MIT
UN ESCAP
2008 Climatic Change Toward Integrated Assessment of Environmental Change Building Infrastructure for the Facilitation of Economic Cooperation in Northeast Asia in the 21st Century
interview
H. Amsden
Alice
(Sir W. Arthur Lewis: 1979
Alice H. Amsden:
The East Asian Miracle
and Regional Development
Kyung-min Nam(‘Nam’): Firstly, thank you for accepting this
interview request. Korean readers will find this interview useful in understanding your ideas better. For decades, you have devoted yourself to the field of international development. Who most influenced your work as a scholar of international development and why?
Alice H. Amsden(‘Amsden’): W. Arthur Lewis, because he
understood the importance of models that didn’t make ridiculous assumptions. He showed how much wisdom could be derived from the ratio of labor to raw materials. He understood how income distribution affected economic development, which even today, few understand. He was also never boring and let me do my own thing. That’s a big deal!
Nam: Your major works focus on a set of late-industrializing
countries and key factors that underlie their economic success.
Especially in your book “Asia’s Next Giant,” you thoroughly studied the case of South Korea, and formulated Korea’s catch-up model. How did you come to have an interest in Korea, and what aspects of Korea’s development path were most interesting to you?
Amsden: When the World Bank was still an institution that did
1980
(Robert McNamara)
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(Paul Krugman) 1990
unbiased research (Robert McNamara, who had shown terrible judgment in the Vietnam War, was president), the Bank financed a big project on “How do developing countries acquire their technological capabilities?” Four countries were involved: Brazil, Mexico, India and Korea. I worked on Korea with the late Linsu Kim, who taught at Korea University. We looked at 30 factories in five industries, including textiles, cement, steel, pulp and paper (not a big winner in Korea) and shipbuilding.
One week at each factory-a lot of work but wonderful. I was teaching at the time at Harvard Business School and what I was teaching there (Technology and Operations Management) and what I was studying in Korea (how Koreans learned to make steel, how they learned quality control in ship building, how they figured out how to regulate the temperature in the cement kiln, where they got their professional managers from, how they made workers understand their industry) coincided. Wonderful! We tortured so many managers to tell us how they learned, but I think we all had a nice time. Some of these people are my friends to this day.
Later, I wrote a lot about the Korean government, and what a nice job it had done, but I only got to understand the government step by step, starting on the shopfloor, from the ground up.
Nam: Knowledge and learning seem to compose the core part of your conceptual lens.
Can you briefly explain why they are crucial in your theory? Paul Krugman once argued that East Asian economic growth was led by factor input growth rather than productivity growth, and thus would not be sustainable. His argument seems to be exactly opposite to your theory. Can you briefly comment on that?
Amsden: Krugman didn’t understand that when a firm is young and growing very
fast, and when a country is young and preoccupied with building new industries, productivity is not the important variable to maximize. Countries have to build up their pool of knowledge. They have to enter industries and stake out market share before other developing countries get there. They have to borrow when they can even if this means a high debt-equity ratio and temporary inefficiency.
KBS TV
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If Korea had listened to Krugman (I debated with him on precisely this issue on KBS TV), Korea would still be maximizing productivity in the export of human hair, one of Korea’s early exports. Market models like the ones Krugman got the Nobel Prize for are simply not dynamic. The Nobel Prize is no longer dynamic.
The people who get it have to be part of the same gang, neoclassical economists, and they have to have tiny ideas which are brilliantly executed with little applicability to the problems of economic development as they are. Krugman was a slave to a defunct theory, as Keynes would say.
Nam: You also criticized an approach based on dichotomy between Latin America’s
inward-oriented (or import substitution) industrialization and East Asia’s outward- oriented (or export-oriented) industrialization. Why do you think this approach is inappropriate?
In addition, for the last decade, both Korea and Taiwan, which are often considered as the two most successful late industrializers, have experienced a substantial slowdown in economic growth. This fact seems to suggest the need for some changes in their previous catch-up model. In order to enter the group of advanced economies, what should they do further?
Amsden: Countries are told to develop on the basis of exports, but in the early days
countries have nothing to export. They have to build their industries first, through import-substitution, and then export. The mother of exports is import substitution.
Korea’s Heavy Industry drive in the 1970s was highly criticized by the World Bank and Treasury, but what pulled Korea out of a serious repression in the early 1980s was heavy industry. The only countries to industrialize on the basis of raw material exports-the regions of recent settlement like Canada and New Zealand-all started with high levels of skills from England. These regions were pioneers, not poor.
Slowdown is inevitable. As I said before, the early stages of development require throwing a huge number of resources into the pot and then stirring. If some resources grow faster than others, you can’t maintain the same top rate.
1997
But I don’t think the problem today is the old development model. The problem today is American-trained Korean Economists (A-TKEs, as I frequently used to write about while acknowledging numerous exceptions). They learn ideologies about markets in conservative US economic departments, and have very little idea about both the destructive as well as constructive forces of markets, or how to build new industries.
There is no time dimension in their models, so something they do may be right, but it will only help the Korean people in the next century.
They hold theories that can’t be falsified and the assumptions of their models are ludicrous (perfect, universal knowledge-tell that to the scientists in Samsung or Daeduck Science Park who are trying to keep up and surpass Japan), yet they have a disproportionate input to economic policy making. No matter what, they think they are right at the great expense of economic stability, such as the financial liberalization of 1997, about which both the American and Korean sides remain quiet. So much for transparency.
The economic departments in Seoul National University, Korea University, Yonsei University, etc. should introduce a long-term affirmative action program to start hiring more economists trained in Korea rather than in the US.
Nam: Your theory highlights large, diversified, and nationally owned firms as key
actors of collective learning and innovation in late industrializing countries. A body of literature, however, has paid primary attention to networking among highly specialized small firms, based on geographical proximity, as key sources of innovation and regional/national economic growth (and the nationality of economic actors is often neglected).
Can you comment on your argument in comparison with the latter? Do you think that large, diversified, and nationally owned firms still matter for countries like Korea which are located in somewhere between developing and advanced economies?
Amsden: After the American Civil War (1861-1865), big, professionally managed businesses started to dominate economic development. This trend continues in all modern
(1861 1865)
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2007 Escape
from Empire
societies, whether in the manufacturing, mining or services sector. At certain ups and downs in the business cycle, there are waves of mergers and acquisitions, and companies get even bigger. There are two reasons for this size-scale economies and knowledge.
Big companies hire the best people, they do the R&D, they buy out innovative start- ups that can’t survive by getting big themselves, and they invest overseas. Like little fish in the mouth of the whale, small firms make the whole system work efficiently and creatively, but they don’t lead.
Networks of parts and components suppliers are extremely important, but why romanticize them? Now, only about 30 companies from developing countries are in Fortunes 500 biggest international firms. The developing world has a long way to go in order to buy its own brand of toothpaste, and not Colgate Palmolive.
Nam: In your new book “Escape from Empire,” you argue that a better economic
outcome, both from national and from global perspectives, will come out, when each country is endowed enough policy space to determine its own destiny. You harshly criticized the neoliberalistic globalization regime, which seriously restricts each country’s policy options against so-called “global standards.” Do you oppose globalization itself or only the “do-it-our-way”type of globalization? Current globe-wide economic crisis seems to request a new direction of globalization. Can you explain the new direction you have in your mind, if any?
Amsden: Who could oppose globalism? It’s like fluoride in the water supply-its
everywhere. But to prosper in globalism, countries need their own firms. Otherwise, they have to depend on the multinationals, which tend to be bureaucratic in their Third World operations. You need your own firms to invest overseas (outward FDI), and you need your own firms to snag foreign contracts to manufacture (“outsourcing”).
That is, a new form of globalization, while encouraging cross-country economic transactions and cooperation, should allow the developing world more policy space, so that each country can incubate competitive local firms and industries in its own creative way.
(WTO)
WTO
Nam: One of the most serious problems Korea currently confronts is economic
divergence among sub-national regions. Korea’s local economies have suffered huge job losses and subsequent population outflows, while the Capital Region has attracted more and more people and economic opportunities. An increasing number of local-based jobs in the price-sensitive sector are escaping Korea, but new jobs in the high-tech sector mostly go to the Capital Region. Various measures formulated by the Korean government have failed to improve this situation. Recently you mentioned about the need for local industrial policy to revitalize United States sub-national economies. Do you think the same idea can work for Korea? If so, can you comment on that in more detail?
Amsden: When I was teaching a class at MIT on regional disparities within countries,
Korea's disparities were among the lowest. Still, they matter in Korea and disparities are tough to reduce because some age old differences between parts of a country remain.
The biggest gains in reducing regional gaps have been realized in Europe-How did Italy bring Sicily closer in income to Milan? How did France revitalize Montpellier? At Europe’s insistence (most European countries suffer chronically from a north-south income divide although not as bad as Italy’s), subsidies to regional development are
“non-adjudicable” under WTO law-they can’t be taken to court.
Regional development can be subsidized by the government. It should be made top priority in Korea-there is no legal constraint and regional re-development projects can be very good for a slow economy.
Nam: Finally can you briefly introduce your current research interests?
Amsden: When the US learned from the UK, it learned free trade, open markets, and
property rights. When Korea and Taiwan learned from Japan, they learned pragmatic stuff, not theory. The US got an abstract model from the UK. Korea and Taiwan got a role model, based on data, with a memory and judgment. My research is on which mode of learning is better for economic development.
Nam: Thank you very much for your answers. I am sure that now readers can
understand your ideas better. I wish to have a chance to introduce your new works in more detail to Korean readers in the future.
