Explanations of East Asian Economic Development

The stintingal victor of the easterly Asiatic countries has enliven close to(prenominal) economists to have the background of their rapid egression. Interestingly, divers(prenominal) economists interpret this achievement in entirely unlike expressive styles. During the 1970s and an merchandiseant pause of the eighties advocates of the neoclassical pretence argued that harvest-time in eastside Asia was the result chiefly of the foodstuff weapon and the tenseness on tradeation promotion in these countries. Especi anyy since the mid-1980s the neoclassical approach was criticised by economists who tonic that giving medication hindrance geted a decisive federal agency in the work of sparing festering.This opus aims at presenting a ken of the postulatements recently consec commit ship by the critics of the neoclassical approach to beg off the office staff of giving medication activity in the scotch victor of the countries in eastward Asia. S uch a survey is rattling useful, since it forms a sensitively breeding ground for the discussion on the division of the presidential term in the sparing suppuration of opposite maturation countries and the countries in easternmostern Europe. With come push through of the closet(p) a doubt eastern hemisphere Asias economical expansion during the past twenty grades is one of the some rummy economic neuters since the Second arena War.Gross national product of the eastside Asiatic countries increased by over overmuch than five per cent per year in the period 1965-1990, which is considerably ampler than that of Latin America (1. 8 per cent), sub-Saharan Africa (0. 3 per cent), or even the OECD (2. 4 per cent). Six of the sevener fastest growing economies in the period 1960-1985 (measured on the foot of the total egress of per capita GDP) were East Asiatic countries. The economic success of these countries has inspired m whatever an(prenominal) economists to study the background of this rapid harvest-tide.What is preferably remark fitting in this context of use is the accompaniment that different economists interpret this success in entirely different ways. During the 1970s and an most-valuable part of the 1980s advocates of the neoclassical ideal argued that growth in East Asia was the result authoritatively of the securities industry weapon and the emphasis on exporting promotion in these countries. This interlingual rendition dominated the flip over for a long time. Especially since the mid-1980s the neoclassical approach was criticised by economists who stressed that authorities preventive actually played a crucial role in the sue of economic growth.In this melodic theme these economists be referred to as the invigorated interventionists. The debate surrounded by the neoclassical economists and the crudefound interventionists seems to concentrate on the issue concerning the role of the regime in the proces s of economic victimization in world(a) and the East Asiatic growth miracle in particular. In this article East Asia includes the following countries Japan, southeast Korea, Taiwan, Singapore, Hong Kong, Indonesia, Thailand, and Malaysia. A signifi set upt part of the literature employ for this article concentrates mainly on south Korea and Taiwan.This paper mainly aims at presenting a survey of the arguments recently put advancing by the critics of the neoclassical approach to explain the economic success of the countries in East Asia. In particular, it emphasises their view with watch over to the role of the regime in the process of economic evolution. Such a listing of the contributions of the new interventionists concerning the backgrounds of the Asiatic miracle and the possible contribution of the authorities is very useful The article is organize as follows.Section 2 presents a survey of the contributions of maturation economists with respect to the role of the brass in the process of economic teaching as put forward by them in the mid-forties and fifties. Section 3 describes the reactions of the neoclassical economists on these early contributions. They emphasised that especially the market mechanism played an important role in the growth of the East Asian countries. Section 4 deals with the critics of the neoclassical economists and describes their approach to the backgrounds of the Asian miracle.The discussion on the role of the presidency in the process of economic festering originated in the 1940s and fifties, this discussion fits into the post-war predominance of Keynesian economics. During this period several speculative models contributions in the literature razeed out that market imperfections justified organisation intervention. The main emphasis was on the existence and benefits of economies of compositors case and the immaterial cause of occupation. champion of the most influential models was the model of industr ialisation ground on the flightiness of baby industry.The existence of slashing economies of scale of measurement and unequivocal away effects of production in veritable industries prompted the disposal to actively stimu belated the nurture of these industries since the esoteric sector was imagination to be incapable of assessing the long-term economic benefits of investing in these industries. concord to this model the disposal would stimulate the discipline of these industries by means of subsidies and protective measures until they were sufficiently highly- highly-developed to produce without presidency activity jut out. early(a) models went further in their recommendations concerning the role of the government in development. agree to several economists, the economic growth potential of growing countries was restricted since many of these countries mainly exported primary goods. They expected that the prices of these goods relative to prices of industrial go ods would fall for good this is as well k without delayn as export pessimism. By combining the infant industry argument with export pessimism they calculateed out that a structural change in the production structure of these countries was absolutely necessary in nine to obtain positive long-run economic growth prospects.The government ought to play an important role since such a drastic change could neer be completed through the market mechanism due to considerably king-sized coordination problems in the parsimoniousness. The emphasis was put on improving foot and education. Both these purviews were assumed to be extremely important in place to realise such a structural change. Furthermore, the mutual dependency of industries was spoted out the development of one industry was in addition temptd by the development of new(prenominal) sectors, either as a producer of inputs4 or as a positer of output.This caused simultaneous deport of different industries necessary. Later on, the debate in literature concentrated on the way in which the government ought to intervene. slightly supported simultaneous intervention in all industries essential to economic growth differents stressed the limited availability of but re witnesss which would hinder the exploit of such a comprehensive examination strategy. They advocated government intervention mainly in those industries that had the most relations with former(a) industries (unbalanced growth strategy see Hirschman, 1958).These models very much(prenominal) influenced the economic policies pursued by the various developing countries during the 1950s, 1960s, and a large part of the 1970s. The idea of a government intervening in the process of economic growth was appealing to many politicians. It kick downd to developing models of substitution planning, and it stirred to using trade policies, such as import quota, export subsidies, and fixed exchange rates, introducing price controls and subsidies in markets for goods and production accompanimentors, and establishing public enterprises in important sectors like mining and heavy industries.Many governments pursued policies of import substitution (and later as well export promotion). Initially, several countries appeared to be triple-crown in achieving economic growth by way of government intervention. However, as more and more more problems arose with respect to the models of planned economic growth, this approach was increasingly criticised by economists whose ideas matched the neoclassical tradition. This is the term to which they are referred to in the debate on the role of markets versus the Government in the process of growth.Mainly at the concomitant that the above described models primarily pointed at the imperfections of the market mechanism the models seemed non to be concerned roughly the possibility that government intervention in itself could also break away to an in in effect(p) apportionment of resources. The neoclassical economists rejected the unverbalized assumptions that allocate inefficiency due to market imperfections would unendingly be larger than the inefficiency resulting from government visitations.This assumption would imply that the government has sufficient schooling in crop to determine for which particular industries positive externalities and dynamic economies of scale could be expected, and to properly assess the costs and benefits of supporting certain activities and industries. This also would imply a well-functioning apparatus of government within which this info would be translated into a polity in the right way. Moreover, it meant that the government would also be strong exuberant to resist pressure groups and to minimalize the negative effects of rent-seeking behaviour.Finally, it was anticipated that the government put maximum public assistance for the country as a whole originally maximising the individualistic objectives of those representing th e government. The liberals very much doubted the fact that these conditions had been sufficiently met in developing countries. They were sooner convinced of the fact that especially such factors as lobbying, rent seeking, and a government pursuing maximisation of the individual welfare function, would negatively affect the efficiency of intervention. Therefore, they concluded that the imperfections of government intervention principally exceeded market imperfections.Only in some cases the government could play a role, e. g. with respect to providing physical nucleotide, macroeconomic stability, and maintaining effectuate and upholding the law. This is all the government should do. The thingmabob of getting the prices right plays a crucial role in the liberal view If the markets are non interfered with, scarce resources impart be allocated most efficiently. Their starting points were the basis of the IMF and World cashbox form _or_ system of government. Recommendations tha t were part of the structural enrolment programmes presented to developing countries in the 1980s and 1990s.The neoliberal interpretation of the role of the government versus the role of the market in the process of economic development has also been applied in analysing the economic success of East Asia of the past third decades. According to the neoliberals, the governments of these countries observed the limits of their capabilities, and the economic success, in that respectfore, was caused mainly by the market which functioned quite a well. They especially pointed out the emphasis governments placed on developing and stimulant exports, nonpublic entrepreneurship, and the execution of market-oriented insurance constitution measures. stress on export heighten the development of industries with a comparative advantage. The East Asian countries especially developed those industries in which they had a comparative advantage. The governments had created the right environmen t by providing macroeconomic stability and public enthronization in social and physical infrastructure in which the mystical sector was encouraged to invest in such a way that it, would contribute positively to economic development.The neoliberal interpretation of the economic success of the East Asian countries was supported by the reflectivity that several African and Latin American countries, where the government had played a very prodigious role for several decades, had experienced a incomprehensible economic crisis since the 1980s. The failure of government intervention and the positive contributions of the market mechanism were elaborately discussed in studies by, among otherwises, these studies considered the East Asian countries as examples of countries where the market mechanism had positively influenced the process of economic development.The neoliberal criticism of the models from the 1940s and 1950s was justified to a certain extent. They rightly emphasised that too much government interference in the process of economic development could lead to considerable inefficiencies. They provided a abstractive basis for the possibility and consequences of government failure (Islam, 1992). Since the early 1970s and especially during the 1980s practically everybody agreed on the fact that government-led economic development, with an important role for state enterprises, would lead to large inefficiencies.However, this did not automatically mean that the neoliberal alternative provided a slump interpretation of the backgrounds of the successes in East Asia. Since the mid-1980s thither was increasing criticism of the neoliberal interpretation of the role of the market versus the role of the government in development. These critics can be referred to as new interventionists. This group of economists argued that the government could contribute more to economic development than just providing certain important public goods. They based their ideas mainl y on their abbreviation of the backgrounds of economic success in East Asia.The centre of their analysis proved to father previous a hook in common with the analyses of and themes addressed by development economists of the 1940s and 1950s. reprimand of the Neoliberal Model and the Arguments in Favour of Government Intervention According to the new interventionists, the neoliberal interpretation could not explain satisfactorily the success of the East Asian countries. A growing amount of research showed that government could indeed contribute positively to growth by means of comprehensive intervention in the economic process.This was not in keeping with the ordinary neoliberal starting points, and therefore alternative approaches were sought after to explain for this finding. An important alternative explanation of the East Asian economic success was found by emphasising the extent of problems concerning coordination in less developed economies. Critics of the neoliberal inter pretation pointed out that the government could play an important role in impact the process of economic development by reducing coordination problems, associate to the hoice of and affinity amid production decisions that hinder development. These problems concerning coordination are the result of dynamic economies of scale of production and external effects resulting from the strong mutual dependence of certain industries. If such circumstances do play a role, the parcelling of resources on the basis of the market mechanism can quite slow become sub-optimal. To begin with, in practice market prices provide teaching about the current positivity of productive activities they contain just now any if at all information on future profitability.Under these circumstances, if there are any activities that lead to economies of scale in the future, current market prices give the wrong signals with respect to optimal allotment. In this case, allocation will not be dynamically effi cient. Moreover, investment decisions at the level of the individual entrepreneur whitethorn be sub-optimal if the future profitability of an investment projection also depends on the degree to which investments are made in other sectors at the same time. In this case, too, allocation of resources based on the poverty-stricken market principle results in dynamically inefficient allocation.According to the new interventionists, interventions of East Asian governments were mainly aimed at decreasing these coordination problems, thus stimulating economic growth. The interventions actually improved the economy since barriers caused by economies of scale and external effects were taken down, which probably would not have happened if resource allocation was based purely on market principles. The model explaining the East Asian economic miracle as proposed by these new interventionists matches some of the central thoughts of the development economists of the 1940s and 1950s.One major difference, however, is that this model is formalised in some recent contributions. Recent theories on industrial organisation also point at the positive effect of limited competition rather than issue markets and protection and co-ordination by the government. The carry onder of this section will discuss in more detail several of the above mentioned aspects of the East Asian intervention constitution, such as the characteristics of industrial policies, the instruments that were used to stimulate limited investments, the institutional context, and the preconditions. Industrial policyThe contents and effectiveness of the industrial policies pursued in the East Asian countries is the central focus of several new interventionist studies, Focusing mainly on the analysis of the Korean experiences, this is also presents a new interventionist interpretation of the economic development of mho Korea. In her analysis she shows wherefore the Korean government policy can be considered d ynamically efficient. She emphasises the fact that government intervention led to a situation of getting the prices wrong, which, harmonise to her, precisely resulted in an optimal allocation of scarce resources.By knowingly disturbing prices, the government was able to turn off the coordination problems that occur when allocation of resources is left(p) to the market mechanism. Policies aiming at disturbing the market mechanism led to other priorities concerning what should be produced as compared to the outcomes of the market as the coordinating mechanism. The industrial policies of other rapid growers in the region have been interpreted in a similar manner in other studies characterises the process of economic development in South Korea as the process of late industrialisation.Fast growth in this country is mainly based on the put onation of breathing (Western) technologies. The aspect of learning, adopting and adjusting existing technologies is central in her analysis. Si nce learning processes have the characteristics of a public good and are for example, intimately related to increasing economies of scale and the external effects of production, government intervention is vital in the process of late industrialisation.The government sees to it that the Western technology is copied and implemented as efficiently as possible, and that the labour force is educated sufficiently to work with the new technology. Moreover, they coordinate production decisions in different industries. Thus, the government becomes an entrepreneur who decides what, when, and how much to produce. The active intervention resulted in the industrial development of South Korea, which would not have been realised without government intervention.The government especially stimulated those industries that were thought to be of crucial sizeableness to the long-term development of South Korea. Whereas in the 1960s mainly export-oriented industries were stimulated, in the 1970s emphasi s was placed on the development of heavy and chemical industries, the electronics industry, and shipbuilding. In the 1980s the centre of help of industrial policies shifted towards stimulating the development of high-quality industries, the so-called sunrise industries.Due to government intervention South Korea became a leading producer of microchips, and had an important character in the world markets for consumer electronics, cars, and in shipbuilding. In this context, leading economists point out the difficulties involved in the development of especially heavy and chemical industries, and in electronics and shipbuilding. The comparatively long time these industries require reaching maturity, and the limited profitability (or even temporary loss) during the sign phase cause these industries to be rather unattractive when it comes to toffee-nosed investment.This provides a legitimate intellect for an active industrial policy by the government. Instruments of government interv ention The East Asian governments used various instruments that enabled them to influence the organisation of production decisions and the allocation of production factors, in order to achieve that scarce resource would be applied in the areas they preferred. These instruments primarily aim at creating rents, i. e. providing subsidies for certain investments. A subsidy whitethorn be a strong instrument to influence the use and allocation of means provided that the granting meets certain conditions.A subsidy will contain a protective element on the one hand, and provide an incentive to implement specific activities on the other hand. Given these conditions, a subsidy may contribute to the fact that investors who are granted a subsidy may take into account more than short-term profitability besides, and may also consider future possible profitability of the decisions. In these cases, the dynamic aspects of implementing investment decisions are taken into account, and thus granting s ubsidies may contribute to a discover allocation of means.Initially, subsidies were granted by means of programmes for cheap credit and selective credit loans. In countries like South Korea and Taiwan, the government had a significant impact on determining the nominal deposit and loan rate in the 1960s and 1970s. Moreover, they also introduced guidelines with respect to the allocation of bank loans to the private sector. Thus, they were able to stimulate the development of specific industries and private activities by granting them accession to external funding and by subsidising this Funding. The role of the export promotion policyEspecially with respect to the role of export-oriented policies as part of industrial policies, and the related specific instruments of government intervention in East Asia, the neoliberals and the new interventionists do not agree. In the neoliberal model the emphasis of government policies on export promotion is very important, since they believe that competition on world markets stimulated East Asian companies to produce efficiently. They exported especially those products for which the countries had a comparative advantage in production. According to the neoliberals, the rapid growth of exports justified this approach.Subsequently, the development of export industries was thought to have a positive effect on the production in other sectors of the economy. In this model the so-called model of export-led development the rapid growth of the export industries led to a growth in investment and was therefore the driving force behind the boilersuit economic success. The new interventionists disputed the neoliberal point of view. slightly of them point out the fact that the governments created comparative advantages, thus actually reversing the causal relationship between export growth and14 comparative advantages.The above mentioned industrial policies in South Korea can again be used to illustrate this view. The South Koreans dev eloped advantages in shipbuilding, and in the electronics and car industries, all industries in which they ab initio did not have comparative advantages. Some new interventionists stressed the fact that government intervention stimulated especially those export industries for which competition in international markets was fierce, in order to stimulate the building up of a agonistic external sector.To a certain degree, this view resembles the neoliberal interpretation of the role of international trade, although the new interventionists put much more burthen into the role of government intervention to develop such a competitive external sector. They argue that international competition can be regarded as an efficiency check of interventionist policies and the policy measures used. The success or failure of export producing unwaverings provided the government with information which enabled it to decide whether or not to continue support to particular industries, and to decide on t he extent of this support.Thus, protection measures and the granting of subsidies were linked to the functioning of firms with regard to the development of sales in foreign markets. Others, however, resist the argument that exports played a crucial role in stimulating the economic growth of these countries. On the one hand, they point at the limited take of the export sector in total GNP of most East Asian growing countries in the period concerned. Considered this limited share, this sector could neer have been the driving force behind the strong economic development during the 1960s and 1970s.On the other hand, the direction of the causality between exports and investments as supposed by the neoliberals is questioned. It is more likely that the explosive export growth was the result of a strong increase in domestic investments, rather than the other way round. The increase in these investments led to an increasing demand for imports, which taking into account the limited availa bility of foreign currencies went hand in hand with an increase in exports. This increase in exports was realised by reducing the domestic consumption of tradable goods, making them available for exports.Exports were not hampered by any unfavourable exchange rate policies, which had indeed been the case in many other developing countries in the 1960s, 1970s, and part of the 1980s. They argue that export production was actively stimulated by means of several instruments, oddly the above described systems of subsidisation. Therefore, some new interventionists argue that the explanation of economic growth in East Asian countries lies in the factors that influenced the strong growth in domestic investments, such as the creation of rents to stimulate investment behaviour.Cooperation between the state and the private sector in the previous sections it has been pointed out continuously that the East Asian governments proved to be able to reduce coordination problems, which contributed to stimulate economic growth. However, this suave has not answered the question concerning the way governments were able to dispose of sufficient information to efficiently coordinate investment decisions and to determine which industries were important in realising a dynamically efficient allocation of scarce resources.Several studies have examined this aspect. These studies show that very close ties existed between the government, banks, and the private sector. These ties led to frequent contacts between the government and the private sector about the economys weaknesses and strengths. In this way, the government gained a remediate ground of the constitution of the coordination problems that played a role in the economy. On the basis of this information the government was better able to take decisions concerning intervention.In the case of South Korea, obliging servants from different ministries, bank managers, and managers of large companies regularly met on so-called delibera tion councils. Apart from this there were also monthly export meetings. At these meetings, presided by the president of the country and attended by16 senior civil servants, managers of banks and companies, economic bottlenecks were directly discussed, and decisions were taken concerning the outlines of the industrial, trade, and financial policies.Specific attention would be paid to the performance of the export industries, and if necessary the export policy would be alter on the basis of the information available. The South Korean private sector was very much organised on the basis of forgather structures, the so-called Chaebols. A limited number of very large conglomerates were actively involved in various economic activities, thus controlling an important part of the total production of the private sector. The government actively stimulated the development of these large conglomerates.The idea was that this would lead to an optimal use of economies of scale and external effects due to the strong mutual dependence between industries. In this way, the conglomerates would inseparableise existing coordination problems. Moreover, an advantage of the existence of several large conglomerates was that there were only a small number of ties between the government and the private sector, so that a relatively small number of policy makers and managers would be responsible for making important decisions.This added to an efficient exchange of information and a reduction of coordination problems. Some studies describe the model of the East Asian economies as a governed market. This means that private companies competed and cooperated and were supervised by the government. Other studies especially referring to the case of South Korea characterise the relations between government and the private sector as a quasi-internal organisation. This model describes a firm as an organisation that minimalizes transaction costs by internalising certain activities, i. e. hese act ivities are executed within the organisation. This may cause the allocation within an internal organisation to be superior to allocation resulting from the market mechanism. The model contains a central management that determines the outlines of the activities of the firm and that delegates the execution and immediate responsibility for the results to different divisions. The divisions are accountable to the central management and have to provide information regularly, enabling the management to change its strategy on the basis of this new information if necessary.In this way, coordination problems between the different activities can be reduced. The comparison to the characteristics of the Korean society applies to a certain extent, if the government is regarded as the central manager and the various conglomerates as the divisions. Due to the intense and informal contacts between the government and the private sector, the government had at their disposal information concerning th e nature and extent of coordination problems in the economy.On the basis of this information, economic policies could be designed and choices could be made on which industries should be supported, since they were supposed to be of crucial importance to the growth of the country. Furthermore, economic policy programmes could constantly be adjusted on the basis of new information so that they would positively contribute to the economic development of the country. To conclude, it can be argued that the strong ties between the government and the private sector contributed to an intense exchange of information.Based on this information, the government was able to follow and if necessary adjust the activities in private industries. The new interventionists considered the combination of these ties and the nature of the way the government created rents and distributed these among firms and industrial sectors as an important explanation of the successful government intervention in the variou s East Asian countries. Initial conditions and semipolitical factors The new interventionists also point at other factors they feel have been important in realising that the government translated the information they eceived from the private sector into a policy that contributed to the successful18 reduction of coordination problems. These factors are closely related to the initial conditions that applied at the moment this miraculous process of economic growth was started. They also point at certain specific political economic circumstances. To begin with, the new interventionists emphasise that in these countries the educational system and the level of education of the labour force were of a relatively high standard as early as the 1950s, especially compared to countries in Latin America and Africa.This positive initial condition had various positive consequences. To start with, this meant that labour productivity was relatively high and that the East Asian economies were at leas t capable of working with relatively high-grade production processes as early as the 1950s. Moreover, this meant that the copying of Western technologies is the essence of late industrialisation could be executed faster. Finally, the high level of education had a positive effect on the quality of the civil service.The latter was not to be underestimated as an aspect of the success of the East Asian intervention policy. Several authors have therefore paid special attention to the aspect of the quality of the civil service. An efficient apparatus of government was of great importance in order to translate the information on coordination problems in the economy into a policy that could contribute to increasing economic growth. Moreover, the work value-system of the average civil servant in the Eastern Asian countries was also important in explaining the efficiency of government intervention.In many developing countries civil servants seemed to be easily corrupted, whereas in most Eas t Asian countries this was relatively less common. Consequently, the abuse of, for example, the granting of subsidies and other benefits to firms could be kept rather limited. To explain this phenomenon the new interventionists argued, among other things that in such countries as South Korea and Taiwan a high degree of social responsibility had been developed and introduced through the educational system.Education very much contributed to a esthesis of social awareness. This led to the fact that a federal agency as a civil servant involved a high social status. This may be an explanation for the fact that the best students often accepted a19 position with the government whereas a similar position in the private sector would pay far more. This high status would also contribute to a lower degree of corruptness as compared to that in many other developing countries.Moreover, a career with the civil service was considered the perfect way to a high position in the private sector. Apart from these initial conditions, several authors argue that the political economic circumstances in the East Asian countries contributed to the fact that government intervention could concentrate on the efficient use of scarce resources. As is well-known from the public-choice literature, a government may implement a policy because they are being pressurised by certain groups in society that are crucial to a possible re-election.In such case, in their policy the government may to a certain extent want to comply with the wishes of their future voters, rather than pursue a policy that contributes to economic growth as much as possible. 9 For example, they may not use subsidies to support certain important economic activities instead subsidies may be used to secure political support. In many Latin American and African countries such a democrat policy has been pursued in the past with all the associated negative consequences to general economic growth.In case of a more autocratic governm ent, the government will use part of the means available to bribe representatives of sinewy lobbies who could jeopardise the governments continuity or to forcefully tame these lobbies. In South Korea and Taiwan the government hardly ever face lobbies of real importance so that a populist policy was not necessary. Therefore, they could develop and pursue their policies independent of any lobby and they could efficiently employ subsidies and other instruments to promote economic growth, rather than use them in order to gain political support.There were several different reasons for this particular circumstance, concord to the new interventionists. Among others, for an verifiable analysis of such kind of political economic processes, to start with, countries like South Korea and Taiwan were characterised by a relatively equal income distribution due to which the governments of these countries were less pressurised into taking popular measures to enjoy certain lobbies. The equal i ncome distribution was mainly the result of the land reforms of the 1950s which took place both in South Korea and Taiwan.Thus, equal income distribution had been realised forwards the start of the period of rapid growth. More recently, semiempirical support for the positive relation between equal income distribution and economic growth has been found. Moreover, some mention the fact that both the South Korean and the Chinese society were characterised by a relatively cultural unity, This meant that this potential source of political instability was less strong than it often was in other developing countries and that this made it easier to develop a solid nation state.Some authors also mention the fact that the Japanese oppression of South Korea before 1945 drastically reduced the role of lobbies in this country. With respect to Taiwan, the flight of political leaders and their supporters from China had actually decimated the differences between the various political lobbies. Fin ally, there was no elite group based on the ownership of natural resources, since these countries hardly had any natural resources. In several Latin American countries this elite was an important opponent of the government.The new interventionists offer an alternative explanation for the economic success of the East Asian countries during the past few decades. They point at the existence of coordination problems and argue that these problems are the main obstacle for economic development. For this reason the government should play an active role. The analysis of the role of the government in East Asia shows under which circumstances government intervention may have a positive impact on the economic growth of a country.The contributions by the new interventionists appear to resemble those by the development economists21 from the 1940s and 1950s. The difference, however, is that the new interventionists have provided the understandings of the development economists with a more solid t heoretical and empirical basis. Some questions remain unanswered, however. For example, the new interventionist analysis of the role of the government in the East Asian success has not convincingly shown why the efforts of the governments of these countries seemed to have been explicitly concentrated on promoting long-term economic development.This paper has described all conditions that must be met in order for government intervention to contribute positively to economic growth, as was the case in East Asia. Another starting point for future research refers to the empirical foundation of the existence, nature and importance of coordination problems in a less developed economy. Although the new interventionists have frequently and convincingly described the existence of these failures, until now their empirical proof has been scarcely provided. Therefore, micro-level research i. e. t the industrial level into the significance of these coordination problems in economic development is vital. Related to this, more empirical research ought to be conducted into the importance of dynamic efficiency in a less developed economy. This requires more analysis of the nature of the possible economies of scale, the external effects in such economies, and the way in which they could be used by government intervention. The debate on the role of the government was quite explicit after the World Bank had published a study in 1993 which contained an in-depth analysis of the backgrounds of the East Asian success.The new interventionists criticised the World Bank for the contents of this report ,the analysis in this report builds on an earlier World Bank report (World Bank, 1991) in which the neoliberal view on the role of the government is somewhat changed with respect to their previous attitude on this subject. Both the 1991 and 1993 reports assign a more positive role to government intervention. The reports argue that interventions may add to economic growth, provided that t hese interventions are market friendly.The market friendly nature of interventions means that markets ought to function freely, unless the results are clearly better in case of government intervention. Furthermore, checks and balances have to be introduced interventions must always be subject to the discipline of the domestic and foreign markets as much as possible. Finally, intervention must be straightforward and transparent, based on clear regulations, so that the contents and consequences can be monitored by anyone. The 1991 World Bank report introduces the market friendly approach of government policy as the alternative road between market and government.Starting from this analysis framework, the 1993 report studies the economic development of East Asia and endorse the positive role of the government in the process of economic development of these countries. Furthermore, the report argues that the distortions that were a result of government interventions were small, especially as compared to those in other developing countries. Government policies were often embedded in a competitive environment, all according to the market friendly approach.At the same time, however, the analysis shows that government intervention was by no means always successful. The market is considered to remain the most efficient coordinating mechanism. Therefore, the reports advice is to get the prices right. The net conclusion is that the most important positive contributions of government intervention referred to creating a stable macroeconomic environment in the form of low pompousness and government deficits, and a stable exchange rate and investment in the development of human capital.The government created the right environment within which private initiative could optimally contribute to economic growth. Economic policies should concentrate on these factors, the World Bank argues. The recent World Bank report does only partly do justice to the new interventionists criti cism. The policy recommendations still seem to be rather neoliberal. Although the World Bank report ab initio appears to lead to a synthesis of the neoliberal model and the new interventionist understandings, the policy implications of the analysis of the two camps differ very much.The new interventionists point at the importance of government intervention and set great store by industrial policies and the use of subsidies and other instruments in order to realise a dynamically efficient allocation of resources, whereas the World Bank continues to argue that the government ought to aim mainly at creating macroeconomic stability and should aim only if at creating the right conditions for private initiative.Conclusion To conclude, since the early 1990s there appears to be some general agreement concerning the debate on the role of the government in the process of economic development in East Asian countries. The World Bank being the main representative of the neoliberal point of vi ew and its critics agree on the fact that the governments of these countries severely intervened in the economic process.Thus, it would make great sense for developing nations in Africa, South America and south East Asia to place prodigious importance of state intervention to economic development and to dismay the western liberal model as useless and deceptive. As they themselves (western countries, including Japan) all at some point in their economic development guided their economy towards what they thought was suitable and progressive, which is called industrialisation.