DANI RODRIK Global Poverty Amid Global Plenty: Getting Globalization Right
having given up on the idea of reconquest of mainland
China, wanted to forestall any possible challenge from
the Communists. The governments in South Korea and
Taiwan understood that achieving their political and
military goals required rapid economic growth. Developing industrial capabilities and a strong manufactured exports base became their predominant objective.
This objective was accomplished by unleashing the
energies of private business.
Even though both governments invested heavily in
public enterprises during the 1960s, the investment was
designed to facilitate private enterprise—by providing
cheap intermediate inputs, for example—and not to
supplant it. One plank of the strategy called for remov-
ing the obstacles to private investment that stifled other
low-income countries: excessive taxation, red tape and
bureaucratic corruption, inadequate infrastructure, and
high inflation. These were improvements in what today
would be called the “investment climate.”
Equally important were interventionist policies—gov-
ernment incentives designed to stimulate investments
in modern manufactures. Both governments designated
such industries as “priority sectors” and provided busi-
nesses with generous subsidies. In South Korea, these
largely took the form of subsidized loans administered
through the banking sector. In Taiwan, they came in
the form of tax incentives for investments in desig-
nated sectors.
In both countries, bureaucrats often played the role
of midwife to new industries: they coordinated private firms’ investments, supplied
the inputs, twisted arms when needed, and
provided sweeteners when necessary. Even
though they removed some of the most egregious import restrictions, neither country exposed its nascent industries to much import
competition until well into the 1980s.
While they enjoyed protection from international competition, these infant industries were goaded to export almost from
day one. This was achieved by a combination of explicit export subsidies and intense
pressure from bureaucrats to ensure that
export targets were met. In effect, private
businesses were offered a quid pro quo: they
would be the beneficiaries of state largesse,
but only as long as they exported, and did
so in increasing amounts.
If gaining a beachhead in international
markets required loss-making prices early
on, these could be recouped by the subsi-
dies and profits on the home market. But importantly,
these policies gave private firms a strong incentive to
improve their productivity so they could hold their own
against established competitors abroad. 4
MARCHING TO ITS OWN BEAT:
CHINA AND GLOBALIZATION
China’s experience offers compelling evidence that globalization can be a great boon for poor nations. Yet it also presents the strongest argu- ment against the reigning orthodoxy in globalization, which emphasizes financial globalization
and deep integration through the World Trade Organization (WTO). China’s ability to shield itself from the
global economy proved critical to its efforts to build a
modern industrial base, which would in turn be leveraged through world markets.
Since 1978, income per capita in China has grown at
an average rate of 8. 3 percent per annum—a rate that
implies a doubling of incomes every nine years. Thanks
to this rapid economic growth, between 1981 and 2008
the poverty rate in China (the percent of the population
below the $1.25-a-day poverty line) fell from 84 percent
to 13 percent, much of it from reducing rural poverty. 5
This meant a whopping 662 million fewer Chinese in
extreme poverty, a number that accounts for virtually
the entire drop in global poverty over the same period.
During the same period, China transformed itself from
near autarky to the most feared competitor on world
SOUTH KOREA AND
TAIWAN UNDERSTOOD
THAT ACHIEVING
THEIR POLITICAL
AND MILITARY GOALS
REQUIRED RAPID
ECONOMIC GROWTH.
AMERICASQUARTERLY.ORG
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