Managing catch-up and convergence (2)

As we started to discuss in my previous article for this column, one of the central premises of neoclassical economics is strong advocacy in favor of convergence. According to that premise, convergence is not only an unavoidable but a necessary process in modern development.

In other words, without making efforts to converge with frontrunner countries, less-developed countries would not be able to graduate from that status. In this regard, development itself is a process of convergence in terms of international integration, technological innovation, labor relations, production systems, financial regimes, corporate governance and domestic politics.

Convergence is not only unavoidable and good news for developing countries; a last corollary is that it is conditional upon the fulfillment of several prerequisites that open the way towards convergence. These requirements are the quite well-known neo-liberal or Washington Consensus principles that have been executed almost everywhere on the globe since the early 1980s, triggering the waves of globalization in the last 20 years but also leading into the current global crisis.

The convergence hypothesis is unscientific in nature because there are no clearly defined criteria for its success or failure. If a country is successful in sustaining growth within a robust macroeconomic framework, it is praised for designing reforms that were correct in terms of order, timing and content. In the case of failure, however, the country is accused of failing to implement reforms with the requisite skill, political decisiveness, state capacity and so forth.

It may be appropriate to cite some examples. In the mid-1980s, it became fashionable to explain Japan's success in her catch-up strategies. One of the arguments set out belongs to the neoclassical convergence hypothesis: Japan is successful because it successfully implemented market-conforming policies. When Japan's bubble economy crashed around the early 1990s, the proponents of the same school criticized the country this time for being late in implementing coordinated fundamental reforms for the market economy. Almost the same criticisms were put forward when the Asian crisis hit other success stories such as South Korea.

What about the rest of the South Korean success story since the Asian crisis? It is being argued that the country understood well the merits of a self-regulating market economy and implemented the necessary reforms. The story goes like this.

In 1997, Kozo Yamamura published an important article titled “The Japanese Political Economy after the ‘Bubble': Plus Ça Change?” in the Journal of Japanese Studies (Vol. 23, No. 2) and argued that it is quite obvious the Japanese economy is converging and therefore becoming more homogenous with leading industrial countries. However, as a result of this change and convergence, Japan will not be a replica of Western economies. Japan will continue changing into something that is still different and somehow unique.

Nearly five years later, in 2003, Yamamura co-edited a book with Wolfgang Streeck called “The End of Diversity? Prospects for German and Japanese Capitalism.” Their aim was to determine whether the global forces of Anglo-American capitalism would give rise to a single, homogeneous capitalist system.

They argue that “national varieties of capitalism are now under intense pressure to converge to the U.S. model.” Yamamura this time put forward the question of “competitive convergence.” The editors ask whether the two countries, confronted with the political and economic exigencies of a technological revolution and economic internationalization, must abandon their distinctive institutions and the competitive advantages the two have had in the past or whether they can adapt and retain such institutions, thereby preserving the cohesion and economic competitiveness of their societies.

Almost 22 years have passed since the burst of Japan's bubble economy and almost 15 since Yamamura's earlier article. What is the result? Japan is still in no man's land. That is why we are still in a position to argue that both the process of convergence and the preservation of “authenticities” have to be well-managed with a reliable, workable strategy.