Public Policies in East Asian Development: Facing New Challenges

Adams, Gerald and William James, (eds.). Public Policies in East Asian Development: Facing New Challenges. Westport, Connecticut: Praeger Publishers, 1999. 266 pp.

The central theme of this book is that the role of public policy in East Asian development remains controversial, especially since the 1997 financial crisis. The debate about the role of the state is central to underlying circumstances explaining why the institutional and governmental origins of the East Miracle are now in need of restructuring. Views describing how these governments evolved their policies to cope with the changing economic environment are presented in an integrated framework. A comparative perspective on strategies reflecting the initial situation, the nature of political and social organization, and the resources specific to each country supported by data, help to clarify the important questions concerning the role of government in East Asian development.

Research covered in this volume was based on a series of economic workshops conducted in 1996 at the International Center for the Study of East Asian Development (ICSEAD) in Kitakyushu, Japan. It represents a unique collaboration between the city government of Kitakyushu coordinated by Takeshi Katsuhara and Shinichi Ichimura, and Gerald Adams at the University of Pennsylvania. The major limitation of the volume is the delay between conference and publication. All references stop at 1998, while the majority of the eleven country-oriented case study data, with the exception of China, Taiwan, and Malaysia, rarely go beyond 1996. The role of the IMF in the process of restructuring and recovery is limited to the initial program in 1997. Notwithstanding these limitations, the book is well balanced; it gives appropriate attention to serious unresolved problems with distorted government-market relations and environmental degradation, as well as to impressive policy decisions that have contributed to the growth process, which include fiscal and monetary policies for macroeconomic and balance of payments stabilization and "activity-specific" approaches like a favorable exchange rate, export promotion, public investment in infrastructure and education, attraction of foreign investment, encouragement of saving, and private investment.

After a brief introduction, the book is divided into three parts. Part I will be of most interest to the general reader because it brings together views representing two theories of economic development based on the postwar East Asian experience. Tiie traditional explanation argues that economic growth will take place when prices are right and government lets markets work, providing the government establishes important preconditions such as national security, the rule of law, price and real exchange rate stability, and appropriate account balances. The revisionist view holds very different implications for the development role of the state. A clearer picture of how certain East Asian governments intervened to anticipate and manage changes in comparative advantages emerges in the second part of this volume.

In Part II, we are presented with twelve chapters (three-quarters of the volume) describing forces behind changes over the last twenty years and discussing appropriate policies needed to cope with economic adversity from the crises. Each of the country chapters addresses a common set of questions analyzing the role of public policy and its respective path. Industrial and development policies shared by all the countries lean toward opening to direct foreign investment and export promotion. Whether or not the export-oriented industrialization model of East and Southeast Asia is still valid as a long-term development strategy for the region is not addressed in this study.

Gerald Adams makes a fine contribution to broadening the debate discussed in "The Myth of Asia's Miracle" (Nov-Dec. 1994, Foreign Affairs 73(6) where Paul Krugman argues against the effectiveness of sophisticated industrial policies and selective protectionism. Adam's thesis is that sector industrial policy is helpful at early stages of development, but as countries advance up the ladder, government should allow investment decisions to be driven by market forces rather than by intervention. As a country advances from primary production, to labor-intensive manufacturing, to more advanced manufacturing, competition should force them to improve efficiency, although there is no evidence that development will be matched by improved energy utilization and pollution control. Hidefumi Imura and Takeshi Katsuhare compare developments in environmental policy across three countries in East Asia. They argue that following the thinking of the "flying geese" pattern, environmental policy development is operating in a predictable manner. Environmental management in Korea and China is following the established path of Japan. Whether environmental advancements are taking place in successive waves in other East Asian countries remains a topic of additional research.