Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization

by Robert Wade

Published originally in 1990 to critical acclaim, Robert Wade's Governing the Market quickly established itself as a standard in contemporary political economy. In it, Wade challenged claims both of those who saw the East Asian story as a vindication of free market principles and of those who attributed the success of Taiwan and other countries to government intervention. Instead, Wade turned attention to the way allocation decisions were divided between markets and public administration and the synergy between them. Now, in a new introduction to this paperback edition, Wade reviews the debate about industrial policy in East and Southeast Asia and chronicles the changing fortunes of these economies over the 1990s. He extends the original argument to explain the boom of the first half of the decade and the crash of the second, stressing the links between corporations, banks, governments, international capital markets, and the International Monetary Fund. From this, Wade goes on to outline a new agenda for national and international development policy.

Genres: Economics, History, Nonfiction, China, Asia, Politics, Finance

438 pages, Paperback

First published January 1, 1990

Reviews

[Eugene Kernes · Rating 3 out of 5]

Countries can govern their markets to support the country's need. To provide more employment opportunities or obtain the resources needed for proper infrastructure, the government can encourage the desired sector’s growth. Governing the market means to incentivize the mobilization of capital to where it is needed.
In a standard opportunity cost model, a country should only produce the goods that it has a comparative advantage in. This book shows that any country can change their current comparative advantage. At times, private enterprise does not want to enter a market due to lack of capability and/or there is an existing dominant producer, but the government can mobilize capital to those markets by providing a variety of supports or protections to the firms. The supports and protection help the firms gain profit and become capable producers. That means that the previous comparative disadvantaged good, can now be produced at a lower opportunity cost or at par with the world market producers.
The implications of the book can be substantial, but there are few counterarguments made. Some in passing, others given a small number of pages. No effort was shown in reviewing the countries that used governing the market and have not succeeded.
Governing the market strategy implications depend on having access to products and knowledge from other countries, export market for the product, and few countries producing the product. A country that wants to develop an industry, requires information about that industries products for which the government can provide incentives to create. Governments can provide research and development funds, but development happens more in products that already exist which the government wants to be able to produce internally. When a product is introduced to a country, there is usually only a small internal market, which means that the initial level of production is rarely enough to provide profits for the firm’s existence. Governments tend to provide incentive the export of the product so that the firm can sell more products and cover their costs. After the firms start to sustainably produce the products, development of the sector can come to a halt should other countries start to produce the same product.
A problem of governing the market that is provided is the limited rights of the people. In the examples given, any government dissidents or opponents are jailed or worse. There are huge controls on media and what can be discussed openly. For more than 2 people to meet, they must first register with local authority to approbate the meeting. The authors counterclaim to this problem is that the people care less for freedoms when they need employment.
The book is fairly well written and a lot of data to support the governing the market theory is provided. The initial chapters and the last two, provide an overview of the rise of East Asia. But in terms of specifics for governing the market argument, only one country is used. That country is Taiwan. It would have helped a lot for the author to provide a larger variety of countries and to provide examples where governing the market strategy was used and failed or abused.

[Jim Gulley · Rating 3 out of 5]

According to neoclassical economists, the case study of Taiwan in the post-war era is proof of the efficacy of neoclassical principles (free trade, competitive advantage, limited government intervention, stable monetary policy) in maximizing economic growth and improving living standards. Robert Wade takes issue with this conventional wisdom by arguing that the Taiwanese government went well beyond a “hands-off” approach and intervened with industrial and export policies that facilitated resource allocation through “vigorously functioning markets” (6). He asserts that the government flexed tariff policy with fluctuating rates to protect domestic markets while using tax rebates as offsets to support strategic sectors chosen by the government to further its central planning. He also points out nontariff levers (quotas, licenses, regulation) that the government deployed to support an “outward facing” economy and specific “upstream” industries.

It is difficult to evaluate Wade’s arguments because they are based on esoteric analysis of detailed economic data. In fact, he sets up many of his chapters by saying that all the evidence seems to support the neoclassical explanations but that if you look really hard into the minutia of the data, you will find some weaknesses in their theories. He agreed with Vogel’s assessment of the vitality of small firms in Taiwan and the entrepreneurial element they supplied to the economy. He acknowledged that Taiwan did not have a comparable MITI or chaebol oligopolistic corporations as found in Japan or Korea that facilitated government intervention in those countries. The clearest evidences of government involvement in the economy that Wade presents are all things that fit in the neoclassical paradigm: infrastructure investment, education, limited spending on social programs, budget surpluses, and sound monetary policy.

Wade concludes by supporting the “government-led” theory of development and a synergy between the Simulated Free Market neoclassical view and the Political Economy view that regional economic growth was driven principally by capital accumulation.

[Zhenyao Li · Rating 5 out of 5]

Wade wants to develop a theory (GM) compares with the Free market and the simulated market theories, he places a lot of emphasis on how the Taiwan controls the market behind the seemingly free marketish statistics.
GM theory mainly puts that the success of Taiwan is due to 1) super high level of productive investment. 2) many investment goes into crucial sectors which won’t be developed without state. 3) let industry face the global competition.
He analyzed via five sub-topics: 1) To what extent neoclassical conditions present in TW? (Free trade, free labor market, high interest rate, conservative government budget) 2) what kinds of the activities the government is undertaking? How much control it has? ( upstream industries)3) the instruments it has to affect investment (international and domestic, banks give lower debt to some companies)4)institutional locus of instruments (authoritarian-corporatist 5) how agencies, goals, industrial policies unified. (Slim connection between private and government)

[Pierre · Rating 4 out of 5]

Really changes the way you think about modern East Asian history, the role of government, and economic development. Had a big impact on development policy if I'm not mistaken. It's not all free-markets! Yeah

[David]

http://www.theatlantic.com/technology...

[Moheb · Rating 2 out of 5]

Too Academic