East Asia, the Comparative Method, and the Limits of State-Led Development
The city-states of Singapore and Hong Kong are two of the most successful cases of economic development with both countries having achieved rapid economic growth in the late 20th century. The factors contributing to their success have however been subject to much academic debate. This debate pits two camps against each other, a market-liberal position, and a developmental state position, both of which interpret East Asia’s success through very different frameworks.
On one hand, market-liberal organisations and scholars have portrayed both countries – along with the other ‘Asian Tigers’ such as Taiwan and South Korea – as ‘free market success stories’. Singapore and Hong Kong are highly ranked on the Index of Economic Freedom by Heritage Foundation and the Economic Freedom of the World by Fraser Institute (henceforth called ‘Economic Freedom Indices (EFI)’). According to this view, the growth of both countries reflects the power of economic freedom, since both are said to have maintained free trade, low taxes, and minimal regulation in economic policy. The successes of Singapore and Hong Kong under such free-market arrangements are then used as a justification for others to emulate, ranging from post-Brexit Britain to other developing nations [1].
On the other hand, this market-liberal position has been criticised by East Asian scholars advocating a ‘developmental state’ institutional arrangement, which features the strategic use of industrial policy, high state capacity, and a reliance on performance legitimacy (Haggard, 2018) [2]. According to this camp, East Asia succeeded in the 20th century not because of free market policies, but precisely because they rejected them – adopting instead the ‘neoliberal prescriptions’ of the World Bank establishment in favour of industrial policy interventions (Amsden, 1994; Wade, 2018). South Korea, Taiwan, Singapore, and Japan are said to have exemplified this model and used it to great success.
While each of these schools of thought – the market-liberal position and the developmental state position – are defended by talented scholars who muster evidence for their claims, both positions may be criticised for being incomplete in important ways. In my recent book Economic Liberalism and the Developmental State: Hong Kong and Singapore’s Post-war Development, I argue that while market-liberals are generally right that market-based policies and institutions are essential ingredients for economic prosperity, their use of EFI have failed to capture the complex ways in which the state has shaped the development of East Asian nations. While Hong Kong very much approximates the market-liberal account of successful development , the political economy of Singapore is far more interventionist than certain aggregate statistics may portray. It is only through a comparative case study that these differences are revealed, allowing for a systematic evaluation of the relative merits of their different economic strategies.
Part 1: Complex phenomena, small-N and economic freedom indices
The use of aggregate statistics by market liberals have obscured the exercise of power by the Singapore developmental state. This is a point that many Singaporean political economists have stressed over the years: the EFI rankings are misleading and can underestimate the true reach of the Singapore state (Lim, 1983; Low, 1998). There are many reasons for this. First, many state-owned enterprises are indirectly owned by the state and thus not reflected in conventional statistics of government consumption. These entities, called ‘government-linked corporations’, themselves have multiple tiers of ownership that cascade down the economy, obscuring the degree of government ownership of various companies. Second, quasi-government agencies which are central in economic policy (called ‘statutory boards’) are excluded from traditional budget calculations, a fact which can lead to underestimation of the true extent of government spending. Third, Singapore’s authoritarian governance means that the state has exercised enormous bureaucratic discretion in economic policymaking, and, for example, presided over a forced acquisition of private land to kickstart state-led industrialisation. In short, the ‘developmental state’ institutional arrangement in Singapore employs complex forms of control over the economy which are not easily captured in aggregate statistics like those employed by various economic freedom indexes.
By way of clarification, I am not arguing that EFI has a flawed calculation methodology. In fact, numerous scholars have over the years refined its calculation method, including new ways to weight different components and including various subjective measures such as surveys. What I am arguing is that the very nature of EFI as a large-N aggregate study means that complex phenomena – in this case state-market arrangements – may at times be obscured. This point was in fact made by the renowned development economist Peter Bauer (1969, p. 84):
“These political results or corollaries of state control of economic life depend largely on the closeness and the types of state control of economic life, matters which cannot be inferred simply from conventional statistics of the size of the public sector. For instance, government expenditure may be comparatively small, and yet government control over the economy close if there are many state trading monopolies, or if there is extensive licensing of economic activity. (Conversely, even if government expenditure, as a proportion of the national income, is substantial, this need not imply close control over the economy, if the expenditure is on the performance of the familiar traditional functions of government.) Thus, in assessing the political implications of state control of economic life, the character of the control is of major relevance, and this character often cannot be inferred from readily accessible statistics.”
This ‘character of control’ Peter Bauer emphasized suggests that state power is manifested differently in different contexts. Additionally, the state’s control over the economy cannot be divorced from wider considerations of power, ideology, and hegemony, variables which typical economic studies, by virtue of being wedded to aggregation and quantification, are often unable to capture (Ozanne, 2016; Skidelsky & Craig, 2016). By focusing only on the quantifiable aspects of the state’s control over the economy, EFI can obscure important elements of social context, the culture of the people and the political infrastructure of the country. In my book, I show through a mixed methods approach that once all these variables are considered, Singapore’s political economy stands in sharp contrast to that of Hong Kong.
The larger point being made is that researchers should transcend the singular use of large-N aggregate research designs that are all too common in mainstream economics. While these methods have their advantages, in terms of being able to establish causal relationships across a large universe of cases, the breadth they achieve comes at the expense of depth. The sacrifice of depth is unfortunate, especially if complex social phenomena are the target of study. ‘Complex phenomena’ include that which are not always quantifiable or measurable, and accordingly, ‘the facts of the social sciences’ comprise what people ‘think and believe’, which in turn require a deep investigation of human action and social meanings (Hayek 1943; Hayek, 1967; Storr 2010). This is why small-N comparative studies should be more readily considered, since the ‘thick description’ it offers allow researchers to be more sensitive to context and investigate factors such as culture, history, language, beliefs, and political attitudes (Geertz, 1973).
Part 2: Creativity, innovation, and freedom
While market liberals portray East Asian nations as ‘free market success stories’, developmental state advocates believe that these same countries vindicate the use of industrial policy interventions. This position is especially popular today, considering the rise of the ‘entrepreneurial state’ paradigm by Mariana Mazzucato (2021), who also believes governments should engage in ‘mission-oriented’ interventions. Notably, out of various East Asian nations, Singapore is often singled out as the country most successful in this regard. A leading advocate of industrial policy today, Ha-Joon Chang et al. (2013, p. 33), considers Singapore’s use of industrial policy to be the “most successful” amongst developed countries. So successful was Singapore’s use of industrial policy that it was an “effrontery to all kinds of economics”, mainly, the neoliberal ideas that Chang (2011) sought to refute.
My comparative study of Hong Kong and Singapore allows me to test how effective such industrial policies have been. The first part of the book establishes that Singapore’s post-war economic strategy diverged from Hong Kong, which continued with a much more laissez-faire approach until its handover to China in 1997. Accordingly, I argue that while developmental state theorists are right that significant interventions have been used in Singapore’s development history, I suggest that these policies have come at high cost to specific areas of its economic trajectory, and in ways that have stunted its economic potential.
Admittedly, both Singapore and Hong Kong have achieved rapid economic growth, measured in terms of national income, but the former’s performance has lagged that of Hong Kong when it comes to ‘higher order’ aspects of development. These include productivity, innovation, and entrepreneurship, which scholars believe are components of ‘cutting-edge’ economic development, and are critical for continued economic growth and productivity increases, as opposed to mere increases in national income. Hong Kong’s post-war development was achieved in the absence of a central industrial strategy and was in fact kickstarted by the influx of Shanghainese immigrants in the 1960s (Wong, 2003). These migrant entrepreneurs in turn facilitated industrialisation from the bottom-up, contributing to a dynamic and adaptive economy (Yu, 1998).
While aggregate statistics do show both countries have comparable levels of economic performance, a detailed look beyond aggregate statistics reveals several important differences. For example, both countries rank highly on the Global Innovation Index. Yet, an analysis of pre-1997 Total Factor Productivity shows that Hong Kong eclipsed Singapore in every single year, despite it having virtually no industrial subsidies or support for firms. More significantly, most of the R&D spending and patents registered in Singapore are concentrated in the state-linked and foreign sectors, rather than accruing from organic and indigenous entrepreneurs. Additionally, the top-down nature of Singapore’s innovation policy means that it exhibits a comparatively lower level of economic efficiency, a problem best articulated by the 2014 Creative Productivity Index [3]:
“Singapore provides the starkest example of the importance of efficiency in turning creative inputs into creative outputs. The city-state is far from an innovation laggard: it is ranked first in the level of creative inputs and sixth in the level of creative outputs. However, given its level of creative inputs, Singapore could be achieving even more creative outputs. Japan; Hong Kong, China; and New Zealand all have a lower level of creative inputs than Singapore, yet achieve a higher level of creative output. This is because Singapore is less effective at turning creative inputs into outputs, as evidenced by its ranking of 10th in the Creative Productivity Index.” (Asian Development Bank and Economist Intelligence Unit, 2014).
Market liberals often emphasise the importance of economic freedom for progress. There is much truth to this argument, but as I show in the book, it is not just economic freedom per se that matters, but a larger culture that emphasizes individuality and specific types of entrepreneurial creativity. This difference is important for ‘cutting edge’ innovation and economic progress. This was most famously advanced by urban studies theorist Richard Florida (2002) in his seminal study showing how the creative class best flourishes in open, free, and tolerant cultures.
Once culture is considered, Hong Kong and Singapore could not be more different, especially since authoritarian governance in the latter has fostered a culture that promotes various forms of compliance to state directives (Lee & Lim, 2004; Tremewan, 2014). These cultural differences are correlated with the fact that Hong Kongers are more likely to become entrepreneurs than Singaporeans, who prefer less risky occupations. Significantly, Hong Kong, and in fact most other East Asian nations, have vibrant creative sectors as compared to Singapore which has struggled on this front despite high amounts of government funding. For example, Hong Kong has an illustrious history of ‘Cantopop’ and its film industry, being the third largest in the world at various points, has over many decades comparable to K-Pop, America’s Hollywood and India’s Bollywood (see Chu, 2017). The relative under-performance of Singapore on these measures of creativity and cultural vibrancy prompted a now famous remark by Steve Wozniak, co-Founder of Apple Inc:
“When you’re very structured almost like a religion… Uniforms, uniforms, uniforms… everybody is the same. Look at structured societies like Singapore where bad behavior isn’t tolerated. You are extremely punished. Where are the creative people? Where are the great artists? Where are the great musicians? Where are the great singers? Where are the great writers? Where are the athletes? All the creative elements seem to disappear.”
The larger point that this study makes is that while state-led initiatives may at times be able to achieve increases in national income and impressive scores on aggregate metrics – they are no substitute for the creative engines of the market process.
References
Amsden, A. H. (1994). Why isn’t the whole world experimenting with the East Asian model to develop?: Review of the East Asian miracle. World Development, 22(4), 627–633. https://doi.org/10.1016/0305-750x(94)90117-1
Asian Development Bank & Economist Intelligence Unit. (2014, August). Creative productivity index: Analysing creativity and innovation in Asia. Retrieved from Asian Development Bank: https://www.adb.org/publications/creative-productivity- index- analysing-creativity-and-innovation-asia
Bauer, P. (1969). Dissent on development. Scottish Journal of Political Economy, 16(3), 75–94.
Chang, H. J. (2011). Reply to the comments on ‘Institutions and economic development: theory, policy and history’. Journal of Institutional Economics, 7(4). https://doi.org/10.1017/S174413741100035X
Chang, H. J., Andreoni, A., & Kuan, M. L. (2013). International industrial policy experiences and the lessons for the UK. London, UK: Government Office for Science.
Chu, Y.-W. (2017). Hong Kong Cantopop: A Concise History. Hong Kong University Press.
Geertz, C. (1973). The Interpretation of Cultures. Basic Books.
Haggard, S. (2018). Developmental states. Cambridge University Press.
Hayek, F. (1943). The Facts of the Social Sciences. Ethics, 54(1), 1–13.
Hayek, F. (1967). The Theory of Complex Phenomena: A Precocious Play on the Epistemology of Complexity. In Studies in Philosophy, Politics and Economics (pp. 22–42). Routledge.
Lee, T., & Lim, D. (2004). The economics and politics of “creativity” in Singapore. Australian Journal of Communication, 31(2). https://researchrepository.murdoch.edu.au/id/eprint/10046/1/Creativity_in_Singapore.pdf
Lim, L. Y. C. (1983). Singapore’s Success: The Myth of the Free Market Economy. Asian Survey, 23(6), 752–764. https://doi.org/10.1525/as.1983.23.6.01p00597
Low, L. (1998). The Political Economy of a City-state: government-made Singapore. Oxford University Press.
Mazzucato, M. (2021). Mission economy: A moonshot guide to changing capitalism. Penguin UK.
Ozanne, A. (2016). Power and neoclassical economics: a return to political economy in the teaching of economics. Palgrave Macmillan.
Skidelsky, R., & Craig, N. (2016). Who Runs the Economy?: The Role of Power in Economics. Springer.
Storr, V. (2010). The facts of the social sciences are what people believe and think. In P. Boettke (Ed.), Handbook on Contemporary Austrian Economics. Edward Elgar Publishing.
Tremewan, C. (2014). Political economy of social control in Singapore. Palgrave Macmillan.
Wade, R. H. (2018). The Developmental State: Dead or Alive? Development and Change, 49(2), 518–546. https://doi.org/10.1111/dech.12381
Wong, S. L. (2003). Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong. 上海古籍出版社.
Yu, T. F. L. (1998). Adaptive entrepreneurship and the economic development of Hong Kong. World Development, 26(5), 897-911.
Notes
[1] Pro-market Brexiteers in the UK have often called for the UK to be a ‘Singapore-on-Thames’. For example see here. Prof. Steve Hanke from John Hopkins have written about the ‘Singapore Strategy’ for developing nations like Paraguay.
[2] These scholars are not necessarily East Asian in ethnicity or nationality, but possess deep expertise on East Asian politics like area studies experts. They include Ha-Joon Chang, Alice Amsden, Robert Wade and Stephan Haggard.
[3] There has been only 1 issue of this study, which is in 2014
