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 POLS 459 Politics of
East Asia
Lecture Two
Theories of Political
Economy
A Brief Introduction
September 27, 2007

Timothy C. Lim
Department of Political Science
California State University, Los Angeles

Background Image: A view of Seoul, South Korea (Source:

Politics of East
Asia
Theories of Political
Economy
Introduction to Theory/Political Economy

To begin our study of theory/political

economy, lets consider the following
set of statements about economic
development,
and specifically, capitalist economic
development
Politics of East
Asia
Theories of Political
Introduction to Theory/Political Economy
Economy
In the modern age, capitalist development is dependent
Statement No. 1

on establishing and taking part in system of relatively

open, free trade. Free trade allows individual countries
to maximize their prosperity through specialization and
comparative advantage. Countries that participate fully
and openly in the global trading system will, over time,
become efficient and prosperous, while those that do
not, will remain poor and economically stagnant.
Politics of East
Asia
Theories of Political
Introduction to Theory/Political Economy
Economy
Some societies possess specific social or cultural attributes
Statement No. 2

that can, under the right set of circumstances, contribute

significantly to the process of economic development.

Conversely, other societies may be characterized by values,

attitudes and practices that pose serious (albeit not
necessarily permanent) obstacles to rational economic
decision-making,
thus making large-scale, sustained economic
development very difficult to achieve.

Some people argue that Japans warrior code, bushido, combined

with its Confucian heritage provided the perfect cultural
foundation for rapid industrialization
Politics of East
Asia
Theories of Political
Introduction to Theory/Political Economy
Economy
The international economic system is inherently biased and
Statement No. 3

unequal: some countries are simply stronger and better positioned

than others. In world of free trade and free markets,
therefore, the stronger and richer countries will always win.
Late industrializers, in particular, face almost
impossible odds.

The only way to reverse this situation is for

weaker countries to purposefully manipulate
so-called free markets. Typically, this requires
the intervention of a strong state, which often
explicitly subverts free market principles.

Friedrich List (1789-1864) is a well-known advocate of this

position, known as mercantilism
Politics of East
Asia
Theories of Political
Introduction to Theory/Political Economy
Economy
Economic development is almost entirely a function of external,
Statement No. 4

rather than internal, factors. In general, poor or developing

countries are forever locked into exploitative positions of
subservience. In a few cases, however, poor countries can achieve a
degree of development when such development serves the interests
of core capitalists.

In rare cases, poor countries can

achieve a degree of economic
autonomy and dynamism, but
what is true for this tiny minority
can never be true for the majority.
Politics of East
Asia
Theories of Political
Introduction to Theory/Political Economy
Economy
Statement No. 1: The free market explanation (a.k.a:
neo-classical)

Statement No. 2: The culture explanation

Statement No. 3: The statist (or developmental

state) explanation

Statement No. 4: The Marxist or dependency

explanation

Discussion Question: Which of the

four statements do you find most
plausible? Why?
Politics of East
Asia
Theories of Political
General Points
Economy
All four statements represent general or specific theoretical views
of economic development
All make core assumptions about the nature of the social world; some
assumptions are clear, others are largely hidden
All are simplifications (or abstractions) of a more complex reality,
but each purports to identify those factors/forces/processes that
are most important
While each statement reflects a particular theoretical perspective,
the theory embedded in each is probably notstatement
Consider entirely no.
abstract
1, for or
disconnected to your thinking/understanding
example. of
Thethe world
neo-classical positions
assumes that questions of power can
be largely excluded from an analysis
of economic development. (This is a
hidden assumption.) Statements nos.
3 and 4, by contrast, assume power
is critical, but both have very
different assumptions about the
basic nature/source of power. All
statements also make assumptions
about the relative importance of
Politics of East
Asia
Theories of Political
The Neo-classical Perspective
Economy

Miracle? What miracle? Asias

economic success is no
mystery, and its not even
particular noteworthy. Bah
humbug, I say!

According to Paul Krugman--a

good representative of the
neo-classical perspective--
Paul Krugman

there has been no miracle in

Asia. Asias economic growth,
instead, can be in
a rapid growth explained
inputs very
simply as a product of
______________________________
Politics of East
Asia
Theories of Political
The Neo-classical Perspective
Economy

What is Krugmans basic

argument? Why does
he spend so much time
talking about economic growth
in the
former Soviet Union? Whats
his main Asian growth is a lot like
Soviet growth. It depended
point? primarily, almost wholly, on a
Paul Krugman

huge increase in basic inputs,

such as labor power. This was
impressive (in both cases), but
economic growth through massive
increases input is basically a
Politics of East
Asia
Theories of Political
The Neo-classical Perspective: Other Aspects
Economy
Other neo-classical analysts understand that Asian
growth is not entirely a function of a rise in inputs:
productivity has also increased, albeit not a the same
level or pace
Most neo-classical economists argue that Asian
productivity, however, is not the product of government
or state intervention; indeed, government intervention
is seen as anathema to capitalist development since it
interferes with the free workings of the market

So what is the basic reason for

increases in productivity?
Politics of East
Asia
Theories of Political
The Neo-classical Perspective: Other
Economy
Aspects
So what is the basic reason for
increases in productivity?

Simple answer
Getting the
prices right
Politics of East
Asia
Theories of Political
The Neo-classical Perspective: Other Aspects
Economy
Getting the prices right means letting prices find their right
levels, where right refers to the the prices established in freely
operating domestic and international markets (via supply and demand)
To neo-classical economists, then, East Asian
economic success is largely--even necessarily
--a product of participation in and adherence
to free market principles. Simple.
More concretely, neo-classical economists
argue that East Asian economic success
derives from a strong bias toward
export-oriented industrialization
Politics of East
Asia
Theories of Political
The Neo-classical Perspective: Other
Economy
Aspects
Export-oriented industrialization (EOI)
Exports contribute to
resource allocation according
to comparative advantage. At
the same time, these gains
cumulate over time as the
efficiency of new investment
is enhanced through its
orientation toward industries
that correspond to the
comparative advantage of the
countries concerned.
~ B. Balassa
Politics of East
Asia
Theories of Political
The Neo-classical Perspective: Evaluation
Economy
What do So and Chiu have to say about the neo-classical perspective?
Rightly points out the importance of EOI: it is indisputable that the
Asian economies are export-based and that exports played a key role in
their development
In particular, export-led growth helped Asian economies overcome
limitations of (relatively) small domestic markets
EOI also forced domestic companies to compete internationally;
rent seeking and inefficient production, therefore, were made much
more difficult

RENT SEEKING occurs when an individual, organization, or firm

seeks to make money by manipulating the economic and/or legal
environment rather than by making a profit through trade and
production of wealth. The term comes from the notion of
economic rent, but in modern use of the term, rent seeking is
more often associated with government regulation and misuse of
governmental authority than with land rents.
Politics of East
Asia
Theories of Political
The Neo-classical Perspective: Evaluation
Economy
On the other hand:
The neo-classical perspective fails to account for the impact of

Transnational corporations
The Interstate system
Regional dynamics
Other factors Examples:
Examples: What
How role did de-
did Japans
Examples: What impact
colonialization and in do War
Cold the
The state and other dominant position Asia
interests
dynamics and in
play power of World
Third large
institutions shape the development of
corporations play in
development? How did the the
Cultural dynamics South Korea and Taiwan? What
economic prospects
construction of
of the Bretton
impact will Chinas emergence
developing
Woods system countries? What
impact developing
have? What about regions
impact have
countries? changes
What in
part did
without a
changes in process dominant
trade policy--from
production have? What
industrial/technological
mercantilism to free trade--
role does competition among
power, such
play? Did TNCs as
differentAfrica or the
play?wars play a
Middle East?
key role?