this kind of business-government relationship is some sort of consensus that economic development is paramount and transcends the interests of individual companies. Such a consensus has often been stimulated by the process of decolonization, which has thrown into political alliances classes and interests groups that would otherwise have been in conflict. Nationalism has been a cross-class political force based on a desire to rid a country of a common colonial enemy. This has been the case particularly when elements of local business and the traditional ruling class have refrained from collaborating with the colonial regime. The circumstances of individual countries vary enormously, but nationalism has been a very powerful force almost everywhere, especially in postwar Asia and Africa. It has been an assertion of national unity, although a unity under the dominance of particular classes. This political tendency for consensus has beep combined, in some countries, with a traditional notion of society as an entity standing above the individual. Individualism - the idea that society is composed of independent agents with indi-
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LIBERALIZATION
vidual rights - is a quite recent product of the European Enlightenment. Neoclassical economic doctrine is squarely founded on the idea of individuals as equals3 and the supremacy of “rational economic man” as the competitive atom in a decentralized economic process. This Western idea of the role of the individual in society underlies the perception of governments as inherently inclined to suppress human rights. This is thought to apply with particular force to the right to unconstrained economic decision making since, it would be argued, the structure of a (competitive) capitalist economy makes it inherently self-regulating. These ideas are foreign to many cultures and political traditions in the Third World. There, in a country like South Korea, society and the government which grows out of society, are greater than the individual; an individual in conflict with the government is an individual in conflict with society, and there is no question as to which should prevail. Colonialism usually did nothing to change this, and indeed often harnessed these traditional social forces to strengthen its domination by coopting the local ruling classes. (See Hamilton, 1986, on the development of the modern state and economic growth in South Korea.) The perception of the role of government in society suggested above conditions the function of the bureaucracy in the Third World and especially, for our purposes, those segments of the bureaucracy that deal with economic matters broadly defined. The bureaucracy is much more closely entwined with business, and its regulatory function is seen less as a constraint than as a means of protection. Michell, writing about South Korea, speak of the blurring of (the) distinction between and business so that at one may act as a spokesman for next a private businessman government policy (1984,
civil service moment a civil servant private business and the may become an agent of p. 36).
Such a close identification would be unthinkable in the West, but elsewhere this relationship expresses a very different attitude toward government intervention. This un-Western relationship between bureaucracy and business is critical to an understanding of the nature and success of Japanese industrial policy. The formation of councils of experts to advise on the future of an industry and the effectiveness of indicative planning depended on the emergence of consensus between industrialists and policy makers.4 Consensus could emerge only with some basis in common goals
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and would be nigh impossible if the parties met on an adversarial basis.
3. THE ECONOMICS LIBERALIZATION
OF
If one admits that the business-government relationship is quite different in the Third World, the fundamental economic conditions remain. If one accepts the liberalization argument for Western economies, how is it that the alleged cooperative relationship between business and govemment in Third World countries counteracts or inactivates the negative economic impact of government regulation? Why does regulation have divergent economic effects in the West and the Third World? The answer could be either that the nature of regulation is different or that the economic effects differ due to the different relationship between government and business. Both of these are true; the second will be argued in Section 4, and the discussion of the nature of regulation is left to Section 5. Let us first consider the growth-inhibiting effects of distortions caused by protection. The undesirable effects of protection on growth arise because resources are directed into sectors in which the country in question does not have a comparative advantage. Instead of producing the protected good, the country would grow more quickly by specializing in the production of goods in which it is internationally competitive and by trading for the goods it cannot produce competitively. There are two reasons for imposing tariffs or quotas on imports. First, interest groups in the sector in question - capitalists and workers can apply enough political pressure on the government to win protection from foreign competition. Second, the sector can be identified by the government (or its planning agency) as one which can potentially contribute to growth (and development) to a greater degree than currently profitable unprotected sectors. It may be identified as an industry potentially with large economies of scale, substantial efficiencies from learning-by-doing, or major external benefits. If these potentialities are present, the argument against protection is that a tariff provides artificially high returns to an uncompetitive producer without any economic incentive to become more efficient and approach international competitiveness. The infant industry argument fails because the growth hormone competition - is missing. However, there may be incentives other than immediate economic ones that induce the infant to grow up. In some
Third World economies, the nature of the business--government relationship enables the economic ministries to coerce or induce the protected producer to become more efficient. This, of course, is premised on the assumption that the reason for imposing the protective measure arises out of an economic plan rather than political pressure. It then becomes possible to use the ultimate economic sanction, viz. allowing a recalcitrant producer to go broke. The apparent problem with this is that, in a capitalist economy, firms will not produce in an uncompetitive sector unless there are adequate profits to be made. On the other hand, governments in these countries are unwilling to provide protection if its means that protected business will indefinitely reap superprofits. A delicate balance needs to be struck, and in successful countries it is struck. Government can enforce low-cost production, leading to efficient production, by one of two means. First, firms can be induced to go profitless for a time, particularly if they are big firms with other profitable lines of production. Business people may instead receive noneconomic rewards, such as public acclaim.5 Second, the government may tie profitless activities to very profitable ones, for example by awarding import licenses or access to foreign currency in exchange for attainment of export targets or achievement of production levels. A highly profitable, protected home market may be used to subsidize temporarily unprofitable exports. Next we consider the economic impact of distortions in financial markets. Government regulation of financial markets causes interest rates to be lower than their free market levels and this requires some form of rationing of loans. This situation is referred to as financial repression. As a consequence, it is argued, the most competitive firms are not necessarily those which obtain the loans. Competitive firms may be forced to borrow on the curb market at inflated interest rates. The planning agency then directs resources into key sectors which have been marked out for their growth potential. The initially uncompetitive enterprises which receive the loans must be induced to use their access to resources to become more efficient, to reach a position of international competitiveness. This situation is very similar to that of the protected infant industry; the initial efficiency losses are made up in the long run through planned changes in the country’s comparative advantage. From this perspective, the “distortionary” impact of financial repression in encouraging more capital-intensive techniques is a deliberate policy distortion in the short run aimed at overcoming long-run economic stagna-
IRRELEVANCE
OF ECONOMIC LIBERALIZATION
tion. This can be effective only if the favored enterprises can be induced, by economic and other means, to close the efficiency gap. Official vigilance can be important in ensuring efficient use of capital equipment. The initial assumption of the above argument -that under free competition for loans, funds go to the most efficient producers - is open to serious challenge. The most profitable firms are not necessarily the most efficient. In fact, under liberalized financial markets a large proportion of lendable funds often goes to unproductive, speculative activities which do not contribute to growth but only redistribute wealth. These zerosum, rent-seeking activities have often been the principal target of government controls on lending in Third World (and Western) countries. Government financial institutions that allocate cheap credit have often been established precisely because uncontrolled institutions have concentrated on lending for unproductive investments. In the labor market, there is no strong tradition of intervention in the Western sense in the economically most successful countries. Rather, intervention has taken the form of repression of labor organization and support for business in its attempts to minimize labor costs. In these countries, liberalization of labor markets would also be inimical to growth in the short run (though not to development) since organized labor would be more successful in improving conditions and wages. The essential point of this section is that the liberalization argument relies on the costs of distortions measured in static terms, by comparing the effects on production of misallocation of resources with some undistorted optimum. The dynamic benefits of short-term distortions are ignored. This point may have less validity in Western economies; the potential benefits of scale economies, learning-by-doing and externalities may not be as great in conditions of advanced development using the latest technology. But the process of development is above all one of capturing the external benefits of resource allocations which may have short-run costs. This is especially true if there are mechanisms which can effectively induce producers to pursue a structure of production which will be profitable some time in the future. The relationship between business and government is fundamental to this.
4. INSTITUTIONS
AND EFFICIENCY
The alliance between business and government may or may not be one that is oriented toward
1527
economic growth. Regulation and intervention have earned a bad reputation because in many countries the alliance of private business and interventionist governments has served only to line the pockets of those privy to the relationship. In these countries, the political institutions are not able to enforce economic efficiency on protected businesses.6 Their histories have not created stable governments which are independent of the business class, committed to the preservation of predominantly private production, and determined to see rapid growth through efficient production. If these conditions do not prevail - and in most of the Third World they do not the economic costs of regulation of markets for traded goods, capital and labor outlined in the previous section will be protracted. Protection will encourage inefficient producers, financial repression will starve competitive enterprises of funds and labor market regulation may impose costs without gains in productivity. It is incorrect, however, to attribute these economic costs to regulation as such. Rather, they should be attributed to the institutional failures which allow regulation to diminish, rather than enhance, economic efficiency. Thus, if the roles of business and government in the growth process are positively interlinked, so that growth is a result of their cooperation and not hindered by government regulation, then it would not make sense to sever the links between the two. Severing the links through liberalization may in fact be seriously detrimental to growth prospects. The essential point is that before one advocates policies of delinking government and business through liberalization and deregulation one ought, at a minimum, to ascertain whether in practice government regulation and intervention have the effect of sustaining or constraining profitable investments. This should be done not in the abstract but in the context of prevailing institutional structures and processes. While Kalecki’s analysis of the hostility of business toward government in the West is convincing, the economic structures and sociopolitical conditions in most parts of the Third World render his analysis inapplicable there. If we consider his three reasons for business opposition to government intervention, it is clear that they do not apply. First, the countercyclical effects of fiscal policy which undermine the position of business confidence are of diminished relevance when expenditure commitments are so rigid that fiscal effects are endogenous. Moreover, local business does not have enough influence over the economy to determine business cycles. Cycles in developing countries tend to be determined by
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DEVELOPMENT
external factors, often by international commodity prices. Since the course of the economy is not under the collective influence of business, there can be no fear of the government taking away this power. Kalecki argued, second, that business fears that public spending will compete with private capital for profitable ventures. In underdeveloped countries, however, where the growth and development process is at an early stage, there is much more scope for government spending on public goods such as education and health care, and on infrastructure such as roads and ports, as well as on large and risky projects such as steel mills, all of which form the foundation of profitable private investments. There is little danger of government seizing the most profitable opportunities; in fact historical experience has provided several examples (such as Taiwan) of governments handing over to private interests newly profitable public enterprises. As for the crowding-out argument, the principal sources of funds for government projects in most Third World countries are indirect taxes and foreign borrowing (there being no markets for government bonds) neither of which are likely to affect directly the funds available for loans to private enterprise. The third argument - concerning the moral effects of full employment - is similarly irrelevant in most parts of the Third World. Unemployment and underemployment are chronic, and there is no likelihood of full employment undermining the incentive to work. Nor is there a welfare net which might provide a comfortable hammock for the lazy. Moreover, factory discipline, which is maintained by the threat of the sack in the West, is often reinforced by political controls and repressive laws which minimize the opportunities for trade union organization. One implication of this way of viewing liberalization in the Third World is the resolution of an apparent contradiction. Some bureaucrats, particularly those who have graduated from US universities, can be heard to utter the shibboleths of liberalization, while in their daily practice they pursue close and more refined links with business and business groups.7 Thus South Korean and Japanese governments can give the impression of liberalization by abolishing quotas and reducing tariffs while leaving the actual level of protection untouched. Western economists have shown their willingness to be fooled by this. And while tariffs and restrictions on entry have been apparently reduced in Japan, Western business people have constantly complained of the unwritten regulations that keep them out.
5. FORMS
OF REGULATION
The different perception of the governmentbusiness relationship in the Third World is reflected in the forms of regulation. In the West, regulation takes the form of carefully specified rules of business conduct laid down by law: there are specified tariff levels payable and quotas to be observed, tax levels payable with carefully defined exemptions and allowances, fully defined regulations on product design and safety, and so on. In countries like Japan and South Korea, the regulation of business is much more informal and discretionary, with ministries defining as well as enforcing the conditions under which businesses operate. There are agreements between particular businesses or business groups under which the latter exercise “voluntary” control over, say, importing various types of goods. This opens the door to massive corruption, which in itself is inimical to growth and development. But in countries where other forces, in particular the political imperative of economic development, can be harnessed, corruption can be limited. The state can in this way use businesses and business associations to implement government policy not through enforcing detailed restrictions on activities but by making clear the intent of its policies. This has been formalized in South Korea in various sectoral producer associations which serve both as channels of information to the government and as the means for implementing the government’s industrial policy including the detailed planning of member companies’ outputs, exports, imports and capacity. LueddeNeurath (1986) has provided a detailed analysis. The “maze of often contradictory laws and regulations” is indicative not of bureaucratic rigidity and indecision but of the discretionary nature of government policy implementation and the ability of the bureaucracy to respond quickly to changed circumstances. There is a great deal of administrative freedom in interpreting regulations and applying them to differing cases. This is quite the reverse of the regulatory systems of most Western countries where rules and regulations are laid down in detail by central authorities and then applied to the letter.
6. ENTREPRENEURIAL
DIRZGISME
If there is a basic difference in the relationship between business and government in the West and large parts of the Third World, what is the origin of the difference? This is an enormously complicated question which would require detailed historical investigation, but a few sugges-
IRRELEVANCE
OF ECONOMIC
tions may be made here. We have already discussed why Kalecki’s case for business hostility to government intervention in the West does not apply in the Third World. This reflects some fundamental differences in economic conditions between the West and the Third World, in particular the level of underdevelopment itself and associated unemployment. The basic explanation of the difference must grow out of the differences in the development of class structures - so far as one can generalize about class structures in the Third World - and the consequent development of the relationship between the state and class structures. A crude generalization of this process in the West might go as follows. The process of capitalist development generates a working class. This working class tends to become, through organization and the importance of its place in continued accumulation, politically more powerful as its industrial strength increases. This is closely tied to the emergence of political democracy in the West. The political power of the working class has allowed the conflict between labor and capital to find expression in the institutions and activities of the state, including the election of social democratic governments. The regulation of business and the use of fiscal and monetary policy have evolved from these competing interests. Some regulation reflects the influence of business or segments of it over the state and its instrumentalities; other measures reflect the ability of organized labor to circumscribe the activities of business. The first point to make about the Third World is to observe that there is usually no politically powerful proletariat. This has various explanations (in addition to the simple fact that development involves the creation of a proletariat) including the underdevelopment of political democracy (which itself needs to be explained) and the associated repression of organized labor and the level of unemployment in the early stages of development. The above does not mean that in the absence of direct, countervailing working-class political power the capitalist class can, unrestrained, use the state as its instrument. Indeed, the whole argument of this essay is that the state in the Third World has been very active in regulating the activities of business in ways which business has often found unpalatable. The social forces which have given rise to this are complicated and generalizations are dangerous, but one can identity social strata which lie outside the workercapitalist relationship which have “captured” the state for broader goals. These include the military (which may express any of several different
LIBERALIZATION
1529
political tendencies), the bureaucracy itself, and the middle classes.8 Not all of these are necessarily committed to growth and development, but we have already identified nationalism as a powerful force which has been used to justify controls on business in the interests of society as a whole. In the most successful countries, these forces have seen the emergence of a state-business relationship that may be characterized as “entrepreneurial dirigisme.”
7. CONCLUSION In conclusion, it has been assumed for the sake of the argument in this paper that the case for liberalization in the West is valid, that government intervention mostly serves to shackle enterprise and lead to distortions in resource allocation which inhibit growth. This assumption was made so as to draw the distinction with the Third World more sharply. But the differences are not so great; the economic arguments of Section 3 concerning dynamic comparative advantage also apply, if with diminished force, to the West. Infant industry arguments have a long history in the West, and governments have been promoting industrial development through protection for at least a century. In the 1980s there has been a resurgence of industrial policy in much more sophisticated form, the form of strategic trade policy (see Krugman, 1986). While the economic arguments for intervention have a long history, the effectiveness of regulation in practice depends, inter alia, on the institutional structure of the country in question. The simple message of this essay is that broad policy prescriptions based on abstractions will be ineffectual unless they are tailored to suit the institutional conditions of the country concerned. Few would argue against this if one were comparing, say, socialist and capitalist economies; but somehow the distinctiveness of institutional structures in the Third World is lost when it comes to the advocacy of economic policy in developing countries. As a result, the dominant policy advice emerging from the economics profession and international institutions such as the IMF and the World Bank treats the Third World as an undifferentiated whole. It is tempting to explain this soley in terms of the hegemony of laissez faire doctrine within the discipline of economics. But one must also take into account the conflict of interests between business in the West and business in the Third World, since the former may have an interest in opening up the markets of the Third World to its own products and investments.
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1. See, for example, the issue of World Development (Vol. 10, No. 12, 1982) on disequilibrium analysis in developing countries.
“merit medals” to business leaders who achieved export targets. Each was hailed in the press as a sort of Promethean Stakhanovite.
2. Kale&i observes (1971, p. 141) that the adversarial relationship between government is transcended as a result machinery (being) under the direct partnership of big business with fascist
6. For an analysis along these lines of the growth prospects of eight Asian countries see Hamilton (1987).
under fascism business and of “the State control of a upstarts.”
3. Often confusing, by the by, the political demand for equality with the economic and social reality of inequality. 4. On Japanese (1986). 5.
industrial
policy see Yamamura
President Park of South Korea regularly awarded
7. Wade (1988) has written: “. . . it is certainly the case that the overwhelming majority of Taiwan’s academic and government economists since the 1960s have believed in the virtues of the freely functioning market as an article of faith as well as of rhetoric. Yet it is not fully consistent with the way the government has in practice behaved. , . It has been anticipating, rather than simply reacting to, changes in Taiwan’s international competitive position.” 8.
See Hamilton and Tanter (1987) on South Korea.
REFERENCES Hamilton,
C., “Can the rest of Asia emulate the World -Quarterlv. Vol. 9, No. 4 (October 1987). Hamilton, C., Capitalist Industrialization in Korea (Boulder, CO: Westview Press, 1986). Hamilton, C., and R. Tanter, “The antinomies of success in South Korea,” Journal of International Affairs, Vol. 41, No. 1 (Summer/Fall 1987). Kalecki, M., “Political aspects of full employment,” [originally published in 19431 in Selected Essays on NICs?”
Third
the Dynamics
of the Capitalist
Economy,
1933-1970
(Cambridge: Cambridge Universitv Press. 1971). Krugman, Py (Ed.), Stratigic Trade P&icy and the hi,, Znternational Economics (Cambridge, MA: MIT Press, 1986).
Luedde-Neurath, Oriented
R., Import Controls and ExportDeveloDment (Boulder. CO: Westview
Press, 1986). * ’ Michell, A., “Administrative traditions and economic decision-making in South Korea.” IDS Bulletin. Vol. 15, No. 2 (Ap>l 1984). Wade, R., “State intervention in ‘outward-looking’ development: Neoclassical theory and Taiwanese practice,” in G. White (Ed.), Developmental States in East Asiu (London: Macmillan, 1988). Yamamura, K., “Caveat emptor: The industrial policy of Jaoan.” in P. Krueman (Ed.). Strategic Trade Polk; and the New In&u&tal ‘.!konom~cs (Cambridge, MA: MIT Press, 1986).
0305-750x/89
Vol. 17, No. 10, pp. 1523-l-530,1989.
$3.00 + 0.00
0 1989 Pergamon Press plc
Printed in Great Britain.
The Irrelevance of Economic Liberalization in the Third World CLIVE HAMILTON*
National Centre for Development Studies, Canberra - This essay argues that policies of economic liberalization may inhibit growth and development in Third World countries. The idea that government intervention stifles entrepreneurial initiative and leads to misallocation of resources is often inappropriate to the institutional conditions and economic structures of Third World countries. In these countries, the adversarial relationship between private business and government is foreign. Consequently, the impact of interventionist policies-as well as their form-differs from that alleged for the West.
Summary.
1. THE DOCTRINE
OF LIBERALIZATION
The doctrine of liberalization argues that economic welfare will be improved by freeing private business from regulation by the state. In particular, the state should dismantle regulatory structures in financial markets, markets for traded goods and in labor markets.’ Financial markets, it is argued, have their efficient operation impeded by regulation of interest rates and by controls on entry. These inhibit the free flow of capital through the economy, flows which are guided by the profits which attach to the most efficient enterprises. The liberalization argument has been heard particularly loudly in favor of freeing international trade from the distortions caused by tariff and nontariff barriers. These distortions lead to inefficiency in the allocation of investible resources, bringing about a net decline in economic welfare for all trading partners. This welfare loss is suffered principally by consumers of protected goods. In labor markets, distortions are brought about as a result of various types of government legislation which affect labor costs, including minimum wage laws, employment taxes and laws regulating working conditions. By interfering with the tendency of the labor market to clear at equilibrium wage levels, so the argument goes, a country cannot pursue its comparative advantage and the gains from trade are diminished. Several important ideas underlie the liberalization argument. First, it assumes (and sometimes argues) that economic growth is paramount; that welfare can be maximized by its single-minded pursuit. This is the trickle-down argument and expresses the belief that the distributive (and 1523
other) benefits of regulation do not outweigh the net efficiency losses. Second, there is the proposition that rapid growth is best achieved when economic decisions are left to private, competing individuals or firms. Third, and most important for the present argument, the case for liberalization is centered on the belief that government regulation particularly in the markets for capital, labor and traded goods - interferes with the freedom of individuals and firms to choose the financially most profitable avenues for investment and thereby causes misallocation of resources. The doctrine of economic liberalization spread very rapidly in the 1970s and in the 1980s to the point where it now dominates professional economic thought. It is also at the very center of political debate in the West; deregulation and privatization have become the foundation stones of economic policy in the manifestos of conservative, and even some social democratic, parties. The doctrine has also spread to the Third World largely as a result of the efforts of the International Monetary Fund (IMF), and more recently the World Bank, in imposing on debtor countries policies of economic liberalization as a condition of further credit.
*I would like to acknowledge D. P. Chaudhri of the University of Delhi and Rod Tyers of the University of Adelaide for stimulating comments. Neither, however, can be held responsible for any of the views expressed here. Address for correspondence: Bureau of Industry Economics, Dept. of Industry, Technology and Commerce, 51 Allara Street, Canberra ACT 2601, Australia.
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DEVELOPMENT
The validity of the doctrine of liberalization in the economies of the West will not be challenged in this essay. It will be argued, however, that the third idea above - that government intervention stifles entrepreneurial initiative and constrains the pursuit of profitable opportunities - is a concept of Western origin and is singularly inappropriate to the institutional conditions and economic structures of some parts of the Third World, and especially of those countries which have had more successful policies of industrial development. For this reason (in addition to others) the implementation of policies of liberalization may have a seriously detrimental effect on growth and development in the Third World. Before elaborating, it is worth pointing out that the first two ideas which underlie the doctrine of liberalization are not self-evident in the Third World context. In the case of the first, while economic growth is of foremost importance in relieving poverty and deprivation, growth does not guarantee that living conditions for the poor majority will be improved. The trickle-down idea is often more a convenient article of faith than an economic reality. Moreover, in recent years the obsession with growth has been tempered in the Third World, as in the First, by a recognition of the welfare effects of “externalities” such as environm
market. Financial controls have been imposed by government to protect the debtor from usury and the creditor from default, to channel investible resources into productive rather than speculative ventures and to dampen monetary fluctuations. Restrictions on foreign trade have been imposed to protect sections of business from undue competition, to protect jobs and to preserve national productive capacity. These restrictions cause the costs of business to rise. Government sees them as necessary to protect national interests from foreign companies. In his 1943 essay, “Political Aspects of Full Employment,” Kalecki discussed the antagonistic relationship between business and government in the context of fiscal policy. Business opposes the policy of full employment through state spending for three reasons. First, business dislikes government intervention as such because the countercyclical nature of fiscal policy usurps the economic and political influence of “business confidence,” This is a political weapon still employed by business leaders when they oppose certain government policies. Second, if public spending goes beyond the provision of public goods it will compete with private capital for profitable ventures. More recently it has been claimed that governments are “crowding out” private investors in the competition for funds. Third, a state of full employment maintained by public spending will rob business of some of its power in the work place by removing the severe consequences of dismissal and by increasing the confidence of organized labor. While essentially based on economic discipline, this often takes on a moral tone. It has appeared most recently in the form of conservative opposition to welfare payments, the argument being that “handouts” undermine the incentive to work. Kalecki’s arguments accurately capture some of the most important sources of conflict between government and business in advanced Western countries.* Parallel with these practical reasons for business opposition to many forms of government intervention, there has developed a body of economic theory which supports the notion of laissez faire, or at least of minimum government interference. Although Adam Smith defined some necessary areas of government intervention - the duties of the sovereign - he believed that optimal social welfare could be maximized by competitive markets in which agents are motivated by self-interest. Since then the tradition of laissez faire has become well established. The theoretical justification for unconstrained markets is highly sophisticated. The regulations and constraints which are the target of liberalization have developed in response to political pressures
IRRELEVANCE
OF ECONOMIC
from various economic classes which have seen unconstrained activity as inimical to their interests. It is possible that in the West the opposition between business and government is emphasized more by economists than business leaders, since the latter are aware that a large amount of regulation and intervention is designed to protect business from foreign competition, from labor, and from itself. It is now apparent that much of the pressure from businesses for deregulation in the 1970s and 1980s was riding the back of a bull market. Soon after the stock market crash of October 1987 there were calls for governments to step in to shore up companies in financial difficulties.
2. THE INDIVIDUAL
AND THE STATE
So far as one can generalize, the adversarial nature of the relationship between business and government in the West is foreign to large parts of the Third World, and especially to those countries that have been successful in pursuing growth and industrial development. Although not in the Third World, Japan is a country which exemplifies this. A great deal has been written about the cooperative relationship between big business and the state in Japan. The literature also abounds with analyses that show a similar pattern in many parts of the underdeveloped world, especially in Asia but also in Africa and Latin America. An essential ingredient of this kind of business-government relationship is some sort of consensus that economic development is paramount and transcends the interests of individual companies. Such a consensus has often been stimulated by the process of decolonization, which has thrown into political alliances classes and interests groups that would otherwise have been in conflict. Nationalism has been a cross-class political force based on a desire to rid a country of a common colonial enemy. This has been the case particularly when elements of local business and the traditional ruling class have refrained from collaborating with the colonial regime. The circumstances of individual countries vary enormously, but nationalism has been a very powerful force almost everywhere, especially in postwar Asia and Africa. It has been an assertion of national unity, although a unity under the dominance of particular classes. This political tendency for consensus has beep combined, in some countries, with a traditional notion of society as an entity standing above the individual. Individualism - the idea that society is composed of independent agents with indi-
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LIBERALIZATION
vidual rights - is a quite recent product of the European Enlightenment. Neoclassical economic doctrine is squarely founded on the idea of individuals as equals3 and the supremacy of “rational economic man” as the competitive atom in a decentralized economic process. This Western idea of the role of the individual in society underlies the perception of governments as inherently inclined to suppress human rights. This is thought to apply with particular force to the right to unconstrained economic decision making since, it would be argued, the structure of a (competitive) capitalist economy makes it inherently self-regulating. These ideas are foreign to many cultures and political traditions in the Third World. There, in a country like South Korea, society and the government which grows out of society, are greater than the individual; an individual in conflict with the government is an individual in conflict with society, and there is no question as to which should prevail. Colonialism usually did nothing to change this, and indeed often harnessed these traditional social forces to strengthen its domination by coopting the local ruling classes. (See Hamilton, 1986, on the development of the modern state and economic growth in South Korea.) The perception of the role of government in society suggested above conditions the function of the bureaucracy in the Third World and especially, for our purposes, those segments of the bureaucracy that deal with economic matters broadly defined. The bureaucracy is much more closely entwined with business, and its regulatory function is seen less as a constraint than as a means of protection. Michell, writing about South Korea, speak of the blurring of (the) distinction between and business so that at one may act as a spokesman for next a private businessman government policy (1984,
civil service moment a civil servant private business and the may become an agent of p. 36).
Such a close identification would be unthinkable in the West, but elsewhere this relationship expresses a very different attitude toward government intervention. This un-Western relationship between bureaucracy and business is critical to an understanding of the nature and success of Japanese industrial policy. The formation of councils of experts to advise on the future of an industry and the effectiveness of indicative planning depended on the emergence of consensus between industrialists and policy makers.4 Consensus could emerge only with some basis in common goals
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DEVELOPMENT
and would be nigh impossible if the parties met on an adversarial basis.
3. THE ECONOMICS LIBERALIZATION
OF
If one admits that the business-government relationship is quite different in the Third World, the fundamental economic conditions remain. If one accepts the liberalization argument for Western economies, how is it that the alleged cooperative relationship between business and govemment in Third World countries counteracts or inactivates the negative economic impact of government regulation? Why does regulation have divergent economic effects in the West and the Third World? The answer could be either that the nature of regulation is different or that the economic effects differ due to the different relationship between government and business. Both of these are true; the second will be argued in Section 4, and the discussion of the nature of regulation is left to Section 5. Let us first consider the growth-inhibiting effects of distortions caused by protection. The undesirable effects of protection on growth arise because resources are directed into sectors in which the country in question does not have a comparative advantage. Instead of producing the protected good, the country would grow more quickly by specializing in the production of goods in which it is internationally competitive and by trading for the goods it cannot produce competitively. There are two reasons for imposing tariffs or quotas on imports. First, interest groups in the sector in question - capitalists and workers can apply enough political pressure on the government to win protection from foreign competition. Second, the sector can be identified by the government (or its planning agency) as one which can potentially contribute to growth (and development) to a greater degree than currently profitable unprotected sectors. It may be identified as an industry potentially with large economies of scale, substantial efficiencies from learning-by-doing, or major external benefits. If these potentialities are present, the argument against protection is that a tariff provides artificially high returns to an uncompetitive producer without any economic incentive to become more efficient and approach international competitiveness. The infant industry argument fails because the growth hormone competition - is missing. However, there may be incentives other than immediate economic ones that induce the infant to grow up. In some
Third World economies, the nature of the business--government relationship enables the economic ministries to coerce or induce the protected producer to become more efficient. This, of course, is premised on the assumption that the reason for imposing the protective measure arises out of an economic plan rather than political pressure. It then becomes possible to use the ultimate economic sanction, viz. allowing a recalcitrant producer to go broke. The apparent problem with this is that, in a capitalist economy, firms will not produce in an uncompetitive sector unless there are adequate profits to be made. On the other hand, governments in these countries are unwilling to provide protection if its means that protected business will indefinitely reap superprofits. A delicate balance needs to be struck, and in successful countries it is struck. Government can enforce low-cost production, leading to efficient production, by one of two means. First, firms can be induced to go profitless for a time, particularly if they are big firms with other profitable lines of production. Business people may instead receive noneconomic rewards, such as public acclaim.5 Second, the government may tie profitless activities to very profitable ones, for example by awarding import licenses or access to foreign currency in exchange for attainment of export targets or achievement of production levels. A highly profitable, protected home market may be used to subsidize temporarily unprofitable exports. Next we consider the economic impact of distortions in financial markets. Government regulation of financial markets causes interest rates to be lower than their free market levels and this requires some form of rationing of loans. This situation is referred to as financial repression. As a consequence, it is argued, the most competitive firms are not necessarily those which obtain the loans. Competitive firms may be forced to borrow on the curb market at inflated interest rates. The planning agency then directs resources into key sectors which have been marked out for their growth potential. The initially uncompetitive enterprises which receive the loans must be induced to use their access to resources to become more efficient, to reach a position of international competitiveness. This situation is very similar to that of the protected infant industry; the initial efficiency losses are made up in the long run through planned changes in the country’s comparative advantage. From this perspective, the “distortionary” impact of financial repression in encouraging more capital-intensive techniques is a deliberate policy distortion in the short run aimed at overcoming long-run economic stagna-
IRRELEVANCE
OF ECONOMIC LIBERALIZATION
tion. This can be effective only if the favored enterprises can be induced, by economic and other means, to close the efficiency gap. Official vigilance can be important in ensuring efficient use of capital equipment. The initial assumption of the above argument -that under free competition for loans, funds go to the most efficient producers - is open to serious challenge. The most profitable firms are not necessarily the most efficient. In fact, under liberalized financial markets a large proportion of lendable funds often goes to unproductive, speculative activities which do not contribute to growth but only redistribute wealth. These zerosum, rent-seeking activities have often been the principal target of government controls on lending in Third World (and Western) countries. Government financial institutions that allocate cheap credit have often been established precisely because uncontrolled institutions have concentrated on lending for unproductive investments. In the labor market, there is no strong tradition of intervention in the Western sense in the economically most successful countries. Rather, intervention has taken the form of repression of labor organization and support for business in its attempts to minimize labor costs. In these countries, liberalization of labor markets would also be inimical to growth in the short run (though not to development) since organized labor would be more successful in improving conditions and wages. The essential point of this section is that the liberalization argument relies on the costs of distortions measured in static terms, by comparing the effects on production of misallocation of resources with some undistorted optimum. The dynamic benefits of short-term distortions are ignored. This point may have less validity in Western economies; the potential benefits of scale economies, learning-by-doing and externalities may not be as great in conditions of advanced development using the latest technology. But the process of development is above all one of capturing the external benefits of resource allocations which may have short-run costs. This is especially true if there are mechanisms which can effectively induce producers to pursue a structure of production which will be profitable some time in the future. The relationship between business and government is fundamental to this.
4. INSTITUTIONS
AND EFFICIENCY
The alliance between business and government may or may not be one that is oriented toward
1527
economic growth. Regulation and intervention have earned a bad reputation because in many countries the alliance of private business and interventionist governments has served only to line the pockets of those privy to the relationship. In these countries, the political institutions are not able to enforce economic efficiency on protected businesses.6 Their histories have not created stable governments which are independent of the business class, committed to the preservation of predominantly private production, and determined to see rapid growth through efficient production. If these conditions do not prevail - and in most of the Third World they do not the economic costs of regulation of markets for traded goods, capital and labor outlined in the previous section will be protracted. Protection will encourage inefficient producers, financial repression will starve competitive enterprises of funds and labor market regulation may impose costs without gains in productivity. It is incorrect, however, to attribute these economic costs to regulation as such. Rather, they should be attributed to the institutional failures which allow regulation to diminish, rather than enhance, economic efficiency. Thus, if the roles of business and government in the growth process are positively interlinked, so that growth is a result of their cooperation and not hindered by government regulation, then it would not make sense to sever the links between the two. Severing the links through liberalization may in fact be seriously detrimental to growth prospects. The essential point is that before one advocates policies of delinking government and business through liberalization and deregulation one ought, at a minimum, to ascertain whether in practice government regulation and intervention have the effect of sustaining or constraining profitable investments. This should be done not in the abstract but in the context of prevailing institutional structures and processes. While Kalecki’s analysis of the hostility of business toward government in the West is convincing, the economic structures and sociopolitical conditions in most parts of the Third World render his analysis inapplicable there. If we consider his three reasons for business opposition to government intervention, it is clear that they do not apply. First, the countercyclical effects of fiscal policy which undermine the position of business confidence are of diminished relevance when expenditure commitments are so rigid that fiscal effects are endogenous. Moreover, local business does not have enough influence over the economy to determine business cycles. Cycles in developing countries tend to be determined by
1528
WORLD
DEVELOPMENT
external factors, often by international commodity prices. Since the course of the economy is not under the collective influence of business, there can be no fear of the government taking away this power. Kalecki argued, second, that business fears that public spending will compete with private capital for profitable ventures. In underdeveloped countries, however, where the growth and development process is at an early stage, there is much more scope for government spending on public goods such as education and health care, and on infrastructure such as roads and ports, as well as on large and risky projects such as steel mills, all of which form the foundation of profitable private investments. There is little danger of government seizing the most profitable opportunities; in fact historical experience has provided several examples (such as Taiwan) of governments handing over to private interests newly profitable public enterprises. As for the crowding-out argument, the principal sources of funds for government projects in most Third World countries are indirect taxes and foreign borrowing (there being no markets for government bonds) neither of which are likely to affect directly the funds available for loans to private enterprise. The third argument - concerning the moral effects of full employment - is similarly irrelevant in most parts of the Third World. Unemployment and underemployment are chronic, and there is no likelihood of full employment undermining the incentive to work. Nor is there a welfare net which might provide a comfortable hammock for the lazy. Moreover, factory discipline, which is maintained by the threat of the sack in the West, is often reinforced by political controls and repressive laws which minimize the opportunities for trade union organization. One implication of this way of viewing liberalization in the Third World is the resolution of an apparent contradiction. Some bureaucrats, particularly those who have graduated from US universities, can be heard to utter the shibboleths of liberalization, while in their daily practice they pursue close and more refined links with business and business groups.7 Thus South Korean and Japanese governments can give the impression of liberalization by abolishing quotas and reducing tariffs while leaving the actual level of protection untouched. Western economists have shown their willingness to be fooled by this. And while tariffs and restrictions on entry have been apparently reduced in Japan, Western business people have constantly complained of the unwritten regulations that keep them out.
5. FORMS
OF REGULATION
The different perception of the governmentbusiness relationship in the Third World is reflected in the forms of regulation. In the West, regulation takes the form of carefully specified rules of business conduct laid down by law: there are specified tariff levels payable and quotas to be observed, tax levels payable with carefully defined exemptions and allowances, fully defined regulations on product design and safety, and so on. In countries like Japan and South Korea, the regulation of business is much more informal and discretionary, with ministries defining as well as enforcing the conditions under which businesses operate. There are agreements between particular businesses or business groups under which the latter exercise “voluntary” control over, say, importing various types of goods. This opens the door to massive corruption, which in itself is inimical to growth and development. But in countries where other forces, in particular the political imperative of economic development, can be harnessed, corruption can be limited. The state can in this way use businesses and business associations to implement government policy not through enforcing detailed restrictions on activities but by making clear the intent of its policies. This has been formalized in South Korea in various sectoral producer associations which serve both as channels of information to the government and as the means for implementing the government’s industrial policy including the detailed planning of member companies’ outputs, exports, imports and capacity. LueddeNeurath (1986) has provided a detailed analysis. The “maze of often contradictory laws and regulations” is indicative not of bureaucratic rigidity and indecision but of the discretionary nature of government policy implementation and the ability of the bureaucracy to respond quickly to changed circumstances. There is a great deal of administrative freedom in interpreting regulations and applying them to differing cases. This is quite the reverse of the regulatory systems of most Western countries where rules and regulations are laid down in detail by central authorities and then applied to the letter.
6. ENTREPRENEURIAL
DIRZGISME
If there is a basic difference in the relationship between business and government in the West and large parts of the Third World, what is the origin of the difference? This is an enormously complicated question which would require detailed historical investigation, but a few sugges-
IRRELEVANCE
OF ECONOMIC
tions may be made here. We have already discussed why Kalecki’s case for business hostility to government intervention in the West does not apply in the Third World. This reflects some fundamental differences in economic conditions between the West and the Third World, in particular the level of underdevelopment itself and associated unemployment. The basic explanation of the difference must grow out of the differences in the development of class structures - so far as one can generalize about class structures in the Third World - and the consequent development of the relationship between the state and class structures. A crude generalization of this process in the West might go as follows. The process of capitalist development generates a working class. This working class tends to become, through organization and the importance of its place in continued accumulation, politically more powerful as its industrial strength increases. This is closely tied to the emergence of political democracy in the West. The political power of the working class has allowed the conflict between labor and capital to find expression in the institutions and activities of the state, including the election of social democratic governments. The regulation of business and the use of fiscal and monetary policy have evolved from these competing interests. Some regulation reflects the influence of business or segments of it over the state and its instrumentalities; other measures reflect the ability of organized labor to circumscribe the activities of business. The first point to make about the Third World is to observe that there is usually no politically powerful proletariat. This has various explanations (in addition to the simple fact that development involves the creation of a proletariat) including the underdevelopment of political democracy (which itself needs to be explained) and the associated repression of organized labor and the level of unemployment in the early stages of development. The above does not mean that in the absence of direct, countervailing working-class political power the capitalist class can, unrestrained, use the state as its instrument. Indeed, the whole argument of this essay is that the state in the Third World has been very active in regulating the activities of business in ways which business has often found unpalatable. The social forces which have given rise to this are complicated and generalizations are dangerous, but one can identity social strata which lie outside the workercapitalist relationship which have “captured” the state for broader goals. These include the military (which may express any of several different
LIBERALIZATION
1529
political tendencies), the bureaucracy itself, and the middle classes.8 Not all of these are necessarily committed to growth and development, but we have already identified nationalism as a powerful force which has been used to justify controls on business in the interests of society as a whole. In the most successful countries, these forces have seen the emergence of a state-business relationship that may be characterized as “entrepreneurial dirigisme.”
7. CONCLUSION In conclusion, it has been assumed for the sake of the argument in this paper that the case for liberalization in the West is valid, that government intervention mostly serves to shackle enterprise and lead to distortions in resource allocation which inhibit growth. This assumption was made so as to draw the distinction with the Third World more sharply. But the differences are not so great; the economic arguments of Section 3 concerning dynamic comparative advantage also apply, if with diminished force, to the West. Infant industry arguments have a long history in the West, and governments have been promoting industrial development through protection for at least a century. In the 1980s there has been a resurgence of industrial policy in much more sophisticated form, the form of strategic trade policy (see Krugman, 1986). While the economic arguments for intervention have a long history, the effectiveness of regulation in practice depends, inter alia, on the institutional structure of the country in question. The simple message of this essay is that broad policy prescriptions based on abstractions will be ineffectual unless they are tailored to suit the institutional conditions of the country concerned. Few would argue against this if one were comparing, say, socialist and capitalist economies; but somehow the distinctiveness of institutional structures in the Third World is lost when it comes to the advocacy of economic policy in developing countries. As a result, the dominant policy advice emerging from the economics profession and international institutions such as the IMF and the World Bank treats the Third World as an undifferentiated whole. It is tempting to explain this soley in terms of the hegemony of laissez faire doctrine within the discipline of economics. But one must also take into account the conflict of interests between business in the West and business in the Third World, since the former may have an interest in opening up the markets of the Third World to its own products and investments.
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WORLD
DEVELOPMENT NOTES
1. See, for example, the issue of World Development (Vol. 10, No. 12, 1982) on disequilibrium analysis in developing countries.
“merit medals” to business leaders who achieved export targets. Each was hailed in the press as a sort of Promethean Stakhanovite.
2. Kale&i observes (1971, p. 141) that the adversarial relationship between government is transcended as a result machinery (being) under the direct partnership of big business with fascist
6. For an analysis along these lines of the growth prospects of eight Asian countries see Hamilton (1987).
under fascism business and of “the State control of a upstarts.”
3. Often confusing, by the by, the political demand for equality with the economic and social reality of inequality. 4. On Japanese (1986). 5.
industrial
policy see Yamamura
President Park of South Korea regularly awarded
7. Wade (1988) has written: “. . . it is certainly the case that the overwhelming majority of Taiwan’s academic and government economists since the 1960s have believed in the virtues of the freely functioning market as an article of faith as well as of rhetoric. Yet it is not fully consistent with the way the government has in practice behaved. , . It has been anticipating, rather than simply reacting to, changes in Taiwan’s international competitive position.” 8.
See Hamilton and Tanter (1987) on South Korea.
REFERENCES Hamilton,
C., “Can the rest of Asia emulate the World -Quarterlv. Vol. 9, No. 4 (October 1987). Hamilton, C., Capitalist Industrialization in Korea (Boulder, CO: Westview Press, 1986). Hamilton, C., and R. Tanter, “The antinomies of success in South Korea,” Journal of International Affairs, Vol. 41, No. 1 (Summer/Fall 1987). Kalecki, M., “Political aspects of full employment,” [originally published in 19431 in Selected Essays on NICs?”
Third
the Dynamics
of the Capitalist
Economy,
1933-1970
(Cambridge: Cambridge Universitv Press. 1971). Krugman, Py (Ed.), Stratigic Trade P&icy and the hi,, Znternational Economics (Cambridge, MA: MIT Press, 1986).
Luedde-Neurath, Oriented
R., Import Controls and ExportDeveloDment (Boulder. CO: Westview
Press, 1986). * ’ Michell, A., “Administrative traditions and economic decision-making in South Korea.” IDS Bulletin. Vol. 15, No. 2 (Ap>l 1984). Wade, R., “State intervention in ‘outward-looking’ development: Neoclassical theory and Taiwanese practice,” in G. White (Ed.), Developmental States in East Asiu (London: Macmillan, 1988). Yamamura, K., “Caveat emptor: The industrial policy of Jaoan.” in P. Krueman (Ed.). Strategic Trade Polk; and the New In&u&tal ‘.!konom~cs (Cambridge, MA: MIT Press, 1986).