Globalization, Liberalization and Equitable Development: Lessons from East Asia

In this paper, Jomo K.S. assesses the developmental effects of globalization and economic liberalization on five economies: Indonesia, Malaysia, the Republic of Korea, China (Taiwan Province) and Thailand. He situates his discussion in the context of the dominant global trend toward economic liberalization, especially the policies promoted by the “Washington Consensus”. Jomo is critical of the latter, and the World Bank in particular, which has touted the economies of Malaysia, Indonesia and Thailand (the Southeast Asian trio, or SEA3) as examples of successful rapid export-led growth with equity. Ostensibly because they did so by liberalizing—that is, by reducing state intervention, especially on the external front—the SEA3 were held up as models for emulation by other developing countries. The message was that external liberalization would bring about not only faster growth, but also greater equity. Yet, this paper shows that the SEA3 performed less well than the Republic of Korea and China (Taiwan Province).

While still pursuing certain interventionist policies, the five economies have selectively undergone considerable liberalization since the 1980s. The consequences have been uneven, with some economies, industries and firms better placed to benefit from liberalization and minimize its potentially harmful effects, while others have been much more vulnerable. While industrial policy was inferior and even ill-conceived—if not abused—in the SEA3, selective government interventions there did contribute to rapid growth, structural change and the development of new internationally competitive industrial capabilities. High growth and structural transformation also raised employment and average incomes, thus reducing poverty. The consequences for inequality have been more complicated, however.

Income inequality in Thailand, Malaysia and Indonesia has been relatively greater than in the Republic of Korea and China (Taiwan Province). In all five economies, inequality has risen during the period of rapid liberalization and globalization since the 1980s. Growth has raised real incomes overall and thus alleviated poverty, but there is little clear evidence of the growth process directly contributing to more equitable income distribution, except when low unemployment and skill enhancement strengthened the bargaining power and remuneration of labour generally.

Besides poverty alleviation and redistribution mechanisms, the five governments have, to varying extents, also introduced some social safety nets to reduce the dislocation caused by rapid structural changes and cyclical influences. Yet, such provisions have been minimal, because it has been presumed that the unemployed could count on “traditional” social safety nets provided by families, communities and informal sector activities. The social disasters due to the recessions following the 1997 East Asian currency and financial crises have underscored the inadequacy of such provisions when they were most needed.

Public and private investment in human resources has helped mitigate poverty and inequality. With government encouragement, the Republic of Korea and China (Taiwan Province) have developed highly educated labour forces. The expansion of education not only helped generate technical and professional human resources for industrial upgrading, but also enhanced opportunities for upward socioeconomic mobility, including skill enhancement and higher remuneration.

According to Jomo, while state intervention, particularly industrial policy, in East Asia was crucial for the region’s rapid economic growth and late industrialization, this was truer of Northeast Asia (the Republic of Korea and China (Taiwan Province)) than Southeast Asia (Malaysia, Thailand, Indonesia). The more effective nationalist economic policies of the former were accompanied by considerable social development and more equitable income distribution. In Southeast Asia, by contrast, state interventions were more compromised and income inequalities greater.

Thus, the Republic of Korea and China (Taiwan Province) illustrate a progressive “virtuous cycle” of high levels of state intervention, and rapid and egalitarian economic growth with social development, characterized by relatively high literacy rates and life expectancies, among other positive social indicators. These countries also seem better poised for further economic growth, structural transformation and social development. Societal acceptance of public policies to achieve rapid growth, structural change and late industrialization in the face of externally imposed conditions, including regulations as well as liberalization, may well depend on government commitment to egalitarian development policies, involving economic asset redistribution, progressive taxation and social expenditure.

According to Jomo, the economic phenomena associated with globalization are varied and require specific responses. Insofar as some international economic liberalization is inevitable, there is a need to give due consideration to sequencing issues, on one hand, as well as proactive initiatives and supply responses, on the other. Developing country governments are poorly equipped to deal with the very complicated agenda associated with globalization. Solidarity and co-operation among these governments have declined significantly since the 1970s, especially on economic issues, and the sympathy of some European governments toward their developmental aspirations has also evaporated. Jomo emphasizes the importance of restoring both types of co-operation and mutual support for the realization of a viable alternative to the status quo, and says that although recent initiatives may well offer the prospect for such co-operation, more effort needs to go into these tentative steps.