In Search of East Asian Economic Growth Model

In Search of East Asian Economic Growth Model J. D. Han

In search of East Asian Economic Growth Model • Institution, Value/Belief, Culture and Religion - Neo-Confucian Hypothesis Neo-Confucianism helped economic growth - It is a revival of Max Weber’s “The Protestant Ethics and Spirits of Capitalism (in western Europe)”

Great Review by Peter L. Berger • IN SEARCH OF AN EAST ASIAN DEVELOPMENT MODEL fu , Edited by Peter L. Berger AND Hsin-Huang Michael Hsiao

• “ …. . Now, no one is likely to question that these social and cultural features are also, somehow, part of the" East Asian model" (economists, somewhat awkwardly, often refer to these features, often in a footnote, under the vague category of' 'human capital"). The question is to what extent the economic and the sociocultural features are causally linked. I think it is fair to say that at this point we don't know the answer to this, and that it would be very important indeed to 'get closer to an answer…. . ”

Ezra Vogel • “Four institutions and cultural practices rooted in (Neo-)Confucian tradition but adapted to the needs of an industrial society have helped East Asia make use of their special situation advantage and new worldwide opportunities”: (1)meritocratic elite: abilities (2) an entrance exam: competition (3) importance of group: social capital (4) the goal of self-improvement; individual ethics

• Non-Market Oriented • Not-necessarily- Democratic -> Neo-Confucian Leadership Model

This type of leadership may be more conducive to efficiency and effectiveness • It is more efficient than Democracy and thus beneficial for ‘catching up’ with developed countries • Parallel Leadership Model in the West: Plato’s Republic: Utopian Kallipolis has a Philosopher King

*Value System as a ‘Foundation’ Institution for Economic Growth: • Max Weber arguned that “Protestant Work Ethic” sanctioned hard work, frugality and wise investment. • Rodney Stark is one of the most highly regarded sociology of religion scholars alive today. He recently published The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success. • Professor Tu Wei-Ming at Harvard University said that Neo. Confucianism of the Far East is similar to protestant ethic. - refer to the essence of his idea

• Tu Weiming says “The central government is expected to have a holistic vision of the well-being of the nation and a long-term plan to help people maintain adequate livelihood so that they can attain their aspirations of human flourishing. ”

• This Neo-Confucian Leadership filters down to lower levels of society, such as Business Firms, Schools, and Households. • At the business level, it extends to the Unique Corporate Structures: Japanese-Korean: Mega Firms or Conglomerates; no union, but whole-life entities (eg: Matsushita case study). cf. Overseas Chinese-Taiwanese: family-run small-medium firms

Neo Confucian Corporate Cultures • Neo-Confucian Entrepreneurs = Samurai Merchants • No Needs for Labor Unions • Lifetime Employment System • Total Package of Welfare Plans for • Employees and their families • Profit-Sharing/Participatory Management (Gong sheng: Live and Let-Live)

Limitations of East Asian Economic Growth Model based on Neo-Confucianism. 1) Self-Purifying? Individual Ethics? (Cons)– No check and balance; corruption indexes are high in Japan, Korea (and China) (Pros) It still works at the core in an extreme Confucian society - Penalty for ethical failure is very high in Japan (Harakiri) - Korean President Rho Moo Hyun’s suicide in 2009

2) Sustainability? : Doesn’t Nature Corrupt over time? • “…. . And the distinctive cultural patterns of Confucian civilization may be highly functional in post-World War II period, producing the East Asian "economic miracle. " There is no guarantee that this comparative advantage will continue in the future. On the other hand, cultural traits also change (although some anthropologists don't like to think so); they usually change spontaneously in response to new circumstances, but they occasionally change as a result of deliberate interventions by government (especially, of course, in educational policies). Therefore, I'm very much persuaded that it is an error to think of culture as a static, invariant reality……”

• Michio Morishima (森嶋通夫, 1923 – 2004) at LSE “Why Did I Predict Japan to Collapse? ”

*Is the Neo-Confucian Leadership for a limited period? • The Neo-Confucian Leadership is a state -run development strategy of ‘capitalism from above’. • Is this for the initial stage of Economic Development? Would it be replaced with ‘mature’ capitalism?

Not all agree with the ‘Recent Moral Decay’ of ‘Young’ East Asians • Hugh Patrick Why I Expect Japan to Prevail (Disagreeing with Morishima) -It is applicable to all economies which have achieved economic growth through Neo-Confucian model

Quotation from Hugh Patrick • • • Morishima interprets Japanese modern economic development and growth from Meiji until the 1980 s as due to state-led and elite-led capitalism, capitalism from above. Government policy certainly has been important and supportive, but in my view the real source of Japanese development and growth has been in the myriads of entrepreneurs and workers in smaller-scale enterprises. They have provided the major source of output and employment throughout the modern period. Thus, I differ from Morishima in that, in my view, modern Japanese economic development has always combined capitalism from above and capitalism from below. The value system of the postwar generation has changed in important respects – it is more individualistic, less ideological, perhaps more secular. But I see far greater continuity in values than Morishima does. Like its forebearers, the postwar generation is pragmatic, flexible, realistic, ambitious, this-worldly. It values education, and not simply because it is the route to economic and social success. The dynamism, vigor, and entrepreneurial spirit that has long characterized small businesses persists: it is quintessentially Japanese.

3) Crony Capitalism: Nepotism. • Nepotism is favoritism granted in politics or business to relatives. • Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials.

Some counter-arguments in defence of Neo Confucianism (that it promotes efficiency) • “Zen”of Neo-Confucianism: Transparency may not be the only way to Information Efficiency; Zen may be more efficient form of information processing. A similar western case of alternative information processing is found in “Dominicans and Jews Need not Apply” in Cents and Non-Senses by J. Carr; here discrimination is a way to reduce information cost. • Some apparent corruptions may be simply discretions, which enhance efficiency. • “Theory of Second Best” A moderate degree of Corruptions may be efficiency-enhancing in the imperfect economic system.

4)Some Elements of New Colonialism implied in East Asian Economic Growth Model However, we should watch out for

Spread of East Asian Growth Model There is a theory by the Japanese government: ‘Flying Geese Model’ Predicts that East Asian economic growth model will naturally(? ) spread from Japan, to Korea and Taiwan, and finally to China.

Not so natual Problems of Flying Geese Model • This is not just the order of economic development across countries over time, but the East Asian Supply Chain that U. S. and Japan have in mind. T: U. S. -> Japan -> Korea / Taiwan -> China K: China -> U. S. -> Japan/Korea/Taiwan -> China

*U. S. Supply Chain in East Asia • China has huge trade deficits with Korea, and Taiwan, which have perennial trade deficits with Japan gets some fundamental technology from U. S. • Trade surplus China gets from U. S. flows back to U. S. for financial investment. • U. S. invests on Korean companies which invest in China. • The producing country at the bottom gets all the blame for environmental degradation.

• It may describe the current reality. • However, it is not what it should be, and it should not justify or perpetuate the current situation. • It may spread to other countries: The bottom producing country always looks for a younger goose to dump all on.