The Political Economy of Industrialization:
A Comparison of Latin American and East
Asian Newly Industrializing Countries
Rhys Jenkins
ABSTRACT
The paper analyses the industrial performance of two East Asian (South
Korea and Taiwan) and three Latin American (Argentina, Brazil and Mexico)
newly industrializing countries. It argues that the better performance in East
Asia is not due simply t o differences in trade orientation or the degree of state
intervention, but rather to the effectiveness of intervention. This is explained
in terms of the relative autonomy of the state and the structuring of the state
apparatus in the two regions. The historically determined class structure and
the international context led to much greater state autonomy in East Asia than
in Latin America. The last part of the paper shows a number of ways in which
this greater relative autonomy has contributed to rapid industrial growth in
East Asia in comparison with Latin America.
1. INTRODUCTION: COMPARING LATIN AMERICA AND
EAST ASIA
There has been a spate of articles in the past few years comparing
the economic performance of the East Asian and Latin American
newly industrializing countries (NICs) (Ranis, 1985; Ranis and
Orrock, 1985; Sachs, 1985; Evans, 1987; Gereffi and Wyman, 1987;
Lin, 1988; Harberger, 1988; Fishlow, 1989; Whitehead, 1989). The
comparisons made are invariably unflattering to the Latin American
countries in terms of GDP growth, industrial output, manufactured
exports, industrial employment, income distribution, debt servicing
problems and inflation. On all these key economic indicators the
Latin American countries have been outperformed by the East
Asian NICs over the past three decades and particularly in the
1980s.
Developmenf and Chonge (SAGE, London, Newbury Park and New Delhi), Vol. 22
(1991), 197-231.
198
Rhys Jenkins
Most (but not all) of the above authors attribute the superior
economic performance of the East Asian NICs to differences in economic policies applied in the two regions. Specifically, it is held that
the East Asian NICs have adopted ‘outward-oriented’ policies while
the Latin American countries have been wedded to ‘inward-oriented’
import substituting industrialization, and that the East Asian NICs
have been characterized by market-oriented policies whereas those
of Latin America have involved substantial ‘distortions’ as a result
of extensive state intervention in economic activity. It is therefore
implied that Latin America should follow the example of the East
Asian NICs by liberalizing their economies and reducing the role of
the state.
There are two major problems with this view. First, it is based on
a particular interpretation of the East Asian NICs which attributes
their success ‘almost entirely to good policies and the ability of the
people - scarcely at all to favourable circumstances and a good
start’ (Little, 1981:25). This view has been expressed even more
explicitly by Tsiang and Wu who claim that ‘the experience of rapid
economic growth in Taiwan, Korea, Hong Kong and Singapore
during the past two or three decades was achieved not by economic
tricks, but by sensible policies based on sound neoclassical
principles’ (Tsiang and Wu, 1985: 329).
The second problem is the failure to provide an adequate explanation of why policies have differed between the two regions. The most
common explanation is in terms of the lack of natural resources and
population pressure in the East Asian NICs forcing these countries
to be outward oriented (Ranis, 1985; Lin, 1988). Other interpretations emphasize the greater political power of rural interests in
East Asia (Sachs, 1985) or more subjective factors such as ‘a
weakness of will, a lack of spine and discipline, a drift into taking
the “easy way out”’ (Harberger, 1988: 177-8) in Latin America.
None of these offer a satisfactory interpretation of the political
economy of industrialization in the t w o regions.
The view that the secret of the East Asian NICs’ success involved
‘getting prices right’ and a minimal role for the state has been widely
challenged, particularly for Singapore, South Korea and Taiwan
(Amsden, 1985; Harris, 1987; Pack and Westphal, 1986; White,
1988). The only area in which free market ideology appears to
prevail in practice is in the labour market, and this can equally well
be interpreted as a reflection of an authoritarian industrialization
strategy in which the influence of trade unions is minimized.
The Political Economy of Industrialization
199
Nor is it the case that the East Asian NICs (apart from Hong
Kong) have adopted general free trade. The contrast between
export-oriented and import substituting industrialization is in any
case an over-simplified dichotomy. Singapore, South Korea and
Taiwan all experienced periods of IS1 before launching their successful export drives. Moreover these countries while they promoted
exports also provided considerable protection to producers for the
domestic market (Wade, 1988; Luedde-Neurath, 1988). Indeed
some writers are careful to qualify their description of the trade
regime in these countries as one of free trade conditions for
exporters (Little, 1981: 42). The point has also been made that when
policies towards direct foreign investment are considered, it is South
Korea and Taiwan which appear ‘inward-oriented’ in comparison
with Latin America (Fajnzylber, 1981).
There is now strong empirical support for the view that state
intervention has in fact been substantial in the East Asian NICs, and
that this has played a crucial role in their successful industrialization. It is not therefore state intervention per se that distinguishes
Latin America from East Asia. The argument of this paper is that
it is the effectiveness of state intervention which is the crucial
difference.
Effective industrial policies in East Asia are characterized by
four key features which contrast sharply to the situation in Latin
America: flexibility, selectivity, coherence and an emphasis on
promotion rather than regulation.
Flexibility is expressed in the willingness and ability to change
policies when these are not giving the desired results. In South Korea
in the early 1960s, when it was realized that plans to develop a local
car assembly industry were going to prove extremely expensive in
terms of foreign exchange, the project was abandoned (LueddeNeurath, 1986: 54). More recently some of the ambitious heavy
industrialization plans of the early 1980s were frozen in the face of
growing economic difficulties (Dornbusch and Park, 1987: 443).
Latin American industrialization on the other hand is full of
examples of government policies continuing to support industries
despite substantial foreign exchange costs and inefficiency.
The East Asian countries have operated policies which have been
highly selective, favouring particular industries and even particular
firms at different times (Wade, 1988: 53; Luedde-Neurath, 1988:
74). In some cases, this has involved the government dictating which
firms were to produce what, as has occurred in the South Korean
200
R hys Jenkins
motor industry. More generally, the highly selective protectionist
policies of the East Asian NICs have been contrasted to the
indiscriminate protection given to consumer goods in Latin America
(Anglade and Fortin, 1987: 219; Wade, 1989).
A third feature of the East Asian NICs is the high degree of
coherence of the policies pursued. There has been broad agreement
on economic goals, and policies have been co-ordinated to achieve
these ends. In Latin America, on the other hand, policies are often
inconsistent and contradictory (Macomber, 1987: 478).
Finally, policies in the East Asian NICs have been directed
towards the promotion rather than the regulation of private enterprise (Myers, 1986: 54), and have been ‘market sustaining’ rather
than ‘market repressing’ (Johnson, 1985: 68). One aspect of this is
the reluctance of governments in East Asia to bail out firms that
get into difficulties (Myers, 1986: 54). This stands in sharp contrast to the Latin American situation where state intervention to
rescue firms from bankruptcy, under political pressure to maintain
employment, is not uncommon (Balassa et al., 1986: 137).
Another aspect of this is the greater ability of the East Asian states
to affect positively the direction of development through their
control over the allocation of resources, whereas in Latin America
controls are mainly negative in their effects and therefore prevent
behaviour which is regarded by government as undesirable, rather
than promoting what is desirable (see King, 1970: 108 on this in the
context of Mexico).
This discussion suggests that it is necessary to reformulate the
second problem associated with the conventional approach. The
question is not so much how to explain policy differences, but rather
how to account for differences in the effectiveness of economic
policy in the two regions.
Effective state intervention to bring about economic transformation requires that the state is able both to formulate and to implement coherent economic strategies. A prerequisite for formulating
a consistent strategy is a degree of autonomy of the state from the
dominant class or class fractions, which enables the state to pursue
goals that do not reflect the interests of these groups and may even
go against their short-term interests. Effective intervention also
requires an internal structuring of the state apparatus in terms of
an efficient and cohesive bureaucratic machinery and effective
policy instruments which gives the state the capacity to implement
its economic strategy. Autonomy from both dominant and sub-
The Political Economy of Industrialization
20 1
ordinate classes is also a factor determining the capacity of the state
to implement policy (Rueschemeyer and Evans, 1985; Anglade and
Fortin, 1990).
A number of writers on the East Asian NICs have commented on
the high degree of autonomy of the state from classes and class
fractions (C.Hamilton, 1984; Haggard, 1988, White and Wade,
1988). The state structures in these countries have also insulated
economic policy-making from direct political pressure by vested
interests (Haggard, 1988: 261). In contrast, the state in the Latin
American NlCs appears to enjoy much less autonomy and the
bureaucracy is much mqre politicized than in East Asia (Anglade
and Fortin, 1990; Cammack, 1990).
This paper seeks t o account for the greater degree of autonomy
enjoyed by the state in the East Asian NICs in terms of the contrasting historically determined class structures of the two regions,
and to show the ways in which this autonomy made possible certain
economic policies which were crucial t o the success of the East Asian
NICs. It further implies that the failures in Latin America are not
a consequence of incorrect policy choices, but of the way in which
the state’s lack of autonomy precluded certain policies from being
pursued.
The focus of the paper is on the contrasting industrial performance of the East Asian and Latin American NICs.The countries
that are examined are the two larger East Asian countries, South
Korea and Taiwan (since the experience of the city states of Hong
Kong and Singapore is of limited relevance to Latin America), and
the three leading industrial countries of Latin America, Brazil,
Mexico and Argentina.
As Table 1 shows, manufacturing output in South Korea and
Taiwan has grown roughly twice as fast as in the fastest growing
Latin American countries, and manufactured exports have also
expanded significantly faster, although the difference is less marked
because these are measured in current prices. In the mid-1980s both
South Korea and Taiwan exported more than double the value of
manufactured goods exported in total by the three Latin American
countries - which with four times the population of the two Asian
countries could together muster less than a quarter of the value of
manufactured exports.
R hys Jenkins
202
Table 1. Rate of Growth of Manufactured Exports
and Production in Selected Countries, 1965-86
(% per annum)
South Korea
Taiwan
Argentina
Brazil
Mexico
Exports
Production
31.4
28.0
15.7
22.2
17.5
16.1
12.5
1.8
7.1
5.2
Sources: World Bank (1988); Taiwan (1988).
2. THE RELATIVE AUTONOMY OF THE STATE IN LATIN
AMERICA AND EAST ASIA
The concept of the relative autonomy of the state has been much
debated (for a recent review see Anglade and Fortin, 1990). In this
context it is used to refer to the ability of the state to pursue policies
which are in the interest of capital as a whole, even when they
conflict with the interests of particular fractions of the dominant
class. This autonomy is relative in that the state cannot go as far as
acting against the long-run interests of the dominant class as a
whole.
It should be clear that there is no guarantee that the state will in
fact have the necessary relative autonomy. It should be seen rather
as a necessary condition for successful capital accumulation. Indeed
it is possible that the state, far from being able to resolve the competition between different capitals and class fractions, in fact
reproduces competition within the state apparatus itself. It has been
argued that such competition, leading to the establishment of large
numbers of public organizations each with its specific objectives and
criteria and with little prospect of collaborating among themselves
to achieve common goals is particularly characteristic of Third
World states (Evers, 1979: 169).
As noted above, the high degree of autonomy of the state in
the East Asian NICs has frequently been commented upon.
Government is seen as the ‘senior partner’ in the public-private
relationship (Johnson, 1985) and Taiwan and South Korea (together
with Japan) have been described as ‘strong states’ in the sense that
The Political Economy of Industrialization
203
they can formulate policy goals independently of particular groups
(Cummings, 1984).
Although the populist states in Argentina, Brazil and Mexico
during the 1930s and 1940s enjoyed a significant degree of relative
autonomy with the weakening of the agro-export bourgeoisie and
of foreign interests, the relative autonomy of the state in the
Latin American NICs since the 1950s has been extremely limited
(N. Hamilton, 1981). In Mexico, the early demise of populism led
to a close and mutually beneficial ‘alliance for profit’ between
the state and local capital in the 1940s to which foreign capital
was added in the 1950s (Kaufman, 1977). The recent history of
Argentina illustrates even more clearly the limits of state autonomy,
with successive regimes based on shifting alliances between different
classes and class fractions (O’Donnell, 1978).
In Brazil the military regime which came to power in 1964
apparently enjoyed a high degree of relative autonomy. It was able
to pursue policies which acted against the interest of domestic
capital as well as the working class and the mass of the rural population. However even the military proved susceptible to pressures
from business and the middle class (Skidmore, 1973: 19-28). Indeed
the model of development in Brazil in this period was based on a
triple alliance between multinational, state and local capital
(Evans, 1979).
It is tempting to draw parallels between the bureaucratic authoritarian regimes in Latin America and the bureaucratic authoritarian
industrializing regimes of East Asia (Cummings, 1984). However, in
terms of state autonomy, such comparisons are misleading (see
Gereffi and Wyman, 1987: 25-8). Although formally there may
appear to be similarities between the triple alliance of state, foreign
and local capital in the two types of regime, in Latin America the
interests of private capital predominate, whereas in East Asia the
state is clearly dominant (Evans, 1987: 212).
The type of public-private co-operation in which the state is able
independently to develop national goals (as in South Korea and
Taiwan) is quite different from the situation in countries such as
Brazil and Mexico where the state’s goals are reducible to private
interests (Johnson, 1985: 81). The Latin American bureaucratic
authoritarian regimes may have aspired to the type of state
autonomy found in East Asia but they came to power in conditions
in which many existing groups already exercised considerable
influence over the state (White and Wade, 1988: 10).
204
Rhys Jenkins
3. STATE STRUCTURES AND THE CAPACITY FOR
INTERVENTION
Effective state intervention to promote industrial development
involves the construction of an adequate bureaucracy which is
able to implement government policy. This ‘requires a minimum
of coherence and co-ordination within and among different state
organizations, and that in turn presupposes a minimum of autonomy from forces in civil society’ (Rueschemeyer and Evans, 1985:
55). Effective implementation often requires decentralization
while at the same time there is a need to preserve cohesion and
co-ordination which can prove problematic. These problems can be
ameliorated where there is a strong shared sense of purpose and
identity.
The colonial bureaucracies inherited from the Japanese provided
both South Korea and Taiwan with effective state organizations in
the post-colonial period (Cummings, 1984: 11, 22). In the case of
South Korea a deep sense of corporate loyalty within the bureaucracy inherited from the colonial period made it possible to combine
decentralization of administrative decisionmaking with overall
co-ordination of state intervention (Michell, 1984). In both countries the bureaucracy also enjoyed a degree of autonomy (Johnson,
1985: 77-81) and economic policymaking was relatively insulated
from direct political pressures (Haggard, 1988: 261).
Economic decisionmaking in both South Korea and Taiwan has
also been highly centralized. In South Korea the Economic Planning
Board (EPB) was made responsible for planning and budgeting
after the Park coup in 1961. It was also put in charge of price
controls, foreign aid, loans and investment and the transfer of
technology, as well as organizing the collection of national statistics
(Luedde-Neurath, 1988: 95). In Taiwan the Council on International Economic Cooperation and Development (CIECD), a semiautonomous body outside the regular ministries, was established in
1963 to formulate and co-ordinate development plans and negotiations for external financial and technical assistance. In 1973 it
was reorganized into the Economic Planning Council, which was
subsequently merged with the Financial and Economic Committee
to form a new super-ministry, the Economic Planning and Development Council, in 1977 (Myers, 1986: 53).
In Latin America, in contrast, the bureaucracy is much more
politicized than in the East Asian NICs. The upper, and in many
The Political Economy of Industrialization
205
instances even middle, level civil servants are political appointees
who change with every change of government. Moreover, it is not
uncommon for certain parts of the state apparatus to be ‘captured’
by particular interest groups. Thus the interests of landowners
may be expressed through the Ministry of Agriculture, those of
industrialists through the Ministry of Industry or of private banks
through the Central Bank and the Ministry of Finance (Teichman,
1988: 110; de Pablo, 1988: 38).
Economic decisionmaking is also much less centralized in Latin
America than in East Asia. Typically, a large number of government
ministries and agencies are involved in formulating economic
policy. In his witty polemic ‘How to End Up an Utter Failure as
Minister of the Economy’, Juan Carlos de Pablo describes how, ‘In
the early 1980s Brazil actually had three different people doing the
Minister of the Economy’s job: Delfim Netto, who was Minister of
Agriculture; Mario Henrique Simonsen, Minister of the Treasury;
and someone else with a hard-to-pronounce name, who was head
of the Central Bank’ (de Pablo, 1988: 38). In none of the Latin
American countries was there an agency with overall responsibility
for economic development along the lines of the EPB in South
Korea or the CIECD in Taiwan.
The lack of bureaucratic autonomy and the fragmentation of
decisionmaking in Latin America can give rise to problems in the
formulation and implementation of economic policy. In the case
of Brazil, it has been noted that, ‘The multiplicity of institutions
involved in industrial development objectives permits contradictory
or inconsistent moves to occur, undercutting any embryonic effort
towards policy’ (J.N. Behrman, quoted in Macomber, 1987: 478),
while in Mexico intra-bureaucratic infighting has been associated
with policy incoherence (Teichman, 1988: 103-8) and conflicts
between different government agencies have limited the ability of
the state to pursue particular development policies (Bennett and
Sharpe, 1985: 1 1 1-14).
The politicization of the bureaucracy also makes it difficult to
adopt the long-term perspective required for industrial policy. The
failures of science and technology policy in Argentina provide a
vivid illustration of this problem, as does the relative success
enjoyed in one area, nuclear energy, where the National Atomic
Energy Commission enjoyed centralized control over all aspects
of nuclear development, together with continuity and political
autonomy (Alder, 1987: chaps 5, 6 and 11).
R hys Jenkins
A further requirement for effective implementation is the
availability of appropriate policy instruments. In South Korea and
Taiwan, the control of the state over the financial system was crucial
in this respect. In common with Japan, they have relied heavily on
financial and monetary means to control the private sector. In South
Korea the state had a majority holding in all the major banks
until the early 1980s, and the government controlled, directly or
indirectly, more than two-thirds of the investible resources in the
economy (Datta-Chaudhuri, 1981: 56). Similarly in Taiwan the
government dominates the financial sector by owning all but three
of the major banks (Fry, 1985: 282).
In Latin America, on the other hand, with the partial exception
of Brazil, a major part of the banking system was in private hands
throughout most of the period. Moreover, many of the private
banks and financial institutions belong to the economic groups
which dominate industry (Jenkins, 1984: 147-9). In South Korea,
despite their importance in industrial production, the large economic groups did not control any banks, while the predominance of
small firms in Taiwan excluded such a possibility.
Control over the financial system, taken together with the very
high debt ratios of the private sector (Scitovsky, 1986: 176-7 on
South Korea; and Liang and Liang, 1988:S71 on Taiwan) gave
the state considerable discretionary powers in the allocation of
resources in East Asia. In Latin America, in contrast, firms rely
heavily on retained earnings for investment (King, 1970: 70; Little
et al., 1970: 50) so that the state has much less leverage in guiding
industrial development.
4. DETERMINANTS OF STATE AUTONOMY
In order to understand why the East Asian states have enjoyed such
a high degree of autonomy, in comparison with those of Latin
America, it is necessary to look at the specific history of class
formation and class struggle, as well as the effect of international
forces on development in each country.
(a) Landlords
One area in which the historical experience of the East Asian and
Latin American NICs led to the development of very different
The Political Economy of Industrialization
207
structures was in agriculture. In South Korea and Taiwan, Japanese
colonialism ‘severely weakened the traditional governing class and
landed aristocracy, robbing them of much of their political power,
appropriating large portions of their material base and causing
them, particularly in Korea, to be tarred with the collaborationist
brush’ (C. Hamilton, 1983: 143). The final blow came with land
reform in both countries after the Second World War. In Taiwan the
Kuomintang was able to introduce land reform because they owned
no land on the island, while in Korea the need for political stability
led to land reform in the South.
The result has been a far more egalitarian distribution of landownership than is found in Latin America (see Table 2) and the
elimination of the landlord class (Datta-Chaudhuri, 1981, who
draws a similar contrast between South Korea, on the one hand,
and the Philippines, on the other). In Taiwan, for example, in
1973 almost 80 per cent of the agricultural population were
owner-cultivators and another 10 per cent part owners (Amsden,
1985: 85), while in South Korea, in 1965 70 per cent were full and
over 20 per cent part owners (Lee, 1979: Table 1).
Of the three Latin American NICs, only Mexico has had a
significant land reform, but after Cardenas this faltered and a new
landed elite emerged. As a result, the agrarian structure in all three
countries was dominated by large landlords. Owner-cultivators
accounted for less than half of the rural population in Argentina,
a third in Brazil and a fifth in Mexico in the 1950s and 1960s (Table
2). Large estates controlled 84 per cent of privately owned land in
Table 2. Agrarian Structure and Productivity Growth
South Korea
Taiwan
Argentina
Brazil
Mexico
Land
concent rat ion
(Gini coefficient)
Ownercultivators
(W labour force)
0.38
0.46
0.86
0.84
0.69
90
Productivity
growth 1960-73
(To per annum)
Land
Labour
33
2.7
4.4
2.8
I .3
21
1.1
90
48
5.3
4.2
I .3
2. I
2.8
Sources: Huntington (1968): Table 6.2; Lee (1979); Thorbecke (1979): Table 2.9;
Ban et al. (1980): Table 22; Elias (1985): Appendix 2.
R hys Jenkins
Mexico and 60 per cent in Brazil. Even in Argentina over one-third
of farm land was in large estates, and if one adds to this land rented
to tenants, landlords probably controlled well over half the
agricultural land (Barraclough and Domike, 1970: Tables 1 and 2;
Stavenhagen, 1970: 262-3).
Thus whereas landlords were effectively destroyed as a class in
East Asia, removing a potential obstacle to industrialization they
continue to exercise significant political influence in the Latin
American countries (see, for example, Evans, 1987: 215 on Brazil).
They also remain an important source of the foreign exchange
required for industrialization and debt-servicing. In contrast to
Sachs (1983, therefore, who emphasizes the greater strength of
rural interests in the East Asian countries, the key difference
between the two regions in the rural areas is the greater strength of
landlord interests in Latin America. This difference has very major
implications for the pattern of development in the two groups of
countries.
(b) The Industrial Bourgeoisie
There is also a major difference in the development of the local
industrial bourgeoisie in the two regions. The domination of
industry in South Korea and Taiwan by Japanese capital during the
colonial period meant that no significant local industrial bourgeoisie
existed in the two countries in the early years. In Korea in 1943 only
3 per cent of industrial capital was Korean owned (C. Hamilton,
1983: 142) while in Taiwan in 1941 the Japanese accounted for over
90 per cent of the paid-up capital in all companies (Ranis and
Schive, 1985: Table 2.1). With the defeat of the Japanese a large
portion of this industrial capital ended up in the hands of the state
which accounted for 55 per cent of industrial output in Taiwan in
the early 1950s (C. Hamilton, 1983: 151).
In both South Korea and Taiwan favoured capitalists, many
of them parvenus from the North and the mainland, took over
industries previously owned by the Japanese, laying the basis for
many of the conglomerates that would appear in the 1960s and
1970s, especially in Korea (Cummings, 1984: 25). The origins of the
industrial bourgeoisie in South Korea and Taiwan are therefore
relatively recent.
By contrast in Latin America the postwar period was char-
The Political Economy of Industrialization
209
acterized by the consolidation of an industrial bourgeoisie which
had been expanding since the early part of the twentieth century and
whose economic interests had been favoured by populist regimes in
Argentina, Brazil and Mexico. Thus whereas in South Korea only
thirteen of the fifty major economic groups in the country were
formed before 1945 (C. Hamilton, 1983: 152), in Brazil all the
twenty-five largest local groups were formed before that date
(Evans, 1979: Table 3.1). Similarly in Mexico most of the main
economic groups were formed during, or were already in existence
by, the 1930s and early 1940s (N. Hamilton, 1982: 288).
Consequently industrial interests were much stronger and able to
exert greater political influence in Latin America than in East Asia.
In South Korea these groups have only recently emerged from
dependence on government to a situation in which they can begin to
exercise political influence (Steinberg, 1988). Similarly, in Taiwan
the small scale of many manufacturing enterprises has limited their
influence politically, although this too is changing as government
policy shifts towards encouraging mergers, and business representatives are prominent in the Economic Revitalization Committee,
established in 1985 to suggest reforms in economic policy (Deyo,
1989).
(c) The Working Class
Rueschemeyer and Evans (1985) suggest that pressure from subordinate groups tends to increase the relative autonomy of the state.
While strong subordinate groups may increase the autonomy of the
state with respect to fractions of the dominant class, however, they
may also reduce the ability of the state to implement policies which
are in the interest of the dominant class as a whole.
In comparing the Latin American and the East Asian NICs what
stands out is the politically quiescent labour movements which
characterized the latter throughout most of their period of rapid
industrial growth in the 1960s and 1970s. Both in terms of the level
of unionization and the incidence of strikes, the Latin American
NICs have had a more organized and militant working class than
those of East Asia.
The proportion of the economically active population in trade
unions in the mid-1970s was only 5 per cent in South Korea and 12
per cent in Taiwan (Coldrick and Jones, 1979). This compares to
Rhys Jenkins
Table 3. Industrial Disputes, 1964-72 (Number of
Strikes and Thousands of Days Lost)
South Korea
Disputes Days
I964
1965
1966
I967
1968
1969
1970
1971
1972
7
12
I2
18
16
7
4
10
0
Taiwan
Disputes Days
2
7
19
41
I5
10
63
163
9
I1
0
5
5
20
2
31
9
57
2
I1
5
13
2
10
24
2
3
Argentina (BA)
Disputes Days
27
32
27
6
7
8
5
16
12
636
591
1004
3
16
I50
33
159
153
Mexico
Disputes Days
62
67
91
78
156
144
206
204
207
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Source: ILO Yearbook of Labour Statistics (various years).
between 10 and 20 per cent in Brazil, 20 to 30 per cent in Mexico,
and over 30 per cent in Argentina (ILO, 1985).
Systematic comparative data on strikes are difficult to come by,
but Table 3 summarizes available ILO data for the period from 1964
to 1972 when the East Asian NICs made their major breakthrough
into world markets. During this period, strikes were extremely rare
and brief in both South Korea and Taiwan (Deyo, 1986). The total
number of working days lost in South Korea between 1964 and 1972
was less than one-third of the number lost in Buenos Aires alone in
a single year (1966), while the total days lost in Taiwan over the same
period was only a tenth of the Buenos Aires figure (see Table 3).
Even under military rule, between 1966 and 1972, the average
number of days lost through strikes in Buenos Aires each year was
three times greater than in South Korea and fifteen times the figure
for Taiwan.
Although Argentina is an extreme case within Latin America,
Mexico too had a higher incidence of strikes, with the number of
strikes each year being significantly higher than in South Korea or
Taiwan. Moreover the Mexican figures underestimate the actual
number of strikes (Roxborough, 1984: 28-31). In Brazil, for which
ILO data are unavailable in this period, there was a high level of
strike activity in the late 1950s and early 1960s with several million
hours being lost through stoppages in Sio Paulo alone (Spalding,
1977: 193).
The low levels of organization and militancy in the two East Asian
The Political Economy of Industrialization
21 1
countries partly reflects the degree of repression of labour and state
control over trade unions. In Taiwan, for instance, martial law
prohibited strikes and collective bargaining until recently. In South
Korea a period of political mobilization and increasing labour and
student radicalism during the 1950s was ended with the Park coup
in 1961 and the subsequent crackdown on labour which included a
ban on strikes, the deregistration of all existing unions and the arrest
of many union activists (Deyo, 1986: 178, 183). It should be stressed
that in both countries repression was primarily a political response
to domestic conditions, not part of a predetermined economic
strategy (Haggard, 1989).
There are also structural factors arising from the nature of the
industrialization process in the East Asian NICs which have tended
to limit traditional forms of labour militancy. Women workers
account for almost 40 per cent of manufacturing employment in
South Korea and almost 50 per cent in Taiwan, compared with only
one-quarter in Latin America (Lin, 1988: Table 5; ILO, Yearbook
of Labour Statistics, various years). High levels of labour turnover
in many industries make it difficult to organize workers. Although
female textile workers in South Korea have been active in industrial
protests, it has been claimed they are less likely to have played the
major role in organizing unions than workers in the metal and
chemical industries (Deyo, 1987: 194). Moreover in Taiwan the predominance of small-scale industry, often dispersed in rural areas,
has prevented the emergence of large concentrations of industrial
workers which are usually seen as a basis for labour militancy
(Deyo, 1986: 188-92).
In Latin America well organized trade union movements
developed during the populist period in all three countries. The
populist regimes played an important role in mobilizing workers in
support of a strategy of import-substituting industrialization (ISI).
IS1 led in turn to the growth of the industrial working class and
increased activation of popular demands (Collier, 1979).
Although populist governments sought to co-opt and control the
labour movement, they were not always successful, particularly
in Argentina where a militant working class existed well before
Peron came to power (Spalding, 1977:chap. 4). Even in Mexico
where labour is often described as co-opted or repressed through
corporatist controls, rank-and-file insurgency has been a constant
feature of industrial relations and the control of the state over
organized labour is more fragile than is often thought (Roxborough,
Rhys Jenkins
212
1984: chap. 1). In Brazil too, the control of the state over the unions
weakened in the 1950s and the early 1960s and the trade unions were
increasingly able to use the labour system to their own advantage
(Humphrey, 1982: chap. 1).
The military regimes that came to power in Argentina and Brazil
in the mid-1960s attempted to restructure radically the relationship
between the state and the working class. In Brazil this was relatively
successful and strikes dropped off sharply (Erickson, 1977: 159).
Control over labour formed an important element in the ‘Brazilian
Miracle’ of the late 1960s and early 1970s. In Argentina, however,
success was shortlived and collapsed with the revolt of the industrial
workers of Cordoba (the Cordobazo) in 1969.
In summary then, the state in South Korea and particularly in
Taiwan was able to ignore the interest of labour in formulating and
implementing economic policy. In Latin America, this could only be
said of the military regime in Brazil in the first ten or fifteen years
of its rule.
(d) International Factors
International factors also contributed to the high relative autonomy
of the state in the East Asian countries. Their geopolitical situation
led to massive inflows of US aid during a crucial period in the 1950s
and early 1960s. While this is more usually considered an indication
of the high degree of dependence of these countries, paradoxically
it also gave the state, as the recipient of aid, a degree of independence from local classes and interests and ‘in certain respects
strengthened the state apparatus vis-a-vis the local bourgeoisie,
especially in Taiwan in the early 1950s’ (Evans, 1987: 210).
Taiwan’s central economic policy institution, the Council on
International Economic Cooperation and Development, was
descended from the Council on US Aid which freed it from the need
to obtain legislative approval for expenditure. In the case of South
Korea, the 1965 treaty normalizing relations with Japan provided
the government with substantial additional financial support.
In contrast the main source of capital inflow to Latin America
during the 1950s and 1960s was direct foreign investment (Table 4).
This did not provide resources directly to the state, and at the same
time created a new vested interest within the Latin American
countries which further limited the autonomy of the state. Even in
The Political Economy of Industrialization
213
Table 4. Long-term Capital Flows, 1951-67
(% shares)
Official
transfers
South Koreaa
Taiwan
Argentina
Brazil
Mexicob
Notes:
a
Private transfers and loans
Direct foreign investment
Other
86
74
11
31
8
1
8
53
51
57
13
18
36
18
35
1952-67
Excluding 1960 and 1961.
Sources: Little et al. (1970): Tables A.2. I , 2.2.2.3 and 2.7; UN Statistical Yearbooks
(various years).
the 1970s when bank loans became the major source of external
finance for the Latin American NICs, contrary to popular belief, a
large proportion of these went to the private sector rather than to
the state (Roddick, 1988: 70-71). In East Asia, particularly in South
Korea, on the other hand, state control of the financial system
meant that foreign loans strengthened the state in relation to the
local bourgeoisie which needed government approval in order to
obtain low cost foreign loans (Evans, 1987: 216).
(e) Military Threat
The relative autonomy of the state in the East Asian NICs is closely
linked to the role which the military plays within these countries.
The perceived external threat to South Korea and Taiwan from
North Korea and the People’s Republic of China respectively, have
led to the build up of large military machines in both countries. With
over a million people, the armed forces are larger than those of the
three Latin American countries put together, despite the latter’s far
greater population (Whitehead, 1989). The external threat both
legitimizes the role of the military in politics and makes economic
growth an imperative for survival. I t is clear that in both Taiwan
and South Korea, a broad consensus exists around the necessity
for rapid industrialization and economic growth as the central
objectives of government policy.
214
Rhys Jenkins
The situation of the military in Latin America presents quite a
different picture. These are not militarized societies in the East
Asian mould, least of all in the case of Mexico where the military
is numerically small and has not been directly involved in politics.
Even in those countries where military regimes have taken power,
they face major problems of legitimation (O’Donnell, 1979). Without an external enemy, it becomes necessary to justify military
rule by reference to an internal enemy, but this is by definition
divisive.
5. STATE AUTONOMY AND INDUSTRIAL GROWTH
As was shown in the previous section, the specific historical
experiences and international circumstances of the East Asian NICs
have contributed to a much greater relative autonomy of the state
in these countries than in the Latin American NICs, and t o an
internal structuring of the state which has enabled the state to
intervene effectively.
While these were clearly necessary conditions for rapid industrial
growth in the East Asian NICs, a strong state is not sufficient to
bring this about. It was state autonomy and effective state structures
combined with a strong commitment to economic growth which
formed the basis for the South Korean and Taiwanese ‘miracles’
(H.Koo, 1987: 173-4). As mentioned above the external threat
made growth an urgent priority in both countries. Moreover both
President Park in South Korea and Chaing Kai-shek in Taiwan
perceived economic growth as a means of enhancing the legitimacy
of their regimes (H. Koo, 1987: 174).
Given the primacy of economic growth as an objective, the last
part of this paper therefore considers a number of ways in which the
relative autonomy of the state and its internal structuring are linked
to the rapid industrial growth of the East Asian NICs.’
(a) Transfer of Surplus from Agriculture
The land reforms in Taiwan and South Korea replaced the landlords
by substantial state political and economic control over peasant
producers (Wade, 1983). which enabled a significant surplus to be
transferred out of agriculture into industry.’ In South Korea this
The Political Economy of Industrialization
215
involved compulsory purchases of grain at prices below the market
price and which in the 1950s were below the cost of production
(Lee, 1979: 510-13). In Taiwan the government has used the state
monopoly on fertilizers to extract surplus through setting the barter
ratio between fertilizers and rice, which has been described as a
‘hidden rice tax’ (Kuo and Fei, 1985). It has also used state control
of foreign trade to appropriate the difference between the producer
price and the price obtained on the international market.
In the Latin American countries, on the other hand, the continued
existence of a land-owning class with a degree of political power is
expressed at the economic level in the appropriation of absolute rent
(de Janvry, 1981: chap. 4). This takes the form of low taxes, access
to cheap credit, subsidized inputs and preferential access to government financed infrastructure. Where some extraction of surplus
from agriculture has occurred, landlords have been able to shift the
burden on to the peasantry (Anglade and Fortin, 1987: 216).
Despite the extraction of surplus from agriculture, both land and
labour productivity in South Korean and Taiwanese agriculture
increased rapidly (see Table 2). This together with massive supplies
of foodstuffs from the United States in the 1950s and early 1960s
under PL480 (the so-called Food for Peace Programme established
by the US in 1954 to provide agricultural commodities to foreign
governments under long-term, low interest credits), enabled food
prices to be kept low in the East Asian countries, setting the scene
for a model of accumulation based on increasing relative surplus
value.
In Latin America, on the other hand, there was little pressure for
agriculture to be modernized. Agricultural productivity growth
lagged behind the levels achieved in East Asia and dependence on
food imports increased. Moreover, where a concerted attempt was
made to transfer surplus from agriculture to promote industrialization, most notably in Argentina in the late 1940s and early 1950s,
there was massive opposition from land-owners and a drop in
agricultural production and exports, which eventually led to the
policy being abandoned (Wynia, 1978: 63ff).
(b) Industrialization Strategy
A second consequence of the greater relative autonomy of the state
in the East Asian NICs can be observed in the industrial sector. By
216
Rhys Jenkins
1950, the three Latin American NICs had already completed the
first stage of import substitution in non-durable consumer goods.
Further industrialization could follow one of four paths: industrial
deepening through import substitution in intermediate and capital
goods; import substitution in consumer durables; promotion of
industrial exports; or income redistribution and expansion of the
internal market (Kaufman, 1979). Faced with these choices, the
Latin American countries moved into a second stage of import
substitution, based primarily on consumer durable and intermediate
goods. The promotion of manufactured exports in Latin America
did not begin until the late 1960s.
Taiwan and South Korea only began the first stage of import
substitution in the 1950s. As this ran out of steam in the late 1950s
and early 1960s, a rapid shift took place to a much greater emphasis
on manufactured exports. In the early 1 9 7 0 ~Taiwan
~
and South
Korea undertook further import substitution in capital and
intermediate goods.
The interesting question is why and how were the East Asian
NICs able to switch industrial strategies relatively easily, while in
Latin America economic policy always tended to follow the line of
least resistance, broadening import substitution in the 1950s and
1960s and increasing foreign indebtedness in the 1970s? Although
empirical evidence is scanty, it seems likely that the weakness of the
industrial bourgeoisie and the consequent high level of autonomy of
the state in South Korea and Taiwan were major factors.
Although Taiwan shifted towards a greater emphasis on production for exports relatively early, in the late 1 9 5 0 ~there
~ was initial
opposition to such a change in policy, both inside and outside
the government (Myers, 1986: 62). The changes in exchange rate
policies were strongly opposed and some business leaders called for
increased protection and subsidies (Haggard, 1988: 277). Nevertheless, despite such opposition, the Kuomintang government was able
to impose the new policies.
In South Korea the change came later and was only initiated
following the military coup which installed President Park in 1961.
The ability of vested interests to oppose the new economic strategy
was severely weakened as many of those who had profited from
import substitution were gaoled or marched through the streets
carrying sandwich-boards with slogans such as ‘I was a parasite on
the people’ (Cummings, 1984: 26). There was, however, opposition
The Political Economy of Industrialization
217
to some aspects of the new government’s policies (Haggard, 1988:
270- 1).
In Latin America on the other hand, the early development of
an industrial bourgeoisie, particularly during and between the
two world wars, in circumstances of substantial protection from
international competition, led to considerable resistance to the
dismantling of such protection after the Second World War. The
industrial working class was also much stronger in the Latin
American NICs than in their East Asian counterparts, as a result of
the populist strategies of the preceding period. The forces opposed
to a switch of production from the protected domestic market
to exports were therefore more influential in Latin America and,
as a result, it was not until the late 1960s that the Latin American
NICs began to promote exports of manufactures on a significant
scale.
In Argentina the contradiction between populist politics and the
requirements of further industrial expansion became evident in the
later part of Peron’s government (1950-5). The overthrow of Peron
did not resolve the problem and the next eleven years saw a series
of weak civilian and military governments, which were unable to
undertake a radical restructuring of the economy in the face of
strong opposition from workers and sections of the industrial bourgeoisie (Wynia, 1988). Industrial growth was based on broadening
the spectrum of final goods, especially from non-durable to durable
consumer goods (Felix, 1968). As Sheahan notes, ‘that particular
kind of industrialization is understandable in terms of the political
balance in Argentina at the time, but it practically guaranteed
economic breakdown’ (Sheahan, 1987: 183).
Although not as extreme as in Argentina, similar conflicts existed
in Brazil. The adverse effects of broadening the spectrum of import
substitution to consumer durables was partly mitigated by the larger
internal market, while deepening played a more signficant role in
Brazilian industrialization in the 1950s (Serra, 1979). However none
of the civilian governments of the late 1950s and early 1960s were
able to resolve the problems of accelerating inflation and growing
balance of payments problems in the face of strong vested interests
(Sheahan, 1987: 184-6).
In both countries, a new phase of industrial expansion required
state strategies which could insulate economic decision-making
from competitive politics (Kaufman, 1979: 217). The bureaucratic
218
Rhys Jenkins
authoritarian regimes which came to power in Brazil and Argentina
with the military coups of 1964and 1966 offered an opportunity for
such a change. In Argentina, however, working-class opposition
which culminated in the Cordobazo in 1969, led to a change in
the military leadership and the abandonment of the economic
strategy.
In Brazil the military regime enjoyed greater autonomy which
enabled previously blocked changes, including some which conflicted with the interests of domestic capitalists, to be introduced
(Skidmore, 1973:20ff). However, import liberalization in 1967
was quickly put into reverse in the following year as a result of
opposition from industrial interests (Tyler, 1976: 189), and the
regime was primarily characterized by its ability to ignore or repress
popular opposition (Skidmore, 1973:26).
Unlike Argentina and Brazil, Mexico entered the 1950s with
populist pressures largely under control (Kaufman, 1979:220). This
enabled the state to weather the end of the first phase of import
substitution without a major economic crisis. Nevertheless, it faced
the same problems of industrial restructuring, and although economic policy aimed t o bring about a deepening of the industrial
structure, Mexico continued to depend heavily on imports of intermediate and capital goods, and import substitution was concentrated primarily on consumer durables (Teichman, 1988:40).
It was not until the late 1960s or early 1970s that the first decisive
steps were taken to promote industrial exports in all three countries.
Argentina introduced a subsidy for non-traditional exports in
1967,while Brazil began to grant genuine export subsidies in 1968
(Balassa, 1978, 1979). In both cases, these incentives were first
introduced by military governments. Although the Mexican border
industries were granted duty-free treatment in the mid-1960s. there
were few export incentives to other Mexican industries before 1971
(Balassa, 1978).
The success of the East Asian NICs in making a transition to
export-led industrialization in the early 1960s contributed to their
rapid industrial growth. Industries that expanded rapidly in the
1950s by import substitution, and were therefore characterized by
relatively new vintages of capital equipment and learning-by-doing,
were able to continue growing rapidly in the 1960s and early 1970s
through exports, with further beneficial effects on productivity.
They were facilitated in doing so by the rapid expansion of world
trade in the 1960s.
The Political Economy of Industrialization
219
On the other hand, in Latin America, the industries that
developed during the ‘easy phase’ of import substitution grew very
slowly once the bulk of imports had been replaced because output
growth was confined to the growth rate of the domestic market.
Successive phases of import substitution in different industries were
characterized by an initial spurt of growth which soon ran out of
steam and import substitution moved on t o new industries (Felix,
1968). When exports of manufactures did develop, they only did so
after a considerable lag, unlike the East Asian case where exports
reflected the composition of industrial output much more closely
(Teitel and Thoumi, 1986: 458). Moreover since export promotion
was grafted on to a high cost, diversified import substituting
industrial base, they could only be made internationally competitive
through costly government incentives. The belated switch to export
promotion in Latin America also meant that the strategy had barely
got under way when the international economic crisis began to
affect world trade in the 1970s.
Some authors attribute the earlier and greater emphasis on export
promotion in the East Asian NICs to the influence of different
economic ideas in the two regions, with liberal US economists
influencing policies in South Korea and Taiwan and ECLA being
dominant in Latin America (Gereffi and Wyman, 1987:28;
Haggard, 1989: 139). It is hardly surprising, however, that after the
experience of the depression and the Second World War, Latin
American policymakers in the late 1940s and early 1950s, when
the first phase of import substitution came to an end, should have
been influenced by export pessimism. A decade later when the East
Asian NICs faced the same problems, the grounds for export
optimism were much firmer. By this time the vested interests
opposed to export promotion in Latin America had been further
consolidated.
In any case, the contrast tends to be overdrawn. It is worth
remembering that Raul Prebisch, the guru of import substitution,
advised the Argentinian government to promote non-traditional
exports as early as 1956 (Mallon and Sourrouille, 1975: 80). There
is also considerable debate concerning the actual influence exercised
by US advisers over economic policy in the two East Asian countries
(for contrasting interpretations see Cummings, 1984: 27; Steinberg,
1988: 20). Moreover in practice policies to promote exports were
not guided by liberal economic principles or free market ideology
(Amsden, 1985: 89-90).
220
Rhys Jenkins
(c) Control of Foreign Capital and Technology
Another area in which the relative autonomy of the state in South
Korea and Taiwan has been an important factor contributing to
rapid industrial growth has been in relation to foreign capital and
technology. Particularly in South Korea, and to a lesser extent in
Taiwan, the state played a much more restrictive role vis-a-vis
foreign capital and technology than was generally the case in Latin
America, subordinating foreign investment to national development strategy (Fajnzylber, 1981; Wade 1984). Investment was
channelled towards export activities in order to gain access to
foreign markets, or into joint ventures in order to obtain knowhow, while the domestic market was preserved largely for local
capital.
In South Korea this has involved tight investment screening, widespread government interference and extensive reporting requirements and control. Legislation gave preferential consideration to
joint-ventures and excluded foreign capital from all areas unless
otherwise specified (Luedde-Neurath, 1984). As one commentator
has remarked:
the government was able t o exert comprehensive influences on the patterns of
foreign investment in Korea . . . competition with domestic firms was seldom
allowed, both in domestic and export markets, and Korea became one of the few
countries with very restrictive foreign investment regulations. (Koo quoted in
Luedde-Neurath, 1984: 23)
Although Taiwan’s policy towards foreign capital has been less
restrictive than that of South Korea, it has also been selective in its
approach towards foreign investment (Wade, 1984). Key sectors
of the economy are controlled by the state rather than the multinationals (Amsden, 1985: 92), and the share of manufacturing
output and exports accounted for by TNCs is similar to South Korea
(see Table 5 ) . In both Taiwan and South Korea, foreign capital
entered on a major scale only after the export boom of the 1960s had
got underway, as a means of developing foreign markets.
In the Latin American NICs the transition t o more advanced
import substitution in the 1950s was accompanied by efforts to
attract foreign capital and technology. Foreign capital was granted
equal treatment with local capital, and in some cases even got preferential treatment. These policies were applied in manufacturing in
a totally non-selective way, and led to the dynamic, high growth,
The Political Economy of Industrialization
22 1
Table 5 . Share of Foreign Firms in Manufactured
Exports and Output (%)
Exports
South Korea (1978)
Taiwan (1980)
Argentina (1983)
Brazil (1980)
Mexico (1977/70)
23
21
21
48
42
output
19
< 25
29
40
35
Sources: Jenkins (1984): Table 2.2; Lahera (1985): Table 3; Koo (1985): Table 4.16;
Ranis and Schive (1985): Tables 2.6 and 2.12; ILO (1988): Table 9 and pp. 56-7;
CEPAL (1986): Table 48.
high profit sectors during the secondary import substitution period
being dominated by foreign capital (Jenkins, 1984: 33-7).
In Argentina the first attempts to attract foreign capital into
manufacturing were made in the early 1950s under Peron, but with
little success. In the late 1950s. however, more liberal policies
introduced under Frondizi led to significant capital inflows mainly
into consumer durable-goods industries, particularly the motor
industry. The share of foreign capital in manufacturing output rose
sharply from 18 per cent in the late 1950s to around 30 per cent by
the early 1970s (Jenkins, 1984: 28). After the overthrow of Ongania
in 1970 there was a switch to more restrictive policies towards
foreign investment and technology, but these were reversed once
more with the military coup of 1976.
In Brazil new measures to attract foreign investment were
introduced in 1955 which gave foreign firms certain advantages
vis-a-vis their domestic competitors. In the early 1960s an attempt
was made to introduce controls on foreign capital but these were
quickly removed after the military coup of 1964. This was followed
by a sharp increase in foreign investment often involving the
acquisition of domestic firms (Skidmore, 1973: 22-3). Although the
government gave more emphasis to bargaining with foreign capital
in the 1970s, this often involved giving substantial incentives to
TNCs for engaging in strategies that did not damage their global
profitability (Evans and Gereffi, 1979).
In Mexico too, the 1950s saw a greater emphasis on the positive
role which foreign capital could play in economic development. The
legacy of the Mexican Revolution was reflected in regulations
Rhys Jenkins
222
controlling the inflow of foreign investment and requirements for
local equity participation not found elsewhere in Latin America.
Nevertheless, despite these controls, many foreign companies,
particularly in manufacturing, were able to bargain their way
into majority or wholly owned ventures. In 1973 a new foreign
investment law expanded ‘Mexicanization’ and a transfer of technology bill limited royalty payments, but towards the end of the
1970s policy was again liberalized (ILO, 1988: 54-5).
As a result of these policies foreign capital played a much more
significant role in the Latin American than in the East Asian NICs,
both in terms of industrial output and exports (Table 5 ) . In Latin
America the dominance of TNCs, particularly in the dynamic
industries, was a further constraint on the state’s ability to direct the
industrialization process because they were not subject to the
financial controls which played such a major part in East Asia.
Moreover, the state was the ‘senior partner’ in East Asia in relation
to foreign capital, as it was vis-a-vis domestic business (Evans,
1987: 212).
Control over foreign capital was equally important in developing local technological capabilities, particularly in South Korea.
Whereas in Latin America foreign technology entered mainly
through majority or wholly owned subsidiaries of TNCs, joint
ventures and licensing were more significant in East Asia (Evans,
1987). In South Korea licensing was eighteen times as important as
foreign investment in terms of technology acquisition (Enos and
Park, 1988: 39). The ‘unpackaging’ of technology which this made
possible contributed to rapid technological development in the East
Asian NICs which was reflected in the emergence of South Korea
and Taiwan as major technology exporters.
(d) State Revenue and Expenditure
A further aspect of the relative autonomy of the state which is
clearly linked to industrial performance is the fiscal situation. Rapid
industrial growth is facilitated by a stable macroeconomic environment which in turn requires budget deficits to be kept under control.
The Latin American NICs have been characterized by a fiscal
crisis whereby government tax revenues consistently lag behind
expenditure (FitzGerald, 1978). This is partly a result of the inability
The Political Economy of Industrialization
223
of Latin American governments to carry out wide-ranging tax
reforms.
The contrast between Mexico and South Korea is striking in this
regard. In the early 1960s, both countries were characterized by low
ratios of taxation to GNP: 9 per cent in Korea and 9.9 per cent in
Mexico (Lotz and Mors, 1967). By the late 1960s and early 1970s
however, South Korea had succeeded in raising its tax ratio to 15.4
per cent (Gratz et al., 1979) and turned a substantial budget deficit
into a substantial surplus as a result of fiscal reforms in 1962 and
1965 (L. Harris, 1988: 381).
Attempts at tax reform in Mexico during this period were
largely unsuccessful, as were those under Echeverria in the 1970s
(Teichman, 1988: 38,51). Had these tax reforms been implemented,
the budget defecit would have been kept in check, but in fact it grew
rapidly (FitzGerald, 1985).
This comparison is illustrative because in both East Asian NICs
tax ratios increased between the early 1960s and 1970s. while they
declined in all three Latin American NICs (Lotz and Mors, 1967;
Gratz et al., 1979). Taiwan has run a budget surplus since the 1960s,
and although South Korea ran a budget deficit in the 1970s and
1980s, it has never reached the high levels found in Latin America
(Dornbusch and Park, 1987: 415-6).
Central government expenditure in the East Asian NICs does not
account for a significantly higher proportion of GNP than in Latin
America, despite the far greater level of defence expenditure. High
levels of military spending are offset by much lower spending on
health, social security and welfare in South Korea and Taiwan,
where they account for only one-third of the share of government
expenditure found in the Latin American NICs (Deyo, 1989: 155).
In so far as such expenditures respond to working-class demands,
then the fiscal crisis of the Latin American states reflect the lack
of state autonomy from both the dominant class and the working
class.
6. CONCLUSION
The high degree of autonomy of the state in both South Korea
and Taiwan and its commitment to selective intervention to create
the conditions for capital accumulation led to very high rates of
return in manufacturing (Kuo and Fei, 1985: Table 1.9; Hong,
224
Rhys Jenkins
1979: chap. 7). High profit rates in favoured sectors were the result
not only of the state’s selective policies of protection and credit
allocation, but also of the tight control exercised over labour in both
countries.
Rapid industrial accumulation in the East Asian NICs reflected
not only the attractiveness of such investment, but was also, at least
in part, a consequence of the closing off of opportunities for nonproductive investment (ILO, 1988: 42). Land reform limited the
opportunities for large-scale investment in land, while public
ownership of the banking system meant that financial investment
was less attractive. Capital flight too appears to have been less of
a problem in East Asia than in Latin America (World Bank,
1985: Table 4.4). In the case of South Korea under the Park government, ‘The repulsion of capital from its old commercial circuit . . .
due to the elimination of opportunities to make big profits simply
through trade and access to foreign exchange’ (C. Hamilton, 1984:
42) has also been commented upon.
The key to the superior industrial performance of the East Asian
NICs does not lie in the general superiority of export-oriented
industrialization strategies over import substitution, or of marketoriented policies over state intervention as some writers have
suggested. It is rather the ability of the state to direct the accumulation process in the direction which is required by capitalist
development at particular points in time which is crucial. This in
turn has to be located in the existence of a developmental state with
a high degree of relative autonomy from local classes and class
fractions. This paper has highlighted the ways in which specific
historical experience and the international context gave rise to
such states in East Asia but not in Latin America in the postwar
period.
In conclusion it is worth noting that the degree of relative
autonomy of the state is neither invariant within regions nor over
time. The degree of state autonomy appears to have been higher in
Taiwan than in South Korea, and the growing importance of the
chaebols in Korea and the predominance of small-scale industry in
Taiwan have served to intensify this difference. The difference in
industrial structure, and the greater level of mobilization of workers
in South Korea before 1960, also contributed to greater pressure on
the state from below than in Taiwan. Developments in South Korea
in the 1980s suggest that the very success of the state in promoting
industrialization is reducing its relative autonomy.
The Political Economy of Industrialization
225
Within Latin America, the Brazilian state, particularly under the
military, displayed a greater degree of relative autonomy than either
the Mexican or the Argentinian states. It was also more successful
in controlling labour during the 1960s and the 1970s. In these
respects Brazil was closer to the ‘East Asian model’ than either
Mexico or Argentina, and parallels have been drawn between Brazil
and South Korea (Krueger, 1978: chap. 12). These factors were
undoubtedly important in the superior export performance of Brazil
compared to Argentina in the 1970s (Paus, 1989). Such observations
serve to reinforce the argument that the relative autonomy of the
state is a crucial factor in explaining rapid industrial development
in the Newly Industrializing Countries.
NOTES
Earlier versions of this paper were presented to the 46th International Congress of
Americanists, Amsterdam, 1988 and the Annual Conference of the Society for Latin
American Studies, Oxford, 1990.
I. This is not intended to be an exhaustive discussion of all the factors which have
contributed to the successful industrial performance of the East Asian NICs.
2. In the case of Taiwan, it is estimated that the net capital outflow from
agriculture increased at a rate of 10 per cent per annum during the 1950s (Amsden,
1985: 85).
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Argentina and Brazil. Berkeley, CA: University of California Press.
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D. Rueschemeyer and T. Skocpol (eds) Bringing the State Back I n , pp. 78-106.
Cambridge: Cambridge University Press.
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Rhys Jenkins is Senior Lecturer in Economics at
the School of Development Studies, University
of East Anglia, Norwich NR4 7TJ, England. He
is the author of Transnational Corporations and
the Latin American Automobile Industry
(Macmillan, 1987) and Transnational
Corporations and Uneven Development
(Methuen, 1987) as well as many articles on
industrialization, TNCs and the new
international division of labour.