New Comparative Advantages: A Re-Evaluation of State-Led Development

Article excerpt

Both state-led and market-led approaches to development present substantial difficulties in implementation and costs. However, for a country striving for economic development and a better position in the international economy in the long run, the state-led approach seems more advisable. Admittedly, the state-led approach does present more risks in many ways, but the prudent implementation of state-led policies presents a rapid, more stable, and effective way to qualitatively change the economic position of a country, marking the transition from a "developing" to a "middle-income" or to a "newly industrialized" state. The neoclassical or market-led approach to development promises efficient allocation of resources, but does not necessarily facilitate the required industrial "catching up" that many developing states must do to truly join the ranks of the developed world. By locating the unique element of the state-led approach that was crucial to the success of economies such as those of South Korea and Singapore, countries can better formulate policies to minimize costs and maximize the potential for successful state-led development.

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When the state-led approach is advocated as the better policy for developing nations, the common objections are protests against "soft authoritarian" regimes that often accompany state-led development, inefficiencies created by state interference in the economy, and the too-close relationship that frequently develops between big business and state. For the most part, these objections are valid. Experiences of state-led development show that civil liberties such as the right to organize labor, to protest government policies, and sometimes even to execute regular changes of political power are curtailed for the sake of meeting production and development goals set by the government. Inefficiencies do occur in state-led development, as the primary economic goal becomes achieving industrial and technological capability and strength as quickly as possible and concerns about the potentially inefficient effects of state subsidies and tariffs become secondary. And as the series of scandals involving South Korean politicians bribed by chaebol executives demonstrated in the 1990s, no political body given such wide control over the economy can remain completely autonomous for long.

But how do these weaknesses of the state-led approach compare to those of the market-led? Although the supporters of the market-led approach champion it as a definite way to break the government's hold on the economy, in many instances, widespread redistribution of industries and market shares do not occur. For example, in Russia, where President Boris Yeltsin attempted to implement neoclassical economic reforms in the early 1990s, most of the new economic "oligarchs" who emerged were the same government officials who profited from the old regime. Using their insider knowledge, they were able to buy the state's monopolies in many industries for outrageously low sums in the midst of the simultaneous price liberalization and privatization that constituted the "shock therapy" policy. And while market-led approaches may eventually serve to establish a smaller and more autonomous government, the political, economic, and social chaos that often follows rapid liberalization and privatization undermines the ability of the state and of other institutions to provide the stability necessary for the functioning of a free market. Moreover, state-led development does not necessarily have to be implemented by a soft-authoritarian regime, although many examples of state-led policies have been. Other permutations are possible; for example, a nation may democratically choose a pro-state-led approach candidate. Additionally, as the crucial and unique element of the state-led approach is better understood, a dedicated group of bureaucratic elites may be sufficient for successful state-led development. …