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East Asian capitalism: Towards a normative framework

a
Daniel A. Bell
a
City University of Hong Kong , China
Published online: 07 Apr 2008.

To cite this article: Daniel A. Bell (2001) East Asian capitalism: Towards a normative framework , Global Economic Review:
Perspectives on East Asian Economies and Industries, 30:3, 73-89, DOI: 10.1080/12265080108449828

To link to this article: http://dx.doi.org/10.1080/12265080108449828

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 GLOBAL ECONOMIC REVIEW 73
Vol. 30, No. 3,2001, pp. 73-89

EAST ASIAN CAPITALISM:

TOWARDS A NORMATIVE FRAMEWORK1

Daniel A. Bell
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City University of Hong Kong, China

This essay attempts to identify the features of East Asian capitalism that seem, prima
facie, to serve desirable social and political purposes while also being compatible
with, if not beneficial for, the requirements of economic productivity in an age of
intense international competition. It argues that East Asian countries should build on
areas of competitive advantage instead of heeding calls to shed all the old ways of
doing things in favor of American-style shareholder capitalism.

1. INTRODUCTION

Nobody, it seems, has anything good to say about "East Asian capitalism" these
days. The economic crisis of the late 1990s has apparently dealt a fatal blow to the
"Asian" mode of economic organization. In newspapers, business schools,
investment banks, and government circles, one hears the same refrain—East Asian
countries must adopt American-style shareholder capitalism in this age of
globalization. The shareholder model—based on highly flexible labor markets with
high-interfirm mobility, characterized by the rapid creation and failure of
enterprises, with managers who are agents of shareholders and responsive to their
demands, and with high-performing individuals rewarded handsomely for their
contributions2—is best suited to promote creativity and innovation and to withstand
the disciplinary forces of globalization.3 Thus, Asian countries should change to a
mode of corporate governance that makes managers concentrate single-mindedly
on creating shareholder value and sacks workers who fail to perform, favors
deregulation and unlinking of the government-business nexus, and promotes tax
adjustments to let wealth-creators keep more of the wealth they create in their own
pockets. Anything less is a recipe for economic and social decline.
 74 Daniel A. Bell

No doubt there is a lot to be said for economic restructuring in East Asia,

but there are also reasons to be weary of wholesale adoption of the shareholder
capitalist model. The flaws associated with this model—the pursuit of short-term
profit regardless of the impact on workers and local communities in which firms
operate, worsening inequality on both national and global levels and
marginalization of the worst-off, social breakdown and existential uncertainty—still
hold true, with or without an Asian economic crisis.
It is also worth recalling that, only a few years ago, it was widely believed
that East Asian capitalism could help remedy some of the flaws of Anglo-
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American capitalism. It was argued that capitalism with Asian characteristics

(1) emphasizes the interests of workers, local communities and the national good
and takes a more long-term view regarding the need to make profit; (2) combines
economic development with decreasing income inequality; and (3) does a better
job of preserving social stability and civil harmony. Is it really the case that the
alleged advantages of this model were entirely illusory, that the competitive
pressures of globalization and the need for creativity and innovation in the "new
economy" have dealt with a fatal blow to each and every one of the desirable
features of Asian capitalism? Or might there still be something to hold on to, and
learn from, capitalism with Asian characteristics?
This essay will attempt to sketch the features of an East Asian model of
capitalism that may still be feasible and desirable in the contemporary globalizing
world. They are feasible, in the sense that they do not contradict, and may in fact
be beneficial for, the need to improve economic efficiency in an increasingly
ruthless global marketplace. They are desirable, in the sense that they preserve
some of the social advantages of Asian capitalism.
Let me note at the outset that the features listed are not necessarily
distinctive to East Asian societies, nor does every East Asian country partake of
every single one of these features. And this approach is not meant to deny the
important differences between the different East Asian societies. However, it will
be argued that developed East Asian countries tend to partake of more of these
features compared to developed societies in North America and Western Europe.
The area of focus is meant to include South Korea, Japan, Hong Kong,
Taiwan, Singapore, and one less-developed but rapidly growing economic power-
mainland China. These countries share a Confucian heritage that includes
widespread adherence to the value of conferring respect and power to
meritocratically-selected scholar officials, the idea that the government's overriding
duty is to provide for the basic material welfare of its citizens, the value of care for
needy family members, respect for hard work and the idea (shared also by the
various groups of society, including the lower classes) that education is the key to
 East Asian Capitalism: Towards a Normative Framework 75

social mobility. This heritage and a general secular orientation may help to explain
the origin and/or maintenance of particular features of East Asian capitalism,
though, of course, more immediate political/economic/social factors as well as a
supportive external environment4 also play a role.
In any case, the aim here is not to explain the features of East Asian
capitalism; it is to describe those features that may still be feasible and desirable in
the contemporary globalizing world. Thus, the features of this model that seem
out-of-date and/or ineffective (e.g., patriarchal work practices, the protection of
infant industries5 and a national industrial policy that picks winners and losers) will
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be deliberately left out. This essay will only discuss features that seem, prima
facie, desirable and feasible, though it is recognized that any full-fledged defense of
these features would need to be more empirically detailed and rigorously argued
for (at minimum, it would require a detailed argument showing that the advantages
associated with these features outweigh the disadvantages).
With these qualifications in mind, let us proceed to the main argument We
will distinguish between the way East Asian capitalism is organized, constrained
and justified. For purposes of this essay, capitalism will be defined as an economic
system dominated by owners of capital who hire wage laborers and produce for
profit.

2. THE WAY EAST ASIAN CAPITALISM IS ORGANIZED

First, East Asian capitalism is characterized by a relatively strong,

autonomous state that takes an active role in regulating the economy and
promoting economic productivity. These interventions go beyond the interventions
typically exercised by states in the US and the UK and even continental Europe.
Consider the following:
The state curbs the legal independence of labor unions and weakens labor
rights in the interests of economic productivity, providing other benefits that secure
workers' interests in exchange. As Anthony Woodiwiss has argued, the freedom
of association and the freedoms to organize and bargain have been greatly
restricted in many East Asian countries. At the same time, there has been an
increase in the power to participate in joint consultation fora and in claims to
company welfare benefits.6 In Japan, these benefits "take the form of the Labor
Standards Law and a legally developed right to 'lifetime employment'. In Hong
Kong and Singapore, they take the form of very good individual contracts of
employment that incorporate many elements derived from the protective ILO
Conventions and, especially in the case of Singapore, very substantial citizenship
 76 Daniel A. Bell

rights with respect to housing and education."7 These pacts between the state and
relatively weak unions can be functional in difficult economic times. The unions
can be consulted on economic planning, as in Korea and Singapore, which can
help with the process of managing structural adjustment.
In addition, the state radically re-engineers the local force to suit its
economic plans, especially by changing the forms of labor supply to the market
As short-term measures, East Asian states have been modifying their immigration
procedures to allow for the import of foreign talent beneficial for the country's
economy. Singapore currently has the highest proportion of skilled foreign
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workers of any developed country, even hiring foreign CEOs for state-owned
firms. Li Hong Kong, the state has modified its immigration procedures to allow
for the import of thousands of mainland Chinese with scientific and technological
skills. As long-term measures, states are implementing rapid changes to their
educational systems to promote creativity, technology, and more global outlooks.
In Singapore, the state has been at the forefront of promoting global ties between
its publicly funded universities and the outside world. In Japan, the state has cut
30percent of the curriculum in its primary schools to de-emphasize rote
memorization and promote creative thinking. This ability to swiftly respond to
new trends, and to override vested interests (e.g., local workers and teachers set in
their ways) and protectionist impulses, may be useful in rapidly changing modern
economies.
The state also plays an active role intervening with the business sector.
Some governments take direct equity stakes in desirable investment projects in the
private sector. For example, the Singapore government invested in a
semiconductor wafer fabricator, SemiTech, together with Texas Instruments and
Hewlett Packard of the United States and Canon of Japan.8 East Asian
governments also cooperate with large firms, sometimes forcing them to do so. In
Japan, for example, powerful firms are compelled to participate in government-led
research.' This can have the benefit of pooling the resources required for large-
scale research and development of cutting-edge technologies. East Asian
governments also use more indirect means to encourage the build-up of indigenous
innovation capacity: "Taiwan's success in developing IT enterprises through
technology transfer from the Industrial Research Institute (ITRi) and in providing
high-technology infrastructure through the Hsin Chu Science Park provides a role
model for the rest of the region."10 The state also induces economic actors to
cooperate more effectively with each other. When firms coordinate more
effectively, their performance will improve, and the result will be better overall
economic performance." East Asian governments are learning that state-backed
non-market coordination need not take the form of simply telling economic actors
 East Asian Capitalism: Towards a Normative Framework 77

what to do (this is usually counter-productive because the outcomes are too

complex to be dictated by regulation and states lack the information needed to
specify appropriate strategies). But by tapping into and organizing already existing
social organizations such as strong business associations, trade unions, and other
para-public organizations, the East Asian state can find it easier to effectively
enhance non-market coordination.
None of this is to deny that a certain amount of deregulation, liberalization,
and privatization is (and should be) taking place in East Asia. Even then, however,
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it may not mean that the state is "really" withdrawing from its central role in
economic üfe. The state, for example, can encourage privatization and increase of
the proportion of foreign ownership of firms without relinquishing defacto control.
In mainland China, state-run enterprises sell shares to the public (including foreign
markets) while maintaining control over management, usually by retaining the
largest proportion of shares that allows them to choose the Board of Directors.
This allows companies to raise funds and inject an element of professionalism and
transparency without being ruthless to the workers and the communities in which
they operate.
Second, East Asian capitalism is characterized by relatively heavy reliance
on social networks to "grease the wheels" of economic transactions. These
networks—rooted in school ties, marriage, work, hometown, and region—are used
to pursue profit, but they are modeled on the extended family and thus are less
characterized by naked instrumentality. As Lew Seok-Choon and his co-authors
point out, the social trust embedded in these networks lowers the costs of
supervision: "When a person is recruited by a company through recommendation
or connection, he/she tends to work harder not to disappoint those who recommend
him/her and to secure his/her position in personal relations tied by connections."12
Such networks can also promote stability within firms, thus alleviating firms'
worries about valued employees and allowing them to engage in long-term
planning. These networks can also reduce transaction costs, as the strong trust
reduces the need for detailed contracts and modes of enforcement (it is interesting
to note that the contracts for teaching staff at Yonsei University in Korea rarely run
for more than half a page!).13 This is not to say that legally-enforceable contracts
between strangers should be entirely displaced, but if they are complemented
and/or cemented by social networks then economic actors need not worry as much
about defection, supervision and enforcement, and the economy as a whole can
benefit.
Still, it should be recognized that social networks can be corrupt and
economically dysfunctional.14 But the short-term economic costs (e.g., buying
goods from a member of a social network instead of a cheaper competitor) can
 78 Daniel A. Bell

sometimes be outweighed by the long-term benefits (e.g., members of social

networks will help those in trouble).15 The deeper problem however, lies with
single, all-powerful networks permeating legal, government, and business circles;
such networks rooted in ties to college fraternities have been blamed for economic
and social problems in the Philippines.16 But cross-cutting, flexible and open
networks, as in Korea, can facilitate rapid adjustment and economic restructuring
as required by the disciplinary forces of globalization. Korean-style networks are
also characterized by the fact that they are bound within patriotic attachment to the
Korean nation (the rush to donate gold to the government following the 1997-98
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crisis is a particularly vivid example of national commitment), and this can help to
counter the most perverse manifestations of "selfish" networks.
Third, East Asian capitalism is characterized by a greater tendency (relative
to capitalisms in other developed societies) to rely on family members in
management and ownership positions of firms. Put another way, East Asian
capitalism rests on a form of social organization that is legitimated through kinship
principles. This form of organization is more typical of small and medium-sized
firms in South China, Taiwan, Hong Kong and Southeast Asia, and less so in
Korea and Japan, where the economy is dominated by large conglomerates."
The most obvious problem with family-run firms is that they have a
tendency to shut off talent, favoring family ties over professionalism and nepotism
over merit. In modern economies, firms run by highly educated and capable
managers are more likely to succeed. But family-run firms are adapting. In some
cases, the patriarchs of Chinese family firms hire the brightest sons educated in US
business schools18 and to a growing extent, capable female descendants are given a
managerial role as well.
Moreover, the very features that help to explain the success of family-run
firms in the nineteenth and twentieth centuries may still be functional in the
contemporary context. Gary Hamilton explains how these firms first succeeded:
"this household-based economy produces a type of petty capitalism. It is a non-
politically based form of capitalism that is very flexible and readily adaptable to
external economic opportunities, such as those offered with the expansion of
Western capitalism in Asia. The Chinese integrated themselves into the expanding
world economy; they followed the current of Western capitalism and, using their
flexible networks, quickly monopolized selected economic niches in many
countries throughout the world."" Far from being out-of-date, such responsiveness
to new market demands is more useful than ever, now that globalization can
overhaul the character of markets almost overnight.
Still, family-ownership might seem to place a constraint on the economic
benefits that large-scale firms can provide (economies of scale, etc.). But "family"
 East Asian Capitalism: Towards a Normative Framework 79

does not necessarily refer to the immediate nuclear family. In the Chinese context,
it is a flexible network that can be extended to include a great number of people,
including non-blood relations. Thus, ownership and control of firms need not refer
to small firms run by tightly-knit blood families. Although most family-run firms
in a Chinese business network are small or medium in size, the family-owned
network of firms can also include some very large individual firms. Moreover,
family-run firms can also tap into guanxi networks that can serve as the basis for
creating production, distribution, and investment networks,20 thus helping to solve
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some coordination problems of small and medium sized firms. It is also worth
noting that family-run firms have relied on clan organizations and ancestral trusts
to establish networks and business associations in Europe and North America.21
Once again, these networks can be used for economic benefit in an age of
increasingly globalized trade.
Fourth, East Asian capitalism is characterized by group-based business
cooperation, especially in Japan and South Korea. In Western European countries
such as Germany, coordination depends on business associations and trade unions
that are organized primarily along sectoral lines. By contrast, the dominant
business networks in Japan are built on keiretsu, families of companies with dense
interconnections cutting across sectors, the most important of which is the vertical
keiretsu with one major company at its center.22
The cross-share holdings of the keiretsu mean that individual companies
need not worry (much) about hostile takeovers, which contributes to security for
employees. Workers within keiretsu are encouraged to acquire firm or group-
specific skills, and in order to persuade workers to invest in skills of specificity, the
large firms have customarily offered many of them life-time employment and
promotion tied to seniority rather than merit. Although employees have no formal
representation on the board of directors (as they do in several European countries)
and lack representation among the leading shareholders, they have been recognized
as privileged stakeholders in the company. For their part, employees have been
willing to sacrifice their interests for the company's good far beyond that of the
employees of most capitalist firms elsewhere.23
Security for employees has of course been difficult to sustain in Japan's
decade long recession, and similar pressures have been felt in other Asian countries
with Japanese-style organization. But once again, there may be ways of adapting
the system without "throwing the baby out with the bathwater." Faced with an
economic downturn, large firms in Japan have typically resorted to other measures
to cut costs before sacking employees, such as setting off spin-off enterprises to
provide employment, shifting workers to other companies within the keiretsu,
eliminating management bonuses, slashing recruitment of new employees,
 80 Daniel A. Bell

reducing overtime, freezing wages, and even reducing top management salaries.
To increase the productivity of their employees, companies have shifted from a
seniority-based system to a merit based system of promotion or at least have placed
greater emphasis on merit without completely eliminating the relevance of
seniority.24
There is still the perception that Japanese companies may not meet the
requirements of innovation in the "new economy." The group-based organization
of Japanese political economy allows firms to take advantage of the capacities for
cross-technology transfer and rapid organizational redeployment, which translates
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into comparative institutional advantages in the large-scale production of consumer

goods, machinery, and electronics that exploit existing technologies and capacities
for organizational change. But globalization involves a shift from industrial
technology to information technology and the latter emphasizes radical innovation
(one-off discrete inventions) instead of cumulative knowledge. And Japanese
firms tend to lack the capacities for radical innovation in the high-tech world that
American firms have by virtue of fluid market settings.25
It is possible, however, to overestimate the need for radical innovation in
modem economies. Radical innovation may be especially relevant in the computer
industry, but even at the height of the high-tech boom (bubble) in 1999, the
American computer industry represented only 1.2 percent of American GNP.26
Still, Japanese firms are trying to reposition themselves without abandoning the
merits of the keiretsu system. This involves delegating decision-making power to
lower levels in the organization,27 internal diversification, the setting up new 'child
companies' in the keiretsu™ and the tapping of foreign sources of talent by setting
up corporate R&D establishments in Europe, the United States and, increasingly,
China.29

3. THE WAY EAST ASIAN CAPITALISM IS CONSTRAINED

East Asian capitalism is constrained by the need to secure a relatively egalitarian

distribution of wealth (including future generations), to maintain national cohesion
and to promote family, workplace and/or local community ties. The state plays an
active role in securing these ends, though in some areas it takes a 'hands-off'
approach compared to capitalisms elsewhere.
First, the state accumulates large financial reserves and encourages (and
sometimes forces30) savings by households. East Asian countries have significantly
higher savings rates than Western countries.31 In 1997, Japan's foreign exchange
reserves of US $217 billion were far larger than those of the United States,
 East Asian Capitalism: Towards a Normative Framework 81

Germany, and France combined.32 The financial reserves of Hong Kong and
Singapore are the world's largest in per capita terms.
Some of this can be economically dysfunctional;33 one frequently hears
calls for more spending by the Japanese consumer. Still, these reserves come in
handy during severe economic downturns. In early 1998, Hong Kong's stock
market faced a precipitous decline, triggered largely by speculators who faced an
apparently "win-win" scenario. They bet against the currency knowing that the
government would prop up interest rates in order to protect the pegged exchange
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rate while also betting (more) against the stock market knowing that the property-
sensitive stocks would get pummeled. To fight back currency speculators, the
Hong Kong government spent US $10 billion in one day, and the market
subsequently turned around. Even George Soros belatedly praised the Hong Kong
government for its one-off 'deviation' from free market principles.
The Singapore government, for its part, is currently experiencing the worst
quarterly contraction of economic output in more than 30 years. In response to the
slowdown, the government announced on October 12, 2001, a US$ 6.2 billion
package of economic-stimulus measures equivalent to 7 percent of annual GDP,
including the free provision of government "shares" to all citizens (with an
emphasis on the worst-off). The Singapore government frequently pointed to the
need for national savings in the event of a "rainy day," and its huge reserves have
indeed come in handy.
The state can also draw on these reserves for more long-term measures, to
ensure that all sectors of society, including the worst-off, can compete effectively in
the "new economy." This includes job-training programs and material support, as
well as more innovative schemes. In Singapore, for example, the state supplies
subsidized computers to all families, thus ensuring that no one is left behind in the
race for globalization. Not surprisingly, Singapore is currently the world's most
"wired" nation in per capita terms.
Second, the East Asian state restricts property rights in ways deemed
unacceptable by most capitalisms elsewhere. After World War II, the state
implemented radical land reform programs in Korea and Taiwan and this helped to
underpin the subsequent relatively egalitarian growth patterns. In Hong Kong, all
land is technically publicly owned and more than half of local residents live in
publicly subsidized housing (the Hong Kong government is the world's largest
landlord). These interventions were initially carried out under the influence of
foreign powers (the US military in the case "of Korea and Taiwan and the British
colonial government in Hong Kong) but restrictions on property rights of this sort
have been justified in post-colonial times as well. In Hong Kong, the massive
public rental housing program has been defended on the grounds that it avoids the
 82 Daniel A. Bell

creation of "dump estates" in which parts of the public sector becomes associated
with the "underclass." Where public housing is provided only to the most needy,
as in the major cities of Europe and North America, it leads to the spatial
concentration of poverty and degenerates into a sector that is second rate and
stigmatized.34
In Singapore, land acquisition and redistribution were done by locals. After
independence, the People's Action Party (PAP) government deliberately left the
right to property and to receive fair compensation out of the constitution. Instead,
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the government passed the Land Acquisition Act, which allowed it to acquire land
for both industrial development and public housing.35 Today, 85 percent of
Singaporeans live in publicly built housing estates and continue to benefit from
subsidized upgrade programs. Such dependency on state provision has the cost, as
Chua Beng Huat argues, of turning citizens into clients of the state and reducing
their ability to exercise electoral power.36 Still, it means that the lower and middle
classes are guaranteed decent housing and thus can be partly shielded from the
effects of sharp economic downturns. In a multi-ethnic country such as Singapore,
public housing can also be used as a tool to prevent the formation of ethnic
enclaves and thus contributes to social cohesion.
The state's constraints on property rights are evident in the People's
Republic of China. What may be less obvious, however, is that Confucian ideas on
the distribution of land may have helped to inspire (and constrain) the
"privatization" of land in the Deng Xiaoping era. In the late 1970s, state-owned
communes were replaced by the household responsibility system. Individual
households were granted the right to use the farmland, whereas the village
cooperative retains other rights associated with ownership. Farmers have an
obligation to supply a quota of produce (which typically occupies one-sixth of the
household's land) at a fixed low price to the state, but beyond that they are allowed
to keep and sell the produce on the open market. These principles for distributing
land and constraining ownership echo practices in Imperial China and can be
traced back to Mencius's well-field system37 (interestingly, this system was
explicitly praised in mainland China at the time of Deng's reforms, which suggests
that Party leadership was aware of, and perhaps inspired by, Mencius's ideas at the
time they were thinking about agricultural reforms).
Third, the East Asian state tends to rely on incentives for indirect welfare
provision, hi comparison with Western welfare states, East Asian governments are
relatively low spenders on social welfare. In 1992, for example, Sweden and the
United Kingdom spent over 40 percent of public expenditure on welfare provision;
the figures for Japan, South Korea, Taiwan, Singapore and Hong Kong range from
14 to 31 percent.38
 East Asian Capitalism: Towards a Normative Framework 83

With the exception of Hong Kong where the welfare system (first put in
place by the British colonial regime) is financed by the state, the East Asian state
does not play a direct role in providing direct finance for welfare programs.
Instead of state agencies, quasi-governmental bodies manage the various funds to
which social welfare contributions are made.3' Beyond that, much of the welfare
provision is left to "civil society." As Gordon White and Roger Goodman argue,
"the notion of state-provided or guaranteed welfare as a social right of citizens is
weakly developed [in East Asia]. Rather, non-state agencies—community, firm
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and family-have been expected to play a major welfare role in both financing and
providing welfare services in an ideological context where self-mutual help is
encouraged and dependence on the state is discouraged, indeed stigmatized."40
One example is the minseiin system of social welfare provision in Japan. In
this system, care is provided by "social workers" who are appointed on renewable
three-year contracts, on the basis that they have lived in their designated area "for a
long time," have a clear understanding of its social situation and display
enthusiasm for carrying out the promotion of social welfare. In contrast to
professional social workers from other industrialized countries who live outside the
communities in which they work, minseiin are usually respected seniors who
volunteer their time to help needy members of their own community. While this
system of 'help by intimates' has flaws (for example, rebellious young people may
not be keen about discussing their problems with elderly neighbors), it has the
advantage of relying on inexpensive means to ensure that needy members of the
community receive help tailored to their distinctive circumstances.41
Much of the care also takes place within the family context in East Asian
states. Family-centered care for the elderly is most distinctive. In societies with a
Confucian heritage, there is a widespread view that children have a profound duty
to care for elderly parents, a duty to be forsaken only in the most exceptional
circumstances. In the political sense, this means that parents have a right to be
cared for by their children and that it is incumbent on East Asian governments to
provide the social and economic conditions that facilitate the realization of this
'right'. Sometimes, the'right'to filial piety takes legal form. In Singapore, Japan,
mainland China, and Taiwan, it is mandatory for children to provide financial
support for their elderly parents' heritage. The governments of Taiwan, mainland
China, and Hong Kong—notwithstanding radically different political ideologies-
have all passed laws that curtail the freedom of individuals to disinherit needy
members of their families (including elderly parents).4" The state also relies on
more indirect methods such as tax breaks and housing benefits that simply make
caring for the elderly easier, as in Korea and Hong Kong. Needless to say, these
measures also have the economic benefit of relieving the state from (part of) the
 84 Daniel A. Bell

burden of caring for the elderly.

Prior to the Asian economic crisis, East Asian countries were praised for the
goods typically associated with human welfare such as decent health care and
access to education, all the while maintaining social cohesion and low rates of
crime. Greater numbers of now falling outside the informal welfare "net,"
however, and there may be a growing need for some universal, state-enforced
welfare rights (e.g., to help the unemployed). Still, the economic benefits of
indirect welfare provision are even more obvious today. In the globalized 'race to
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the bottom', East Asian states can maintain low taxation rates that will attract
foreign investors. In these harsh economic times, indirect welfare provision allows
for the diversion of resources to directly productive purposes, job-creating
infrastructural projects and job-training schemes, thus helping to reposition East
Asian economies for future growth.

4. THE WAY EAST ASIAN CAPITALISM IS JUSTIFIED

What is most striking about the moral defense capitalism in East Asia is the near
absence of intrinsic justifications for capitalism. In Anglo-American countries, it is
commonly argued that capitalism is inherently just, regardless of the consequences.
Even if it leads to human rights abuses, economic decline and social chaos,
capitalism is still morally desirable. This libertarian view—most forcefully put
forth by Robert Nozick43—has deep roots in Anglo-American countries, but is
almost absent from China44 and other East Asian countries.
The relative lack of resonance of libertarianism in East Asia has certain
advantages. The ideological context is more favorable to constraints on capitalism
for the sake of social goods such as material equality and social cohesion.
Moreover, it is perhaps easier to justify sacrificing the economic interests of present
generations for the sake of future ones. In Singapore, for example, the government
can adjust employers' and employees' contributions to the Central Provident Fund
depending on the current economic climate, partly with the aim of ensuring that the
interests of future generations are secure.
Of course, the free market system is also justified on the basis of its alleged
positive consequences. But different consequentialist justifications may be
highlighted in different contexts. In Anglo-American countries, the main
consequentialist justification for capitalism is that it helps to secure civil and
political liberties. The Clinton administration, for example, typically justified
China's accession to the World Trade Organization on the grounds that this would
eventually lead to democratic reforms in that country.
 East Asian Capitalism: Towards a Normative Framework 85

In East Asia, by contrast, the main justification for capitalism is that it will
help to develop the economy (this is not meant to deny that this justification is also
familiar, if less common, in Western countries). One "advantage" of this
justification is that it may be easier to justify temporary constraints on some
freedoms if these conflict with the imperatives of development. It is quite likely,
for example, that submitting to the rigors of the WTO regime will lead to growing
poverty and social unrest in the short term, though it is hoped that the economic
benefits will eventually pay off when workers laid off from inefficient state-run
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enterprises will find decent jobs in the growing private sector. Arguably, the next
few years in China will be particularly difficult and it may not be the best time to
radically open the political system.

5. CONCLUSION

This essay has identified the features of East Asian capitalism that seem, prima
facie, to serve desirable social and political purposes while also being compatible
with, if not beneficial for, the requirements of economic productivity in an age of
intense international competition that is enforcing innovation on many fronts. For
East Asian countries, the lesson is clear: to be skeptical of calls for shedding all the
old ways of doing things in favor American-style shareholder capitalism. Of
course there is room for reform, but East Asian countries should also build on areas
of comparative advantage. As Peter A. Hall and David Soskice put it, "nations
often prosper, not by becoming more similar, but by building on their institutional
differences."45

Notes

1 This essay draws on ideas discussed at the "Forum on Asian Capitalism," February 1-2,
2001 in Cebu (Philippines) and at the conference on "Asian Capitalism: Looking for a
Reality," October 18-20, 2001 in Wonju, Korea. The conferences were organized by
the Institute of East and West Studies at Yonsei and funded with the generous
contributions of the Asia Research Fund, Samsung SDI, and Halsol Telecom. Special
thanks to Professor Lew Seok-Choon and conference participants for comments on my
paper.
2
See D. Eleanor Westney, "Japanese Enterprise Faces the Twenty-First Century," in
The Twenty-First Century Firm: Changing Economic Organization in International
Perspective, ed. Paul DiMaggio (2001). Princeton: Princeton University Press, p. 139.
3 The term 'globalization' here refers to technology-driven growth and increased global
 86 Daniel A. Bell

trade and (especially) money flows. For a helpful attempt to break down the various
meanings of 'globalization', see Goran Therborn, "Asia and Europe in the World:
Locations in Global Dynamics," paper presented at the conference on "Asia, Europe,
and Global Processes."
4
On the various causes underpinning what Ian Holliday terms 'productivist welfare
capitalism' in East Asia, see Ian Holliday, "Productivist Welfare Capitalism: Social
Policy in East Asia," Political Studies Vol. 48, No. 4, September 2000, pp. 716-719.
5
Seiichi Masuyama and Donna Vanderbrink, "Industrial Restructuring in East Asian
Economies for the Twenty-First Century," in Industrial Restructuring in East Asia:
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Towards the 21" Century, eds. Seiichi Masuyama, Donna Vanderbrink and Chia Siow
Yue (2001), Tokyo: Nomura Research Institute, Singapore: Institute for Southeast
Asian Studies, pp. 42-43.
6 Anthony Woodiwiss, Globalisation, Human Rights and Labour Law in Pacific Asia,
Cambridge: Cambridge University Press, p. 67.
7
Anthony Woodiwiss, "'Community in the East': Some Lessons for Human Rights,"
paper presented at a conference on "Communitarianism and East Asian Politics,"
September 27-28, 2001, p. 20.
8
Seiichi Masuyama and Donna Vanderbrink, "Industrial Restructuring in East Asian
Economies for the Twenty-First Century," p. 43.
9
See Charles Polidano, "Don't Discard State Autonomy: Revisiting the East Asian
Experience of Development," Political Studies, Vol. 49, 2001, p. 525.
10
Seiichi Masuyama and Donna Vanderbrink, "Industrial Restructuring in East Asian
Economies for the Twenty-First Century," pp. 43-44.
11 See Peter A. Hall and David Soskice (2001) "An Introduction to Varieties of
Capitalism," in Varieties of Capitalism: The Institutional Foundations of Comparative
Advantage, Oxford: Oxford University Press, pp. 45-6.
12
Lew Seok-Choon, Chang Mi-Hye and Kim Tae-Eun, "The Affective Network Group
and Implications for Economic Development in Korea," in Confucianism for the
Modern World, eds. Daniel A. Bell and Hahm Chaibong, New York: Cambridge
University Press.
13
The chonsei rental system in Korea might be another example. For an article that
discusses the pros and cons of this system, see Jae-Hyun Yoo, "The Korean "Chonsei"
Rental System: Effective or Defective Response?," paper presented at the 12th
Congress of the Eastern Regional Organization for Planning and Housing, 5-9
September 5-9, 1990, Seoul, Korea.
14
See, e.g., Dwight H. Perkins (2000) "Law, Family Ties, and the East Asian Way of
Doing Business," in Culture Matters: How Values Shape Human Progress, eds.
Lawrence E. Harrison and Samuel P. Huntington, New York: Basic Book, esp. pp.
240-243.
15
I thank Jongryn Mo for this insight.
16
See Mark Mitchell, "Frat Brats," Far Eastern Economic Review, February 15, 2001,
pp. 62-63.
 East Asian Capitalism: Towards a Normative Framework 87

17
Though many such conglomerates are also controlled by family members.
18
Chua Beng-Huat reports that some Chinese patriarchs would even pay off the less-
capable sons to stay away from the family business.
19
Gary Hamilton (1996) "Overseas Chinese Capitalism," in Confucian Traditions in
East Asian Modernity: Moral Education and Economic Culture in Japan and the Four
Mini-Dragons, Cambridge: Harvard University Press, p. 335.
20
Ibid, p. 340.
21
Teema Ruskola, "Conceptualizing Corporations and Kinship: Comparative Law and
Development Theory in a Chinese Perspective," Stanford Law Review, July 2000,
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p. 1726.
22
Peter A. Hall and David Soskice, "An Introduction to Varieties of Capitalism," p. 34.
23
As Tatsuo Inoue points out, however, Japanese-style communitarianism (strong
communal identity based on the workplace, with extensive worker participation in
management) sometimes leads to karoshi ('death from overwork') and frequently
deprives workers of "the right to sit down at the dinner table with their families" ("The
Poverty of Rights-Blind Communality: Looking Through the Window of Japan,"
Brigham Young University Law Review, January 1993, p. 534).
24
See D. Eleanor Westney, "Japanese Enterprise Faces the Twenty-First Century,"
pp. 133-134, 139-140.
25
Peter A. Hall and David Soskice, "An Introduction to Varieties of Capitalism," p. 35.
26
Ronald Dore (2000) Stock Market Capitalism: Welfare Capitalism, Japan and
Germany versus the Anglo-Saxons, Oxford: Oxford University Press, p. 236.
27
Seiichi Masuyama and Donna Vandenbrink, "Industrial Restructuring in East Asian
Economies for the Twenty-First Century," p. 33.
28
D. Eleanor Westney, "Japanese Enterprise Faces the Twenty-First Century," p. 141.
29
Ronald Dore, Stock Market Capitalism, p. 238.
30
In Singapore, for example, about 40percent of an employee's salary must go to the
Central Provident Fund.
31
Vogel, Ezra (1991) The Four Little Dragons, Cambridge: Harvard University Press,
p. 88.
32
International Herald Tribune, May 7, 1997.
33
They can also be anti-democratic, in the sense that they are opposed by 'actually-
existing' majorities. But if the aim is to protect the interests of future generations (who
do not have a vote) this can potentially justify curtailing the powers of democratic
majorities.
34
Ray Forrest, "We must steer clear of 'dump' estates for the poor," South China Morning
Post, Dec. 24, 2000, p. 9.
15
Kevin Tan (1999) "Economic Development, Legal Reform, and Rights in Singapore
and Taiwan," in The East Asian Challenge for Human Rights, eds. Joanne R. Bauer
and Daniel A. Bell (New York: Cambridge University Press, pp. 268-269.
36
Chua Beng Huat (2000) "Public Housing Residents as Clients of the State," Housing
Studies Vol. 15, no. 1, 45-50.
 Daniel A. Bell

37
See my article, "Confucian Constraints on Property Rights," in Confucianism for the
Modern World, eds. Daniel A. Bell and Hahm Chaibong, New York: Cambridge
University Press.
38
Huck-ju Kwon (1998) "Democracy and the politics of social welfare: a comparative
analysis of welfare systems in East Asia," in The East Asian Welfare Model: Welfare
Orientalism and the State, eds. Roger Goodman, Gordon White and Huck-ju Kwon,
London: Routledge, p. 28.
39
Ibid, p. 66.
40
Gordon White and Roger Goodman, "Welfare Orientalism and the Search for an East
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Asian Welfare Model," in Ibid, 13-14.

41
For a positive assessment of minseiin, see Ben-Ari, Eyal (1991) Changing Japanese
Suburbia: A Study of Two Present-Day Localities London and New york: Kegan Paul
International. For a relatively critical account, see Roger Goodman, "The 'Japanese-
style welfare state' and the delivery of personal social services," in The East Asian
Welfare Model.
42 Lusina Ho, 'Traditional Confucian Values and Western Legal Frameworks: The Law
of Succession," in Confucianism for the Modern World
43
Robert Nozick (1974) Anarchy, State and Utopia, New York: Basic Books.
44
One counter-example is the Chinese political theorist Liu Junning, who defends
libertarianism in the Chinese context.
45
Peter A. Hall and David Soskice, "An Introduction to Varieties of Capitalism," p. 60.

References

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Mitchell, Mark (2001) "Frat brats," Far Eastern Economic Review, 15 February: 62-3.
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and Hahm Chaibong (eds) Confucianism for the Modern World, New York:
Cambridge University Press.
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analysis of welfare systems in East Asia" in Roger Goodman, Gordon White and
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state, London: Routledge.