The politics of industrial transformation: The case of the East Asian NICs

The initial spurt for industrialization in four East Asian newly industrializing countries or NICs was based on the export promotion of labor-intensive sectors. The growing protectionism in major export markets and the depletion of surplus labor in the seventies forced the four NICs to transform their industrial structure so as to sustain high economic growth. Adopting a neomercantilist approach to economic management, the state in Korea and Singapore forced an industrial transformation by way of displacing capital market and labor market respectively. Conversely a relatively 'liberal' state in Taiwan and Hong Kong avoided a big push approach to achieve industrial change and minimized the use of discretionary industrial policy. As a result, the economies of Korea and Singapore suffered from both overinvestment in capital goods sectors and from the prematured decline of traditional industrial sectors. In contrast, the economies of Taiwan and Hong Kong confronted the chronic problem of underinvestment in industrial restructuring.;This study contends that different approaches to industrial change in the four East Asian NICs are more a function of political dynamics in rapidly developing economies than a function of economic ideology of state elites. Earlier, the pursuit of export-led industrialization depended on political insulation and state capacity to organize a developmental coalition. Industrialization led to the formation of nouveau riches, intellectual middle-class, industrial labor, and other social groups. These social groups challenged the primacy of economic growth by promoting their interests in economic distribution and political participation. Mediating between a developmental coalition and an emerging distribution coalition, with their respective concerns for accumulation and legitimacy, therefore became the fundamental task for the state at the juncture of industrial deepening. The pattern of industrial change in the seventies was thus shaped by structural change in politics.