Key Messages
What Makes Some Asian Countries Economic Powerhouses And Others Not: The Steps For Successful Development
Asia’s impressive economic successes over the last decades go to show that with the correct policies in place, incredible development can be achieved.
To better understand this process, it first helps to look at what exactly makes some Asian countries grow more quickly than others.
Financial deregulation can be a double edged sword and larger scale farming operations don’t always lead to greater efficiency – these are just two examples of how different countries have taken different steps when creating their development policies.
South Korea is also an interesting case study as they promoted three different car manufacturers in their small market.
From all this, we can get a better understanding of how economic development works in Asia.
With sound and well thought out plans, states can work towards transforming themselves into an economic powerhouse.
Policies need to be applied in the right order and lessons need to be learnt from other countries successes (and failures!).
Understanding them will help us make more informed decisions when crafting our own strategies for growth.
How Asian Countries Have Leveraged Small-Scale Farming To Become Economic Powerhouses
The path to successful development of a poor country starts with promoting small-scale household farming.
Household farming makes the most out of available labor, while large-scale farming generates few jobs and low agricultural output.
It may seem counterintuitive, as large farms are more efficient in producing output – but unlike in manufacturing, increasing scale in agriculture doesn’t create higher outputs or better quality.
Instead, it is fertilizer and human labor decisions that matter when it comes to improving yields and quality.
Furthermore, mechanizing the process by having huge farms actually works against poorly developed countries due to the lack of jobs and low yield for each plant.
By contrast, embracing hands-on techniques provide the highest yields possible – from cultivating shade-tolerant vegetables like celery under taller plants to hand planting and harvesting – this creates an agricultural harvest that even machines struggle to reach.
Lastly, promoting household farming also creates jobs for those who have no other alternative than working in agriculture.
All these benefits taken together means that if you wantto kickstart development within a poor country it is essential to focus on maximizing its agricultural output via small-scale household farms.
Land Reform Is An Essential Tool To Promote Household Farming: Evidence From Japan And Taiwan
A well-executed and far-reaching land reform is key to promoting household farming.
This is evident from the examples of Japan and Taiwan after World War II, where the redistribution of land among the people created a platform for further economic growth.
In Japan, an adviser called Wolf Ladejinsky proposed legislation with a three-hectare limit on farms.
This led to landowners having to turn over excess lands, which were then transferred to poorer farmers.
By 1953, rural output and consumption had increased above pre-war levels and inequality was drastically reduced.
Similarly in Taiwan, with American policy makers advising on a land reform plan that equated to 13 percent of GDP in land value being redistributed among families who now possessed their own land.
Within just 7 years this resulted in the Gini coefficient (standard measure of inequality) improving from 0.56 to 0.33!
Not only that but gross food production almost doubled thanks to this reform!
From these two examples we can see how vital it is to have far-reaching land reforms that are implemented properly if you want to promote household farming – as they have proven hugely successful at creating an economic base for further growth!
Protecting Local Manufacturing Is Key For Long-Term Economic Development
It is true that successful modern economies cannot solely be based on agriculture and must make a transition to manufacturing in order to increase wealth.
However, this transition must be protected as it takes time for companies to imitate and improve foreign technologies until they are able to produce competitively.
Offshore financial centers are only successful because of protective policies, i.e., those which limit imports in order to protect their industries from global competition.
The same holds true for developing countries looking to create strong local manufacturing businesses.
Without protective policies that shield industries from competing with larger global corporations, companies won’t be given the chance to innovate and become competitive in the market.
Free trade should ultimately be the goal, but protective policies are necessary before then in order for a country’s economy to reach a point where it can take part in markets on a global level.
To Achieve Industrialization, Governments Must Invest In Manufacturing And Use Legislation To Support Entrepreneurs
If you want your country to succeed in reaching a developed economy, government investment and strategic planning is necessary.
Governments must invest in developing the technology and manufacturing sector in order to allow industries to stand on their own two feet.
In Japan, for example, this effort began with introducing pilot factories that focused on basic manufacturing like silk reeling, mining and cement in the 1870’s.
This was to ensure that these industries were up to international standards with machinery and professional workers being imported from other countries.
Although these goods were not of the same caliber as Western products at the time, they served local needs.
Around the 1880s, they started generating profit after being sold to private entrepreneurs.
To further improve this sector of the economy, legislation was also needed which would support entrepreneurs when possible.
This could include lifting import duties on certain goods so that certain industries would be able to get a necessary supply of raw materials – even if it meant exposing them to foreign competition.
An example of this can be seen when Japanese entrepreneur Shibusawa opened a giant steam-powered cotton mill in 1882 which marked a major investment point into their cotton industry.
The government supported him by lifting such restrictions on raw cotton – even though it would hurt local farmers who were now exposed to global competitors – but proved successful overall since it ended Japan’s trade deficit and by 1914, cotton textiles accounted for 60% of all exports from Japan.
Therefore governments need to carefully invest in technological development as well as help entrepreneurs whenever possible through legislation such as reducing or lifting import duties wherever necessary.
How Competitive Markets And Export Promotion Spur Economic Growth In Developing Nations
When it comes to successful industrialization, it’s important to have a system that forces businesses to export and encourages competition.
This is something that the countries of Asia have understood well.
Take Taiwan and Japan, who both provided subsidies to companies that exported their goods.
South Korea took it one step further by providing access to bank credit depending on how much they exported – those who didn’t meet the criteria couldn’t receive that state support.
And then there was South Korea’s approach with domestic competition; in 1973, they set up three private firms to compete in a 30,000 car per year market – this led them to produce better products and become more competitive on the world market.
While other Asian nations, like Malaysia, didn’t put emphasis on competition and ignored the importance of it in order for their industry to succeed globally, but when faced with the 1997 financial crisis countries like South Korea recovered much faster than non-competitive counterparts such as Thailand and Indonesia.
This gulf between Northern countries versus Southern countries became increasingly clear during this time period and today it continues to show with these nations having larger GDPs per capita than those who don’t emphasize exports or competition.
The Danger Of Premature Financial Deregulation: Why Some Nations Succeed While Others Fail
Premature financial deregulation can stifle development, as it can actually undermine the government’s ability to develop a competitive technological industry.
Take Malaysia for example: when it deregulated its stock exchange in 1989, money that could have been used to support businesses was instead diverted into speculation.
As a result, banks weren’t able to lend money to businesses that needed it and without necessary financing, technological development and a world-class manufacturing industry were impossible.
On the other hand, countries like Japan, Korea and Taiwan successfully regulated their financial sectors to direct money towards the right places.
Central banks incentivized banks to invest according to the government’s interests through discounted loans – despite inefficiencies within the system, these incentives ensured that important projects were being financed.
In some exceptions such as Singapore and Hong Kong however, early financial deregulation has worked since these states had perfect locations for trade hubs and didn’t need as many jobs from manufacturing or agriculture as other countries did.
Nevertheless, this is not the norm for most countries – premature financial deregulation still remains risky for development and potential growth of a country’s economy.
How China Transformed Its Economy Through Reforms And Innovative Strategies
As seen in How Asia Works, the success of China’s economic development was due largely to the stripping back of incorrect communist policies.
For a long time, China had struggled under two failed communist policy mistakes – collectivization and isolationism.
Collectivization led to mass famine and millions of lives were lost from starvation.
Meanwhile, shutting down international trade meant cutting off access to technology essential to developing industries.
To get things moving, Chinese leader Deng Xiaoping implemented three development strategies which other northeastern Asian countries had already used with great success.
These included giving farmers more autonomy with the household responsibility system, unshackling international trade restrictions and taking control over financial institutions in order to invest in development.
These changes kick-started China’s incredible growth trajectory, resulting in mammoth increases in agricultural output while pioneering competitive products through agreements with companies like Westinghouse – leading to factories now producing some of the biggest thermal turbines in the world!
It just goes to show that intelligent policies can make all the difference: putting an end to faulty communism set China’s economic development firmly into motion!
Before China Can Become A Rich Industrial Country, It Must Solve Its Income Gap And State-Controlled Business Problems
China has made a lot of progress over the past few decades, but there are still issues that need to be addressed.
One of these is the reliance on state-controlled businesses, which can do well in predictable industries but lack flexibility in modern consumer markets.
The other big problem is the income gap between urban and rural areas, which has continued to widen despite government attempts to reduce it.
The government has implemented some policies such as increasing agricultural subsidies and investing heavily in transportation and healthcare infrastructure for rural areas.
But if China wants to make further progress, it will need to take land reform to the next level.
Currently, peasants don’t own their land which makes them reluctant to develop their farms or benefit from selling any profits they make once they sell their land.
In order for China’s economy to truly advance, they’ll need to pass legislation granting farmers ownership rights over their land like Japan and Taiwan have done before them.
Wrap Up
The overarching message of How Asia Works is simple: to create a thriving economy in developing countries, governments should focus on three key areas – household farming, competitive manufacturing, and harnessing the power of the financial sector.
By promoting household farming, governments can increase food production and income for rural communities.
By building a competitive manufacturing sector, local businesses will have access to higher-valued outputs beyond just agricultural products and a chance to raise their standard of living.
And by using the strength of the financial sector effectively, economic growth can be kept stable across the board.
In short, with proper implementation of these strategies in developing nations, there is plenty of room for economic advancement and healthier lives for all involved.
