How Asia Works | Joe Studwell

Summary of: How Asia Works: Success and Failure in the World’s Most Dynamic Region
By: Joe Studwell

Introduction

Step into the world of Asia’s economic resurgence with the book ‘How Asia Works: Success and Failure in the World’s Most Dynamic Region’ by Joe Studwell. Gain insights into the key strategies and policies that have propelled Asia from a once lagging continent to an economic powerhouse. The book summary delves deep into aspects such as the significance of household farming, land reforms, investment in manufacturing, and the role of competition and export promotion. Navigate through the journey of Japan, South Korea, Taiwan, and China and witness how their calculated moves have transformed these nations into formidable global players. Learn valuable lessons that can be applied to other developing economies to set them on the path to prosperity.

Success Secrets of Asian Economies

Successful Asian states transformed into economic powerhouses by promoting small-scale household farming that maximizes output by effectively using the available labor force. Large-scale farming generates few jobs and low agricultural output. Human labor-intensive techniques are crucial to getting the highest yields possible. Promoting household farming also creates jobs in developing countries.

The rise of economic powerhouses such as Japan, Taiwan, South Korea, and China has got everyone wondering how they made it happen. Surprisingly, these countries promoted small-scale household farming instead of shifting prematurely to large-scale farming. Household farming maximizes output by effectively using the available labor force while generating jobs that help create a thriving economy.

While large-scale farming seems the most efficient, it does not create higher output or better quality as seen in the manufacturing sector. Instead, only fertilizer and intensive labor can improve yields and quality. In fact, mechanization from large-scale farming can be harmful in poor countries where labor is abundant. Human labor-intensive techniques such as planting and harvesting by hand yield higher agricultural outputs than machines and large-scale farming.

Promoting household farming also creates more jobs in developing countries since the industry and service sectors may not be strong in these regions. Hence, an agricultural sector composed of household farms that offer lots of jobs is vital until better alternatives for employment come along. This simple strategy proves that when it comes to agriculture, it is not the size that matters, but rather the approach.

Land Reform for Economic Development

Land reform is the key to promoting household farming. Successful experiences in Japan and Taiwan prove that after redistributing land among people, economic inequality reduced and farmers’ output grew, which created a stable economic base for further progress.

Promoting household farming demands an answer to the land problem, specifically the question of who owns the land and who needs it. The solution to this problem is land reform, which involves redistributing the land among people, and it has helped develop economies in various countries.

For example, Japan struggled to gain popular support from US-backed regulation after the World War II, in part because of the unpopularity of American forces. However, Wolf Ladejinsky, an agricultural adviser, understood that land reform was crucial to creating support from the working class, as he had witnessed during the Russian Revolution. This understanding led to the implementation of surprisingly radical legislation, including a maximum three-hectare limit for farms that forced wealthy landlords to turn over their excess land. The land was then redistributed among poorer farmers, leading to rural output and consumption growing above pre-war levels by the early 1950s, and economic inequality being significantly reduced.

Taiwan is another country where successful land reform occurred after the Chinese civil war. Here, after being advised by American policy makers, the defeated Kuomintang government sought more popular support by redistributing land worth the equivalent of 13 percent of the country’s GDP. After that, the amount of farmers who possessed their own land increased from 30 percent in 1945 to 64 percent by 1960. As a result, the Gini coefficient, which represents perfect equality (0) or perfect inequality (1), improved from 0.56 at the start of the 1950s to 0.33 by the mid-1960s. Following the land reforms, gross output of foodstuffs increased by half in Japan and three-quarters in Taiwan, creating a stable economic base for further growth.

These experiences prove that land reform is the key to promoting household farming, reducing economic inequality, and creating a stable economic base for further progress.

The Importance of Agriculture to Economic Growth

The agricultural industry serves as the cornerstone of any developing economy. By establishing a strong foundation in agriculture, a country can shift towards manufacturing industries like steel, cars, and textiles, which is the best policy to create growth. This is because manufacturing does not require a highly educated workforce, and manufactured goods trade more easily on the global market. Although the manufacturing industry can benefit from free trade, it needs to be protected in the early stages to imitate and improve foreign technologies until they’re able to produce competitive products themselves. Therefore, protectionist policies that limit imports serve as the best strategy to nurture the manufacturing industry in developing countries until it is strong enough to face global competition. Ultimately, free trade should be the country’s ultimate goal; it’s only feasible once the manufacturing industry has been efficiently developed.

Steps to Industrialization

The process of developing a developed economy takes careful planning and investment. Industrialization starts with government investing in the manufacturing sector. Japan’s industrialization, for example, began with pilot factories. After these factories were sold to private entrepreneurs, they could stand on their own, at which point legislation to support entrepreneurs was necessary. This legislation included lifting import duties on certain goods, even if it damaged local economies. Japan’s Shibusawa mill ended its chronic trade deficit, and by 1914 cotton textiles accounted for 60% of all Japanese exports. Export discipline is the third factor in successful industrialization policy.

Fostering Economic Growth

To promote economic growth, governments need to nurture developing companies through promoting exports and building domestic competition. Successful countries like Taiwan and Japan subsidized companies that exported the most. However, South Korea went a step further by making bank credit dependent on exporting rates. This forced companies to either merge with more successful peers or go out of business. South Korea also prepared its companies for the world market by setting up three private firms to compete in the domestic market for its car industry. In contrast, Malaysia let a state monopoly supply its domestic market, leading to a lack of competitiveness. During the booming years of the ’80s and ’90s, a financial crisis in 1997 showed that the Northern countries, which bolstered export and competition, recovered much faster than the Southern countries, like Malaysia and Thailand. As a result, successful countries today have GDPs per capita four times larger than countries that neglected competition.

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