Today I want to continue with the same topic by also considering the experience of the Southeast Asian countries as they have been the latest “success story” in development and global integration. The experiences have shown the importance of market as well as non-market (both formal and informal) institutions in economic development. The point to underline here is that the impacts of market institutions differed depending on whose assets were increased, who held political power, whose property rights were strengthened and in what manner factor mobility was promoted in the country.
For instance, the diffusion of benefits from the expansion of market institution was limited in very low productivity and agriculturally dependent countries and or low productivity sectors such as textiles. Therefore, when countries start with unequal distribution of land, capital and human resources, stronger market institutions will worsen the distribution of income. Moreover, in countries with low-productivity sectors, commercialization is likely to increase indebtedness and self-alienation among the many without the skills and assets necessary to exploit expanding opportunities.
Obviously the benefit of enhanced market facilities should be distributed fairly amongst people to the greatest possible extent. In that regard, we should note that nations can be expected to grow faster where governments secure private property rights, remove institutional barriers to factor mobility and promote specialized market institutions.
The same negative situation, which may not be sustained in the longer term as its arduous repercussions on society is considered, is relevant to export expansion as well. Generally speaking, export expansion is associated with faster economic growth or industrialization. At this point, the experiences have shown that domestic benefits from foreign capital, labor, marketing, financial and technical expertise were most limited when foreigners owned most industries, provided most export services and dominated the rules of the economic game. In that case, the profits from export expansion as well as from financial activities were largely channeled back into the foreign-owned part of the export and finance sectors without income gain, on average, to indigenous cultivators. To put it simply, the more the foreigners dominate in the export-oriented sectors, the less profit from exports will be cultivated and therefore, export expansion will lead to a net loss through a deepened current account deficit.
In more moderately dependent countries, where ownership and control were shared between foreign and indigenous elements, domestic growth diffused widely only where the political grip of the small but well-organized elite coalitions was significantly weakened via democratic reforms, opening the path to participation of the whole society.
In the past, Japan and more recently South Korea illustrated how in large countries which followed import-substitution policies the predominance of viable, mid-size agricultural holdings and effective national political institutions combined with the restricted influence of foreigners over domestic policy to produce widely diffused domestic growth.
In addition, as we think about Asian success in development, it must also be noted with caution that (1) policies and institutions resolved to raising national savings; (2) the effective use of indigenous resources such as savings and a capable workforce; (3) achieving a high level of capital fixed investment and therefore the preservation of capital accumulation; (4) successful export orientation with supporting and transforming strategically defined industries; (5) fast employment creation throughout the country, mainly to generate income and promote equitable income distribution; and finally, (6) careful management of macroeconomic balances are the crucial factors.
