The “miracle of East Asia”. The rapid growth of countries in this region after World War II has been largely attributed to the industrial policy applied by countries such as Japan, South Korea and Taiwan, which today account for half of the world’s semiconductor production. From being a marginal region in the 70s in the industrial field, by 2015 it was the main nucleus of this sector in the world, and the largest engine of global growth. Although other factors also played a role, from the intense openness to foreign trade to, in Japan, the high level of savings.
Although state intervention in the preferred sectors has varied in intensity and in success according to the countries, the application of an industrial policy has been, for decades, a characteristic that has brought together the East Asian economies and their different models. Japan and South Korea started from the beginning with a market economy; China, with a managed socialist economy, would spend thirty years trying to remove the burden of rigid government control before increasing its intervention again.
China, the country that today has become the nightmare of politicians in Washington and which Brussels looks on with concern, based its take-off precisely on the transformation of its economy from a strongly centralized model to a market model, in which the The State gradually reduced its intervention in the years prior to its entry into the WTO.
Until the financial crisis of 2008. Since then, while trying to develop an economic model less oriented to cheap exports and more to the domestic market, it has regained interest in direct intervention in the preferred sectors, especially in the technological area. “As technological change has accelerated, the ambition of Chinese planners and policy makers has also expanded,” says Professor Barry Naughton of the University of California-San Diego in his book The Rise of China’s Industrial Policy, 1978 to 2020.
By awarding subsidies, state-led mergers, promoting “national champions” in sectors such as artificial intelligence or forced technology transfer, China aims to become a leading country in the field of innovation. “Making technological self-sufficiency a strategic pillar of national development” is an order that comes from President Xi Jinping himself.
Its 14th Five-Year Plan, approved by the National People’s Assembly in March and which will run the economy until 2025, foresees an annual growth of 7% in investment in R&D. The beneficiary sectors will be, in addition to artificial intelligence, also quantum information, neuroscience, genetic engineering, clinical medicine and space, polar and ocean exploration. And, of course, semiconductors, the manna of the digital economy, a sector that received an investment of 35.2 billion dollars in 2020, an increase of 407% in one year, according to the specialized publication. TechNode.
When it comes to becoming an economic power through industrial policy, Japan was the pioneer, and initially the most spectacularly successful country. In the second half of the 20th century, its GDP multiplied by 123, from 44,000 million dollars to 5.45 trillion in 1995, making it the second largest economy in the world. Between 1960 and 1973, measures such as tax benefits, subsidies, preferential financing and trade protectionism benefited the sectors identified as strategic; those with a greater potential for productivity growth, such as computers, automobiles or steel, and those with the capacity to generate a greater number of jobs.
Its initial success, which by the 1980s had made it an economy capable of rubbing shoulders with that of the United States, generated the misgivings of other competing countries. Washington accused him of adopting protectionist measures and took retaliatory measures. In a situation that evokes, to some extent, the current tensions between the US and China, Japan became the commercial rival to beat. A situation that lasted until the 1990s, when external pressure and the change in the cycle that led to the stagnation of its economy led the Japanese government to abandon its interventionist measures. After that lost decade, the country has lived under the continuing threat of deflation and low economic growth.
South Korea also adopted policies of intervention in its industry in the decades after the war (1950-1953) that separated it from the North and the industry that was concentrated there. A success that allowed it to completely transform itself from a very largely agrarian economy to an industrial one, and see a continuous increase in its per capita income and a high level of growth.
During the 60s and 70s it developed sectors such as the automobile, shipping, steel or electronic products; subsidies to its semiconductor industry enabled it to become one of the world’s giants in this area. The emergence of the chaebol or large family conglomerates, which have dominated the national economy since then: Samsung represents 15% of South Korean GDP.
Taiwan also owes its economic prosperity, at least in part, to an industrial policy that in the eighties bet on the development of the semiconductor sector, by hiring engineers trained in the United States, the transfer of technology from that country, and the promotion of investments in the sector. Today, its manufacturers dominate more than 60% of the world market for chips; its flagship foundry, TSMC, accounts for 54% of the industry’s revenues worldwide.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.