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POLS 459 Politics of East Asia
Lecture Two
Theories of Political Economy
A Brief Introduction
September 27, 2007
Timothy C. Lim
Department of Political Science
California State University, Los Angeles
Background Image: A view of Seoul, South Korea (Source: http://dance.unlv.edu/danphotosforweb/seoul1.jpg)
Politics of East Asia
Theories of Political Economy
Introduction to Theory/Political Economy
To begin our study of theory/political
economy, let’s consider the following set of
statements about economic development,
and specifically, capitalist economic
development …
Politics of East Asia
Theories of Political Economy
Statement No. 1
Introduction to Theory/Political Economy
In the modern age, capitalist development is dependent on
establishing and taking part in system of relatively open, free trade.
Free trade allows individual countries to maximize their prosperity
through specialization and comparative advantage. Countries that
participate fully and openly in the global trading system will, over
time, become efficient and prosperous, while those that do not, will
remain poor and economically stagnant.
Politics of East Asia
Theories of Political Economy
Statement No. 2
Introduction to Theory/Political Economy
Some societies possess specific social or cultural attributes that
can, under the right set of circumstances, contribute significantly to
the process of economic development.
Conversely, other societies may be characterized by values,
attitudes and practices that pose serious (albeit not necessarily
permanent) obstacles to “rational” economic decision-making,
thus making large-scale, sustained economic
development very difficult to achieve.
Some people argue that Japan’s warrior code, bushido, combined with its Confucian
heritage provided the perfect cultural foundation for rapid industrialization
Politics of East Asia
Theories of Political Economy
Statement No. 3
Introduction to Theory/Political Economy
The international economic system is inherently biased and
unequal: some countries are simply stronger and better positioned
than others. In world of “free trade” and “free markets,” therefore,
the stronger and richer countries will always win.
Late industrializers, in particular, face almost
impossible odds.
The only way to reverse this situation is for
weaker countries to purposefully manipulate
so-called free markets. Typically, this requires
the intervention of a “strong state,” which often
explicitly subverts free market principles.
Friedrich List (1789-1864) is a well-known advocate of this
position, known as mercantilism
Politics of East Asia
Theories of Political Economy
Statement No. 4
Introduction to Theory/Political Economy
Economic development is almost entirely a function of external,
rather than internal, factors. In general, poor or developing
countries are forever locked into exploitative positions of
subservience. In a few cases, however, poor countries can achieve
a degree of “development” when such development serves the
interests of “core” capitalists.
In rare cases, poor countries can
achieve a degree of economic
autonomy and dynamism, but
what is true for this tiny minority
can never be true for the majority.
Politics of East Asia
Theories of Political Economy
Introduction to Theory/Political Economy
Statement No. 1: The free market explanation (a.k.a: neo-classical)
Statement No. 2: The culture explanation
Statement No. 3: The statist (or developmental state) explanation
Statement No. 4: The Marxist or dependency explanation
Discussion Question: Which of the four
statements do you find most plausible? Why?
Politics of East Asia
Theories of Political Economy
General Points
• All four statements represent general or specific theoretical views
of economic development
• All make core assumptions about the nature of the social world;
some assumptions are clear, others are largely hidden
• All are simplifications (or abstractions) of a more complex reality,
but each purports to identify those Consider
factors/forces/processes
that
statement no. 1, for example.
The neoclassical positions assumes that questions of
are most important
•
power can be largely excluded from an analysis of
economic development.
is a hidden
While each statement reflects a particular
theoretical(This
perspective,
assumption.) Statements nos. 3 and 4, by
the “theory” embedded in each is probably
not entirely
abstract
orhave
contrast, assume
power is critical,
but both
very different assumptions
about the basic
disconnected to your thinking/understanding
of the world
nature/source of power. All statements also make
assumptions about the relative importance of
structure and agency.
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective
Paul Krugman
Miracle? What miracle? Asia’s economic
success is no mystery, and it’s not even
particular noteworthy. Bah humbug, I say!
According to Paul Krugman--a good
representative of the neo-classical
perspective--there has been no miracle in
Asia. Asia’s economic growth, instead,
can be explained very simply as a
product
a rapid of
growth in inputs
______________________________ .
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective
Paul Krugman
What is Krugman’s basic argument?
Why does he spend so much time
talking about economic growth in the
former Soviet Union? What’s his
main
point?
Asian growth is a lot like Soviet growth. It
depended primarily, almost wholly, on a
huge increase in basic inputs, such as
labor power. This was impressive (in both
cases), but economic growth through
massive increases input is basically a oneshot deal.
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective: Other Aspects
• Other neo-classical analysts understand that Asian growth is
not entirely a function of a rise in inputs: productivity has also
increased, albeit not a the same level or pace
• Most neo-classical economists argue that Asian productivity,
however, is not the product of government or state
intervention; indeed, government intervention is seen as
anathema to capitalist development since it interferes with
the free workings of the market
So what is the basic reason for increases
in productivity?
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective: Other Aspects
So what is the basic reason for increases
in productivity?
Simple answer …
“Getting the prices
right”
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective: Other Aspects
• “Getting the prices right” means letting prices find their right
levels, where “right” refers to the the prices established in freely
operating domestic and international markets (via “supply and
demand”)
• To neo-classical economists, then, East Asian
economic success is largely--even necessarily
--a product of participation in and adherence
to free market principles. Simple.
• More concretely, neo-classical economists
argue that East Asian economic success
derives from a strong bias toward
export-oriented industrialization
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective: Other Aspects
Export-oriented industrialization (EOI)
“Exports contribute to resource
allocation according to comparative
advantage. At the same time, these
gains cumulate over time as the
efficiency of new investment is
enhanced through its orientation toward
industries that correspond to the
comparative advantage of the countries
concerned.”
~ B. Balassa
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective: Evaluation
What do So and Chiu have to say about the neo-classical
perspective?
•
Rightly points out the importance of EOI: it is indisputable that the Asian
economies are export-based and that exports played a key role in their
development
 In particular, export-led growth helped Asian economies overcome
limitations of (relatively) small domestic markets
 EOI also forced domestic companies to compete internationally;
rent seeking and inefficient production, therefore, were made much
more difficult
RENT SEEKING occurs when an individual, organization, or firm seeks to make
money by manipulating the economic and/or legal environment rather than by
making a profit through trade and production of wealth. The term comes from the
notion of economic rent, but in modern use of the term, rent seeking is more often
associated with government regulation and misuse of governmental authority than
with land rents.
Politics of East Asia
Theories of Political Economy
The Neo-classical Perspective: Evaluation
On the other hand:
• The neo-classical perspective fails to account for the
impact of …
 Transnational corporations
 The Interstate system
 Regional dynamics
• Other factors
 The state and other
institutions
 Cultural dynamics
Examples:
What
role diddo
deExamples:
What
impact
the
Examples:
How
did Japan’s
dominant
colonialization
and
Cold
War
dynamics
interests
power
of
large
position
in Asiaand
shape
the
development
playcorporations
in Third World
development?
How did
play
in Taiwan?
the economic
of South Korea
and
What
the construction of the Bretton Woods
prospects
developing
countries?
impact
will of
China’s
emergence
have?
system impact developing countries? What
What
have
changes
in
What
aboutimpact
regions
without
a dominant
part did changes in trade policy--from
production
process have?
What
role
industrial/technological
power,
such
mercantilism to free trade--play?
Didas
Africa or
theplay
Middle
East?
doesdifferent
competition
among
TNCs
play?
wars
a key
role?