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The Practice of Industrial PolicyGovernment—Business Coordination in Africa and East Asia$

John Page and Finn Tarp

Print publication date: 2017

Print ISBN-13: 9780198796954

Published to Oxford Scholarship Online: April 2017

DOI: 10.1093/acprof:oso/9780198796954.001.0001

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Coordination through an Asian Lens

Coordination through an Asian Lens

Chapter:
(p.40) 3 Coordination through an Asian Lens
Source:
The Practice of Industrial Policy
Author(s):

Justin Yifu Lin

Khuong Minh Vu

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198796954.003.0003

Abstract and Keywords

African countries are facing great opportunities but also formidable challenges in their attempt to accelerate economic growth and also sustain a high level of economic performance. This chapter shows that the experiences of East Asian countries may offer valuable insights for African leaders and governments in making concerted efforts to formulate and implement effective industrial policy for dynamic structural transformation and inclusive growth. To this end, this chapter presents useful lessons from selected East Asian countries, organized into five strategic dimensions in an ‘ASIAN’ framework: (i) Aspiration; (ii) Strategy; (iii) Implementation; (iv) Acquisition of knowledge; and (v) Nurturing of human capital formation.

Keywords:   Africa, ‘ASIAN’ framework, industrial policy, structural transformation, inclusive growth

3.1 Introduction

Much has been written about the success of Asian economies and the lessons this success offers to developing countries. Among the most comprehensive studies about this topic are The East Asian Miracle (World Bank 1993) and The Growth Report (World Bank 2008), compiled by the Growth Commission, a group led by two Nobel laureates in Economics (Robert Solow and Michael Spence). The East Asian Miracle examines key policy factors underlying the superior performance of eight high-performing Asian economies (HPAEs) between 1965 and 1990; these include Japan, the ‘Four Tigers’ (Hong Kong, South Korea, Singapore, and Taiwan), and three newly industrializing countries (Indonesia, Malaysia, and Thailand). The Growth Report investigates the stylized facts in an exhaustive list of the world’s most successful economies, selected on the basis of their high gross domestic product (GDP) growth rate (7 per cent or more) for a minimum of twenty-five years in the past six decades. This list contains the eight HPAEs, China, and four non-Asian economies (Botswana, Brazil, Malta, and Oman). Together, the two publications identify the important features of successful Asian economies:

  1. i. Fully exploiting the world economy; rapid growth of exports to which manufactured products make the most contribution;

  2. ii. Maintaining macroeconomic stability;

  3. iii. Relying on markets for allocation of resources;

  4. iv. Promoting output and productivity growth in the agricultural sector and its rapid reallocation of resources to other sectors;

  5. v. Mustering high investment and saving rates, with savings exceeding investment; (p.41)

  6. vi. Fostering robust human capital formation, for which systems of education and training have experienced dramatic growth and transformation;

  7. vii. Keeping income inequality low while successfully reducing poverty;

  8. viii. Having committed, credible, and capable governments.

Coordination through an Asian Lens

Figure 3.1. Educational attainment: SSA in 2010 vs Asia at the beginning of rapid development

Source: Authors, based on Barro and Lee (2013).

This chapter argues that these lessons are particularly meaningful and applicable for low-income countries such as those in sub-Saharan Africa (SSA). Profound changes in the world economy over the past few decades have generated currently favourable conditions for low-income countries to make strides in economic growth. In particular, the widespread diffusion of information and communications technology (ICT) and unrelenting waves of globalization have become major drivers of growth, facilitating unprecedented access to information and knowledge, acquisition of technology and know-how, and formation and development of human capital. Furthermore, in most SSA countries human capital—the main engine of economic growth—has now risen to levels comparable if not higher those in successful Asian countries at their initial stages of development (Figure 3.1).

Therefore, challenges facing the efforts of SSA countries to catch up economically now depend more on the commitment and wisdom of their (p.42) leadership than on the status of their basic conditions for growth or external environments. The lessons from East Asian development success can be a valuable source of wisdom for African leaders. As Lucas (1993: 270) states, ‘If we know what an economic miracle is, we ought to be able to make one.’ The challenge, however, is how to help African leaders and governments more deeply understand the nature of Asia’s economic growth miracle and more thoroughly master the policy framework for applying its lessons. In this spirit, this chapter aims to provide insights into the nature of the Asian economic miracle and its policy framework through the perspective of new structural economics and the relevant experiences of successful Asian countries.

This chapter proceeds as follows. Section 3.2 highlights the recent dynamics of economic growth in SSA countries and discusses their potential to accelerate the growth process. Section 3.3 briefly introduces the principles of new structural economics, enabling a better understanding about the nature of economic growth and the lessons of successful Asian countries. Section 3.4 presents a strategic framework that underlies the efforts of successful Asian countries to foster economic growth and catch-up endeavours. Section 3.5 makes concluding remarks.

3.2 Economic Growth in SSA Countries and Potential for Economic Catch-Up

Coordination through an Asian Lens

Figure 3.2. SSA countries and GDP growth trends

Source: Authors, based on World Bank (2016).

Growth in SSA countries has been trending upwards over the past few decades. The region’s ten-year moving average (10-YMA) of GDP growth rates accelerated significantly between 1990 and 2010: by 2 percentage points, from 2.3 per cent in 1990 to 4.2 per cent in 2012 for the median; by 1 percentage point, from 4 per cent to 5 per cent for the 75th percentile; and by 2.7 percentage points, from 0.9 per cent to 3.6 per cent for the 25th percentile (Figure 3.2). This observation suggests that laggard countries (25th percentile) tended to improve their performance more substantially than top-performing countries (75th percentile).

Coordination through an Asian Lens

Figure 3.3. SSA countries and GDP per capita growth trends

Source: Authors, based on World Bank (2016).

SSA countries’ per capita GDP growth has also experienced an upwards trend. The region’s 10-YMA of GDP per capita growth rates rose between 1990 and 2010: by 2.1 percentage points, from −0.5 per cent in 1990 to 1.6 per cent in 2012 for the median; by 2.5 percentage points, from 0.9 per cent to 3.3 per cent for the 75th percentile; and by 2.9 percentage points, from −2.0 per cent to 0.9 per cent for the 25th percentile (Figure 3.3). It should be noted that the 10-YMA of GDP per capita growth rate for the 25th percentile was not positive until 2003. This indicates that laggards among SSA countries suffered from decrease in their GDP per capita until the most recent decade. (p.43)

Coordination through an Asian Lens

Figure 3.4. Catch-up performance, 1990–2010: SSA vs developing Asia

Source: Authors, based on World Bank (2016).

(p.44) Although SSA countries have experienced increasing economic growth, their catch-up performance continued to lag Asian economies over the same period. The per capita GDP of four Asian countries—China, Viet Nam, India, and Cambodia—was equivalent to that of SSA countries in 1990 (Figure 3.4). However, these four Asian countries raised their income levels by a comparatively higher multiple between 1990 and 2010: China by 6.2 times, Viet Nam by 3.2, Cambodia by 2.9, and India by 2.6. In contrast, over the same period most SSA countries raised income by multiples of only 1.0 to 2.0 (Figure 3.4).

Coordination through an Asian Lens

Figure 3.5. Employment share of the industry sector in the economy

Source: Authors, based on World Bank (2016).

One of the most significant obstacles to the economic growth of SSA countries is its inability to create conditions necessary for exploiting comparative advantages and fostering structural change. In particular, SSA countries notably are facing premature de-industrialization. As shown in Figure 3.5, their average employment share of the industry sector in the economy was lower in 2000 compared with that in the previous year although it was still very low compared to most developing countries.

In summary, the data suggest that SSA countries are experiencing encouraging trends in economic growth. However, major obstacles, which prevent these countries from achieving the robust industrialization and economic growth, remain. It would be helpful for policy makers in SSA countries to better understand the nature of a rapid economic growth process and the experience of successful Asian countries in making it happen.

(p.45) 3.3 Mastering the Principles of New Structural Economics to Achieve High Sustained Growth

Mastering the principles of new structural economics can help scholars discern the nature of economic growth and understand why some countries have generated economic miracles. New structural economics, as depicted by Lin (2011, 2012a) can be characterized by three principles: (i) each country at a given time has a certain comparative advantage defined by the evolving potential of its endowment structure in the context of globalization; (ii) to best exploit its comparative advantage for economic development, a country must rely on the market as the optimal resource allocation mechanism at any given stage of development; and (iii) the state can play a proactive role in facilitating the process of industrial upgrading, especially for coordinating/providing improvements in enabling factors, such as infrastructure, financing, and the promotion of entrepreneurship, clustering, innovation, and foreign direct investments (FDI). New structural economics underscores the idea that a country can grow more rapidly if it better leverages the comparative advantage of an evolving endowment structure at every stage of development and capture the benefits of advantages of backwardness. At the same time, it needs (p.46) to make every effort to foster structural change, shifting resources such as labour, capital, and land to higher productivity activities, users, and sectors. These transformational dynamics enable the country to continuously upgrade its comparative advantage and achieve high economic performance.

3.4 A Strategic Policy Framework for Fostering Economic Development through Structural Change

Sustained robust economic development is a transformational process. As argued in new structural economics, it requires effective coordination in fostering structural change to reorient resources towards higher productivity users, sectors, and locations. Successful experiences from Asian countries imply the presence of an effective strategic policy framework, which developing countries can apply to design and implement concerted initiatives for promoting structural change and economic development by facilitating private sectors’ development in industries that are consistent with the countries’ comparative advantages. This framework consists of five components, which can be referred to as the ‘ASIAN framework’: (i) Aspiration; (ii) Strategy; (iii) Implementation; (iv) Acquisition of knowledge; and (v) Nurture of human capital formation.

3.4.1 Aspiration

Aspiration to catch up is crucial trait for poor nations seeking to leverage growth opportunities in the new global economy. This aspiration inspires a country to adopt ambitious development goals. When based on a robust understanding of the country’s comparative advantages and global trends, this ambition is not only the compass for the development process but also a powerful source of energy and dynamism (Vu 2013). This is particularly applicable in efforts to restructure from low- to high-endowment structures. Leadership’s articulation of the aspiration to catch up in economic development has been a common feature of proactive, commitment governments in Asian countries that have been successful in their development endeavours.

3.4.1.1 Japan

In the mid-19th century, the Meiji leaders of Japan were shocked by the superiority of Western military powers and the lingering threat of foreign dominance. The leaders aspired to build a new Japan characterized by strength and influence in the modern world. The Charter Oath, which the Meiji leaders drafted in 1868, expressed a resolute aspiration and determination to succeed (p.47) in this effort through ‘enlightened ruling’ (Meiji) and vigorous efforts to acquire knowledge throughout the world (Jansen 2000).

3.4.1.2 Korea

President Park Chung Hee admired Japan for its Meiji Restoration (1868–1912). He expressed a burning aspiration to transform South Korea into a second Japan: ‘I am pushing for the modernization of my country as the modernizing elite of the Meiji Restoration did’ (Moon and Jun 2011: 118).

Park Chung-Hee also aspired to learn from West Germany, admiring the country’s revival after the Second World War. In a speech before his visit to West Germany in 1964, Park stated: ‘I intend to witness first-hand the revival of West Germany, a country which has emerged from the ashes of the Second World War as a prosperous nation that has achieved outstanding economic development’ (O 2009: 80).

3.4.1.3 Singapore

Beginning in the early 1960s, Prime Minister Lee Kuan Yew and his leadership team harboured a strong desire to grow quickly and comprehensively, consulting with experts and producing a development model that has since proven remarkably effective. Lee Kuan Yew’s aspiration was to make Singapore into a ‘First World oasis in a Third World’ by establishing ‘first world standards in public and personal security, health, education, telecommunications, transportation, and services’ (Lee 2000: 76).

He also deepened his commitment to build a distinctive and resilient Singaporean character. According to then-Prime Minister Lee, ‘We had to make extraordinary efforts to become a tightly knit, rugged and adaptable people who could do things better and cheaper than our neighbors […]. We had to be different’ (Lee 2000: 24).

3.4.1.4 China

The Communist Party of China (CPC) embarked on transformational economic reforms in 1978 with the aim to ‘advance courageously to make a fundamental change in the backward state of our country so that it becomes a great, modern, socialist power’.1

Setting a high aim is important not only during the inception of reforms but also at critical junctures of the economy’s transformation. In 1992, the conservative faction of the CPC feared that China would deviate from its socialist goals, ultimately launching a series of attacks against reform and calling for the elimination of special economic zones. Nevertheless, Deng Xiaoping (p.48) rallied support for the acceleration of reforms during a trip to Southern China in January 1992, emphasizing China’s falling far behind many neighbouring nations and making it clear ‘we must seize every opportunity to make the country develop quickly. We have a good opportunity now; if we fail to seize it, it will be gone very soon.’2

3.4.1.5 Viet Nam

The recent success of Viet Nam owes much to opportunities generated by ICT, and can serve as an example for how the aspiration of committed leadership can enable a country to quickly seize technology trends in upgrading its endowment structure. Due to this strong ambition and unwavering commitment, the Vietnamese leadership has also been more decisive in dismantling the monopolistic structure in this industry, promoting competition in the private sector and modernizing ICT infrastructure. As a result, in scarcely more than a single decade Viet Nam transformed its dilapidated telecommunication system and negligible ICT production capacity into a highly competitive digital infrastructure, creating a vibrant hub of global ICT manufacturing and outsourcing (Vu and Austin 2014).

3.4.2 Strategy

After establishing clear and ambitious goals for development, a country needs to formulate an effective strategy to achieve them. An economic development strategy can be seen as a set of tactical choices and guiding principles in pursuit of such goals. At the core of this strategy are the strategic directions, critical economic sectors, major thrusts, and priorities that the country should identify and articulate in order to fully exploit its comparative advantage, fostering structural change and economic growth.3

To formulate an effective economic strategy, a country should first thoroughly understand its core competencies and the comparative advantages associated with its current endowment, along with global opportunities and challenges, and major technological and socio-economic trends (Lin 2009, 2011, 2012a). The formulation of an effective economic strategy requires a strong political commitment from top leadership and vigorous engagement of all stakeholders. The strategy must be an indigenous product of the country, firmly rooted in a unique context and informed by feedback from the government, businesses, think tanks, other experts, professionals, and (p.49) labour representatives. A strategy is less likely to be effective if it is merely the product of a consulting firm, international organization, or individual government agency.

An effective economic strategy plays a crucial role in identifying the country’s comparative advantage associated with its evolving endowment structure and proposing strategic directions and priorities for fostering structural change in an economy.4 The formulation of an effective strategy is characterized by three features. First, a strategy aligns the country’s economic development efforts across sectors and regions, strengthening their coherence, consistency, efficiency, and coordination effectiveness. For a large developing country, the government may jumpstart the dynamic growth process by pragmatically creating localized enabling environment in industrial parks/zones for industries of the country’s comparative advantages, extending the improvements across regions and sectors gradually in line with the government’s available resources and implementation capacity. Second, a strategy enables the country to more effectively monitor and evaluate progress in economic development; hence, it fosters learning, reflection, and adaptability. Finally, a strategy induces businesses and workers to embrace change and prepare for rapid modernization towards a world-class status.

In addition to sound economic strategies, a country also needs systematic and recurrent reviews and reforms to enhance the relevance and effectiveness of such strategies, given the rapid changes in external economic circumstances and the continuing evolution of a country’s endowment structure. The review of an economic strategy tends to be more robust when the country’s economy faces challenges, as leaders can develop a deeper understanding about emerging economic trends and the forces behind them. On these occasions, the country also has a greater determination to undertake decisive changes and politically contentious restructuring efforts to foster economic competitiveness and transformation. As a country, for which economic success heavily relies on the soundness of its strategy,5 Singapore provides a good (p.50) example of such efforts. The government vigorously reviewed existing strategies when the economy was impacted by external shocks associated with major changes in the global and regional economic landscapes:

  • 1985 (amidst economic recession): the Economic Committee was established to stimulate Singapore’s economy and identify new directions for growth.

  • 1991 (seizing momentum): after twenty-five years of rapid development, Singapore drafted the Strategic Economic Plan (SEP) to formulate strategies and programmes for lifting the country to first league developed nation status within thirty to forty years.

  • 1997 (Asian financial crisis): the Committee on Singapore’s Competitiveness (CSC) was formed to propose strategies for reviving the country’s economy and strengthening its competitive position.

  • 2001 (amidst the global downturn caused by the 2000 dotcom bust and the 9/11 terrorist attacks): the Economic Review Committee (ERC) was established to address the downturn and shape the direction of Singapore’s economy over the following fifteen years.

  • 2009 (the global financial crisis): the Economic Strategies Committee (ESC) was established with the mission to develop strategies for Singapore’s economic growth in the new global environment.

  • 2016 (productivity growth stagnation): the Committee on the Future Economy (CFE) was established to find the direction for Singapore’s future economic development.

3.4.3 Implementation

A sound economic strategy requires effective implementation to produce desirable outcomes. This requires strenuous efforts in building execution capacity, creating an enabling environment, and ensuring the availability of financial resources for strategic implementation. The process also needs an effective monitoring and evaluation mechanism to closely track progress and inform performance assessments for individual initiatives. This mechanism should be participatory, practical, and reflective, involving intensive learning and adaptation. With effective implementation of a sound economic development strategy, a country can more fully exploit its potential, enhance its resilience against external shocks, and rapidly upgrade its endowment structure.

Putting an economic strategy into a concerted course of action requires not only a strategic vision but also operational skills, not only long-term commitment but also quick responses to change, and not only careful deliberation of implementation measures but also effective management of performance. As (p.51) such, a developing country lacking experience in such growth initiatives needs a highly competent organization to meet the demanding requirements of developmental effectiveness, particularly regarding the effective implementation of economic strategies.

Institutional initiatives that establish and support highly competent organizations dedicated to coordinate efforts for industrial diversification and upgrading, efficiency and productivity improvement, and export promotion, are critical to the success of a developing country’s industrial policy implementation. The experiences of successful Asian economies during their ‘miracle years’ provided exemplary examples.6 For Japan, the Ministry of Industry and Trade (MITI), Economic Planning Agency (EPA), and Ministry of Finance (MOF) are considered the key drivers of its economic miracle during 1950 to 1990. In particular, the MITI, in robust consultation with business associations, set up three clear criteria for selecting strategic industries: high-income elasticity, technological progress, and productivity growth. At the same time, EPA focused on monitoring the progress of structural change and productivity growth. Its analysis and policy deliberation help the government make more informed decisions in resource allocation.

South Korea established in the 1960s important vehicles for implementing industrial policy, which ranged from the Korea Institute of Science and Technology (KIST) to the Ministry of Science and Technology (MOST) to Export Promotion Conferences. The KIST was active in helping local firms adapt foreign technology, while MOST effectively coordinated national technology policies.

For Taiwan, the Ministry of Economic Affairs (MOEA) and its affiliated organizations such as the Technology Advisory Committee (TAC) and Industrial Technology Research Institute (ITRI) were behind Taiwan’s concerted efforts to transform its industries from textiles and apparel, toys, and agriculture into machinery, petrochemicals, electrical equipment, and electronics. In fact, ITRI was the major contributor to coordinating Taiwan’s efforts to become a leading player in the semiconductor and computer industries (Box 3.1).

(p.52) For Singapore, the Economic Development Board (EDB), which has been considered as a major driver of Singapore’s economic transformation offers valuable lessons for how a government agency can be a leading driver in implementing a strategy for economic growth and transformation. The lessons include:

  1. 1. A developing country should establish an organization dedicated to implementing the country’s economic strategy. The organization should have its own clear and well-articulated operational strategy that details the implementation element of the country’s economic strategy. The organization should also have business-like flexibility and a special mandate from the government for high effectiveness.

  2. 2. The government must take special care in appointing the head of this organization. This person must be well respected for his/her integrity, wisdom, and success in past management engagements. Moreover, this person, according to Schein (1996), must have the motivation and capability to bring out the best from his/her people.

  3. 3. The organization should recruit the brightest and best young people from all sectors and inspire them with a mission to help the country escape poverty and advance towards prosperity.

  4. 4. As a major link between the government and the business community, the organization must excel in five C-qualities: commitment, competence, credibility, communication, and coordination: (p.53)

    1. (i) Commitment is a strong sense of mission and high moral standards.

    2. (ii) Competence is not only defined by high professional standards but also a clear mandate from government leaders and an enabling organizational structure.7

    3. (iii) Credibility is a reputation for incorruptibility, honesty, and consistency.8

    4. (iv) Communication must occur between the government and investors, and should be characterized by a high level of responsiveness, intensive consultation, and clarity of the organization’s strategic intent.9

    5. (v) Coordination embodies the close link between the organization and other government agencies, and the organization’s ability to drive coordinated efforts among agencies in implementing the country’s economic strategy.

3.4.4 Acquisition of Knowledge

3.4.4.1 Strong Commitment to Learning

Acquiring knowledge is an essential tool for a developing country to enhance the effectiveness of its coordinated efforts throughout the course of development. Acquiring knowledge is not confined only to importing technology and know-how, but includes learning from international best practices. Furthermore, invaluable knowledge and wisdom can be derived from experimentation, benchmarking against the best performers, and a commitment to continuous improvement.10

The successful Asian countries have proven to be great learners, effectively exploiting their ‘backwardness’ advantage and leveraging their aspiration to catch up.11

(p.54) Japan

Seeking knowledge throughout the world to build a foundation for the country’s future was a guiding principle of the Meiji government, as set forth by the 1868 Charter Oath. In putting its strategies into action, the Meiji government dispatched a mission of fifty high-ranking officials to the United States and Europe for a twenty-two-month journey (December 1871 to September 1873) focused on discovering models and lessons for modernization. Remarkably, those on the mission had their jobs available for them when they returned.

As pointed out by Jansen (2000: 360), the lessons drawn by the mission were clear and thoughtful, which advocate for Japan focus its learning on American education, British industrialization, French jurisprudence, and German representational institutions.

The Meiji government was also proactive in acquiring knowledge through consultation with foreign experts. For example, Mori Arinori, a diplomat in Washington who later became the architect of the Meiji education system, invited leading American educators to submit their views about how Japan might best build its foundation for prosperity. In his 1873 reply, David Murray, who was a professor at Rutgers College in New Jersey, argued that Japan could be built into ‘an equally colossal commercial power’ in Asia, as England was to Europe. David Murray was then immediately invited to Japan as adviser to the new Ministry of Education (Jansen 2000: 357).

At the same time, Meiji leaders made laborious efforts to enhance the quality of their decisions concerning policy formulation and institution-building. Throughout this process, they vigorously embraced debate and reflected openly about alternative strategies and implementation efforts. The design of the Meiji state, as a result, was not rigidly established at the beginning but took shape throughout the state’s growth (Jansen 2000: 412).

Korea

Park’s government stressed the importance of mobilizing the wisdom and knowledge of scholars in formulating Korea’s economic development plans. The government used this approach in the preparation of its first Five-Year Economic Development Plan (FYEDP) (1961–5), treating the approach as a strategic means to enlighten economic development strategy and stimulate the engagement of the country’s scholars in national development endeavours. Park organized a planning committee, of which university professors and experts with specialized knowledge played an important role, to mobilize the maximum available expertise for government administration and policy-making, while holding in check the arbitrariness and rashness of the military officers (Park [1971] 2009: 107–8).

(p.55) Park himself made relentless efforts to learn. He was ‘open to new ideas and capable of transforming them into a detailed workable action programme’ and ‘studied hard to learn about economic issues and to discover ways to bring about economic development’ (Kim and Park 2011: 278). Park was described as a man ‘busy studying Japan…he frequently took clippings from Japanese newspapers and read The History of the Japanese Economy until midnight. A great portion of Park’s modernization policy emerged from the emulation of Japan. He compared South Korea’s economic situation to that of Japan all the time’ (Moon and Jun 2011: 120).

Korea’s export expansion meeting, organized and chaired by Park every month since 1965 for nearly fifteen years, was evidence of the Park administration’s efforts to enlighten its development strategy with knowledge from experts and lessons from practice. Participants from the governmental, industrial, and academic sectors engaged in vibrant discussions with a shared purpose to devise the best possible solutions. The decisions made during these meetings incorporated the comprehensive and diverse views of participants, and were given top priority (O 2009: 103–4).

Singapore

Robust acquisition of knowledge has been a prominent feature of Singapore’s development strategy throughout the country’s brief but remarkable history of economic transformation. As Lee Kuan Yew shared that his government knew little knowledge about how to govern and how to solve economic and social problems when it came to office in 1959 and that their one formula for our success was to constantly study how to make things work, or how to make them work better. His government’s learning was based on a few principles: never make a mistake twice and climb on the shoulders of others who have gone before (learn from world best practices and learn from the mistakes others have made) (Lee 2000: 758–9).

Goh Keng Swee, the main architect of Singapore’s economy, listed the capability to learn from others as a key ingredient of the country’s success. He asserts that Singapore was eager to learn and adapt, not imitate without thinking, on every challenge they faced, from building the metro system to setting up the air force.12

Benchmarking has also been a distinct feature of Singapore in its effort to promote economic development. For example, the EDB always ‘benchmarks against the very best, it commits to being world-class, and it borrows whatever is best’ (Schein 1996: viii).

(p.56) China

China’s effort to acquire knowledge is also remarkable, especially regarding experimentation. According to Heilmann (2008: 3), policy experimentation is defined as ‘a purposeful and coordinated activity geared to producing novel policy options that are injected into official policymaking and then replicated on a larger scale, or even formally incorporated into national law’. China’s policy experimentation has ranged from the establishment of special economic zones to the introduction of trial regulations. During the first two decades of China’s economic reforms, over 30 per cent of the government’s new regulations were conducted under experimental status (Heilmann 2008).

3.4.4.2 Absorptive Capabilities of Firms

The acquisition of knowledge is not only vital for the government to improve its performance, but also essential for the private sector to prosper. The vibrancy of the private sector, especially among small and medium-sized enterprises (SMEs), in acquiring knowledge depends on its absorptive capabilities, as determined by three key factors: mindset, competence, and facilitating and incentive mechanisms.

Fostering the type of mindset change that establishes a positive attitude towards learning is a fundamental beginning step. This is not an easy task, especially in poor countries where many tend to think that experiences from successful nations are exceptional and therefore irrelevant.

Enhancing the competence of the private sector is the next step; this includes investing in education, providing support in training, promoting knowledge diffusion, and encouraging learning by doing. Cohen and Levithan (1990: 128) assert that firms’ acquisition of knowledge depends on their prior related knowledge, which determines their ‘ability to recognize the value of new information, assimilate it, and apply it to commercial ends’. It is also important to note that enhancing the competence of a firm in absorbing tacit knowledge and working practices may enable it to more easily acquire hard knowledge in new technology (Lundvall and Johnson 1994; Von Hippel 1994).

Facilitating and incentive mechanisms coordinated by government play a direct and important role in firms’ effort to acquire knowledge, particularly in research and development (R&D) activity. These mechanisms range from fostering knowledge diffusion to consultancy supports, and from financial support schemes to fiscal incentives.

Singapore’s productivity movement provides a good example of the effective role of government in fostering the private sector to acquire knowledge for improvements and growth. The Singapore productivity movement was launched in September 1981 by then Prime Minister Lee Kuan Yew. With effective institutional arrangements and creative policy initiatives, this (p.57) movement has sustained vigorous efforts to promote acquisition of knowledge and adoption of best practices across sectors and companies in order to transform Singapore to a higher productivity economy. To prepare for the launch of the productivity movement, a committee assigned by the government prepared a report about productivity, entitled ‘Report of the Committee on Productivity’ and released in June 1981. The report thoroughly analysed Japan’s promotion experiences in productivity enhancement, work attitude, and labour–management relations. In its recommendations, the study emphasized the importance of human aspects associated with mindset change, and proposed the establishment of a high-level council to review productivity efforts and outline future strategy. Singapore’s success on this drive shows that emphasizing mindset change, fostering performance benchmarking, and vigorous support for training are the effective ways to key enhance firms’ absorptive capabilities.

3.4.5 Nurturing Human Capital Formation

Coordination through an Asian Lens

Figure 3.6. Improvement in education and economic growth, 1960–2010: SSA and developing Asia: a global picture

Source: World Bank (2016) for GDP; Barro and Lee (2013) for education.

As Lucas (1993: 270) argues, ‘the main engine of growth is the accumulation of human capital—of knowledge—and the main source of differences in living standards among nations is differences in human capital’. Human capital plays an important role in both enabling and driving the structural change of an economy. With availability of higher skilled labour, firms are enabled and even lured to move to higher value-added activity. Vibrant human capital formation also enhances the absorptive capabilities of firms and society and fosters their learning and innovation. This helps the economy produce more output with fewer resources and sustain efforts to upgrade production capacity. As a result, investing in education is expected to be an important measure to promote economic growth. Figure 3.6, which show a significant positive relationship between improvement in education (measured in average schooling years of population aged 15 or older13) and GDP growth over the five-decade period 1960–2010,14 can lend support to the important role of education in driving growth. In particular, all five economies with GDP growth exceeding 7 per cent (Botswana, China, Singapore, South Korea, and Taiwan) increased their average schooling of population aged 15 or older by at six years over this period.15

(p.58) For successful Asian economies, nurturing human capital formation has historically been a major policy priority. Their efforts in this strategic direction have been carried out in three approaches: proactively attracting diaspora, heavily investing in education and training, and aggressively upgrading innovation capacity.16

Coordination through an Asian Lens

Figure 3.7. Human capital development in 2010: SSA vs developing Asia

Source: Authors, based on UNDP (2012).

To better understand the challenges facing the countries of SSA, particularly with regard to nurturing human capital formation, one examines their current levels of human capital development as compared to developing Asian countries (Figure 3.7). Two urgent issues are evident. First, it is urgent for countries with very low education levels, including Niger, Burkina Faso, Chad, Mozambique, and Ethiopia, to make major efforts in improving their basic education systems. Second, SSA countries should make a stronger commitment to health development. In general, SSA markedly underperforms developing Asia in the health development index. Moreover, the slope of this measure as a function of education is also flatter for SSA compared to developing Asia (the coefficient beta is 0.18 for SSA compared to 0.31 for developing Asia). This implies that (p.59) SSA countries can do a better job of improving public health as they make progress on other aspects of human development such as education.

3.5 Conclusion

Lessons and insights from Asia’s successful development experiences can be drawn through the lens of new structural economics, a theoretical proposition arguing that modern economic development is by nature a process of continuous structural transformation in technologies, industries, infrastructure, and socio-economic institutions. The experience of Asia demonstrates that developing countries have the potential to grow dynamically, significantly reduce poverty, and reach middle-income or even high-income status in the span of one to two generations, provided the country has an enabling state that can overcome the inherent constraints of inadequate infrastructure and unproductive business environments, and that can generate structural change in technology and industry. The aim of state coordination is to facilitate the private sector’s maturation in industries that accord with the country’s comparative advantages, turning those industries into the country’s competitive advantages, and exploiting late-comer opportunities.

The successful development of Asian countries has been addressed in a variety of studies, including those by the World Bank and the Growth (p.60) Commission. This chapter extends this work in two ways. First, it explores how lessons from successful Asian countries can be applied to SSA countries, particularly with regard to strategic objectives, institutional reform, and human development. The chapter shows that lessons learned from these Asian economies are meaningful and applicable for SSA countries. However, in order for these lessons to be actionable, the leaders of the SSA countries should more thoroughly understand the nature of economic growth and master a strategic policy framework.

Second, this chapter proposes and applies a specific policy framework, demonstrating its value as a versatile and replicable tool. The principles of new structural economics and the five-component strategic framework—ASIAN, as introduced in this chapter—serve this purpose. They provide an analytical tool useful not only for development efforts in other regions at varying stages of growth, but also for scholarly research about countries undertaking modernization and economic catch-up. The ASIAN framework’s focus on aspiration, strategy, implementation, acquisition of knowledge, and human capital formation are relevant in both contexts—applied and theoretical—and further operationalize new structural economics. This chapter’s contribution aims to enrich development studies from a fresh perspective that addresses continuing transformational changes in information diffusion, the role of knowledge in development, and the impacts on both of a rapidly globalizing economy.

It should also be noted that the ASIAN model applied by the successful Asian economies has evolved overtime in which ‘strategy’ is the most dynamic component. A continually renewed development strategy enables a nation to effectively respond to rapid changes in the external environment and leverage its new comparative advantages to sustain robust economic growth into the long-term. African policy makers and the donors should pay a special attention to the soundness of the strategy when the ASIAN framework is used to examine the readiness of a nation in embarking on a development journey.

Acknowledgements

We thank Kris Harley and Nguyen Chi Hieu for research assistance.

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Notes:

(1) CPC (1978).

(2) Deng’s remarks on his trip to the Southern China in 1992, cited in Marti (2002: 104).

(3) Page (2012) argues that Africa countries need a strategy for breaking into the global industrial economy, which is focused on three interrelated strategic objectives: tilting towards exports, building capabilities, and encouraging agglomeration.

(4) Only if an industry is consistent with a country’s comparative advantages determined by its endowment structure will the industry have the lowest possible factor costs of production. However, to be competitive in the global market, what matter are the total costs, which consist of both factor costs of production and transaction costs. It is thus essential for the state to coordinate or provide the necessary improvement in hard and soft infrastructure to reduce the transaction costs in order to turn a country’s comparative advantages into competitive advantages (Lin 2012a, 2012b).

(5) Singapore’s effective strategy has transformed Singapore one of the globally fast-growing and most resilient economies in the past five decades. With a population of 5 million and area of 700 km2, Singapore has become a global hub of a variety of industries and services, including aerospace, electronics, chemicals, pharmaceutical, marine, and tourism.

(6) It is also important to point out the recent examples of the agencies/committees in charge of strategy implementation coordination in other Asian countries: Performance Management & Delivery Unit (PEMANDU) of Malaysia (in taking charge of implementing and monitoring the progress of the Economic Transformation Programme); the Committee on Economic Development Acceleration and Expansion of Indonesia (in charge of coordinating the implementation of the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development); the National Development and Reform Commission (NDRC) of China (for strategizing, coordinating, and monitoring economic reforms); and the National Steering Committee on ICT of Viet Nam (for promoting ICT development).

(7) Like other Singapore government agencies, the EDB used the HAIR framework (Helicopter quality, Analytical skills, Imagination, and Reality) for assessing the competence of its staff.

(8) According to Schein (1996), the EDB impressed foreign investors by having clear rules and a commitment to keeping promises; they were determined to meet the needs of investors without compromising their own values and rules; they gained respect of investors for being efficient without being either expedient or corrupt.

(9) Schein (1996: 187) noted that ‘the most salient characteristics of the EDB officers is their ability to communicate orally and in writing,…think things out, articulate one’s conclusions and sell them to others’.

(10) See Yeung et al. (1999) provides a rich discussion on this topic.

(11) The concept of ‘backwardness’ advantage was first introduced by Gerschenkron (1962). It has been one of the major comparative advantages low-income countries must fully exploit to succeed on their catch-up endeavours (Lin 2003, 2009, 2012a, 2012b).

(12) Straits Times (1984).

(13) From Barro and Lee Education Dataset, available at <http://www.barrolee.com/>, accessed 15 March 2016.

(14) To make it more readable, only the names of Asian and sub-Saharan economies appear on the chart.

(15) Japan’s economic stagnation and population ageing since 1990 has made it an average player for the period 1960–2010 although it was an outstanding performer in both education and economic growth during years prior to 1990.

(16) For example, see World Bank (1993), Yoon (1992), and Zhao and Zhu (2009) for policies and policy initiatives to promote human capital formation in East Asian economies.