Moving From Developmental Local Finance to Neoliberalised Microcredit in Post-war East Asia: Abandoning a Winning Formula

Abstract

This paper describes how many countries in East Asia established from 1945 onwards a very successful local financial system, starting with Japan. These local financial systems played a key role in bringing about the so-called 'East Asian miracle'. From the 1980s onwards, however, many East Asian countries were pressured into abandoning this ‘winning formula’ for financing sustainable local economic development and expanding the collective freedoms and security of the poor, and replace it with the completely untried neoliberal market-driven microcredit model. This has proved to be an expensive mistake as the local neoliberal financial systems introduced, notably commercialised microcredit, have categorically undermined and weakened the local economies of all of the East Asian countries in question. The paper thus highlights yet again the key fact, known by economists ranging from Marx writing in the late 1880s through to the conservative institutional economist and Nobel Laureate, Douglass North, working in the 1980s, that ‘bad’ institutions are very often allowed to survive, and may even be encouraged to flourish, because it is in the interests of the powerful for this to happen.