By Joe Studwell
Deregulating finance for short-term gains may work in developed Western economies, and even then only at times, but premature deregulation has wreaked havoc in many poorer nations. Here Joe Studwell looks to East Asian economic history to argue that what developing economies really need is tight central-government financial control to support industrial and agricultural development.
“Demonstrating that an exchange economy is coherent and stable does not demonstrate that the same is true of an economy with capitalist financial institutions… Indeed, central banking and other financial control devices arose as a response to the embarrassing incoherence of financial markets.” 1
– Hyman P. Minsky, Stabilizing an Unstable Economy
Finance policy in North-East Asia recognised the need to support small, high-yield farms in order to maximise aggregate farm output rather than maximising returns on cash invested via larger, “capitalist” farms. And finance policy recognised the need in industry to defer profits until an adequate industrial learning process had taken place. In other words, financial policy frequently accepted low near-term returns on industrial investments in order to build industries capable of producing higher returns in the future.