Jun 30, 2021
What was the best thing that ever happened? From a very zoomed-out, by-the-numbers perspective, it has to be China's sudden lurch from Third World basketcase to dynamic modern economy. A billion people went from starving peasants to the middle class. In the 1960s, sixty million people died of famine in the Chinese countryside; by the 2010s, that same countryside was criss-crossed with the world's most advanced high-speed rail network, and dotted with high-tech factories.
And the best thing that ever happened kept happening, again and again. First it was Japan during the Meiji Restoration. Then it was Korea and Taiwan in the 1960s. Then China in the 90s. Now Vietnam and others seem poised to follow.
(fun trivia question: ignoring sudden oil windfalls, what country has had the highest percent GDP growth over the past 30 years? Answer, as far as I can tell: the People's Democratic Republic of Laos.)
There was nothing predetermined about this. These countries started with nothing. In 1950, South Korea and Taiwan were poorer than Honduras or the Congo. But they managed to break into the ranks of the First World even while dozens of similar countries stayed poor. Why?
Joe Studwell claims this isn't mysterious at all. You don't have to bring in culture, genetics, or anything complicated like that. Japan, South Korea, Taiwan, etc, just practiced good economic policy. Any country that tries the same economic policy will get equally rich, as China and Vietnam are discovering. Unfortunately, most countries practice bad economic policy, partly because the IMF / World Bank / rich country economic advisors got things really wrong. They recommended free markets and open borders, which are good for rich countries, but bad for developing ones. Developing countries need to start with planned economies, then phase in free market policies gradually and in the right order. Since rich country economists kept leading everyone astray, the only countries that developed properly were weird nationalist dictatorships and communist states that ignored the Western establishment out of spite. But now the economic establishment is starting to admit its mistakes, giving other countries a chance to catch up.
How Asia Works is Studwell's guide to good economic policy. He gives a three-part plan for national development. First, land reform. Second, industrial subsidies plus export discipline. Third, financial policy in service of the first two goals.
1. Land Reform
Land reform means taking farmland away from landlords and giving it to peasant farmers.
Undeveloped countries are mostly rural (for example, Korea was about 80% rural in 1950). Most people are farmers. Usually these countries are coming out of feudalism or colonialism or something and dominated by a few big landowners. In one region of the Philippines (Studwell's poster child for doing everything wrong) 17 families control 78% of farmland. Landowners hire peasants to work the land, then take most of the profit.