Exploring the ThreeVarieties of East Asia's

State-Guided DevelopmentModel:
Korea, Singapore, and Taiwan

Jei GukJeon

In the postwar era, the East Asian state-guided development model has worked well to
create successive economic miracles in the region. However, the enduring variances of
the individual economies in East Asia still remain. This article explores the empirical
diversities hidden behind the intra-regional commonalities. In particular, on the "growth-
stability-equity" spectrum, the East Asian development paradigm could be sub-divided
into three categories: South Korea's "growth-obsessed" pattern (G); Singapore's "growth-
with-stability" model (G-S); and Taiwan's "equity-and-stabihty-based growth" model
(G-S-E). Largely derived from the deliberate political choice of a particular strategic
path, each model of East Asia has materialized on the basis of strong developmentalist
states. However, unlike the multi-goal options (G-S/G-S-E), as in Singapore and Tai-
wan, the mono-goal options ((G), as in Korea, could gain the chosen objective at
considerable cost to the neglected dimensions. As a result, given a set of necessary
political conditions, the multi-goal options are a better choice for Third World policy
practitioners than are the mono-goal options.

N 'ow, with the end of the Cold War, "a new ideological battle is taking shape
within capitalism itself," particularly between "Japan's government-guided in-
dustrial model" and "America's laissez-faire, neoclassical economic precepts"
(Impoco 1992). Hence, in order to survive and prosper in the coming "Age of
Economic Cold War," the developing countries may be forced to make a tough
choice between the two competing paradigms.

Jei Guk Jeon is a Korean government official working for the Finance Bureau, Ministry of National
Defense, Republic of Korea. The views expressed in this article are solely that of the author. Address
correspondence to: 805-304 Gongmuwon Apt. 611-1 Ilwon-dong, Kangnam-ku, Seoul 135-230, Ko-
rea.

Studies in Comparative International Development, Fall 1995, Vol. 30, No.3, 70-88.
Jeon 71

So far, the state-guided development model has worked well over both Marxist
and Smithian gospels, creating success stories, particularly in the postwar East
Asian region. Following the dramatic resurgence of war-torn Japan as an economic
superpower, the emergence of East Asia's mini-Japans (e.g., South Korea, Taiwan,
Singapore) and next-tier NICs (e.g., Malaysia, Thailand, Indonesia) has elevated
East Asia as the postwar world's economic powerhouse. Meanwhile, the East Asian
model tends to become a new orthodoxy of Third World development.
Nonetheless, focusing on East Asia, the individual economies reveal somewhat
substantial differences in their development patterns, measured by economic growth,
price stability, and income equality. From 1965 to 1986, for instance, South Korea
and Indonesia achieved high economic growth at the cost of price stability and
income distribution, whereas Taiwan and Japan got growth-with-equity under a
tolerable level of inflation. In the meantime, Singapore, Hong Kong, Malaysia, and
Thailand had both growth and stability, but with relatively higher inequality. 1
At the moment, it seems imperative to explore empirical varieties built into the
East Asian state-guided development model, with special references to South Korea's
"adventurist-growth," Singapore's "stable-growth," and Taiwan's "shared-growth."
In so doing, this article begins by re-illuminating the East Asian model in the
economic growth-stability-equity spectrum. Yet, in dealing with the three mini-
Japans, the time frame is limited to the important decades from the 1960s to the
1970s, when they experienced "economic take-off." The second section will plunge
into the three different development modes one by one, placing particular focus on
the country-specific political dynamics. The final section makes an attempt to infer
some policy implications from the varying experiences within East Asia.

The East Asian Model: DiversitiesWithin Unity

From the neo-classical economists to the statists, the East Asian NIC phenomenon
has been a popular subject of intellectual inquiries over the past decades. However,
the different responses to the East Asian miracle among the contending theories are
likely to mislead Third World policy-makers. As seen in the cross-regional com-
parative studies, particularly on the East Asian versus Latin American NICs, the
economists put a particular stress on the "export-oriented market openness" as a
single determinant of East Asian success, whereas the statists attribute it to "ample
autonomy" of East Asian states. 2 As such, while each paradigm tenaciously clings
to a slice of the totality, the whole of the East Asian NIC phenomenon still remains
untapped.
Above all, the essence of East Asian economic dynamism lies in the "multi-
facetedness," based on a pragmatic mix of state guidance with private initiatives.
This sort of East Asian pragmatism was embodied in such platforms as Park Chung
Hee's "guided capitalism," Chiang Ching-kuo's "planned free economy," and Lee
Kuan Yew' s "half socialist half capitalist" principle.
Indeed, the East Asian states under study have been heavily interventionist, with
"long arms" omnipresent in all socio-economic life (Lim 1983). Not only have their
72 Studies in ComparativeInternationalDevelopment/ Fall 1995

state apparatuses been strong enough to be free from both intra- and extra-govern-
mental forces, they also played an active entrepreneurial role in the development
processes. Nevertheless, unlike the socialist countries, the activist role of the East
Asian states has never crowded out the private sector. To encourage private initia-
tive, the East Asian states supported, rather than supplanted, the market forces.
Thus, in the East Asian development processes, state and market each plays a role
(FEER, 30 July 1992: 64).
Such a unique formula in East Asia has yielded unprecedented economic develop-
ment in the world's economic history. Not only have these economies grown three
times faster than the rest of the world in the postwar era, but they also grew at five
times the growth rate during the Industrial Revolution (Naisbitt and Aburdene 1990:
179-80). More distinctive is that, as compared with others, their high economic
growth was not accompanied by economic instability and inequality.3 In the mean-
time, the East Asian NICs are likely to be dealt with as if they were a single
homogeneous group, in stark contrast to the rest of the world.
However, looking inside East Asia, the development trajectories of the individual
economies exhibit remarkable variations on the growth-stability-equity spectrum.
As Table 1 and Figure 1 indicate, during the 1960s and 1970s, South Korea under
Park Chung Hee went on the unbalanced-development path, recording a high GNP
growth rate accompanied by the highest inflation and over-time maldistribution;
Taiwan underwent an ideal-typical balanced-development, achieving the highest
level of equity-with-growth; and Singapore experienced the highest level of growth
and stability. 4 So, the Korean Park Chung Hee development model could name a
growth-first model based on the doctrine of "growth-first, stability-and-equity-later;"
Taiwan's could be called a shared-growth model which puts an equal emphasis on
growth, stability, and equality; and Singapore's would be designated as a stable-
growth model seeking both growth and stability.

Korea:ParkChungHee's "Growth-First"Model(1961-1979)

Major General Park Chung Hee's coup on 16 May 1961 marked a critical turning
point in the Korean history away from the one-and-a-half decades-long politico-
economic doldrums. Assuming power, Park elevated national security and eco-
nomic growth as an interlocked political goal of the regime (Park 1970: 143).
However, on the growth-stability-equity spectrum, he gave highest priority to GNP
growth, advocating a unique formula of "growth-first, distribution-and-stability-
later." Neither price stability nor distributive justice had ever been seriously tar-
geted as a self-conscious goal,5 let alone the committed goal of anti-poverty and
economic expansion. His single-minded quest of hyper-growth would be from a
hidden, political motive to legitimize the likely illegitimate military regime by achiev-
ing an unprecedentedly high economic growth.6
At the moment, to pave a sound way for the growth drive, Park Chung Hee
launched a "developmental revolution." A new political order was imposed both
inside and outside the government. Not only were the old politicians and corrupt
Jeon 73

TABLE 1
Comparative Economic Performances of Korea, Taiwan, and Singapore
Distribution
Economic Growth Inflation (CPI) (Gini Ratios)
Three East Asian (average (average (1965/66--~
Countries annual rate) annual rate) 1970--~1978/79)

Korea (1963-79) 9.5% 15.5% 0.344--->0.332--->0.400

Taiwan (1960-79) 9.7% 7.2% 0.358-->0.321-->0.312
Singapore (1965-79) 10.2% 4.3% 0.500--->0.470--->0.430
Sources: Economic Planning Board, Major Statistics of Korea Economy 1987, pp. 31,196; International
Monetary Fund, International Financial Statistics: Yearbook 1981, p. 269; Council for Economic Planning
and Development, Taiwan Statistical Data Book 1986, pp. 24-29, 175, 189; Department of Statistics,
Economic & Social Statistics: Singapore 1960-1982, pp. 57, 215-16; Choo (1985), pp. 90-105; Kwack
(1986), p. 129; Chu (1984), p. 23; Lim (1988), p. 402.

FIGURE 1
Simplified Development Modes in East Asian NICs

KOREA TAIWAN SINGAPORE

H H

Growth ( G N P ) / / ~ Growth ( G N P ) / ~

baJ't't-'l'~ '*jl*lll*i /" Inflation (CP!! ....

*%
Equality (gini)

Equality (gini)
Equality (gini) ....

63 65 70 75 79 60 65 70 75 79 65 70 75 79

Notes: H = High. L = Low

Sources: Same as Table 2.
74 Studies in ComparativeInternationalDevdopment / Fall 1995

bureaucrats eliminated by all-out clean-up campaigns, but the political purge was
extended to the potential rivals within the ruling circle. Side by side, a total quies-
cence was imposed on the social activists, including laborers, who otherwise would
oppose the growth-first, distribution-later policy. Equally important was that the
rent-seeking capitalists were co-opted to spearhead the Park-committed growth drive.7
Next, Park's revolution brought the development issue to the forefront of the
political agenda. His strong commitment to economic development led to the rise of
the "economy-comes-first" principle (Park 1970). Meanwhile, the ideological pen-
dulum moved toward the pragmatic "guided capitalism" (EPB 1962: 28), and the
partisan-based political elites were replaced by the reformist administrative elites. A
wide array of development institutions, to which the growth-oriented technocrats
were posted, including the Economic Planning Board (EPB), were created and
structured in a centralized fashion.
This witnessed the advent of the "developmentalist state" based on great au-
tonomy, adamant economic will, and pragmatic ideology. This was also firmly
founded on the "growth coalition" between the ex-military administrators and civil-
ian technocrats, on the one hand, and between the government and big business, on
the other.
Having consolidated a sound political base, the Park regime embarked on a series
of economic restructurings in response to the changing economic order. Faced with
market saturation and a balance of payment crisis through the early 1960s, it made a
strategy shift by the mid-1960s from import-substituting industrialization (ISI) to
export-oriented industrialization (EOI). At the turn of the decade, however, a set of
new problems, including a politico-security dilemma, labor shortage, industrial deep-
ening crisis, and new protectionism did cast grave doubt on the viability of labor-
intensive EOI. Hence, Park drastically institutionalized the "hard-authoritarianism"
based on the 1972 Yushin Constitution and switched the development strategy to-
ward multi-purposed "heavy-chemical industrialization" (HCI) by 1973. 8
All economic policies were shaped to Park's "growthist economics" and were
implemented by the capable economic bureaucracy. Fiscal-monetary policy tools
were kept as loose as possible to maximize investments, with relatively lighter tax
burden, chronic deficit budgeting, low interest rates, high money supplies, and
unlimited foreign borrowings. 9 Likewise, in the sectoral policy area, top priority
was given to the leading industrial sector. In particular, the large-scale conglomer-
ates (chaebols) with greater potential for economies of scale were supported exclu-
sively, with the provision of preferential loans, tax exemptions, tariff protections,
and monopolistic privileges. In the meantime, the marginal sectors, such as agricul-
ture and small to medium size firms, were almost totally neglected, unlike in Tai-
wan. Even the public enterprises of South Korea functioned mainly as growth
promoters rather than as economic stabilizers or as income equalizers (SaKong
1980).
Once export was chosen as the engine of economic growth by 1963, it was
aggressively promoted with a host of inflationary incentives such as low-interest
loans, foreign exchange credits, and repeated devaluation of foreign exchange rates. 10
Jeon 75

The giant General Trading Companies (GTCs) were created as shock troops of
export drive (Cho 1987). At the same time, in order to nurture indigenous entrepre-
neurs, the neo-mercantilistic semi-free trade regime was instituted, based on selec-
tive control of foreign direct investment (FDI) and selective protection of local
firms.
Above all, it was in the phase of aggressive HCI (1970s) that Park's adventurist
growthism was at the apex. To accelerate capital investments in heavy-chemical
projects, the Park regime created new incentives, reinstituted the cheap money
policy, expanded low-interest loans, increased indirect taxes, heavily relied on defi-
cit-and-debt-financing, and directed an excessive resource transfer from light to
heavy industry (Jeon 1994).
As expected, such a growth-oriented policy-mix yielded rapid economic growth,
producing a sustained investment boom throughout the 1960s and 1970s. However,
behind Park's single-minded quest of hyper-growth, inflationary pressures were
recurrent, and the secular trend of income distribution was regressed in the long run.
In particular, the fretful acceleration of chaebols-based, debt-intensive, import-de-
pendent HCI during the 1970s led to sky-rocketing inflation and a widening income
gap. Such a regressive economic move, coupled with anachronistic Yushin politics,
eventually ushered in an irrevocable crisis in October 1979, when President Park
Chung Hee was assassinated.
In sum, South Korea under Park Chung Hee' s developmentalist leadership created
the economic take-off of the 1970s and became a model case of Third World
growth. However, the "Miracle on the Han" was enacted through a risky path of
unbalanced development based on a growth-first doctrine, which was accompanied
not only by hyper-growth but also by chronic inflation and long-term inequality.

Singapore:PAP's "Stable-Growth"Model (1965-1979)

Historically, Singapore is a relatively late starter, incubated within the British

colonial empire for 140 years (1819-1959), half born in 1959, and fully indepen-
dent by 1965. Nonetheless, soon after independence, it reached the highest stage on
the world's economic growth ladder, recording the highest GDP growth with the
lowest inflation. Thus, it has become a contemporary exemplar of growth-with-
stability.
From the self-rule era (1959-65) onward, the ruling People's Action Party (PAP)
has sought a stability-based rapid economic growth. Like the British colonial mas-
ters, PAP leaders placed a particular emphasis on economic stability, with a recog-
nition that Singapore, born as the world's smallest city state, is inherently vulnerable
to exogenous factors.
However, on the growth-equity issue, Lee Kuan Yew advocated the neo-classical
theme of growth-first distribution-later, emphasizing that "growth must come before
sharing" (Vreeland et al. 1977:119). Having experienced the leftist-backed militant
unionism in the decolonization process, PAP leadership has been mindful of a
potential correlation of unemployment with labor activism and socio-political disor-
76 Studies in ComparativeInternationalDevelopment/ Fall 1995

der. Faced with rising unemployment in the earlier days and compelled by the
urgency of job creation, therefore, PAP shifted its ideological stance from socialist
equality to capitalist growth, 11and income distribution was left to the invisible hand
of the market.
No less than Korea and Taiwan, Singapore was confronted with a series of po-
litico-economic crises in the early post-war years. PAP politics were beset by intra-
party factionalism (1959-61), the "Battle for Merger" between PAP and Barisan
Socialis (1961-63), the PAP versus Alliance conflicts within the Federation of
Malaysia (1963-65), Indonesian confrontation (1963-67), and the British Navy
withdrawal from its Singapore base (1967-71). Amid such political storm clouds,
economic ills were ever-deepening, associated with declining entrepot trade, usurp-
ing unemployment, rising labor costs, industrial setback, and housing shortage. In
particular, the forced separation from the Federation of Malaysia in 1965 produced
a survival crisis for the city-state, evaporating the PAP's expectation of the wider
duty-free common market.
At that critical juncture, PAP leadership undertook stringent action to clear away
all obstacles to national survival. To begin with, PAP, like the KMT, swiftly institu-
tionalized the strong one-party state, fully capitalizing on the crisis situation. Not
only did it restrengthen party discipline and solidarity, but it also monopolized all
the parliamentary seats. It was no longer faced with threats from internal strife or at
the ballot box until the mid-1980s.
Assuming that economic survival was a precondition for national survival and
also for its own political survival, PAP renewed the will for an unrelenting eco-
nomic growth (Chua 1983) and called for a more activist and interventionist role by
the state apparatus, diverging from the colonial tradition of laissez-faire small-
government ideology. There emerged the Singapore version of economic pragma-
tism: the "half-capitalist half-socialist" (Pillai 1983: 32) or the "pragmatic joint
enterprises" (Goh 1976: 84). A wide array of development institutions, such as
statutory boards, were set up to spearhead the industrial drive. The subsequent rise
of the pragmatic technocrats in the political arena caused the secular eclipse of
competitive party politics, which in turn led to the emergence of the "administrative
state" (Chan 1975: 60).
On the societal front, PAP's survival exercise created a "tightly-organized, rug-
ged, highly-disciplined society." Already, the leftists and societal forces had been
crippled by Operation Cold Store of 1963. Thereafter, the PAP government forged a
symbiotic alliance with trade unions along its own formula: labor discipline + low
wage + industrial peace -- national survival. 12On the other hand, unlike Park Chung
Hee, the PAP leadership kept itself aloof from the business circle, thus enjoying full
freedom from the capitalists (Crouch 1984: 19, 22; Quah 1984).
Along with political consolidation, the PAP leadership undertook economic re-
structuring in a swift yet flexible fashion. For the city-state separated from Malaysia
there was no choice but labor-intensive, foreign capital-based EOI. Thus the PAP
government swiftly shifted its industrial strategy from ISI to EOI by 1968. How-
ever, over the course of the 1970s, the newly rising problems did cast a serious
Jeon 77

doubt on labor-intensive EOI. So, PAP flexibly changed the economic strategy
toward high value-added, skill- and capital-intensive EOI by 1979 under the new
platform of the "Second Industrial Revolution" (Rodan 1985: 15, 30).
All the economic policies, cutting across the industrial strategies, were shaped to
be in line with PAP' s economic goal of non-inflationary high growth. Most of all, in
order to lay a macro-economic base for stable growth, PAP prudently mixed the
policy tools: on the one hand, it kept the fiscal policy expansionary to stimulate
investments; on the other, it made the monetary policy contractionary to preempt
inflationary pressures. 13 Along with this, the compulsory savings schemes, such as
Central Provident Fund (CPF), were institutionalized to become effective instru-
ments for non-inflationary financing. Foreign exchange rates were kept stable and
even appreciated as an additional device to price stabilization, i4
At the same time, to sustain the rapid pace of economic growth, PAP concentrated
all energies on industrial expansion and export promotion. Apart from the assurance
of low wages and industrial peace, a host of non-inflationary incentives were of-
fered to all sorts of investors on a non-discriminatory basis. No particular control
was imposed on imports. Lacking sufficient local capital and entrepreneurs, PAP
created an increasing number of public enterprises and attracted FDI without limit. 15
Such an astute combination of state entrepreneurship with foreign capital was effec-
tive for rapid industrial growth without a loss of sovereignty.
At economic crises, however, policy actions were flexible enough not to lose
either growth or stability. Hit hard by the recession of 1974-75 (triggered by the oil
crisis), for instance, PAP imposed contractionary monetary measures and belt-tight-
ening wage policy. But, once the economy stabilized by the late 1970s, the PAP
government employed full monetary arsenals to propel the growth drive. Such a
skillful policy-mix yielded the highest economic growth with the lowest inflation,
propelling the sustained investment boom in a noninflationary way.
To sum up, throughout the post-self-rule era, the world's smallest city-state,
Singapore, was subject to ceaseless disturbances arising at both domestic and exter-
nal dimensions. However, in response to the recurrent survival crises, PAP swiftly
revitalized itself as a strong developmentalist state, on the one hand, and effectively
targeted both economic growth and price stability, on the other. Turning every crisis
point into a springboard for the next jump, Singapore eventually created another
East Asian miracle, with the world's best record in both economic growth and price
stability.

Taiwan:KMT's"Shared-Growth"Model(1949-1979)

From its inception, the Kuomintang (KMT) regime advocated the state-guided
shared-growth model in line with Sun Yat-sen's principle of min-sheng (People's
Livelihood).16 Yet, throughout the pre-civil-war era, this ideal remained unfulfilled,
beset by the prolonged anti-colonial struggle and the subsequent civil war.
The KMT's total defeat to the Chinese Communist Party (CCP) in the civil war
(1945-49) turned out to be a 'blessing in disguise' for the Taiwanese. Not to repeat
78 Studies in Comparative International Development / Fall 1995

the same mistake on Taiwan, the KMT leadership, no less than Park Chung Hee and
Lee Kuan Yew, made a strong commitment to economic development, with a firm
determination to build Taiwan up prior to a return to the mainland (Liu 1984: 5).
Moreover, in stark contrast to Park's unbalanced growth, the KMT sought bal-
anced development, putting an equal emphasis on economic growth, price stability,
and income equality. 17 Such a unique strategy seemed to derive from the KMT's
experience on the mainland. The KMT attributed its defeat in the civil war to a
vicious correlation between deepening inequality, skyrocketing inflation, chronic
intra-party factionalism, and corrupt state-business ties. 18 Hence the KMT leader-
ship, upon retreat to Taiwan, chose the strategy of stability- and equity-based steady
growth, mindful of a potential link of hyper-inflation and inequality to political
downfall.
To lay a firm political foundation for shared growth, the KMT leadership launched
a multi-dimensional reform. The reform drive began with the imposition of martial
law (1949-87), which froze national elections and crippled societal activists. At the
same time, it implemented land reform (1949-53) and liquidated the powerful land-
lords. This laid a solid structural basis for long-term income equalization. Next, the
KMT embarked on a sweeping self-reform drive (1950-52) and revitalized itself as
a virtually monolithic single party state.19 m subsequent administrative reform led to
the political rise of engineers-turned-technocrats, who advocated stability-based steady
growth (Liu 1984: 10-17). In addition, the KMT leadership, unlike Park Chung
Hee, discontinued the past practice of corrupt business ties, keeping itself aloof
from the business circle and remaining "neutral to sectoral or regional interest"
(Gold 1986; Simon 1980). No longer was the KMT, therefore, besieged by local
landlords and bourgeoisie.
Having assured full autonomy from all intra- and extra-Party forces, the KMT
leadership, in contrast to Park Chung Hee, made a progressive move "from hard to
soft authoritarianism" (Winckler 1984; Jeon 1994). Above all, it was the resumption
of supplementary elections in 1969 and the initiation of the Taiwanization program
in 1972 that marked a decisive move toward the political-softening of the one-party
system. 2~ The younger, talented Taiwanese elites were on the rise, displacing the
old-guard hard-liners. 21 This facilitated self-rejuvenation and demilitarization of the
KMT, but without altering its basic power structure. As a result, unlike Park's
regressive politics of Yushin that ushered in politico-economic crises by 1979-80,
the KMT's progressive politics broadened its political base, co-opting local elites
who otherwise would pose considerable challenges to KMT rule (Cooper 1988: 4;
Gold 1986: 94, 126). At the same time, there was an ideological change from
Chiang Kai-shek's heavy-interventionist platform of the planned economy to Chiang
Ching-kuo's mild-interventionist platform of planned free economy.
In tandem, the KMT government launched a series of economic restructurings,
making strategy shifts in a flexible manner. As in Korea and Singapore, the KMT
undertook inward-looking ISI in the earlier years, and then moved to outward-
looking EOI by the early 1960s. Yet, over the course of the 1970s, Taiwan con-
fronted a survival crisis, politically riddled by total diplomatic setbacks and security
Jeon 79

dilemmas, and economically beset by labor shortage, deepening crisis, and new
protectionism. Haunted by the crisis situation, initially the KMT chose capital-
intensive HCI (1973-76), as in Korea. Yet, soon thereafter, the KMT leadership,
unlike Park Chung Hee, cautiously redirected the development strategy toward tech-
nology-intensive EOI, thus bypassing the inflation and inequality-laden HCI path. 22
In the meantime, the Taiwan economic policies were oriented toward growth,
stability, and equality, mandated by the KMT's strategic goal of stability- and
equity-based growth. For growth-with-stability, the KMT, like the PAP, kept the
fiscal-monetary policies relatively tight, with surplus budgeting, high real interest
rates, low money supply, and stable foreign exchange rates. 23 Yet, not to deter
private investments, these policy tools were prudently and flexibly adjusted and
readjusted, as in Singapore. In the face of economic crisis during the 1950s and
1970s, for instance, the KMT placed top priority on economic stability; then, once
the economy was stabilized, it promoted economic growth in a cautious way to
avoid inflationary pressures.
Aside from such macro-economic policies, the KMT provided non-inflationary
fiscal incentives, rather than inflationary monetary incentives, for export promotion
and industrial expansion. While Park Chung Hee had relied heavily on favoritistic
low-interest loans, the KMT extensively used tax incentives with relatively free
credit markets. 24 For instance, under the Statute for Encouragement of Investment,
the government provided a five-year tax holiday, low-rate business income tax, tax
exemption, tax deduction, and tax reduction and rebates for approved investments
and export industries. 25
Next, the KMT's quest for growth-with-equity was embodied in a platform for
"fostering agriculture by means of industry and fostering industry by virtue of
agriculture" (Yen 1982: 6; GIO 1984). The idea of agriculture-industry joint devel-
opment was materialized by a set of coherent policies to promote "agriculture-first,
industry-later" and "light industry-first, heavy industry-later" (Li and Yu 1982: 6;
Yin 1962). So, contrary to Korea, Taiwan's economic development started from
effective land reform and agricultural growth and then moved toward industrial
growth. Here the early phase of agriculture-led industrialization set in. However, as
the agricultural sector became saturated by the early 1970s, Taiwan entered a new
phase of industry-led agricultural growth with Chiang Ching-kuo's Nine-Point Ag-
ricultural Reconstruction Program (1972). 26
In the industrial sector, the KMT's growth-with-equity platform was realized
through the path of small firms-based decentralized industrialization, with a bal-
anced regional development program. 27 Anti-monopoly action was strictly imposed
on the private sector, while the monopoly-prone large-scale firms were put under
state control. In tandem, the small-medium enterprises proliferated, which facili-
tated the equalization of the industrial sector. 28 Through the 1970s, the KMT ren-
dered a balanced assistance to the labor-, capital- and technology-intensive projects,
without being deeply involved in a heavy industry dream. Such a cautious approach
to capital-intensive HCI proved to be very effective for avoiding both business
concentration and inflation.
80 Studies in ComparativeInternationalDevelopment/ Fall 1995

These economic policies, combined together, led to a balanced Taipei Miracle, as

the KMT intended, creating a firm basis for long-term price stabilization, uninter-
rupted income distribution, and steady economic growth. Such an ideal-typical de-
velopment path was engineered by the KMT's inherent aversion to inflation and
inequality, and was eventually realized due to a sound political base.
All in all, the KMT institutionalized the strong developmentalist state, as in Korea
and Singapore, based on strong economic will, pragmatic ideology, and great au-
tonomy. Yet, in contrast to Park's regressive politics, the KMT rule has undergone a
progressive move toward soft authoritarianism, and an ample degree of flexibility
was built into the one-party system. This in turn made it possible to flexibly adapt
policy to rapidly changing economic order. Above all, the KMT's platform of
stability- and equity-based growth was realized by a prudent fiscal-monetary policy-
mix, noninflationary incentives, agriculture-industry joint development, and small
firms-based industrialization.

Comparative Political Underpinnings

The East Asian NICs under study have gone through a series of difficulties through-
out the post-war era. Using every crisis point, however, the East Asian leaders
effectively institutionalized the ideal-typical developmentalist states, acting like the
"reformmongers" in Hirschmanian terms (Hirschman 1973: 272-275).
At the heart of the East Asian developmentalist state was a relatively optimal
combination of great political autonomy and strong economic will. Associated with
the latter, pragmatism was the guiding ideology of economic policy-making, and the
state apparatuses were increasingly technocratized. There emerged a multilateral
development partnership between state leadership and the bureaucracy and/or the
business sector. Hand in hand with such political restructuring, the East Asian states
successfully launched a series of industrial restructuring in response to the changing
economic order, thus eventually creating economic miracles.
Looking at the micro-dimension, however, the individual states chose somewhat
distinctive development paths for political and/or geo-economic reasons. Faced with
a similar policy puzzle, they laid dissimilar political bases, responded with different
sets of policies, and ultimately produced varying development patterns, as Table 2
shows.
On the growth-stability-equity spectrum, each state exhibited a particular strategic
orientation. Having experienced total political demise due to inflation-cum-inequal-
ity on the mainland, the KMT targeted all three dimensions to avoid the same
mistake. Likewise, with an experience of unemployment-caused labor activism and
social disorder, and also aware of Singapore's own unique geo-economical status
vulnerable to exogenous forces, the PAP leadership sought growth with stability. By
contrast, the Korean leaders had no such experiences and did not exhibit a particular
aversion to inflation and inequality. Thus, beset with legitimacy issues, Park Chung
Hee, in particular, quested only for macro-economic growth rather than distribution
and stability, as a key to political legitimation of the likely illegitimate military
regime.
Jeon 81

TABLE 2
Summary of Comparative Politics-Policies-Development Patterns
Countries
Strategic PoliticalRestructuring
Priority (Directionality)
Korea Growth Regressivefromsoft
(Park) to hard authoritarianism
Increasinginterventionism
and systemrigidity
Symbioticbusinesst i e s
Taiwan Growth Progressivemovefrom hard
(The + Stability to soft authoritanism
KMT) + Equality Moderatinginterventionism
and risingflexibility
Ascendancyof engineers-
turnedtechnocrats
Aloofbusinessties
Singapore Growth Developmentalistone-party
(The + Stability state with great autonomy,
(PAP) strongdevelopmentwill,
and high flexibility
Mild interventionism
Aloofbusinesst i e s
Corporatistalliance with
trade unions
EconomicRestructuring
(IndustrialStrategy Development
& Policy-Mix) Patterns
AggressiveEOI-,All-out HCI High GNP growth
Expansionaryfiscal-monetarypolicies Highinflation
Inflationarymonetaryincentives Rising inequality
Industry-first agriculture-laterpolicy
Pro-bignessand chaebols-based
centralizedindustialization
Increasinglyregressivetaxation
Heavy foreignborrowings(indebted)
Repeateddevaluation
PrudentEOl~Cautious partial HCI High GNP growth
Tight/flexible fiscal-monetarypolicies Low inflation
Non-Inflationaryfiscal incentives High equality
Agriculture-industry joint growth
(Agriculture-firstindustry-later)
Decentralized industrializationbased
on small privatefirms
Minimalforeignborrowings
Stable foreignexchangerates
Flexiblestrategicshift from labor- Highestgrowth
to skill-intensiveEOI Lowestinflation
Tight/flexiblefiscal-monetarypolicies Steady
Non-inflationary fiscal incentives equalization
Large publicfirms- & FDI-based
industrialization
Highlyprogressivetaxation
Free trade regime(lowesttariffs)
Minimalforeignloans & unlimitedFDI
Stable foreignexchangerates

With different objectives, the East Asian states mandated politico-economic re-
structuring in varying modes. Singularly obsessed with high GNP growth, the Park
Chung Hee regime in Korea increasingly moved toward heavy-interventionist hard-
authoritarianism. Antagonistic forces such as laborers and students were excluded,
whereas big capitalists were incorporated into the Park-forced growth coalition. A
trilateral growth coalition was, therefore, formed between state leadership, techno-
crats, and big businesses. Park embarked on industrial restructuring in a radical
fashion. The export-led growth drive was aggressively carried out by loose fiscal-
monetary measures, a wide array of inflationary incentives, and through big firms-
based centralized industrialization. His single-minded quest of growth eventually
led to an unprecedentedly high GNP growth. Yet, the price instability and income
82 Studiesin ComparativeInternationalDevdopment/ Fall 1995

inequality growing behind the scenes ushered in the breakdown of the growthist
regime in the long run.
By contrast, aiming to harmonize growth with stability and also with equity, the
KMT leadership on Taiwan progressively restructured the political system from
hard to soft authoritarianism. With a gradual opening of KMT politics, structural
flexibility was injected into the rigid one-party state. Moderate technocrats advocat-
ing a stable and steady growth were on the rise. The remote state-business relations
furthered the political autonomy of the KMT in pursuing antagonistic measures.
Meanwhile, there emerged a coalition of stability-and-equality-based growth among
the KMT leadership, middle-of-road technocrat, and small-medium industrialists.
Simultaneously the KMT restructured the economy in a highly flexible, even cau-
tious, manner, thus shortening the risky course of inflation-and-inequality-laden
HCI. All policy tools were managed prudently to maintain a careful balance be-
tween growth- and stability-oriented policies, and between growth- and equality-
targeted policies. Meanwhile, all the three dimensions were promoted successfully
without the sacrifice of any one. Herein lies a key to the KMT's success in stable
and equitable growth.
On the other hand, to pave a sound way for growth with stability, the PAP
leadership in Singapore institutionalized the KMT-like one-party state in response
to its survival crisis after independence. Under the PAP-imposed politics of sur-
vival, all potential opposition forces were effectively deactivated: the partisan elites
were superseded by technocrats; trade unions (NTUC) were transformed into an
industrial shock-absorber and peace-keeper; and local capitalists were forced into
quiescence. Soon, a growth-with-stability coalition emerged between the PAP lead-
ership, technocrats, and the NTUC. PAP chose both public enterprises and foreign
capital (FDI), not local finns, as the best means to Singapore's rapid industrializa-
tion and national survival. PAP's goal of growth-with-stability was achieved by
flexible strategy shifts and skillful policy-mix, as in Taiwan. Macro-economic poli-
cies were designed to sustain high economic growth without triggering inflationary
pressures. Also, even in promoting exports and pioneer industries, noninflationary
fiscal incentives were offered instead of inflationary monetary loans, and wage
restraints were enforced instead of repeated depreciation of foreign exchange rates.
The net outcome was the highest level of growth and stability.
As such, the empirical diversities in East Asia's state-guided development model
derive from the cross-national variation in the political choice of a particular strate-
gic path on the growth-stability-equity spectrum. Their strategic goals were achieved
respectively on the basis of their own particular political frameworks and economic
policy-mix.

Lessons From East Asia:A StrategicImplication

Just as there is no panacea for every ill in the drug world, there is no ideal-typical
development model for every society in the economic world. Likewise, to emulate
Jeon 83

the development experience of other societies would be risky or even tricky, consid-
ering the enduring differences across countries. So, I will merely infer a policy
implication from the diverse experiences of the three East Asian NICs.
Insofar as a development trajectory would be preconditioned by the political
choice of a strategic approach, it is of great importance to make a right choice with
the careful calculation of both short- and long-term impacts of the chosen path. At
the very moment of making strategic choices, the decision makers would have
seven possible alternatives: growth (G), stability (S), equity (E), growth-with-stabil-
ity (G-S), growth-with-equity (G-E), stability-with-equity (S-E), and growth-with-
stability-with-equity (G-S-E). Out of these alternatives, the feasible options for
capitalist economies seeking capital accumulation would be the growth-inclusive
ones such as G, G-S, G-E, and G-S-E.
In the light of East Asian experience, I would like to suggest multi-goal, not
mono-goal, options. In theory, it would be very difficult to successfully target the
multiple goals, as neo-classical economists contend, because of potential trade-offs,
particularly between growth and stability, and between growth and equality. How-
ever, in practice, the separable policy goals are not necessarily a trade-off but rather
mutually complementary in the long run, as seen in the East Asian NICs.
Looking at the mono-goal options, the chosen goal, whatever it may be, could be
realized, given a minimum set of necessary political conditions. However, it could
be achieved at considerable costs to the neglected dimensions. First, the 'G' option,
as in the Park model, could lead not only to high GNP growth but also to chronic
inflation and long-term maldistribution. Next, the 'S' option would bring price
stabilization but without economic growth, which in turn drains the vitality of the
economy and eventually drives it into a low equilibrium trap. Third, the 'E' option,
as seen in the communist world, will ultimately produce the equality of poverty by
stifling development.
Turning to the multi-goal options, as long as some necessary political prerequi-
sites are established and economic policy tools are skillfully mixed, the original
objectives could be reached successfully without triggering trade-offs between growth-
and stability-oriented policies, and between growth- and equity-targeted policies. As
witnessed in Taiwan and Singapore, thanks to the KMT/PAP's prudent policy-mix
and flexible implementation, the potentially negative side-effects multiplied in the
long run. Herein lies the key secret to the harmonious combination between growth
and stability and/or equality in the KMT's G-S-E model and the PAP's G-S para-
digm.
All in all, unlike conventional wisdom, to catch more than one bird with a single
stone is possible. Hence, if a set of political conditions arose correspondent to the
East Asian developmentalist states, the stability- and/or equity-based growth strat-
egy would be better than the mono-goal options. Yet, if there is no choice but one of
the single-goal options, the Park Chung Hee style of the growth-first strategy might
be comparatively better than the stability- or equity-obsessed approach because this
would not, at least, bring on economic stalemate.
84 Studiesin ComparativeInternationalDevelopment/ Fall 1995

Notes

1. For the comparative economic performances of East Asian countries, see World Bank, World Develop-
ment Report 1988; Council for Economic Planning and Development, Taiwan Statistical Data Book
198Z
2. For economists' works on East Asia, see Balassa (1981), Friedman and Friedman (1980), and Barrett and
Chin (1987). For statists' works, see White and Wade (1984), Lehmann (1985), Haggard (1986), Gereffi
and Wyman (1987), and Jenkins (1991).
3. See World Bank, World Development Report 1988, pp. 225,272-73.
4. However, during the 1980s, there were some changes in the development patterns of the three countries.
Korea under the Chun Dot Whan leadership (1980-88) experienced a Singapore-style of growth-with-
stability and marginal income equalization (SaKong 1993: 36). On the other hand, both Taiwan and
Singapore continued to achieve relatively high GNP growth and price stability, but with marginal
maldistribution, (Yu 1987; Lim et al., 1988: 402).
5. At best, Park pursued sporadic stabilization programs (1963, 1968, 1979) and the agriculture-first policy
in the initial populist period (1961-63). Yet, upon winning the 1963 election, his platform was switched
to "construction-first distribution-later" and "industry-first agriculture-later" (Dong-A Ilba, 6 October
1964).
6. With Korea's pre-colonial tradition of civilian control, Park's military rule would be regarded as illegiti-
mate. To Park, perhaps the single best means to political legitimation was to eradicate poverty and
achieve rapid GNP growth. Another reason for his total neglect of economic stability and equality could
lie in the fact that the postwar Korean leaders, unlike the KMT, had no self-experience of political
collapse caused by hyper-inflation and/or maidistribution.
7. At the start, all the commercial banks were nationalized and old business leaders were arrested on the
charge of being "illicit wealth accumulators;" and then, the arrested capitalists were forced to collaborate
with the new development plans in exchange for amnesty. Moreover, m order to ensure sustained
business compliances, Park continued to exercise an exclusive control of bank credits and government
loans, even imposing shock measures. For details, see Amsden (1989: 104), Jones and SaKong (1980:
282-83), and Jung (1986/1987).
8. Park elevated himself as a supra-constitutional leader with virtually unlimited emergency power while
imposing a total silence on any political dissidents. The HCI strategy was to legitimize the Yushin
system through industrial deepening and economic expansion, and also to improve the self-defense
capability. For more details, see Jeon (1994).
9. For instance, the tax burden was 13.2% of GNP for 1961-80; budget deficits accounted for 2.8% of GNP
for 1965-75; the real loan rates were -5.7% for 1961~o4, +12% for 1965-71, and -3.5 % for 1972-79;
the money supply (M1) grew at an average rate of 27.9% for 1961-79; and the debt service ratio reached
to 15.1% for 1973-79.
10. For Park's aggressive approach to export promotion, see Jones and SaKong (1980: 94-95); Hong (1987:
283, 197-98); Rhee, Larson, and Pursell (1984:11-38).
11. See Goh (1976: 81); Chua (1985: 33-34); Pugh (1984: 77).
12. For the PAP's skillful tactics on labor unions, see Pang and Huat 0983: 230-31); Singapore Economic
Bulletin (December 1979: 33).
13. For 1966-80, for example, the tax burden was relatively moderate, with an average rate of 15.1% not to
discourage investment incentives; budget deficits on overall account were 1.7% of GDP; the real interest
rates were +1.5% for deposits and +4.5% for loans; and money supply grew at just 14%.
14. Singapore dollars had been appreciated at an average rate of 2.3% for 1965-80.
15. For 1967-83, the number of public enterprises increased from 13 to 70. The share of FDI in gross
domestic investment increased from 33% in 1966 to 68% by 1980. Nonetheless, PAP guided FDI along
its own priorities, with a firm control of basic industries and fully capitalizing on incentives schemes.
16. Min-sheng is a rmxed blend of the capitalist free enterprises and the state control of capital (Sun Yat-sen
1929: l l ; Gold 1986: 48). Along this line, the state was defined as "a custodian of private firms, a
founder of new enterprises, a prospector, a supplier of raw materials, a buyer of finished products, and a
money lender" (Li and Yeh 1967: 8).
17. This was embodied in a platform that "balance must be maintained between growth and stability," and a
slogan of "seeking equality in ensuring wealth" while "seeking wealth in ensuring equality" (Yin 1961;
GIO 1984; China Yearbook 1976: 723, 738).
Jeon 85

18. In the mainland, the KMT's land reform failed and thus rural poverty was widespread; its corrupt
business ties with the landlords and commercial bourgeoisie worsened economic inequality and political
corruption; the war-time printing of currency led to a rampant inflation by 5,589,000 times in August
1948 at base of 1937, which devastated the livelihood of the people; and the KMT itself continued to
suffer from intra-party factionism. See Jeon (1992); Liu (1948: 3, 8).
19. In the process of Party reform, many old-guard conservatives were de-registered, and, instead, the
younger, talented, reformist cadres were recruited. For more details, see Liu (1984).
20. Such a progressive political move in Taiwan coincided with the rise of Chiang Ching-kuo (CCK) who
became the Deputy Premier in 1969 and the Premier in 1972. CCK's stated rationale for Taiwanization
was to "take another stride in political renovation and acceleration of economic development" (China
Yearbook 1972-73: 8).
21. For the rising portion of the Taiwanese elites in the KMT's Central Standing Committee and the Cabinet,
see Tien (1988: 12-14).
22. With CCK's Taiwanization, the increasing rise of middle-of-road technocrats opened a new path of
"technology-intensive EOI" away from both labor-intensive EOI and capital-intensive HCI. For the time
being, an equal emphasis was placed on capital-, technology- and labor-intensive industries in the new
Six-Year Plan (1976--81). Then, the Ten-Year Plan (1980-89) marked a clear-cut shift toward "technol-
ogy-intensive, nonpolluting, nonenergy-guzzling industries."
23. For instance, budget surpluses accounted for 1.5% of GNP through 1961-80; the real deposit rates were
+5.8% and real loan rates were +7.7% on average for 1961-79; and foreign exchange rates were
upvalued at an average rate of 0.5% through the 1960s and 1970s.
24. For varying incentive schemes between Korea and Taiwan, see Bradford, Jr. and Branson (1987:21-22).
In Taiwan also, a special export loan program was available since 1957, but the proportion of favorable
rate loans remained very small, with a continued decrease from 6.3% of total loans in 1972 to 1.9% by
1980. See Kuo (1883: 304).
25. For more details, see Kuo (1983: 302).
26. In addition, the KMT continued to redistribute farmland owned by landlords. As a result, the rural-to-
urban income ratio had risen from 72% in 1970 to 80% by 1975-83, and the ratio of full-owners of
farmland had increased from 64% in 1960 to 77% in 1970 and 85% by 1979.
27. In this respect, Taiwan's industralization process was in stark contrast to Korea's large firms-based
centralized industrialization.
28. Indeed, the private sector was so competitive among the small-medium players that few could ever
become really large. And thus even the state-designed program of Large Trading Companies was failure-
ridden, unlike Korea's successful GTCs. See Cho (1987: 7, 88).

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