Abstract
Developed countries have long agreed that there is a necessity to assist developing countries if the world is to develop continuously without issues. These developing countries have the capacity to compete against developed countries if they are given enough support and education on how they can bolster their development. Today, two regions are currently succeeding in breaking the expectations of the international community and they are East Asia and Latin America. Since the end of the Second World War, countries for both regions launched extensive economic reforms that enabled prosperity to persist in the region. Considering this change within both regions, this study aims to determine what lessons can be learnt from East Asia and Latin America regarding the application of their development policies under the Lee and Franco/Cardoso administrations.
This paper argues that developmental policies are more efficient in delivering economic development if countries actively take part in the administrating process of the market while ensuring that a proper system is introduced by an agency designed to ensure economic development. In East Asia, for instance, state governments have played a role in developing the development policies applied in the country as seen in Singapore. While in Latin America, the state focused on a local level to entice economic development as seen in Brazil. In order to analyze the situation of both East Asia and Latin America further in terms of how development policies were effective in these regions, this paper will be using a qualitative research method. This research method would allow the study to analyze the development policies of each country and make a comparison on how efficient these policies are and how the state brought these changes. This paper will be divided into three parts: the nature of a developmental state, the development of Singapore and the development of Brazil.
The Developmental State: East Asia and Latin America
Since the end of the major wars, the international community’s developed countries have agreed that developing countries need a hand in order to ensure continuous development. Developing countries, if given all the tools and training necessary to succeed, will be able to compete with developed countries and provide more for its citizens. With the assistance of developed countries, two regions are currently reporting huge strides in development and they are East Asia and Latin America. Considering their growth rate and progress, it is a question as to how these regions maintain this rate of progress even at the present time. This paper will be divided into three parts: the nature of a developmental state, the development of East Asia – specifically Singapore- and the development of Latin America such as Brazil. This paper argues that developmental policies are more efficient in delivering economic development if countries actively take part in the administrating process of the market while ensuring that a proper system is introduced by an agency designed to ensure economic development.
The concept of a developmental state was established after the Second World War as countries slowly recovered form the impacts of war. Onis (1991) stated that the term was introduced by Chalmers Johnson to explain the sudden growth of East Asian economies and the set of characteristics these nations have in common. According to Johnson, economic prosperity and development for these countries is triggered by the single-minded and steadfast action of the states. In order to ensure that development is assured, these state governments try to avoid any conflict for their goals by lacking the active action on commitment to social welfare and equality. States also focus on goals that would bolster growth in the market and the private property sector. The market would then be guided by a set of instructions or guidelines formulated by a small group of managers selected from various sectors to ensure that policies and its implementation are followed by the entire market. These managers would then serve as an advisor for businesses and even act as a channel for businesses to reach out other businesses for cooperation. Having this cooperation between businesses would allow the market to reach goals more effectively and ensure that collaboration is consistent. The state also allows these managers or bureaucrats to engage into activities that would ensure that initiatives and programs would be done effectively. Considering this trend, it can be said that the politicians reign in the desires of the market while it is the economic bureaucrats rule the market .
Deen (2011) added that developmental states often create an agency where development programs come from. This agency would identify credits, licenses and tax exemptions. State often ensure that these agencies have a balanced set of powers. These balanced responsibilities would ensure that these agencies can be trusted by the people. If these agencies are given immense power, it is possible that accountability would be jeopardized but if it is not given enough power, it may also disable complete development. Developmental states also have the capability to revoke a business’ licenses, tax exemptions and subsidies especially if it is proven to be non-performing and declining in terms of production and income. States would impose a series of performance standard targets each business should achieve and revoke their licenses once it is proven that they no longer have the same capacity to assist in economic development. This specific characteristic is linked to the capacity of state’s capability to act separately from the private sector .
Developmental states are very common in East Asia and one notable example to this is Singapore. Menon (2007) identified Singapore as a small island nation in Southeast Asia where fishers thrive due to its location close to the Singapore River and previously colonized by the British East India Company in 1819. Considering its location and the trade routes established in the area, the British used the area as their trading outpost to reach to the spice trade in Asia. The Japanese took over the area in the onset of the Second World War and returned back to Britain in 1945. While under British rule, the country was merged with Malaysia in 1963. However, both countries have separated in August 9, 1965 and became an independent republic while still under British management. By 1968, Britain announced its intentions to allow Singapore to enjoy its independence and withdraw its forces from the country. Unfortunately, this would entail the loss of at least 20% of the Singaporean workforce and cause more strain to the country’s already declining economy caused by the population boom. Singapore had to compensate their national budget to ensure that its defence capability is still sustained even without British support.
Aside from the loss of Britain’s contribution to the country, there are also additional challenges that would cause problems to Singapore. First and foremost, the country had a very diverse society of both Malay, Indian and Chinese population that challenges how policies should be done while taking into consideration these groups. Singapore also had to consider the constant labour and social unrest and the lacking public infrastructure that would sustain the public’s needs. There was also the increasing unemployment rate which has reached up to 13.5% and the slow economic growth rate despite assistance of Britain. Since the country had also separated itself from Malaysia, Singapore also lost ground in terms of economic stability and as a result, its domestic market is only very small. Indonesia also holds much firmer ground in Malaysia due to the Confrontation policy enacted by Indonesia between 1963 to 1966. As a result of this policy, Singapore has lost one of its major ports which they could have used for commerce and trade .
However, considering that Singapore was under a state of political transition, several changes were enacted under the People’s Action Party under Lee Kuan Yew. According to Rana and Lee (2015), Prime Minister Lee knew that they had to tackle the problem on unemployment first before they tackle the issue of the economy. Lee was a visionary and knew that he had to make revolutionary decisions in order to get the country back in its feet. In order to catch the attention of the international community, Lee introduced a development model that would introduce the products of its manufacturing sector as quality export material to the world market. This specific strategy is considerably dangerous in the period because foreign investment is not a very positive strategy. Strategists believe that utilizing foreign investment would only trigger cheaper labour and the exploitation of natural resources.
Lee also invited multinational companies to invest in Singapore for their production for maximum results and income. MNCs became Singapore’s major drivers of industrialization and they also found Singapore a trouble-free place for their investments. Some experts argued that Singapore’s MNCs introduced the use of new technologies to teach Singaporeans the ways within the foreign market. SMEs or small and medium enterprises also received the Singaporean government’s oversight by establishing partnerships between SMEs and MNCs in order to bolster their growth. Some even argued that these international MNCs introduced the spread of petroleum products and electronics in the country, speeding up development. With the proper education and technological awareness, SMEs are active under the Lee leadership, giving chances to talented workers in the process. Most SMEs in Singapore in the time of Lee’s leadership came from the manufacturing sector and they are regularly encouraged by the government to interact with MNCs to sustain their needs. Singapore also ensured that SMEs were heard, especially those from mainland China where some SMEs are located . Lee also worked with his government in the establishment of a Common Market that would reduce their “entrepot” trade and industrialize on its own. According to Mauzy and Milne (2002), they consulted several experts from the UN to determine how they can improve Singapore’s capability. Under the recommendation of Dr. Albert Winsemius and his team, they recommended the increase of schools and infrastructure to assist the training of Singaporean workers.
The Singaporean government under Lee also worked on ensuring that the investment and business sector in the country would continue to flourish. The Economic Development Board was established to support this endeavour in 1961 and its main task is to assist in providing tax cuts or exemptions and proper macroeconomic policies that would make the Singaporean market friendly to investors. According to its Finance Minister Goh Keng Swee, the EDB would work on mobilizing capital within the domestic market and established programs that would assist both local and foreign investors in securing their licenses in the country. The EDB also aimed in introducing a vision that if businesses invested their funds in Singapore, it would ensure continuous growth and development in the long-term period. The government also established the National Wage Council in 1970, tasked to ensure that foreign investments are distributed properly to the people and bolster Singaporean development. Lee himself would meet up with foreign and domestic investors regularly to hear their complaints and solve it. As a result of the country’s changes in economic policy and political policy, Singapore was able to increase its GDP percentage in the manufacturing sector to grow by up to 80% while financial business services have doubled in number. By 1984, the 80% of Singapore’s GDP is generated by four major sectors: commerce, transport and communications, financial and business services and the manufacturing industry .
The same type of development has also been recorded in Latin America as seen in Brazil. Under the presidencies of Itamar Franco and Minister of Finance and later-on President, Fernando Henrique Cardoso. According to Coutinho (2010), Brazil is arguably one of the Latin American countries that has high levels of poverty and economic inequality. Inequality is explained by experts as a result of both historical and modern events that shaped Brazil’s economic capability. In a historical basis, Brazil’s inequality is brought on by the elites who control the tax and benefit rates since the time of the Portuguese. In the modern basis, Brazilian inequality is brought forth by the nature of the world economy today, the gap between the skilled and non-skilled workers and the dependency of the country on exports rather than equally importing new things to the country. Wages also remained low in most areas in Brazil and this is clearly seen in rural areas as large landlords control the market despite the presence of small landowners and landless workers .
Considering the level of inequality and economic downturn in Brazil, various plans have been introduced in order to boost Brazil’s economic capability. According to Clements (1997), the presidency of Itamar Franco thought of a plan that would stabilize the economy in 1994 and ensure that it would also control other aspects of economic decline such as inflation and the devaluation of the currency in the world market. Under the guidance of Minister of Finance – and later on, successor to Franco – Fernando Henrique Cardoso, they introduced the Real Plan. The Real Plan mostly focuses on the creation of a new currency or the “real”. This new currency would enable the government to introduce stability and replace the prevailing currency in the period: the cruzeiro real. The plan is also set up to tighten the government’s monetary policy and establish a specified value for the new currency at par with the US dollar. With the tightened up policies of the government in terms of its monetary and financial policies, the country was able to reduce its expenses and increase interest rates to stop inflation from occurring throughout the country. The high interest rates were also installed to attract foreign investors to the country and generate immense foreign capital that would sustain the deficit in the country. The new economic policy was also designed to boost international currency reserves in the country. The Real Plan also adjusted how the government would handle payments for Brazil’s debts and expenditures. The Plan also included the change in wages for Brazilian workers .
The application of the Real Plan had made excellent strides to the Brazilian economy upon its introduction. Dornbusch (1997) stated that the plan had improved income distribution in the country and increased the income share of the poorest 60% Brazilians and covered 13 million people once the plan was introduced. Prior to the enactment of the Real Plan, per-capita GDP was low and income distribution was down considerably. At least 25% income was reported for the poorest 60% of the country in the 1960s and the income share continued to drop for these people by the 1990s to 16.3%. The richest 10 Brazilians in the country gained an increase in their income share in the country by up to 49.7%. The improved income distribution is brought in by the real wage gains introduced by the Real Plan and the reduction of inflation tax. Funds were also shifted consistently to ensure increase in wages, permitting those from under the poverty line to grow in income by up to 35%. Import penetration of Brazilian companies have also increased exponentially. As of 1995, income penetration has increased to 15.5% in 1995. Economic reform through the Real Plan also bolstered production and development in the country due to the increased equity valuation of industries which greatly benefited from the plan. The exchange rate was also at par with the dollar, permitting the stabilization of a fixed exchange rate for the country. The real interest rates also ensured that capital inflows remained consistent for the country and it even reached to $52 billion by December 1995 and $59 billion in 1996 in the same period. It is also noted that the Real Plan had also restored the growth and development of the banking sector and several sectors were also upgraded such as the agriculture sector .
Developing countries have immense potential if they are given the chance to prove it to the rest of the world. Considering their capabilities, it is essential that these countries are indeed assisted in recognizing their potential. However, external assistance can only do so much because it is still the country’s own efforts that would make the country grow. In the cases of Brazil and Singapore, their respective governments have actively initiated change and identified how development could flourish. They have reorganized their respective government structures to accommodate the market and introduced instruments such as the Real Plan and the EDB to ensure that financial and economic policies are supported and enacted accordingly by both foreign and domestic investors or businesses. Other developing countries can use the Singaporean and Brazilian models to instigate reform because as seen in both examples, they have taken risks to establish economic reform and they have reaped the results immensely once the public saw its benefits.
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