Bringing the State Back In: Lessons from East Asia’s Development Experience* ROBERT H. WADE S ince the end of communist regimes in Eastern Europe, policy makers and policy analysts in these»transition« states have resolutely turned away from learning about East Asia’s development experience. They have been very keen, on the other hand, to learn about Western European and North American experience – for this is the world they wish to join, or rather, re-join after the communist hiatus. With few exceptions, they un­derstand the causes of the prosperity of Western Europe and North America through the lens of»liberal« economics – as due, in large part, to the combination of(a) liberal markets for goods and financial assets only lightly restrained by public policies,(b) well-defined and well-en­forced property rights allowing secure profit-taking by owners, and(c) the rule of law, which makes government, and all other economic agents, subject to a common set of rules. This is the combination they wish to copy, in the expectation that it will yield»catch-up« growth. To the extent that they pay attention to East Asia’s catch-up experience, they under­stand it to validate the same model. To the extent that they acknowledge the existence of pro-active industrial and technology policy in either Western Europe or East Asia, they treat it as an aberration or decoration on the central thrust for largely free markets. The last thing Eastern European policy makers and policy analysts want is a state that intervenes to alter the composition of economic activ­ity within their borders; for this is what the communist state did, to di­sastrous effect. Therefore, a society organized around the free market is the only choice, they think. Hence the Eastern European consensus about catch-up development strategy involves: a) market liberalization and accompanying institutional reforms, with a special accent on»getting the state back out« of the economy; * This article is published simultaneously in the book Towards a prosperous wider Europe. Macroeconomic policies for a growing neighborhood, edited by Michael Dauderstädt, Friedrich-Ebert-Foundation, Bonn 2005. 98 Wade, Lessons from East Asia’s Development Experience ipg 2/2005