Lessons from the East Asian Economic Miracle

I’ve always had highly libertarian instincts, for both pragmatic and ideological reasons. You say civilians should be able to own rocket launchers, I demand that these rocket launchers not face a sales tax. But for me and people like me, the East Asian economic miracle poses a serious challenge: the greatest anti-poverty program in history involved not just a lot of capitalism, but a ton of state intervention as well. The history of East Asian economic growth in the last half of the twentieth century is a history of academics and the World Bank insisting that their policies couldn’t possibly work, followed by decades and decades of torrid growth.

So I decided to look into it. I read a few books (skip to the end for sources and recommendations), and learned a ton. As it turns out, though the Miracle is largely a triumph of capitalism, it also illuminates that economic growth depends on judiciously insulating certain parts of the economy from market forces.

In a way, you can look at success stories like Japan and South Korea as a different instantiation of two very American institutions: venture capital and private equity. The difference is that it was VC and PE as practiced by the state, rather than by individual companies; the timelines were longer, the plans were bolder, and the results were stunning.

No American company or investor has improved as many lives by as wide a margin as MITI, Park Chung-Hee, and Deng Xiaoping. But the methods are, at heart, startlingly similar: identify a critical inflection point, make a bold bet on an unproven market, “blitzscale” as quickly as possible, deftly react to crises, and carefully expose budding monopolists to hormetic doses of competition until they’re strong enough to monopolize on their own merits.

This is not just a theoretical exercise. An active trade policy has landed suddenly back on the policy menu in the US and other places. In the past, we’ve done it sort of shame-facedly, giving nice subsidies to Iowa in exchange for their tactically priceless supply of early caucus dates, periodically bailing out American companies when international exporters teach them the meaning of the word “competition,” and occasionally gesturing towards energy independence without putting any meaningful goals to paper.

But now we’re talking about trade in a more adversarial way, which is appropriate inasmuch as, in international trade, America has many adversaries — not places that hate us, just places that, as a side effect of their own policy goals, end up harming American economic interests. Of the many possible trade policies, most are bad and free trade is — on net, and in the aggregate — the best. However,the simple Ricardian model of trade makes a few untenable assumptions, and other countries have learned to exploit them. In the spirit of free inquiry and open debate, I am happy to explain why anyone who advocates either contemporary protectionism or contemporary free trade is wrong.

But we’ll have to start at the beginning: how did East Asian countries get so rich, so fast?

by Byrne Hobart, Medium |  Read more: 

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