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THE STATE, POLITICS, & ASIAN BUSINESS

POLITICAL ECONOMY:HOW SOCIOPOLITICAL VALUES INFLUENCE

THE FUNCTIONING OF ASIAN ECONOMIES

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The Culture connection: Politics & Economics

Culture

Norms and

value systems

Social

structure

Language

Religion

Education

Political

philosophy

Economic

philosophy

CWL Hill, Figure 3.1, The Determinants of Culture

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THE BASIC PHILOSOPHICAL ISSUE:

FREEDOM (competition) versus THE NEED FOR SOCIAL CONTROL

(cooperation)

“The key to the discovery of the general good is the concept of community. The severest criticisms of liberal society, both from the left and from the right, focus on the absence of community in even the most efficient and affluent liberal capitalist state.” (Wolff,1968)

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The political-economic dichotomy

“Throughout the history of Western political thought, two views of society have stood in conflict. Both these views are intended to explain what has been, and will probably continue to be, the most puzzling problem of social philosophy: how is it that human societies cohere? There is one large and distinguished school of thought according to which social order results from a general agreement of values [cooperation] … There is another equally distinguished school of thought which holds that coherence and order in society are founded on force and constraint [competition]…The long history of the particular dispute about the problem of social order has exposed … what appear to be fundamental alternatives of knowledge, moral decision, and political orientation.” (Ralf Dahrendorf 1959)

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Dichotomous policy approaches:

Role for government Socialism (collectivism)

Totalitarianism Command economy State-directed economy

hence: Strategic Trade

Policy

Laissez faire Liberalism (individualism)

political economic

Democracy Market economy

(free trade)

• “Third Way”?

(left wing) (right wing)

rhetoric of enterprise among political elites

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Is there an East Asian political model (alternative political ethic)? Prevailing characteristics of Paternalistic Authoritarianism:1. Elitism & sympathy

(respect of hierarchy)2. Dominant government

(moral obligation to lead)3. Technocratic meritocracy4. Nurture national

champions5. Non-adversarial harmony

6. Set/attain national goals7. Dominant leader (?)8. Rule by leaders, not “rule

of law”9. Operational

decentralization10. Legitimacy based on

success (?)11. Dependency12. Strong military (?)

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Is there an East Asian political model (alternative political ethic)?

“Paternalistic Authoritarianism” (Lucian Pye, 1988)

Synopsis:

Dominance of government with the ethical-moral basis of Confucian tradition

Economic nationalism (Robert Gilpin, 1987)

fundamentally a liberal approach but with a priority for nation-building

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Table of political economic alternatives (“The political economy of prosperity in Singapore,” Sikorski 1991)

Government-type intervention Socialism

PUBLIC PROPERTY EQUALITY COMMUNITARIANISM Masses

Labor STRATEGIC TRADE POLICY

Plan Distribution Regulation

UNITARIANISM Autocracy (also Paternalism) COLLUSION

AGREEMENT IN ADVANCE Administrative discretion Particularism

Favoritism (also nepotism)

COOPERATION/COHESION

Liberalism / laissez faire Capitalism/free enterprise

Private property Liberty Individualism ELITES

CAPITAL Free trade

Market BUSINESS DEVELOPMENT PROMOTION

Pluralism DEMOCRACY /participation Partisanism

Checks and balances General rules(rule of law) UNIVERSALISM

MERITOCRACY (ELITISM) Competition/conflict

(Value dimensions indicated in capital letters depict what I judged to be Singapore’s relative emphasis. So this shows the Singapore model.

(Value dimensions indicated in capital letters depict what I judged to be Singapore’s relative emphasis. So this shows the Singapore model.

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Singapore an ideal political development model?!

Issue: the efficacy of VISION Is there “vision” in Western democracies? Is there democracy in Singapore?

Political pluralism (government-by-the-people) Opposition political parties Legal due process (rule of law) Freedom of speech/media/association

Future adjustment of the Singapore model?

See http://www.plaza.snu.ac.kr/asiapacific_business.htm

Click on chapter 3 ((The State, Politics etc) and then click on my article.

See http://www.plaza.snu.ac.kr/asiapacific_business.htm

Click on chapter 3 ((The State, Politics etc) and then click on my article.

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“Political leaders [in Singapore] look upon government and politics as an exercise of state management.” (Chan Heng Chee, 1981)

“What we will have in Singapore is the politics of owners.” (Prime Minister Lee Kuan Yew, 1984)

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“In egalitarian vision, the democratic movement has rarely looked forward bravely –as it did briefly in the French Revolution. It has been cautious, reluctant to invent new political forms, and pushed from the rear into an always obscured future.” (Charles Lindblom, 1977)

“Perhaps we have focused a little too much on the sovereignty of the individual and not enough on the social fabric in which the individual lives.” (Donald Emmerson, 1996)

Lee Kuan Yew stressed his determination to avoid the model of government “where politics is in command, where politics subordinates economic, social, cultural and all other goals.” (Lee Kuan Yew, 1986)

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Why public enterprise? (answer: market failure) Ideological reasons (eg, UK, communist countries) To exploit natural resources To redistribute wealth To promote employment To preserve declining industry (rescue takeover) To control strategic industry As a pragmatic means for development (eg,

Singapore) ….etc etc etc (predominately not economically rational)

PUBLIC ENTERPRISE / STATE-OWNED ENTERPRISE

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Why liberalize/privatize? Answer: nonmarket failure –bureaucracy/politicians

Reform efforts Tinker with government management system to improve

enterprise autonomy/incentives Liberalize/deregulate relevant policy areas

eg,- Allow competitors into state monopolies Market pricing Eliminate subsidy Market staffing and compensation

Privatize –transfer ownership from public to private investors.

Why was privatization not appropriate for China? Entrepreneurs set new firms. State-owned firms’ performance could be improved. The state-owned sector acts as a safety net.

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n.a.

n.a.

n.a. n.a.

n.a.

Australia

Brazil

Britain

India

Japan

Singapore

S. Korea

U.S.A.

W Germany

SCOPE OF STATE OWNERSHIP (pre-privatization)

Legend:Publicly owned

Privately owned

Not applicable n.a. or negligible

posts

telecom

electricity

gas

oil prod’n

coal

railways

airlines

cars

steel

ship bldg

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Purpose of privatization

CLASSICAL PURPOSES Improve efficiency

Strengthen market environment Unburden the government

RATIONALE IN SINGAPORE Withdraw from commercial activities

Broaden/deepen stock market Reduce competition with private sector

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‘Party’ monopoly Commune work

system Social ownership Economic planning Administered pricing originally: Marxist

concept of profit

the ‘dictatorship of the proletariat’

collectivization into production teams

collective ownership of the means of production

planning directs all activity

represented unpaid labor

The Command Economy(1)

Communism: historical perspective

Basic features of communist systems

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The Command Economy(2) : Administration of international business

A State Planning Commission sets goals. IMPORTS: as needed by the plan EXPORTS: to finance imports inward FDI: capitalist ownership not allowed

Foreign businesses went thru the bureaucracy, not direct to the market

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The Command Economy(3) :Pricing and allocation of resources

Private sector

Market economies geared to consumers/users

Resources allocated by prices (money)

Government policy plays indirect role

State organizations

Non-market economies geared to economic plan

Resources allocated by economic plan (coupon)

Government policy plays crucial role

Market economy Command economy

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The Command Economy(4) :Some characteristics of economic behavior

Irrational costs/prices; disequilibrium exchange rates

Much trade without money –explains need for barter, compensation trade, etc.

International business tends to be protectionist. (though tariffs are redundant)

Production biased in favor of quantity, not quality.

Cold War politics tended to add risk to international business.

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The Command Economy(5) : Reforms in China

“Evolutionary” approach of China vs the “big bang” approach of Russia and Eastern Europe “Crossing the river by feeling the stones underfoot”

The march to capitalism: Before - After (1978-)

Little LT borrowing double-digit growth

Little FDI (no capitalist ownership) largest FDI in developing world

Limited state trading

Not a member of GATT, IMF, World Bank

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China’s Leadership Eras

Generation Core Leader Character Main ChallengesAssociate Leaders

Period

FirstMao Zedong

(1893-1976)Revolutionary

Revolution,

nation-buildingZhou Enlai, Liu Shaoqi

1949-1976

SecondDeng Xiaoping

(1904-1997)Pragmatist

Close the Cultural Revolution era; reform and liberalization

Hu Yaobang, Zhao Ziyang, Jiang Zemin

1978-1992

ThirdJiang Zemin

(1926- )

Technocrat Conversion to a “socialist” market economy

Li Peng,

Zhu Rongji1992-2002

FourthHu Jintao

(1942- )Democrat ?!

Build a “well-off” society (xiaokang)

Wen Jiabao 2003- ?

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Milestones 1949

Mao Zedong and the Chinese Communist Party come to power and found the People’s Republic of China.

1953-56 Agricultural collectivization.

1958-60 Mao initiates the Great Leap Forward campaign to speed up the

process of industrialization. It forces the abandonment of farming activities and leads to widespread famine.

1966-76 Mao launches the Great Proletarian Cultural Revolution against

all things “traditional”, including his rivals in the party. 1971

United Nations expels Taiwan and admits the PRC. 1976

Death of Mao Zedong and Zhou Enlai. 1978

Deng pushes the Four Modernizations: agriculture, industry, defense, and science and technology. His plan is adopted by the party, making him the de facto leader. A new era began, downplayed ideology and focused on reform.

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1980

China takes Taiwan’s place in the IMF and World Bank. 1989

Student-led protests calling for democratic reforms leads to the Tiananmen Square incident. This brought international sanctions.

1993 Party leader Jiang Zemin elected President. China’s revised constitution calls for the development of a

“socialist market economy”. 1997

Death of Deng. Hong Kong returned to China.

1998 Zhu Rongji elected Prime Minister. A sweeping program introduced to privatize state-owned

businesses and further liberalize the nation’s economy. 1999

Macau returned to Chinese administration. 2001

China (and Taiwan) join WTO.

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0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1985-1990Avg

1992 1993 1994 1995 1996 1997 1998 1999

Year

China's FDI Inflows and Outflows from 1985 to 1999

Outward FDI

Inward FDI

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Following the East Asian model

Land reform raises income in the countryside A transfer of profits from farming to industry High savings finances industrial investment Low taxes Vigorous domestic competition Openness to foreign influence

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First Wave: Agricultural reform

Initiated by Party Congress December 1978 Free food prices and allowing market activity Abolishing agricultural communes Replacing communes with contract farming

Productivity rose sharply, generating rural savings to finance industrialization.

“The political genius of the reforms was that they captured this surplus, not by milking the countryside, as mistaken third-world or Stalinist industrialization drives always did, but by making farmers richer.” (Economist)

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Second Wave: Open Door Policy

Aim: devolution of central planned economy Creation of Special Economic Zones (SEZs) Foreign trade and investment circumvented the

State Trading Corporations and State Plan. Companies allowed to retain foreign exchange

and trade this on currency markets.

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Third Wave: Superimpose Market Economics on Industry

Market pricing and competition extended from agriculture to industry. Two-track pricing policy introduced in mid-1980s. Growth of industry, mainly FDI and “TVEs”

(Township and village enterprises). Privatization, and displacement of state-owned

enterprises. 1978: State-owned enterprises accounted for 78% of output. 1995: 46%. Privatization was considered not appropriate for China.

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Fourth Wave: Socialist Market Economy Increased investment in infrastructure Reform in remaining problem areas:

Banking and finance, taxation, foreign exchange, local government protectionism, administrative opacity, etc

The real “leap forward”: China joins WTO 10/11/2001 Competition from America’s agri-business Rule of law replacing arbitrary government decision

making No protectionism for state-owned industries More freedom for foreign banks Competition in telecommunications and other services Boost in China exports will benefit foreign-invested

firms. Keeping power remains the key issue.