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Final Essay,

East Asia and Latin America models of development, what one should learn from the other?

January 11st, 2009

Leonardo Salas Alvarado leo.hausdek@gmail.com Political Economy in East Asia EMA Program in Chinese Politics and Diplomacy, Fudan University, Shanghai, China

Abstract Development is to consider the improvement of quality in life and the increase of material resources that will provide us better and higher life standards. This is a major challenge that any human society faces in todays world, the huge gap between developed countries and developing ones marks a notable difference in the quality of life but also the opportunities that people might have to acquire better life standards. We can find quite important differences and relations in the patterns of development within the developing world, which is going to be our focus in the analysis. The analysis within this paper focuses over the two most dynamic developing world regions, Latin America and East Asia. This comparative analysis will create useful approaches about the concrete development process each region followed in the past decades as well as the fails and successful stories.

Introduction During the last two centuries the entire world has seen many spectacular technological and scientific changes. Since the era of riding horses and use of steam engines to the introduction of the firsts telephones at the ending of the century, we all human beings have witnessed the modernization of transportation and the communications revolution that now permit us to cross oceans in modern passenger aircraft in a matter of hours, send documents by fax machines anywhere in the world within minutes, even better to send digital information

thousands of miles away in just seconds, and explore the outer reaches of the universe. All these factors of change allow us to take better decisions with more trusted information, the essence of development is to improve the quality of life, therefore change is an important factor to get it. Development generally works hand to hand with productivity and when more productivity and technological advances a society has the more and higher incomes people will receive, in this way people are able to buy and acquire material resources to satisfy they needs. economic progress, in turn, depends on a number of other developmental objectives like the improvement to achieve better education, improvement in health and nutrition, works in pro for a cleaner environment, the reduction of poverty, more gender equality of opportunity, and development of individual freedoms. But today still there are very regional and universal factors, geographically talking, that can affect a society, those factors or issues provoke the global development slow down and are subject of many debates between policymakers.

Focus of review This review paper focuses specifically in Latin America and East Asia regions, its importance within the world scenery, highlighting the economic and social development each one has had over the last decades. I will do a comparative analysis of the two different models of development that each region followed, its

similar characteristics and future expectative. The purpose is to point out how East Asia came out on top in a relative short period of time with an enormous economic acceleration and what does Latin America need to success in the same plane. We dont have to forget that China plays a very important role in the economic international system as a major developing country, it has followed itself an extraordinary successful economic reform process within the last three decades, becoming the economic engine for the East Asia region. What the world and specially countries in Latin America should learn about East Asian countries is the question in observance. The two regions are the most industrialized in the developing in todays world, with Mexico, Brazil, and Argentina being the Latin American analogues of East Asia's South Korea, Japan and China. They are a good base from which to build solid comparative generalizations because they exemplify different routes to industrial success. In the past decade, however, Latin American nations have found it difficult to maintain their previous levels of growth, as they confront high external debts, high rates of inflation, shortages of investment capital and the growing social and economic marginalization of large segments of their population. Those issues lead the region to go into a slowdown in its development process putting the cards against the self region, what I think over there is the need of a reform which allow those countries to emerge in a new high level of development as their analogues East Asians.

Latin America The kind of issues mentioned above formed part of all the problems that made the economic of Latin America going in a slowdown, there are many other issues concerning to the political area, those have a very important role in the region performance as During the 70s Latin American countries incurred in high foreign indebtedness, exploring the huge availability of loans in international markets after the rst oil crisis. Since that period, the vulnerability of local economies to movements of the dollar increased substantially vis-`a-vis previous decades. (Campello, D.) The Reforms launched for many countries towards an open free market, like regulations over the government annual spending, fiscal rules to balance the outcomes and incomes and the control of privatization, at some point in recent years started to loss interest over the governments with a strong socialist influence. The problem took roots in this region when the American imperialism through the International Monetary Fund and World Bank imposed severe tax rates to the countries becoming the economies in a total chaos with high inflation rates and huge debts that still many have nowadays. This tendency of Yankee imperialism gives rise to the resistance of the national bourgeoisies, particularly the strongest of them (Argentina, Brazil, Mexico), who demand a larger share in the exploitation of their countries and who hope to create a broader basis of independence and industrial development. (Daniel G. and David W.) For this reason the socialists became more influential and strong. Being more precisely all those political issues are due the shift the countries were having into socialists governments and still there is a large controversy whether

to attend the capitalist or the socialist models. Moreover the political work is view as a merely opportunity to achieve its own interests through the power and corruption it implies. It is common for corruption to occur amongst top officials in a country but what is not spoken out is the corruption with local officials. Local communities are hurt by local politicians because of the bribery and thievery they involve themselves with. (Luis Vega) This problem actually happen and is well known for the society, the people in government they try to seek their own benefits and forget the nations needs. The judicial system is strongly corrupted and the practice of justice is considered null. In many cases criminals are colluded with government officials letting them to commit all types of abuses over the people. Many of these social problems are nowadays rising with incredible speed, as the criminal corruption between some government officials and mafia groups. The problem of corruption allows the increase of trafficking of drugs, murders and kidnappings. All this sort of violence is highly notable and is occurring mainly in the left socialists countries. The creation of more and more guerrillas with communist ideologies making almost impossible for the policy to combat them, most of the time because of the lack of resources and a well-structured judicial system. As a consequence, the state is incapable of maintaining order and guarantee the security over the property of its citizens. Governments are losing their ability to exercise the authority transmitting to their societies the feeling of being unprotected.

There is no doubt, however, that Latin Americans will continue to be the most poor and backward sector of the west until a broad consensus around an economic and political model capable of inducing growth and substantially decrease the levels of poverty, corruption and criminality. In any case, the point of view described is perhaps not as desperate as it seems. Let us see that within this region, countries like Argentina, Brazil and Mexico at the beginning of the last century achieved a significant economic prosperity. This was certainly quite distinctive among all the three countries, however, industrialization relied heavily on exports of minerals and agricultural products and each of them also acquired technology to build steel, ships, and automobiles. This industrial development was primarily funded by European and American capital, however, and those corporations that were domestically owned tended to be state-run rather than private.

Classifying the Latin America Region To classify properly the Latin American countries we have to consider that there is more than one ideological trend. Some countries like Mexico, Chile, Peru would be more close because its strong attach with Western practices, there the majority of society and of the ruling political class agree to practice the capitalism model and in accepting the methods of governance and the public policies instituted by those developed nations as in Europe and North America. I would like to say there is another group made up for governments with a broad

band on the left, Brazil, Argentina, Uruguay, Venezuela, Cuba, Paraguay. They are highly influenced by populism and show strong symptoms of anti American sentiments, they seem to be very decisive in the policy of create alternative trade agreements just between them not allowing at all the U.S. American influence. Even though the difference between those countries is quite notable, the socialism they promote has two major faces due mainly for the development of the modern socialism. They are strongly concern about the importance of open their markets to the world and that relationship is primarily with countries in Europe, they believe in the acquisition of new policies with the aim to promote the culture of investment in its own country because through these actions they will achieve a better and substantial development. From the governmental perspective some Latin American presidents certainly have made some efforts during 1980s trying to modernize and industrialize up to the next level its own country, opening their markets, privatizing state-owner enterprises and controlling the inflation. Apparently, the three Latin American countries where a major sustain reform took place in a very slowly step but with more confidence are Brazil, Mexico and Chile, where almost nobody doubts that success lies in the improvement of free market, education, the put in practice of fundamental economic beliefs and democracy. That is why there is a great possibility that those countries, in the course of one or two generations, will become the newest leading Latin American nations to join the first world. At the end of 1990s U.S., Canada and Mexico signed the NAFTA (North America Free Trade Agreement) with emphasis to work hand to hand and transform this part of

America into a huge economic community being a beneficial thing for everyone. For Mexico it was a great opportunity to continue its economic development presented during the 1970s were the GDP raise considerably positioning the country as the most developed in all Latin America. Whereas foreign investors in Latin America traditionally concentrated on exportoriented projects in mining, oil, and agriculture, multinational corporations in the post-World War II era emphasized import-substituting investments in advanced manufacturing industries like automobiles, chemicals, machinery, and

pharmaceuticals whose output was destined primarily for the relatively large domestic markets in Latin America. (Evans 1979). With this assumption we can notice that the process of industrialization in Latin America has been developed in a more slowly way that in Europe, the primarily export commodities were natural resources and still are in a huge amount in todays time. One can analyze why some countries in the region still have this sort of market dependency mainly with U.S. because they have not being capable to develop and improve their own industries and at least transform in second use those natural recourses exported. For that during the 70s the lack of more abroad investment in new industries brought an American dependency and then as a consequence the debt crisis. One of Latin America's most prominent economists observed that the External indebtedness in Latin America rose tenfold between 1970 and 1980, from $23 billion to $223 billion. This debt burden was well beyond the region's absorptive capacity, and it contributed to inflationary pressures and balance of payments disequilibria of unprecedented magnitude (Urquidi 1991). Economic growth in

the major Latin American economies came to a virtual decline during the 1990s period, as the high external debt required the allocation of 25% to 30% of foreign exchange proceeds just to cover the interest payments, "Most of the economies in the region were put in a position in which . . . they would be unable easily to resume growth, much less what until then was called 'development.' Zero GDP growth over a period of almost a decade, implying a decline of nearly 10% in per capita GDP, is an experience that few groups of countries in the world have had in the absence of a serious military defeat" (Urquidi 1991). This period was incredible hard in the sense there was not a sustained economic growth, education and health were some of the most affected areas, as well as the rapid deterioration of basic infrastructure, the restriction of technological innovation and the obsolescence of much of the industrial plants that had remained inactive for nearly a decade. These marginal activities produced no social security or productivity gains and therefore cannot be part of a long-term development strategy. If Latin American manufacturers are going to become internationally competitive, they will have to regard exports as a permanent preoccupation rather than an occasional line of business. In the meantime, multinational corporations probably will generate many of the export opportunities and markets for Latin America's economies. To paraphrase Albert Hirschman, Latin American manufacturers are late exporters" (Urquidi 1991). Nowadays still there is a sentiment of reliance on multinational corporations; especially those from America that make for some people feel them as a threat not allowing the long standing investment in the region.

East Asia After the World War II, China, Japan and South Korea made an intensive economic increase, all together conform the East Asia region the most dynamic in our actual time. During the 1960s the prosperousness centered in Japan the first one which found high growth rates in its economy, South Korea followed Japan by the 1970s decade and China after these two started the incredible growth dynamism over the last three decades. Many issues have been presented during their growth as the global recession in middle 90s, the rising of protectionism over most of the export goods, the continuous change in oil prices, etc. But even all those issues the rapid economic growth is a characteristic present in East Asia that has shown a strong rise. The rapid growth (also called as the Asian Miracle) of the East Asian countries has centered the attention on the role of some cultural factors in the national development. The possible Confucian influence in the models of development, gave certain advantages over other traditions in the pursuit for economic development. Because Confucian beliefs imply a high value on hard work, loyalty, respect for authority and punctuality, these characteristics are thought to have facilitated the national compromise around high-speed economic growth firstly evident in Japan and South Korea. In South Korea more than in Japan and China the Confucianism influenced the acceleration of its economic growth through the practice of Filial Piety that presents itself as a latent but powerful

link to economic motivation by putting into practice its characteristics of remembrance and representation of ancestors Remembrance and

representation becomes the object and the process of competition go beyond the mere religious dimension but instead transitions into the economic dimension of intensifying the material foundation In reality, the level of remembering and representing are different stimulating economic motives the economic motives imply in objectification of filial piety is intensified through the competition process of reality (Seok-Choon, Lew 2007) Overall in all the East Asian countries these cultural capacity for cooperation lead political elites, industrial leaders, workers, and other citizens to agree on the primacy of economic objectives for the society as a whole and on the means to achieve those objectives (Johnson 1987). The cooperation value is now highly appreciated for many around the world, the capacity of teamwork is certainly a motive of success and it goes hand-to-hand with inherent patterns of behavior within the culture. The projects of developments executed by the governments can not work properly if the society does not understand the rules of the game, mining the people must work towards the projects already launched, otherwise the government could not achieve the economic goals by itself. A premier within these countries is that the authoritarian governments some of them have, adopted a highly successful commercial reform towards global markets, it means, overseas sales were connected at home with increasing national security, profitability and prestige. Their economies expanded relatively rapidly into such common industries as textiles and clothing and even more rapidly into

heavy industries such as steel and automobile manufacture. The move to electronics was especially rapid with many new advances. In each of these cases, the state took an active role in guiding the process of industrialization. Unlike Latin America, the East Asian economies have experienced rapid and sustained economic growth during the past three decades. In large part, this growth was predicated on an earlier turn to export oriented development. The decision by these East Asian developing countries to adopt this strategy of intensive export oriented industrialization in the 1960s was neither inevitable nor easy, but it had a number of positive consequences for these countries. For example the economic gains in industrial competitiveness, large parts of the population had full employment and high sustained economic growth rates are among the most obvious, but equally important is the fact that export oriented industrialization was spearheaded by local private firms, thus reducing the dependence of the East Asian countries on foreign capital. The state in South Korea and Taiwan (China) as well as in Japan has been more effective than its counterparts elsewhere in the developing world because of its ability to discipline big business (Johnson 1982). This is far more difficult where multinational corporations are the dominant firms, as in Latin America.

Analysis and a comparative overview The comparison of these two regions is valuable because the selected countries

from each region can be roughly classified as middle income, (except for Japan, which is high-income) and yet each set of countries took different development approaches resulting in different results. The origin of these differences can be attributed to historical and social factors as well as to contrasting governmental strategies. At one point in history, some Latin American countries seemed to become fully developed economies but this period of growth came to a close in the 1980s, when the economic model adopted by these governments reached its limit. Over much the same time period, East Asian economies, guided by a different model of development, emerged as perhaps the most successful case of economic development; the successful Asian economies have been better than others at providing a stable macroeconomic environment and a reliable legal framework to promote domestic and international competition. (John Page). Within this two regions, some countries have developed more rapidly or extensively than others, because they have adapted proper economic policies and the work with national institutions are the social bases of competitiveness at the local level. The East Asian nations have performed significantly better than their Latin American counterparts in terms of standard indicators of development such as GNP per capita, income distribution, literacy, health, and education during this short period. The term of development cannot be compared with industrialization, the first refers to the is to consider the improvement of quality in life and the increase of material resources that will provide people better and higher life standards meanwhile industrialization is a process of economic and

social change which primarily center all the attention in develop work skills with the aim to generate high incomes. But to achieve development is needed to use industrialization, the economy is highly sustained on the industry performance allowing the society to have a more robust structure. The selected countries have some similarities, all of them have achieved a certain level of industrialization, it means they are able to produce products derived from the heavy industry and chemical industrial products such as steel, ships, and automobiles. All of the selected Latin American countries were far more economically advanced than their East Asian counterparts (with the exception of Japan) early 1970s. It was only in the late 1960s that South Korean per capita GNP surpassed that of the Latin American countries under consideration. According to the World Banks World Development Indicators database, South Korea surpassed Mexico in 1969, Brazil in 1978, and Argentina in 1988. Similarly, the strategic choices made by Latin American and East Asian leaders illustrate a remarkable degree of contrast. For example most of the Latin American countries incurred in massive debt while East Asian economies benefited from significant trade surpluses. The export oriented development strategies of the East Asian countries led them to a better economic performance in terms of exports, economic growth, and employment than the import oriented development strategies of the Latin American ones. Moreover the economic success in East Asia depends more in the region ability of create a massive industrial developments with entrepreneur local enterprises rather than the creation of just economic polices. It means, the majority of local enterprises have control in all the activities concerning to export

and the close relations with suppliers allowing them to join a wide variety of local business groups and subcontracting networks. Another contrast between the external oriented and internal oriented

development strategies of the East Asian and Latin American countries, respectively, are so notorious. In both regions the objectives, social cultures and policy instruments of the state are quite different in each country. Probably the most important points of successful late industrialization is the rise of a developmental state with a considerable intervention in their economies in order to encourage the rapid industrial progress. In Latin America as well as East Asia, the state has tended to be strong, centralized, authoritarian (often under military control), and actively involved in economic affairs (Collier, 1979). National government policies, economic organization and social structure are important determinants of how developing countries have responded to the opportunities and challenges in the world economy. Effective production with high quality standards, exports and marketing networks are implicit in the work hand to hand, as well as the competitive relationships and the well designed policies might offer benefits to the society and its economy.

Conclusions

The third world regions within this paper do not conform to a unique developmental model. East Asia has moved well ahead of the other regions during the past decades, meanwhile Latin America, which was on a par with East Asia around several years ago, has now fallen well behind. Both regions performance distinct models, the export oriented industries that we discussed have a notorious advance in which global competitiveness required from them a rapid and flexible adaptation to the changing conditions in the world economy. So then development needs to incorporate and integrate the international and national levels, all working under the same scheme, in order to understand and offer a well performance in the challenges and choices that confront these developing nations. Both regions have countries with very heterogeneous groups, with major differences in terms of population size, land area, natural resource, cultural backgrounds, political regimes, social structures, per capita incomes and economic policies; but an important similitude that have grew up with each region and actually plays an important role in its very specific economic growth is the Confucian and Catholic traditions that surely have existed for centuries. In both regions, but especially in East Asia this tradition is highly rooted on the culture essence, however, the dynamic transformation in economic performance o not depend on this point but it has a relevant importance. The different strategies countries in the two regions have surely provoked different points of view between policymakers around the world arguing that East Asian economic success was attributable to the development of free market

economies while the Latin American failure was the result of excessive government interventions in the economy. We do not have to forget that governmental involvement was, in fact, an essential component of the East Asian economic miracle too. Some predictions were certainly well done, emphasizing the prosperity and the new era of globalization will benefit developing countries, as a natural process developed countries can not rise more than a certain level of growth meanwhile for those developing ones the opportunities to growth are far more vast. It make me think in a good way that this economic development could happen in many Latin America countries for further times. Meanwhile the East Asian models of market development should serve as model to be followed by the rest of the countries under the developing world.

References Collier, David, ed. 1979 The New Authoritarianism in Latin America. Princeton, NJ, Princeton University Press.

Lew, Choi and Wang, Confucian Ethic and the Spirit of Capitalism in Korea 2007, the 102nd. ASA Meeting. Luis Vega, Latin America Corruption, October http://goinside.com/04/10/corrupt.html last view December 29th. 27 2004,

Johnson, Chalmers, "Political institutions and economic performance: The government-business relationship in Japan, South Korea, and Taiwan." 1987, Ed. The Political Economy of the New Asian Industrialism. Ithaca, NY: Cornell University Press. Urquidi V. L., 1991. The prospects for economic transformation in Latin America: Opportunities and resistances. LASA Forum 22, Pg. 1-9 Daniel Gaido and David Walters, Latin America: Problems and Task, November 2005, http://marxists.anu.edu.au/history//etol/document/fi/1950-1953/fi3rdcongress/1951-congress10.htm Last view December 29th. Campello, D. , 2005-04-07 "Party Ideology and Policy Choices in Latin America" Paper presented at the annual meeting of the, The Midwest Political Science Association, Palmer House Hilton, Chicago, Illinois Online <.PDF>. 2008-10-10 from http://www.allacademic.com/meta/p84857_index.html last view December 30th. Evans Peter, 1979, Dependent Development: The Alliance of Multinationals, State and Local Cap- ital in Brazil. Princeton, NJ: Princeton University Press. World Bank, World Development Indicators Database, http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMD K:21725423~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html last view January 3rd. John Page, The East Asian Miracle: Four Lessons for Development Policy, NBER Macroeconomics Annual, Vol. 9 (1994), The University of Chicago Press, pp. 219-269.

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