Pressure for exports keeps Asian companies competitive – 10/01/2024 – Market

Economist Oliver Kim, 29, born to Korean parents in Hong Kong and who has just completed his PhD at the University of California at Berkeley, researches the strategies adopted by Japan, the so-called Asian tigers and China that led to rapid growth in the second half of the 20th century.

He states that they present lessons, including for Brazil. In relation to South Korea and Taiwan, for example, he emphasizes that industrial policy avoided the greatest evil of protectionism — the lack of competition — with the state forcing favored companies to export and, therefore, compete with foreign companies.

The dynamics were similar in Japan, but slightly different in China. In this case, the reduction of state control from the end of the 1970s led to the formation of countless local companies, competing with each other and resulting, in their own way, in gains in productivity.

“They were a kind of spontaneous product of local individual initiative, but also a kind of body of local administrations”, he says. “At least in this early period of growth, the greatest innovation and poverty reduction was occurring in these city and town companies, which were not part of the plans.”

Later, with private companies and stock exchanges, China also embarked on industrial policy. “Economists still don’t have a clear set of answers about how it works, we are developing some better ones”, acknowledges Kim, pointing out “a wide variety of different policies”.

He underlines two: “One traditional one is that it’s like protectionism, you raise tariffs to support your infant industries. Another is that you subsidize capital for certain industries that you like. In the case of Korea, that basically meant offering extremely high interest rates. casualties.”

He suggests that Latin America avoid repeating the historic mistake of Argentina, which grew based on the demand for commodities in Europe that was industrializing — just as, in recent decades, the entire region has been growing on the demand for commodities in China.

“To some extent, your economic destiny is shaped by factors outside your control,” he says. “For Argentina in the 19th century, being a commodity exporter was a very good strategy, as it was for Latin America after China started to take off and you had a global boom” of this type of product.

But over time, “as China slows down, this indicates the importance of revisiting strategies and how to take some of the weight off these cycles.” In other words, how to stimulate your own manufacturing, hence the usefulness you see in East Asian experiences.

“If you expect to do the same thing and get the same results, you will be disappointed,” he warns. “Because of trends like automation, there are few people in factories today. Asia had low labor costs, but now that is no longer an advantage for a developing country to exploit.”

The general lesson he finds useful, from Japan to China, “is that it was very clear that the state was involved in the definition, in trying to make countries grow in certain directions.” That’s what’s worth revisiting, “trying to discover opportunities in the 21st century that can accelerate growth.”

In this century, the country that is closely following this path is Vietnam, “where it is easy to see that the model is similar to China, Taiwan and Korea”, including in terms of export orientation and the trajectory of the industry, starting lightly, with fabrics, and slowly moving up the value chain.

Kim adds that the new star of accelerated development is next to China. “Vietnam also has a Confucian legacy, in terms of historical institutions”, he describes, noting that cultural issues are difficult to quantify economically.

“East Asia is culturally very distinct,” he says. “Japan, China are some of the oldest states in the world, and things like industrial policy, agricultural policy are administered by the state. In the Confucian tradition, there is also a long history of civil servants based on merit.”

His PhD thesis focused on the agrarian reforms of Taiwan in the 1950s and 60s and China in the late 1970s, in which he also identifies lessons. The first is that, based on the local and satellite data collected, they do not explain the increase in rural productivity or growth.

“That’s the traditional view of what happened in Japan, then Taiwan, South Korea and China. My research begins to question it. Did places where land was redistributed have more agricultural productivity growth? Not enough to explain the trend in the period.”

But the reform politically stabilized societies, which were then poor, with a majority of peasants. “Agrarian reform is also political reform,” says Kim. And in China it was accompanied by a general policy of higher prices, close to what would be the market, “encouraging greater agricultural productivity.”