Comparing the East Asian and Latin American Countries: The Role of Agricultural Reforms in the Economic Transformation

Farmers

By Dr Kalim Siddiqui

I. Introduction

This article examines the reasons behind the successful economic development and industrialisation in East Asia, which began its modernisation process after the Second World War, when these countries gained independence from colonial rule. On the other hand, the Latin American countries, with the exception of Cuba and Puerto Rico, received independence in the 1820s, after more than three centuries of colonial rule by Spain and Portugal.

Even though Latin America began modernisation and industrialisation more than a hundred and twenty-five years earlier than the East Asian countries, it failed miserably to achieve steady higher growth rates and, thus, was unable to raise the living conditions of its inhabitants. The Latin American economies witnessed steady growth, but all that ended in the 1980s, when they experienced debt crises, rising external debts, and falling living conditions, so that this period also became known as the “lost decade” (Siddiqui, 1996; also 1995).

There has been debate among economists and policymakers on whether the better performance of the agriculture sector is a prerequisite for industrialisation, and whether the performance of the agriculture sector will have a major impact on development of industries in Latin America (Toye, 1987; Siddiqui 2019a).
In contrast to Latin America, in East Asia, all the indicators show that, in a very short period between 1950 and 1980, the economy performed better, and successfully improved the peopleʼs living conditions. The analysis includes the economic performance of both regions on the basis of economic growth, agricultural productivity, employment, industrial exports, and living conditions.

Economists have long debated the causes of the spectacular economic success achieved by the countries of East Asia within a short span of one generation. The lessons of this successful development experience could be important for other former colonies to learn.

Latin America began its modernisation more than a century earlier than East Asia but, despite witnessing initial success, it could not keep up the momentum. This study will focus mainly on two East Asia countries, South Korea and Taiwan, and two Latin American countries, Brazil and Mexico. Four countries have been chosen from these two regions, because the agriculture sector has had a considerable presence in these countries and has played an important role in the creation of revenue and employment.

The question arises as to why the economies of East Asia outperformed Latin America.

Mainstream economists and the World Bank argue that the East Asian success stems from their adoption of a “free market” and “export-oriented” policy(World Bank, 1993; Balassa, 1988), while Latin America followed the “Import Substitution Industrialisation” policy with active state intervention, which is said to be the reason for its failures. Others have challenged such narrow interpretations of the East Asian economic success (Amsden, 1994; Toye, 1987).

This research is a comparative study that can help us to understand factors that contributed to East Asiaʼs better economic performance.

This study argues that economic sovereignty is crucial for growth and industrialisation for late-developing economies, so that nations can make independent decisions favouring their long-term interests, which may antagonise existing global powers (Siddiqui, 2022). Political stability is also important for growth and investment. National self-respect is crucial for independent development, but this is undermined by current neoliberal globalisation. Since the early 1990s, more often sovereignty and economic independence has been undermined in the developing countries by interference by the US, the IMF and the World Bank. The US does not like popular, independent-minded leaders in the developing countries who perhaps would not serve its political, economic, and strategic interests (Siddiqui 2015a; also 2018a).

As a consequence of the Cold War and the geopolitical importance of East Asia, the US allowed these governments to act more independently. The East Asian countries, which then had the full support of the US, began rebuilding their economy to combat the threat of communism (Siddiqui 2015b; also 1995). At that time, the East Asian states had full autonomy and freedom to adopt economic policy suitable to increase economic growth and to improve living conditions, and the US also supported the political stability in these countries (Amsden, 1994).

The term “economic sovereignty” means the power of national governments to make decisions independently of those made by other governments. However, it is commonly asserted that globalisation has eroded national sovereignty. 

In 1991, after the fall of the Soviet Union, the US emerged as the sole leader in a unipolar world. The US then attempted to integrate the world economy even closer through neoliberal globalisation. This included trade and capital liberalisation, which was fully endorsed by the international financial institutions, i.e., the IMF and the World Bank (Siddiqui, 2015c). However, market-based resource mobilisation accords more power to multinational corporations (MNCs) and undermines the sovereign government of the developing countries to chart out an independent economic policy (Bernstein, 2006).

The term “economic sovereignty” means the power of national governments to make decisions independently of those made by other governments. However, it is commonly asserted that globalisation has eroded national sovereignty. It is stated that, in a globalised world economy, governments have no alternative but to adopt neoliberal economic policies (also known as the “Washington Consensus”) of privatisation of public assets, trade and financial deregulation, and reductions in public expenditure on health and education. Removing restrictions on trade and capital flows tends to undermine interventionist domestic policies. The current appeal of the neoliberal policy relies largely on a US-centric view of the world (Siddiqui, 1994; also 2015a).

The US hegemony is accomplished through the IMF, the World Bank and the World Trade Organisation (WTO), and they impose policy that suits the MNCs and US interests in general. This is known as neocolonialism (Siddiqui 2021a; also 2020b). Neocolonialism has been broadly understood as the development of capitalism that enables capitalist powers (both nations and corporations) to dominate other countries through indirect control, rather than direct rule. The term “neocolonialism” refers to the continuing dependence of former colonies on advanced capitalism, and appears to be where the US has used power to produce colonial-style exploitation (Magdoff, 1974; Hobsbawm, 1994).

In Latin America, direct foreign rule ended in the 1820s. But soon after, in the name of aid, US-based MNCs entered the region and established colonial forms of exploitation of these economies (Siddiqui, 1998; also 2021c). Neocolonialism enhances the development of capitalism that enables capitalist powers and their corporations to dominate and subjugate other countries. It means that economic power and the political power that flows from it are still beyond their control, despite having regular elections. James OʼConnor (1970: 117) defined neocolonialism as “the survival of the colonial system despite formal recognition of political independence in emerging countries which had become the victims of an indirect and subtle form of domination by political, economic, social, military and technical forces”.
I will focus on the relationship between agriculture and industry, particularly agriculture’s contribution to industrialisation. It is useful to examine the differences in agrarian structure, and the relations of production and state policy factors in explaining variations in economic performance between these regions. For example, South Korea and Taiwan undertook land reform measures soon after the Second World War. And within a generation after the implementation of land reforms, they emerged as the most successful economies, raising agricultural output and farmers’ incomes and reducing rural inequality in these two East Asian countries.

Most Latin American countries launched land reforms, but these were not fully completed, producing almost no effect on raising domestic foodgrain output and incomes, but rather widening rural inequality further.

II. Importance of Agrarian Accumulation

With the capital and trade liberalisation of the last four decades, agrarian capitalism in the developing countries underwent a huge change, and peasants have been incorporated into global production and trade. International trade is the historically unprecedented process of the concentration and centralisation of capital that has taken place at the global level. Neoliberal reform, also known as the Structural Adjustment Programme (SAP), was imposed by the IMF and World Bank in those countries that faced a balance of payments crisis. The reform facilitated trade and capital liberalisation, resulting in the integration of domestic markets into the international market and enhancing the role of big corporations (Siddiqui 2020d; also 2018b).

The WTO has also encouraged agro-based food multinational corporations to penetrate developing counties (Bello, 2009). As observed by Akram-Lodhi and Kay (2010: 178), “corporate food regime has been constructed on a dramatic social and distributional contradiction: world supplies of agricultural commodities are more than sufficient to meet global food demand, but the numbers of those living in varying degrees of calorie and protein insecurity and chronic hunger in the world’s town and the countryside are, at more than one billion, historically unprecedented. The dominance of capital over world agriculture has thus produced a systematic global agrarian crisis, in which under-consumption collides with overconsumption and in which overproduction calibrates with underproduction.”

Karl Marx envisaged that the process of capitalist development in agriculture could create both “peasant dispossession by displacement” or enclosure and “peasant dispossession by differentiation”. Marx noted (1976: 876), “The expropriation of the agricultural producer, of the peasant, from the soil is the basis of the whole process. The history of this expropriation assumes different aspects in different countries and runs through its various phases in different orders of succession and at different historical epochs. Therefore, only in England, which we take as our example, has it the classic form.” Enclosures initiated primitive accumulation in England by feudalism, which was backed by the state to physically expel serfs from the land and create a property-less class of wage labour.

International trade is the historically unprecedented process of the concentration and centralisation of capital that has taken place at the global level.

Akram-Lodhi and Kay again emphasise (2010: 193), “Agriculture can generate resources for structural transformation because it can produce physical and financial resources beyond its requirements. Peasant petty commodity producers can produce food and non-food output and generate financial resource surplus to the farm economyʼs immediate consumption and investment needs. This agriculture surplus can provide the physical, financial and wage goods needed to undertake the development project… the agricultural surplus can become the basis of the emergence of capital, both in agriculture and industry.”

Nikolai Bukharin (1921) suggested that the development of capitalism in agriculture could sustain the agricultural surplus production that is required to transform the petty-producer-based agriculture production into surplus, generating a class of capitalist farmers in the Soviet Union in the 1920s. He advocated slow transformation, to be carried out in a longer period and not forcefully. He was in favour of proceeding slowly by increasing balanced trade between agriculture and industry.

Evgeny Preobrazhensky (1965) criticised Nikolai Bukharin (1921) with regard to primitive accumulation under capitalism. On primitive socialist accumulation, he stressed accumulation in the hands of the state of material resources partly from sources lying outside the complex state economy during the structural transformation in the Soviet Union in the 1920s. Preobrazhensky advocated the appropriation of the agricultural surplus of the farmers to finance investment in industry. He suggested it could be done in two ways: through taxation and inter-sectoral terms of trade between agriculture and industry. These forced savings policies were adopted and also included voluntary savings for investment in industrial expansion in the Soviet Union.

The rise in farmers’ income could increase demand for industrial products and fuel inflation if not met by existing industrial capacity. Akram-Lodhi and Kay note (2010: 194) that “structural transformation required rapid industrialisation, which in turn needed investment obtained by diverting the excess demand of agricultural sector into industrial investment through forced savings, which could quell inflationary pressures. The principal mechanism by which the inter-sectoral terms of trade could be manipulated to pull this off was to state trading monopolies that could buy farm products at a below-market price and sell the industrial product at above-market prices; unequal exchange would capture the agricultural surplus of the Soviet peasantry for the socialist development project.”

global connection

Byres (1996) argues that for “agriculture not to pose any obstacles to capitalist transformation, the agrarian question must be resolved through successful agrarian transition”. The changes in agriculture in the developing countries may lead to the overall development of capitalism and could ultimately dominate a national social formation. Byres emphasises that agrarian transition does not necessarily mean the complete development of capitalist social relations of production in agriculture as part of the establishment of the dominance of capitalism (Siddiqui, 2015d; also 1999).

Agriculture has the potential capacity to produce food and non-food and generate surplus above its reproductive requirements, that is, agricultural surplus. This accumulation could support industrial development, that is, structural transformation.

After the Second World War, in the 1950s and 1960s, land reform was carried out with state involvement soon after developing countries became independent, aiming, besides increasing foodgrain output, to reduce rural inequality and expand the home market.

In developing countries, where the majority of the population rely on the agriculture sector, land ownership is very important to achieve justice and equity. Land reforms are said to promote equity, reduce poverty, and empower poor farmers by correcting social injustices and averting social unrest. In addition, land reform also helps to increase land efficiency and productivity due to the higher use of family labour inputs. It is associated with the redistribution of agricultural land from the large landowners to the small landholders and landless households. After the Second World War, land reforms were one of the most active areas of agricultural policy initiatives in developing countries (De Janvry, 1981).

Land reform measures are supposed to break the land monopoly by imposing a land ceiling and transferring land ownership to tenants, small farmers, and the landless poor. This initiates a process of structural transformation by which more people get land ownership rights. Such an initiative is supposed to raise agricultural output and strengthen food security, raise the incomes of poor households, and thus reduce rural poverty. Land reforms are also considered essential, as they provide social justice to small owners. The land policy that changes tenurial relations in favour of the actual cultivators means that the small farmer is assured of getting the fruits of their labour. The most common proclaimed objective of land reform is to abolish feudalism, which usually means overthrowing the landlord class and transferring land rights to small landowners.

Land reform measures are supposed to break the land monopoly by imposing a land ceiling and transferring land ownership to tenants, small farmers, and the landless poor.

This helps in raising agricultural production without involving much use of capital and it is a labour-intensive strategy for agriculture development. It is only possible when land ownership is given to the poor farmers. This means that if the cultivators are assured of the security of tenure and fair rent, and get the right of land ownership, they put more labour into production, so that family engagement is raised and, as a result, output is increased. Land reforms can establish a direct link between government and farmers by abolishing intermediaries. This creates a situation where the government can implement a plan for agricultural development in a smooth manner.

Those Latin American countries that followed ISI policies during the pre-and post-war period did not have such a disastrous experience as is portrayed. On the contrary, these developing countries did experience better performance during the ISI period than some countries that followed neoliberal policies. Latin American countries that had already adopted ISI policies had some success but, in the 1980s, were keen to adopt neoliberal policy and hoped it would help them raise exports and receive greater inflows of foreign capital and investment, especially Brazil and Mexico.

The “export-led growth” strategy and a reliance on foreign markets was to enhance accumulation. The current neoliberal globalisation has deepened agriculture integration into the global economy through agro-food commodity chains. Therefore, contemporary globalisation has brought big changes in the international forces and relations of production. Mainstream economists claim that the most effective way to enhance rates of accumulation is through neoliberal globalisation. This globalisation has transformed developmental forces and production relations worldwide.

Under current globalisation, with the availability of foreign capital for investment, there is no need for a domestic surplus from the agriculture sector for industrial development. Foreign capital does not require access to an agricultural surplus to facilitate accumulation. The involvement of finance in agriculture has dramatically increased which is not about facilitating the accumulation of surplus value, but is just reallocating existing stocks of surplus value. It is no longer necessary for capital to reorganise agriculture production, and the agrarian transition is no longer an essential precondition for the development of capitalism. But the availability of foreign capital can enhance the allocation of resources internationally to improve the surplus value generated within production and the ability to develop and control markets to realise the surplus value. Under neoliberal globalisation, agriculture transition and the development of industries do not need the accumulation of surplus from agriculture. National labour regimes do not enhance surplus value, and this also can be met by foreign capital.

Neoliberal globalisation has led to a marked increase in food imports and exports from developing countries, and many sub-Saharan African countries have become food importers. There has been a significant change in the composition of agricultural trade. In fact, in recent years, the volume of exports of traditional commodities from developing tropical countries has been stagnant. In contrast, the export of non-traditional items such as flowers, fruit, vegetables, and seafood has grown rapidly. This process is carried out by agro-food companies that have invested in developing countries.

In order to begin to industrialise, a country needs to resolve the problems associated with the transfer and use of agricultural surplus for industrialisation.
What is agricultural surplus? It refers to the total value of agriculture production minus what is left after the consumption of farmers and reproduction. The net agricultural surplus is above what is being internally consumed, and this surplus needs to be invested in industrial development. There are various ways in which the agriculture surplus can be transferred to the industrial sector, and it could be compulsory or voluntary. It is also important that once the agriculture surplus is diverted to the industrial sector, it is not wasted on inefficient industrial processes, corruption, and red tape.

Comprehensive agrarian reforms and removing landlords’ grip on the rural economy were important in distributing land to small farmers and tenants. A half-hearted attempt to introduce land reforms in Brazil and Mexico did not make a dent in land ownership, and power structures remained the same after the reform.

Another major difference is that Latin America began industrialisation without agrarian reforms, while East Asia first completed land reform and then launched industrialisation. For example, land reform was launched in South Korea and Taiwan before industrialisation (Siddiqui 2016a; 2016b, also 2012). In South Korea and Taiwan, agrarian reforms had a far greater redistributive impact than in Latin America. It brought rural equity and raised farmers’ income, which led to a rise in demand for domestic industrial goods (Amsden, 1994).

In Taiwan, the Kuomintang introduced land reforms because they came from mainland China and did not own land on the island. At the same time, in South Korea, soon after the Korean War, the US was very keen to create political stability. Land reform was viewed as helpful under such a situation, and by distributing land to the majority of the households, the new rulers could gain more respect and legitimacy. For instance, after land reform in Taiwan and South Korea, about 80 per cent and 70 per cent, respectively, of rural households were owner-cultivators in 1970 (see table 1).In Mexico and Brazil, despite some attempts at land reforms, the land monopoly was not broken, land concentration remained high and the amount of privately owned cultivated land controlled by large estates in 1970 was 84 per cent in Mexico and 60 per cent in Brazil.

Table1
Source: Jenkins (1991).

South Korea and Taiwan gained independence after the Second World War. In both South Korea and Taiwan, agriculture has been an essential source of accumulation for industries and the state supported this process to accomplish the objectives of land reform. Both these countries had little presence of landlordism before the Second World War. Agriculture was modernised in these two countries in the absence of landlords. With land reform, the government expected to increase output, which would mean keeping food prices low and, therefore, little pressure for wage increases from workers. An increase in foodgrain output would also mean lower food imports and savings on foreign exchange.

In contrast to East Asia, Latin America did not consider the importance of squeezing agricultural surplus for investment in industry, and downsizing the large landholders was not a policy priority. As a result, little savings were available for investment in industry, and these countries witnessed slow growth in employment and no increase in investment, which forced rural workers to migrate to cities. This meant that, in Latin America, the agriculture sector did not play an important role in generating accumulation for investment in industry and did not contribute significantly toward industrialisation.
As Kay (2002: 1078) notes: “In the post-war period, Latin American agriculture failed to meet the demands of industrialisation, becoming an obstacle to further economic development. Agriculture’s share in the value of total Latin American exports declined from well over half in the 1950s to one-fifth in the 1990s. In contrast, the share of agricultural imports within total imports increased. In some Latin American countries, a previous positive agricultural trade balance turned negative, i.e., agricultural imports exceeded agricultural exports.”

The agriculture sector did contribute to industrialisation in South Korea. Korea was a Japanese colony from 1910 to 1945, and the country became independent after the war. In Korea, in 1946, land was concentrated in a small minority of households, i.e., 5 per cent of rural households owned 50 per cent of the total cultivated land. The rich landlords cultivated land using both tenants and hired wage labour. After the Korean War (1950-3) ended, the country was divided. By the mid-1950s, South Korea had launched land distribution with US support. Domestic officials were tasked to implement landownership transfer to the small farms.

The South Korean government showed determination and a strong will to transfer land ownership to small farmers and tenants. It was thought that reducing the power of the landed elites was necessary to counter North Korea and win the support of most rural households. The competent bureaucracy facilitated the implementation of land reform, which became a major success. As a result, agricultural output increased sharply, and rural employment rose. But also, the rural class difference was radically reduced, and political stability was established.

Moreover, food prices were kept under control due to increased food grain output. The state also provided credits, fertilisers, and water to farmers. As a result, there was a huge increase in agriculture productivity and efficiency, and investment in agriculture became more profitable for farmers. In South Korea, in the 1960s,a large proportion of the capital for industrialisation came from the agriculture sector, and the other important source was foreign aid, especially from the US. The state played a crucial role in providing foreign exchange to import technology for industry. South Korean government-owned banks intervened in financial markets and controlled foreign exchange allocations and fixed exchange rates and interest rates. The state also had a high degree of autonomy and was able to implement its policies successfully.

The government was unsuccessful in extracting surplus to fund industrialisation, as happened in East Asia. Later on, the economic crisis in Latin America deepened and paved the way for neoliberal policies.

The nationalist forces of the Kuomintang had to flee to Taiwan from mainland China after facing defeat by communist forces led by Mao. Under such circumstances, the Taiwanese government was formed. These elites migrated from the mainland and were interested in gaining support on the island. It was thought that the distribution of rural assets, especially land, would help to keep stability and gain popularity among the locals. In 1949, the Taiwanese government undertook various measures to address rural inequality, and to achieve this, land reforms were carried out, including fixing land rent from 50 per cent to 37.5 per cent, a measure which benefited tenant households.

In Taiwan, Japanese colonisers owned large farms, and in 1940 nearly 20 per cent of all arable land was owned by them. At the end of the war, with the defeat of Japan, the big Japanese landowners either left or were seen as collaborators, which provided an opportunity to implement the land reform act of 1953 fully. As a result, the land ownership monopoly was broken and, along with this, the government also subsidised irrigation, credits, and other agricultural inputs to farmers. All these efforts raised farm output and farmers’ income. The increased supply of food grains kept domestic food prices low, and thus, it helped to keep wages low while at the same time boosting industrial profits. Unlike South Korea, Taiwan had less industrial conglomerate dominance in the industrial sector. Land reform generated economic surplus, and this surplus was invested in industry in Taiwan.

In the 1950s and 60s, Latin American countries had far higher incomes than East Asian countries and higher levels of education, infrastructure, urbanisation, and industrialisation. Latin America in the 1950s and 60s had maintained higher growth rates, and performance was relatively good. However, in the 1980s, the situation changed dramatically with rising external debts and a balance of payments crisis. The region witnessed a debt crisis, poor governance, and mismanagement.

The bureaucracy in South Korea and Taiwan were more disciplined and motivated to achieve the policy set by the state, and there was very good coordination between these two state organs. And, due to the geopolitical significance of East Asia, the rulers had more policy freedom and received a greater amount of foreign aid and access to foreign markets.

Both the South Korean and Taiwanese regimes were initially very regressive and authoritarian. The share of economic growth was more widely distributed through investment in health, education, and housing than in the development states of Latin America. Moreover, South Korea and Taiwan were able to transfer land ownership, establish small family farms, and encourage entrepreneurship much better than in Latin America.

In the 1960s, the East Asian countries began promoting labour-intensive industries and exporting these products, but soon moved to high-value products. They targeted foreign markets, which was part of their long-term policy goals. In the agriculture sector, they adopted more intensive cultivation to double cropping, including a shift to higher-value-added crops, i.e., commercial crops, including fruit and vegetables. In comparison, Latin America continued the cultivation of subsistence crops, i.e., low-value crops, on a large proportion of land. Also, foreign-owned agribusiness expanded in the region.

Before launching industrialisation in South Korea and Taiwan, landlords were decimated and did not influence the rural power structure. In both countries, agricultural modernisation began during the Japanese colonial rule. In contrast to East Asia, Latin America failed to implement land reform fully. There was insignificant land transfer to small farm households in the post-reform period, and there was no substantial change in land relations compared to the pre-reform period. The big landowners remained powerful and did not witness any dent in the rural power structure. As Kay observed (2002:1089), “Landlords were invariably the direct descendants of the Spanish and Portuguese conquerors or foreign, largely European immigrants. The peasantry was mainly indigenous. Thus, the land conflict often acquired an ethnic dimension… While Korea and Taiwan had experienced Japanese colonialism, this was more short-lived, half a century, than Latin America’s three centuries of colonialism. Most Japanese landlords returned to Japan after the war. Thus, rural societies in Korea and Taiwan were more ethnically and culturally homogeneous, which facilitated the widespread adoption of innovations… While agrarian reforms in Latin America achieved some success, on the whole, the record is poor, and much of the business of agrarian reform has been left unfinished.”

In South Korea and Taiwan, land reform favoured medium and small farmers and strengthened state control over agriculture. By controlling the exchange rate and agricultural commodities prices, states were able to extract surplus, and thus agriculture made a crucial contribution to these countries. Subsidies to farmers stimulated shifts in cropping patterns in favour of high-value crops. Moreover, both countries received foreign aid during this period, which was channelled to expanding industry. Initially, industrialisation was based on rural industries, and created employment. It boosted their incomes, so that they were able to buy more industrial goods.

In Brazil, the government taxation on agricultural commodities exports, such as coffee and sugar, was an important source of revenue. But large farms contributed only 1 per cent of the state’s total revenue from income tax and still, the government provided subsidies to farmers via credits to buy inputs like fertilisers and agricultural machinery between 1970 and 1984.

The government was unsuccessful in extracting surplus to fund industrialisation, as happened in East Asia. Later on, the economic crisis in Latin America deepened and paved the way for neoliberal policies.

South Korea and Taiwan were able to raise the share of manufacturing export with their total exports to as high as 75 per cent in 1970, but Brazil and Mexico were as low as 10 per cent and4 per cent, respectively.

Moreover, East Asian countries, from the beginning, targeted international markets to export their industrial products, created a competitive industrial structure and made use of the cheap labour supply to produce labour-intensive products. Table 2 indicates that manufacturing production in Taiwan and South Korea almost doubled in a short period, and exports also rose.

In Latin America, only limited land reform was achieved. The land reform began much later, after industrialisation had already started. Neither of these measures helped to widen the domestic demand for industrial goods, while in East Asia, the land reform measures were undertaken before industrialisation. As a result, rising farmers’ incomes led to increased domestic demand for industrial goods.

Table 2
Source: World Bank ;(1988} Jenkins (1991).

As Kay notes (2002: 1097), “Latin America engaged in a consumption binge, and capital flight, and became further entrenched in the ISI model… which has appropriately been named the ‘lost decade’ for development. Meanwhile, East Asian countries were able to continue to mobilise domestic savings. South Korea also began to borrow more capital from abroad; they could also overcome the twin problems that had blocked Latin America’s industrialisation, i.e., the foreign exchange and market constraints.”

During the Japanese colonial period, bureaucracy in South Korea and Taiwan was established, which provided very effective and disciplined organisation. In both countries, the bureaucracy enjoyed autonomy in policymaking and had little direct political pressure. While in Latin America, both big landowners and industrialists had a strong influence on the ministry of industry and government-owned banks, and used this for their narrow economic interests.

The 1973 Arab-Israeli War led to a tripling of the oil price, which resulted in the accumulation of vast foreign exchange in the hands of oil-exporting countries, most of which they deposited in Western banks. On the other hand, due to the sharp rise in oil prices, many non-oil-exporting countries, especially Latin American countries, experienced a balance of payments crisis (Siddiqui, 1996).

The availability of a huge petro-dollar at lower interest rates seemed a very attractive proposition for Latin American countries, who borrowed heavily from international financial institutions. During the 1980s, their export incomes fell, due to a fall in the price of raw materials in the international market, while in the US the rate of interest rose sharply. All these factors resulted in increased foreign debts, known as debt crises. This situation had an adverse impact on growth rates. In contrast to Latin America, East Asian countries did not experience such problems, since they relied not on borrowing, but rather on domestic savings.

III. Concluding Remarks

Mainstream economists and international financial institutions largely focus on the competitive market and virtues of the “free market”, “efficiency”, and “free trade”. But they ignore other factors such as the international environment, geopolitics, internal power dynamics, the role of the state, and cooperation between bureaucracy and the government. However, successful economic development in East Asia shows us that these factors seem to play a crucial role in the economic transformation.

The textbook stresses the importance of resource endowments, but the real-world experience of the last few decades is very different. For example, the fact that Latin America had larger resource endowments than East Asia did little to enhance their economies.

The international environment also contributed to the state’s relative autonomy in South Korea and Taiwan. Due to international tension, there was a massive inflow of US aid between the 1950s and 1960s in both countries.

The study finds that in contrast to East Asia, Latin America did not consider the importance of squeezing agricultural surplus for investment in industry, and for them downsizing the large landholders was not a policy priority. In contrast to Latin America, in South Korea and Taiwan, landlords as a class were eliminated before starting industrialisation. They could not pose any obstacle to the industrialisation and modernisation process in South Korea and Taiwan, while they continued to exercise political influence in Brazil and Mexico.

Before launching an export-oriented policy, South Korea and Taiwan started with the ISI policy. It is known now that the government protected domestic industries and, at the same time, encouraged exports of manufactured goods. The state in both countries provided directions and targeted industrial policy through their control over the allocation of resources.

The study concludes that international environments, total commitment on the part of the government, and the support of the bureaucracy made it possible to implement successful land reforms and mobilise agrarian resources, which led to radical change in agrarian structure and class relations. It also resulted in the transfer of surplus in inter-sectoral resource flows and industrialisation in South Korea and Taiwan.

Jenkins (1991: 200) emphasises, “Effective state intervention to bring about economic transformation requires the state to formulate and implement coherent economic strategies. A prerequisite for formulating a consistent strategy is a degree of autonomy of the state from the dominant classes or class fractions, which enables the state to pursue goals that do not reflect the interests of these groups and may even go against their short-term interests. The effective intervention also requires an internal structuring of the state apparatus in terms of efficient and cohesive bureaucratic machinery and effective policy instruments which gives the state capacity to implement its economic strategy.”

However, in the current international scenario, it seems that in the unipolar world, the US and its controlled IMF and World Bank have imposed neoliberal globalisation in the developing countries. Under such conditions, it is impossible for the developing countries to chart out independent economic policies suited to their specific conditions and needs. And under the IMF and World Bank, the market-based resource mobilisation is giving more power to MNCs and that will undermine the sovereignty of the developing countries.

Although Latin America began modernisation and industrialisation more than one century earlier than East Asian countries, it failed to improve the living conditions of its people. The Latin American economies witnessed steady growth, but all ended in the 1980s when they experienced debt crises, i.e., rising external debts and falling living conditions.

The study finds that the failure of land reform put obstacles in the way of industrialisation. Agrarian reforms were implemented in Latin American countries between the 1960s and 1980s, but were left incomplete, due to the governments’ lack of focus and mismanagement. In Brazil and Mexico, productivity growth in the agriculture sector was much slower than in East Asian countries, while food imports increased, particularly in Mexico, over the last three decades. Agricultural production was unable to keep pace with the increasing industrial requirements for cheap food and foreign exchange.

About the Author

Kalim SiddiquiDr. Kalim Siddiqui is an economist, specialising in International Political Economy, Development Economics, International Trade, and International Economics. His work, which combines elements of international political economy and development economics, economic policy, economic history and international trade, often challenges prevailing orthodoxy about which policies promote overall development in less developed countries. Kalim teaches international economics at the Department of Accounting, Finance and Economics, University of Huddersfield, U.K.. He has taught economics since 1989 at various universities in Norway and U.K.

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