ABSTRACT
In this present age where economic growth in not enough to sustain a country and its inhabitants. There is the need to establish strategies that spur its economy into development, and impact its inhabitants positively in the process. The study relates state-directed capitalism to economic development, while taking lessons from East Asian Tiger countries (South Korea, Taiwan, Singapore and Hong Kong), and taking into consideration Ghana’s context and areas where state direction is needed to improve the economy. The methods used in the study include the use of books, internet sources, focus groups, interviews and questionnaires to fully understand the concept of state-capitalism and its relation to economic development.
Every country owes it to its citizens to ensure that the standard of living is above average and everyone from the elite to the grass root has their fair share of wealth accumulated from growth. The findings indicate that a combination of free market principles and government intervention make up for the inefficiencies of the market. This could be the key to changing a developing country into a developed one if only the proper institutions are established to ensure the political, economic and even social stability.
ACRONYMS
GNP- Gross National Product GDP- Gross Domestic Product HDI- Human Development Index
ISI- Import-Substitution Industrialization EP- Export Promotion
SME- Small and Medium Enterprises IMF- International Monetary Fund SAP- Structural Adjustment Program ERP- Economic Recovery Program KMT- Koumintang Regime
FDI- Foreign Direct Investment
GIMPA- Ghana Institute of Management and Public Administration IRS- Internal Revenue Service
INTRODUCTION
Capitalism, from a Marxist point of view, “is an economic system in which control of production and the allocation of real and financial resources are based on private ownership of the means of production.” (Screpanti, 1999) Capitalism has been used as a tool for growth and development. As countries have expanded and developed, however, the concept of capitalism has evolved to suit different levels of economic development. Even though the underlying concept of capitalism is based on private ownership, in many economies external regulatory bodies or institutions have been put in place to supervise its activities and evolution. Free market economies such as that of the United States of America (USA) where the market is defined by interactions between the buyer and seller are self-regulated, while State-controlled economies such as that of Cuba, delegate all regulatory responsibilities to the government. The mixed market system, more or less, employs the use of “state-controlled capitalism,” where both the government and market serve as regulatory bodies.
All countries, especially those that are impoverished, yearn for growth and Ghana’s no different. Inasmuch as growth may be necessary, it is not sufficient for development. The difference between a growing country and one that is not growing lies in its ability to produce and apply modern technology (Rostow, 1960) or its productive capacity (Economic Growth, 2012). Since 1950, only 12 countries have managed to grow at rates in excess of 7 percent for 25 years or more.1 Many more countries—
1 These countries include Taiwan, Singapore, South Korea, Japan, China, Botswana, Brazil, Malta, Hong Kong, Brazil, Thailand and Oman (Commission on Growth and Development, 2008)
in places as diverse as Latin America, Africa, and the Middle East—have managed high growth rates for shorter periods, only to see that growth falter. (Economic Growth Strategies For Developing Countries in An Era of Global Uncertainty, 2008) Economic development means more than just growth and is accompanied by changes in output in the population. Economic development is usually accompanied by changes in the structure of the economy as well as the improved material well-being of the poorer half of the population. (Nafziger, 2005) Economic development is also typically associated with even a decline in the agriculture’s share of GNP and the corresponding increase in the GNP share by industry and services. When it comes to the younger portion of the population, focusing mostly on children, growth involves stress on quantitative measures (height or GDP), while development draws attention to changes in capacities such as physical coordination and learning ability. (Nafziger, 2005)
Closely related to this is Amrtya Sen’s conception of development. In Sen’s view, development is a process of expanding the real freedoms people enjoy. This can be done by removing all major sources of “un- freedom” such as poverty, poor economic opportunities, systematic social deprivation, neglect of public facilities, intolerance or over-activity of repressive states. (Cooper, 2000) Sen further explains that using an economy’s industrialization as a measurement of real output on a per- capita basis is not sufficient to determine whether a country is “developed.” It transcends further into “increasing the capability of all human beings to achieve those things that they most value.” (Cooper, 2000) Income and financial stability, without a doubt, enhance the
capability of humans so there’s no denying that growth is also a necessary stage that every economy must reach even before development. It, however, does not ensure good health, education, longer life spans, the ability to influence political decisions that affect one’s life and even the liberty to change one’s lifestyle as and when it is seems appropriate. (Cooper, 2000) This research establishes a link between state-driven capitalism and attaining economic development.
BACKGROUND OF THE ASIAN TIGERS
The Asian tigers, namely Singapore, Taiwan, Hong Kong and South Korea, all used different routes to attain economic development. One common thread in their strategies to achieve development is government involvement in conducting affairs of the state and making sure wealth is efficiently allocated. The vital role that government played in the story of the Asian tigers, while flying in the face of “laissez faire” market capitalism, highlights the welfare-improving role of government in an environment with chronic market failure. Given the similarities between the tigers and Ghana some 60 years ago, and the divergent paths their respective economies have taken, it makes sense for Ghana to evaluate the strategies of the tigers to learn useful lessons for development instead of focusing solely on the advice of Western economists.
Economic History of Taiwan
Taiwan’s rapid economic development caught the world unawares, causing it to be hailed as one of the Asian miracles in this era. (White, Taiwan: Giving New Meaning to “Made in Taiwan”, 2012) In the 1960S and 70s, much like many African countries today, it was heavily dependent on foreign technology and aid. By 2001 its gross domestic
product (GDP) had increased by 44 times in real terms, from $ 1.7 billion in 1952 to $ 282 billion in 2001. (White, Taiwan: Giving New Meaning to “Made in Taiwan”, 2012) Even through the Asian financial crisis of 1997, it remained relatively unaffected and its GDP declined only 2% in 1998.
Much credit to Taiwan’s growth is given to the strong industrialization present in its economy, and today it has become a developed economy with most of its focus on services, manufacturing and high technology. Since the 1960s, however, its government was known to have instituted export-friendly strategies as well as reforms to promote greater agricultural productivity. Foreign trade became the engine of growth in Taiwan’s economy 50 years afterwards, changing from mainly agricultural commodities to industrial goods, with its electronic sector receiving the most investment from the U.S. (White, Taiwan: Giving New Meaning to “Made in Taiwan”, 2012)
Manufacturing accounts for almost 28% of Taiwan’s GDP (2007 estimates from CIA World Facts book) and some of its major manufactured goods include petrochemicals, electrical and electronic machinery, paper products and basic metals. (White, Taiwan: Giving New Meaning to “Made in Taiwan”, 2012) Its service sector also has accrued a major part of its GDP, taking 71.1 % while the agricultural sector continues to decline which is one of the key indicators that a country may have reached its “take off” stage of development as listed in Rostow’s stages of economic growth. (Nafziger, 2005)
Taiwan currently has a GDP rank of 24 out of 185 countries and an HDI2 ranking of 18. (White, Taiwan: Giving New Meaning to “Made in Taiwan”, 2012) Today, there are greater and equal opportunities even for women. The ratio of the population with at least secondary education between men and women in Taiwan was 87 percent to 75 percent and currently 30 percent of seats in the legislature are occupied by women. (China Post, 2011)
Economic History of Singapore
Singapore began as a trading center that served the British East India Company in the 19th century. Under the administration of Sir Stamford Raffles, it transformed from a village without any hope of progressing to a major port where merchandise could be imported and exported without the payment of duties. It continued to flourish as its population increased. By the 20th century it had moved from being a port to one of the world’s main sources for rubber and tin at a time of increasing industrialization. Even though Singapore survived the First World War, the Second World War left it in shambles until 1949, when it got back on track and continued with its production of rubber and tin. (White, Singapore: The Jewel in Asia’s Crown, 2012)
After Singapore’s independence in 1959, its government played a major role in advancing Singapore from a country whose economic livelihood depended on its “entrepot” to manufacturing-based industrialized economy. It also went on to add economic improvements
2 The Human Development Index (HDI) refers to the U.N Development Program’s alternative measure of welfare to GNI or GDP, which combines indices of literacy and schooling, life expectancy, and GDP per capita in purchasing power parity (PPP) U.S dollars. (Nafziger, 2005)
such as making use of bare lands for industries, making labor-intensive industries, such as textiles, a priority to boost employment, and at that same time putting in measures to ensure that labor was efficiently equipped with the needed skill. It promoted export industries and foreign trade to decrease its dependence on Britain. Between 1960 and 1999 Singapore’s GDP growth rate averaged at 8.0%. (White, Singapore: The Jewel in Asia’s Crown, 2012) Even though the country suffered through the financial crisis of 1997, it picked itself up, no doubt through the direction of government, by instituting cost-cutting measures such as wage reductions. By 2000 it had a GDP growth rate of 9.4%. (White, Singapore: The Jewel in Asia’s Crown, 2012)
With all these measures, Singapore has been able to improve not only its economy but the well-being of its citizens as well. Singapore continued to improve its human capital through incentives like tax relief for up to five years of employment and unlimited repatriation from profits and capital in some government favored industries. According to the Economist Intelligence Unit, it is ranked as a developed economy with the best quality of life in Asia. Its human development index (HDI) Singapore ranked 25th out of 177 countries. (White, Singapore: The Jewel in Asia’s Crown, 2012)
Economic History of South Korea
This country practically rose up from shambles, being an isolated nation of farmers relying mostly on aid. Its dramatic turnover earned it the title “Miracle on the Hanggang River.” Today it leads the world in Internet access, and is a global innovator in consumer electronics and ship building companies. The economy started by exporting mainly shoes and
textiles then became a major producer of automobiles, fabrics, telecommunication and sound equipment, metal goods, electronics, chemicals and steel. (White, South Korea: The Comeback Kid of Asia, 2012)
To stimulate economic growth, South Korean policymakers promoted indigenous industrial firms, as did many other post-World War II developing countries. Trade barriers were erected and prohibitions on manufacturing imports were imposed in hopes that this would protect domestic firms, by giving them a chance to improve productivity through learning-by-doing and importing advanced technology. This was known as Import-Substitution Industrialization (ISI). After General Park Chung Hee overthrew the first republic in 1960, a new strategy to stimulate growth was introduced. This was mainly export promotion (EP), even though the ISI was not completely abandoned. In the quarter century after the policy shift in the 1960s, South Korean per capita grew at an unusually rapid rate of 7% per year, an outcome only matched by Taiwan, Hong Kong and Singapore. (Encyclopedia, 2010)
South Korea’s government played a major role in its transformation by encouraging manufacturing industries which led to a phenomenal export-driven growth. Unlike many developing countries, South Korea chose an export-led industrialization strategy to produce labor-intensive products that could be produced more cheaply than in North America and Western Europe, and therefore competitive and exportable to those markets. (Nations’ Encyclopedia, 2012) Its government directly intervened in its economy by offering strong incentives to businesses,
regulating foreign exchange and implementing highly centralized fiscal policies. To date, it has regulated and supervised foreign exchange by putting in place four government entities; the Ministry of Finance and Economy, the Bank of Korea, the Financial Supervisory Service and the Korea Customs Service. (Nations’ Encyclopedia, 2012) The country suffered, however, through the Asian crisis due to insufficient foreign reserves and extensive borrowing, leading the country’s biggest conglomerates, known as Chaebol, to collapse. The government undertook extensive restructuring and by the middle of 2001 it had paid off all their loans.
South Korea has a human development index rank of 26 out of
182.
Economic History of Hong Kong
Hong Kong has evolved into one of the world’s most important economic giants. The country’s main focus economically has been on trade, commerce and shipping and as the manufacturing sector started to grow by 1950s, it reached its peak by 1980. It became even more prominent in the 1980s, when the manufacturing sector employed nearly 905,000 people. (White, Hong Kong; A symphone of Lights, 2012) Hong Kong, today, serves as an important distribution center for manufactured goods coming from China. This has enabled its service sector to account for 90.7% of the city’s GDP. Out of 3.5 million residents who make up Hong Kong’s labor force, over 91% of them are in the service sector. (White, Hong Kong; A symphone of Lights, 2012)
