Download Political Economy Approaches to Comparative Public Management

Political Economy Approaches to
Comparative Public Management
(GOVT 518)
Week 7
(April 29 2015)
1
Topics
• How to Grow Economies?
• The (East) Asian Miracle
• Thoughts on Developing Countries
2
Political Economy
Political economy commonly refers the study and practices of
how the political environment and the economic system influence
each other.
Here, the focus mostly on how (national) governments influence
economic actors for the purpose of increasing economic growth,
in domestic and international context: national governments 
economic growth. We do not look at other, also important very
matters of political economy, such as economic models of
governments (e.g., politicians as rational actors?), policies to
promote income redistribution, political influences on corporate
governance. We do look a bit at business influences on
government decision-making, etc..
How to Promote Economic
Growth?
1.
2.
3.
4.
5.
Macroeconomic Factors
Political and Social Factors
Institutional Factors
Sector Strategies
Public Policy
1. (Macro)economic Tools
Stability (no shocks) with favorable conditions for firms and
citizens:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Currency stability (esp. with main trading partners)
Low inflation (2-3%)
Trade policy (WTO restrictions)
“Reasonable” levels of public debt
Supply of capital
Supply of skilled and unskilled labor
Supply of technology (patents, universities)
Proper incentives for the private sector (competition)
Other
2. Political, Social, Institutional Factors
Stability:
1. Political stability (same regime, or continuity through
elections – PRC, USA)
2. Lack of social strife (ethnic instability), e.g., Malaysia)
3. Population growth (though Japan is a new model of
growth with population decline)
4. Work ethic (East Asia, Protestantism)
Effectiveness:
1. Governance (capacity for policy making and delivery)
2. Lack of corruption
3. Sector/Local Focused Policies
Effectiveness:
1. Infrastructure development (roads, handling capacity,
markets)
2. Ensure technology development and acquisition (e.g.,
bio risks)
3. Foster cluster development (integration and
competition)
4. Ensure access to foreign markets
5. Specific products and services for local markets
6. Ensure capital (loan guarantees)
7. Ensure qualified labor (universities, immigration)
Note: implies vision for economic development
Huang: Asian Economic Miracle
• The developmental state (vs. regulatory state, welfare
state, predatory state, pariah state, etc)
• Economic activism: In Asia-Pacific, the widespread
practice of the state being actively involved in the
management, guidance and promotion of national
economic activities.
Huang: Asian Economic Miracle
Some notes:
• Most countries have a unified political executive with mandate for
growth and economic development
• Bureaucracies vary how much economic management, guidance
and promotion of national economic activities they provide
• Peripheral organizations that link state and sectors/industries
include those in planning, research, teaching, promotion...
• Policy instruments are many: stimulation of productive investment,
pro-competition, favoring future industries, stimulation horizontal
and vertical collaboration/integration, licensing, regulation.
• Again, also ability to carry forth regardless of election results, and
capacity to ability to fend off rent seeking/extraction activities.
Some background/institutional points:
Bigger Issues:
Huang: Asian Economic Miracle
Huang: Asian Economic Miracle
General activities of government planning in
market economy:
• Planning (targeting infrastructure, lacking conditions,
broad categories of economic activity)
• Co-ordination (across agencies, with sector)
• Promotion (e.g., access to markets, quality, technology,
etc. see also p.111)
• Intervention (e.g., crisis management)
Huang: Industrial Policy
Deals with individual industries and sectors, apart from
public goods (infrastructure, etc)
Picking winners? Or supporting competitive, private
activity (cluster of economic activity)
Context: conditions of many industries during 1970s
faced international markets with cost, quality factors
and need for “rationalization” of domestic activity (l-t
export over s-t domestic profits)
Rationalization supported chaebols (Korea) and keiretsus
(Japan), and gov-business alliances for policy-making
Huang: Industrial Policy
Classic examples of 1970s:
Electronics industry in Korea
and Taiwan; Car
manufacturing in Japan (and
later Korea); Shipbuilding in
Korea and Japan; Commercial
activity in Singapore (also,
shipping, chemicals);
Growth alliances: (i) Japan (Iron Triangle of LDP, state bureaucrats and
business elites), (ii) Ethnic alliances (Malaysia – grand political bargain UMNO over bureaucracy, army, law) Singapore, (iii) Military-backed
coalition (Indonesia, South Korea, Taiwan, Thailand)
Example: IT in Taiwan
Why?
Industrial upgrading (from low wage to high wage)
IT both horizontal and vertical integration
Government role important in developing technology and export
promotion
Taiwan many small and medium size companies – “guerrilla
capitalists,” well suited for some entrepreneurial games
Goals:
1. Increase popularization of technology
2. Make Taiwan a major supplier by improved quality
3. Increase technology autonomy more R&D spending (less OEM)
4. Increase IT manpower
Examples:
1. Hsinchu science park
2. Taiwan Semiconductor Corp
3. Foxcomm
4. Software applications
Today: ”China Communications Media Group, a Taiwanese apps and games
store operator, was the fastest-growing technology firm in terms of
revenue growth in Asia-Pacific in 2013. ” http://blogs.wsj.com/digits/2013/12/10/taiwantech-firm-tops-fastest-growing-companies-list/
Also: Why Taiwan's Top Execs Stay In The Shadows.
http://www.forbes.com/sites/ralphjennings/2013/08/07/why-taiwans-top-execsstick-to-the-shadows/
WTO Prohibited Practices
WTO aims to promote trade and competition. Prohibited
practices include:
• Direct subsidies of government to firms based on export
performance (loans, etc)
• Government purchasing that favor domestic firms, or
domestic content laws and subsidies for domestic content
• Currency schemes that involve a bonus on exports
• Import licensing that is overly complex and restricts
competition
• Companies: Selling below cost in foreign markets (dumping)
• R&D subsides to firms over 75% (environmental compliance
also allowed).
• Some exceptions for developing countries, emergencies (e.g.,
public health).
Huang: Asian Economic Miracle
Other issues:
• Rule of law and economic development
• Rent seeking and Rent deployment
• Anti-corruption practices
A bigger picture:
• Society committed to growth (social/political
movement)
• Asian Financial Crisis…..
Asian Financial Crisis
• While strong interest rates attracted petrodollars to Asia, AFC
showed various weaknesses: large public debts, high current
account deficits, leading to currency withdrawals and
devaluations, high inflation, reduced demand. IMF loans
stabilized currencies and reduced public debts, and caused
some improvements (e.g., intra-regional currency swap
mechanisms).
• Does AFC show flaw in Asian model? Well, problems in
financial institutions and safeguards (later in US, Greece, etc.
for different reasons)
• Need new growth models for our times
Small Developing Countries
• Promoting economic growth vs. economic
exploitation
• Attracting FDI to promote a public vision
• Ensuring plan stability amidst domestic and
international change (sustainability)
• Minimizing economic rents and ensuring
good incentives
ADB, 2011
http://www.asia-studies.com/asia/ADB/2011/political-economy-economic-reform-pac.pdf
Pacific Islands
Some Factors Underpinning Successful Reforms:
(e.g., land reform, telecommunication (PNG), macro economic
reforms (Cook Islands)
– Creating markets for domestic groups
– Involving many stakeholders
– Champions in political, bureaucratic and academic arenas
Some Factors of Unsuccessful Reforms
– Not understanding the context
– Big Man politics (clientelist politics, rivalry)
– Insufficient commitment/corruption
END