The East Asian Miracle Project

Criticisms of the Report

Release of the World Development Report 1991 precipitated debate between its supporters and its critics. Although some neoclassical economists believed that the Report had erred in giving even minimal credit to East Asian governments for promoting rapid economic development, the most severe critics were proponents of the developmental state who fiercely denounced it as blatantly ideological, representative of the laissez-faire position of the United States and the interests of private capital, and as an effort to assuage growing Western fears of competition from the rapidly industrializing countries of East Asia. The followingcriticisms of the Report are especially noteworthy.

The Report’s emphasis on fundamentals suggests that economic growth is a fairly straightforward process of factor accumulation through private domestic investment, education, and exports. Such a view is contradicted by the emphasis in the new-growth models on the importance in the developmental process of imperfect information, increasingreturns, multiple equilibria, path dependence, self-reinforcing mechanisms, historical lock-ins, and other dynamic properties. Critics argue strongly that growth processes are so complex that there can be no single explanation and that therefore the Report’s considerable emphasis on factor accumulation was inappropriate. Furthermore, the Report’s assumption that one can disentangle macro basics or fundamentals—investment, education, exports— from their micro foundations, or supportingsociopolitical institutions, is deeply flawed. Critics charge that fundamentals and institutions cannot be separated from one another; a high savings rate does not just happen but is the result of government policies and financial institutions. When one factors in domestic policies and institutions,the growth process becomes as complex as the new growth models suggest.

The authors of the Report deliberately played down their own findings regarding the important role of the state and of industrial policies in expeditingrapid industrialization, and they also neglected the crucial importance of public financial institutions in mobilizing savings, evaluating projects, managing risk, monitoring managers,and facilitatingtransactions. For example, although the Report acknowledged that the most successful interventions by the state were the generous subsidies provided for manufactured exports, critics of the Report charge that this important point was not accorded appropriate weight in the overall assessment of industrial policy. In fact, many of the “market-friendly” policies praised by the Report, such as export contests, are actually examples of successful industrial policy.

Accordingto Report critics, these contests proved a very effective method for the state to “pick winners” and thus to accelerateeconomic development.