The East Asian Miracles

The Developmental State Economy

In my last essay - [https://paulkamani.works/articles/rich-countries-create-poor-countries/], I talked about dependency theory — the idea that poor countries are poor largely because rich countries are rich. It is an aggressive claim, but the central argument was that many poor countries became extraction-based economies and never truly industrialized.

However, certain countries in East Asia managed to break through and become advanced industrial economies. The question is: how did they do it, and how did they become rich so quickly?

The answer lies in what economists call the developmental state.

A developmental state economy is a country where the government does not simply leave the economy alone. Instead, the state actively guides industrialization and economic transformation.

This is not socialism in the Soviet sense, but it is also not pure free-market capitalism. It is a hybrid system where markets exist, private companies exist, and profits exist, but the state strategically directs development.

The government becomes involved in questions like:

• What industries should we build?
• Which companies should receive support?
• Which exports should we push?
• What technologies should we learn?
• How do we move from a poor agricultural economy to an advanced industrial economy?

Classic examples of developmental states, often called the East Asian Tigers, include Japan, South Korea, Taiwan, Singapore, and eventually China.

This differs from classical liberal capitalism, such as in the United States and the United Kingdom, where markets allocate resources more freely, businesses compete openly, and prices largely guide investment decisions.

The developmental state argues that if you simply leave the market alone, poor countries may never industrialize fast enough.

So East Asian governments intervened heavily.

How the Developmental State Worked

What did this intervention look like?

Governments gave cheap loans to industries they considered strategic. They provided subsidies. They protected domestic firms from foreign competition through tariffs. They controlled exchange rates. In some cases, the state directed credit itself instead of leaving all lending decisions to private banks. They also rewarded firms that successfully exported their products.

Why?

Because they wanted industries to survive long enough to become globally competitive.

In other words, they gave certain industries a serious head start.

South Korea in the 1960s, for example, was poorer than many African countries at the time. Yet the government supported firms like Samsung, Hyundai, and LG. The state protected and financed them for years until they became internationally competitive companies.

In a purely free-market system, many of these firms might have failed early. But developmental states believed they needed “national champions.” So they selected industries or firms, incubated them, invested heavily in them, and tried to help them become globally competitive.

Why Did East Asia Succeed While Others Failed?

When I first learned about this, my immediate thought was: why don’t African and Latin American countries simply do the same thing?

It sounded like the solution.

But what surprised me was learning that many African and Latin American countries actually did try similar policies.

And many failed.

So why did the East Asian developmental states succeed while many African and Latin American ones struggled?

The biggest answer is discipline.

A successful developmental state does not simply protect companies forever. Support is conditional. Firms are expected to eventually export successfully and compete internationally.

If they fail repeatedly, support can be withdrawn.

The state intervenes aggressively, but it also imposes performance pressure.

This is one of the most important differences.

In Latin America, many countries experimented with something called Import Substitution Industrialization (ISI). Countries like Brazil, Argentina, and Mexico protected domestic industries through tariffs.

African countries such as Nigeria, Ghana, Tanzania, and Zambia also experimented with strong state involvement.

But several major problems emerged.

State Capacity

East Asian countries built highly competent bureaucracies. Officials were technically trained, selected largely on merit, and often worked with long-term developmental goals in mind.

In many failed states, corruption was higher, political patronage dominated, and loans were distributed politically rather than strategically.

As a result, industries survived despite failure.

A company could continue receiving government support even if it never became internationally competitive.

I recently listened to a discussion about a Nigerian state-supported firm that has existed for decades and still costs the government enormous amounts of money every month while failing to become globally competitive. This is exactly the kind of problem developmental states were supposed to avoid.

A developmental state therefore requires not just a strong state, but a capable state.

Export Discipline

If firms are protected forever behind tariffs, they often become inefficient. They become comfortable selling only to domestic consumers while avoiding real international competition.

East Asian states forced firms to compete globally.

In South Korea especially, there was almost a reward-and-punishment system: if you exported successfully, you were rewarded; if you failed, support could be reduced.

Global markets became the test.

Once companies had to compete internationally, nobody could protect them anymore. Their products had to actually be good.

That is part of why companies like Samsung and LG eventually became globally respected brands.

Land Reform

After war and colonialism, South Korea and Taiwan redistributed land more broadly. This created greater social stability, stronger consumer demand, broader education, and stronger national cohesion.

In many Latin American countries, however, land ownership remained highly unequal and concentrated among elites.

Geopolitics

During the Cold War, countries like South Korea and Taiwan received strong support from the United States, including aid, military protection, market access, and technology transfer.

Meanwhile, many African and Latin American countries were dealing with debt crises, coups, political instability, commodity dependence, and external interference.

Some were not politically stable enough to implement long-term industrial policy consistently.

Education and Human Capital

East Asian societies invested heavily in literacy, technical education, engineering, and manufacturing skills. Industrial learning became almost an obsession.

Education was treated seriously because industrialization required skilled workers, engineers, technicians, and disciplined institutions.

Why Economic Models Eventually Change

But like all economic models, developmental states also eventually face limits.

Every country’s growth path is shaped by its historical conditions.

The developmental state worked extremely well for poor countries trying to industrialize rapidly. But once countries become advanced economies, the problems change.

A poor economy trying to industrialize focuses on:

• manufacturing,
• infrastructure,
• exports,
• literacy,
• industrial coordination.

An advanced economy faces different challenges:

• innovation,
• services,
• aging populations,
• financial complexity,
• creativity,
• political reform.

Eventually, some of the same institutions that once accelerated growth can become rigid or outdated.

Japan, for example, entered a long period of stagnation during the 1990s.

The model had, in some ways, “petered out.” It no longer produced the same extraordinary growth as before.

This is not unique to developmental states.

Even capitalist economies constantly evolve.

After the Great Depression of the 1930s, the United States adopted Roosevelt’s New Deal policies, which expanded government intervention and helped shape the Keynesian economic era.

Later, the inflation crises of the 1970s — partly linked to oil shocks — forced governments to rethink economic policy again. Stagflation created a situation where inflation remained high while economic growth weakened.

Then after the 2008 financial crisis, governments once again brought back stronger financial regulations and central bank interventions.

So no economic model remains permanently effective without adaptation.

Every successful economy evolves.

Africa and the Future of Development

My main interest in all of this is Africa.

I believe African countries can still develop successfully, but their path may not look exactly like South Korea’s or China’s.

Their development will emerge from their own historical conditions, political realities, demographic pressures, technological opportunities, and environmental constraints.

In fact, with growing awareness around climate change and global warming, repeating the exact industrialization path of the twentieth century may not even be possible or desirable anymore.

If African countries eventually industrialize successfully, they may do so through a new model altogether.

And that may be the deepest lesson of the developmental state:

there is no permanent formula for development.

Successful countries build institutions suited to their historical moment.