Asia’s developing economies pose challenging questions for the left’s conception of the relationship between the state and development in this era of global capitalism. Neoliberals often cite East Asian economies as proof of the validity of their laissez faire development theories because they achieved high growth and technological development in a market framework. But a combination of state intervention and market discipline was actually behind the relative successes of these economies. In a December 1998 interview with MERIP board member Marsha Pripstein Posusney, Robert Wade, author of Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton, 1990), provided insights into the background of East Asia’s economic “miracles.”

“East Asian governments set out to create new growth industries and to channel resources into those new industries at a faster rate than they thought would happen by free-market forces alone. They established a whole apparatus of industrial policies involving protection and subsidies of one kind or another — credit subsidies, tax breaks — with performance criteria…that met international standards of competitiveness. In turn, the operation of that industrial policy apparatus required institutional foundations within the government — pilot agencies that in a sense practiced central planning. Unlike the former Soviet Union, however, they allocated resources by market mechanisms, but these were …rigged or tilted, with state agencies, banks and firms working hand in glove. This could have been a recipe for corruption had it not been disciplined by the use of criteria related to international competitiveness…. These countries were extremely successful, partly because of their ability to operate institutions of a developmental state effectively despite the fact that they were not democracies.

“[Developing] countries must be very careful about opening themselves up to the free inflow and outflow of capital. In particular, it is vital that some national supervisory agency keeps a very close watch on the foreign exchange liberties of the economy as a whole. Given low domestic savings in the Middle East, it is desirable to get capital from abroad in the form of foreign direct investment, which will bring with it technology and management skills, rather than in the form of portfolio capital or bank loans.

“There are ways to control capital repatriation and to limit foreign ownership. But I think privatization of most kinds of enterprises is a good thing. I don’t think it’s sensible for government agencies to be running commercial enterprises. It is a mistake to pose the issue in terms of either state property versus private property or domestic versus foreign ownership. [These are false dichotomies;] the crucial issue is performance, as measured by criteria related to international competitiveness.”

How to cite this article:

Marsha Pripstein Posusney "Controlling Capital, Disciplining States," Middle East Report 210 (Spring 1999).

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