Stephan Langdon Universidad del Rosario
 
<ul><li>Course objectives </li></ul><ul><li>Assignments </li></ul><ul><li>How to study the subject </li></ul><ul><li>Desir...
<ul><li>Foundation of business and marketing practices unique to Far East </li></ul><ul><li>Cultural aspects of Asian busi...
<ul><li>Culture, structural, policy and political economy features of Asian economies and the Asian business environment <...
<ul><li>Presentation </li></ul><ul><ul><li>Class 7 </li></ul></ul><ul><li>Exam </li></ul><ul><ul><li>Final Class </li></ul...
<ul><li>Attend classes </li></ul><ul><li>Read texts </li></ul><ul><li>Follow current events in magazines and periodicals i...
<ul><li>Understand how changing PEST environment in the Asia-Pacific region impact managerial and business practices </li>...
<ul><ul><li>Mail </li></ul></ul><ul><ul><li>Readings </li></ul></ul><ul><ul><li>Forum </li></ul></ul><ul><ul><li>Links </l...
<ul><li>Schedule </li></ul><ul><ul><li>Reading </li></ul></ul><ul><ul><li>Class </li></ul></ul><ul><li>Contacts </li></ul>...
 
 
 
<ul><li>North-East Asia - Japan, Korea, Taiwan, China </li></ul><ul><li>South-East Asia - Myanmar, Laos, Thailand, Cambodi...
<ul><li>Rapid development for several decades  </li></ul><ul><ul><li>“ Asian Miracle”  </li></ul></ul><ul><ul><li>“ Pacifi...
<ul><li>Potential to fulfill needs of some 2.5 billion people - about 60% of the world’s population </li></ul><ul><li>Need...
<ul><li>Huge potential for infrastructure projects </li></ul><ul><li>Rapid changes in political leadership in several Asia...
<ul><li>Large Western Firm   </li></ul><ul><ul><li>Short time horizons in decision making </li></ul></ul><ul><ul><li>The c...
<ul><li>Large Western Firm   </li></ul><ul><ul><li>Professionally managed  </li></ul></ul><ul><ul><li>More concentrated  <...
<ul><li>Singapore   </li></ul><ul><li>Area: 1,000 sq. km.  Capital: Singapore  </li></ul><ul><li>Disposable Income: 25,200...
<ul><li>Area: 377,835  sq. km.  </li></ul><ul><li>Capital: Tokyo  </li></ul><ul><li>Disposable Income: 28,700 USD </li></u...
<ul><li>Area: 9,596,960  sq. km.  </li></ul><ul><li>Capital: Bejing  </li></ul><ul><li>Disposable Income: 4,700 USD </li><...
<ul><li>Area:  3,287,590 km² </li></ul><ul><li>Capital: New Delhli  </li></ul><ul><li>Disposable Income: 2,200 USD </li></...
 
<ul><li>British.  </li></ul><ul><ul><li>India, Burma (now Myanmar), Malaysia, Hong Kong, Singapore </li></ul></ul><ul><li>...
<ul><li>Apart from Thailand and Japan, no country in the Asia-Pacific region was spared from Western influence </li></ul><...
<ul><li>Post WW2 </li></ul><ul><ul><li>Recovery and development </li></ul></ul><ul><li>Since 1970s </li></ul><ul><ul><li>e...
<ul><li>South Korea, Taiwan, Hong Kong, and Singapore, together often called the Four Tigers   or Gang of Four </li></ul><...
<ul><li>Lesser Tigers </li></ul><ul><li>Second-Tier NICs </li></ul><ul><ul><li>Thailand  </li></ul></ul><ul><ul><li>Indone...
 
 
 
 
Fig 1: Regional distribution of world GDP, 0-1998
 
 
<ul><li>Development of domestic industry to substitute for imports </li></ul><ul><li>Trade barriers, subsidies, and exchan...
<ul><li>Problems:  </li></ul><ul><ul><li>low level of competition,  </li></ul></ul><ul><ul><li>administrative costs,  </li...
<ul><li>Development based on exploitation of comparative advantages </li></ul><ul><li>Gradual diffusion of wealth to other...
<ul><li>Problems:  </li></ul><ul><ul><li>information,  </li></ul></ul><ul><ul><li>incomplete markets,  </li></ul></ul><ul>...
<ul><li>According to  The Asian Miracle  (World Bank 1993): Modified “Washington consensus” </li></ul><ul><li>Macroeconomi...
<ul><li>To create a stable and predictable investment environment </li></ul><ul><li>- Moderate inflation: below 10% </li><...
<ul><li>Inputs into the growth process </li></ul><ul><li>- Investment and savings </li></ul><ul><li>- Human capital </li><...
<ul><li>To create political stability </li></ul><ul><li>- Relatively equal income distribution </li></ul><ul><li>- Social ...
<ul><li>Deviation from Washington Consensus </li></ul><ul><li>- To correct market failures: credit markets, scale economie...
<ul><li>Japan  </li></ul><ul><li>South Korea </li></ul><ul><li>Taiwan </li></ul>
<ul><li>Export promotion integral element of overall development strategy after WWII: </li></ul><ul><li>Catching up to the...
<ul><li>Export-led demand pushed up prices, profits and production — artificial acceleration of import substitution, esp. ...
<ul><li>1920s </li></ul><ul><li>WW1 Bubble burst and recessionary period begins </li></ul><ul><li>Machinery, chemical, hea...
<ul><li>Compared with Meiji Period, </li></ul><ul><li>The number of US FDI increases. </li></ul><ul><li>FDI in automobile,...
1. Foreign advisors (public and private sector) 2. Engineering education (studying abroad, Institute of Technology; techni...
<ul><li>Heavy & chemical industries (not banks, textiles, trade) </li></ul><ul><li>Backed by political connection and supp...
<ul><li>Export Led </li></ul><ul><li>Conglomerates </li></ul><ul><li>Technology Transfer </li></ul><ul><li>FDI </li></ul><...
<ul><li>In Japan ’ s early factories, traditional  shokunin  (craftsmen) and modern  shokko  (workers) coexisted. </li></u...
<ul><li>Mono  means  “ thing ”  and  zukuri  ( tsukuri ) means  “ making ”  in indigenous Japanese language. </li></ul><ul...
Japanese Post WWII Competitive Strategy
1960 ~ 1970 ~ 1980 ~ 1990 ~ 2000 ~ 1950 ~ 1940 ~ <Japanese Economy Trends> <Management Innovation History> Japanese Econom...
<ul><li>Cartels. </li></ul><ul><ul><li>Allowing industry cartels (government controls on how many competitors are allowed ...
<ul><li>Cartels. </li></ul><ul><ul><li>Allowing industry cartels (government controls on how many competitors are allowed ...
<ul><li>Investing in nations that trade with Japan (by purchasing their stocks & bonds, real-estate, building manufacturin...
<ul><li>Customers stay loyal to their first company.  </li></ul><ul><li>Especially when that company has lowest prices due...
<ul><li>National industrial planning pours new investment into rising new global markets . </li></ul><ul><li>Drains money ...
<ul><li>Bridgestone </li></ul><ul><li>Canon </li></ul><ul><li>Citizen </li></ul><ul><li>Daihatsu </li></ul><ul><li>Hitachi...
<ul><li>Acquiring Technology Cheaply. </li></ul><ul><li>Innovating. </li></ul><ul><li>Selling Product Below Cost. </li></u...
<ul><li>In the 1980s, Japan claimed the global VCR market for itself by under-pricing potential competitors. They acquired...
Burst of the Bubble Economy Globalization  (Especially Financial Market) Traditional System New System
<ul><li>Management geared for high growth Interacting with </li></ul><ul><li>Macroeconomic policy mistakes </li></ul>
<ul><li>Interest rates were 0% </li></ul><ul><li>Firms overborrowed </li></ul><ul><ul><ul><li>Projects that earned a mere ...
<ul><li>Management had no need for financial controls </li></ul><ul><ul><li>project selection was easy </li></ul></ul><ul>...
<ul><li>Change undermines rules of thumb for banks </li></ul><ul><ul><li>Change in types of industry / borrowers </li></ul...
<ul><li>Transition out of agriculture </li></ul><ul><ul><li>Fast productivity growth in industry </li></ul></ul><ul><ul><l...
<ul><li>Industry no longer needs funds </li></ul><ul><ul><ul><li>1970s: 10% of GDP swing in under a decade!! </li></ul></u...
 
<ul><li>Corporate investment fell 10% of GDP </li></ul><ul><li>Savings  rose! </li></ul><ul><li>Banks were left to scrambl...
<ul><li>Japanese fiscal deficits </li></ul><ul><ul><li>created a new borrower for banks </li></ul></ul><ul><ul><li>MOF pol...
<ul><li>Bad macro policy </li></ul><ul><ul><li>Easy money from 1986 </li></ul></ul><ul><ul><li>“ Japan as Number One” psyc...
 
<ul><li>“ Bubble” economy  </li></ul><ul><ul><li>Stock prices doubled </li></ul></ul><ul><ul><li>Urban real estate prices ...
 
 
<ul><li>Monetary policy doesn’t work </li></ul><ul><ul><ul><li>Interest rates can’t be pushed below 0% </li></ul></ul></ul...
 
Current lending rates: Short-term prime rate:  1.5% Long-term prime rate: 2.25%
 
<ul><li>Repeated fiscal packages </li></ul><ul><ul><ul><li>Short-term policies are discounted by consumers </li></ul></ul>...
Extensive corporate restructuring   Reorganization of facilities and labor, selection and concentration of business (busin...
<ul><li>Long term and close relationship among  Government ,  Banks ,  Companies  and  Employees   </li></ul>Government Ba...
<ul><li>Emphasis on exports from early 1960s, due to reduction of US aid </li></ul><ul><li>Strong state with  export succe...
<ul><li>Instruments of export promotion </li></ul><ul><li>Credit allocation; banking system nationalized </li></ul><ul><li...
<ul><li>Strong export orientation from early 1960s due to termination of US aid </li></ul><ul><li>Successful targeting of ...
<ul><li>Instruments of export promotion </li></ul><ul><li>Fiscal and institutional incentives. Small role for credit alloc...
<ul><li>Model 1: South Korea </li></ul><ul><ul><li>Strong government, selective intervention </li></ul></ul><ul><ul><li>Co...
<ul><li>Purchasing power parity GDP of 2004 </li></ul><ul><ul><li>South Korea: 925 billion US$ </li></ul></ul><ul><ul><li>...
<ul><li>South Korea in 1997 </li></ul><ul><ul><li>negative growth for the 1st time in 2 decades </li></ul></ul><ul><ul><li...
<ul><li>development becomes state ’ s priority </li></ul><ul><li>commitment to private property & market </li></ul><ul><ul...
<ul><li>Military strongman rule from 1960s to 1970s </li></ul><ul><li>South Korea </li></ul><ul><ul><li>Park Chung Hee </l...
<ul><li>Experience with Japan ’ s wartime economic management in Northeast China </li></ul><ul><li>Economic Planning Board...
 
<ul><li>Government owned and controlled  </li></ul><ul><ul><li>all 5 commercial banks including the central bank (Bank of ...
<ul><li>Low interest rate to induce firms to grow </li></ul><ul><ul><li>favored large firms (Chaebol) </li></ul></ul><ul><...
<ul><li>Large, conglomerate family-controlled firms of South Korea  </li></ul><ul><li>Lit. business association </li></ul>...
<ul><li>1974 </li></ul><ul><ul><li>Samsung  </li></ul></ul><ul><ul><li>LG  </li></ul></ul><ul><ul><li>Hyundai  </li></ul><...
 
<ul><li>HCI plan in 1970s </li></ul><ul><ul><li>heavy and capital-intensive industries </li></ul></ul><ul><li>Strengthenin...
<ul><li>1962 157 million US$ </li></ul><ul><li>1979 20.5 billion US$ </li></ul><ul><li>Government preferred foreign borrow...
 
<ul><li>Debt to equity ratio of top Chaebol </li></ul>
<ul><li>Control inflation and maintain stability </li></ul><ul><li>Central Bank of China ultra-conservative </li></ul><ul>...
<ul><li>Traditional family networks became the major source of capital </li></ul><ul><li>limited the size of Taiwan ’ s co...
<ul><li>Government ’ s anti-inflation policy </li></ul><ul><ul><li>encouraged savings </li></ul></ul><ul><li>Government av...
 
<ul><li>Remarkable success in both South Korea and Taiwan </li></ul><ul><li>Growth rates have reached 8-10% most years sin...
<ul><li>The price of growth has been one third higher in Korea </li></ul><ul><ul><li>Korea has invested 30-35% of GDP ever...
<ul><li>Characteristics of successful state intervention (export promotion programs) </li></ul><ul><li>Allocation of prefe...
<ul><li>Infrastructure investment </li></ul><ul><li>Access to inputs at world prices </li></ul><ul><li>Preferential access...
<ul><li>What have Indonesia, Malaysia, and Thailand learned from East Asia? </li></ul><ul><li>Two stages: attempts at impo...
<ul><li>1970s: Growing public revenue, active industrial policy, and emergence of significant SOE sector </li></ul><ul><li...
<ul><li>1970s: NEP. Support to  bumiputra  and promotion of employment and labor intensive exports. EPZs.  </li></ul><ul><...
<ul><li>1970s: Import substitution. Industrial targeting lacked success, weak political system </li></ul><ul><li>Early 198...
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Asian Econ 2011 01

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Asian Econ: Basics and Korea/Taiwan Study

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  • Pest
  • Backman http://www.business-in-asia.com/biztable.html
  • Markets opened in 1850 Originally China exported six times more silk than Japan By 1910, the situation had flip-flopped Japan able to innovate
  • Role of Africa – second to Asia in 1000 Eastern Europe p decline after collapse of Soviet Union Latin America does not take off with European settlement Inverse movement WE&amp;EO v Asia WE&amp;EO takes off with empire
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • Michael Smitka
  • The deindustrialization of a nation&apos;s economy that occurs when the discovery of a natural resource raises the value of that nation&apos;s currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports . The term originated in Holland after the discovery of North Sea gas.
  • Bumiputra – affirmative action for Malays
  • Asian Econ 2011 01

    1. 1. Stephan Langdon Universidad del Rosario
    2. 3. <ul><li>Course objectives </li></ul><ul><li>Assignments </li></ul><ul><li>How to study the subject </li></ul><ul><li>Desired outcome </li></ul><ul><li>Class Web </li></ul><ul><li>Other Info </li></ul>
    3. 4. <ul><li>Foundation of business and marketing practices unique to Far East </li></ul><ul><li>Cultural aspects of Asian business </li></ul><ul><li>General economic and business climate affected by the PEST environment. </li></ul><ul><li>Foreign investments and their impact on Asia countries. </li></ul><ul><li>Asian Crisis and Asian Century </li></ul><ul><li>Appreciation for Asian Business </li></ul>
    4. 5. <ul><li>Culture, structural, policy and political economy features of Asian economies and the Asian business environment </li></ul><ul><li>The impact of globalisation and policy reforms on Asian economies and implications for business firms </li></ul><ul><li>Important current issues and impact of global developments on Asian economies and business. </li></ul>
    5. 6. <ul><li>Presentation </li></ul><ul><ul><li>Class 7 </li></ul></ul><ul><li>Exam </li></ul><ul><ul><li>Final Class </li></ul></ul>
    6. 7. <ul><li>Attend classes </li></ul><ul><li>Read texts </li></ul><ul><li>Follow current events in magazines and periodicals in Asian Business </li></ul><ul><ul><li>Time Asia </li></ul></ul><ul><ul><li>Asian Times </li></ul></ul><ul><li>Take part in group discussions </li></ul>
    7. 8. <ul><li>Understand how changing PEST environment in the Asia-Pacific region impact managerial and business practices </li></ul><ul><li>Appreciate relationship between business and government </li></ul><ul><li>Appreciate relationship between business and culture </li></ul><ul><li>Understand the dynamics of interactions and influence of the countries within the Asia-Pacific region and the regionalization and globalization of their state and private enterprises. </li></ul>
    8. 9. <ul><ul><li>Mail </li></ul></ul><ul><ul><li>Readings </li></ul></ul><ul><ul><li>Forum </li></ul></ul><ul><ul><li>Links </li></ul></ul><ul><ul><ul><li>Articles </li></ul></ul></ul><ul><ul><ul><li>Podcast </li></ul></ul></ul>
    9. 10. <ul><li>Schedule </li></ul><ul><ul><li>Reading </li></ul></ul><ul><ul><li>Class </li></ul></ul><ul><li>Contacts </li></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>341-3099 </li></ul></ul><ul><li>Appointments </li></ul>
    10. 14. <ul><li>North-East Asia - Japan, Korea, Taiwan, China </li></ul><ul><li>South-East Asia - Myanmar, Laos, Thailand, Cambodia, Philippines, Vietnam, Malaysia, Brunei, Singapore, Indonesia, East Timor </li></ul><ul><li>Australia and New Zealand </li></ul>
    11. 15. <ul><li>Rapid development for several decades </li></ul><ul><ul><li>“ Asian Miracle” </li></ul></ul><ul><ul><li>“ Pacific Century” </li></ul></ul><ul><li>Increasing economic and political importance </li></ul><ul><ul><li>includes some of the world’s largest markets </li></ul></ul><ul><li>Miracle disturbed by the Asian crisis </li></ul><ul><li>What about the future? </li></ul>
    12. 16. <ul><li>Potential to fulfill needs of some 2.5 billion people - about 60% of the world’s population </li></ul><ul><li>Need to understand the wide diversity of cultures - culture influence needs and business practices </li></ul><ul><li>Stages of economic development range from underdeveloped nations, e.g. Myanmar, Laos, to developing nations, like Malaysia, to Newly Industrialised Economies, like Singapore and Taiwan, to fully developed nations like Japan - presents both threats and opportunities </li></ul>
    13. 17. <ul><li>Huge potential for infrastructure projects </li></ul><ul><li>Rapid changes in political leadership in several Asian countries e.g. Philippines, Thailand and Indonesia </li></ul><ul><li>Emergence of consumer credits </li></ul><ul><li>IT demand in U.S. accounted for nearly 40% of economic growth in Asian countries in Year 2000, outside Japan </li></ul>
    14. 18. <ul><li>Large Western Firm </li></ul><ul><ul><li>Short time horizons in decision making </li></ul></ul><ul><ul><li>The company is driven by profits and/or market share </li></ul></ul><ul><ul><li>Corporate direction determined by overall corporate &quot;vision&quot; and strategy </li></ul></ul><ul><ul><li>Highly structured </li></ul></ul><ul><ul><li>Wide ownership (institutions) </li></ul></ul><ul><li>Large Asian Firms </li></ul><ul><ul><li>Long time horizons in decision making </li></ul></ul><ul><ul><li>The company is growth-driven </li></ul></ul><ul><ul><li>Corporate direction determined by opportunity </li></ul></ul><ul><ul><li>Often poorly structured </li></ul></ul><ul><ul><li>Narrow ownership (family) </li></ul></ul>
    15. 19. <ul><li>Large Western Firm </li></ul><ul><ul><li>Professionally managed </li></ul></ul><ul><ul><li>More concentrated </li></ul></ul><ul><ul><li>Invest on the basis of research </li></ul></ul><ul><ul><li>Highly structured </li></ul></ul><ul><ul><li>Minority shareholders well treated </li></ul></ul><ul><ul><li>Dispersed decision making </li></ul></ul><ul><ul><li>Relatively small number of units/companies </li></ul></ul><ul><li>Large Asian Firms </li></ul><ul><ul><li>Professionally managed </li></ul></ul><ul><ul><li>Highly diversified </li></ul></ul><ul><ul><li>Invest on the basis of connections </li></ul></ul><ul><ul><li>Often poorly structured </li></ul></ul><ul><ul><li>Minority shareholders abused </li></ul></ul><ul><ul><li>Centralized decision making </li></ul></ul><ul><ul><li>Large number of units/companies </li></ul></ul>
    16. 20. <ul><li>Singapore </li></ul><ul><li>Area: 1,000 sq. km. Capital: Singapore </li></ul><ul><li>Disposable Income: 25,200 USD </li></ul><ul><li>Population: 3.5 million Population Growth: 1.5% per year </li></ul><ul><li>Religions: Buddhist, Christian, Moslems, Hindus, and Sikhs Government System: Republic </li></ul><ul><li>Languages: English, Mandarin, Malay, Hindi </li></ul><ul><li>Economy : Electronics, Tourism, Manufacturing (27% gdp), Oil refining, Chemicals </li></ul>
    17. 21. <ul><li>Area: 377,835 sq. km. </li></ul><ul><li>Capital: Tokyo </li></ul><ul><li>Disposable Income: 28,700 USD </li></ul><ul><li>Population: P opulation peaks in 2005 at 127.7 million andwill fall to 102 million by 2035. </li></ul><ul><li>Religions: Shintō, Buddhism, Christianity </li></ul><ul><li>Government System: Constitutional Monarchy </li></ul><ul><li>Languages: Japanese, Korean </li></ul><ul><li>Economy : Electronics, Banking, Manufacturing (27% gdp), Chemicals </li></ul>
    18. 22. <ul><li>Area: 9,596,960 sq. km. </li></ul><ul><li>Capital: Bejing </li></ul><ul><li>Disposable Income: 4,700 USD </li></ul><ul><li>Population: 1.3 billion </li></ul><ul><li>Religions: Buddhist, Confucian, Islam, Christian Government System: Marxist </li></ul><ul><li>Languages: Mandrin, Cantonese, Weiger, </li></ul><ul><li>Economy : Electronics, Tourism, Manufacturing (27% gdp), Oil refining, Chemicals </li></ul>
    19. 23. <ul><li>Area: 3,287,590 km² </li></ul><ul><li>Capital: New Delhli </li></ul><ul><li>Disposable Income: 2,200 USD </li></ul><ul><li>Population: 1,02500,000 </li></ul><ul><li>Religions: Hindu, Moslem </li></ul><ul><li>Government System: Republic </li></ul><ul><li>Languages: English, multienthnic </li></ul><ul><li>Economy : Manufacturing, Mining, Computer </li></ul>
    20. 25. <ul><li>British. </li></ul><ul><ul><li>India, Burma (now Myanmar), Malaysia, Hong Kong, Singapore </li></ul></ul><ul><li>Portugal </li></ul><ul><ul><li>Macau Indo-China colonized by France </li></ul></ul><ul><li>Dutch </li></ul><ul><ul><li>Indonesia </li></ul></ul><ul><li>Japan </li></ul><ul><ul><li>Taiwan and Korea </li></ul></ul><ul><li>USA and Spain </li></ul><ul><ul><li>Philippines </li></ul></ul><ul><li>French, German, Brit </li></ul><ul><ul><li>China </li></ul></ul>
    21. 26. <ul><li>Apart from Thailand and Japan, no country in the Asia-Pacific region was spared from Western influence </li></ul><ul><li>400 years of Spanish presence and another 50 years by Americans has resulted in a Westernised culture in the Philippines </li></ul><ul><li>Many Dutch words have crept into the Indonesian language </li></ul><ul><li>Legal systems in India, Malaysia, Singapore and Hong Kong are still based on the foundations of British law. </li></ul><ul><li>The chaebol system in South Korea is very similar to the Japanese keiretsu system </li></ul>
    22. 27. <ul><li>Post WW2 </li></ul><ul><ul><li>Recovery and development </li></ul></ul><ul><li>Since 1970s </li></ul><ul><ul><li>economic liberalization </li></ul></ul><ul><ul><li>market oriented policies </li></ul></ul><ul><li>1980s-1990s </li></ul><ul><ul><li>pace of liberalization accelerated </li></ul></ul><ul><li>1997 </li></ul><ul><ul><li>crisis </li></ul></ul><ul><li>2000 </li></ul><ul><ul><li>aftermath </li></ul></ul>
    23. 28. <ul><li>South Korea, Taiwan, Hong Kong, and Singapore, together often called the Four Tigers or Gang of Four </li></ul><ul><li>1960s and 1970s </li></ul><ul><ul><li>South Korea and Taiwan experienced periods of dramatic economic growth </li></ul></ul><ul><ul><li>export oriented industrialization EOI </li></ul></ul><ul><ul><li>during these two decades, income distribution remained stable </li></ul></ul><ul><li>Gradually </li></ul><ul><ul><li>enhanced the value of exports </li></ul></ul><ul><ul><li>diversifies exports into manufactured goods </li></ul></ul><ul><ul><li>Allowed political liberalization, personal freedoms and democracy </li></ul></ul><ul><li>The only economies in the developing world likely to catch up with industrialised countries in terms of technology, infrastructure and per capita income </li></ul>
    24. 29. <ul><li>Lesser Tigers </li></ul><ul><li>Second-Tier NICs </li></ul><ul><ul><li>Thailand </li></ul></ul><ul><ul><li>Indonesia </li></ul></ul><ul><ul><li>Phillipines </li></ul></ul><ul><ul><li>Malaysia </li></ul></ul>
    25. 34. Fig 1: Regional distribution of world GDP, 0-1998
    26. 37. <ul><li>Development of domestic industry to substitute for imports </li></ul><ul><li>Trade barriers, subsidies, and exchange controls necessary to protect domestic producers: state intervention replaces market prices </li></ul><ul><li>Benefits: short-cut, coordination, synergies </li></ul>
    27. 38. <ul><li>Problems: </li></ul><ul><ul><li>low level of competition, </li></ul></ul><ul><ul><li>administrative costs, </li></ul></ul><ul><ul><li>current account deficits, </li></ul></ul><ul><ul><li>interest groups </li></ul></ul>
    28. 39. <ul><li>Development based on exploitation of comparative advantages </li></ul><ul><li>Gradual diffusion of wealth to other sectors </li></ul><ul><li>Benefits: foreign exchange, competition, technology transfer </li></ul>
    29. 40. <ul><li>Problems: </li></ul><ul><ul><li>information, </li></ul></ul><ul><ul><li>incomplete markets, </li></ul></ul><ul><ul><li>market access, </li></ul></ul><ul><ul><li>diffusion of benefits </li></ul></ul>
    30. 41. <ul><li>According to The Asian Miracle (World Bank 1993): Modified “Washington consensus” </li></ul><ul><li>Macroeconomic stability </li></ul><ul><li>Growth fundamentals </li></ul><ul><li>Equity and income distribution </li></ul><ul><li>Appropriate government intervention (exports, industrial development) </li></ul>
    31. 42. <ul><li>To create a stable and predictable investment environment </li></ul><ul><li>- Moderate inflation: below 10% </li></ul><ul><li>- Government budget deficits below 2% </li></ul><ul><li>- Stable real exchange rates </li></ul>
    32. 43. <ul><li>Inputs into the growth process </li></ul><ul><li>- Investment and savings </li></ul><ul><li>- Human capital </li></ul><ul><li>- Agricultural productivity growth </li></ul><ul><li>- Demographics </li></ul><ul><li>- Export markets </li></ul>
    33. 44. <ul><li>To create political stability </li></ul><ul><li>- Relatively equal income distribution </li></ul><ul><li>- Social services </li></ul><ul><li>- Infrastructure </li></ul><ul><li>- Education </li></ul>
    34. 45. <ul><li>Deviation from Washington Consensus </li></ul><ul><li>- To correct market failures: credit markets, scale economies, coordination, information when the market cannot cope </li></ul><ul><li>- Competition and contests + neutral incentives </li></ul><ul><li>- Requirements, monitoring, discipline </li></ul><ul><li>- Good institutions + reputable civil service </li></ul>
    35. 46. <ul><li>Japan </li></ul><ul><li>South Korea </li></ul><ul><li>Taiwan </li></ul>
    36. 47. <ul><li>Export promotion integral element of overall development strategy after WWII: </li></ul><ul><li>Catching up to the West </li></ul><ul><li>Support conditional on satisfactory export performance </li></ul><ul><li>Competition policy and industrial rationalization </li></ul><ul><li>Main instruments: allocation of investment capital and foreign exchange </li></ul>
    37. 48. <ul><li>Export-led demand pushed up prices, profits and production — artificial acceleration of import substitution, esp. in machinery and chemicals. </li></ul><ul><li>BoP crisis (gold reserve loss) was solved. </li></ul><ul><li>Narikin emerged (Suzuki, Ship Narikins). They spent money on big villas, parties, women. </li></ul>Production
    38. 49. <ul><li>1920s </li></ul><ul><li>WW1 Bubble burst and recessionary period begins </li></ul><ul><li>Machinery, chemical, heavy industries expands </li></ul><ul><li>Electrification (hydraulic power generation) rises </li></ul>WW1 Real GNE Growth (5-year moving average) Estimate by Ohkawa, Takamatsu, Yamamoto
    39. 50. <ul><li>Compared with Meiji Period, </li></ul><ul><li>The number of US FDI increases. </li></ul><ul><li>FDI in automobile, electrical, machinery. </li></ul><ul><li>Zaibatsu plays key role in FDI partnership or subsequent take-over. </li></ul><ul><li>At the same time, Japan ’ s outward FDI begins: </li></ul><ul><li>FDI to China: textiles (Shanghai, Qingdao), steel (Anshan) </li></ul><ul><li>FDI to Korea: heavy chemical industries </li></ul>Source: S.J.Bytheway (2005), pp.166-169
    40. 51. 1. Foreign advisors (public and private sector) 2. Engineering education (studying abroad, Institute of Technology; technical high schools) 3. Copy production, reverse engineering, technical cooperation agreements (esp. automobiles, electrical machinery); sogo shosha (trading companies) often intermediated such cooperation Private-sector experts, 1910 Mining 513 (18.0%) Textile 300 (10.6%) Shipbuilding 250 (8.8%) Power & gas 231 (8.1%) Trading 186 (6.5%) Railroad 149 (5.2%) Food 149 (5.2%) TOTAL 2,843 (100%)
    41. 52. <ul><li>Heavy & chemical industries (not banks, textiles, trade) </li></ul><ul><li>Backed by political connection and support </li></ul><ul><li>Active investment in Korea and Manchuria (NE China) </li></ul>Name Features Current firms Nissan 日産( Japan Industry ) Cars, chemicals, machinery, fishery, mining; Raising fund in stock market; Invest in Manchuria Hitachi, Nissui, Nissan Motors, Sompo Japan, Japan Energy Riken 理研 Chemical, medical research Riken ( Res. Inst.) Nicchitsu 日窒 Fertilizer, medicine, metals Chisso Nisso 日曹 Sodium hydroxide (NaOH) Nihon Soda Mori 森 Aluminum, ammonia, iodine Showa Denko
    42. 53. <ul><li>Export Led </li></ul><ul><li>Conglomerates </li></ul><ul><li>Technology Transfer </li></ul><ul><li>FDI </li></ul><ul><li>(Japan) Cradtsmanship Manufacturing Spirit </li></ul>
    43. 54. <ul><li>In Japan ’ s early factories, traditional shokunin (craftsmen) and modern shokko (workers) coexisted. </li></ul><ul><li>Craftsmen were proud, experienced and independent. They were the main force in initial technology absorption. </li></ul><ul><li>Workers received scientific education and functioned within an organization. Their skills and knowledge were open, global and expandable. </li></ul><ul><li>Over time, craftsmen were replaced by workers. Experience was not enough to deepen industrialization. </li></ul><ul><li>Prof. Odaka proves these points by examining the history of concrete firms in metallurgy, machinery and shipbuilding. </li></ul>
    44. 55. <ul><li>Mono means “ thing ” and zukuri ( tsukuri ) means “ making ” in indigenous Japanese language. </li></ul><ul><li>It describes sincere attitude toward production with pride, skill and dedication. It is a way of pursuing innovation and perfection, disregarding profit or balance sheet. </li></ul><ul><li>Many of Japan ’ s excellent manufacturing firms were founded by engineers full of monozukuri spirit. </li></ul>Sakichi Toyota 1867-1930 Konosuke Matsushita 1894-1989 Soichiro Honda 1906-1991 Akio Morita (Sony’s co-founder) 1921-1999
    45. 56. Japanese Post WWII Competitive Strategy
    46. 57. 1960 ~ 1970 ~ 1980 ~ 1990 ~ 2000 ~ 1950 ~ 1940 ~ <Japanese Economy Trends> <Management Innovation History> Japanese Economy and Management Innovation Wartime controlled economy Postwar recovery period High-growth period Energy saving & lean management Bubble economy Heisei recession Recovery period Process management methodology American style management method Productivity improvement Strategy & marketing Market-based flexible manufacturing Japanese style management American style global management
    47. 58. <ul><li>Cartels. </li></ul><ul><ul><li>Allowing industry cartels (government controls on how many competitors are allowed in industries, this promoting competitive stability); </li></ul></ul><ul><li>Anti-trust. </li></ul><ul><ul><li>Lax antitrust enforcement to enable Japanese companies to grow into world-class size; </li></ul></ul><ul><li>R&D. </li></ul><ul><ul><li>Government-financed corporate R&D; </li></ul></ul><ul><li>Financing. </li></ul><ul><ul><li>“ Sweetheart loans” to corporations that the government would pay off if the corporation ran into financial trouble. </li></ul></ul><ul><li>Cárteles. </li></ul><ul><ul><li>Permitir los cárteles de la industria (controles de gobierno en se permite a cuántos competidores en industrias, esta estabilidad competitiva que promueve); </li></ul></ul><ul><li>Anticompetitivo. </li></ul><ul><ul><li>Aplicación anticompetitiva floja para permitir a las compañías japonesas crecer en tamaño de la mundo-clase; </li></ul></ul><ul><li>Investigación y desarrollo </li></ul><ul><ul><li>I&R corporativo Gobierno-financiado; </li></ul></ul><ul><li>Financiamiento. </li></ul><ul><ul><li>el &quot;amor presta&quot; a las corporaciones que el gobierno pagaría apagado si la corporación funcionó en apuro financiero. </li></ul></ul>
    48. 59. <ul><li>Cartels. </li></ul><ul><ul><li>Allowing industry cartels (government controls on how many competitors are allowed in industries, this promoting competitive stability); </li></ul></ul><ul><li>Anti-trust. </li></ul><ul><ul><li>Lax antitrust enforcement to enable Japanese companies to grow into world-class size; </li></ul></ul><ul><li>R&D. </li></ul><ul><ul><li>Government-financed corporate R&D; </li></ul></ul><ul><li>Financing. </li></ul><ul><ul><li>“ Sweetheart loans” to corporations that the government would pay off if the corporation ran into financial trouble. </li></ul></ul><ul><li>Cárteles. </li></ul><ul><ul><li>Permitir los cárteles de la industria (controles de gobierno en se permite a cuántos competidores en industrias, esta estabilidad competitiva que promueve); </li></ul></ul><ul><li>Anticompetitivo. </li></ul><ul><ul><li>Aplicación anticompetitiva floja para permitir a las compañías japonesas crecer en tamaño de la mundo-clase; </li></ul></ul><ul><li>Investigación y desarrollo </li></ul><ul><ul><li>I&R corporativo Gobierno-financiado; </li></ul></ul><ul><li>Financiamiento. </li></ul><ul><ul><li>el &quot;amor presta&quot; a las corporaciones que el gobierno pagaría apagado si la corporación funcionó en apuro financiero. </li></ul></ul>
    49. 60. <ul><li>Investing in nations that trade with Japan (by purchasing their stocks & bonds, real-estate, building manufacturing plants, etc.). </li></ul><ul><li>Sharing technology with their trading partners. </li></ul><ul><li>Joint ventures with foreign firms. </li></ul><ul><li>Loaning money to Western governments which debt finance their domestic budgets (“Keynesian economics”) . </li></ul><ul><li>Making sure Japanese products are better than foreign products. </li></ul><ul><li>Invirtiendo en las naciones que negocian con Japón (comprando su acción y enlaces, las instalaciones fabriles inmobiliarias, constructivas, etc.). </li></ul><ul><li>Compartir tecnología con sus socios que negocian. </li></ul><ul><li>Empresa a riesgo compartido con las firmas extranjeras. </li></ul><ul><li>Prestando el dinero a los gobiernos occidentales que las finanzas de deuda su domestic presupuestan (&quot;economía de Keynesian&quot;). </li></ul><ul><li>Los productos japoneses que se cercioran de son mejores que productos extranjeros. </li></ul>
    50. 61. <ul><li>Customers stay loyal to their first company. </li></ul><ul><li>Especially when that company has lowest prices due to vast manufacturing economies of scale. </li></ul><ul><li>Los clientes permanecen leales a su primera compañía. </li></ul><ul><li>Especialmente cuando esa compañía tiene precios bajos debido a las economías extensas de la fabricación de la escala. </li></ul>
    51. 62. <ul><li>National industrial planning pours new investment into rising new global markets . </li></ul><ul><li>Drains money from declining markets. </li></ul><ul><li>Japan allowed the sun to set on : </li></ul><ul><ul><li>Electronics industry & the sun to rise on digital products; </li></ul></ul><ul><ul><li>Small cars to luxury cars; </li></ul></ul><ul><ul><li>Home products to biogenetic. </li></ul></ul><ul><li>El planeamiento industrial nacional vierte la nueva inversión en nuevos mercados globales de levantamiento. </li></ul><ul><li>Drena el dinero de mercados que declinan. </li></ul><ul><li>Japón permitió que el sol fijara encendido: </li></ul><ul><ul><li>Industria de electrónica y el sol a levantarse en productos digitales; </li></ul></ul><ul><ul><li>Coches pequeños a los coches de lujo; </li></ul></ul><ul><ul><li>Productos caseros a biogenético. </li></ul></ul>
    52. 63. <ul><li>Bridgestone </li></ul><ul><li>Canon </li></ul><ul><li>Citizen </li></ul><ul><li>Daihatsu </li></ul><ul><li>Hitachi </li></ul><ul><li>Honda </li></ul><ul><li>Isuzu </li></ul><ul><li>Komatsu </li></ul><ul><li>Mazda </li></ul><ul><li>Mazuno </li></ul><ul><li>Mitsubishi </li></ul><ul><li>Nissan </li></ul><ul><li>Olympia </li></ul><ul><li>Panasonic </li></ul><ul><li>Pioneer </li></ul><ul><li>Seiko </li></ul><ul><li>Sharp </li></ul><ul><li>Sony </li></ul><ul><li>Suzuki </li></ul><ul><li>Toyota </li></ul>
    53. 64. <ul><li>Acquiring Technology Cheaply. </li></ul><ul><li>Innovating. </li></ul><ul><li>Selling Product Below Cost. </li></ul><ul><li>Build market share. </li></ul><ul><li>Adquiriendo Tecnología Barato. </li></ul><ul><li>Innovación. </li></ul><ul><li>Venta Del Producto Debajo Del Coste. </li></ul><ul><li>Cuota de mercado de la estructura. </li></ul>
    54. 65. <ul><li>In the 1980s, Japan claimed the global VCR market for itself by under-pricing potential competitors. They acquired a patent for the VCR process from an American company that couldn’t find a way to make a short-term profit on the VCR. </li></ul><ul><li>Japanese companies then began selling VCRs below cost to build market share & soon were selling at such a high volume that their costs declined to a profitable level. </li></ul><ul><li>Japanese economies of scale were so great that foreign competitors were locked out of the market. </li></ul><ul><li>En los años 80, Japón demandó el mercado global del VCR para sí mismo por los competidores potenciales de debajo-tasacio'n. Adquirieron una patente para el proceso del VCR de una compañía americana que no podría encontrar una manera de hacer un beneficio a corto plazo en el VCR. </li></ul><ul><li>Las compañías japonesas entonces comenzaron a vender VCRs debajo de coste para construir la cuota de mercado y pronto vendían en un tan alto volumen que sus costes declinaron a un nivel provechoso. </li></ul><ul><li>Las economías japonesas de la escala eran tan grandes que los competidores extranjeros eran bloqueados fuera del mercado. </li></ul>
    55. 66. Burst of the Bubble Economy Globalization (Especially Financial Market) Traditional System New System
    56. 67. <ul><li>Management geared for high growth Interacting with </li></ul><ul><li>Macroeconomic policy mistakes </li></ul>
    57. 68. <ul><li>Interest rates were 0% </li></ul><ul><li>Firms overborrowed </li></ul><ul><ul><ul><li>Projects that earned a mere 0% passed muster </li></ul></ul></ul><ul><li>Banks overlent </li></ul><ul><ul><ul><li>Collateral or track records were enough </li></ul></ul></ul><ul><li>Asset prices proved unrealistic </li></ul><ul><ul><ul><li>Projects didn’t earn 0% ex post </li></ul></ul></ul><ul><ul><ul><li>Banks couldn’t collect on their loans </li></ul></ul></ul>
    58. 69. <ul><li>Management had no need for financial controls </li></ul><ul><ul><li>project selection was easy </li></ul></ul><ul><ul><li>failure was hard / recessions were few & far between </li></ul></ul><ul><li>But pricing long-lived assets was hard </li></ul><ul><ul><li>Real estate grew faster than economy </li></ul></ul><ul><ul><li>Stock prices grew faster than economy </li></ul></ul><ul><ul><li>Growth industries grew very fast indeed!! </li></ul></ul>
    59. 70. <ul><li>Change undermines rules of thumb for banks </li></ul><ul><ul><li>Change in types of industry / borrowers </li></ul></ul><ul><ul><li>Change in strategic environment / flow of funds </li></ul></ul><ul><ul><li>Change in regulatory environment </li></ul></ul><ul><li>Mistakes are made … </li></ul><ul><ul><li>… and a shock produces crisis </li></ul></ul>
    60. 71. <ul><li>Transition out of agriculture </li></ul><ul><ul><li>Fast productivity growth in industry </li></ul></ul><ul><ul><li>Urbanization! </li></ul></ul><ul><ul><ul><li>Household formation </li></ul></ul></ul><ul><ul><ul><li>Infrastructure, housing </li></ul></ul></ul><ul><li>But it’s a one-time transition! </li></ul><ul><ul><li>And eventually ends </li></ul></ul>
    61. 72. <ul><li>Industry no longer needs funds </li></ul><ul><ul><ul><li>1970s: 10% of GDP swing in under a decade!! </li></ul></ul></ul><ul><li>But households keep saving </li></ul><ul><ul><ul><li>Past savings were when incomes were low </li></ul></ul></ul><ul><ul><ul><li>So accumulated wealth was modest </li></ul></ul></ul><ul><ul><ul><li>So people needed to keep saving to fund old age </li></ul></ul></ul><ul><li>Who then will borrow this funds? </li></ul><ul><ul><ul><li>Paradox of Thrift!! </li></ul></ul></ul>
    62. 74. <ul><li>Corporate investment fell 10% of GDP </li></ul><ul><li>Savings rose! </li></ul><ul><li>Banks were left to scramble </li></ul>
    63. 75. <ul><li>Japanese fiscal deficits </li></ul><ul><ul><li>created a new borrower for banks </li></ul></ul><ul><ul><li>MOF policy stopped that by 1982 </li></ul></ul><ul><li>Reagonomics: US consumption boom </li></ul><ul><ul><li>Export-led growth from 1982 </li></ul></ul><ul><ul><li>Appreciation / Plaza Accord stopped that from 1986 </li></ul></ul>
    64. 76. <ul><li>Bad macro policy </li></ul><ul><ul><li>Easy money from 1986 </li></ul></ul><ul><ul><li>“ Japan as Number One” psychology </li></ul></ul><ul><li>Just as banks sought new borrowers </li></ul><ul><ul><li>Real estate … and more real estate! </li></ul></ul><ul><ul><li>Small business </li></ul></ul><ul><ul><li>Also international loans </li></ul></ul>
    65. 78. <ul><li>“ Bubble” economy </li></ul><ul><ul><li>Stock prices doubled </li></ul></ul><ul><ul><li>Urban real estate prices rose even more </li></ul></ul><ul><li>Fiscal policy mistakes accentuated </li></ul><ul><ul><li>On-again, off-again policy built up debt </li></ul></ul><ul><li>Regulatory policy errors accentuated </li></ul><ul><ul><li>Banks allowed to make more bad loans </li></ul></ul>
    66. 81. <ul><li>Monetary policy doesn’t work </li></ul><ul><ul><ul><li>Interest rates can’t be pushed below 0% </li></ul></ul></ul><ul><ul><ul><li>But prices are falling ==> real rates are positive </li></ul></ul></ul><ul><li>Banks (rightly) fear bad assets </li></ul><ul><ul><ul><li>Outstanding loans are shrinking! </li></ul></ul></ul><ul><ul><ul><li>Money growth is of cash… </li></ul></ul></ul><ul><li>“ Liquidity Trap” </li></ul><ul><ul><ul><li>If monetary policy doesn’t work, how about fiscal?? </li></ul></ul></ul>
    67. 83. Current lending rates: Short-term prime rate: 1.5% Long-term prime rate: 2.25%
    68. 85. <ul><li>Repeated fiscal packages </li></ul><ul><ul><ul><li>Short-term policies are discounted by consumers </li></ul></ul></ul><ul><ul><ul><li>Higher temporary incomes are counteracted by stagnant consumption </li></ul></ul></ul><ul><ul><ul><li>Credibility lost </li></ul></ul></ul><ul><li>Permanent tax cuts?? </li></ul><ul><ul><ul><li>Huge deficits already - 7% of GDP </li></ul></ul></ul><ul><ul><ul><li>Demographic “old age” boom looms </li></ul></ul></ul><ul><ul><ul><li>No room left to add fiscal stimulus? </li></ul></ul></ul>
    69. 86. Extensive corporate restructuring Reorganization of facilities and labor, selection and concentration of business (business selling-off) Defaulted debt clean-ups and banks integration Public fund for major banks and zero interest rates Export boom supported up by global economic growth Positive growth cycle for individual consumptions and facility investments Risk     Higher price of row materials and lower price of finished products     Employment shortage
    70. 87. <ul><li>Long term and close relationship among Government , Banks , Companies and Employees </li></ul>Government Banks & Companies Employees <ul><li>Short term relationship based on flexible financial market like US Economy. </li></ul>
    71. 88. <ul><li>Emphasis on exports from early 1960s, due to reduction of US aid </li></ul><ul><li>Strong state with export success as main goal </li></ul><ul><li>Highly successful neutral export promotion until early 1970s </li></ul><ul><li>Targeting of heavy industries from mid-1970s to 1979, with mixed success </li></ul>
    72. 89. <ul><li>Instruments of export promotion </li></ul><ul><li>Credit allocation; banking system nationalized </li></ul><ul><li>Subsidies, tax and tariff exemptions </li></ul><ul><li>Exchange rate policy </li></ul><ul><li>Explicit links between domestic protection and exports </li></ul><ul><li>Institutional incentives: presidential commendations </li></ul>
    73. 90. <ul><li>Strong export orientation from early 1960s due to termination of US aid </li></ul><ul><li>Successful targeting of light labor intensive industry until mid-1970s </li></ul><ul><li>Focus on heavy industry from mid-1970s, with some problems </li></ul><ul><li>Redirection to high-tech industries from early 1980s </li></ul>
    74. 91. <ul><li>Instruments of export promotion </li></ul><ul><li>Fiscal and institutional incentives. Small role for credit allocation: little subsidized capital </li></ul><ul><li>Promotion of FDI, unlike Japan and South Korea </li></ul><ul><li>Export processing zones </li></ul><ul><li>SOEs producing inputs for private sector exports </li></ul>
    75. 92. <ul><li>Model 1: South Korea </li></ul><ul><ul><li>Strong government, selective intervention </li></ul></ul><ul><ul><li>Controlled capital markets, debt financing </li></ul></ul><ul><ul><li>Concentrated industry (50 large chaebols ) </li></ul></ul><ul><li>Model 2: Taiwan </li></ul><ul><ul><li>Strong government but less selective intervention </li></ul></ul><ul><ul><li>Informal capital markets, equity capital </li></ul></ul><ul><ul><li>57,000 small and medium-sized firms in industrial sector (on average ~40 employees) </li></ul></ul>
    76. 93. <ul><li>Purchasing power parity GDP of 2004 </li></ul><ul><ul><li>South Korea: 925 billion US$ </li></ul></ul><ul><ul><li>Taiwan: 576 billion US$ </li></ul></ul><ul><li>GDP growth rate of 2002 </li></ul><ul><ul><li>South Korea: 4.6% </li></ul></ul><ul><ul><li>Taiwan: 6.0% </li></ul></ul>
    77. 94. <ul><li>South Korea in 1997 </li></ul><ul><ul><li>negative growth for the 1st time in 2 decades </li></ul></ul><ul><ul><li>unemployment rate rose from 3% to 7% </li></ul></ul><ul><ul><li>per capita GNP almost shrank by half </li></ul></ul><ul><li>Taiwan in 1997 </li></ul><ul><ul><li>economic growth slowed down </li></ul></ul><ul><ul><li>still robust </li></ul></ul><ul><li>Is the NIE development model in crisis? </li></ul>
    78. 95. <ul><li>development becomes state ’ s priority </li></ul><ul><li>commitment to private property & market </li></ul><ul><ul><li>government ’ s strategic industrial policy </li></ul></ul><ul><li>state agencies formulate and implement strategic policies (e.g. Japan ’ s MITI) </li></ul><ul><li>sound macroeconomic management </li></ul><ul><li>bureaucratic autonomy from interest groups </li></ul>
    79. 96. <ul><li>Military strongman rule from 1960s to 1970s </li></ul><ul><li>South Korea </li></ul><ul><ul><li>Park Chung Hee </li></ul></ul><ul><ul><li>1962-79 </li></ul></ul><ul><li>Taiwan </li></ul><ul><ul><li>Chiang Kai-Shek </li></ul></ul><ul><ul><li>1945-75 </li></ul></ul>
    80. 97. <ul><li>Experience with Japan ’ s wartime economic management in Northeast China </li></ul><ul><li>Economic Planning Board </li></ul><ul><li>Ministry of Trade and Industry </li></ul><ul><li>Ministry of Finance </li></ul><ul><li>Import substitution => Export orientation </li></ul><ul><ul><li>Normalization with Japan </li></ul></ul><ul><ul><li>Vietnam War </li></ul></ul>
    81. 99. <ul><li>Government owned and controlled </li></ul><ul><ul><li>all 5 commercial banks including the central bank (Bank of Korea) </li></ul></ul><ul><ul><li>all 6 special banks </li></ul></ul><ul><ul><li>2 of the 3 non-bank financial institutions </li></ul></ul><ul><li>Foreign Capital Inducement Law </li></ul><ul><ul><li>control private sector ’ s access to foreign capital </li></ul></ul><ul><li>Business activities directed by the state </li></ul>
    82. 100. <ul><li>Low interest rate to induce firms to grow </li></ul><ul><ul><li>favored large firms (Chaebol) </li></ul></ul><ul><ul><li>firms compliant with state policies and plans </li></ul></ul><ul><li>Excessive demand for capital </li></ul><ul><ul><li>inflation favored large debtors </li></ul></ul><ul><li>Inflation discouraged domestic savings </li></ul><ul><ul><li>reliance on foreign debts </li></ul></ul><ul><li>Vulnerable to external shocks </li></ul>
    83. 101. <ul><li>Large, conglomerate family-controlled firms of South Korea </li></ul><ul><li>Lit. business association </li></ul><ul><li>Pronounced jay BOL </li></ul><ul><li>State-corporate alliance came into being with the regime of Park Chung Hee </li></ul><ul><li>Prohibited from owning banks </li></ul><ul><li>Government-favored chaebol had special privileges </li></ul><ul><li>Many grew quickly because borrow vast funds </li></ul>
    84. 102. <ul><li>1974 </li></ul><ul><ul><li>Samsung </li></ul></ul><ul><ul><li>LG </li></ul></ul><ul><ul><li>Hyundai </li></ul></ul><ul><ul><li>Hanjin </li></ul></ul><ul><ul><li>Ssangyong </li></ul></ul><ul><ul><li>SK </li></ul></ul><ul><ul><li>Hanhwa </li></ul></ul><ul><ul><li>Daenong </li></ul></ul><ul><ul><li>Dong-Ah Const. </li></ul></ul><ul><ul><li>HanilSyn. Textile </li></ul></ul><ul><li>2000 </li></ul><ul><ul><li>Hyundai </li></ul></ul><ul><ul><li>Samsung </li></ul></ul><ul><ul><li>LG </li></ul></ul><ul><ul><li>SK </li></ul></ul><ul><ul><li>Hanjin </li></ul></ul><ul><ul><li>Lotte </li></ul></ul><ul><ul><li>Daewoo </li></ul></ul><ul><ul><li>Kumho </li></ul></ul><ul><ul><li>Hanhwa </li></ul></ul><ul><ul><li>Ssangyong </li></ul></ul>
    85. 104. <ul><li>HCI plan in 1970s </li></ul><ul><ul><li>heavy and capital-intensive industries </li></ul></ul><ul><li>Strengthening of state intervention </li></ul><ul><li>Foundation for the emergence of chaebol </li></ul><ul><li>Combined net sales of the top 10 chaebol </li></ul><ul><li>1974 15.1% of GNP </li></ul><ul><li>1978 30.1% of GNP </li></ul><ul><li>1981 55.7% of GNP </li></ul>
    86. 105. <ul><li>1962 157 million US$ </li></ul><ul><li>1979 20.5 billion US$ </li></ul><ul><li>Government preferred foreign borrowing over foreign direct investment </li></ul><ul><ul><li>maintain domestic ownership of industries </li></ul></ul><ul><li>in 1990s private sector borrowed heavily </li></ul><ul><li>1994 56.9 billion US$ </li></ul><ul><li>1997 154.4 billion US$ </li></ul>
    87. 107. <ul><li>Debt to equity ratio of top Chaebol </li></ul>
    88. 108. <ul><li>Control inflation and maintain stability </li></ul><ul><li>Central Bank of China ultra-conservative </li></ul><ul><li>Government controlled financial sector </li></ul><ul><ul><li>nationalized the banking system </li></ul></ul><ul><ul><li>private commercial banks were not allowed to operate until 1991 </li></ul></ul><ul><ul><li>71.3% of the assets of all financial institutions were in government-owned banks </li></ul></ul>
    89. 109. <ul><li>Traditional family networks became the major source of capital </li></ul><ul><li>limited the size of Taiwan ’ s companies </li></ul><ul><ul><li>small and medium-sized firms </li></ul></ul><ul><li>limited the expansion of firms </li></ul><ul><li>limited the debt-equity ratio of firms </li></ul><ul><li>most large, capital-intensive, technology-intensive industries were state-owned </li></ul>
    90. 110. <ul><li>Government ’ s anti-inflation policy </li></ul><ul><ul><li>encouraged savings </li></ul></ul><ul><li>Government avoided concentration of economic power </li></ul><ul><li>Government promoted equitable distribution of income </li></ul><ul><li>Government ’ s reluctant to use preferential financial treatment to large firms </li></ul>
    91. 112. <ul><li>Remarkable success in both South Korea and Taiwan </li></ul><ul><li>Growth rates have reached 8-10% most years since the early 1960s, </li></ul><ul><li>Per capita incomes have grown from less than 200 USD in the 1950s to over 10,000 USD in the mid-1990s. </li></ul>
    92. 113. <ul><li>The price of growth has been one third higher in Korea </li></ul><ul><ul><li>Korea has invested 30-35% of GDP every year, while Taiwan has managed equally well with 20-25% </li></ul></ul><ul><li>Korea has been forced to borrow heavily while Taiwan has become a capital exporter </li></ul><ul><li>Clear differences in vulnerability when the Asian crisis strikes in 1997 </li></ul>
    93. 114. <ul><li>Characteristics of successful state intervention (export promotion programs) </li></ul><ul><li>Allocation of preferences based on markets and competition: hard budget constraints </li></ul><ul><li>Policies target the private sector </li></ul><ul><li>Relatively little corruption and interference from interest groups as long as policies were neutral </li></ul>
    94. 115. <ul><li>Infrastructure investment </li></ul><ul><li>Access to inputs at world prices </li></ul><ul><li>Preferential access to loans and foreign exchange </li></ul><ul><li>Fiscal incentives to promote new industries </li></ul><ul><li>Institutions for technology and market research </li></ul><ul><li>Quality control and quality standards </li></ul>
    95. 116. <ul><li>What have Indonesia, Malaysia, and Thailand learned from East Asia? </li></ul><ul><li>Two stages: attempts at import substitution and industrial targeting in the 1970s and early 1980s but increasing focus on export promotion since then. Differences across region emphasized during Asian crisis </li></ul>
    96. 117. <ul><li>1970s: Growing public revenue, active industrial policy, and emergence of significant SOE sector </li></ul><ul><li>Early 1980s: Dutch disease symptoms and home market bias </li></ul><ul><li>Mid-1980s: some trade liberalization and export promotion, but continuing targeting of ”strategic” capital-intensive sectors. </li></ul><ul><li>High foreign debt and distorted industry structure: the wrong lessons from Korea </li></ul>
    97. 118. <ul><li>1970s: NEP. Support to bumiputra and promotion of employment and labor intensive exports. EPZs. </li></ul><ul><li>Early 1980s: Attempt at heavy industry promotion, with little success </li></ul><ul><li>From late 1980s: Export oriented reforms, inflows of FDI, with positive impact on growth. Surprisingly large impact of Asian crisis: political factors important? </li></ul>
    98. 119. <ul><li>1970s: Import substitution. Industrial targeting lacked success, weak political system </li></ul><ul><li>Early 1980s: Shift to relatively neutral export promotion. Rapid export expansion, inflows of FDI, and high growth rates </li></ul><ul><li>However, fixed exchange rate + low investment in education and infrastructure eroded competitive-ness of labor-intensive export industry. </li></ul><ul><li>Reasonably sound industry structure after crisis </li></ul>

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