Lessons from the Industrialisation- and Export-Friendly Policies of East Asian Countries

Africa’s drive for fast growth has garnered a great deal of attention over the last decade. This means taking lessons from the economic policy-making process of fast-growing East Asian countries like Taiwan and South Korea is important. Both nations confronted similar problems in their drive for fast growth and poverty reduction, without which the registered success in those countries would have been unthinkable.One distinguishing feature of the process in Taiwan and Korea was the tradition of research, planning, implementation and monitoring of proposed policies based on an in-depth study and accurate information by the best and the brightest brains in each of these countries. I would say this is missing in Ethiopia and in many countries in Africa.
The Council for Economic Planning and Development (CEPD) of Taiwan is a case in point. It had over three hundred professional and non-professional staff. Of these, 250 had university qualifications, of which engineers comprised up to 20Pct; economists about 40Pct; and the rest were accountants, finance experts and statisticians.
These professionals were divided into various departments: overall planning, sector planning, economic research, urban development, performance evaluation, financial administration, manpower planning, personnel and financial administration. The economic research department had 50 professionals, each of which monitored one sector in addition to other duties. As an advisory body of the cabinet, the CEPD operated outside the ordinary machinery of the government, which allowed it to pay higher than normal civil service salary to its staff and recruit high-quality talent by offering better benefit packages.
There was also an explicit political economy dimension to the success story of both Taiwan and Korea. The private firms in Korea were led by people who had close ties to the government and over time came to be major financiers of the governing party and its president. This was not the case in Taiwan, however. Rather, the government, which was comprised mostly of mainland Chinese, expanded its economic power through the formation and expansion of state enterprises.
In both countries, the role of the state in the industrial economy and promotion of exports was significant; this included protecting the domestic market. One factor apparent in Taiwan is that the leading sectors after the 1960s were also major exporters, and most of them were privately owned. Government policy played a critical role in helping attain the boom in export manufacturing. In the 1980s, the emphasis in industrial policy shifted to technology intensive industries, and the issue became how to upgrade Taiwan’s industries so that they remain internationally competitive.
Scientific research also pivoted from basic academic research to practical scenarios, which included the establishment of Taiwan’s science-based industrial park, the reversal of the brain drain through introducing appropriate incentive schemes, and a science and technology research plan, including the required budget that the government demanded from each relevant ministry. Korea had similar programmes as well.
In sum, as noted by the famous economist of the region, Alice Amsden, the developmental state in these countries was crucial for their industrialisation and export expansion. The state set four functions for itself. These were development banking, local content management, selective seclusion (opening some markets for foreign transactions and closing others), and national firms formation (such as Samsung, which was working then as a simple trading business of 40 employees dealing with local groceries and made noodles and pasta).
Two principles guided this effort, as noted by Amsden: To make manufacturing profitable enough to attract private entrepreneurs and to induce enterprise to be result-oriented and to redistribute their monopoly profits to the population at large.
It is instructive to look at the gap between the best practices of the East Asian experience and the condition in Africa. Specifically, we need to look variations in initial conditions, the institutional and political difference between the two, as well as the global environment such as the Cold War, which shaped the foreign relations of Taiwan and Korea and its impact on their success.
Notwithstanding such differences, we can draw the following lessons that may help the design and implementation of appropriate development policy in Africa.
The major lesson is the importance of participatory development both in making policies and their implementation. This method of development requires effective government leadership, as was the case in the aforementioned countries, where the heads of state enacted sound, well-researched economic policies. These, in turn, were implemented by capable technocrats with the best capacity available. More specifically, macroeconomic policies and industrial strategies cannot be developed in isolation and need to be set in the political economy context of a country’s development strategy and the role of different economic agents (such as the state and the private sector) in that process.
With the exception of a few countries, such as Egypt, Tunisia, Morocco, South Africa, and Mauritius, African nations are largely uninformed about how to formulate industrial development plans. In fact, many countries are dependent on primary commodity export, which has become a booming sector in the last decade owing to a surge in demand for such commodities from emerging economies such as China, India, Brazil, Russia and others.
Thus, the task of industrialisation in Africa is complicated by the need to shift from the booming commodity export economy to manufacturing diversification. First, the appropriate management of the resource from the booming sector and a strategic direction of diversification are in order. This requires good institutions and genuinely skilled personnel that will avoid rent seeking and can manage to adopt good policies that will promote rapid accumulation, investment and the efficient exploitation of resources.
Second, it seems that agricultural development was a pre-requisite for industrialisation in Asia. The government needs a labour market policy compatible with the stipulated growth, both in the agricultural process as well as for industrialisation and exporting. It also needs to keep the price of food and housing provision at a subsidised price to keep labour costs for the private sector low and make them competitive. This also ensures political stability, as was the case in Korea.
Third, the role of government in ensuring success may need to go beyond policy making. The government may need to alter the incentive structure for public and private firms in the operation of the free market so as to ensure the success of exporting and industrialisation. This is particularly important in the design and implementation of a growth strategy that may include the development of export processing zones as well as industrial zones.
Government intervention is also required to make firms forward-looking in the diversification of exports, in building productive capacity though enhancing competitiveness and attraction of foreign investment. The incentive schemes need to be result-oriented and with the principle of graduation from an initial support system as firms develop over time.
Fourth, partnerships with foreign firms and countries were central for successful industrialisation and export development strategy in Asia. This will help not only to get access to the markets of the developed countries but also serve as a tool in facilitating technology transfers for countries in Africa that have a brief industrial history and limited technological capability.
Fifth, the experience in Asia shows that Taiwan took up export-promotion of labour intensive manufacturing products, just as Korea did, but both differed in their approach. Taiwan took the dominant role of its small firms into account in the design of its policy, thus focusing on small and many firms and the private sector, which was not the case in Korea. Thus, export and industrialisation development policies need to depend on the structural and institutional context of the country
Finally, the institutions of private property, good policy and the competence of the government in economic governance were central to the growth and development process of countries in East Asia. This is generally missing in Africa and needs to be adopted. This requires capacity building in the public and private sectors.
To make this possible, the Ethiopian government should be staffed and advised by the best and the brightest minds in the country, its skilled citizens living abroad, and progressive development partners.