East Asian Modernization

by Thomas Gold

This selection gives a brief history of the circumstances surrounding the processes of modernization in several countries in East Asia. It also summarizes some debates over the controversial issue of whether traditional culture in East Asia is an asset or an obstacle in the modernization process.

INTRODUCTION: CENTRAL POINTS

China, Taiwan, South Korea, and Japan provide excellent cases for the study of the problems of rapid modernization. Growing out of a shared Confucian tradition whose core values and social structure were once considered antithetical to economic development, they have astounded the rest of the world by overcoming the devastation of World War II and, in the case of China and Korea, civil war, to achieve extremely rapid rates of economic development and structural change as well as a dramatically improved quality of life for their people.

These late modernizers of East Asia have experimented with different development strategies, and from the 1980s have begun to converge around a model of market-conforming, state-aided economic development that also involves substantial integration into the global economy and calls into question labels of "socialism" and "capitalism." After achieving rapid economic growth, these societies embarked on a transition from authoritarian regimes toward democracy. The experiences of these four East Asian economies pose a challenge to both the modernization and dependency-world systems paradigms that have dominated the study of development.

MAJOR TOPICS

At the end of World War II, the countries of East Asia were devastated.

With its industrial base reduced to rubble and, having suffered two atomic bomb attacks, Japan was utterly defeated.

China had been officially at war with Japan since 1937 but had been occupied by Japanese troops for many years before that, and had been the scene of warlord battles and Communist rebellion since the 1920s. The civil war between the Kuomintang (KMT) Nationalists and the Communists revived soon after the Japanese surrender. Losing to the Communists in 1949, the Nationalists under Generalissimo Chiang Kai-shek fled to the Chinese island of Taiwan, severely straining the already meager resources of the island which, as a Japanese colony, had been subjected to Allied bombing.

Korea had not suffered greatly in World War II, but it was racked by civil war from 1950 to 1953, from which it emerged divided. If any part of the world appeared unlikely to catch up with the developed countries, it was East Asia.

Japan, Taiwan, and South Korea were also densely populated and resource-poor, dependent on imports for many of their raw materials and foodstuffs.

East Asia's value system and the political, economic, and social structures buttressed by it made it seem an unlikely candidate for successful modernization. In the Confucian value system which originated in China and spread to Korea and Japan, the merchant occupied the lowest rung in the social hierarchy. At the top were scholar-officials; just below them were farmers and then artisans. It was assumed that those whose work was oriented to making a profit were immoral and untrustworthy. Successful merchants used their wealth to purchase titles and bureaucratic positions for themselves, and also to fund the education of their sons, who might then take the civil service examinations and become scholar-officials, and thereby raise the social standing of the entire family. In this way, the entire family would enjoy high social status. Bureaucrats supplemented their salaries by squeezing merchants. There were thus major disincentives to becoming a professional businessman.

Although recruitment to the civil service was based on examinations, these tested not administrative skills but how well one had memorized Confucian classics and rigidly formularized writing styles; generalists enjoyed prominence over specialists, who were denigrated as mere technicians. The education system emphasized rote memorization and imitation, not the cultivation of independent thinking or specialized skills.

Students of East Asia have noted that Confucianism also emphasized the particularistic values of loyalty to family and friends, values that did not encourage the trust in [unfamiliar] others that is necessary to building a national market, industry, and modem economy. It was argued that because Confucians were dependent on the collective family, they lacked the individuality and pioneering spirit vital to successful entrepreneurs. Confucian society was like the family writ large: based on hierarchies of age and gender, it emphasized unquestioning obedience to authority. Individual initiative in all spheres was stifled. In addition, Confucians believed that history moved in cycles; they did not have a concept of progress toward a brighter future. The goal of statecraft was to bring about harmony between society and nature, not to conquer nature.

Prior to World War II, only Japan had achieved a significant degree of industrialization. Beginning in the middle of the nineteenth century, a group of Japanese reformers had devoted themselves to the study of Western learning in order to protect their country from suffering dismemberment by Western imperialists, as they had seen happen to China, Japan's former model. By the mid-1930s, Japan had built up a strong enough industrial base that it felt confident enough to join the Nazis and Fascists in waging war on the Allies, including China. By war's end, that base was utterly destroyed.

By the late 1970s, Japan had rebuilt itself so successfully that some began to talk about Japan as Number One, Taiwan and South Korea, having likewise developed their economies rapidly, were referred to as "little Japans"; the terms "Pacific Century," and "East Asian Edge" also gained currency. As these newly industrialized countries (NICS; usually including the much smaller city-state entrepots of Hong Kong and Singapore as well) emerged from the ashes of war they first developed their agriculture, a process that was facilitated by land reform. Although they did not follow identical strategies, each developed labor-intensive small-scale light industries before moving on to capital-intensive, knowledge-intensive heavy and high-technology industries. Small family enterprises gave way to conglomerates, some of whose names (Mitsui, Mitsubishi, Hyundai, Samsung, Tatung) are now household words throughout the world.

All three economies successfully utilized generous American aid and also welcomed investment by multinational corporations. They began with highly protectionist import substitution strategies and then moved on to export-oriented industrialization, still supported by protectionist policies. Their exports literally flooded world markets. In addition, the extremely high savings rates of their people, together with their carefully managed foreign debt resulted in the accumulation of huge reserves of foreign exchange.

Economic growth is only one aspect of modernization and development. While industrializing their economies and raising the levels of productivity and quality. Japan, Taiwan, and South Korea also avoided the extreme discrepancies between rich and poor so common in rapidly developing societies. Some reasons for this include: successful and thorough land reform: an economic takeoff based initially on local capital rather than that of powerful multinational corporations; the strength of small and medium sized enterprises; and an egalitarian strain in Confucianism. Taiwan achieved the best record of the group, in part a result of the official ideology of the ruling Kuomintang Nationalist party which stressed equality and legitimized state action to prevent the excessive accumulation of wealth. (Indeed, one of the factors leading to the defeat of the KMT and its expulsion from the mainland [by the rival Chinese Communists under Mao Tse-tung] was its tolerance for extreme disparities in the distribution of wealth; it had learned its lesson and was determined not to allow this sort of inequality to develop in Taiwan.) In these societies, rapid economic development resulted in a vastly improved standard of living for the masses which, in turn, contributed to general social and political stability.

Ironically, some scholars now attribute the success of these economies to some of the same Confucian values that were formerly thought to be obstacles. For instance, they see family based enterprises as an efficient way to maximize scarce capital resources; tightly-knit webs of friends and relatives as excellent networks for the procurement of supplies and the distribution of products; obedience to authority as a quality that makes for disciplined and diligent workers; the education system as one whose graduates are able to memorize technologies and to imitate and then improve on the best the world has to offer. It is more accurate to say that, due to war and external pressures, the old Confucian political and social structure gave way to a new system whose leaders recognized that economic development had to be accorded top priority in order for the nation just to survive. Many of the traditional values were redirected toward the goal of development, while others were effectively stifled.

The People's Republic of China followed a much different path than that of its East Asian neighbors. After the Chinese Communist Party, led by Mao Zedong, took power in 1949, faced with a blockade by the United States, it received a generous amount of assistance from the Soviet Union and adopted the Soviet model of a planned, state-owned economy. In 1958, however, Mao Zedong and other radical opponents of this model, with its anti-rural, anti-agricultural bias and the dependence it fostered on the USSR, launched the Great Leap Forward campaign to introduce an even more extreme collectivist economy based on autarchic self-reliance, labor-intensive technology, total collectivization, a cult of poverty, and moral-political incentives. This was based on the party's successful experience during the anti-Japanese War in its base in the poverty-stricken area of Northwest China around the city Yenan. Economic, social, and cultural life were highly politicized.

In the aftermath of the devastating Cultural Revolution (1966-76) there was widespread disaffection with the Chinese Communist party, and its legitimacy to rule was called into question. In order to regain support and prestige, some leaders under Deng Xiaoping called for a thoroughgoing structural reform to shift the party's focus from political struggle to achievement of the "four modernizations": agriculture, industry, science and technology, and national defense. This involved reassessing both Chinese culture and the meaning of socialism in order to create a synthesis called "socialism with Chinese characteristics." It also involved borrowing some key elements of the experience of Japan, Taiwan, and South Korea. The Chinese Communists are continuing to try to find a way to balance the state which they see as essential to socialism while tapping into the dynamism so prevalent elsewhere in East Asia. They have decollectivized agriculture by reintroducing family farming and free markets, although not private ownership of land. They are separating ownership from management of state enterprises, granting autonomy to the managers. They are expanding the role of the market as they shrink the sphere of the planned economy. They are creating an environment for private enterprise, and allowing private businesses to compete in certain sectors with state and collective firms. They are also opening the economy to the outside world, soliciting direct foreign investment, foreign loans, and technology transfer while also encouraging exports of industrial goods. They depoliticized education and made more investments in human capital development. Since the reforms began in late 1978, China's economy, the industrial sector in particular, has grown by double digits. However, by the late 1980s, the contradictions between the planned and market systems began to spawn inflation, fueled by corruption, which threatened the reform program. General popular disaffection resulted in massive demonstrations in the spring of 1989, which the regime brutally repressed. To a certain degree, the initial rapid success of China's structural reforms inspired the 'perestroika" of Mikhail Gorbachev in the Soviet Union and reforms elsewhere in the socialist world.

China, Japan, Taiwan, and South Korea all share an economic model with a central role for the state. This is multi-faceted. The strong state role in socialist China is well-known, but many are unaware of the major place of the state in the market-economies of Japan, Taiwan, and South Korea. In each of these countries, the state periodically produces plans for economic development: government agencies collect data on the local and international economies and make predictions as to their evolution. They target certain domestic sectors for special incentives (tax breaks and rebates, low-interest loans, access to foreign exchange, reduced import tariffs, etc.) in order to motivate local businesses to invest in those target industries. The states have considerable control over the banking system (through ownership of major shares in a number of banks and administration of the postal savings systems), which facilitates implementation of fiscal policies. The states also own many enterprises in key sectors, often as monopolies, enabling them to direct certain materials to targeted companies. These are indicative plans, not the command-type plans of a Soviet-style economy as in pre-reform PRC. What is more, they are market-conforming, that is, they try to anticipate market developments and assist private businesses to take optimal advantage of future trends. In addition to these positive tactics, the states can use various sanctions to elicit the desired response. By withholding incentives and licenses, imposing punitive taxes, auditing books, and exercising various forms of political coercion, the states can motivate recalcitrant businesses to conform. These are economies attuned to the market and they have large vibrant private sectors, but they are not strictly free enterprise economies as is often argued, because the state, directly and indirectly, is a major actor. Its role has shrunk since the 1950s, but it nonetheless continues to be a determinant.

An additional important role of the state that has had positive economic consequences has been its massive investment in education in order to develop human capital. The literacy rate in Japan, Taiwan, and South Korea exceeds 90 percent. There is severe competition for advanced education, but the governments have also invested in vocational training in order to provide a highly qualified cadre of technicians and workers.

There are a number of reasons for the dominance of the state in East Asian economies. In the Asian tradition, people expect the state to play a dominant role in their lives, helping to create prosperity and ensure social harmony; failure to do so is considered grounds for rebellion. There is the historical legacy of the Confucian bureaucracy placing constraints on the activities of merchants, although one of the revolutionary aspects of contemporary East Asia is the high social prestige given to private businessmen. Bureaucrats still enjoy high status and a certain degree of insulation from politics, enabling them to work according to objective criteria.

As part of the 1868 Meiji Reform in Japan, the central leadership took a forceful approach to developing the country's economy in order to make it wealthy and strong and thereby able to fend off Western imperialists. Japan took Taiwan, Korea, and Manchuria as colonies and implemented similar statist policies for their economies, introducing a structure which subsequent postcolonial governments adopted and continued. As in many underdeveloped economies, only the state had the necessary capital to establish key enterprises and build the infrastructure required for industrialization. This legacy of state-owned enterprises in crucial sectors has continued to the present.

Also, the governments of Taiwan and South Korea see themselves as under continued threat from their Communist enemies. This garrison mentality stimulates their efforts for economic development and legitimizes policies which interfere in private business decisions and activities in the name of national security. These governments are highly militarized and have created vast internal security networks, which frequently serve, through intimidation, to ensure compliance with state policies. It has also resulted in severe labor repression and the maintenance of labor peace, at least as long as incomes keep ahead of inflation. In China, the Communist party controls labor unions tightly. Defining itself as the party of the proletariat, it legitimizes labor repression by claiming that strikes work against the workers' own interests.

Japan, Taiwan, South Korea, and now to a greater degree than ever, China, have mixed planned and market economies, and a powerful state sector alongside a vibrant private sector. The old dichotomies of capitalism and socialism are breaking down. Other developing economies of various political stripes are increasingly attempting to adopt aspects of the East Asian systems.

Overall, the record of economic development in East Asia has been extraordinary. Nonetheless, some problems need to be mentioned. Because of the critical importance of exports in the economies of Taiwan and South Korea, especially, but also Japan and increasingly China, these countries face constant challenges in anticipating global trends. Incorrect policy choices can have disastrous effects on the economy, and indeed, on domestic stability. Dependent on trade, the governments aggressively push exports but maintain high protectionist barriers, visible and invisible, around their domestic markets. This has provoked a tremendous and dangerous backlash in some of their major markets, the United States and the European Community in particular. A related problem is the over-concentration of their trade. All of these countries export overwhelmingly to the United States, fueling America's enormous trade deficit. At the same time, they are dependent on the import of Japanese components for many of their manufactured goods.

Finally, in the headlong rush to industrialize, they have caused grave harm to their environments. To some degree, the major polluters are multinational corporations (first American, then Japanese) whose investment was solicited in East Asia at a time when they were facing strict environmental regulations in their own countries. But local companies are also at fault, and through reckless deforestation and poor land management have likewise contributed to destruction of the environment.

The KMT brought to Taiwan a militarized state with a far-flung internal security network. Comprised of a small cohort of mainland emigres, it monopolized political power over 85 percent of the population who, while also Chinese, had lived on the island prior to its retrocession in 1945 from Japanese to Chinese control. Similar in structure to a Leninist communist party it penetrated Taiwan's society to stifle dissent and mobilize the people. It did not permit other parties and maintained its rule by martial law, dealing ruthlessly with its enemies. By the 1970s the KMT regime had become largely civilian.

The successive governments of South Korea have been more openly militaristic throughout much of this period. Generals-turned-president were replaced only through violent coups, and popular dissent was not tolerated. As the government of a divided nation, it claimed, as did the government of Taiwan, that it had to enforce social control in order to counter the very real threat from the Communist side.

On the Chinese mainland, the Communist party monopolized political power and used terror to transform China's class structure liquidating landlords and removing the capitalist class and officials of the old regime. During the decade of the Cultural Revolution, Communist party cadres controlled political, social, economic, and cultural affairs directly and arbitrarily, unimpeded by law or other objective restraints.

In the 1970s, social change in Taiwan and South Korea began increasingly to have political consequences. This pressured the regimes to liberalize and democratize, and gradually come to resemble the one-party, multifaction system of Japan that evolved with American help in the wake of World War II. To a certain extent, the regimes in Taiwan and South Korea were victims of their own success. By the 1980s they had brought about economic miracles which improved the lives of their people beyond anything that could have been imagined two decades earlier. This was unprecedented in the postwar developing world.

With incomes outpacing inflation; high levels of education; increased contact with the outside world through trade, investment, and foreign advisors and experts; and influenced by a constant barrage of American popular culture and local propaganda that contrasted these "free" systems with those of their Communist enemies, members of the rapidly expanding middle classes began to press for reforms. In addition to political organizations, groups sprang up around issues such as pollution and the use of nuclear energy. "Society" began to assert itself against the 'state." Social structures--a shrinking rural sector, an expanding blue-collar working class, a fast-growing middle class of professionals, businessmen, bureaucrats and intellectuals--began to resemble those of the developed West. Dissidents argued that the anachronistic political systems were actually becoming an obstacle to further economic development, and that liberalization would stimulate growth.

The year 1987 proved to be a watershed for both Taiwan and South Korea. On Taiwan, the KMT abolished martial law and tacitly recognized the legitimacy of the opposition party, which until then had been illegal. It also began to step up exchanges with the Communist mainland, a sign of renewed confidence in itself and in its people. In January of 1988, President and KMT Chairman Chiang Ching-kuo died and was succeeded by Lee Teng-hui, a Taiwanese technocrat without military experience. The succession was peaceful, and the process of democratization and opening to the mainland continued and even accelerated. In South Korea, President Chun Doo-hwan bowed to public pressure to permit a constitutional change allowing the direct election of his successor. After a campaign in which two leading opposition figures opposed each other as well as Chun's hand-picked candidate, Roh Tae-woo, it was Roh who emerged victorious. He proceeded to speed up political liberalization and in 1988 did not prevent the public censure of his predecessor. In both Taiwan and South Korea, street demonstrations have increased, and there is a very visible radical component among Korean students. But in both societies, the process of political democratization has definitely begun; political modernization is catching up with economic and social development.

In China as well, the Communist party began to retrench from its efforts to dominate all aspects of political as well as social, cultural, and economic life. From 1986, leaders talked about separating the party from the government, introducing fixed terms in office and instituting a rule of law rather than of men. However, these reforms face enormous opposition within the party itself, which refuses to tolerate public expressions of dissent. But prior to the brutal crackdown on student demonstrations in the spring of 1989, Chinese life had become noticeably depoliticized and freer.

The modernization paradigm that dominated the study of development from the end of World War II into the 1970s identified traditional values and social structures as barriers to the modernization of underdeveloped societies. The importation of values and practices from the developed world was prescribed to overcome these indigenous obstacles. Since the early 1980s, however, the East Asian region's spectacular growth has called for a reevaluation of the role of tradition in the modernization process.

Marxist-Leninist-inspired dependency world-system theory replaced modernization theory in the 1970s as the dominant paradigm for development studies. Citing cases of failed development in Latin America and Africa, its proponents argued that tight integration into the world system had resulted in the underdevelopment of the Third World. It was not native traditions but rather ruthless exploitation which made the core rich while impoverishing the periphery. Only socialism and autonomy from the world system could turn things around.

The East Asian miracle economies are very closely tied into the world system: however, they are trade-oriented (being resource-poor made this inevitable), welcome direct foreign investment, borrow from private and public international lenders, and try to restructure their economies to occupy niches in the international division of labor. The East Asian experience thus calls into question the simplistic assertion that dependency results in underdevelopment and that incorporation into the world system spells doom. The now publicly admitted failure of socialist and isolationist countries to develop their economies and societies to anywhere near the level of the East Asian market nations further weakens the dependency model as an analytical tool or strategy for development.

The East Asian cases suggest that, under certain conditions--which are probably not duplicable by all nations--the state can manipulate the social and cultural relations in which the economy is embedded in order to bring about rapid growth. There can be no generalized model of development: rather, leaders in each society need to assess the capabilities, opportunities, and constraints they face and work to mobilize human and other resources to bring about development.