State-ledDevelopment and Transformation
State-leddevelopment refers to a situation of government led macroeconomicplanning. Government control mainly occurred in the East Asiancountries in the final years of the 20th century. The governmentcontrol system is sometimes referred to as state developmentcapitalism, which means that all the economic activities of thenation are directly controlled by the state. In this kind of setup,the state does many interventions in the economic sector in additionto a lot of regulation as well as planning. The paper explores on thestate-led system of development and transformation in Japan andKorea, noting its weaknesses and strengths to the both countries.
Countriesutilizing state-led development are characterized by increasedgovernment control in terms of pricing or branding compared to themarket-led approach where supply and demand set the price of goodsand services. The government, in this case, plays a regulatory roleas well as being directly involved in the decisions made in theeconomic sector. This means that the industries and other businessesare not independent of the government agencies.
ChalmersJohnson defined a development state as the one whose focus is thedevelopment of the economy and that puts in place the necessarymeasures and regulations to ensure that its objectives areaccomplished. Johnson further argues that Japan has prospectivebureaucrats, mainly present in the Ministry of International Tradeand Industry. The elite bureaucracy does most of the decision-making,something that has made the Japan’s economy to grow at a slow rate.He also argued that, in those countries that took a bit longer to beindustrialized, the state bestowed upon itself the functions ofdevelopment (Hwang, 2010, p.60). In his presentation, Johnson alsocited that there are two types of orientation as far as privateeconomic activities are concerned. He argued that regulatoryorientation is more to do with providing guidelines on how economicactivities ought to be carried out in which he gave an example of theUSA, while the other orientation is the developmental orientationwhere the state fully assumes all the developmental andindustrialization functions in which he gave a good example of Japan.
Comparisonwith other Forms of Development
Takinga deeper look into the two types of orientations, we realize that inthe regulatory kind, the state uses independent agencies to look intothe quality and standards of the goods produced which preventssub-standard products from entering goods from entering the market.The producers while also providing a fair platform of competitionusually do this to protect the consumers against exploitation. Thedevelopmental states take a more defined role as they go as far asmobilizing the development of industries, which they do by evenproviding the necessary resources required for the development ofindustries, which they do to encourage more and more people toexploit their entrepreneurial skills (Hwang, 2010, p.77). In Japan,for instance, the government does not necessarily own the industrieshowever, the private sector is fully controlled by some governmentagencies, which make the decisions for the private sector (Kingston,2013, pp.78-94). These agencies are usually referred to asbureaucratic elites. The elites usually are not elected officials,and this means that they perform independently and thus do notsuccumb to political or professional interference.
Thisis also the case in Korea, which is also another globally recognizedindustrialization hub. In detail, the private sector operates withoutany interruption from either the professional class or the corporatesector as opposed to the other kind of setups where the governmentinvolves all the stakeholders when creating an economic plan for thecountry (Kingston, 2013, p.10).
InSouth Korea, economic development started flourishing well after theKorean War, which occurred in the early 1950s. It is obvious that theeffects of the war were very devastating to every sector in thecountry and for this reason the government took upon itself torevive the economic status of the country. The government did this byimplementing economic measures, which would enable the country tobreak into the export market.
WhileJapan adopted the state-led development approach to enhance the rapidgrowth of their industrialization sector, Korea did so to revivetheir economy after the devastating effects of the 1950 Korean War(Hwang, 2010, pp.30-40).
Strengthsand weaknesses of State-led Development
State-leddevelopment approach has received different reactions from expertsand public members. The above explanations have looked in detail atwhat the state-led development is all about, and how it differs withthe market-led kind of approach to development. The paper furtherlooks at the merits and demerits of the state-led approach todevelopment, as experienced in the aforementioned countries.
Thereare some strengths involved when a country utilizes the state-ledtype of approach to development. First, it increases the speed ofdevelopment. The state-led kind of approach to development is veryinstrumental when it comes to the development at a fast rate (Hwang,2010, p.34). This is because the government directly helps allproducers and industries despite their levels so that they can growat a fast rate which then translates to the overall fast rate ofdevelopment of the country’s economy. This advantage is mainly seenin Korea, which immediately shook off the effects of the early 1950sKorean War, and in no time had their economy back on track (Brown,2015, pp.33-52). Had the country adopted the market-led approach, theenterprises would probably have found it hard to find a market forproducts at that tough moment, and this would have culminated in theslow rate of growth of the economy.
Secondly,the approach helps Japan and Korea to withstand market crisis. Thecountries that have adopted the state-led approach to developmentnormally have some sort of insulation when it comes to marketfluctuations and crisis. Since the state that negotiates for theproducers the market for their goods, it provides a cushion for theproducers since they do not suffer the adverse effects of marketfluctuations and other such crisis (Kingston, 2013, p.39). In Japan,for instance, the production of vehicles by some companies such asthe Toyota Company normally has a ready market in most countries,especially Africa (Kingston, 2013, pp.1-22). This means that despitea stiff competition the company may encounter from its competitorsfrom other parts of the world, Japan has already established a stablemarket for their vehicle products in Africa.
Lastly,it enhances improvement of a country’s economic status. Theeconomic status of a country is normally classified in either of thefollowing categories a developing, middle income, or a developedeconomy. The state-led approach to development helps a country togradually develop its economy in the above steps because there arenot so many risks involved that would cause a slip back to a lowerlevel of the economy (Brown, 2015, pp.93-107). This gradual rise ofeconomic status has been majorly achieved in Korea where thestate-led approach to development has made the country to minimizethe costs of production while at the same time maximizing itspotential in order to achieve the progress (Hwang, 2010, p.53).
Inas much as the state-led approach has proved a success in some partsof the world especially in Japan and Korea, it has also had itsdrawbacks, and this has not escaped the eyes of its critics. Thosecriticizing the approach cite some major weaknesses. One of theseweaknesses is the problem of state capture (Hwang, 2010, pp.30-36).State capture refers to a situation where government officials whoare in charge of coming up with economic policies or even thepoliticians are compromised by private investors who have their ownpersonal interests (Kingston, 2013, p.93). The government officialsmay receive bribes in order to make certain decisions that directlyfavor those that have bribed them. In Korea, around 1990s, forexample, there was certain scandals that involved politicians whowere bribed by chaebol`s executive. The situation clearly brought outthe fact that there is no political leadership that can be given hugeeconomical duties as those and still remain impartial in theexecution of their duties (Brown, 2015, pp.60-88).
Inefficiencydue to the interference of economy by the government is anotherweakness. In every sector that the government is involved, there area lot of bureaucracies and some of them may slow down the rate atwhich business is conducted and therefore rendering the sectorinefficient. In state-led economies, the government makes most of thedecisions regarding the production and even the selling of the goods(Brown, 2015, p.20). When so many people are waiting for a certaindecision, business activities may come to a stand-still. Anotherunfortunate case of government interference is a case where thegovernment officials may have selfish interests in the economy. Thisleads to the situation like the one we have cited above of bribery inKorea, and this becomes very detrimental to the economy.
Thepaper has extensively looked at state-led development and itsrelationship with market-led development. It has also outlined theeffects it has had on the countries in which it has been applied, andit is quite clear that if handled properly, state-led development isa masterpiece as far as development of third world countries isconcerned. For it to work, however, there are some loopholes thatought to be sealed. Effects of issues such as corruption arestate-led development approach could be very devastating to aneconomy if ignored. State-led development is not necessarily the bestfor every kind of economy, as it may prove hard to adopt in countriesthat are well developed, with globally recognized companies, becausethese companies hate being micromanaged by the government.
Kingston,Jeff (2013). Contemporary Japan: History, Politics, and Social ChangeSince the 1980s. Wiley-Blackwell.
Hwang,Kyung Moon (2010). A History of Korea. Palgrave Macmillan
Brown,Kerry (2015). Contemporary China. Palgrave Macmillan (2nd edition)