ABSTRACT
The purpose of this chapter is to describe how the theory of circular and cumulative causation accounts for a number of key, commonly identified elements of Northeast Asian development strategy since 1950, especially the use of specific industry policies. Several leading figures in the cumulative causation (CC) tradition have suggested that the pattern of Northeast Asian development is consistent with the CC understanding of the growth process in industrial economies and, consequently, may provide empirical support to this theory (Kaldor 1966: 20; Cornwall 1977: 191-3; Eatwell 1982: 136-9; 1987: 737-8; McCombie and Thirlwall 1994). However, these leading figures have provided only brief suggestions on these matters and have neither undertaken detailed studies from a CC perspective of national development strategies generally nor of Northeast Asian industry policies in particular. This is explained in part by the dominance of econometric techniques as the principal methodology of CC theorists.1 They have generally eschewed recourse to the empirical work of economic historians and political scientists on Northeast Asian development. At the outset we acknowledge that the preponderant references are to Japan, the first Northeast Asian “developmental state.” It is widely understood, however, that the strategies of South Korea and Taiwan followed those of Japan, as is made clear in the studies cited in Part 2. The central argument of this chapter is that there is a very large body of evidence, mainly from economic historians, political economists and political scientists who have studied the institutions and policies underpinning Northeast Asian development, which is strongly consistent with CC theory. The studies included in this survey (in Section 4 of Part 2) may be broadly identified as supporting the “developmental state” or “governed market” interpretation of post-war Northeast Asian industrial development (see e.g. Johnson 1982; Wade 1990; Woo-Cumings 1999; Jomo 2001). This view ascribes a key role to the state and its economic agencies in planning and directing the industrial structure. There was also, however, a general consensus between industry and government over the means and ends of industry policy, with
considerable consultation and negotiation between the bureaucracy and businesses regarding policy formation and implementation. An important theme common to these writers is the inadequacy of neoclassical economic theory to comprehend and explain the goals and effects of post-war Northeast Asian industry policy, except that contradictorily they frequently allude to “market failure.” Generally, the studies draw on diverse heterodox sources to explain the reasons for, and effects of, Northeast Asian industry policies without establishing a satisfactory understanding of the economic rationale and effects of such policies. While these “statist” writers provide a detailed account of the institutions, goals, instruments and effects of industry policy they generally lack a coherent overarching theory to explain the phenomenon they describe. We argue that CC theory can provide this coherent explanation. The chapter is divided into two parts. The first is an outline of fundamental CC principles. The second is an account of how these principles explain certain major elements (or “stylised facts” to use Kaldor’s term) of post-war Northeast Asian development in the second half of the twentieth century.
