Modern Economic Development in Japan and China

Developmentalism, Capitalism, and the World Economic System

X. Huang, X. Huang

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137323088
• Topic: Politics & International Relations
• Subtopic: Trade & Tariffs
• Index: Politics & International Relations

The contributors provide a comparative analysis of the modern economic development of Japan and China that are often explained in frameworks of East Asian developmentalism, varies of capitalism or world economic system, and explore their broader significances for the rise and global expansion of modern economy.

1

Modern Economic Development in Time and Place: Why Japan and China?

Xiaoming Huang

China and Japan are two countries that have been related in critically different ways at various historical points. China dominated the region until the nineteenth century. The Meiji Restoration in late nineteenth-century Japan and chaos, decay, political turmoil, and the collapse of the Qing Dynasty in China around the same time set the two countries onto distinct paths of modern development. Japan’s leadership in East Asia’s high-speed economic growth in the early post–World War II decades further set it apart from China. When China embarked on its economic reform and opening over 30 years ago, the two countries were so divergent in so many ways that not many would think they were even comparable.

Yet, more than 30 years later, there is increasing evidence that China is facing a turning point in its economic growth and social development today similar to that of Japan in the 1980s: pressure for continual high-speed growth; greater availability of capital; skyrocketing real estate prices; the largest banks and corporations in the world; international pressure on the exchange rate and for a “balanced” international economic structure; and growing tensions between increasingly competitive economic and pluralistic social forces and interests on the one hand, and the statist and corporatist political structure and outdated institutions on the other.

Some find similarities between China today and Japan in the 1960s: the need for industrial restructuring and upgrading away from labor-intensive industries; rising demands on wage and labor conditions; closing of the rural–urban gap; and so on. Still, while Japan has clearly become a post-industrial society, one can find in China a mixture of material development, industrial organizations, institutional arrangements, policies and strategies, and values and attitudes that can only be understood through the vastly different historical periods of the early developers.

There are different possible explanations as to whether the challenge China faces today is fundamentally the same as Japan and indeed many major early developed economies experienced before. One obvious argument is that this is the modern market economy, one that is driven primarily by timely profits, and shaped by worldwide resources and opportunities, information and access, prices and purchasing power, technology and geographic conditions, and mass media and communication. The contingent and dynamic interplay of these forces creates a level of risk and uncertainty that encourages speculative and hedging behavior. The modern market economy therefore operates on “business cycles” that allow the collective dynamism of economic activities to run their full course, whether one likes or not. From this perspective, China today, Japan in the 1980s, and perhaps the United States in the 1930s can be seen as instances of a market economy at a similar critical point in the cycle.

The challenge is also seen as uniquely that of the East Asian model economies (Johnson 1982; Wade 1990; Amsden 1989; Bowie 1991; Fields 1995; Hill 1996; Chiu, Ho, and Lui 1997; Huang 2005; Woo-Cumings 1999). Japan’s bubble and burst came after 30 years of high-speed economic growth following World War II. The model relies on the state as the primary organizer and facilitator of national economic activity; exports and international markets as a principal generator of economic activities and thus income and profit; and advantages in institutional and organizational arrangements and human resources for the economy’s competitiveness. Such a model can continue to generate economic activities to sustain growth for a considerably longer period than the traditional market economy. At the same time, it builds up tensions among key elements of growth to a point where either the economy upgrades, restructures, and grows out of the model, or the bubble bursts and the economy collapses, or somewhere in between. While Japan’s lost decade in the 1990s seems an instance of the last scenario, China is yet to be presented with clear options as to how to respond to this challenge of “growing pains”. It is debated whether China has reached the endpoint of the East Asian model growth, or in fact whether China has been a real East Asian model economy.

The approaches that use a shared growth and development model to provide a unified framework to explain development experiences, however, seem to face significant theoretical and empirical challenges. Theories of late development (Gerschenkron 1962; Amsden 1989), for example, argue that material, institutional, and international conditions were different for the late developers. China has increasingly grown out of the East Asian model as the separation of domestic and international markets and use of industrial policy to promote exports across the markets are no longer tenable in the China of the 2000s as they were in Japan in the 1960s. These conditions have led late-developing economies to take different paths to grow and develop.

Advocates of compressed development (Whittaker et al. 2010), on the other hand, not only recognize the different conditions facing development of different countries in different historical periods, but, more importantly, argue that the history of modern economic development at the national level is an accelerated process of compression of the conditions and dynamics for growth and development into an increasingly shorter time frame. This has led to the late late development, which is significantly different from the early and late-development experiences. The debate over whether China has passed the Lewis turning point in the transformation of industrial structure and labor market, for example, seems to present a case in point. It took Japan 30 years to move from the time it crossed the turning point in the early 1960s to the time when it reached the stage of the bubble economy in the 1990s, while in China these two developments seem to be occurring at the same time today.

Here we have a small problem: looking at the two very successful stories of modern economic growth and development of the twentieth century, we see striking similarities: industrial structure, growth stages, organization of economic activities, international structure and environment. And yet we seem to be unable to make sense of the similarities. For each of these similarities, one can make a good case that they are not really similar: China’s overheating and overcapacity is not that of Japan in the 1980s because China is only approaching its Lewisian turning point now, which makes China as Japan was in the 1960s when there was no bubble economy. To give another example, the problems China is facing today in the international economic system, exchange rates, trade practices, investment barriers, and so forth are not the same as those Japan experienced in the 1980s, as the international economic order then was more “facilitating.” It can be argued otherwise that today’s international economic order is more open, fair, and transparent. For yet another example, China’s Lewis turning point is different from Japan’s as whether China has the conditions for the Lewis transition is questionable.¹

Moreover, one set of similarities allows China and Japan to be seen as historically paralleling: similar stages of economic growth and development, although decades apart. Another set of similarities see China and Japan as structurally paralleling: similar positions in the international economic system where similar ways of economic organization and promotion led to the transformation of their economies and societies and the international economic system itself. There is not much intellectual understanding in this framing of the two development experiences. Scholars and policy analysts were interested in comparing Japan and China, and expected the comparison could yield useful information on how China can avoid similar errors and mistakes that Japan made in the past: its 1980s surrender to U.S. financial and trade hegemony and the “lost decade” burst in the 1990s.

The development experiences of Japan and China, however, are more profound than this. At a more fundamental level, China and Japan have been two major non-Western countries that have embarked on modern economic and social development and they are the second and third largest economies in the world today. The comparison between China and Japan is significant not only for the century-long race between the two in catching up, modernization, and the ability to achieve a high status among similar nations. It is also significant as the two countries are rich embodiments of the world experience in modern economic growth and development. The experiences of China and Japan point to the fundamental challenge nations have faced in organizing economic and political activities under modern conditions. With mass populations, greater mobility, and limited resources and opportunities in any given boundaries, market, technology, and institutions have become key forces in rendering efficiency and fairness in a modern economy and indeed in a modern society.

The experiences of China and Japan can demonstrate how these forces have played out in a given national setting and how they have shaped the emergence of modern economy and society at a given historical point. More importantly, their experiences are comparable to other experiences of modern economic growth and development in time and place, particularly earlier ones, from those of the Anglo-Saxon model to the Rhine model, and from the Soviet model to the East Asian model. Comparing China and Japan raises profound questions that allow us to develop a broad perspective on the growth and development of the modern economy, and the modern economic system: Are the experiences of China and Japan global extensions of the early experiences of modern economic growth and development? Are they part of the historical progression of the world economic system where the later economies are an improvement over the earlier ones? Are they, rather, different ways of organizing economic activities, shaped by different interplays of the forces of market, technology, and institutions in response to modern conditions?

In what ways are China’s problems in its economic growth and development today similar to or different from those of Japan in the early decades? Are they similar because of the modern market nature of their economies? Are they similar because they are both instances of the East Asian model? Or are they different because of the changing material, institutional, and international conditions? Can different strategies in response make a difference? Can growth economics and development theories explain the differences? What do all of these mean for the international economic structure, global economic governance, regional economic cooperation and integration, and sustainable growth and development in the two countries?

This book brings together some leading China and Japan scholars of political economy, growth and development economics, and other social sciences to examine these issues, to make sense of the seemingly ambiguous and contradictory evidence from analyzing the Chinese and Japanese experiences, using largely those convenient, though contending, frameworks. The chapters in Part I, much in conversation with the literature of “varieties of capitalism” and the world economic system, provide an understanding of the world economic system and the rise and global expansion of the modern capitalist economy in the system in which the Japanese and Chinese growth and development experiences can be historically located.

Nobuharu Yokokawa in Chapter 3 searches for a fundamental logic that has driven the succession of different economic regimes and therefore the evolution of the world economic system of which Japan and China are manifestations. Xiaoming Huang’s Chapter 2 advances the thesis that Japan and China are instances of the global expansion of the modern economy. Huang uses the latest data on marketization, market institutions, and modern institutions to determine the level of market economy and quality of modern institutions in Japan and China, to see how they compare to the early developers of modern economy, and the East Asian model economies. The analysis allows us to see how Japan and China relate to the global development of the modern capitalist economy.

Chapters in Part II engage the debate on the development models of Japan and China, particularly from the perspective of the most dominant one: the East Asian developmental state model, and aim to ascertain the nature of the forces, conditions, and arrangements in the institutions and society, and policy and the international environment that have shaped these two growth and development experiences. Chapter 4 by Bai Gao looks at the world economic order in the 1960s and 2000s, and consequently the domestic patterns of economic growth, organization, and promotion in Japan and China at the time, and investigates whether China’s development model differs significantly from Japan’s development model, and what that means for our understanding of the role of the international economic order and domestic structure in the shaping of development models, and indeed developmentalism in general.

Marc Lanteigne in Chapter 5 investigates how the patterns of the developmentalist state were shaped by their individual domestic structure and conditions. Lanteigne traces the political and policy process of China’s adoption of developmentalism and asks whether China’s developmentalism is different from Japanese developmentalism. While Gao approaches the shaping of developmentalism in Japan and China more from the perspective of the international order as structuring constraints, Lanteigne looks at the political economic dynamics inside Japan and China as the force shaping their similar but different developmentalist models.

Discussions in Part I and Part II on the fundamental nature of the world economic system and the East Asian model, and how Japan and China relate to them, lead to a view that there are both similarities and differences between Japan and China; such similarities and differences were shaped through the development of modern economic growth at different historical times where conditions, forces, and arrangements for them were significantly different. Chapters in Part III and Part IV turn to empirical investigation for evidence in two significant areas of the two countries’ economic growth and development: industrial development and industrial policy, and rural and agricultural growth and development, and seek to understand whether the industrial structure and transformation in these two development experiences are shaped by similar forces and factors and whether they can be comfortably explained by a development and growth model.

Chapter 6 by Katsuhiro Sasuga takes the role of Japan’s FDI in the development of China’s auto industry as a case study, and investigates whether the shifting global production structure, supply and value chains, and the global distribution of capital, markets, production, and the dynamic international firm and local government interaction have a great impact on the direction and scope of the growth of an industry in China. The same approach is taken by Ben Thirkell-White. His chapter looks at how broad economic performance at micro-economic levels in China today and Japan in the 1980s and 1990s are shaped by the effective global economic structure and “international pressures”; how China and Japan responded to them; and how the effectiveness of international pressure and the patterns of responses of Japan and China are related.

On rural and agricultural growth and development, Chapter 8 and 9 are designed to probe the same puzzle informed by conventional frameworks and debates in explaining growth patterns and development trajectories; whether the trajectories in rural and agricultural growth and development in Japan and China are explainable by the Lewisian theory: when economic development rises to a point when surplus labor is no longer available, wages in the industrial sector rise with the shortage of labor supply from the rural sector, and gradually the rural–urban divide will disappear and economic development move into a new and more advanced stage – a point often referred to as the “Lewis turning point.” When and whether the economy has passed over this turning point seems to be a critical indicator of the process and stage of modern economic growth. Katsuji Nakagane in Chapter 8 uses a sophisticated range of indicators to measure how the trajectory has turned out in Japan in the 1960s and China in the 2000s. Jason Young in Chapter 9 investigates how institutions shape the development of rural–urban linkages. In both comparative analyzes, analytical interests are to see whether and how domestic conditions and arrangements explain the different development outcomes in the two seemingly very similar processes of modern economic growth.

Part V looks at the comparing of Japan and China and analyzing of their patterns of modern economic development as an intellectual exercise and as a problem of scholarly research itself. Lei Song and Yanbing Zhang’s Chapter 10 documents and compares the evolution of scholarship on the development model of Japan in the 1970s and 1980s, and on China more recently, in our efforts to conceptualize and theorize the patterns of modern economic growth of Japan and China through analyzing the development of scholarship on their development experiences. Scholarly thinking and debate over their development experiences are not only shaped by the development experiences themselves, but also the dominant ideologies of the time and the way we describe, analyze, and explain...

Table of contents

• Cover
• Title
• 1 Modern Economic Development in Time and Place: Why Japan and China?
• 2 Mapping Japan and China in the World Economic System
• 3 Dynamic Comparative Advantage and the Evolution of the Capitalist World System
• 4 Neoliberal and Classical Developmentalism: A Comparative Analysis of the Chinese and Japanese Models of Economic Development
• 5 Chinese Developmentalism: Beyond the Japanese Model
• 6 Japans FDI and the Development of the Automobile Industry in China: Firms, Production Structure, and Government
• 7 Development Models and External Constraints: From the Structural Impediments Initiative to Global Imbalances
• 8 RuralUrban Divide and the Lewisian Turning Point in Japan and China
• 9 The Forgotten Sector: Institutions, Market Linkages, and Concurrent Growth in Rural China and Japan
• 10 Beyond Ideological Framing and Structural Description: Theorizing Japanese and Chinese Economic Models
• 11 Conclusion: China and Japan as Instances of Modern Economic Development
• Bibliography
• Index