East Asian model of capitalism

The East Asian model (sometimes known as state-sponsored capitalism)[1] is an economic system where the government invests in certain sectors of the economy in order to stimulate the growth of new (or specific) industries in the private sector. It generally refers to the model of development pursued in East Asian economies such as Hong Kong, Macau, Japan, South Korea and Taiwan.[2] It has also been used to classify the contemporary economic system in Mainland China since the Deng Xiaoping's economic reforms during the late 1970s.[3]

Key aspects of the East Asian model include state control of finance, direct support for state-owned enterprises in strategic sectors of the economy or the creation of privately owned national champions, high dependence on the export market for growth and a high rate of savings. It is similar to dirigisme.

This economic system differs from a centrally planned economy, where the national government would mobilize its own resources to create the needed industries which would themselves end up being state-owned and operated. East Asian model of capitalism refers to the high rate of savings and investments, high educational standards, assiduity and export-oriented policy.[4]

See also

References

  1. ^ Chun, Lin (5 December 2013). China and Global Capitalism. Palgrave Macmillan. p. 78. ISBN 978-1137301253.
  2. ^ An East Asian Model of Economic Development: Japan, Taiwan and South Korea, by Paul W. Kuznets. April 1988. Economic Development and Cultural Change, Vol. 36, No. 3, April 1988.
  3. ^ Does China follow the 'East Asian Development Model'?, by Seung-Wook Baek. 2005. Journal of Contemporary Asia, Vol. 35, No. 4, 2005.
  4. ^ Prokurat, Sergiusz (2010), European Social Model and East Asian Economic Model – different approach to productivity and competition in economy (PDF), Wrocław: Asia – Europe. Partnership or Rivalry?”, pp. 35–47, archived from the original (PDF) on 22 September 2016, retrieved 4 August 2016
Capitalism

Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system and competitive markets. In a capitalist market economy, decision-making and investments are determined by every owner of wealth, property or production ability in financial and capital markets, whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.Economists, political economists, sociologists and historians have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include laissez-faire or free-market capitalism, welfare capitalism and state capitalism. Different forms of capitalism feature varying degrees of free markets, public ownership, obstacles to free competition and state-sanctioned social policies. The degree of competition in markets, the role of intervention and regulation, and the scope of state ownership vary across different models of capitalism. The extent to which different markets are free as well as the rules defining private property are matters of politics and policy. Most existing capitalist economies are mixed economies which combine elements of free markets with state intervention and in some cases economic planning.Market economies have existed under many forms of government and in many different times, places and cultures. Modern capitalist societies—marked by a universalization of money-based social relations, a consistently large and system-wide class of workers who must work for wages, and a capitalist class which owns the means of production—developed in Western Europe in a process that led to the Industrial Revolution. Capitalist systems with varying degrees of direct government intervention have since become dominant in the Western world and continue to spread. Over time, capitalist countries have experienced consistent economic growth and an increase in the standard of living.

Critics of capitalism argue that it establishes power in the hands of a minority capitalist class that exists through the exploitation of the majority working class and their labor; prioritizes profit over social good, natural resources and the environment; and is an engine of inequality, corruption and economic instabilities. Supporters argue that it provides better products and innovation through competition, disperses wealth to all productive people, promotes pluralism and decentralization of power, creates strong economic growth and yields productivity and prosperity that greatly benefit society.

Developmental state

Developmental state, or hard state, is a term used by international political economy scholars to refer to the phenomenon of state-led macroeconomic planning in East Asia in the late 20th century. In this model of capitalism (sometimes referred to as state development capitalism), the state has more independent, or autonomous, political power, as well as more control over the economy. A developmental state is characterized by having strong state intervention, as well as extensive regulation and planning. The term has subsequently been used to describe countries outside East Asia which satisfy the criteria of a developmental state. Botswana, for example, has warranted the label since the early 1970s. The developmental state is sometimes contrasted with a predatory state or weak state.The first person to seriously conceptualize the developmental state was Chalmers Johnson. Johnson defined the developmental state as a state that is focused on economic development and takes necessary policy measures to accomplish that objective. He argued that Japan's economic development had much to do with far-sighted intervention by bureaucrats, particularly those in the Ministry of International Trade and Industry (MITI). He wrote in his book MITI and the Japanese Miracle:

In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on developmental functions. These two differing orientations toward private economic activities, the regulatory orientation and the developmental orientation, produced two different kinds of business-government relationships. The United States is a good example of a state in which the regulatory orientation predominates, whereas Japan is a good example of a state in which the developmental orientation predominates.

A regulatory state governs the economy mainly through regulatory agencies that are empowered to enforce a variety of standards of behavior to protect the public against market failures of various sorts, including monopolistic pricing, predation, and other abuses of market power, and by providing collective goods (such as national defense or public education) that otherwise would be undersupplied by the market.

In contrast, a developmental state intervenes more directly in the economy through a variety of means to promote the growth of new industries and to reduce the dislocations caused by shifts in investment and profits from old to new industries. In other words, developmental states can pursue industrial policies, while regulatory states generally can not.

Governments in developmental states invest and mobilize the majority of capital into the most promising industrial sector that will have maximum spillover effect for the society. Cooperation between state and major industries is crucial for maintaining stable macroeconomy. According to Alice Amsden's Getting the Price Wrong, the intervention of state in the market system such as grant of subsidy to improve competitiveness of firm, control of exchange rate, wage level and manipulation of inflation to lowered production cost for industries caused economic growth, that is mostly found in late industrializers countries but foreign to early developed countries.As in the case of Japan, there is little government ownership of industry, but the private sector is rigidly guided and restricted by bureaucratic government elites. These bureaucratic government elites are not elected officials and are thus less subject to influence by either the corporate-class or working-class through the political process. The argument from this perspective is that a government ministry can have the freedom to plan the economy and look to long-term national interests without having their economic policies disrupted by either corporate-class or working-class short-term or narrow interests.

Market economy

A market economy is an economic system in which the decisions regarding investment, production and distribution are guided by the price signals created by the forces of supply and demand. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the factors of production.Market economies range from minimally regulated free market and laissez-faire systems where state activity is restricted to providing public goods and services and safeguarding private ownership, to interventionist forms where the government plays an active role in correcting market failures and promoting social welfare. State-directed or dirigist economies are those where the state plays a directive role in guiding the overall development of the market through industrial policies or indicative planning—which guides yet does not substitute the market for economic planning—a form sometimes referred to as a mixed economy.Market economies are contrasted with planned economies where investment and production decisions are embodied in an integrated economy-wide economic plan. In a planned economy, economic planning is the principal allocation mechanism between firms rather than markets, with the economy's means of production being owned and operated by a single organizational body.

Socialist-oriented market economy

The socialist-oriented market economy (Vietnamese: Kinh tế thị trường theo định hướng xã hội chủ nghĩa) is the official title given to the current economic system in the Socialist Republic of Vietnam. It is described as a multi-sectoral market economy where the state sector plays the decisive role in directing economic development, with the eventual long-term goal of developing socialism.The socialist-oriented market economy is a product of the Đổi Mới economic reforms which led to the replacement of the centrally planned economy with a market-based mixed economy based on the predominance of state-owned industry. These reforms were undertaken to allow Vietnam to integrate with the global market economy. The term "socialist-oriented" is used to highlight the fact that Vietnam has not yet achieved socialism and is in the process of building the basis for a future socialist system. The economic model is similar to the socialist market economy employed in the People's Republic of China.

Socialist market economy

The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is based on the predominance of public ownership and state-owned enterprises within a market economy. The term "socialist market economy" was introduced by Jiang Zemin during the 14th National Congress of the Communist Party of China in 1992 to describe the goal of China's economic reforms. Originating in the Chinese economic reforms initiated in 1978 that integrated China into the global market economy, the socialist market economy represents a preliminary or "primary stage" of developing socialism. Despite this, many Western commentators have described the system as a form of state capitalism.

State capitalism

State capitalism is an economic system in which the state undertakes commercial (i.e. for-profit) economic activity and where the means of production are organized and managed as state-owned business enterprises (including the processes of capital accumulation, wage labor and centralized management), or where there is otherwise a dominance of corporatized government agencies (agencies organized along business-management practices) or of publicly listed corporations in which the state has controlling shares. Marxist literature defines state capitalism as a social system combining capitalism with ownership or control by a state—by this definition, a state capitalist country is one where the government controls the economy and essentially acts like a single huge corporation, extracting the surplus value from the workforce in order to invest it in further production. This designation applies regardless of the political aims of the state (even if the state is nominally socialist) and some people argue that the modern People's Republic of China constitutes a form of state capitalism.The term "state capitalism" is also used by some in reference to a private capitalist economy controlled by a state, often meaning a privately owned economy that is subject to statist economic planning. This term was often used to describe the controlled economies of the Great Powers in the First World War. State capitalism has also come to refer to an economic system where the means of production are owned privately, but the state has considerable control over the allocation of credit and investment as in the case of France during the period of dirigisme after the Second World War. State capitalism may be used (sometimes interchangeably with state monopoly capitalism) to describe a system where the state intervenes in the economy to protect and advance the interests of big business; Noam Chomsky, a supporter of libertarian socialism, applies the term 'state capitalism' to economies such as that of the United States, where large enterprises that are deemed "too big to fail" receive publicly funded government bailouts that mitigate the firms' assumption of risk and undermine market laws, and where private production is largely funded by the state at public expense, but private owners reap the profits. This practice is in contrast with the ideals of both socialism and laissez-faire capitalism.There are various theories and critiques of state capitalism, some of which existed before the 1917 October Revolution. The common themes among them identify that the workers do not meaningfully control the means of production and detect that commodity relations and production for profit still occur within state capitalism. In Socialism: Utopian and Scientific (1880), Friedrich Engels argued that state ownership does not do away with capitalism by itself, but rather would be the final stage of capitalism, consisting of ownership and management of large-scale production and communication by the bourgeois state. He argued that the tools for ending capitalism are found in state capitalism.

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