Name: How Asia Works
Rating: 4.1 (53 reviews)
Author: Joe Studwell

What’s in it for me? Understand how economic development in Asia works.

In the last decades, Japan, South Korea and Taiwan have delivered some of the most impressive developmental success stories the world has ever seen. Other Asian countries – such as Malaysia, Thailand and the Philippines – have attempted to follow in their footsteps. However, the economic growth achieved by the latter was only sustainable for a short period of time. So what was it that made these economies develop so differently?

To achieve successful development, there are certain steps that states can take – and they must be taken in the right order. After all, we learn to walk before we run. Now we will explore these steps and policies and see how a state can be transformed into an economic powerhouse.

In these blinks, you’ll find out

why financial deregulation can be harmful for economic development;
why farming is actually less efficient on large scale than a small one; and
why South Korea promoted three different car manufacturers on their small market.

To start development in poor countries, boost agricultural output by promoting household farming.

For a long time, Asia lagged behind the West’s technological advances. But then Japan, South Korea, Taiwan and, most recently, China, started to catch up and have now transformed into economic powerhouses. How did they do it?

Successful Asian states promoted small-scale household farming instead of moving prematurely to large-scale farming. Household farming maximizes output by effectively using the available labor force, while large-scale farming generates few jobs and low agricultural output.

This may seem counterintuitive at first, as huge farms appear to be the most efficient method of agricultural production. However, unlike in the manufacturing sector, increasing scale in agriculture doesn’t create higher output or better quality. Only fertilizer and intensive labor can improve yields and quality.

What’s more, the mechanization that comes along with large-scale farming can be harmful in poor countries because it reduces the amount of farming jobs available and the yield each plant can produce. Mechanization only makes sense if labor is scarce, which is typically not the case in poor countries.

In fact, human labor-intensive techniques are crucial to getting the highest yields possible.

For example, shade-tolerant vegetables like celery can be cultivated in the shade of taller plants, which makes it possible to grow more within the same area – but this requires planting and harvesting by hand. Such techniques create agricultural outputs that dwarf those of machines and large-scale farming.

Promoting household farming also has other positive effects: it creates jobs in developing countries.

Since the industry and service sectors are not strong in poor countries, the labor force has no other employment alternative than agriculture. That’s why it makes sense to have an agricultural sector composed of household farms that offer lots of jobs until better alternatives of employment come along.

A well-executed and far-reaching land reform is key to promoting household farming.

So how exactly do you promote household farming? First you need to solve the problem of land: Who owns it and who needs it?

The solution is land reform: the redistribution of land among the people.

Protectionist policies are necessary to make the transition to a manufacturing economy.

You might be thinking: successful modern economies can’t be based solely on agriculture, right?

Right. But agricultural policy is the starting point of development. Once the foundation of a strong agricultural sector is created, the economy can shift toward more value-adding industries.

Governments need to invest in technological development and support entrepreneurs.

It’s clear that a developed economy doesn’t emerge overnight. It takes decades, if not centuries, of careful planning and action.

So where does the journey begin?

Successful industrialization requires a system that forces businesses to export and encourages competition.

We’ve seen how important it is to protect new local companies from international competition. But companies eventually have to reach a stage of maturity when they can survive on their own.

This process takes a long time, and successful governments have to keep spurring companies’ development through two key measures: promoting exports and building domestic competition.

Premature financial deregulation can stifle development.

We often hear economists lobbying for financial deregulation – but is this always the best policy?

If deregulation is premature, it can actually undermine the government’s ability to develop a competitive technological industry.

Stripping back faulty communist policy set China’s economic development in motion.

Let’s use what we’ve learned, and look at China’s development. For a long time, China’s economy stagnated because of two communist policy mistakes:

First, the communists believed agriculture was only efficient at mass scale. But the process of collectivization led to widespread famine and 30 million people died from starvation.

China has made great progress, but still faces many problems.

Does China’s economic shift mean it’s about to become a rich industrial country?

Not quite.

How Asia Works summary