How Asia Works, Joe Studwell
Along with macro-economic stability, the IMF and the World Bank have consistently pressed the virtues of private enterprise, and the privatisation of state enterprises. In developed countries, there is considerable evidence that private firms tend to be more cost-efficient than public ones. 233 But in the learning phase of development, the public–private ownership distinction is framed differently, that is, in terms of what kind of company is able to absorb knowledge and make technological progress. When the state’s regulatory capacity is weak, it is sometimes easier for governments to pursue industrialisation objectives via state firms. Japan, Korea, Taiwan and China all made rapid technical progress using state-owned companies, particularly at an early stage; China is today making greater use of state firms than any successful developing nation before it. This does not prove that state ownership is superior to private. It merely demonstrates that it is not such an important consideration as developing countries have been told. In failed, autarkic socialist states like the Soviet Union, and India and China in their pre-reform incarnations, the absence of export discipline and competition were the real developmental culprits, not who owned firms’ equity.
Something really interesting that I found from this book from Joe Studwell. Above all, I think what the key point of this book, and what this passage highlights, is that free markets and liberalization of markets is not the magical solution that developing economies need to industrialize and develop.
In his book, Studwell even goes on to show that other other countries in South East Asia that whom have, based on conventional wisdom, deregulated their financial markets but were still unable to capture the growth that countries like Japan, Korea and China have.
The idea that a country needed to just open their country up to free trade, investments and let the markets develop never seemed to make sense to me, especially from my own personal experience in Singapore. The Singapore government took an extremely active approach in buying up and controlling land/property, most of the economy is driven by state-owned enterprises and the government takes a super active approach in developing industries and shifting our economic focus. This would never make sense to economists that promotes free markets and privatization. The “inefficiencies” of the state managing these corporations would never make sense! But in our case, it helped us develop into a first world country economically and it seemed to make sense.
To me, the dichotomy between the left and right approach to economics just distracts us from being guided by first principles. When faced with different situations, we should always keep an open mind and do what what makes sense based on the individual facts.
