1. Advisory Statement Professor Lim’s PowerPoint presentations are optimized for the Mac (OS X). Windows-based PC users may find some or all of the slides unviewable due to formatting incompatibilities. These slides have not been tested on Vista. This presentation is the intellectual property of Professor Timothy C. Lim Most images, pictures and charts are from third party sources

2. POLS 459 Politics of East Asia The Late Developers: South Korea and Taiwan October 30, 2007 Timothy C. Lim, Ph.D. California State University, Los Angeles Contact: tclim@calstatela.edu

3. The Late Developers: Taiwan and South Korea The State and Taiwan’s Economic Development: Alice Amsden Let’s begin with a question: How do Amsden and Kohli assess the relative importance of the colonial period to the post-liberation development of Taiwan and South Korea respectively?

4. The State and Taiwan’s Development Key “Legacies” of Colonial Period Commercialization of agriculture Land reform/undermined power of large landowners Relatively heavy investment in peasant education Creation of industrial base Heavy state intervention in economy Consider why this is important

5. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development The Nature of the Guomindang State: Some Questions What is the Guomindang state? Where did it come from? What was its main concern? How did the Guomindang state differ, if it did, from the Korean state immediately following liberation from Japanese colonial rule? Was the Guomindang state developmental in its early years?

6. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development The Nature of the Guomindang State: More Questions When the Guomindang regime arrived in Taiwan, _____________ was by far the most important sector economically Why was this sector so important? Why was it important for a small, developing economy? agriculture

7. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development The Nature of the Guomindang State An early and key action of the Guomindang vis-à-vis agriculture was _________ __________, which was initiated in 1949 and completed in 1953 Land reform effectively destroyed the landlord class and helped lay the basis for a tremendous increase in agricultural production and productivity: between 1951 and 1960, average net real capital outflow from agriculture increase 10% per annum landreform

8. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development: Agriculture According to Amsden, why was Taiwanese agricultural production so strong? Was it due to primarily free market policies, to technical improvements (i.e., the “Green Revolution”) or something else? Of course, Amsden argues it was due primarily to a state policy, but it was a policy that was not only meant to increase agricultural production, but also, and perhaps more importantly, to increase the extraction of _________________ for other needs in the economy and the state itself surplus capital

9. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development: Agriculture What were the primary tools of the state’s agricultural policy? 1.The state’s _____________ on _______________ 2.“Hidden rice taxes” 3.Provision of credit to farmers on a non-discriminatory basis monopoly fertilizer

10. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development: Agriculture “In summary, agriculture in Taiwan gave industrial capital a labor force, a surplus, and foreign exchange. Even during the immediate postwar years of economic chaos and a world record rate of population growth, agriculture manage to produce a food supply sufficient to meet the minimum domestic consumption requirements as well as a residual for export. Good rice harvests have been a major factor behind Taiwan’s stunning price … stability”

11. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development Foreign Aid, Foreign Capital, and State Enterprises How important was foreign, especially American, aid to Taiwan’s economic development? How important has foreign capital--loans and FDI (foreign direct investment) been to the Taiwanese economy? “In terms of long-run economic growth, the impact of aid was minor.” As for foreign investment, Taiwan has been very careful. The government cannot be said to have delivered Taiwan into foreign hands, either be letting foreign banks dominate credit or by letting foreign firms dominate manufacturing.

12. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development Foreign Aid, Foreign Capital, and State Enterprises To what extent did the Taiwanese state itself own economic enterprises? Why has the state been so resistant to divestment? “The government has been slow to divest itself of its holdings for two basic reasons. From the beginning, public enterprise has served to consolidate the power of the Mainlander bureaucracy. In recent years, public enterprise has also allowed the Guomindang to buttress its own power vis-à-vis foreign capital …..The government did not abandon its traditionally conservative attitude toward foreign investment until the export boom of the late 1960s had gotten underway.”

13. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development Exploiting the World Market How important was state intervention in Taiwan’s turn toward EOI and to the success of EOI? On this question, it is important to recognize that less obvious aspects of state intervention: exchange-rate distortions, labor repression, investments in public education, high savings rates, low corporate tax structure, public ownership of banking and other industries, licensing requirements, and so on Remember, too, “the arm of the state” reaches to virtually every firm in Taiwan …

14. The Late Developers: Taiwan and South Korea The State and Taiwan’s Development “Taiwan, then, is more than a case in which the essential contribution of state intervention in economic development can be observed. It is a case that demonstrates the reciprocal interaction between the structure of the state apparatus and the process of economic growth …” End of discussion on Amsden article

15. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? Consider the arguments by Cheng and Amsden: What do they have to say about the role of culture in Taiwan’s economic development? What do Lam and Paltiel say in their article?

16. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? Lam and Paltiel contend that to understand a culture’s influence on economic development, overly generic conceptions of culture cannot be used In particular, culture needs to be studied at the ______________ level, rather than the system-level Furthermore, the influence of culture at the enterprise level cannot be understood by merely listing a set of characteristics about “Chinese” or “Confucian” culture enterprise What do they mean?

17. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? What is Chinese Culture? How do Lam and Paltiel answer this question? Answer #1: Confucianism is not Chinese culture; it is only part of this culture Answer #2: Chinese culture is made up of both dominant (orthodox) and countercultural (heterodox) values; in Taiwan, these include Taoist, Buddhist, and other subcultures: together, they create a ___________ culture populist

18. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? Dominant Culture Populist Culture Hierarchical Loyalty to rulers Obedience Glorification of Authority Rejects Authority Egalitarian Legitimates Rebellion Despises High Education Enterprise structure, organization and dynamics

19. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? To understand the significance of culture in Taiwan’s economy, attention must be paid to the interaction of the dominant Confucian and heterodox cultures A salient aspect of this interaction was the resistance to Confucian values, epitomized by Sun Wukong, the “Monkey King”

20. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? Resistance to Confucianism’s demands for conformity, obedience and loyalty helps us understand why Taiwan’s economy is dominated by small- and medium-sized firms, rather than huge conglomerates (as in Japan and South Korea) Firm size is not the only consideration: Taiwan’s economy is also characterized by hyper-dynamic development and (intellectual) “piracy” What is the relationship between cultural resistance to Confucianism, on the one hand, and “hyper-dynamic” development and piracy on the other hand?

21. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? The organization of the Taiwanese economy, its hyper-dynamic development and the general disrespect for “intellectual property rights” and rule of law tells us that Confucianism is not the ideology that inspires the mass of entrepreneurs in Taiwan In short, there is no such thing as a Confucian entrepreneur in Taiwan Instead, one can argue that most entrepreneurs in Taiwan are inspired by the “heterodoxy of Taoism that calls on them to challenge the established order”

22. The Late Developers: Taiwan and South Korea The Confucian Entrepreneur? Smaller firms are able to find substitutes for the economic efficiency that large-scale enterprises get from economies of scale by creating organizational arrangements based on personal connections (guanxi) Keiretsu-like structures are also created through “group corporations” (jituan gong), which is made up of independently owned and capitalized small firms

23. The Late Developers: Taiwan and South Korea Some Discussion Questions Do Lam and Paltiel provide a more convincing argument than Cheng? That is, do cultural variables seem more important than regime dynamics? Can the two arguments--one focusing on culture and one on politics--be brought together or are they mutually exclusive? If Lam and Paltiel are right, then what explains the differences between Taiwan, on the one hand, and South Korea and Japan, on the other hand? If Lam and Paltiel are right, should we expect to find a similar process in, say, mainland China? Why or why not?