From: Snapshot-Content-Location: https://library.fes.de/fulltext/bueros/seoul/00739.html Subject: FES Publications: Capitalist spirit in East Asia Date: Wed, 7 May 2025 14:15:56 +0200 MIME-Version: 1.0 Content-Type: multipart/related; type="text/html"; boundary="----MultipartBoundary--NagsiQVgE97Y4qpdrdiSXORTrq75MdYGzeBGXPA5Z0----" ------MultipartBoundary--NagsiQVgE97Y4qpdrdiSXORTrq75MdYGzeBGXPA5Z0---- Content-Type: text/html Content-ID: Content-Transfer-Encoding: quoted-printable Content-Location: https://library.fes.de/fulltext/bueros/seoul/00739.html FES Publications: Capitalist spirit in East Asia

 

Capitalism=20 and the Capitalist Spirit in East Asia:

A=20 View from Europe*

 

by Prof. Hanns W. Maull,= Trier University in Germany

* Present= ation at the=20 Conference on =A1=B0Capitalism and Capitalist Spirit in East As= ia=A1=B0=20 on March 24th=20 2000, organized by the Institute of Social Development, Seoul N= ational=20 University and Friedrich-Ebert-Stiftung

 


Abstract

For=20 much of mankind=A2=A5s history, East Asia represent= ed the=20 largest part of the world economy. The industrial r= evolution=20 (as the manifestation of the rise of modern capital= ism)=20 has changed this, though we are probably witnessing= =20 a return to this traditional pattern of East Asia a= s=20 the largest cluster of economic activity. We do not= =20 have good answers as to why did this revolution tak= e=20 place at the periphery, rather than at the gravitat= ional=20 centre of world economic activity in East Asia - bu= t=20 we know that East Asia more recently has done excep= tionally=20 well, developing its own forms of modern =A1=B0East= Asian=20 capitalism=A1=B1, the capitalist developmental stat= e. Japan=20 has been at the core of this success, and continues= =20 to exercise considerable influence over the develop= ment=20 of modern capitalism in East Asia. But the crisis o= f=20 Japan since 1992, and the East Asian =A1=B0financia= l crisis=A1=B1=20 of 1997-1998, signal the end of the useful life of = the=20 Japanese model of the developmental state. East Asi= a=20 will have to shift to a new paradigm which, however= ,=20 will certainly not be a copycat version of Anglo-Sa= xon=20 capitalism. In addition, East Asia will have to cop= e=20 with unprecedented demographic changes and solidify= =20 as yet very fragile regional security co-operation = and=20 integration.
 

&n= bsp;  

For=20 much of the last 5000 years of history, East Asia represented t= he=20 largest part of the world economy. The industrial revolution (a= s=20 the manifestation of the rise of modern capitalism) has changed= =20 this, though we are probably witnessing a return to this tradit= ional=20 pattern of East Asia as the largest cluster of economic activit= y.=20 We do not have good answers as to why this revolution took plac= e=20 at the European periphery, rather than at the gravitational cen= tre=20 of world economic activity in East Asia - but we know that East= =20 Asia more recently has done exceptionally well, catching up rap= idly=20 and even moving towards the frontier of capitalist development.= =20 What this paper sets out to do is to explore the failure of aut= ochthonous=20 capitalist development in East Asia, the region=A2=A5s later su= ccesses=20 and its most recent difficulties. Against this background, the = paper=20 then speculates about the future of modern capitalism in East A= sia.

1.   =20 What is =A1=B0Capitalism=A1=B1?

What=20 do we mean by =A1=B0capitalism=A1=B1, and how do we define =A1= =B0modern capitalism=A1=B1?=20 Max Weber draws a sharp distinction between the two. For him (a= nd=20 I will follow his argument), capitalism simply means any econom= ic=20 activity which aims at a sustained and growing balance-sheet su= rplus.=20 In this traditional sense, capitalism is a very venerable and u= niversal=20 phenomenon. It centred around the exchange of  goods and s= ervices,=20 i.e. around commerce.

Modern=20 capitalism for Max Weber is a much more demanding category. It = is=20 dominated not so much by exchange (though the scope for exchang= es=20 certainly also widens dramatically under modern capitalism) but= =20 by the quantity and quality production. Traditional capitalism = satisfied=20 human needs and desires through trade, modern capitalism throug= h=20 product multiplication and innovation. Where traditional capita= lism=20 uses resources extensively, modern capitalism does so intensive= ly.=20 One implication of the shift from one to the other was that the= =20 territorial scope of economic activity could be reduced: long-d= istance=20 trade played constituted a much more important share of total c= ommerce=20 under traditional capitalism than under modern capitalism. Mode= rn=20 capitalism is intricately linked with the rise of the modern na= tion=20 state.

Specifically,=20 Max Weber argues that the rise of modern capitalism required a = number=20 of essential preconditions, which together existed only in Euro= pe,=20 namely

    rational=20 capital accounting on the basis of private property over all ph= ysical=20    means of production,
    free mar= kets,
    rational= use of technology (mechanisation),
    rule of law,<= br>     free lab= our,
    the comm= ercialisation of economic live, which=20 implied the transformation    of property into n= egotiable=20 paper and, related to this last feature,
    speculat= ion.1

This=20 still seems a pretty good description today. It makes clear tha= t=20 =A1=B0modern capitalism=A1=B0 could be equated with =A1=B0indus= trialisation=A1=B0=20 or =A1=B0modernisation=A1=B0; it describes the fundamental chan= ges Western,=20 but also many non-western societies have been undergoing throug= h=20 the last two hundred years. 

2.   =20 Why did Modern Capitalism not Arise in East Asia? Some Western = Views=20

That=20 capitalism did not develop spontaneously in East Asia is an ind= isputable=20 fact. How this fact can be explained, however, is another matte= r=20 - and trying to answer it is tricky for both Western and East A= sian=20 social scientists, as we both may have our own axes to grind: w= e=20 Western may secretly indulge in triumphalism, while  East = Asian=20 may wish to rationalise shortcomings.

In=20 any case, Western views on this question diverge widely, and we= =20 clearly are far away from a clear and generally accepted answer= .=20 By way of illustration, let me briefly review some Western expl= anations=20 for the rise of modern capitalism in Europe and its initial abs= ence=20 in East Asia.

Max Weber

Max=20 Weber to my knowledge was the first social scientist to explore= ,=20 in a highly systematic fashion, the question as to why modern c= apitalism=20 developed in Europe, but not in East Asia. Others have dealt wi= th=20 his analysis much more competently, and more thoroughly, than I= =20 could have done. Suffice it to say here that  his culprits= =20 with regard to China were, to simplify enormously, a) the perva= sive=20 influence of kinship relations in Chinese society and economy (= from=20 today=A2=A5s perspective of Chinese capitalism of family networ= ks, a=20 somewhat ironic position) and b) the structure of the Chinese s= tate=20 which obstructed the development of modern capitalism.2

Gunnar Myrdal

To=20 use Myrdal=A2=A5s monumental study on the =A1=B0Asian Drama=A1= =B13=20 as evidence is, of course, somewhat unfair: his analysis essent= ially=20 was confined to South Asia (though his definition of this regio= n=20 curiously included much of today=A2=A5s South east Asia, and it= also=20 claimed broader relevance). Still, it may be worthwhile to reca= ll=20 that he saw the origins of persistent, indeed escalating underd= evelopment=20 in attitudes and institutions. Traditional religious beliefs an= d=20 traditional socio-political institutions top him represented th= e=20 core obstacles to development, which could be overcome only wit= h=20 a =A1=B0big push=A1=B0. Note, however, that he had some very ha= rsh things=20 to say about simplistic notions about =A1=B0Asian values=A1=B0!= 4

Jared Diamond

A=20 radically different approach to explain our puzzle has been tak= en=20 by the physiologist Jared Diamond. In his book =A1=B0Guns, Germ= s and=20 Steel. The Fate of Human Societies=A1=B15= =20 he looks to geographical and environmental conditions as determ= inants=20 of human history. From this perspective, both Europe and East A= sia=20 turn out to have been favoured by nature. Indeed, the geographi= cal=20 and ecological environment of East Asia was so favourable that = it=20 enabled China to achieve the political unification of a large l= and=20 mass and huge population earlier, and to defend this political = unity=20 more effectively than other civilisations. This, to Diamond, he= lps=20 to explain the technological advantages which China achieved ov= er=20 others.

Yet=20 those advantages often remained unused, and China=A2=A5s great = historical=20 asset, its political unity based on advantageous geographic con= ditions,=20 became a major disadvantage. In geographically and politically = heterogeneous=20 Europe, competition between states kept up the pressure for inn= ovation.=20 China was also more isolated from other major civilisations, bu= t=20 more exposed to the continuous onslaught of steppe people from = East=20 Central Asia.

**= *

Why=20 did modern capitalism not arise spontaneously in East Asia? In = the=20 end, this brief survey of explanations does not give us a clear= =20 answer. Certainly, many necessary preconditions existed there, = as=20 much as (if not more than) in Europe. Although we have a number= =20 of plausible explanations and considerable supportive evidence = about=20 barriers to modern capitalism in East Asia, in the end those ex= planations=20 and the supporting evidence are also not always compatible, som= etimes=20 contradictory and certainly not easily reduced to elegant causa= l=20 theories. We are thus left somewhat puzzled by the question as = to=20 why East Asia failed to shift towards modern capitalism on its = own.=20 The simplest way to settle the issue may be to state it as foll= ows:=20

Proposition=20 One: In East Asia, modern capitalism failed to develop autonomo= usly=20 because there was no perceived need for it. This need in Europe= =20 was provided by the competition of nation-states through endles= s=20 rounds of warfare.

3.   =20 The Rise of Modern Capitalism in East Asia, 1868 to 1997

It=20 thus was the incursion of external factors - specifically, the = geographical=20 expansion of modern European capitalism in the age and under th= e=20 form of  Western imperialism - which introduced East Asia = to=20 modern capitalism. This historical process started with the fir= st=20 (abortive) effort by the United Kingdom to persuade China to op= en=20 itself to trade with the West (the famous Macartney mission) in= =20 1792-1794 and unfolded through the opium wars and subsequent ex= ternal=20 interventions in China and the arrival of Commodore Perry=A2=A5= s Black=20 Ships to Japan in 1853.

It=20 was the latter event which in retrospect turned out to be decis= ive=20 for the implantation of modern capitalism in East Asia. The for= ced=20 opening of Japan triggered the (already shaky) breakdown of the= =20 old order, and a determined effort by the new Imperial state of= =20 the Meiji revolution to haul Japan into the age of industrialis= ation.=20

This=20 effort succeeded in a remarkable tour de force, though it also = left=20 a highly precarious legacy of expansionist energies and social = tensions.=20 Japan=A2=A5s successful industrialisation, which was completed = in its=20 first, most important phase by 1914, represented the first of f= our=20 successive waves of the expansion of modern capitalism in East = Asia.=20 The second wave started in the 1960s and comprised the later so= -called=20 Newly Industrialising Countries (NICs) South Korea, Taiwan, Hon= g=20 Kong and Singapore. A third wave engulfed from the mid-1970s So= uth=20 East Asia, and the fourth wave has swept China since the initia= tion=20 of the four reforms in 1978.

The=20 impressive catch-up development of East Asia since World War II= =20 has been extensively documented. According to the much-quoted s= tudy=20 on =A1=B0The East Asian Miracle=A1=B0 published by the World Ba= nk in 1993,=20 the development of the region was marked not only by historical= ly=20 unusually high growth rates of overall economic activity and pe= r=20 capita output, but also by a quite remarkable degree of  d= istributional=20 justice  and  a successful assault against absolute p= overty.=20 While the East Asian region may have been a late developer, by = 1997=20 it certainly had been catching up very impressively. 

In=20 sum, this leads to my

Proposition=20 Two: Modern capitalism has unfolded by and large very successfu= lly=20 in East Asia. Like waves triggered by a stone thrown in a pond,= =20 industrialisation spread from Japan throughout the region. This= =20 suggests that many preconditions for successful industrialisati= on=20 already were in place.

4.   =20 Why did modern capitalism in East Asia succeed in this century?= =20

But=20 why did modern capitalism spread so successfully since 1868 in = Japan,=20 and since World War II throughout the region, when it had faile= d=20 to develop spontaneously? And what were the reconditions which = existed?=20 One obvious response to the first question is that it was preci= sely=20 the opportunities to catch up, hence to adapt experiences and p= ractices=20 which already had been developed elsewhere, which explained the= =20 rapid rise of modern capitalism in East Asia in the late 19th a= nd=20 20th century.

Yet=20 this alone is not enough, as some blatant development failures = such=20 as North Korea or Burma show. The success of modern capitalism = elsewhere=20 was one necessary external, but certainly not a sufficient cond= ition.=20 Others had to exist, as well, both internally and externally. M= y=20 argument would be that it was a confluence of existing internal= =20 preconditions and external influences, which catalysed internal= =20 changes and thus removed the traditional obstacles to modernisa= tion.=20 The first external challenge was presented by the intrusion of = the=20 West into East Asia, and the second by modernising Japan.

To=20 analyse in some detail this confluence of existing internal pre= conditions=20 and external challenges, the case of Japan may be instructive. = What=20 catalysed the breakdown of the bakufu and the initiation= =20 of the Meiji reforms was the perceived threat to Japan=A2=A5s i= ndependence,=20 its external security and internal stability. Under the Damocle= s=20 sword of Western imperialism hanging over Japan=A2=A5s head (an= d China=A2=A5s=20 fate, which the Japanese elite followed closely, vividly remind= ed=20 Japan of what might be in store for Japan), Japan=A2=A5s new le= adership=20 launched an all-out effort to pull Japan up to the level of Wes= tern=20 power.

In=20 this effort, Japan=A2=A5s reformers could build on strong found= ations=20 in terms of prevailing norms and values, human resources, econo= mic,=20 and social and political institutions:

Norms=20 and values: Japanese society had evolved at the beginning o= f=20 the Meiji era many of the intellectual foundations of a modern = capitalist=20 society. Edo Japan was highly educated and strongly emphasised = the=20 value of education. And it was in many ways meritocratic, secul= ar,=20 pragmatic and empirically minded. The attachment to education r= eflected=20 the influence of Confucianism, but also the importance of the f= eudal=20 code of conduct for the Japanese warrior, the samurai, which ca= me=20 to permeate the whole of Japanese society.  Bushido, which= =20 amalgamated elements from Neo-Confucianism with those of Japan= =A2=A5s=20 own religious traditions, notably Zen buddhism,6=20 may be seen as the functional equivalent to Max Weber=A2=A5s pr= otestant=20 ethic in Europe. It emphasised live-long learning and striving = for=20 perfection in all human endeavours. Central to bushido was loya= lty=20 towards one=A2=A5s superior and benevolence towards one=A2=A5s = vassals.=20 Although the samurai class lost much of its previous importance= =20 during the Edo period, which effectively monopolised the use of= =20 force and thus all but eliminated the samurai=A2=A5s military r= ole,=20 its norms and values retained their appeal. As Reischauer and C= raig=20 put it:

=A1= =B0...the=20 Japanese of the Tokugawa period seem to have developed an extre= mely=20 strong sense of honour, duty and obligation and a dogged determ= ination=20 to live up to all that society expected of them. These qualitie= s=20 gradually spread from the samurai classes to other classes=A1= =B0.7

 &nb= sp;The=20 tensions between Confucian thought and Japan=A2=A5s own intelle= ctual=20 and religious traditions may also have helped Japan to sustain = considerable=20 intellectual pluralism and creativity. Against this background,= =20 pragmatism and a strong interest for Western scientific knowled= ge=20 flourished, while religious attachments declined, making Japan = -=20 like China and Korea - essentially secular societies.

 Human=20 resources: The strong emphasis on education meant that Japa= n=20 began its reforms with a strong base in terms of human resource= s.=20 Ronald Dore has estimated that by the mid-19th century, about 4= 0=20 per cent of all boys and about 10 per cent of all girls had rec= eived=20 some form of education outside their home.8=20 The degree of literacy was almost certainly considerably higher= =20 (which, given the characteristics of the Japanese script, is a = much=20 taller order than with the Roman alphabet). This  level of= =20 education was probably at least as high as that of, say, Britai= n=20 in Europe at that time.

Social=20 and economic institutions: By the end of the bakufu,= =20 Japan had become something of a proto-industrial society. Econo= mically,=20 it had become increasingly united and differentiated. Socially,= =20 it was highly educated and meritocratic:  education had be= come=20 a road towards social advancement, as the aristocratic foundati= ons=20 of the bakufu eroded: in the latter years of the baku= fu,=20 bureaucratic appointments were largely made on the basis of mer= it.=20 There existed new middle classes, made up of rural land owners,= =20 innovative merchants, and samurai bureaucrats with a strongly = =A1=B0modern=A1=B0=20 orientation. At the same time, Japanese society remained very c= ohesive,=20 united by a strong proto-nationalism built on territorial, ethn= ic,=20 linguistic and religious homogeneity and strong common politica= l=20 institutions. The dialectical =A1=B0unity in diversity=A1=B0, w= hich in traditional=20 Japan had been built on the ferociously violent competition of = the=20 han (the feudal fiefdoms) within the overall framework of Japan= =20 (expressed by the institution of the Emperor), during the Edo p= eriod=20 had largely been suppressed. Instead, the ie (originally= :=20 household) came to take the central place in Japanese society. = The=20 ie, built on the moral relationships between the patriar= ch=20 and the other members of the family characteristic for the old = feudal=20 system, became the key model for organising social and economic= =20 activities, including firms. As such, the ie replaced both the = traditional=20 han and the rugged individualism which had prevailed in Japan a= t=20 the time of civil war and anarchy preceding the bakufu. = As=20 Lehmann puts it:

&nbs= p;=A1=B0By=20 the end of the Edo era, society had been significantly modernis= ed... =20 Economi=A1=A9cal=A1=A9ly, Japan had emerged as a national marke= t; major=20 centres, primarily Osaka, acted as the axes of economic life; t= here=20 developed a significant amount of inter-regional trade, diversi= fication,=20 regional specialisation, improvement in trans=A1=A9portation an= d so=20 on. This is not to say that geographic disparities in terms of = distribution=20 of wealth disappeared. On the contrary...But geographic differe= ntiation,=20 like social differentiation, has been a characteristic of all i= ndustrialising=20 societies.=A1=B09=

 Political=20 institutions: The Tokugawa state had played an important ro= le=20 in this development of a proto-industrial society in Japan. It = had=20 pacified and united the country and effectively ended the endle= ss=20 civil wars of earlier days. It had developed a rational bureauc= racy=20 and the foundations for enhanced commercial exchanges. A strong= =20 sense of national identity, which found its political expressio= n=20 in the Imperial Household and the Tokugawa shogun, held society= =20 together.

Once=20 the new leadership (mostly made up of young samurai from= =20 peripheral han) had achieved the overthrow of the old or= der,=20 it set out on a course of rapid industrialisation and Westernis= ation,=20 building on those existing preconditions. It did so with a rema= rkably=20 open, pragmatic and cautious approach. The aim was, with a slog= an=20 borrowed from ancient Chinese traditions, to create a =A1=B0ric= h country,=20 strong army=A1=B0. National wealth and military-political power= was=20 to be achieved through industrialisation, which in turn require= d=20 a complete overhaul of Japanese society.

In=20 this, the state would have to take the lead. The government cre= ated=20 a favourable environment for economic expansion by assuring int= ernal=20 stability, improving tangible and intangible infrastructure (su= ch=20 as laws and regulations governing economic exchanges) and sound= =20 macroeconomic conditions. It also took a direct role in industr= ial=20 development.

None=20 of this was very surprising, nor particularly Japanese. Japan= =A2=A5s=20 path towards industrialisation reflected the thinking and exper= ience=20 of industrial late-comers, such as the United States or Germany= .=20 In the US, Alexander Hamilton had strongly argued for an active= =20 role of the state and infant industry protection; in Germany, F= riedrich=20 List had written extensively about national economic strategies= =20 to catch up with industrialised Britain. What developed out of = Japan=A2=A5s=20 experience, the
=A1=B0capitalist developmental state=A1=B0= (Chalmers=20 Johnson),10 was neither part= icularly=20 Japanese nor particularly mysterious.

What=20 was this particular Japanese/East Asian variant of modern capit= alism?=20 At the risk of grossly simplifying, and confining myself again = to=20 the Japanese version of the developmental state, it could be ch= aracterised=20 as follows:

The impulses=20 for successful development ultimately come from the people, the= ir=20 resourcefulness and the =A1=B0will to develop=A1=B0 (A. O. Hirs= chmann).=20 The primary objectives of development are national power, rathe= r=20 than individual wealth.

 The=20 state plays an important direct and indirect role in the proces= s=20 of development, in a variety of ways. It generally provides for= =20 a framework conducive to development, organises and allocates t= he=20 acquisition of knowledge and modern technologies, mobilises and= =20 allocates credit to preferred investment activities, supports a= nd=20 subsidises =A1=B0national champions=A1=B0, protects infant indu= stries and=20 encourages exports, and acts as entrepreneur itself through sta= te-owned=20 industries.

The state=20 mobilises society around the objectives of development, in part= icular=20 through  developing education and the abolition of social = barriers=20 to modern capitalism. It also demands loyalty and dedication to= =20 the state symbolised by the Emperor and, after World War II, ap= peals=20 to nationalism and the desire to rebuild Japan into a Great Pow= er=20 on par with the West.

The state=20 tries to build support and legitimacy for its policies, appeali= ng=20 to nationalism, a sense of external threat, and unconditional l= oyalty=20 and dedication to the state symbolised by the Emperor. During t= he=20 Meiji period, state Shinto was developed as a religious express= ion=20 of this. In the post-war era, economic growth became something = of=20 a secular religion, and general material improvements and speci= fic=20 side payments became the  primary means of assuring legiti= macy=20 for the developmental state.

In=20 sum, the Japanese developmental state was not the only, perhaps= =20 not even the most important reason behind Japan=A2=A5s successf= ul catch-up=20 development. It did, however, work very well for quite some tim= e,=20 and acquired enormous importance for the shift of the whole of = East=20 Asia towards modern capitalism. For it really was Japan which p= rovided=20 the decisive external catalyst for the break-through of modern = capitalism=20 in East Asia. It did so in four quite different ways.

First,=20 by way of example: Japan=A2=A5s successes became a source of ad= miration=20 and inspiration throughout East Asia.

Second,=20 by way of brutal coercion. Japan learned the Western lessons on= ly=20 too well, and from 1895 turned into an expansionist power in th= e=20 mould of the Western imperialism. Its military advances into Ko= rea=20 and China (and later also into South East Asia) led to the esta= blishment=20 of a quasi-colonial Japanese empire in which forced industriali= sation=20 played a considerable role, particularly in Korea and Manchuria= .=20 Japanese imperialism thus tore down many of the traditional obs= tacles=20 to modern capitalism which had stifled earlier efforts at moder= nisation=20 in East Asia, and it also established some of the physical and = intangible=20 infrastructure of modern capitalism in its colonies - at the pr= ice=20 of terrible human suffering and to the almost exclusive benefit= =20 of Japan.

Third,=20 by mobilising East Asian nationalism. Japanese expansionism tri= ed=20 to instrumentalise anti-Western and anti-colonial sentiments th= roughout=20 the region, but its comportment alienated the other people in J= apan=A2=A5s=20 =A1=B0Greater East Asian Co-Prosperity Sphere=A1=B0 (an truly O= rwellian=20 euphemism!). East Asian nationalism matured in the struggle aga= inst=20 the Japanese occupiers, and it was this anti-Japanese nationali= sm=20 which mobilised much of East Asian societies.

Fourth,=20 Japanese economic success and its particular form of modern cap= italism,=20 the developmental state,  became a model for much of East = Asian=20 modern capitalist development, from South Korea to China. Only = North=20 Korea, Burma, Cambodia and Laos, and =A1=B0among successful dev= elopers=A1=B1=20 the formerly British colony of Hong Kong took their primary eco= nomic=20 policy inspirations from elsewhere. The importance of the Japan= ese=20 model was underpinned since the 1950s by

Fifth,=20 Japan=A2=A5s active promotion of its particular form of modern = capitalism=20 throughout East Asia through trade, aid and credit, and above a= ll=20 through the foreign direct investment of Japanese firms which r= esulted=20 in the regionalisation of Japan=A2=A5s industrial structures.11

All=20 this is summarised in my

Proposition=20 Three: What enabled modern capitalism to take off in east Asia = was=20 a confluence of existing internal predispositions and building = blocks=20 on the one hand and strong external influences, on the other. E= xternal=20 circumstances threatened the very independence, cohesion and so= cio-cultural=20 identity of East Asian societies, but they also provided enormo= us=20 (if far from obvious) opportunities. Under those circumstances,= =20 Japan managed to free itself from the shackles of a restrictive= =20 and status-quo-oriented ancien régime and during the Meiji= =20 era initiated a series of radical internal reforms which very s= uccessfully=20 propelled Japan into modern capitalism. Within two generations,= =20 Japan was turned into a mature industrialised country. But with= in=20 one generation, it had become an expansionist and imperialist p= ower=20 in East Asia. The strains of  the modernisation process an= d=20 some of its idiosyncratic features pushed Japan into the arms o= f=20 militarism, with disastrous consequences for Japan itself and t= he=20 region. Still, it was Japan which catalysed the expansion of mo= dern=20 capitalism throughout East Asia - by example, by brutal force, = and=20 by co-optation and stealth.

5.   =20 The Rise and Decline of the Japanese Model

The East Asian Miracle, = 1965 to 1997

Japan=20 thus propelled East Asia into the age of modern capitalism and = the=20 =A1=B0East Asian miracle=A1=B0. What the miracle meant has ofte= n be described=20 and need not detain us here much: very high growth rates in ove= rall=20 economic activity and per capita output; a quite remarkable deg= ree=20 of distributional justice; a drastic reduction of absolute pove= rty;=20 and the spreading of affluence to rapidly expanding middle clas= ses.=20 That the developmental state had something to do with the succe= sses=20 of East Asia, has been widely documented and recognised even by= =20 the World Bank. In its already quoted study on the =A1=B0East A= sian=20 Miracle=A1=B0, it identified the following causes for the econo= mic success=20 of East Asia:

=A1=B0Getting=20 the basics right=A1=B0: above all, this involved the mobilisati= on of=20 investment capital and human resources, the promotion of agricu= ltural=20 development, the lowering of population growth rates;

sound=20 policies: much of the first set of causes can be traced back to= =20 sound policies, ranging from the macroeconomic to education. Th= ose,=20 in turn, rested on what today would be considered aspects of = =A1=B0good=20 governance=A1=B0: a competent and honest bureaucracy, a functio= ning=20 legal system, and generally a =A1=B0strong but socially embedde= d state=A1=B012 capable of setting and i= mplementing=20 targets and able to find societal support for its ambitions;

specific=20 but systematic government intervention in the economic process.= =20 Those interventions have taken various forms, which may differ = from=20 period to period and from country to country. They include cred= it=20 allocation and investment credit subsidies, the protection of i= nfant=20 industries, subsidies for restructuring, public investments in = research,=20 firm- and industry-specific export targets and subsidies, and s= o=20 on.13

Has the Miracle Come to = an End?

In=20 July 1997, however, the East Asian miracle came to an abrupt ha= lt.=20 The Thai baht was forced into devaluation, and this triggered a= =20 sustained financial and economic crisis in South east Asia whic= h=20 in the fall 1997 also spread to North East Asia (Hong Kong and = South=20 Korea), In fact, Japan had been in a deep recession, which some= times=20 threatened to turn into a depression, since 1992. East Asia now= =20 followed with more or less significant declines in the growth r= ates=20 of economic activity through east Asia, and quite sharp economi= c=20 contractions in some economies (notably Indonesia, Thailand, Ma= laysia,=20 South Korea and Hong Kong). The much admired and reviled develo= pmental=20 state paradigm was now derided as =A1=B0crony capitalism=A1=B0 = and blamed=20 for East Asia=A2=A5s failures.

Things=20 clearly aren=A2=A5t that simple. The successes of East Asia hav= e been=20 real ? as have been recent setbacks. Part of the explanation of= =20 the crisis indeed relates to the very successes of the region: = success=20 has involved catching up with the leaders and thus exhausting t= he=20 possibilities for easy catch-up growth. This has created an ent= irely=20 new competitive situation at least for Japan, and to some exten= t=20 even for Korea. Moreover, the crisis again represents a conflue= nce=20 of internal problems and external circumstances: weak financial= =20 systems and overexposed firms met with highly volatile internat= ional=20 financial markets. The result was the crisis. It has been overc= ome=20 in part already, and will be overcome completely, once internal= =20 restructuring enhances resilience against external shocks and/o= r=20 once international circumstances change. Just as the developmen= tal=20 state does not explain the East Asian economic miracle, so =A1= =B0crony=20 capitalism=A1=B0 does not foretell its end. East Asian capitali= sm will=20 change, once more. And it will in all likelihood continue to be= =20 successful. Already now, the crisis has receded: the most recen= t=20 forecasts for this year suggest economic growth between 3.5 per= =20 cent (Indonesia) and seven per cent (South Korea) for the crisi= s-afflicted=20 economies. Even Japan is credited with one per cent growth in 2= 000=20 (and three per cent in 2001).14

Common Causes of the Cri= ses in Japan and East Asia

Still,=20 the developmental state paradigm - or, more specifically, its s= pecific=20 variants in the economies concerned - did play a role in the re= cent=20 setbacks. As one of its brilliant thinkers, Hitotsubashi econom= ist=20 Murakami Yasusuke, recognised already in the 1920s, catch-up de= velopmentalism=20 carries serious risks. While it is capable of delivering develo= pment=20 more rapidly than other strategies, it easily falls prey to imm= obility=20 and stagnation, as vested interests colonise the state apparatu= s=20 and risks political corruption through its close association be= tween=20 bureaucrats, politicians, banks and large industries.15

Much=20 of what has happened in Japan and in East Asia during the 1990s= =20 can be read as a confirmation of Murakami=A2=A5s astute warning= s. The=20 degradation of the developmental state into crony capitalism pl= ayed=20 an important role in Japan=A2=A5s crisis, which in turn again i= nfluenced=20 developments throughout the region. Japan=A2=A5s crisis started= with=20 its inability to recalibrate the developmental state in the ear= ly=20 1970s, when it had achieved its objectives. But Japan continued= =20 to pursue export-led growth, and to keep much of its society an= d=20 economy closely regulated and shut off from (external) competit= ion:=20 powerful vested interests which had been promoted by the develo= pmental=20 state or needed to be bought off to ensure its legitimacy (such= =20 as the farmers and the small retailers, traditionally strong su= pporters=20 of the ruling LDP). It also continued its policies of cheap cre= dit=20 and financial regulation, to channel savings in politically des= ired=20 directions. The result was a misallocation of resources on an i= ncreasingly=20 vast scale, huge over-capacities, and massive but carefully hid= den=20 bad debts.

Japan=A2=A5s=20 perennial, and perennially rising, external surpluses triggered= =20 increasingly difficult frictions with the United States. Rather= =20 than addressing the real issues of over-regulation and over-pro= tection=20 of much of the economy and society,  the Japanese governme= nt=20 settled for a quick fix: revaluing the yen. The result was mass= ive=20 and highly speculative asset inflation; when the bubbles burst,= =20 the economy nose-dived. It still has to recover.

The=20 rising yen had accelerated the drive of Japanese firms into Eas= t=20 Asia: both FDI and bnak loans to the region exploded from the m= id-1980s.=20 Cheap Japanese money and FDI, in turn, fanned over-capacity and= =20 asset inflation bubbles in East Asia. By making a major direct = and=20 indirect contribution to the =A1=B0East Asian financial crisis= =A1=B0, Japan=A2=A5s=20 modern capitalism thus once more had a profound impact on the d= evelopment=20 of capitalism in East Asia. 

The=20 indirect contribution of Japan to the crisis relates, of course= ,=20 to the model of the developmental state which Japan has promote= d=20 throughout East Asia by example and by its own efforts. With al= l=20 due respect for national and regional differences in the specif= ics=20 of the developmental state model, we still can identify outline= s=20 and key features of an =A1=B0East Asian developmental state=A1= =B0, which=20 characterise Japan as well as most other East Asian economies. = Those=20 common features were:

the alleged=20 pursuit of development as a national security objective, rather= =20 than for the sake of individual wealth creation,

active=20 involvement of the state in the economy, notably through close = co-operation=20 between politicians, bureaucrats, bankers and industrialists,

extensive=20 corruption, nepotism and favouritism for personal gain, but als= o=20 to retain political support, award followers, and co-opt potent= ially=20 hostile groups,

a weak=20 financial system, cheap money policies and strong political inf= luence=20 over bank credit allocation decisions, hence inefficient invest= ment=20 decisions and speculation,

highly=20 leveraged large firms, which concentrated on market share and t= urn-over=20 rather than on profits, and thus produced low returns on invest= ment,

promotion=20 of exports, but discouragement of import competition in sectors= =20 considered strategically or politically important, 

a general=20 erosion in the ability of the state and society to learn and ad= apt=20 - due to political repression or inertia, to arrogance bred by = success,=20 and the smell of power, and, perhaps most basically

the intensely=20 nationalist, often parochial and sometimes adversarial approach= =20 to development incorporated in this paradigm, which increasingl= y=20 ran counter to dominant trends towards globalisation in the tec= hnological=20 and commercial trajectories of the world economy.

Proposition=20 Four: The East Asian economic crisis during the 1990s was again= =20 due to a confluence of internal and external factors. Again, ex= ternal=20 influences came both from the West (or, more precisely, from in= ternational=20 financial markets) and from Japan. Their interaction with speci= fic=20 internal weaknesses of East Asia=A2=A5s modern capitalism produ= ced the=20 crises.

6.   =20 The Future of Modern Capitalism in East Asia

Where=20 does all this leave us at the end of the argument? I am not par= ticularly=20 worried about the future of modern capitalism in East Asia p= er=20 se. Modern capitalism has taken root in this part of the wo= rld,=20 and I have no doubt that East Asia will have the strength to ad= just=20 to the requirements of changing circumstances. For the immediat= e=20 future, this =A1=B0adjustment=A1=B0 will probably mostly concer= n the adjustment=20 of East Asia=A2=A5s internal economic, social, political and ev= en cultural=20 institutions to what many would see as a new phase of modern ca= pitalism;=20 globalisation. In the longer term, I would hope and expect that= =20 East Asia will also =A1=B0adjust=A1=B0, i.e. shape, the interna= tional institutions=20 and processes of modern capitalism in line with its own prefere= nces.=20

Breaking Down Old Arrang= ements

In=20 the short term, changes in economic and political arrangements = will=20 have to deal with the apparent deficiencies of the developmenta= l=20 state, as it has evolved over time. The challenge is by far the= =20 most profound for Japan, which simply no longer can afford to p= lay=20 the developmental state role: it has arrived, and now desperate= ly=20 needs to change track towards a new paradigm which would be com= patible=20 with present international economic circumstances and its posit= ion=20 as the third largest economic power in the world. This would ne= ed=20 far-reaching reforms in the Japanese economy, its society, and = above=20 all in its politics.16

For=20 the other East Asian countries affected by the crisis, adjustme= nts=20 will probably not have to be so far-reaching; indeed, most of t= hem=20 seem to have been able to come back impressively without much c= hange.=20 They would be well-advised, however, not to become complacent. = There=20 are at least three key areas were reforms to me seem urgent in = most=20 affected economies:

The first=20 area concerns the problems of bad debt and its causes. They lie= =20 deep in the banking and financial systems, in relations between= =20 government and industry, and in political corruption.

The second=20 area concerns transparency. Again, this is a rather complex and= =20 demanding item on the reform agenda, which ultimately relates t= o=20 issues of good governance and democracy.

The third=20 area concerns openness in a different sense. The issues here re= late=20 to cross-cultural co-operative competencies, to the balance bet= ween=20 individual rights and freedoms and group cohesion and conformit= y,=20 and to what I have called above the adversarial aspects of mode= rn=20 capitalism in East Asia. Modern capitalism can no longer be bui= lt=20 on exclusive territorial or cultural foundations - be they nati= onal=20 or regional. It needs to be global, inclusive and cross-cultura= l.=20

East Asia: =A1=B0more li= ke us=A1=B1?

In=20 the longer term, East Asia should try to remodel modern world c= apitalism=20 to its own liking. Modern capitalism should be seen as a means = to=20 an end, not to an end in itself. But its development through th= e=20 last two centuries resemble more a process of spontaneous cultu= ral=20 evolution, rather than a project designed, implemented and care= fully=20 controlled by man. This is dangerous: modern capitalism has bee= n=20 a force of tremendous good, but also of enormous destruction. I= n=20 my view, it should therefore be firmly embedded in a broader vi= sion=20 for mankind - one which focuses on a =A1=B0good life=A1=B0 not = only in a=20 material, but a more comprehensive sense. This ultimately would= =20 be a political project, in which modern capitalism would have t= o=20 be given its appropriate place.

In=20 any case, East Asia is not going to become a clone of Anglo-Sax= on=20 capitalism, much as continental Europe will continue to adhere = to=20 its own, different capitalist traditions. The notion that East = Asian=20 economies should and would become =A1=B0more like us=A1=B0, whi= ch informed,=20 among others, the key decision makers on crisis management in W= ashington=20 (both at the Treasury and at the IMF) is misleading both factua= lly=20 and normatively. Factually, this notion underestimates the comp= lexity=20 and diversity of modern capitalist arrangements, which lend the= mselves=20 to an infinite variety of paradigms, many of which could be mor= e=20 successful than what we have found so far (and, in any case, te= chnological=20 conditions and economic circumstances will continue to change, = throwing=20 up new challenges for all existing arrangements). Normatively, = it=20 would be a sure receipt for decline of the presently dominant p= aradigm:=20 if it is not challenged, it won=A2=A5t keep up with the changes= . There=20 is no reason why the principle of competition should exclude co= mpetition=20 between different forms of modern capitalism. What needs to be = done,=20 however, is to formulate global rules and norms for this compet= ition,=20 so as to avoid its escalation into military confrontation. The = setting=20 of such rules is one of the many reasons why we need more globa= l=20 co-operation; modern capitalism increasingly requires a firm po= litical=20 framework, a global infrastructure of co-operative political ar= rangements=20 and institutions.

This=20 agenda of change obviously is a tall order. Yet I would not be = too=20 worried, were it not for two other challenges for East Asia whi= ch=20 have not been touched on so far: its demographic transition and= =20 its festering regional security risks. Again, those two challen= ges=20 hit Japan particularly hard, but also will affect the others.

Overcoming demographic c= hallenges

The=20 demographic challenge for East Asia consists in the large overa= ll=20 changes in total population - down, in the case of Japan, = up,=20 for most other countries in East Asia (and above all, China), a= nd=20 in the rapid changes in composition towards a much older, and m= uch=20 less balanced demographic pattern. It will be enormously diffic= ult=20 to make the kind of passive and active adjustments discussed ab= ove=20 against this demographic background. The size and complexity of= =20 the problems thus will need excellent political machinery, stro= ng=20 leadership and broad-based participation.

Overcoming regional secu= rity challenges

The=20 regional security challenge concerns the as yet rather fragile,= =20 under-institutionalised and superficial nature of regional co-o= peration=20 and integration. Yet it will be difficult, and probably even im= possible,=20 to grasp the opportunities of global capitalism and meet the ch= allenges=20 of adjustment without a serious, qualitative improvement in int= erstate=20 relations throughout East Asia. Here, the bad news is that the = Asian=20 crisis has set back efforts at regional institution-building - = but=20 the good news is that existing institutions and processes have = not=20 (yet) been seriously damaged. Still, much remains to be done - = and=20 the leadership will have to come from the region itself. As far= =20 as I can see, there is only government which has seriously trie= d=20 to rise to this challenge, and that is your government here in = the=20 Republic of Korea.

By=20 way of conclusion, let me therefore offer you my

Proposition=20 Five: The future of global capitalism will importantly be shape= d=20 by East Asia - for good or bad. First, east Asia will have to c= hange=20 itself - with Japan in the vanguard. Second, East Asia will hav= e=20 to try, in co-operation and competition with other regions, to = change=20 global capitalism and make it compatible with mankind=A2=A5s ne= w predicament=20 in the third millennium. In order to do so successfully, howeve= r,=20 East Asia will have to come to grips with the enormous implicat= ions=20 of demographic change and deal with its unfinished regional sec= urity=20 business.

 

footnotes

1=20  Max Weber, General Economic History, in: J.E.T. Eldridge = (ed),=20 Max Weber: The Interpretation of Social Reality, London: Nelson= =20 1971, pp. 275ff

2=20  Max Weber, Gesammelte Aufsaetze zur Religionssoziologie, = Tuebingen=20 1992, pp.371-391, reproduced in: W.G.Runciman (ed), Max Weber, = Selections=20 in Translation, Cambridge: CUP 1978, pp. 315-330

3  Gunnar My= rdal, Asian Drama, An Inquiry into the Poverty=20 of Nations, Harmondsworth: Penguin 1968 for The Twentieth Centu= ry=20 Fund (three volumes)

4=20  ibid., Vol.I, pp. 93ff

5=20  Jared Diamond, Guns, Germs and Steel. The Fate of Human S= ocieties,=20 New York: Norton 1997

6=20  It was Zen buddhist monks who had brought Neo-Confucian t= hought=20 from China to Japan. See Edwin O.Reischauer/Albert M. Craig, Ja= pan,=20 Tradition and Transformation, Tokyo: Tuttle 1978, p. 92<= /p>

7=20  ibid., p. 93

8=20  Ronald P. Dore, Education in Tokugawa Japan, London: Rout= ledge=20 and Kegan Paul 1965

9  Jean-Pier= re Lehmann, The Roots of Modern Japan, London:=20 Macmillan 1982, p. 108

10=20  This concept was developed by Chalmers Johnson in his cla= ssic:=20 MITI and the Japanese Miracle: Thre Gorwth of Industrial Policy= ,=20 1925-1975, Stanford: Stanford UP 1982. Cf. Also Meredith Woo-Cu= mings=20 (ed), The Developmental State, Ithaca & London: Cornell UP = 1999,=20 esp. Chapter One

11=20  Cf. Walter Hatch/Kozo Yamamura, Asia in Japan=A2=A5s Embr= ace,=20 Building a Regional Production Alliance, Cambridge: CUP 1996 an= d=20 Peter Katzenstein/Takashi Shiraishi (eds), Network Power, Japan= =20 and Asia, Ithaca, NJ and London: Cornell UP 1997

12=20  Peter Evans, Embedded Autonomy: States and Industrial Tra= nsformation,=20 Princeton: Princeton UP 1995, p. 59, quoted in: Woo-Cumings, op= .cit.,=20 p. 15

13=20  World Bank, The East Asian Miracle, Economic Growth and P= ublic=20 Policy, Oxford et al.: OUP for The World Bank 1993, pp. 5f

14=20  Far Eastern Economic Review, March 16, 2000, p. 62f

15=20  Quoted in Yamamura/Hacks, op.cit., p. 54

16=20  Cf. the interesting report of an official blue-rubbon com= mission=20 on Japan=A2=A5s future international role, which makes those po= ints=20 forcefully:

 

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