How Development Economics Can Become 70% More Effective

Abstract

How Development Economics Can Become 70% More Effective Robert H. Wade (bio) Terutomo Ozawa. The Rise of Asia: The "Flying-Geese" Theory of Tandem Growth and Regional Agglomeration. Cheltenham: Edward Elgar, 2009 ⋲ 256 pp. For the past two decades the mainstream of the subfield of development economics in the West has been dominated by micro studies in the belief that the top priority is to achieve "rigorous" knowledge about whatever lends itself to being rigorously studied. Before that, from the 1940s through the 1970s, development economists debated big issues of development strategy under headings such as "big push industrialization," "import substitution," "balanced growth," "agriculture versus industry," and "urban bias." Nowadays, in contrast, journals are full of partial equilibrium studies of data sets but are thin on studies of big macro questions, especially of long-run development. The situation is reminiscent of economics before 1936, when economists had elaborate theories for explaining the price of a cup of tea but next to nothing plausible for explaining persistent mass unemployment, and could explain why the bishop was paid more than the garbage collector only in terms of "labour market distortions." When development economists today do tackle big issues of strategy, they tend to prescribe free markets, capital accumulation, and a policy tilt toward export promotion as the keys to rapid economic growth—with an implicit assumption that developing and transitional states are all in the mould of Nigeria and not to be trusted to do virtually anything right. Beyond the distinction between "developing and transitional" and "developed," there is scarcely any analysis of stages of economic transformation. In this context Terutomo Ozawa's new book, The Rise of Asia, is a blast of fresh air. Ozawa starts with the pioneering work of Kaname Akamatsu in the 1930s, who coined the term the "flying-geese" pattern of industrial development. Akamatsu used the metaphor of overlapping V formations of geese to refer to the pattern of quantities of imports, production, and exports [End Page 148] (MPX) in the building of any one industry over time (such as spinning and weaving machinery, electrical machinery, bicycles, and ethylene). This is the intra-industry flying-geese pattern within any one country. Akamatsu also identified an inter-country flying geese pattern between countries in a regional hierarchy, such that as any one industry becomes uncompetitive in one country (perhaps due to rising wages) it moves down the V formation of countries to follower countries with lower wages. Ozawa builds on these ideas and applies them to the period since World War II. Whereas Akamatsu (and just about all of those who used his ideas) pictured Japan as the leader of an Asian hierarchy, Ozawa says this is deeply misleading: the United States was the lead goose and Japan was the lead follower in the 1950s. Without the United States in front, importing huge volumes of consumer goods and then capital goods (and able to run increasing current account deficits thanks to the United States' ability to export its own currency in order to finance imports), there would have been no flying-geese formation in East Asia. From the 1940s to the 1980s and 1990s a fairly linear process of "comparative advantage recycling" operated, in which lower value-added industries moved from one tier of economies to the next (and the leading economies then imported from the newer sites, adding a new imports curve at the end of the standard intra-industry MPX formation). Hence, there existed the following hierarchy: United States > Japan > South Korea/Taiwan/Singapore > ASEAN-4 > China and Vietnam. Since the 1990s, however, the simple flying-geese model has broken down as China has surpassed the ASEAN countries in many industries. Also, since the 1980s and 1990s the value chain for many types of products has become geographically dispersed. Instead of whole industries moving down the country hierarchy to lower wage sites, only the low value-added parts of the value chain move down (such as the production of certain components), while the high value-added parts (such as R&D and marketing) stay at home. Thus, any one middle-wage economy might be moving its center of gravity in a staged sequence across industrial sectors...