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Bringing politics back in: Towards a model of the
developmental state

Adrian Leftwich

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Bringing Politics Back In: Towards a
Model of the Developmental State

ADRIAN LEFTWICH

The few cases of rapid economic growth in the Third World in
the last 30 years have occurred in democratic, quasi-democratic
and non-democratic polities. They are thus clearly not a function
of common regime type. I suggest that they are best explained by
the special character of their states, understood ‘as developmen-
tal states’. This article outlines some common characteristics of
these states. However the forms and features of these states
are not simply a function of their administrative structures or
principles of governance, but of their politics. The article thus
also underlines the importance of political analysis in both devel-
opment theory and policy, from where it has been extruded for
too long.

I. INTRODUCTION: STATES OF DEVELOPMENT

In the last 30 years many developing countries (mainly but not only in
Africa) have registered negative average annual rates of growth in their
GNP per capita. A considerably smaller number have had moderate
rates of growth (between 1.5 per cent and 3.5 per cent). But only a hand-
ful of developing countries achieved average annual rates of growth in
excess of four per cent between 1965 and 1990. Amongst the latter cat-
egory are Botswana (8.4 per cent), South Korea (7.1 per cent), Taiwan
(7.0 per cent), Singapore (6.5 per cent), China (5.8 per cent), Indonesia
(4.5 per cent), Thailand (4.4 per cent) and Malaysia (4.4 per cent)
[World Bank, 1992a; Council for Economic Planning and Development,
1992]. By world standards, these are remarkable achievements.

Apart from their geographical concentration in East and South-east
Asia, these societies have little in common. Some, like China and
Indonesia, have huge populations. Some have valuable and exportable

Adrian Leftwich, Department of Politics, University of York, UK. The author would like
to thank Neil Carter, Roger Charlton, John Crump, Geoffrey Hawthorn, Peter Larmour
and two anonymous referees for comments on earlier drafts of this article.

The Journal of Development Studies, Vol.31, No.3, February 1995, pp400-427
PUBLISHED BY FRANK CASS, LONDON

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 401

raw materials, like Indonesia (oil) and Botswana (diamonds). Economic
policy and practice has varied widely between them: contrast China with
Singapore, or Korea with Malaysia. Some may be thought of as ‘plural’
in their socio-cultural or ethnic structures, as in Malaysia and Indonesia;
others are culturally more homogenous (though not entirely so), for
instance, Taiwan and Thailand. Only a few have sustained democratic or
quasi-democratic politics, like Botswana, Malaysia and Singapore; most
have not.

I suggest that the single most important factor in generating sustained
developmental momentum has been the presence in each of a particu-
lar type of state, a ‘developmental state’, which must be understood
politically. And despite many fine studies of third world states [e.g.,
O’Donnell, 1973; Stepan, 1978; Dunn, 1978; Trimberger, 1978; Hamilton,
1982; White, 1984; Wade, 1990], the political analysis of this type of state
and the linkage of state and development theory is still in its infancy
[Evans, 1989: 584]. In drawing on the comparative literature, it is thus
the main purpose of this article to elaborate the elements of a pre-
liminary model of the developmental state. But first, I deal briefly with
the provenance and meaning of the concept itself.

II. THE DEVELOPMENTAL STATE: MEANING AND BACKGROUND

The political purposes and institutional structures of developmental
states have been developmentally-driven, while their developmental
objectives have been politically-driven. In short, fundamentally political
factors have always shaped the thrust and pace of their developmental
strategies through the structures of the state. These factors have
normally included nationalism, regional competition or external threat,
ideology and a wish to ‘catch up’ with the west. Thus developmental
states may be denned as states whose politics have concentrated suffi-
cient power, autonomy and capacity at the centre to shape, pursue and
encourage the achievement of explicit developmental objectives,
whether by establishing and promoting the conditions and direction of
economic growth, or by organising it directly, or a varying combination
of both.

The implicit idea of a developmental state can be traced back a long
way and finds expression in the work of theorists of diverse persuasions.
Friedrich List argued that ‘less advanced nations’ needed to use the
state to catch up with the advanced nations in order to ‘ . . . accomplish
the economical development of the nation and to prepare it for admis-
sion into the universal society of the future’ [List, 1885:175]. Explicitly
(and presciently, remembering Japan and Korea in the twentieth

402 THE JOURNAL OF DEVELOPMENT STUDIES

century), List claimed that ‘ . . . a perfectly developed manufacturing
industry, an important mercantile marine, and foreign trade on a really
large scale, can only be attained by means of the interposition of the
power of the State’ [1885:178].

Marx, too, in the second of his major theories of the state, may be
interpreted as advancing a rudimentary notion of the developmental
state when he referred to the ‘completely autonomous position of the
state’ in France under Louis Bonaparte [Marx, 1852:238]. Arising from
a balance of class forces in society, such a state was not, however,
free-floating. It still had as its fundamental objective the furthering of
capitalist interests in general. In Elster’s opinion, the idea of this
autonomous capitalist state was ‘the cornerstone’ of Marx’s theory after
1850 [Elster, 1985:426], and was later developed by European Marxists,
such as Poulantzas [1973]. Moreover, this theory corresponds well with
the historical development of the capitalist state in Europe ‘ . . . as an
active, autonomous agent from the sixteenth century onwards, pursuing
its own interests by harnessing those of others to its purposes’ [Elster,
1985:426].

In the 1930s and beyond the idea and practice of a developmental
state lay at the heart of the colonial welfare and development policies
of some imperial powers [Lee, 1967]. Gerschenkron [1962] recognised
the need for a state with developmental functions in the context of
late development, a belief which became an article of faith of economic
planners and development economists alike from the 1960s [Robertson,
1984]. The idea of the developmental state was also implicit in Fred
Riggs’ notion of the ‘bureaucratic polity’ in Thailand [1966]. This was
later applied to Indonesia and defined as: ‘ . . . the political system in
which power and participation in national decisions are limited almost
entirely to the employees of the state, particularly the officer corps and
the highest levels of the bureaucracy, including especially the highly
trained specialists known as the technocrats’ [Jackson, 1978:3].

The American political scientist, S.P. Huntington, also stressed the
critical developmental importance of concentrating power in a ‘bureau-
cratic polity’ [1968:167]. To be successful such a state would also need
to undertake the political destruction of those existing ‘ . . . social forces,
interests, customs and institutions . . . ‘ which have held back develop-
ment and which continue to oppose modernisation [Huntington, 1968:
141-2]. Working along parallel lines, Myrdal [2965 1970] drew the ele-
mentary distinction between ‘soft’ and ‘hard’ states in the Third World,
and others have built on that since then, offering accounts of ‘bureau-
cratic authoritarian’ and ‘strong’ states [O’Donnell, 1973; Migdal, 1988;
Leftwich, 1993b].

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 403

But it is only relatively recently that political scientists began to look
more closely at the precise conditions for effective developmental action
by states and some of their characteristics [Nordlinger, 1987]. Ellen Kay
Trimberger [1978] sought to explain how autonomous and developmen-
tally progressive bureaucratic states emerged in the third world. Focusing
comparatively on Japan, Turkey, Egypt and Peru, she argued that a
bureaucratic state apparatus achieved relative autonomy when, first,
those holding high civil and military office were not drawn from domi-
nant landed, commercial or industrial classes; and, second, where they did
not immediately form close relations with these classes after achieving
power [1978:4]. About the same time, A. James Gregor depicted Italian
fascism as a ‘developmental regime’ in respect of its modernising role
[1979]. Seeing their main task as ‘ . . . the rapid modernization and
industrialization of a retarded socio-economic system’ [1979: 311], the
fascists stressed the expansion and importance of the ‘ . . . state as a
centralizing, integrative and managerial agency’ [1979:304].

But in none of these accounts was the term developmental state
explicitly used, nor was there ever any attempt to identify its structural
features. As in much development economics [Gillis et al, 1992: 25], a
major role for the state was announced, but the political and institu-
tional conditions for its effective discharge of that role were never iden-
tified [Green, 1974]. Even recent concerns to ‘bring the state back in’
[Evans et al., 1985] have not engaged fully with the political determi-
nants of state autonomy and capacity. This failure to analyse the
anatomy of the developmental state has been a major flaw in post-war
development theory and policy. For the absence of a political theory of
the developmental state, rather than an institutionalist one, allowed
anti-statist theorists to berate all planned developmentalism (rather
than discriminate between the successful and unsuccessful), denounce
state failure as inevitable and to seize both the theoretical and policy
initiatives in the 1980s [Lai, 1983].

It was only with the publication of Chalmers Johnson’s seminal
work on east Asian developmental states, and Japan in particular
[Johnson, 1981; 1982], that the phrase ‘developmental state’ made its
formal debut and that a serious attempt was made to conceptualise it.
Johnson distinguished the ‘developmental orientation’ of such a ‘plan
rational’ state from both the ‘plan ideological’ state in the Soviet-type
command economies and from the ‘regulatory orientation’ of typical
liberal-democratic or even social-democratic states. A crucial feature of
the developmental state was the intimacy of its relationship with the pri-
vate sector and the intensity of its involvement in the market [Johnson,
1981: 9-10]. The Japanese developmental state was pre-eminent in

404 THE JOURNAL OF DEVELOPMENT STUDIES

‘ . . . setting . . . substantive social and economic goals’ [1982:19] for the
private sector to meet, whereas the regulatory state merely established
the framework for components of this sector to set their own goals. The
Japanese formula for this has been ‘a plan-oriented market economy’.1

Just as Gregor [1979:308] had claimed for Italy, Johnson argued that
a further feature of the Japanese developmental state was the power and
autonomy of its elite bureaucracy, centred in key ministries such as the
Ministry of Finance and the Ministry of International Trade and
Industry (MITI). The developmental state in Japan was also charac-
terised by agreed policy goals, determined mainly by the bureaucratic
elite rather than the politico-legislative elite. As Johnson put it, describ-
ing Taiwan ‘ . . . the politicians reign and the state bureaucrats rule’
[Johnson 1981:12]. Finally, he stressed that the Japanese developmental
state must first and foremost be understood politically, for its prove-
nance lay in the essentially political and nationalist objectives of the late
developer, concerned to protect and promote itself in a hostile world.
‘It arises from a desire to assume full human status by taking part in
an industrial civilization, participation in which alone enables a nation
or an individual to compel others to treat it as an equal’ [Johnson, 1982:
25]. In this respect Johnson echoed precisely the point made by List
about Germany, almost 150 years before; by Mussolini about Italy in the
inter-war years [Gregor, 1979]; by Stalin in 1931 about the urgency of
Soviet economic development [Deutscher, 1966:328]; by the leadership
of the Chinese Communist Party after 1949 [White, 1985], and by
President Park Chung-hee in Korea in 1963 [Lim, 1986:73].

Gordon White [1984] isolated three political variables in order to con-
struct a preliminary classification of developmental state types: state
capitalist, intermediate and state socialist. First, he highlighted the
nature of the social forces and interests which shaped the state and its
purposes (that is the political sociology of the state). Second, he under-
lined the state’s political, administrative and technical capacities as
crucial factors. The third variable, he argued, was the mode of the state’s
involvement in economic activity, whether ‘parametric’ (framework-
setting) or ‘pervasive’ (substantive involvement). The way in which
these variables combined in any given state determined its broad
position in the classificatory scheme.

Since then, there have been some valuable interpretations of devel-
opmental states [Evans, 1985; White and Wade, 1985; Deyo, 1987;
Johnson, 1987; Wade, 1990], and a few important attempts to develop
the theory further [Burmeister, 1986; Evans 1989; Onis, 1991; Charlton
and Donald, 1992; Haws and Liu, 1993]. But the dominant focus of
studies of developmental states has been on East Asia, with a few minor

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 405

concessions to Southeast Asia [Hawes and Liu, 1993]. Some even argue
that the developmental state is sui generis to East Asia, a product of
‘ . . . its unique historical circumstances’ [Onis, 1991:13]. But this is far
too narrow, and my account will draw on societies in both South-east
Asia and Africa.

III. TOWARDS A MODEL OF THE DEVELOPMENTAL STATE

Six major components define the developmental state model:

(i) a determined developmental elite;
(ii) relative autonomy;
(iii) a powerful, competent and insulated economic bureaucracy;
(iv) a weak and subordinated civil society;
(v) the effective management of non-state economic interests; and
(vi) repression, legitimacy and performance.

(i) The Developmental Elite
Developmental states are distinguished by the character of their
developmental elites. Often, the core elite has been associated with a
small cadre of developmentally-determined senior politicians and
bureaucrats, usually close to the executive head of government who was
instrumental in establishing the developmental regime and its culture.
This can be illustrated by pointing to such leaders as Prime Minister Lee
Kuan Yew in Singapore, Presidents Khama and Masire in Botswana
[Henderson, 1990]; President Park Chung Hee in Korea after 1960 [Lim
and Paek, 1987]; Prime Ministers Tunku Abdul Rahman, Tun Razak and
Dr Mahathir bin Mohamad in Malaysia [Ahmad, 1989] and President
Soeharto in Indonesia [Liddle, 1991]. The core policy circles surround-
ing the leadership have often been quite small. Even in Indonesia (with
over 170 million people), it has been estimated that in the 1970s the
bureaucratic, technocratic and military policy elite consisted of about
1000 persons [Jackson, 1978: 3-4]. Maintaining the coherence of the
coalition supporting the elite has been crucial for the continuity of these
states [Moon, 1988; Onis, 1991:114].

Another striking feature of these elites has been the intimacy and link-
age of their bureaucratic (civil and military) and political components,
especially at the top, as was the case, too, in Japan [Johnson, 1981:44-8].
Dense traffic between senior levels of the civil and military bureaucracy
and high political office, rare in western democratic states, is a particu-
larly clear expression of this. For instance, the Park regime in Korea after

406 THE JOURNAL OF DEVELOPMENT STUDIES

1960 may be distinguished from the prior Rhee regime by the manner in
which key bureaucratic posts were ‘militarised’ [Cho, 1975; Burmeister,
1986]. In Botswana in 1984 almost half of the eleven cabinet members
were retired civil servants [Charlton, 1991:273]. The preponderance of
military and civil bureaucrats in political office has been even more
marked in Thailand and had its roots in the modernising military and
civilian bureaucratic elite which overthrew the absolute monarchy in
1932 [Wilson, 1962]. In the 1960s and 1970s, especially in the long non-
democratic periods, the percentage of (mainly civilian) bureaucrats in
Thai cabinets (not to mention appointed legislative assemblies) has
rarely been less than 30 per cent and commonly higher than 80 per cent
[Egedy, 1988: 5-8], A similar pattern may be found in Indonesia since
1966 when President Soeharto took over [Crouch, 1979:576; Van Dijk,
1990:118]. The cabinet has seldom had less than one-third of its members
drawn from the ranks of serving or retired officers [Liddle, 1992: 448].
And in Malaysia, the close links between the civil service and political
elites has resulted in a ‘high degree of civil service influence in policy-
making’ [Puthucheary, 1978:40].

In short, the bureaucracy has had authoritative and pivotal influence
in making development policy, commonly at the expense of both politi-
cal and legislative elites, although in some developmental states the
balance has begun to shift back [Muramatsu and Krauss, 1984; Amsden,
1985; Picard, 1987; Ahmad, 1989; Wade, 1990].

Developmental elites are not monolithic entities but are often shifting
coalitions of diverse interests. As socio-economic change has diversified
the structure of societies, interests, ideas and institutions, all such states
have experienced (sometimes severe) intra-elite political and policy con-
flict, often intensifying with time. For instance, there have always been
tensions within the ruling coalition in Malaysia, and in the 1980s deep
splits opened up in the dominant Malay political party, the United
Malays National Organization (UMNO). In China, struggle between
contending factions pursuing different ‘lines’ has been a continuous
theme since the revolution. Arguably, it has only been since 1979 that
China has begun to become a consistent developmental state, although
the previous thirty years laid the foundations for this. Economic prob-
lems in South Korea from the late 1970s precipitated conflict within
policy circles which ended with a commitment to structural reforms,
a process made easier by President Park’s assassination in 1979 and the
start of a new regime under President Chun Doo Hwan [Moon, 1988;
1990]. In Taiwan, contending institutional forces in economic policy-
making, have expressed the sometimes divergent priorities of various
interests (security, industry, economic efficiency) within the ‘intra-

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 407

governmental coalition’ [Noble, 1987]. A divided military and alternat-
ing military and civilian rule has been the norm in Thailand, while in
Indonesia a complex tension has existed between economic technocrats,
their civilian rivals and the military [Glassburner, 1978b: 32].

Corruption is notoriously difficult to define, identify and measure
comparatively [Ward, 1989], and developmental states are certainly not
immune from it. In rapidly growing economies, sudden wealth generates
huge temptations, especially so, perhaps, in cultures where patron-client
relations are deeply embedded, and where the role of the state in eco-
nomic life is intense. Hence the politics of transition in some develop-
mental states have displayed extraordinary mixtures of patrimonialism,
centralisation, technocratic economic management, coercion and cor-
ruption. Thailand and Indonesia are examples where there have been
cases of spectacular high-level corruption. For instance, the Soeharto
regime has been described as ‘ . . . a giant patronage machine with a net-
work extending from Jakarta to the provinces’ [Crouch, 1984:82]. Yet it
has also been argued that in using a whole range of what might be
termed ‘corrupt’ measures, Soeharto was consolidating both his power
(notably over the army and bureaucracy) and the Indonesian develop-
mental state by winning over support or buying off opposition. Despite
this, developmental state elites have generally been relatively non-
corrupt and developmentally determined by contrast with the pervasive
corruption from top to bottom in so many developing societies.

Developmental states have not exhibited the one-man ‘sultanisrn’
[Weber, 1964:346-7] of many African states [Sandbrook, 1986]. Nor do
they manifest the corrupt, corrosive and pervasive patrimonialism of
non-developmental states, characterised by economic stagnation,
chronic political instability, endemic poverty and gross inequality, as in
Duvalier’s Haiti [Lundahl, 1992], Mobutu’s Zaire [Young, 1978] and the
pervasive cronyism of the Marcos regime in the Philippines [Hawes,
1992]. These states illustrate classically Medard’s notion of ‘the privati-
zation of public affairs’ in Africa [1982:185], or the working assumption
of the Haitian elite t h a t ‘ . . . the spoils of government were identical to
the private finances of the politicians’ [Lundahl, 1992:38]. This has not
been the rule in developmental states, nor have their intra-elite disputes,
forms of patronage and corruption been so developmentally-debilitating
[Jackson 1978:6-17].

(ii) Relative Autonomy of the Developmental State
A second shared aspect of developmental states has been the relative
autonomy of the elites and the state institutions which they command
[Reuschemeyer and Evans, 1985: 48-9]. Although everywhere the form

408 THE JOURNAL OF DEVELOPMENT STUDIES

and extent of relative state autonomy has varied [Mackie, 1988:295], it
seems common to both democratic and non-democratic developmental
states alike. The concept, causes and constituent elements of ‘state
autonomy’ have been explored in a variety of theoretical and empirical
contexts in recent years and it has been defined in various ways
[Skocpol, 1985; Mann, 1986; Lipietz, 1987: 72-3; Evans, 1989: 573-6;
Burmeister, 1986:139; Cotton, 1992]. But for present purposes autonomy
may be defined simply to mean that the state has been able to achieve
relative independence (or insulation) from the demanding clamour of
special interests (whether class, regional or sectoral) and that it both can
and does override these interests in the putative national interest
[Nordlinger, 1987:361].

This does not mean that such interests, or others, have not benefited
from the developmental strategies pursued by the state. Some certainly
have. These include the chaebol conglomerates and a rapidly expanding
middle and professional class in Korea, the emerging Bumiputra (native
Malay) bourgeoisie in Malaysia, the larger cattle-owners of Botswana,
the small industrial entrepreneurs in Taiwan, military capitalists and
their associates in Thailand and Indonesia, as well as state enterprise
managers and party cadres in China. But such benefits have generally
(Malaysia is the important exception) been less the objectives of policy
than its associated outcome. Moreover, all developmental states have
not been equally autonomous or insulated from either popular or vested
pressures. Despite their strong military cores, the Thai and Indonesian
states [Hawes and Liu, 1993: 647-51] appear to have been less
autonomous and more open to pressures from vested interests than the
states of Singapore, Korea or Botswana [Crouch, 1984; Cone, 1988;
Picard, 1987:270-71].

‘Autonomy’ in this context also does not mean isolation. The reality,
as Evans describes it [1989], is more like ’embedded autonomy’. This
means that despite the power and autonomy of state bureaucracies, they
have become embedded in a progressively dense web of ties with both
non-state and other state actors (internal and external) through which
the state has been able to co-ordinate the economy and implement
developmental objectives [Johnson, 1981:13; Evans, 1989:575-81; Onis,
1991:123-4; Weiss and Hobson, 1994: Ch.l].

There has also commonly been a strong ‘ . . . primordial association
. . . ‘ between the development of military capacity and the power and
autonomy of the developmental state [Burmeister, 1986:122]. This has
largely been a consequence of their need to respond to regional compe-
tition and external threat [Migdal, 1988:269-77]. The point underlines
and extends Tilly’s [1975] claim (for Europe) about the link between

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 409

state formation and war-making. Examples of this are South Korea’s and
Taiwan’s fiercely nationalistic and competitive struggles with North
Korea and China respectively; Malaysia’s experience of ‘confrontation’
with Indonesia, internal insurgency and tensions between Malays and
Chinese; Singapore’s sense of vulnerability in an Islamic Malay-
Indonesian environment [McVey, 1992:28]; Indonesia’s and Thailand’s
aggressive defensiveness in relation to perceived regional (or internal)
communist threats; China’s determination to build socialist industriali-
sation, its conflict with the USSR and its competitive stance vis-d-vis the
west; and Botswana’s need for maximum economic development given
the power and threat of its South African neighbour. This potent politi-
cal mixture of nationalism and developmental urgency generating a
strong and autonomous developmental state was also central to the
structure and objectives of the post-Meiji state in Japan [Burmeister,
1986:126; Fukui, 1992].

In non-democratic developmental states, however, on both left and
right, the single major political source of relative state autonomy has been
the seizure of state power (from above or below) by a modernising devel-
opmental elite. In Thailand this was the bloodless ‘revolution’ of 1932
(although the contemporary features of the Thai developmental state
have a later provenance); in China, it was the victory of the Chinese
Communist Party in 1949; in Taiwan, the establishment of Nationalist
regime over the Taiwanese after 1949; and in Korea it was General Park
Chung Hee’s 1961 coup. In Indonesia, from 1966, a major consequence of
Soeharto’s ‘New Order’ was to free’… the decision-making process from
the constraints imposed on it by the political arrangements of
(Soekarno’s) Guided Democracy’ [Liddle, 1991: 407]. Moreover, as
Huntington predicted nearly thirty years ago, these take-overs have nor-
mally been accompanied or immediately followed by the (often brutal)
elimination, subordination or marginalisation of political groups, organi-
sations or socio-economic classes which had previously enjoyed both
wealth and power, which might threaten the new regime or sabotage its
developmental purposes. For instance, the Meiji bureaucrats swept aside
‘ . . . the so-called feudal relations of production in the Tokugawa period’
[Burmeister, 1986:127]. A similar process was started during the revolu-
tion in China and completed after 1949. In an orgy of blood-letting,
between 250,000 and a million supporters of the Indonesian Communist
Party (PKI) were ‘physically annihilated’ by the army between October
1965 and January 1966 [Anderson, 1983; 1993:5]. The bureaucracy was
‘purged’ and, in a general process of ‘departyisation’, other parties as well
as student, youth, labour and peasant organisations were suppressed,
restricted or co-opted as functional elements of the ruling party,

410 THE JOURNAL OF DEVELOPMENT STUDIES

GOLKAR [Emmerson, 1978:90-100; Robison, 1985]. Japanese colonial
rule in Korea and Taiwan in the twentieth century established a strong
administrative state structure and suppressed dominant classes. After the
defeat of Japan this process was consolidated in Korea through land
reform measures and by the arrival of the Kuomintang mainlanders on
Taiwan after 1949.

It is important to note the key difference in this respect between devel-
opmental states and the strong, authoritarian but non-developmental
states of Latin and Central America. In the case of the latter, powerful
(and often opposed) class forces and organisations (both rural and more
recently urban) have been active, either as dominant influences on the
state apparatus or as threats to it, and often both. Their power, and con-
flict between them, produced major crises for the regimes and precluded
the emergence of developmental state autonomy and capacity
[O’Donnell, 1973; Hamilton, 1981; Rueschemeyer et ah, 1992: Ch.5].
Comparing East Asia with Latin America, one observer noted:’… the
absence of rural elite influence from the formation of state policy unites
the East Asian cases and separates them from those of Latin America’
[Evans, 1987:215].

The autonomy of the formally democratic developmental states (such
as Singapore, Botswana and Malaysia), on the other hand, appears in
large measure to have been a function of the dominance of a single
party. In Malaysia, this has been UMNO, controlling the dominant coali-
tion in the Alliance Party (later the Barisan Nasional). Its commitment
to securing Malay hegemony in the state, and to promoting Malay inter-
ests, especially after the Malay-Chinese conflict of 1969, has been the
basis of its dominance. This has given its leadership both the power and
autonomy to take all major policy decisions in conjunction with senior
levels of the predominantly Malay bureaucracy, leaving parliament and
public debate without any significant role [Means, 1976: 441-3;
Puthucheary, 1978:40-44; Ahmad, 1989]. In the ‘administrative state’ of
Botswana [Picard, 1987:13], the Botswana Democratic Party (BDP) has
won every election since independence with overwhelming majorities,
thus ensuring continuity of policy, without serious threat from political
rivals [Holm, 1988]. In quasi-democratic or one-party democratic
Singapore [Humana, 1987], often also described as an ‘administrative
state’ [Crouch, 1984:11], the dominance of Lee Kuan Yew’s People’s
Action Party (PAP) has generated ‘great policy autonomy’ [Cone, 1988:
261] for the state.

This contrasts sharply with other democratic but non-developmental
states – such as Jamaica or Sri Lanka – where there has been no such
single-party dominance. And it also contrasts with India where the pre-

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 411

eminence of the Congress Party has been disintegrating in the last
20 years. But even before that, the prospects for developmental state
autonomy under the earlier hegemony of Congress were negligible,
given the dominant coalition of ‘proprietary classes’ in party and state
[Myrdal, 1968; 1970; Bardhan, 1984:39].

The internal autonomy of some of these states in relation to their soci-
eties has been strengthened, furthermore, by the inflow of substantial
amounts of foreign aid, loans and state-directed private investment
which reduced government dependence on locally-generated revenue
capital. In Korea, for instance, aid-financed imports in the 1950s regu-
larly accounted for well over 50 per cent of all imports (largely financed
by grants from the US). Although this declined in the 1960s, it was
balanced by new multilateral loans and, later, by private foreign loans
[Krueger and Ruttan, 1989: 232-3]. The channelling of both aid and
private loans through the state machinery simultaneously enhanced both
its developmental capacity and its autonomy [Lim and Paek, 1987]. US
aid and military expenditures in Thailand between 1951 and 1970 had a
similar effect [Hewison, 1985: 269]. In Indonesia, after 1966, President
Soeharto adopted the development strategy proposed by Professor
Widjojo Nitisastro and a group of economic technocrats, involving lib-
eralisation of the economy and a policy of attracting external financial
support [Robison, 1989: 61]. Coordinated by IGGI (Inter-governmental
Group on Indonesia), there followed massive annual inflows, which in
some years covered 50 per cent of imports. Moreover, this money (and
the huge oil revenues of the 1970s) went directly to the centre, thus help-
ing Soeharto to build ‘ . . . the most powerful state in Indonesia since
Dutch colonial times’ [Anderson 1983: 489] and generating ‘consider-
able financial autonomy’ for the state [Robison 1985: 306]. Botswana
became independent in 1966, but the British government continued to
provide almost 60 per cent of the state’s development spending between
1968 and 1973. With the proliferation of North American and European
aid donors in the 1970s, external funding of development expenditure
reached 72 per cent in 1977-78 [Stevens, 1981:58]. An improved customs
union agreement with South Africa in 1969 brought further direct state
revenues [Holm, 1988:197].

(Hi) The Economic Bureaucracy: Power, Competence, Insulation and
Penetration
Economic co-ordination and development in these states has been
managed by specific institutions, whose task has been to organise
the critical interactions between state and economy. These have been
the economic bureaucracies, the core centres of strategic economic

412 THE JOURNAL OF DEVELOPMENT STUDIES

direction in developmental states, or their ‘pilot agencies’ as Johnson
described them for Japan [1982:26]. What differentiates these economic
high commands in developmental states from the generality of planning
institutions in so many developing countries appears to be their real
power, authority, technical competence and insulation in shaping deve-
lopment policy, although of course this, too, varies from state to state.

The East Asian capitalist developmental states provide the clearest
examples. Describing this core economic bureaucracy as an ‘economic
general staff, Robert Wade has identified its major components in
Taiwan in three key agencies: the Council for Economic Planning and
Development (its most recent name), the Industrial Development
Bureau and the Council for Agricultural Planning and Development
[Wade, 1990:196]. In Korea, the Economic Planning Board (EPB), set
up in 1961, the Ministry of Finance and the Ministry of Commerce and
Industry constituted the core economic bureaucracies [Luedde-Nuerath,
1985:96] of which, until recently at least, the EPB has been pre-eminent.
Described as a ‘super ministry’ [Shinohara et ai, 1983: 44] and headed
by a deputy prime minister, it crucially combined both budgetary and
planning powers and ‘ . . . wielded tremendous power over economic
decision-making’ [Haggard, 1990: 64-50].

The pattern is repeated in the other developmental states outside east
Asia. In Singapore, the core economic bureaucracy has been the
Economic Development Board (established in 1961). Not accountable
to Parliament, but having high-level political support in the de facto
one-party state, it has been central in shaping development policy and
managing growth [Haggard, 1990:113-14], In Botswana, too, combined
planning and budgetary functions are concentrated in the powerful
Ministry of Finance and Development Planning (MFDP) [Raphaeli et ai,
1984]. Growth in Botswana has been ‘ . . . state-led and state-directed’
[Charlton, 1991:265], with the MFDP serving as its economic high com-
mand, generating policy and taking an ‘ . . . aggressive role in planning
investment’, against the background of a ‘fairly passive’ parliament
[Holm, 1988: 187-97]. The Malaysian economic bureaucracy, perhaps
less powerful than these others, has none the less enjoyed ‘great policy
autonomy’ [Cone, 1988: 261]. Key economic planning, implementation
and monitoring institutions (the Economic Planning Unit, the National
Development Planning Committee and the Implementation and
Coordination Unit) have been concentrated in the Prime Minister’s
Department, and have had a major influence in national development
planning [Young et al, 1980:92; Robertson, 1984:271-4], especially in the
period of ‘state-led industrialization’ under Prime Minister Mahathir bin
Mohamad after 1980 [Bowie, 1991:111-25]. Malay dominance of politics

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 413

and the bureaucracy (through UMNO) has helped insulate these institu-
tions. It has also meant that the powerful Chinese (and foreign) business
interests have had ‘relatively limited special influence on economic
policy’ [Crouch, 1984:34].

In Indonesia, Thailand and China, despite the strong authoritarian
bases of these states, the power, compactness, unity and efficacy of the
economic bureaucracies appears to have been less. In this respect, at
least, they conform less closely to the pure model of the developmental
state. From the start of the New Order in Indonesia, the army realised
that growth was critical. A team of economic technocrats was brought
to the political heart of the presidency [Crouch, 1979] where their
influence was considerable. Professor Widjojo Nitisastro, one of the key
figures in this group, became Minister Co-ordinator of Economic and
Financial Affairs and was put at the head of Soeharto’s National
Planning Council [Glassburner, 1971: 433; 1978b: 29]. Though their
number and influence in the cabinet grew at the expense of military
personnel throughout the 1960s and 1970s, these technocrats never had
the kind of authoritative autonomy enjoyed by their counterparts in
Botswana or Singapore and had to share power with civilian rivals and
the military [Glassbumer 1978a: 166-7; 1978b: 32]. Moreover, the tech-
nocrats in the National Economic Planning Board had little control over
the huge national oil company, Pertamina (described as a state within a
state, with its own patronage empire), or the rice agency, Bulog [Crouch,
1984]. Their base was thus less institutional and more personal, in the
form of strong presidential support from Soeharto with his vision of an
‘Indonesian industrial superstate’ [Hill, 1992:226].

In Thailand, too, the economic bureaucrats never developed the
power and insulation of the kind found in Botswana or Korea. Attempts
were made, especially from the time of Prime Minister Sarit’s moderni-
sing regime in 1958, and on the urging of a World Bank mission (1957/8),
to establish institutional developmental capacity to direct Thai develop-
ment with technocrats at the helm [Girling, 1981: 81-3; Samudavanija,
1990: 278]. A National Development Plan was initiated, a National
Economic and Social Development Board was established as well as was
the Board of Investment and the Industrial Finance Corporation
of Thailand (IFCT) to promote national industrialisation [Hewison,
1985: 278-284]. Despite this, the technocracy never prevailed and
political factors largely explain this. Divisions in the military, competing
bureaucratic-business factions, popular pressures and alternating
civilian and military rule all served to disrupt continuity and undermine
technocratic policy-making by the aspirant economic bureaucracy
[Crouch, 1984; Cone 1988].

414 THE JOURNAL OF DEVELOPMENT STUDIES

Although its record of growth has been impressive, China has till
recently (1980s) been the major exception with regard to this aspect of
developmental states. While the dominance of the Chinese Communist
Party and the army has assured state autonomy, China provides the
weakest example of an effective economic bureaucracy. Modelled on
the Soviet system, the State Council was (formally) the highest organ
of state administration. It comprised two main planning commissions,
the State Planning Commission (for long term plans) and the State
Economic Commission (for short-term plans), plus a jungle of other
national agencies, commissions, ministries, bureaux and offices
[Donnithorne, 1967; Burns 1983; You, 1986], all subject in turn to
instructions from the Politburo and, in theory, from the National
People’s Congress. Specialists insist that, despite the long and strong
bureaucratic tradition in China, there has been no ‘ . . . effective central
planning system in China’ [White, 1984:109]. The bureaucracy has been
in a mess and it is thus not surprising that current interest in reform
focuses on how the system can be made more like other East Asian
developmental states, combining the political authority of a dominant
party with a more technocratic economic bureaucracy, coordinated by
the Economic Commission [You, 1986: 136-8; White, 1991]. Current
developments in China thus suggest that a ‘developmental state’, or
‘market-facilitating state’ [Howell, 1993a: 2], is emerging [White, 1995].

An important feature of these core bureaucracies has been their tech-
nical competence [Amsden, 1985: 83; Johnson, 1987:152; Evans, 1989:
573-4; Wade, 1990:217-24; Onis, 1991:114; Charlton, 1991:265]. Many
of the top officials have received advanced training abroad, such as the
new Thai technocrats from the 1960s [Girling, 1981: 82], and the so-
called ‘Berkeley mafia’ of Indonesian economists in and around
Soeharto’s cabinet [Glassburner, 1978a: 166]. The literature suggests that
most of these senior people have generally shared or helped to shape
the modernising objectives of the political leadership and hence have
been active in defining the developmental consensus over time. In East
Asia, especially, they have also often had common educational back-
grounds and party loyalties. Competition to enter these prestigious
bureaucracies has been fierce and only the best graduates have been
chosen, with very good career prospects at first inside and then later out-
side the bureaucracy [Johnson, 1982:21]. Interestingly, expatriates have
also often played important roles within these core economic institu-
tions, as senior employees, advisers or consultants, thereby heightening
the autonomy of these bureaucracies. This was the case early on in
Taiwan, Korea and Malaysia, and has been an enduring feature of the
economic bureaucracy in Botswana [Raphaeli et al, 1984].

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 415

(iv) Developmental States and Civil Society
Developmental states have generally operated in social contexts where
civil society has been crushed or was weak to start with. By ‘civil society’
I mean the web of all privately-organised interests and groups, above the
family level but below that of the state [Rueschemeyer et al, 1992: 6].
Developmental states have also been ‘strong states’ enjoying much
‘infrastructural power’, ‘ . . . to penetrate and centrally coordinate the
activities of civil society through its own infrastructure’ [Mann, 1986:
114]. As Migdal [1987: 401] has pointed out, strong states are also not
seriously threatened by other ‘rule-making’ organisations which exercise
or claim control over certain groups in the society, thus challenging the
pre-eminence of the state, such as Sendero Luminoso in Peru or the
Tamil Liberation Front in Sri Lanka.

The common use of internal security legislation and agencies, secret
police and party organisations has been standard practice in bolstering
the state and controlling civil society in all developmental states.
Everywhere mass media and labour organisations have been strictly con-
trolled. Weakness of civil society has often been a result of a direct attack
upon it by the new developmental state, as in the extreme cases of China
after 1949 where the Chinese Communist Party (CCP) set out t o ‘ . . . elim-
inate all organizations and interactions not governed by the CCP . . . ‘
[Gold, 1990:21], in Indonesia after 1966 when the PKI and other parties
were effectively eliminated, and in Korea [Cotton, 1992:523-4].

Socio-economic class formation and differentiation is the typical
medium for the emergence and growth of an active civil society.
Generally, this has been very limited in the early years of develop-
mental states. In Indonesia, for instance, there has been no recent his-
tory of hacienda-like estates, with legacies of intense social class conflict,
as in the Philippines and Latin America [Liddle, 1992: 445]. Even the
small capital-owning classes (despite their previous curtailment by
Soekarno) knew from the start of the New Order that their influence
would be minimal. Their organisations were ignored in favour of new
ones sponsored by the state [Robison 1987: 61-2]. First under
Soekarno’s Guided Democracy and then under the New Order, civil
society was ‘gradually strangled’ [Sundhaussen, 1989:462]. The prohibi-
tion on discussing ideological alternatives (for example, Marxism or
Islam) to the official Pancasila ideology had the effect of far-reaching
depoliticisation in Indonesia [Van Dijk, 190: 123]. Likewise, in Korea,
the weakness of social classes was a condition of the emergence of the
developmental state. The working class was small, the capitalist class
was largely dependent on the state and the aristocracy, such as it was,
had been ‘dissolved by land reform’ [Amsden, 1989:52].

416 THE JOURNAL OF DEVELOPMENT STUDIES

Low levels of economic development in primarily rural societies at the
inception of developmental states, as in Malaysia or Thailand, has every-
where meant that civil society was weak. Botswana is a good case in
point, where the most numerous classes was the ‘peasantariat’ [Parson,
1984], people with a rural base on the land, but who were also involved
in (often migrant) wage employment as well. The other main class was
the so-called petty-bourgeoisie of teachers, civil servants, shopkeepers
and the more prosperous cattle-farmers. They had generated few
serious independent organisations, and the few which did exist (such as
farmers’ institutions, co-operatives and parent-teacher associations)
were absorbed in the BDP and its affiliates or financed by the state. Civil
society in Botswana thus lacked ‘ . . . the capacity and initiative to orga-
nize itself [Molutsi and Holm, 1990: 327]. The single main potential
opposition to the secular state, the chiefs, have thus far been carefully
managed to support the developmental state. Nationally, they have only
an advisory role through the House of Chiefs, while retaining some
influence at local level, despite the redistribution of their powers to local
councils after independence [Holm, 1988].

This general weakness, flattening or control of civil society appears
thus to have been a general condition for the constitution and continu-
ity of developmental states. But, paradoxically, the economic success of
these states has promoted the growth or re-emergence of a potentially
active civil society. Regular participation in modern economic life,
expanding educational provision, rising levels of consumption, strength-
ening of the organisations of both labour and capital and the functional
requirements of economic growth and diversification have all been
achievements of developmental states. These successes have helped to
stimulate demands for decentralised decision-making, greater individual
liberty and the establishment or extension of democracy. Comparable
evidence from China [Gold, 1990; White, 1991], South Korea [Han,
1988; 1989; Moon, 1988; Cotton, 1989], Thailand [Anderson, 1990;
Samudavanija, 1990], Indonesia [Liddle, 1992] and Botswana [Holm,
1988] confirms this and raises important questions about the future of
developmental states.

(v) Developmental States and Economic Interests
These factors all strengthened the capacities of developmental states
vis-d-vis their dealings with private economic interests, internal and
foreign. The key point here is that in the developmental states under
review, state power and autonomy was consolidated before national or
foreign capital became influential. This is clearly the case now in China
as it becomes more open to foreign capital. In the formative years of

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 417

East Asian developmental states, private economic interests were either
suppressed (as in China), or were generally politically weak, if not
insignificant, relative to state power. Where landed power existed, it was
destroyed through direct political attack and programmes of land
reform, classically in China, but also in Taiwan and Korea. Local bour-
geois classes were insignificant and private foreign capital barely existed
as an important economic or political factor at the time of the formation
of the developmental states. Where it did exist to some extent (as in
Malaysia and Singapore) it was cautious and weak, relative to the state
which was thus the most powerful player in town.

This differentiates these states decisively from Latin America where
historically powerful landed interests, an emerging bourgeois class and
foreign capital were deeply entrenched. Thus compared even with the
Latin American ‘bureaucratic authoritarian’ regimes in the 1960s and
1970s, East Asian developmental states were from the start ‘ . . . in a
much better position to determine what role transnational capital would
play in the industrial division of labour…’ [Evans, 1987:215]. By using
a battery of policy instruments covering conditionality (for instance
about joint enterprises and local content requirements), screening and
monitoring of foreign capital, these states have ‘ . . . given a virtuoso
performance . . . ‘ [Johnson, 1987: 163] in setting terms which have
attracted foreign capital while making it serve the state’s domestic
economic developmental priorities [Haggard and Cheng, 1987; Amsden,
1989; Mardon, 1990; Stallings, 1990].

Moreover, developmental states have played a major part in encour-
aging the emergence and growth of private economic institutions, their
shape, scope and focus of activity, even in China after 1979. As Amsden
[1989] describes so effectively for South Korea, the state has been
active in promoting, pushing, persuading and bullying these interests in
directions which conform to its development strategy. The patterns
of intimate and intense state-private sector relationships have inevitably
led to these political economies being described as ‘corporatist’ [Onis,
1991:118-19], in which the ‘leadership’ role of the state has been far
more important than its ‘followership’ role [Wade, 1990: 295]. Com-
monly, close relations between the state and the emerging private sector
power groups have followed [Evans, 1989; Onis, 1991].

In Indonesia [Robison, 1987], the role of the state in the economy has
been predominant, at least until recent moves in the 1980s to privatise
and deregulate [Soesastro 1989]. Dutch corporate interests were nation-
alised in the 1950s. Foreign capital was unwelcome and hence unin-
terested, apart from oil and mineral companies which were in partnership
with the state. The small domestic capital-owning class was divided

418 THE JOURNAL OF DEVELOPMENT STUDIES

(between indigenous and Chinese sectors) and concentrated in trade
and small-scale commodity production. Though increasingly unsteady
under Soekarno, shaken internally by political conflict, enervated by
bureaucratic entropy and undermined by economic deterioration, the
state was still the pre-eminent force [Emmerson, 1978; Anderson, 1983].
Soeharto’s New Order was quick to rationalise and consolidate state
power, using its dominance to establish a developmental momentum,
encouraging, protecting and helping local capital. Given its bulging
oil revenues in the 1970s, the Indonesian state was not dependent on
foreign funding and though it wished to attract it, and did, it could
impose conditions upon it. But, crucially, as in East Asia, the Indonesian
developmental state was in place before local and foreign capital
interests expanded in the 1970s and 1980s.

The New Economic Policy (NEP) in Malaysia after 1969 also suc-
ceeded in limiting foreign ownership in Malaysia while simultaneously
using legislation, state funds and large public corporations to promote
Bumiputra (native Malay) interests vis-d-vis the politically weakened
but economically dominant Chinese [Bowie, 1991:22]. Even in the case
of the relatively small and weak Botswana economy, the state was able
to persuade the powerful de Beers diamond mining corporation of
South Africa to accept a 50-50 share-owning arrangement in the
Botswana diamond mines in 1975 (de Beers had previously had an
85 per cent stake). This has given the state influence over many
aspects of mining policy, such as wages and the licensing of exploration
and mining operations [Parson, 1984], but has not (as in Jamaica or
Zambia) given rise to major or disruptive conflicts with the mining
corporations.

(vi) Developmental States: Civil Rights, Performance and Legitimacy
A grim feature shared by developmental states is the combination of their
sometimes brutal suppression of civil rights, their apparently wide
measure of legitimacy and their generally sustained performance in deliver-
ing developmental goods. I suggest these are intimately connected.

The non-democratic developmental states are not particularly attrac-
tive states and some have appalling human rights records, at least when
set against liberal standards. Even in the softer and quasi-democratic
Singapore, official attitudes to opposition and dissent have hardly been
tolerant, as Lee Kwan Yew indicated in 1982: ‘Every time anybody starts
anything which will unwind or unravel this orderly, organized, sensible,
rational society, and make it irrational and emotional, I put a stop to it
and without hesitation’ [Harris, 1986: 61].

But using Humana’s assessment of a world average of 55 per cent for

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 419

human rights ratings in all countries, the comparative records of deve-
lopmental states in a global context have not been especially bad. Most
have been better than South Africa, the ex-Soviet Union, Iran, Albania
and the Central African Republic, for instance. In the non-democratic
developmental states, records range from slightly better than average
(Thailand and South Korea at 57 per cent and 59 per cent) to the very
poor (China at 23 per cent) with the others in between (Taiwan, 47 per
cent and Indonesia 30 per cent). Democratic and quasi-democratic
developmental states range from 71 per cent in the case of Botswana,
through 59 per cent for Singapore, to 53 per cent for Malaysia [Humana,
1987: xiv-xv].

It is notoriously difficult to measure legitimacy, especially under non-
democratic conditions. None the less, case studies suggest a widespread
legitimacy, even genuine popularity [Liddle 1992: 450], for develop-
mental states. However, there has also been widespread opposition to
many aspects of developmental policy, such as the often bloody labour
struggles in the 1980s in Korea and Taiwan [Bello and Rosenfeld, 1992
Tables 1.4 and 13.1], the major disturbances by students and the urban
poor in Djakarta in January 1974, the frequent student and popular
mobilisations in Bangkok, as in 1973, 1976 and most recently in 1992
[Samudavanija, 1990], and of course the events of Tiananmen Square,
Beijing, in June 1989. While these protests have often shaken the
regimes (bringing changes of government in Thailand), they have not
seriously challenged their legitimacy.

It is probable that this mixture of repression and legitimacy is best
explained by the well-distributed benefits of the high growth rates these
developmental states have attained, at least as measured by the Human
Development Index or HDI [UNDP, 1992], a combined measure of
national income, life expectancy and educational attainment, ranking
160 countries from best (1) to worst (160) in relation to each other. The
developmental states I have concentrated on here are ranked globally,
as follows: Korea (34), Singapore (40), Malaysia (51) (all therefore in
the top third on a world basis); Thailand (69), China (79), Botswana
(94), and Indonesia (98) (in the top two-thirds) with data for Taiwan not
being available [UNDP, 1992:20]. This places them well above countries
such as Bolivia, Kenya, Zambia, Nigeria, Cote d’lvoire, Egypt, Pakistan,
India and Vietnam. Developmental states have generally been serious
and effective in bringing schools, roads, health centres, public housing
and other facilities to an expanding circle of people. This has increased
life expectancy in these states, which is nowhere less than 62 (Indonesia)
and is as high as 74 in Singapore [World Bank, 1992a], though this is not
to say that sharp inequalities do not exist (especially along regional and

420 THE JOURNAL OF DEVELOPMENT STUDIES

urban-rural cleavages), as in Thailand and Indonesia [Phongpaichit,
1989; Booth 1992].

IV. CONCLUSIONS

Clearly, more comparative research is needed on developmental states,
but some working conclusions are worth making. First, this survey sug-
gests a composite model or ideal type of the developmental state as a
distinct, but changing, sub-type of state in the modern world which is not
confined to Confucian East Asia. It is found also in Islamic and Buddhist
Southeast Asia as well as in Africa and, historically, in Europe. Such
states are dominated by strongly nationalist developmental elites and
combine varying degrees of repression and legitimacy in contexts where
civil society has been weak or weakened. These states concentrate con-
siderable power, authority, autonomy and competence in the central
political and bureaucratic institutions of the state, notably their eco-
nomic bureaucracies, and generate pervasive infrastructural capacity
[Mann, 1986]. They have established and maintained close co-ordinating
links with key economic interests in the private sector [Weiss and
Hobson, 1994]. State-determined incentives have ensured that such
domestic and foreign interests have been harnessed both to pursue their
own advantage and serve national developmental goals.

Second, developmental states do not fall obviously into either the
Marxist or Weberian traditions of state theory [Leftwich, 1993b]. Clearly,
they are not the agents of dominant classes, nor the product of class
balance or stand-off, as in Marxist theory. With respect to Weberian-
based theory, these states are not typically patrimonial, nor do they
express the politico-bureaucratic characteristics and division of labour
of the legal-rational polity [Beetham, 1974: 72-9]. On the contrary,
developmental states have been essentially mobilising states in which
political and bureaucratic components have been virtually fused.

Third, developmental states vary with respect to all the major factors
I have outlined above. Given the particular complexities and internal
tensions of the coalitional bases of the states of Thailand, Malaysia and
Indonesia, for example, they have had less developmental autonomy
than those of Botswana, Singapore or Korea (at least until recently).
Indeed if one were to classify these states in terms of their develop-
mental effectiveness alone, three categories would emerge. In the first
would be Korea, Taiwan, Singapore and Botswana; in the second would
be Malaysia and Indonesia; and in the third would be China and
Thailand, though China may well be moving up into the second
category. But further comparative research is needed to explain what

TOWARDS A MODEL OF THE DEVELOPMENTAL STATE 421

minimum combination of the above factors, and the intensity of their
presence, establishes the boundary between non-developmental and
developmental states, and which other states already fit or might yet
graduate into these categories.

Fourth, like all states, developmental states are not static. Changes in
their socio-economic structures, in their politics and international
environments have produced shifts in their elite coalitions and the
ideas, interests and institutions which bear on them, both domestic and
foreign. In some, a combination of economic success, structural differ-
entiation, external pressure and political liberalisation may induce a
substantial modification of the developmental state, as in Korea [Moon,
1988]. In others, added developmental urgency may induce economic
liberalisation only, while strengthening the autonomy and coherence
of the development state and especially its economic bureaucracy, as in
China [White, 1991; Howell, 1993b]. Elsewhere, as in Indonesia, declin-
ing state revenues, increased international pressures and an expanding
role for both local and foreign capital may undermine the ‘hegemony of
the politico-bureaucrats’ and their direction of the national economy
[Robison, 1987: 50-51], at the same time strengthening the political
influence of private economic interests in civil society [Robison, 1992].

Finally, and crucially, at all points of analytical entry, the forms and
features of developmental states illustrate the primacy of politics. Their
provenance is everywhere traceable to the socio-economic structures,
histories and especially political struggles which constituted the forma-
tive processes of these states. Their relative autonomy, too, is clearly a
function of their political origins and the coalition which supports them,
while the authority and insulation of their economic high commands
has flowed from the political power and support of the central political
executives. And their ability to deal both with civil society and
with particular local and foreign interests highlights the centrality of
politics and state capacity in shaping mutually advantageous economic
relationships.

Few societies in the modern world will make speedy transitions from
poverty without states which approximate this model of a develop-
mental state (ideally, but not necessarily, the democratic kind). Without
such states, transitions may be slow but the human cost immense. In
short, contrary to the current orthodoxy, development requires not less
state but better state action [Sandbrook, 1990: 682], and this is most
likely from developmental states. Thus calls for good governance [World
Bank, 1992b], or democratic governance, which focus on administrative,
judicial or electoral good practice, entirely miss the point that such
virtues can only be instituted and sustained by politics [Leftwich, 1993a;

422 THE JOURNAL OF DEVELOPMENT STUDIES

1994]. Such narrow administrative models of development simply
evacuate politics from developmental processes. It is time to bring
politics firmly back in to the analysis and promotion of development.

final version received April 1994

NOTE

1. I am indebted to John Crump for this point.

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Environment and Planning A 1994, volume 26, pages 5 4 3 – 5 6 6

The ‘developmental state’ and the newly industrialised
economies of Asia

M Douglass
Department of Urban and Regional Planning, University of Hawaii, 2424 Maile Way,
Honolulu, HI 96822, USA
Received 24 June 1993

Abstract. The renewed interest in the role of the state in economic growth and development has
been focused on the four newly industrialised economies (NIEs) of Asia—Hong Kong, Korea,
Singapore, and Taiwan. Much of the recent literature tends to crowd these states into an undif-
ferentiated model of the ‘developmental state’. A closer examination reveals significant differences
among them in terms of the state’s relations to capital, labour, and the external economy that not
only defy reduction to a single model but also show that options for moving away from labour-
intensive segments of production for world markets vary considerably. Furthermore, as demo-
cratisation movements gain voice, and as the transnationalisation of capital from within these
economies proceeds, the high degree of autonomy associated with the developmental state is
eroding, and its authoritarian uses of power are increasingly being challenged.

1 Introduction
The 1980s brought a paradox to the study of national economic development: as
the rise of neoconservative governments initiated a worldwide trend toward the
withdrawal of the state from the many regulatory and management roles it had
played in previous decades, the importance of an interventionist state in achieving
and sustaining high levels of economic growth was being rediscovered by political
scientists and political economists. This rediscovery covered an impressive array of
centrist and leftist ideological positions, ranging from ‘neostatist’ political scientists
(Caporaso, 1988; Poggi, 1990), to those studying the ‘social structure of accumula-
tion’ (Hirst and Zeitlin, 1991; Kotz, 1990) and to ‘regulation’ theorists (Aglietta,
1979; Dunford, 1990; Lipietz, 1986; Moulaert and Swyngedouw, 1989). For many
of these theorists, the erosion of the state’s role in the economy has been a critical
factor in a host of contemporary national economic crises (Lash and Urry, 1987;
Lipietz, 1987).

For those on the right, the dismantling of the interventionist state is seen as a
necessary condition for a new era of heightened economic efficiency and develop-
ment around the world. State involvement is viewed to be in fundamental opposition
to efficient economic growth, and, by extension, state activities are assumed to be
politically driven rather than economic in nature (Davis and Ward, 1990), The
agenda for action along these lines, which has been pushed forward in Africa, Asia,
and Latin America through powerful international lending agencies and under the
guise of debt restructuring, has provided the dominant vocabulary—deregulation
and privatisation—for national economic planning in the world today. Countries
that ‘could not get the prices right’ and rid themselves of rent-seeking holders of
state offices would be doomed to a slow economic growth, if not a reversal of
economic fortunes. An attendant dimension of this line is the exhortation for
national economies to open more fully to international economic forces in their
push toward export-oriented industrialisation and linkups with transnational capital.

Given these competing understandings and visions of the role of the state, it is
not surprising that the debate has turned to the analysis of the export-oriented

544 M Douglass

manufacturing ‘miracle’ economies of the Third World, particularly the four Asian
newly industrialised economies (NIEs)—Hong Kong, Korea(1), Singapore, and
Taiwan. The initial question of the debate was whether these states were essentially
noninterventionist guardians of laissez-faire economies, or, on the contrary, were
strongly interventionist ‘developmental’ states (White, 1988). Although the neoclas-
sical economic construction of these economies as market-driven successes of
capitalist development prevailed up to the early 1980s, by the end of the 1980s
evidence contradicting this view was overwhelming. The new view was that these
states were not just moderately involved, but were instead extreme cases of state
intervention and manipulation of economy and society alike.

Moving from one debate merely serves to encounter another. Accepting the
strong role that the state has played in economic development, one must ask
whether there are different types of such states and, therefore, whether there are
also different development pathways toward high levels of per capita GDPs. Much
of the more general literature on the Asian NIEs has grouped them into a single
type, with appellations ranging from ‘authoritarianism’ to ‘command capitalism’
(Bello and Rosenfeld, 1990), ‘state capitalism’ (Peet, 1991), ‘corporatism’ (Pye,
1990), and ‘developmental states’ (Hsiao, 1990). At stake at this level of the debate
are not only the economics of development but also, equally important, the issues of
political reform and relations between state and civil society, for, taken to its
extreme, the conclusion that East Asian industrialisation and economic growth
required an unusual chemistry of high state autonomy to create extremely authori-
tarian regimes presents a disturbing message for the rest of the developing world:
do would-be newly industrialising countries need to construct a near-version of this
‘model’ to succeed? To the extent that contemporary international and internal
conditions facing these countries are such that they could not do so, the question
may be moot. But, given the rhetoric of many of the key architects and former
leaders of governments in the Asian NIEs who assert that a strong, nondemocratic
state is needed for economic development, the question is still on the table.

My purpose in this paper is, first, to explore the idea that a model of the devel-
opmental state can be derived from the Asian NIE experiences. In showing that
variations among the Asian NIEs are too great to allow for such a modeling
exercise, I further seek a more dynamic understanding of state transformations to
account for changes both in the international economy and in internal social rela-
tions. In contrast to either neoclassical economic or mainstream Marxist models
which assert a linear path of transformation and development for all countries, the
emphasis given here to international-local contingency has quite different implica-
tions for my assessment of the current crises facing the Asian NIEs. Among the
most important is the conclusion that in the coming years the Asian NIEs are likely
to become more divergent in terms of their respective modes of integration into the
international economy and in terms of the types of transformations in political
regimes and relations between state and civil society.

2 The ‘developmental state’
As previously noted, there is by now little basis for the notion that the Asian NIE
states were only moderately involved in the successes of their economies. The state
played a strategic role in harnessing national and international forces to orchestrate
a ‘late development’ process of accelerated industrialisation aimed at catching up
with Europe, the USA, and Japan. This point has received an overwhelming

W In this discussion Korea refers to South Korea.

The ‘developmental state’ and the NIEs of Asia 545

amount of support and is by now incontrovertible (Amsden, 1989; Bello and
Rosenfeld, 1990; Davis and Ward, 1990; Deyo, 1989; Gereffi, 1990; Johnson,
1988; Levy, 1991; Rodan, 1989; Wade, 1993; Woo, 1991).<2>

Given the impressive economic performance of the Asian NIEs in terms of
rising per capita GDP, the neoclassical economic expectations that such strongly
interventionist states would find themselves overseeing inefficient, noncompetitive
economies is also contradicted by their experience. Their regimes not only helped
to generate the highest sustained rates of economic growth in modern world history,
but, at least in the cases of Korea and Taiwan, did so against rising internal pres-
sures (Wade, 1993). In doing so, their interventions also cast doubt on earlier
Marxian theories that the state has no autonomy from capital (Miliband, 1977) and,
in the case of ‘peripheral’ social formations, is essentially dependent on the world
system dominated by transnational capital and core metropolitan states (Berberoglu,
1992; Cotton, 1992; Cumings, 1989; Wallerstein, 1979). Their successes thus
called for new thinking about the state on both the right and the left.

One outcome of this renewed thinking has been the discovery of the ‘develop-
mental state’, an idea that literature on the Asian NIEs has placed in currency over
the past decade. The central theme of this literature is that these states are different
from other Third World states, almost all of which are, by implication, less develop-
mental. This theme covers at least three major aspects of the nature and role of the
state in Asian NIEs: (1) the state has enjoyed an unusually high degree of autonomy
necessary for its positive role in economic development, and, further, this autonomy
is derived from historical features and conditions common to the Asian NIEs, but
which are rare elsewhere; (2) the state has effectively used this autonomy to
orchestrate the economic growth process and has been able to avoid the debilitating
rent-seeking and other nondevelopmental state-economy relations typically found
in other developing countries; and (3) although the Asian NIEs may not constitute a
replicable model of development, other states can learn certain lessons from their
common experiences. Each of these dimensions is discussed in turn below.

2.1 State autonomy
The question of autonomy strikes at the centre of most theories of the state.
Although there is by no means a consensus on this question, particularly with
regard to the conceptualisation of the nature of society and the political driving
forces surrounding the state, a wide band of theory posits that the state enjoys
relative autonomy from class and other social relations.(3) In the case of the Asian
NIEs, the proposition put forth by a number of analysts is that the state has enjoyed
an exceptional, if not close to absolute, degree of autonomy from all sectors of
society, including (nongovernment) elites, lingering ‘feudal elements’, and other
classes, particularly the emerging urban proletariat.

<2> The positions of most of the authors cited here are consistent with Wade’s (1988, page 151)
conclusion that “I can find little empirical support for the proposition that the sectoral
industrial strategies of the East Asian [economies] amounted to mere ‘hand-waving’, or that
their overall economic performance would have been superior if they had had a more neutral
policy regime”.
<3) Whether derived from Weberian views that politics, and therefore the state, cannot be subsumed under economic or class relations (Saunders, 1986; Weber, 1968), or distilled from Marxian structuralist (Poulantzas, 1973) or poststructuralist formulations (Aglietta, 1979; Lipietz, 1987) that the state must regulate society in a manner which may work against the specific interests of fractions of capital to sustain capitalist development, the state is seen as having some degree of independence from elites and other powerful interest groups. The 'steering problem' assigned to the state by Habermas (1976) also asserts some degree of state autonomy.

546 M Douglass

Many of the attributes of autonomy associated with the Asian NIE states are not
unique to them. That each was nondemocratic, that is, functioned as a de facto
single-party state, regularly resorted to martial law for extended periods, or had
only token political participation, is the stuff of states throughout most of the world.
The more revealing insights differentiating the Asian NIEs from other states come
not from a rehearsal of these features, but rather from discussion on their sources
and, by extension, the ways in which the state was able to exercise the power it
assumed.

Concerning the sources of state autonomy, at least four factors are often pointed
to as being common to all of the Asian NIEs. One is the absence of powerful rural-
based landed interests that have been identified as obstacles to export-oriented
strategies in the industrialising countries of Latin America. Often referred to as
remnant ‘precapitalist’ or ‘feudal’ classes, such elites did not exist in either Hong
Kong or Singapore, and in Korea and Taiwan they were largely eliminated by
thorough agrarian land reform in the 1950s, which also had the effect of making
new petty rural landholders supportive of the regimes in power (Douglass, 1983;
Haggard, 1988).

A second factor is that, at least in the initial period of industrial expansion, the
capitalist class was very small, weak, and easily leveraged by the state. In the case
of Singapore, government strategies have kept indigenous capitalist enterprises at a
minimum to the present day. In Hong Kong and Taiwan, these enterprises have for
the most part remained very small in scale, often family based. In Korea, the small
size of urban and industrial capital classes in the 1960s allowed the state boldly to
carry out such steps as nationalisation of the banking system, giving it great leverage
over the then small chaebol-dominated industrial sector (Bello and Rosenfeld,
1990). In sum, social forces opposed to urban-industrial development linked to the
world economy were either nonexistent, eliminated, or more easily controlled than
in other Asian countries.

A third source of state autonomy is the special historical mission the regimes
have used to justify concentrations of power and nondemocratic practices. All the
states portrayed themselves as beacons of capitalism that had to succeed if
communist or socialist forces were to be kept at bay. In the cases of Korea and
Taiwan, this ideology was most obvious and straightforwardly pursued to legitimate
the state’s intervention in a wide array of activities, including overt suppression of
labour and civil society. Long confrontation with North Korea and China, respec-
tively, also dampened factionalism among elites.(4) Hong Kong, a colony with little
chance of local self-determination, was also put forth as a champion of free-market
development. The Singapore state, in a perhaps slightly less obvious way, moved to
counter the communist labour parties that had historically been associated with
overseas Chinese in its neighbouring countries of Malaysia and Indonesia. At the
same time, the government had doggedly asserted that Asian people do not want
Western democracy but instead prefer ‘commutarian’ values and, by extension,
paternalistic government leadership that closely controls information media and
political association outside of the state.

In other words, more than in most developing countries, the state was able to
use effectively the mission of capitalist development in an historical struggle against
communist totalitarianism to aggrandise its own autonomy. This had a cumulative
effect: the more these states were successful in delivering high standards of material
(4) Unlike the experience in Taiwan with the more encompassing organisation of the Kuomintang
the absence of a mass base for the ruling party fostered an exceptionally narrow path of
access to state power in Korea (Park M, 1987).

The ‘developmental state’ and the NIEs of Asia 547

welfare, the more they were able to argue against giving greater access to the state
and to use its police power to suppress any and all forms of antiregime activity.(5)

A fourth reason often cited is culture, namely the commonality of neo-
Confucianism (or post-Confucianism) shared by the Asian NIEs (O’Malley, 1988).
Although not quite an inversion of Weber’s famous study on why capitalism arose in
Protestant Christian cultures and not in China’s Confucianist society, this explana-
tion represents an important interpretation of it, namely, that, although such societies
may not have been capable of inventing capitalism, they are ideally organised to
adopt it with a vengeance (Hsiao, 1990). Vogel (1991), for example, claims that the
Asian NIEs all share an ‘industrial neo-Confucianism’ that underlies their acceler-
ated export-oriented manufacturing growth. The main features of this cultural
commonality include meritocracy within the state elites, recruitment through educa-
tion, strong vertical and group loyalty, and emphasis of personal improvement
throughout life. Termed ‘post-Confucian’ by Moody (1988), the culture common to
the Asian NIEs is seen as a code of ethics to guide behaviour that is institutionalised,
in part, by a centralised bureaucracy which is essentially authoritarian in nature and
is allowed to formulate policy goals independently of particular groups.

The use of culture to heighten state autonomy was accomplished through ethnic
and racial divisions as well. Koreans, and to a lesser extent the peoples of Taiwan,
were exhorted to follow the state’s directives to industrialise as a means of counter-
ing the neocolonial intentions of their nearby former colonial master, Japan. On
Taiwan, the Kuomintang (KMT) consisted of Chinese people escaping from the
mainland and, as such, could command solidarity among its elites against the more
numerous politically disenfranchised indigenous people. The Singapore state also
likely benefited from its mission to create a Chinese state in Southeast Asia, a cause
which became more politicised after the anti-Chinese riots in Malaysia in 1969.
When combined with other powerful ideologies, such as anticommunism and state-
of-war mentalities, these cultural factors suggest a singular capacity for holders of
state power to exercise a high degree of autonomy from other social forces.

The degree of similarity in each of the above sources of state autonomy should
not be taken too far. Both Korea and Taiwan had a much more advanced industrial
base than Singapore, but, unlike either Singapore or Hong Kong, they could not use
national or territorial borders to stem massive rural-urban migration during the
course of rapid industrialisation. The homogeneity of the Korean population is
unmatched by the other three, which have minorities and/or marginalised indigenous
peoples. Nor is neo-Confucianism as uniform as some authors imply.(6) Contrasting
geopolitical positions are also occupied by each. Among the four, Singapore was
the only officially recognised nation-state for most of the period of accelerated
industrialisation. The colonial status of Hong Kong is unique among the Asian
NIEs and among newly industrialising countries (NICs) in general. Nevertheless, the
commonalities noted above did result in an extraordinary concentration of power
and state autonomy in the Asian NIEs that only began to be effectively challenged
in the late 1980s.

(5) Much of the statistical data gathered by the state on such matters as income distribution,
poverty, and other social conditions has been directed toward justifying the benefits of
‘authoritarian capitalist’ development. In each case there is an obvious absence of non-state-
controlled sources of information on these issues (Douglass, 1992a).
(6>As partially evidenced by-the tremendous growth of Christianity in Korea over the last
several decades, Morishima (1982) also details how the Confucian concept of loyalty varies
greatly among Japan, Korea, and China.

548 M Douglass

The crucial corollary to the recognition of the unusual degree of autonomy
afforded the state is that it was effectively used to help solve a problem common to
all would-be late-industrialising’ economies: how to create international competi-
tiveness through industrial expansion by raising labour productivity while maintaining
attractively low labour costs (Amsden, 1990).(7) Woo (1991) adds another dimen-
sion to this point by arguing that the state was compelled to play a greater interven-
tionist role in the development process in East Asia than in Western capitalist
economies because the suppression of entrepreneurial activities during colonial
times had resulted in the lack of development of a capitalist class needed to advance
economic growth. From these two perspectives, namely the absence of an entre-
preneurial class and the imperative rapidly to become internationally competitive in
manufactured exports, the ‘developmental state’ was called upon to accomplish a
number of specific tasks: ensure reinvestment to expand productive capacities by
enterprises (which involved limiting ‘crony-capitalism’); keep wage increases below
increases in labour productivity through direct and/or indirect control of labour;
and ensure the reproduction of labour as well as efficient working of industry
through substantial investments in the built environment, namely, in housing and
collective consumption as well as in industry-related infrastructure. In accomplishing
all of these, the state was also called upon to minimise potential legitimation crises.

When these features are considered, the Asian NIE model of the developmental
state begins to unravel. As elaborated below, the states of each interacted with
internal and external forces in decidedly different ways to create divergent paths of
industrialisation. When these differences are explored, the question arises as to
whether the excesses of state power and its suppression of civil society was an
essential or gratuitous feature of the developmental state. Given the complexities of
historical analysis involved, there may be no unequivocal answer to such a question,
but, by looking at the variations in the relations between the state, capital, and
labour, one has room to postulate that much of the authoritarianism was unneces-
sary and perhaps dysfunctional.

2.2 State and capital
That strong state control and capitalist development went hand in hand in the four
Asian NIEs is by now self-evident. The evidence is also clear that the state was not
merely an assemblage of rent-seeking parasites on the redoubtable industrial entre-
preneur, as postulated by mainstream neoclassical economists. State interventions
were incisively used to create the foundations for and sustain export-oriented
industrial expansion and economic growth. But the avenues chosen diverge substan-
tially among the four NIEs.

In Korea, state-capital relations led to the emergence of the chaebol, huge
family-based oligopolies that resemble more the pre-World-War-2 Japanese zaibatsu
than firms in the other Asian NIEs.(8) In this case, the relation between capital and
labour most approximates that of a type of corporatism (Pahl, 1977; Winkler,
1975): the setting up of state-protected areas of technical expertise that have some

(7) Although there has been scope for ‘bloody Taylorist’ solutions (the extensive expansion of
production through extending the work weeks and expanding the supplies of wage labourers
without significant increases in labour productivity), this began to reach limits by the 1970s as
labour shortages appeared. Nevertheless, it continues to be a marked part of ‘women’s work’
and child employment in textile and garment industries and in home-based piecework
(Douglass, 1991; 1992a).
(8) The chaebol are dominated by Sansung, Hyundai, Daewoo, and the Lucky-Goldstar Group.
The major difference from the Japanese zaibatsu has been the absence of internal banks in the
chaebol, which forced them to rely on access to the government-controlled banking system.

The ‘developmental state’ and the NIEs of Asia 549

degree of autonomy from other elites and that use their power to manage emerging
oligopolies and, more general, the economy.<9) A major feature of this relation was the creation of a 'technobureaucratic elite' (Davis and Ward, 1990) that was protected both from the military elites dominating the political regimes in power and from the chaebol. As with the other Asian NIEs, the technobureaucracy was expanded through the establishment of policy think tanks and economic planning units in the government, by bringing universities and academics into national plan- ning projects, and by recruiting those receiving technical training abroad into the state planning apparatus.

In this regard, the assertion that the Asian NIEs were somehow immune from
corruption (Yoshihara, 1988) does not bear close scrutiny. Rather, the point is that
state autonomy exercised through a sheltered and expanding planning bureaucracy
allowed rent-seeking to be linked to economic management and leverage over capital
for national development purposes. In Korea, control of the chaebol was substan-
tially accomplished through nationalisation of the banking system, giving the state
command over access to credit and allowing it to both discipline and financially
subsidise the growth of the chaebol. The state, in addition, heavily regulated foreign
investment and trade, controlled access to raw materials, selectively provided infra-
structure to industries and strategic regions, and directly put down labour movements
while investing in education and skill development (Park S O, 1993).(10)

The Singapore state also embarked on a course of linking its prospects to those
of large corporations, but, in its case, the linkages were, unlike those in Korea,
almost exclusively with transnational corporations (TNCs) headquartered in OECD
countries. The reason often given for the Singaporean strategy of ‘extroverted
corporatism’ is that its political leaders concluded that to push the island’s dominant
merchant capital into manufacturing would be too slow and difficult (Fong, 1990;
Ho, 1993). Singapore’s break from Malaysia in 1965 also brought a sudden loss of
a larger domestic market, which compelled the state to pursue a strategy to attract
direct foreign investment (DFI) to serve the already existing markets of North
America and Europe:

“A crucial turning point in the developmental process for Singapore took place in
1965 with the separation from Malaysia. Without any further prospect for free
entry into the Malaysian market and with the still rising unemployment rate, the
PAP [People’s Action Party] state decided to shift immediately to export-
oriented industrialization. Given the compressed time frame, especially under
the sense of crisis in 1965, and given the infant stage of local entrepreneurs, the
government embraced almost every foreign investor that could create job oppor-
tunities and produce goods for export” (Huang, 1989, page 100)

<9) Winkler (1975, page 109) defines corporatism as "an economic system of private ownership and state control". Saunders (1986, page 130) elaborates further that, in place of the prin- ciples of free enterprise, the corporatist state imposes four principles of its own: (1) unity, based on collaboration and cooperation between capital and labour; (2) order, based on stability and discipline among economic actors; (3) nationalism, pursued internally and vis-a- vis international competition in the name of the national interest; and (4) success, based on the principle that ends justify the means. As summarised by Saunders (page 131), the corporatist state is characteristically "centralized, hierarchical and co-optive". (10>Woo (1991) argues that the autonomy of the state in carrying out these activities was
directly derived from Korea’s geopolitical position in the Cold War, which gave it extra-
ordinary levels of US assistance and allowed the government to overcome any domestic
opposition to its interventions.

550 M Douglass

Thus, although DFI has played a relatively modest role in Korea, it became the
economic mainstay of Singapore. Singapore’s strategic geographical position in the
world economy also favoured its attraction of foreign investors. As the hub of
Southeast Asia and in a region of rich oil reserves, it captured much of trans-
national oil-refining investment and was perceived as being more politically stable
than any other Asian NIE as an offshore location for labour-intensive segments of
production moved by transnational corporations from the USA and Europe.
Singapore had also inherited a favourable financial and service sector to support its
attempt to bring foreign investment into its economy. This strategy of attracting
transnational capital began to work by the mid-1960s as textiles shifted from Hong
Kong, the petroleum refining industry began to develop, and other TNCs began to
bring investments in pharmaceuticals.

Taiwan and Hong Kong took divergent paths from those of Korea and
Singapore, in that state autonomy was used to foster industrialisation based on small
and medium-sized firms. Johnson (1988, page 161), in acknowledging that large-
scale firms (for example, the Tatung Group) are also important in Taiwan, neverthe-
less claims that there is “some evidence that the culture of business in China resists
conglomerate integration more than either Japan or Korea”. However, the similarities
between Taiwan and Hong Kong largely end at this point. For, although Taiwan
began to take on the attributes of an entrepreneurial state through the setting up of
state-owned enterprises in key sectors, the colonial government of Hong Kong
largely avoided both direct control over enterprises and state competition with the
private sector (Davis and Ward, 1990). The government of Taiwan created its own
state-run Chinese Petroleum Corporation and monopolised the petroleum industry
by severely limiting foreign companies from investing in this sector in the island.
The KMT party itself owns and manages numerous enterprises, and through these
enterprises also remains independent of big business for its own financing (Cotton,
1992).

The Hong Kong government focused instead on using investments in the built
environment, particularly public housing, and pricing policies to foster economic
growth, while letting Hong Kong’s small-scale enterprise compete internationally
without the type of selective industrial policy of Korea or Taiwan. Wade (1993)
argues that the ability to guide the Hong Kong economy without resorting to the ‘big
push’ orchestrated in Korea and Taiwan, and to a lesser extent in Singapore, was a
product of Hong Kong’s level of development in the 1950s, namely the presence of
a relatively skilled labour force, a long history of entrepreneurship among small-
scale producers, and the continuity in its colonial public administration.

The milder form of state intervention in Hong Kong has been alternatively
termed ‘positive noninterventionism’ (Haddon-Cave, 1984) and ‘accommodationist’
(Kim W-B, 1993). Lui and Chiu (1993) adopt the former term to counter the widely
circulated work of Friedman and Friedman (1980) who argue that the state has been
a passive actor in Hong Kong’s economic success. Massive provision of public
housing from the 1950s onwards has, for example, been crucial to the success of
local industries by stabilising the supplies of labour and the reproduction of labour
power on a low-wage basis that has kept the economy internationally competitive.

The ‘developmental state’ and the NIEs of Asia 551

But Lui and Chiu (1993, page 69) also conclude that, “compared with other NIEs in
East Asia, the role of the Hong Kong government falls far short of being that of a
capitalist developmental state. Not only has it not formulated any strategic industrial
policy but also it deliberately refuses to provide any long-term national rationality
of industrial development or direction for the operation of the market economy”.
The state’s involvement in the economy is viewed as always being indirect rather
than direct. That is, it is focused on institutional support through, for example, the
Hong Kong Productivity Council and the Trade Development Council, and through
infrastructure development, including the building of industrial estates and advanced
university-based science and technology facilities. It has not created substantial
programmes to subsidise particular sectors or firms, and manufacturers are essentially
left to tackle problems on their own.

The outcome of the Hong Kong path of export-oriented industrialisation has
been the perpetuation of labour-intensive manufacturing in the colony. This has
been partially made possible by the periodic opening up of Hong Kong to labour
from China, which was of particular importance in the late 1970s. Hong Kong firms
in such key areas as garment making have also been able to ameliorate the impact
of rising labour costs through innovative ways of increasing the reliability and quick
turn-around time for international orders. Keeping labour-intensive production
alive has also proved to be the limitation of the Hong Kong model. Although
industrial expansion performed as well as that of the other NIEs up to the 1980s,
without the type of support and interventions by the state in the other Asian NIEs,
Hong Kong has subsequently been less able to move out of light industries.

In sum, the combination of historical conditions, including preexisting industrial
organisation, and external requirements yielded quite different strategies toward
indigenous capital and the drive toward export-oriented industrialisation. Whereas
Korea more closely followed a corporatist alignment of state and large-scale
indigenously generated oligopolies and Singapore attached its fortunes almost
exclusively to transnational capital, Taiwan moved more toward the entrepreneurial
state, and Hong Kong took on the characteristics of positive noninterventionism
cum accommodation. Just as they worked to create different internal alignments
and industrial structures, state strategies were also characteristically different with
regard to the international economy and foreign investment.

2.3 The Asian NIE state, core states, and transnational capital
Few topics have generated as much discussion on the Third World state as the
presence of transnational capital in developing countries. Much of the literature on
these topics—including mainstream product-cycle models of oligopolistic competi-
tion, world systems, and neo-Marxist dependency arguments—suffers, however, from
the focus on TNCs rather than on the host state, which, when referring to Asia,
Africa, and Latin America, is generally assumed to be part of an undifferentiated
world of ‘peripheral capitalist’ economies dominated by core actors—capital and
neo-imperialist states alike. As summarised by Jenkins (1987, page 168):

“On this view international capital not only controls and manipulates the depen-
dent state in the Third World, but it also structures the form of the state. Thus
the emergence of authoritarian regimes in Latin America and other parts of the
Third World since the mid-1960s is explained in terms of the ‘needs’ of inter-
national capital. Indeed some of the military rulers of these countries are iden-
tified as ‘the political party of the multinational corporation'”.
Such assertions have been criticised for undertheorising the state. In one

counterview it is argued that, because TNCs must compete internationally, the

552 M Douglass

state—Third World states included—has at least some degree of independence from
individual capital or fractions of capital. This view is not dissimilar to previously
noted arguments applied to internal relations, and they, in fact, lead to the same
conclusion: the state can call upon at least some relative autonomy from inter-
national capital. Haggard (1986), in his comparative analyses of Asia and Latin
America, goes even further to assert that the strategies of particular states deter-
mine the nature of a particular economy’s linkage with the international economy,
and not the reverse. This position should not be taken too far; for there can be no
doubt that international firms, core nation governments, and international lending
agencies have, in fact, heavily influenced state policy formulation. ‘Banana republics’
do exist; the World Bank and the International Monetary Fund (IMF), as seen in
widely adopted ‘structural adjustment’ policies, have substantial influence on states
as well (Stewart, 1991; Van der Hoeven, 1991).

Nevertheless, as capital is not monolithic and as capital and national interests do
not necessarily coincide, relative autonomy can be parlayed into creating room for
maneuver by states on the capitalist periphery. All of the governments of the Asian
NIEs have sought linkages with transnational capital in various proportions and
ways, in part because of two severe constraints they share, namely, an extremely
limited resource base and a relatively limited domestic market. But they have each
done so in decidedly different ways and for a different mix of political as well as
economic purposes. In the cases of Korea and Taiwan, for example, the security
and military interests of core capitalist countries, which worked to shore up these
bastions of anticommunism on the Western Pacific Rim, were handily used by their
governments not only to dampen internal social and political reform but also to
resist such economic reforms as opening up their economies to imports from the
industrialised countries (Wade, 1993).(13)

In Taiwan, the KMT, which has been much more reliant on DFI than has Korea,
has at the same time been more selective than, for example, Singapore in allowing
DFI into its economy and has been adroit at using the screening process to strengthen
its control of Taiwan by directing DFI towards activities that complement rather
than compete with domestic capital.(14) It has also required some foreign firms to
export a minimum percentage of their production as a mechanism to limit competition
between local and foreign firms for domestic markets. These and other regulations
in Taiwan, such as the requirement that firms obtain approval for the import of
capital goods and inputs, do not exist in Singapore, for example.

Singapore has been able to use its more stable geopolitical position in Southeast
Asia to attract investments that might otherwise have gone to Taiwan. And,
although DFI came to Singapore and Taiwan at virtually the same time, investors
played different roles in terms of capital formation, ownership patterns, output
value, employment, and exports. In terms of capital formation, for example,
although Taiwan used DFI to substitute for the withdrawal of US military aid, it still
amounted to less than 5% of gross domestic capital formation (GDCF) at its peak in
1970 (Huang, 1989). For Singapore it accounted for 30% of GDCF in the early
1980s. With regard to enterprise asset ownership, less than 3 3 % of Taiwan’s manu-
facturing firms have been wholly owned by foreign investors at any one time; in
Singapore the percentages reach 50%. More strikingly, firms with DFI have

(13)In the 1970s and 1980s, Taiwan was, in turn, able to use trade tariffs to increase state
revenue and expand its technological and supply capacity (Wade, 1993).
<14)This has partially been accomplished by, for example, requiring foreign investors to enter into joint ventures or to purchase local inputs.

The ‘developmental state’ and the NIEs of Asia 553

generated less than 20% of the manufacturing employment in Taiwan, but almost
75% in Singapore. Similar ratios hold for the value of output in the manufacturing
sectors as well as the share of DFI firms in manufacturing exports.(15)

From these and other examples that could be drawn upon to show key differ-
ences among the Asian NIEs with regard to linkages with transnational capital and
internal policy choices, the weakness of world systems and dependency theories that
do not allow for variations in export-oriented strategies becomes apparent. In terms
of the predictions of dependency theory, for example, Singapore is the only Asian
NIE that has experienced the predicted declining share of involvement of domestic
firms in manufacturing exports under the penetration of DFI. And, even in this
case, it cannot be convincingly argued that TNCs somehow directly forced the
Singapore state to follow such a strategy. More accurately, the state put forth an
almost single-minded strategy to try to use DFI as a substitute for what it perceived
at the time to be an unpromising domestic industrial sector.

Thus, although in Singapore, as in all Asian NIEs, state policies necessarily had
to respond to and accommodate the interests of TNCs—as well as the dynamics of
the international economy—the strategic choice taken was, as the other Asian NIEs
show, one of many possibilities. Whether or not other choices would have worked
better or worse than the one taken is not the question at hand; rather, it is whether
or not the room for maneuver was so constrained by international forces that
would-be NIEs were compelled to comply with a single model of linkages with
transnational capital. The evidence of the past three decades is that no such
uniform model was attempted or applied.

2.4 State and labour
Just as the Asian NIE states found alternative means to address and bargain over
the requirements of capital, they also displayed variations in state-labour relations.
Contrary to the conclusions of the neoclassical economic analysis put forth by
Galenson (1992), the Asian NIEs have not simply followed the development paths
of the advanced countries of the world in terms of either economic growth or
labour-market changes. The weakness of such analyses lies in the simplification of
‘labour’ as a factor of production that can be understood from sectoral or occupa-
tional decompositions and accounting methods rather than as a human factor intrin-
sically part of political – economic systems in which it represents a social as well as
an economic force.

It is more useful to look at labour systems to show how differentiation and
segmentation of labour is achieved through institutional means—often involving the
state—rather than market forces alone. In the case of the Asian NIEs, the problem
that confronted export-oriented industrial expansion was not simply one of moving
cheap labour into the factory system. More importantly, it was one of maintaining
very large supplies of unprotected low-wage labour while differentiating and captur-
ing scarcer supplies of more skilled labour without causing wage spirals through
open competition for that more skilled labour. This was accomplished by regulating
labour rather than allowing a market-determined ‘price’ of labour to prevail.

With regard to the maintenance of low-wage labour reserves, the proletarianised
segment of labour in all Asian NIEs has suffered from state intervention to depress
workers’ wages below market rates in order to make exports competitive on the

(15)In Taiwan DFI accounted for 19% of total output value of the manufacturing sector
between 1975 and 1979. In Singapore it reached levels of 85% during the same period. In
Taiwan 3 1 % of exported manufactured goods were associated with DFI; in Singapore the
share was about 90%.

554 M Douglass

international market (Amsden, 1990). But internal conditions and state strategies
varied. Hong Kong and Singapore could turn the faucet of migration from its neigh-
bouring country off and on as a means of countering rising wages, and both used
public housing and welfare services to subsidise labour costs. Concerning Hong
Kong, its proximity to a much lower wage alternative in China as well as the small
scale of its enterprises dampened any propensity for worker militancy, and the type
of state violence against labour movements that became routine in Korea did not
manifest itself there. Lui and Chiu (1993) explain that traditional unions were
undercut by the decline of shipbuilding after World War 2, and, with the prolifera-
tion of small factories under paternalistic management centred on the family, class
formation and worker consciousness remained weak. The ideological struggle
between the People’s Republic of China and KMT that was transposed to Hong
Kong also displaced labour identity.(16)

In both Korea and Singapore, the government has been actively involved in the
creation of a ‘hyperproletarian’ segment of the labour market that has been largely
filled by women and is characterised by a high turnover of labour, institutionalised
job insecurity, and low wages (Deyo, 1989). In Korea more than 70% of women
employed in waged work are in the manufacturing sector where they receive less
than half the pay of their male counterparts (Park K A, 1993, page 133).<17> The
absence of either state or community restraint on exploitation of workers in Korea
is manifested by extremely poor working conditions for this segment.(18) Labour
laws have been arbitrarily enforced and favour employers over workers, particularly
in the case of heavy industry and automobile production, the sectors in which
labour has become most militant. Unions have never been allowed into political
parties, and, in Japanese fashion, some of the largest are actually ‘paper’ unions set
up by the companies themselves. W-B Kim (1993, page 35) provides the ironic
conclusion that, through such means as outlawing strikes and closed shops in both
Korea and Taiwan, “the labor market was kept free via direct state action”.(19)

The Singapore government manipulated union activities through such means as
direct wage controls and the opening of the island to migrant labour. The initially
belligerent, communist-led unions were effectively incorporated into the state
decisionmaking process, and by the 1960s labour had become “responsive to state
policy”, leaving members of the working class to respond individually to the
“changing market situation” rather than through collective action (Ho, 1993,
page 57). For its part, the KMT of Taiwan prohibited strikes and labour bargaining
under martial law, with limited unionisation allowed under KMT supervision, which
included overseeing the selection of union leaders. In all cases the net effect of
indirect and direct state action was to provide continuous supplies of low-wage,

(16> Lui and Chiu (1993, page 68) conclude that unions are more appropriately welfare associa-
tions rather than organisations for capital-labour-bargaining. Only 7% of Hong Kong’s
labour was unionised in 1981. The relative absence of organised labour and wage-related
pressures allowed enterprises to concentrate more on managing production to keep labour-
intensive production alive.
(17) Korea also holds the distinction of being the only Asian country in which women work
more hours than men. Wages for women have been increasing relative to men; but in 1989
they still received only 53% of wages for men (ParkK A, 1993): “Korea has dubious distinc-
tion of being nation with widest gap in wage rates between men and women” (Kim W B, 1993,
page 35).
<18) Korea's "twisted form of Confucian paternalism" has one of the worst factory safety records in the world. In 1990, 2336 workers were killed and 132893 seriously injured in workplace accidents (FEER 1991, pages 64 - 65). <19) Only 1 1 % of the manufacturing labour force was unionised in early 1980s.

The ‘developmental state’ and the NIEs of Asia 555

vulnerable labour—most often female—that was not able to organise to make
effective demands for higher benefits. Where the state provided those benefits, as in
the case of housing in Hong Kong and Singapore, labour was made all the more
dependent upon retaining its good will.

The capturing of more-skilled labour was accomplished through different means.
Large-scale enterprises in Korea used what Jacobs (1985) terms ‘patrimonialism’.
As defined by Deyo (1989, page 14), such labour systems are characterised by
“control based on networks of particularistic, discretionary, dyadic exchange of
benefits for loyalty and compliance”. In these firms, superiors at each level have
substantial leeway in rewarding those under them with advancement and improved
types and conditions of work to create both insecurity and dependency on the
company through personalised dyadic relationships.(20) The highly spatially polarised
pattern of industrialisation in Korea and the very scale of the chaebol separated
labour from its rural social base and required much greater fine-tuning of labour
differentiation within the firm than in either Taiwan or Hong Kong (Deyo, 1989,
page 23).

The interplay between the industrial organisation created through state-capital
relations and the modes of labour regulation has had further repercussions on social
and political stability. In Korea the formation of the chaebol brought together large
numbers of semiprotected male workers, inadvertently producing volatile conditions
for labour militancy. The use of state police power to suppress directly the resulting
strikes at shipyards and automobile factories served to create the highest levels of
antistatist activity by labour among the four Asian NIEs.

In contrast, in Taiwan and Hong Kong the state depended upon more traditional
communal paternalism in small and medium-sized locally-owned factories to segment
labour through ‘noneconomic claims’.(21) Deyo (1989, page 17), in observing, for
example, that these firms were less likely than TNCs to release workers in recession,
and that workers have a greater leverage over a variety of work-related and non-
work-related relationships, concludes that:

“This leverage follows from the very fact that wage-labor is not the sole basis of
control: that other social considerations are an essential part of an implicit labor
contract under which mutual obligations are broadly and loosely defined. The
arrival of relatives from another town, birth of a child, a funeral, need for over-
time to meet unexpected family obligations—these and other household or
personal exigencies provide valid claims on employers to reduce or modify work
demands on employees … Communal paternal and patriarchal labor systems
derive in part from an absence of imported Western organizational forms and in
part from a continuity of linkage to local community and familial organization
encouraged by the dispersion of production to relatively small firms or rural
towns.”
These arrangements have their own seniority system that serves to tie the

employee to the firm through nonwage rewards, which effectively inhibit both
worker organisation across firms and interfirm wage competition (Cheng, 1990). In
addition, whereas Korea’s industrialisation involved corporatist alliances between

(20)Deyo (1989, page 17) goes on to state that these dependency bonds, “largely free from
external political or community constraints, often result in harsh and arbitrary authority.
Favoritism is common, and production is regulated less by rules than by direct, often abusive
supervisory direction”.

<21) In 1976, firms with more than 500 workers accounted for 45% of the total in manufacturing in Korea, whereas in Taiwan the share was 26% (Levy, 1991).

556 M Douglass

the military cum political leaders and large-scale enterprises, Taiwan was marked by
much looser coalitions of technocrats, fragmented local capital, foreign investors,
labour, and farmers (Gereffi, 1990, page 25). Even more than Taiwan, the colonial
government of Hong Kong placed high reliance on small firms and their ability to
call upon traditional social relations and kinship authority to enhance their
discipline of labour and thereby reduce the need for state intervention in labour
affairs. In addition to low-cost housing and services, the government focused on
controlling the prices of basic foodstuffs (rice and vegetables) by establishing state-
organised cartels. Thus, although each state confronted similar problems to main-
tain labour conditions and create internal divisions of labour appropriate for
international competition, the constellation of means employed to solve these
problems varied among them.

3 Asian NIEs as models of the developmental state
So far, I have agreed with the major thesis that each of the Asian NIE states
enjoyed an unusually high degree of autonomy from internal social forces and that
this autonomy was instrumental in creating conditions for export-oriented manu-
facturing to lead economic growth. The sources of autonomy were not, however,
solely generated by the regimes in power, but emerged more generally from the
specific historical experiences of each. Moreover, in the course of industrialisation
the interplay between specific state-capital and state-labour relations began to
generate social transformations that further differentiated the economic, social, and
political pathways of development of each. In this sense, they provide models of
development only to the extent that they reveal different ways of addressing the
economic requirements for ‘late industrialising’ under strong state intervention.
They do not, either individually or collectively, provide the model of the develop-
mental state, for at least three reasons: ( l ) t h e historical context surrounding their
particular experiences has significantly changed and cannot be reconstructed in
these economies or elsewhere; (2) there is no ‘theory’ to allow a clear differentiation
between those state actions that were necessary for economic growth and those that
were simply opportunistic and served the ‘political’ expediency of regimes in power;
and (3) the term ‘developmental’ is itself subject to further debate and interpretation.

Concerning the changing historical context for export-oriented industrialisation,
contemporary history has not been kind to most of the existing and would-be NICs
of the world. The Latin American NICs—burdened by heavy debts and structural
adjustments imposed upon them, are experiencing slow industrial growth accompa-
nied by drops in real incomes and increasing magnitudes of extreme poverty. And
of the fifteen or so countries identified in the late 1970s as the ‘next’ NICs, only the
three Southeast Asian countries of Indonesia, Malaysia, and Thailand are currently
performing well (Athukorala, 1989). On a world scale, the gap between rich and
poor countries continues to increase, and much of the middle is hollowing out as a
very limited number of countries move upward and many more continue to stagnate
or experience declining per capita incomes (Douglass, 1992b).

Such observations move debates in several directions. One looks toward the
international scale to consider the proposition that global conditions have changed
too profoundly to allow Asian NIE-like formulas to be successful. Support for this
position is not difficult to find. The tremendous and expected long-term slowdown
in the world economy, the potential opening of cheap-labour economies in Eastern
Europe, technological change allowing for a reconcentration of formerly labour-
intensive activities in North America, Europe, and Japan, and the portent of
increasing protectionism in these same economies portray substantially different

The ‘developmental state’ and the NIEs of Asia 557

conditions facing countries wishing to accelerate industrialisation via manufactured
exports as the high road to development in the 1990s.(22)

The counterposition must also be entertained. For specific economies that are
able to construct the conditions needed to attract foreign investment or generate a
domestic basis for export-oriented manufacturing, the very dearth of new candidates
may provide opportunities for them to succeed. But in either case, it must be recog-
nised that the world economy is not as hospitable to NICs as it was in the 1960s
and 1970s. This conclusion points toward another, namely, that the internal condi-
tions for generating such a strategy have become all the more critical. Among the
key internal factors that have been associated with the state in the Asian NIEs are:
political stability and a high degree of state autonomy to carry out interventions to
leverage capital, to minimise nonproductive uses of resources, and to ensure sufficient
supplies of labour at various wage and skill levels. In meeting these demands, such
a state would also be required to sustain these conditions over time, and this would
include timely investments in infrastructure, education, and other services as well.

There are an equal number of debates concerning the probability of an NIC being
able to construct these internal conditions. International political forces, operating
through such institutions as the World Bank, IMF, and USAID, have made access to
donor credit and financing—which were crucial to Korea’s development—contingent
upon a reduction in the role of the state in all spheres of the economy. At the same
time, capital has also become so internationalised that the tools formerly used by
the Asian NIEs, such as nationalisation of banks, do not offer the same degree of
leverage as they did in the 1960s, even over domestic firms. And, although police
force and other intrusive means may still be called upon to regulate labour,
democratic movements have gained momentum worldwide, and international
networking among nongovernmental organisations has created avenues of solidarity
across national boundaries to resist at least the worst abuses of state power with
regard to labour and the urban poor.

As the Asian NIEs encounter their own imperatives for structural change in
their economies, they are also confronting many of the dilemmas stemming from
changes in the political economy internationally and internally. Although these are
more difficult to generalise about than much of the prevailing literature suggests, the
imperatives for structural change are by now well understood. The regulation of
labour to keep wages competitively low has run its course as labour shortages have
become chronic.(23) Former ‘domestic’ enterprises have found their own solutions by
moving the labour-intensive segments of production to the nearby low-wage
economies of China, Thailand, Malaysia, Indonesia, and, to a lesser extent, the

(22) E v e n for t h e A s i a n N I E s , e x p o r t – o r i e n t e d growth has b e c o m e p r o b l e m a t i c b e c a u s e of slow
e c o n o m i c growth w o r l d w i d e . K o r e a n e x p o r t s , which r e a c h e d a n equivalent of t w o fifths of t h e
entire e c o n o m y in t h e late 1 9 8 0 s (Douglass, 1 9 9 3 ) w e r e flagging by late 1 9 9 2 . K o r e a n
c a r m a k e r s (Hyundai G r o u p , D a e w o o G r o u p , and Kia M o t o r s ) w e r e p r o d u c i n g at only 6 0 %
capacity, and stockpiles of vehicles b e g a n to overflow t h e factory a n d sit at t h e d o c k s .
(23) In Korea the Ministry of Labor declared that rising wages were hurting Korea’s competi-
tiveness, and placed a 5% ceiling on wage increases. The government attempted to press the
largest companies to comply by threatening tax investigations and an end to subsidised loans,
but wages increased by 1 0 % – 1 5 % during 1992 {FEER 1992e). At the same time, Korea
already has more than 100000 foreign workers; yet the Korean Federation of Small
Businesses claims that the manufacturing sector has a shortage of 360000 workers, a number
approximating almost 10% of the nation’s work force. As many as half the garment factories
in Seoul are now said to depend on Filipino workers (FEER 1992b).

558 M Douglass

Philippines, with Vietnam ‘waiting in the wings’.(24) In other words, continued
competition in established export sectors in the Asian NIEs has a very limited
horizon (Kim W-B, 1993).<25>

In facing this and other commonly shared problems related to shifts in compara-
tive advantage, each of the Asian NIEs is at its own crossroads, facing significant
changes in the state and state policy in the 1990s. At the extreme is Hong Kong’s
return to China in a context in which its export-oriented manufacturing, based on
adroit adjustments without transformations in its small-scale labour-intensive indus-
trial structure, has also reached an apparent impasse.

In another direction, the government of Singapore invented the ‘growth triangle’
to shore up its eroding low-wage comparative advantage (Ho, 1993). By early 1993,
however, this strategy to combine Singapore, Johor, and Riau into a ‘mini’ inter-
national division of labour seemed to be coming apart as Malaysia and Indonesia
began baulking at their secondary status (FEER, 1993a). The state is also having to
cope with protest from indigenous entrepreneurs against favouritism shown toward
foreign investors (Bello and Rosenfeld, 1990).

The government of Taiwan, like those of the other Asian NIEs, is actively
involved in trying to steer a new course as well (Tsay, 1993). It is adopting a
massive public works programme to make Taipei a principal transportation hub of
Asia, and the Ministry of Economic Affairs is advocating that it become a regional
operations centre for multinational corporations by providing research and develop-
ment (R&D), manufacturing, marketing, and component procurement with headquarter
functions. Ten ’emerging industries’ have been targeted for special support,(26) and a
US$303 billion six-year National Development Plan has been adopted to raise the
quality of life and prepare for a n e w stage of economic development.(27)

(24)The transnationalisation process also continues. Cumulative DFI by Korean companies
doubled between 1990 and 1992 to reach US$4.1 billion (FEER 1992a). The chaebol are
integrating with TNCs from OECD countries. The carmaker, Daewoo, after a disappointing
linkup with General Motors, announced in late 1992 a tie-up with Honda Motors that would
make it the first Korean carmaker to gain access to the Japanese luxury market (Legend).
Honda, in turn, will gain direct access to the Korean market. To make matters more complex,
Samsung, which is now the eighteenth largest conglomerate in the worlds, may purchase
Daewoo (FEER 1992c). Taiwanese corporations are even further ahead of the Korean
chaebol in the transnationalisation process. Pushed by a 40% increase in the value of Taiwan
currency against the US dollar, between 1987 and 1993 more than 4000 Taiwan corporations
invested a total of US$12 billion in Southeast Asia alone. Another 7000 Taiwan-based
companies have set up operations in China with a total investment of US $6 billion (FEER
1993c). The KMT is also pushing forward one of Asia’s most ambitious privatisation
programmes. In 1993 it attempted to sell US$20 billion worth of public works and state-
owned enterprises, including petrochemical, insurance, machine manufacturing, banks, and
shipbuilding (FEER 1993b). But at the same time, the government-backed Taiwan Aerospace
bought 50% of British Aerospace’s regional aviation division to produce aircraft in Taiwan.

<25) During the period 1 9 8 7 - 9 2 40% of Korea's garment and textile firms, mostly small and medium-sized, went under as local wages in the industry climbed by 280% during same period (FEER 1992a). <26) Information, consumer electronics, precision machinery and automation, specialty chemicals and pharmaceuticals, advanced materials, semiconductors, telecommunications, aerospace, pollution-control equipment, and medical and health-care equipment. (27) Welfare improvements include expansion of medical facilities in preparation for the 1994 introduction of a universal national health insurance programme; 300000 units of affordable housing; and environmental improvements (air-pollution control, river cleanup, sewage-system construction, and solid waste treatment). The government also intends to promote a more balanced regional development by, in part, raising the standard of public facilities in the smaller towns to a level closer to that of the cities.

The ‘developmental state’ and the NIEs of Asia 559

The Korean government has also moved to try to shift the centre of industrial
gravity of the lumbering chaebol away from Tordist’ production systems toward
high-technology-based sectors and flexible forms of industrial organisation.

The Asian NIE states continue to try to steer their respective economies, but
political reforms that are underway are raising doubts about their capacity to enjoy
the degree of autonomy that they did in the past. Many of the reforms are so
dramatic that they would not have been predicted even a decade ago. Among the
most striking was the election in Korea of a head of state not drawn from the military.
Although the degree to which Korea’s new president will be able to carry out the
fundamental reforms promised is as yet unknown, the election itself is a watershed
in modern Korean history and suggests a greater distancing of the state from the
chaebol but, at the same time, diminishing autonomy of the state from civil society.(31)

The widening political participation through a multiparty system in Taiwan
represents an equally profound development that has already resulted in a decline
in the hegemony of the KMT. A Taiwan independence movement has gained popu-
larity, and the number of opposition party candidates is increasing in the national
legislature, threatening one of the major political bases of KMT power, namely,
kickbacks to and from local enterprise associations that were favoured by govern-
ment subsidies. Even the colonial government of Hong Kong has belatedly seen fit
to push forward an agenda of democratisation.(32) Singapore appears to be the only

(28)It has in the past attempted to curtail the expansion of the chaebol. In the 1980s it
identified 200 products that were to be reserved for domestic small and medium-sized enter-
prises (SMEs) (fewer than 300 employees) and set up mechanisms for the cheap financing of
SMEs but economic slowdown in the 1990s undermined these policies. In 1992 approxi-
mately 7000 SMEs went bankrupt compared with 3400 a year earlier (FEER 1992d). Many
of the survivors are subcontractors of the chaebol.
<29) The electric car, advanced waste treatment (bioengineering), multimedia computers, high- definition television monitors, a light-water nuclear reactor, computer integration and intel- ligent manufacturing, materials (alloys and polymers), medicine (genetically engineered DNA, herbally based biotechnology, genetically engineered drugs), and advanced telecommunica- tions (FEER 1993d). (30> Backed by government subsidies and R&D expenditures, Korea’s four largest chaebol
(Daewoo, Hyundai, Lucky-Goldstar, and Samsung) have all entered into semiconductor pro-
duction and high-technology computer electronics and now account for half of Korea’s
production of electronic goods (Douglass, 1993). Their strategies have included buying into
California’s Silicon Valley to gain access to the latest technologies.
(3i) By April 1993 President Kim had to back down from his attempt to introduce a ‘real
owner’s name’ system to counter the use of fictitious names to avoid tax paying. Economists
predicted that it would have led to an immediate withdrawal of 4% of the money supply from
circulation.
(32)This move has revealed the tensions between various classes and fractions of capital in
Hong Kong. Whereas the coalition of centrist parties calls for more democracy without
antagonising China, the conservative Liberal Party opposes Governor Patten’s democracy
plans, and the United Democrats of Hong Kong fully supports them (FEER 1993e). At the
same time, the colonial government has announced a ‘populist budget’ stressing social
problems that are to be addressed by the government rather than the market.

560 M Douglass

state that is not experiencing broad-based social movements for demoralisation
and political reform away from one-party rule. How long Singapore can remain
aloof from the movements to expand the political community of the nation-state is
not clear, but global and domestic changes indicate that a central problem for the
Asian NIE state in the 1990s will be how to redefine methods of maintaining
legitimacy other than through exhortations against communism and a suppression of
labour and civil society.

If there is a commonality “among the Asian NIEs at the current juncture in
history it is that the state in each is facing extraordinary pressures emanating from
social as well as economic forces of change. Although often portrayed as simply an
economic problem necessitated by rising labour costs and the appearance of new
competitors in Southeast Asia, the crisis facing the Asian NIEs is equally one of the
ebbing capacity of the state to use the tools of the past—martial law, police force
against antiregime movements and labour, curtailment of freedom to associate and
of speech—to maintain its autonomy from civil society. In the coming years,
economic restructuring will undoubtedly also be paralleled by the search for new
political alignments.

4 Conclusions: toward a ‘post’-developmental state?
The experiences of the Asian NIEs have in at least four ways contributed to
renewed thinking about the role of the state in economic development. First, they
counter the neoconservative view that government interventions which, inter alia,
distort the market are inimical to economic growth. Second, they show how
extraordinary degrees of state autonomy did not succumb to the nondevelopmental
habits of the usual suspects in ‘ersatz capitalism’—rent-seekers, comprador capital-
ists, and other nonentrepreneurial elements (Johnson, 1988; Yoshihara, 1988).
Third, they reveal that, in fact, there was no single ‘developmental state’, but were
instead four distinct modes of state linkages and relations with capital and labour in
the process of economic growth. Last, they raise further questions about the
relationship between the state, the economics of late industrialisation, and civil
society. Specifically, they call for an exploration in the relationship between the
autonomy used to steer economic development and the authoritarian use of state
power to suppress civil society. The first three points have been addressed in the
foregoing discussion. The last is the topic of this concluding section.

Although the evidence shows that there has been no single developmental state
among the Asian NIEs, the ‘new’ view asserts that only a strongly interventionist
state can steer a course through the socially and politically arduous processes of late
industrialisation in a highly competitive world economy. Huang (1989), for example,
argues that “this relative autonomy of the state to its civil society makes possible the
relatively smooth shift of development policy from import-substitution to export-
oriented industrialization promotion without much resistance from groups of vested
interests”.(33) Others (Cumings, 1989) draw similar conclusions, and, superficially,
these conclusions are easily supported: state interventions in each of the Asian
NIEs were crucial factors in their economic success, and each NIE has also an
unusually high degree of autonomy from internal social forces.

But a deeper examination of these relations proves much less than the surface
might suggest. A starting point for such an inquiry is to question the term ‘develop-
mental state’. One of the least disguised features of this term is its subordination of

<33) He also notes that Taiwan, in relying on the philosphy of Sun Yat-sen to justify one-party rule to face the threat of communism, did not even go through the usual motions of claiming to be a representative government.

The ‘developmental state’ and the NIEs of Asia 561

all values associated with ‘development’ to a single privileged concern: economic
growth. Once this economistic interpretation of human progress is revealed for
what it is, it is also easily seen that these states were not, in fact, unequivocally
developmental. To all but the most removed historian, much of what occurred over
the decades—state use of violence against citizens, the smothering of political
association and dissent, the sanctioning of cruel working conditions for much of the
new urban proletariat, particularly for women and children—would hopefully not be
welcomed by most as a development model to be emulated.

These observations do not ignore the fact that a majority of the population
experienced measurable increases in material conditions of living, health, and
education, but denial of basic human rights and political freedoms has also been
common, and at least some of the regimes have engaged in extreme brutality against
its dissenting citizens. None can be said to have significantly developed forms of
democratic governance, at least not until very recently. Many of the disempowered
have been propelled into collective use of violence to gain voice in the political
affairs, and others now numbering in the hundreds of thousands have simply chosen
to ‘exit’ by migrating to other countries.

When added to the severe environmental deterioration that has accompanied
industrialisation in the Asian NIEs, and to the reportedly increasing income disparities
and persistence of poverty, it becomes clear that the ‘ends justify the means’ apology
for authoritarian rule has left much to be desired (Douglass, 1992a). This raises
one of the most important debates about these miracle economies: will authoritar-
ianism necessarily accompany successes in the next generation of late-industrialising
economies? At least two points can be made in defence of answering this question
with a tentative, perhaps naively hopeful, no. First, the experiences of at least some
of the NIEs show that authoritarian extremes followed rather than preceded
industrialisation, suggesting that economic success may have been used to justify
regime entrenchment, rather than the other way around. Second, calls for political
reform are emerging ahead of industrialisation in other Asian countries, suggesting
that the conditions for the type of authoritarianism associated with the Asian NIE
experiences in past decades can no longer be assumed.

To elaborate on the first point, one must make a distinction between the concept
of autonomy and authoritarianism as a requirement for ‘late industrialisation’. In
the case of the developmental state, Cotton (1992) defines state autonomy as the
independence of the state from nondevelopment-oriented interference, which can be
distinguished from authoritarianism, namely, a ubiquitous, penetrating, comprehen-
sive, and highly articulated control over sociopolitical and economic relations.
Applying this distinction to Korea, he argues that the initial high degree of state
autonomy was the fortuitous outcome of a variety of historical factors that allowed
it to pursue export-oriented industrialisation in the 1960s without the extremes of
‘intensified authoritarianism’ associated with the Yushin period under President Park
in the 1970s.

In the 1970s, as Park’s popularity precipitously declined, elections were
dispensed with, the press was muzzled, nonstate organisations were more tightly
controlled, and state powers were used to control labour movements directly (Han,
1987). In addition to increasing the penetration of the KCIA into the everyday lives
of citizens, Park also expanded the role of the technocracy as a means of carrying
out the programme of deepening the nation’s industrial structure, thereby creating
the Korean approximation of the Latin American BAIR—bureaucratic-authoritarian
industrializing regime (Cumings, 1989). But the oppression this regime brought
could not be sustained, and by the late 1980s, new contingencies, generated by the

562 M Douglass

increasing prominence of the urban middle class, professionals, and some segments
of labour, produced a constellation of forces that countered the authoritative uses of
state autonomy.(34)

In sum, the invasive authoritarianism of the Park regime came after, not before
or even during, the initial stages of Korea’s export-oriented industrialisation and was
not sustainable in the extreme forms that it took. What is not clear, however, is
whether the transformation of state autonomy into increasing authoritarianism was
required to sustain the industrialisation process (Cotton, 1992), or whether it was
principally a manifestation of Park’s specific political interests to sustain his own
regime. In agreeing with the second view, a number of observers further argue that
such authoritarianism was neither necessary nor functionally useful for Korea’s
economic growth (Bello and Rosenfeld, 1990; Cheng, 1990; Deyo, 1990). Huang’s
(1989) assessment of authoritarianism under the KMT in Taiwan leads to similar
conclusions. In both cases, the experiences show that degrees of autonomy and
extremes of authoritarianism do not necessarily coincide.

The idea that social relations are themselves transformed both by the choices
taken by the state and by the process of economic growth leads to the second point
about the linkage between industrialisation and authoritarian states. As previously
argued, social changes and divisions generated through state-capital-labour
relations in the Asian NIEs have themselves produced new and diverging contexts
both for the continued exercise of state power and for the future industrial pathways
available to each (Rosenau, 1988). These contexts do not array themselves along a
linear line of human progress as often portrayed by those asserting, for example,
that industrialisation inexporably leads to the rise of a politically powerful middle
class that effectively transforms authoritarian regimes into democratic regimes. In
fact, the strengths of democratic movements vary greatly among the NIEs, ranging
from the intensive and entrenched struggles in Korea to the ambivalent constel-
lations in Hong Kong (So, 1991) and the as yet subdued voices for political
liberalisation in Singapore.<35) More generally, in the late 20th century, movements for inclusion in the political process are not so easily associated with levels of per capita GNP. In Asia countries that have yet to join the ranks of NIEs—Burma, China, Nepal, the Philippines, and Thailand—have in recent years experienced major popular uprisings against authoritarian regimes in the name of political liberalisation. Each has defied the dictum that Asian people do not want democrati- cally elected governments and that only in the later stages of the urban-industrial transition can such movements be expected to arise.

In other words, in the future, demand for political reform cannot be expected to
follow export-oriented industrialisation with a substantial time lag. It is therefore not

<34> Chance is also given a role in this process. The personal decision of Kim Dae-jung to
return to Korea in 1985 served as an important catalyst for the ‘resurrection of civil society’
(O’Donnell et al, 1986), and the hosting of the 1988 Olympics greatly empowered the opposi-
tion forces because of the need to show the outside world a democratic nation without civil
unrest (Cotton, 1992, page 528). Contrarily, the split in the opposition in 1987 held political
reform back for several years. Cotton (1992, page 527) concludes with a hopeful but
cautionary note that, although this may signal the “opening of the political system to pressures
from interests formerly marginalized”, it may not necessarily lead to a less authoritarian use of
state power.
<35>A-R Lee’s (1993), in a study of changes in sociopolitial value orientations in Korea
between generations throughout period after World War 2, found that traits of passivity and
deferential behaviour associated with Korea’s traditional authoritarian values were changing
toward attitudes favouring open democratic regimes. As a result, political protest was becoming
more widespread, especially among the young and educated.

The ‘developmental state’ and the NIEs of Asia 563

possible to assert that the state in the next generation of NIEs will have either the
degree of autonomy or the degree of authoritarian uses of power associated with the
experience of the four societies under discussion here. The search for other, more
inclusionary, pathways of industrialisation is being placed on the political agenda—
not by the states themselves, but by workers and middle-class citizens alike.

Looking at longer term state transformations, contemporary theorists of the
Western state opine that its modern incarnation has three important characteristics
that differentiate it from Western states of the past and from those in less-developed
regions of the world, namely, its uses of power are depersonalised, standardised,
and comprehensively integrated into the societal order of the nation (Poggi, 1990).
To some this is the ideal state, one in which state, regime, and government are
separated, and society is constitutionally governed through the rule of law (Lawson,
1993).

But, although these attributes may have granted the state an increased capacity
to steer the nation through economic crises, the state has itself become increasingly
opaque and, except in the form of orchestrated media events, distant from popular
involvement. The nation-state as a sovereign, geographically demarcated territory
is, at the same time, losing its coherence as international flows of capital and labour
not only blur national boundaries but also create new international economic and
cultural spaces within them. The result has been a crisis of a different type than
that confronting the state on the Asian arc of the Pacific Rim, namely, a crisis of
identity of citizens with the nation-state itself.

The strong state model of societal guidance that was a key feature of all of the
Asian NEEs industrialisation processes is being challenged on all fronts, and
whether a new complex of institutions reflecting an expanded political community
that includes more democratic methods of regulation will either appear to be or be
effective is one of the most important questions for the coming years. If Bello and
Rosenfeld (1990) are accurate in claiming that the command economies of the
Asian NIEs are obsolete and that legitimation crises can no longer be met with the
stick but must instead be resolved through democratic practice,(36) the message from
the West may not be comforting. But if there is a process of ‘late democratisation’
accompanying late industrialisation, a nonauthoritarian alternative to the develop-
mental state based on the extension of political community beyond the state itself
will also be on the political agenda.

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p © 1994 a Pion publication printed in Great Britain

Seventeen
‘MAKING THE CONNECTIONS,

MOVING THE GOODS’:
LOGISTICS AND DISTRIBUTION

SERVICES

CHAPTER OUTLIN

E

Taking logistics and distribution for granted 540
The structure of logistics and distribution services 54

1

The dynamics of the market for logistics services 54

4

Technological innovation and logistics and distribution services 54

5

E-commerce: a logistics revolution 54

6

The role of the state: regulation and deregulation of logistics
and distribution services 550
Regulation and deregulation of transportation and
communication systems 550
Corporate strategies in logistics and distribution services 55

3

Global logistics: from transportation companies to
integrated logistics service providers 553
Global trading companies 556
Globalizing retailers 55

9

Logistics ‘places’: key geographical nodes on the global
logistics map 56

2

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PART FOUR THE PICTURE IN DIFFERENT SECTORS540

TAKING LOGISTICS AND DISTRIBUTION FOR
GRANTED

Whereas there is a huge literature and a continuous, often frenzied, debate on the
role of financial services in the processes of globalization, logistics and distribution
rarely make an appearance on the stage. They remain hidden, mainly confined to
the specialist fields of supply chain management and transportation. The logistics
and distribution processes get taken for granted.1 It is more or less assumed that,
as transportation and communication systems have allegedly shrunk geographical
distance, the problems of getting products from points of production to points of
consumption have been solved.

In fact, the very opposite is the case. The circulation processes that connect together
all the different components of the production network are absolutely fundamen-
tal (see Chapter 3). The logistics industries themselves are huge:

As an area of economic activity, logistics were worth an estimated
US$3.6 trillion in 2009 – and predicted to reach US$3.9 trillion by
2013 … Logistics costs account, on average, for 10–15 per cent of the
final cost of finished products in the developed world, including trans-
port costs (7–9 per cent), warehousing costs (1–2 per cent) and inven-
tory holdings (3–5 per cent).2

They have become especially significant in light of the broader forces of change
discussed in earlier chapters, notably:

•• new production methods, involving increased flexibility;
•• changing relationships between customers and suppliers;
•• increasing use of JIT procurement and delivery systems;
•• increasing geographical complexity and extent of production networks;
•• changing consumer preferences.

In particular, time has come to be seen as the essential basis of successful competi-
tion.3 In such a context, the nature and efficiency of distribution systems become
central:

Time- and quality-based competition depends on eliminating waste
in the form of time, effort, defective units, and inventory in manufac-
turing-distribution systems … [requiring] firms to practice such logis-
tical strategies as just-in-time management, lean logistics,
vendor-managed inventory, direct delivery, and outsourcing of logistics
services so that they become more flexible and fast, to better satisfy
customer requirements.4

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LOGISTICS AND DISTRIBUTION SERVICES 541

THE STRUCTURE OF LOGISTICS AND DISTRIBUTION
SERVICES

The essential function of the logistics and distribution services – which should be
regarded as GPNs in their own right – is to intermediate between buyers and sellers
at all stages of a production circuit (Figure 17.1). This involves not only the physi-
cal movement of materials and goods, but also the transmission and manipulation of
information relating to such movements. They involve, above all, the organization
and coordination of complex flows across increasingly extended geographical dis-
tances. In that respect, these services have been revolutionized by the technological
developments in transportation and communication discussed in Chapter 4. They
have also been transformed by the increased outsourcing of logistics and distribu-
tion services by manufacturing firms, by the intensifying pressures from the big
retailers and by the emergence of new forms of logistics service providers.

In Figure 17.1 there are no political or other obstacles to complicate the basic
system. In reality, of course, such obstacles greatly affect the structure and opera-
tion of logistics and distribution processes. Two kinds of ‘barrier’ to movement are
especially significant:

•• Physical conditions that necessitate the transfer from one transportation mode
to another – for example, land/water interfaces.

•• Political boundaries that create complications of customs clearance, tariffs,
duties, administration, and the like. Such barriers have become increasingly
significant as economic activity has become more globalized.

DistributorManufacturer

Logistics service providers and carrie

r

s

Tier 3

suppliers

Tier 2

suppliers

Tier 1

suppliers

Tier 1
customers

Tier 2
customers

Tier 3
customers

Flows of materials and products

Flows of information (including customer orders)

Figure 17.1 Logistics and distribution in the production circuit

Source: based, in part, on Schary and Skjøtt-Larsen, 2001: Figure 1.6

17_Dicken-7E_Ch-17.indd 541 18/11/2014 11:03:19 AM

PART FOUR THE PICTURE IN DIFFERENT SECTORS542

Hence, as Figure 17.2 shows, there are many stages in the process of getting prod-
ucts to their final market:

A typical door-to-door journey for containerised international ship-
ments involves the interaction of approximately 25 different stake-
holders, generates 30–40 documents, uses two to three different
transport modes and is handled in 12–15 physical locations.5

However, the more extended a production circuit becomes – both organization-
ally and geographically – the greater the potential problems. For example:

Companies deciding to source in China rather than producing in-
house may think they are adding a single link to their supply chain …
In fact, they are probably adding at least five: the production agent in
China, a logistics company in China, China customs, the freight ship-
per, customs and transport in the domestic market.6

The logistics and distribution processes shown in Figures 17.1 and 17.2 can be
performed in a variety of ways and by a variety of organizational forms. At one
extreme, each individual transaction may be performed by a separate firm; at the
other extreme, the entire process may be carried out by a single integrated firm or
related group of firms. Between these two ends of the spectrum there is, of course,
a shifting of positions as circumstances change. However, there is a very clear trend
towards greater outsourcing of logistics functions.

7

The major types of organization involved in logistics and distribution include:

•• transportation companies
•• logistics service providers (LSPs)

Local

transport

Customs:

import

clearance

Customs:

export

clearance
Local
transport

Customer
Freight forwarder/

third party
logistics

provider

Carrier
Freight forwarder/

third party
logistics provider

Exporter

PortPort

Figure 17.2 Logistics processes in a transnational context

Source: adapted from Schary and Skjøtt-Larsen, 2001: Figure 11.7

17_Dicken-7E_Ch-17.indd 542 18/11/2014 11:03:19 AM

LOGISTICS AND DISTRIBUTION SERVICES 543

•• wholesalers
•• trading companies
•• retailers
•• e-tailers.

Transportation companies (rail, road, shipping, airlines), wholesalers and retailers
perform fairly clearly defined and restricted roles in the production circuit. On
the other hand, trading companies and the more recent specialist logistics service
providers perform a far broader range of activities. Not only are the boundaries
between these types of organization often blurred, but also one form of organiza-
tion may mutate into another, as we will see later in this chapter. At the same time,
the significance of some types of intermediary has changed.

For example, traditionally, the wholesaler played a major role in collecting
materials or products from a range of individual producers and then distributing
them to the next stage of the production process, or to the retailer in the case
of final demand. However, the importance of the wholesaler as the key inter-
mediary has changed substantially as the major retailers have bypassed whole-
salers to deal directly with the manufacturer, or as other forms of logistics and
distribution services have developed. In a similar way, the development of
e-commerce makes it possible to bypass the traditional retailer as the key inter-
mediary between producer and final consumer and to create a new type of
retailer: the e-tailer. Figure 17.3 shows just one way in which the production/
supply circuit may be organized.

Figure 17.3 A potential way of organizing logistics services

Source: adapted from Schary and Skjøtt-Larsen, 2001: Figure 7.4

Supplier Customer

Lead
logistics
provider

Asset-based

provider

Information

services
Carrier

D

C

services

Local
transport

Parcel
service

Tier 1
Tier 2
Tier 3

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PART FOUR THE PICTURE IN DIFFERENT SECTORS544

THE DYNAMICS OF THE MARKET FOR LOGISTICS
SERVICES

In aggregate terms, the growth of the market for logistics and distribution ser-
vices is closely related to growth in the economy as a whole. Hence, the 2008
economic recession had a huge impact, reducing demand for transportation and
logistics services and putting on hold some major infrastructural projects in ports
and other transportation and communications hubs and routes. But beyond this
cyclical variation in demand, the market for logistics and distribution services is
highly heterogeneous. Demand for some kinds of distribution services has grown
more rapidly than others.

Ultimately, as Figure 17.1 shows, the system is driven by the demands of the
final consumer, although this influence becomes increasingly indirect the further
back up the production circuit we go. Although the primary driver of final con-
sumer demand is the level of disposable income, consumption, as we have dis-
cussed at various points in this book, is an immensely complex socio-cultural
process. The intensely competitive retail markets have major repercussions on the
demand for distribution and logistics services further up the production circuit. As
we saw in the agro-food (Chapter 13) and clothing (Chapter 14) industries, the
major retailers and buyers exert intense pressure on their suppliers to deliver more
rapidly, more cheaply and in greater variety. This, in turn, creates opportunities
(and challenges) for the suppliers of logistics and distribution services to provide
a faster and more integrated supply system between the different components of
the production circuit.

The enhanced power of the major retailers greatly affects the logistics firms
responsible for getting the products to the retail stores:

A shifting power structure in the retail trade not only changes market
shares but also the structure of the distribution network. The major
international retail customers ask for customized logistics solutions
across borders. Apart from negotiating frame orders with significant
price advantages with suppliers, the most powerful retailers also
require information sharing services, such as electronic data inter-
change, advance shipping notices via the Internet and track and trace
capabilities. They typically prefer delivery to their own distribution
centers where goods are consolidated with other products for delivery
to their retail stores.

8

In effect, there has been a pronounced shift from ‘supply push’ to ‘demand pull’, a
shift which generates pressure to develop new logistics systems. Hence, there is a
link between the changing demand pressures on the suppliers of logistics and distri-
bution services and changing technologies. Let us now look at these technologies.

17_Dicken-7E_Ch-17.indd 544 18/11/2014 11:03:19 AM

LOGISTICS AND DISTRIBUTION SERVICES 545

TECHNOLOGICAL INNOVATION AND LOGISTICS AND
DISTRIBUTION SERVICES

Three criteria dominate the logistics and distribution services:

•• speed
•• flexibility
•• reliability.

Technological innovations have revolutionized all three. At a general level, techno-
logical developments in transportation and communication have been immensely
important in transforming the basic time–space infrastructure of the logistics and
distribution industries. Likewise, these industries have also been revolutionized by
the shift in process technologies from mass production to more flexible and cus-
tomized production systems. The mass production systems of the late nineteenth
and first two-thirds of the twentieth century were facilitated by mass distribution
systems, based on rapidly developing rail, road and ocean shipping networks (see
Chapter 4).

Such mass distribution systems depended heavily on the use of large ware-
houses to store components and products and from which deliveries were made
to customers on an infrequent basis. This was an immensely expensive system in
terms of the capital tied up in large inventories. It was also, very often, a source of
waste in terms of faulty products that were not discovered until they were actually
used. Together with a major shift towards lean, JIT, systems of production, there
has also been a parallel shift towards lean systems of distribution, whose purpose is to
minimize the time and cost involved in moving products between suppliers and
customers, including the holding of inventory.

Three key elements form the core of such lean distribution systems:9

•• Electronic data interchange (EDI). This enables the rapid transmission of large
quantities of data electronically (rather than using paper documents). Such data
can encompass all aspects of the logistics and distribution system throughout
the production circuit, including the retailer. Information on product specifi-
cations, purchase orders, invoices, status of the transaction, location of the ship-
ments, delivery schedules, and so on can be exchanged instantly. EDI requires
a common software platform to enable data to be read by all participants in
the chain.

•• Bar code systems and radio frequency identification technology. Bar codes were first
developed in the 1970s by grocery manufacturers and food chain stores to
enable each item to be given a unique, electronically readable identity. They
are now ubiquitous throughout the production circuit: ‘Bar codes permit
organizations to handle effectively the kind of vast product differentiation that

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PART FOUR THE PICTURE IN DIFFERENT SECTORS546

would have been prohibitively expensive in an earlier era. They also facilitate
instantaneous information at the point of sale, with significant effects on
inventory management and logistics.’10 Radio frequency identification (RFID)
technology greatly increases the sophistication and flexibility of the bar code
principle. Bar codes can be difficult to read (they require a clear line of sight).
RFID technology gets around this by using small radio tags that allow goods
to be tracked continuously throughout their progression through a production
circuit. By combining the tag with a unique electronic product code (EPC) it
becomes possible to incorporate a large quantity of information about each
object. One observer (admittedly with a vested interest in RFID technology)
described it as ‘a bar code on steroids’.

11

•• Distribution centres. Modern distribution centres hold inventory for much
shorter periods of time and turn it over very rapidly: ‘Four technologies have
made the modern distribution centre possible: (1) bar codes and associated
software systems; (2) high-speed conveyers with advanced routing and switch-
ing controls; (3) increased reliability and accuracy of laser scanning of incom-
ing containers; and (4) increased computing capacities.’12 In the most advanced
distribution centres – such as the system used by the US retailer Wal-Mart – a
method known as ‘cross-docking’ is used. This is a ‘largely invisible logistics
technique … [in which] … goods are continuously delivered to Wal-Mart’s
warehouses, where they are selected, repacked, and then dispatched to stores,
often without ever sitting in inventory. Instead of spending valuable time in
the warehouse, goods just cross from one loading dock to another in 48 hours
or less. Cross-docking enables Wal-Mart to achieve economies that come with
purchasing full truckloads of goods while avoiding the usual inventory and
handling costs.’

13

Computer-based electronic information systems are at the heart of all three of
these technological developments in logistics and distribution systems. They have
evolved over a period of 30 years, often incrementally rather than as a spectacular
‘revolution’. Now, however,

[l]iterally every item in motion in the physical flows of the global
economy can be (and often is) tagged with detailed digital informa-
tion about its origin, contents and destination and is already deeply
integrated into factory production schedules or retail sales.

14

E-commerce: a logistics revolution
The later 1990s brought into existence an entirely new set of distribution methods
based upon the Internet: e-commerce. In essence, e-commerce has developed out
of the convergence of several technological strands: EDI, the Internet, e-mail and

17_Dicken-7E_Ch-17.indd 546 18/11/2014 11:03:19 AM

LOGISTICS AND DISTRIBUTION SERVICES 547

the medium of the World Wide Web (WWW).15 The e-commerce revolution has
changed the world of distribution and the main reason, once again, is speed.

Although four types of e-commerce are shown in Figure 17.4, two dominate:

•• B2B (business-to-business). This encompasses potentially the whole range of trans-
actions between businesses, notably procurement of products and services and
logistics. B2B websites are electronic ‘marketplaces’ where firms come together
to buy or sell products and services. They may be ‘vertical’: that is, industry spe-
cific. One example is the B2B procurement system, Covisint, established in 2000
by General Motors and Ford, together with some other automobile manufactur-
ers, to increase the efficiency of component purchasing. Covisint is now a diver-
sified cloud computing company involved in a wide range of sectors. Alternatively,
B2B websites may be ‘horizontal’, organized around the products and services
provided rather than the industry. Connecting together large numbers of buyers
and sellers through electronically automated transactions has a number of poten-
tial benefits, notably vastly increasing choice to both sellers and buyers, saving
costs on transactions, and increasing the transparency of the entire supply chain.

•• B2C (business-to-consumer). B2C business is the selling of consumer products and
services directly over the Internet by a Web-based firm. The pioneers included
Amazon, eBay and Dell but, of course, the dotcom revolution created millions
of ‘e-tailers’, some with a very short life. E-tailing has also been adopted by the
traditional retailers. Indeed, contrary to predictions that traditional retailers
would be adversely affected by Internet shopping, the opposite has occurred,
especially with the development of comparison sites which allow customers to

Figure 17.4

Types of e-commerce

Source: based, in part, on Gereffi, 2001: Figure 2

Internet
equipment
suppliers

PC
manufacturers
& component
suppliers

PC and
E-business
software

Web
browsers

Internet
Service
Providers
(ISPs)

Internet
Content
Providers
(ICPs)

Customers

Businesses
(B2B)

Consumers
(B2C)

B2B

Business

B
u

si
n

e
ss

Consumer

C
o

n
su

m
e

r
C2B

B2C

C2C

On-line
procurement

e.g. job auctions, consumer
bidding for services

On-line consumer
purchasing

e.g. consumer auctions,
classified ads.

Purchaser

S
u

p
p

li
er

Types of e-commerce

The major components of e-commerce organization

17_Dicken-7E_Ch-17.indd 547 18/11/2014 11:03:20 AM

PART FOUR THE PICTURE IN DIFFERENT SECTORS548

compare products and prices and read reviews. The potential benefits of B2C
transactions are, to the consumer, greater choice, ease of comparison of prices,
instant (or very fast) delivery to the home or on a click-and-collect basis from
a local store, and, to the seller, direct access to a massive potential market with-
out the need for physical space in the form of retail outlets and the associated
inventory and staffing costs. As a result, online shopping has grown extremely
rapidly. One estimate is that in the UK it accounted for 12.7 per cent of total
retail sales in 2012; in the USA for around 9 per cent.

16

E-commerce (both B2B and B2C) has enormous potential implications for the
traditional intermediaries of business and retail transactions. Early predictions
were that many would disappear as their functions were displaced by direct
online transactions. In fact, this has not happened to anything like the extent
predicted. On the contrary, e-commerce has actually enhanced opportunities
for such roles and created entirely new Internet-based service companies. Some
traditional intermediaries have adapted and found new ways of adding value
as providers of logistics, information and financial services; new intermediar-
ies have emerged.17 Some of these are what are sometimes termed infomediaries,
notably the Internet service and content providers shown in Figure 17.4. Figure
17.5 shows that in the case of both physical goods and electronic goods and
services, either old intermediaries transform themselves or new ones appear. As
in financial services (Chapter 16), both disintermediation and reintermediation
occur simultaneously.

Conventional
system

E-commerce in
physical goods

E-commerce in
electronic goods
and services

Supplier Intermediary Producer/provider Intermediary Customer

Old intermediary

New or old intermediary

Physical goods

Electronic goods / services

‘Physicalized’ information

Electronic information

Figure 17.5 The continuing role of intermediaries in an e-commerce world

Source: based on Kenney and Curry, 2001: Figure 3.2

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LOGISTICS AND DISTRIBUTION SERVICES 549

•• ‘Dell’ model. The supplier receives orders for specific products, which are
then integrated directly into production: ‘The customer order activates the
supply chain. Customers can “design” their products from a list of options
to be incorporated into a production schedule. The order then initiates a
flow of component parts from suppliers to be assembled into a final product,
turned over to a logistics service provider, merged with a monitor from
another source and delivered to a final customer. The system avoids holding
finished product inventory, providing both lower cost and more product
variety.’

19

•• Drop shipment model. The e-commerce firm receives an order and passes on the
order to a manufacturer for production and delivery direct to the customer
from the manufacturer.

•• ‘Amazon’ model. This is the electronic version of an old mode of direct retailing
where a ‘catalogue’ of products is held electronically and accessed via the
Internet. Customer orders are either fulfilled by the seller from its own distri-
bution centre or ‘drop-shipped’ direct from the manufacturer or other
provider.

•• Bricks-and-mortar model. This combines both conventional retail stores, fed by
distribution centres, with an Internet website that channels orders to the same
distribution centres. A problem with this system is that whereas retail orders
generally require large orders, individual Internet-based orders require indi-
vidual units.

M

E
C

R

FC

DC

I

Manufacturer Fulfilment centre

E-commerce site Distribution centre

Customer Physical flow

Retailer Information flow

InventoryE

C
FC

Home delivery

model

E
E

CI

Inventory-pooling

model
E
C
R
DC

Bricks-and-mortar

model
M

E C

DC

‘Amazon’

model
M
E
C

Drop-shipment

model

M C

Su
p

p
lie

rs

‘Dell’

model

Figure 17.6 Methods of fulfilling e-commerce orders

Source: based, in part, on Schary and Skjott-Larsen, 2001: Figure 4.5

Related to the perception that e-commerce spells the end for the traditional inter-
mediary organization is the idea that traditional physical infrastructures will also be
displaced. Again, this is an illusion. As Figure 17.6 shows, there are several ways of
fulfilling e-commerce orders:

18

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PART FOUR THE PICTURE IN DIFFERENT SECTORS550

•• Inventory-pooling model. This enables customers in a specific industry to acquire
common components from an inventory pool controlled by a Web-based provider.

•• Home delivery model. Customers requiring regular deliveries of, say, groceries,
can place their order with a Web-based service which will deliver on a routine
basis to the customer’s home address.

Thus, a whole variety of technological developments has transformed the nature
and operations of the logistics and distribution industries. Initially, in the early
twentieth century, they were the technologies that enabled mass distribution sys-
tems to facilitate the output of the mass production systems of the day. By the last
two decades of the twentieth century, the technologies had become predominantly
electronic. Such technologies facilitate the operations of more flexible production
systems through their ability to transmit and process vast quantities of information
on all aspects of the supply circuit. Increasingly, these processes take place in the
‘cloud’ (see Chapter 4).

THE ROLE OF THE STATE: REGULATION AND
DEREGULATION OF LOGISTICS AND DISTRIBUTION
SERVICES

There is a significant obstacle to the smooth, seamless operation of the kinds of
logistics and distribution systems made possible by these technological innovations:
the existence of state regulatory regimes. By definition, transnational production
and distribution involve crossing political boundaries. All national governments
regulate, in various ways, the cross-border movement of goods and services. We
have discussed one aspect of this in Chapter 6 and in the other case study chapters:
the variety of trade measures (both tariff and non-tariff barriers, including customs
requirements and procedures) that states use. The existence of such regulations
creates major discontinuities in the geographical surface over which distribution
services operate (see Figure 17.2).

In this section, we are concerned with the regulatory structures affecting the
basic functions of the logistics and distribution services themselves, especially
transportation and communication systems. Such regulations are implemented at
various political–geographical scales: international, regional and national. In the
past three decades, in particular, there have been major waves of deregulation.

Regulation and deregulation of transportation and
communication systems
Regulation of transportation and of communications has a very long history.20
It has involved a varying mix of national and international level systems in the

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LOGISTICS AND DISTRIBUTION SERVICES 551

public sphere, as well as private organizations in the form of the operators them-
selves. Much of the regulatory system in air and sea transportation relates to issues
of safety and security, while in communications a key issue is harmonization of
standards to enable communications originating in one place to be received and
understood in other places. International bodies such as the IMO (International
Maritime Organization), the ICAO (International Civil Aviation Organization),
and the ITU (International Telecommunication Union) are the primary players.

Within such international frameworks, individual national states have also regu-
lated telecommunications and air transportation. These are both sectors in which
states believe (or have believed until recently) that ‘natural monopolies’ exist. For
example,

telecommunications’ regulation contains one of the earliest examples
of international regulatory cooperation between states, with the crea-
tion of the International Telegraphic Union (ITgU) in 1865. But in
other respects the regulation of telecommunications is a story of ter-
ritorial containment. Much of the early regulatory development in the
first half of the twentieth century was influenced by the economic
view that telecommunications is a ‘natural monopoly’. But no state
thinks that there should be one world monopolist. Instead, the con-
tours of this natural monopoly correspond with state boundaries.

21

In most cases this involved state ownership, although in the USA it was a private
monopoly, AT&T.

Similarly in the air transportation industry,

just as almost every nation ha[d] its telecommunications carrier (and
rarely more than one), almost every nation ha[d] a flagship airline (and
rarely more than one). The state controls landing rights (just as it tends
to control the telecommunications infrastructure) and rations those
rights, usually in ways that favour the national flag-carrier.22

In both cases, the operation of the regulatory framework has involved a tension
between

•• the desire on the part of most states for control over their own national spaces
and;

•• the drive (primarily by business organizations) for the least possible regulation
consistent with safety and efficiency.

As globalizing processes have intensified, however, the balance has shifted deci-
sively towards greater deregulation of the nationally based systems and the privati-
zation of state-owned companies. In the case of telecommunications, the initial
moves came in the USA, with the enforced break-up of the AT&T monopoly in

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PART FOUR THE PICTURE IN DIFFERENT SECTORS552

the early 1980s. The US example stimulated a wave of European deregulation in
telecommunications during the 1980s, led by the UK’s Thatcher government.

The air transportation industry has experienced a similar wave of deregulation.
Again, the early moves began in the USA. In the late 1970s, a US–UK bilateral
agreement was signed which helped to undermine the cartelization of the airline
industry within IATA. In 1978, the US domestic airline industry was deregulated.
Subsequently,

both the US and the UK then set about reshaping their bilateral
agreements towards more liberal policies. For example, France has
been the most vigorous opponent of liberalization, so the US worked
at isolating France by negotiating open-skies agreements with
Belgium and other countries around France … In short, the process
in the 1990s is US-led liberalization that is seeing the world become
gradually and chaotically more competitive. The process is chaotic
because even the most liberal states, such as the US and UK … are
‘liberal mercantilists’ … Another chaotic element is that many
European, African, and South American states support liberalization
within their continents but want protection from competition outside
the continent (especially from the US).23

The continuing tensions between states in terms of their own air spaces (and often
their ‘national’ airlines) has important implications for logistics and distribution ser-
vices. Two examples illustrate this. First, the continuing disagreement between the
USA and the UK over mutual access over the North Atlantic route means that, on the
one hand, US airlines have restricted access to London Heathrow while, on the other,
British airlines are not allowed to fly routes onwards within the USA beyond their
initial point of entry. This also means that the US company FedEx has been unable to
operate a fully fledged operation from its UK base at Stansted; it is allowed to fly from
the USA to Stansted but only to a small number of destinations from there. Instead, it
has to charter planes to fly from the UK to Paris to connect with its European hub.24

A second example is the now resolved dispute between the USA and Hong
Kong, which was especially important for the large express couriers (FedEx, DHL
and UPS). The US company FedEx was allowed only five flights a week from
Hong Kong to destinations outside the USA. This was because Hong Kong
wanted its airline, Cathay Pacific, to be able to fly within, as well as to, the USA
(which it refused to allow). The agreement signed in 2002 increased the daily
flights for all-cargo carriers from 8 to 64, phased in over three years, although
Cathay Pacific insisted that the agreement over-benefited US carriers.25

Some of the biggest changes in the regulatory environment affecting the logistics
industries have resulted from the emergence of regional economic blocs, such as the
EU and the NAFTA. The completion of the Single European Market in 1992
removed virtually all obstacles to internal movement of goods and services within

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LOGISTICS AND DISTRIBUTION SERVICES 553

the EU. Liberalization of trucking within and between the USA, Canada and
Mexico was also a part of the NAFTA. Under this 1994 agreement, the US and
Mexican border states were to be opened to international trucking by the end of
1995. By January 1997, Mexican trucking companies would be allowed to operate
as domestic carriers in the border states and for international cargo in the rest of the
USA and, by January 2000, they would be able to file to operate in the entire USA.
In fact this did not happen. Not until 2004 did the US Supreme Court overthrow
the opposition of the House of Representatives to Mexican and US truckers oper-
ating in each other’s domestic markets. In fact, it still did not happen. In 2009,
Mexico retaliated with tariffs against US products because of the continued failure
to implement the NAFTA. Finally, in 2011, some 16 years late, an agreement was
reached, though not without huge opposition from some groups in the USA.

Regulating transportation and communication systems is not easy, given the num-
ber of conflicting interests involved. But it is far easier than regulating the Internet.
As a medium that ‘knows no boundaries’ and that is allegedly (although, as we have
seen, not actually) ‘placeless’, it involves some intractable issues as to who regulates it.
The answer is far from clear, not least because of the very newness of the Internet
and e-commerce and its phenomenally rapid growth. The key issue is ‘whose laws
apply?’ when e-commerce transactions transcend different national jurisdictions.

CORPORATE STRATEGIES IN LOGISTICS AND
DISTRIBUTION SERVICES

Logistics and distribution services cover an immensely wide range of activities
and encompass a mix of traditional shipping and carriage of goods through to
the highly complex and sophisticated logistics service providers (LSPs), from trading
companies to large transnational retail chains. In this section we outline the major
trends in corporate strategies as firms have responded to market, technological
and regulatory forces. Although there are many niche areas within the distribu-
tion sector, there is a broad tendency in most activities for the size of firms to be
increasing and for higher degrees of concentration into a smaller number of large
firms. Growth through merger and acquisition, and through network alliances, has
been especially prominent in this sector as firms strive to provide global logistics
services. This has meant that the names and identities of many firms are continu-
ously changing. Table 17.1 lists the world’s 10 largest logistics firms.

Global logistics: from transportation companies to
integrated logistics service providers
As customer demands have become more complex (and more global), the provid-
ers of logistics and distribution services have responded in a number of ways. Some

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PART FOUR THE PICTURE IN DIFFERENT SECTORS554

have diversified into complete ‘one-stop shops’; others have remained more nar-
rowly focused on providing a limited range of functions. In both cases, the trend
has been towards greater consolidation and concentration through acquisition and
merger. Some examples illustrate this trend.

In the shipping sector, Maersk acquired Nedlloyd in 2005 to become the larg-
est container operator in the world. In the logistics field, acquisitions and mergers
have accelerated. For example, in 2000 Exel was formed from a merger of a ship-
ping company, Ocean, and a contract logistics supplier, NFC. In 2004, Exel pur-
chased the second-largest UK logistics company, Tibbett and Britton, to become
the sector leader with 111,000 employees in more than 135 countries. In turn, in
2005, Deutsche Post World Net (owner of DHL, which it had acquired in 2003)
acquired Exel. This created by far the world’s largest logistics service company,
providing air freight, ocean freight and contract logistics services. The new group,
DHL Logistics, employs over 280,000 people worldwide.

As a result of such developments, together with the movement of other service
companies into logistics provision, we can identify four major types of logistics
service firm (Figure 17.7), according to the kinds of physical and management
services they provide:26

•• Traditional transportation and forwarding companies provide the simplest functions
and are the longest established.

Table 17.1 Leading global logistics firms (ranked by revenue)

Company Country
Revenue,
2011 ($m) Employment

Number of
offices

Number of
countries

DHL Logistics Germany 37,780 >280,000 c.18,000 >2

20

Kuehne & Nagel Switzerland 22,104 >63,000 >1,000 >100

DB Schenker

Logistics

Germany 19,685 94,600 >2,000 c.120

CEVA Logistics Netherlands 9,593 >51,000 n.d. >130

C H Robinson

Worldwide

USA 8,741 >15,000 >235 ex.

N. America

21

DSV Denmark 8,162 22,000 n.d. >70

Panalpina Switzerland 7,331 15,000 500 >90

SNCF Geodis France 6,200 >20,000 n.d. >50

Expeditors

International

USA 6,150 >13,000 >250 n.d.

UPS Supply

Chain

Solutions

USA 6,058 n.d. n.d. >150

n.d. – no data.
Source: based on material in www.supplychaindigital.com; company reports and websites

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LOGISTICS AND DISTRIBUTION SERVICES 555

•• Asset-based logistics providers first emerged during the 1980s, developing primar-
ily from the diversification of some traditional transportation companies into
more complex LSPs. Several of the world’s leading container-shipping compa-
nies, such as Maersk-Sealand and Nedlloyd/P&O, moved in this direction. For
example, in 1992 Nedlloyd took on responsibility for all of IBM’s distribution
activities as part of its strategy to become a worldwide logistics provider.

•• Network-based logistics providers such as DHL, FedEx, UPS and TNT appeared
on the international scene during the early 1990s:

These third-party logistics providers started as couriers and express par-
cel companies and built up global transportation and communication
networks to be able to expedite express shipments fast and reliably.
Supplemental information services typically include electronic proof-
of-delivery and track-and-trace options from sender to receiver …
Recently, these players have moved into the time-sensitive and high-
value-density third-party logistics market, such as electronics, spare parts,
fashion goods and pharmaceuticals, and are competing with the tradi-
tional asset-based logistics providers in these high margin markets.27

The nature of these logistics services demands geographically extensive, and
tightly integrated, networks of operations. All the leading firms, therefore, have a
global presence, each company operating global hub-and-spoke transportation
networks, either owned by themselves or with partners.

•• Skill-based logistics providers became increasingly significant in the later 1990s.
These are firms that do not own any major physical logistics assets but provide

Asset-based logistics providers

Traditional transportation and
forwarding companies

Major functions

Major functions

Warehousing

Transportation

Transportation
Warehousing

Inventory management

Export documentation

Postponed manufacturing

Customs clearance

Skill-based logistics providers

Network-based
logistics providers

Major functions
Major functions

Management consultancy

Express shipments

Information services

Track and trace

Financial services

Electronic proof-of-delivery

Supply chain management

JIT deliveries

Solutions

P
h

y
si

c
a

l

se
rv

ic
e

s

Management ser vices

Figure 17.7 Types of LSPs

Source: based, in part, on Schary and Skjott-Larsen, 2001: Figure 7.3

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PART FOUR THE PICTURE IN DIFFERENT SECTORS556

a range of primarily information-based logistics services. These encompass
consultancy services (including supply chain configuration), financial services,
IT services and a range of management expertise. Examples include
GeoLogistics, a firm created in 1996 through the merger of three existing
logistics companies (Bekins, LEP, Matrix) and recently rebranded as Agility,
now the 12th-largest logistics company in the world.

Global trading companies
Trading companies have a history going back many hundreds of years. From the
earliest days of long-distance trade they played an especially important role in
facilitating trade in materials and products. Here we look at two important con-
temporary examples, both taken from East Asia.

The first example is the Japanese sogo shosha. The common translation of the term
sogo shosha is ‘general trading companies’, but they are very much more than this, having
been central to the development of the Japanese economy since the late nineteenth
century.28 This was the true Japanese general trading oligopoly, each member of which
had a major coordinating role within one of the Japanese keiretsu (see Figure 5.10). The
five leading sogo shosha – Mitsubishi, Mitsui, Itochu, Marubeni, Sumitomo – operate a
massive network of subsidiaries and thousands of related companies across the globe
(Figure 17.8) and handle tens of thousands of different products.

Historically, the sogo shosha developed to organize exchange and distribution within
the Japanese domestic market. Subsequently, they became the first Japanese companies
to invest on a large scale outside Japan. These foreign investments were primarily
designed to organize the flow of imports of much needed primary materials for the
resource-poor Japanese economy and to channel Japanese exports of manufactures to
overseas markets. It was the particular demands of these Japanese-focused trading
activities that necessitated the development of the globally extensive networks of the
sogo shosha. In other words, they were to set up a global marketing and economic intel-
ligence network. Once in place, this network, with all its supporting facilities, not only
facilitated the growth of Japanese trade, but also enabled a whole range of Japanese
firms to venture overseas. Indeed, a good deal of the early overseas investment by
Japanese manufacturing firms was organized by the sogo shosha.

Their four primary functions are:

•• trading and transactional intermediation: matching buyers and sellers in a long-
term contractual relationship;

•• financial intermediation: serving as a risk buffer between suppliers and purchasers;
•• information gathering: collecting and collating information on market conditions

throughout the world;
•• organization and coordination of complex business systems: for example, major infra-

structural projects.

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LOGISTICS AND DISTRIBUTION SERVICES 557

1 10 100 500 2000

Number of
employees

Figure 17.8 The global distribution of Japanese sogo shosha offices

Source: company reports

Product
manufacturers

Raw materials
producers

and materials
manufacturers

Sales agents
(wholesalers)

Retailers

Trading

Finance

Investment

Mitsubishi Corporation

Downstream
(Products)

Upstream
(Raw materials)

Personnel and management support
Supply of raw materials
Product sales

Value chain manager

Financial services provider

Strategic investor (dividends,
equity in earnings)

Trading
Finance
Mitsubishi Corporation
Sales agents
(wholesalers)

Manufacturers

Investment Invested to increase transactions Investment

Intermediary commissions

Extended credit (Shosha finance)

(a) Past business model

(b) Present business model

Major function: to act as intermediary in commercial transactions

Major function: to participate in entire value chain

Figure 17.9 Mitsubishi Corporation’s strategic shift

Source: Mitsubishi Corporation

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PART FOUR THE PICTURE IN DIFFERENT SECTORS558

As the position of the Japanese economy in the global system has changed, how-
ever, the role of the sogo shosha has also had to change. In the early 1990s, they
were responsible for roughly 70 per cent of total Japanese imports and for 40 per
cent of Japanese exports. By the early 2000s, this had fallen to 22 per cent and 12
per cent respectively. Figure 17.9 shows one example: the changing strategies of
the Mitsubishi Corporation as it has moved from acting primarily as an interme-
diary in commercial transactions to participating in the entire value chain across
a variety of sectors.

In 2013, each of the leading sogo shosha announced plans to shift the balance
of their activities by accelerating ‘investments in unconventional areas such as
food, retail and healthcare, as earnings from their mainstay energy and miner-
als businesses suffer from across-the-board falls in commodity prices’.29 For
example:

•• Mitsubishi Corp. said it would seek to double its earnings from non-natural
resources businesses by about 2020 and aim at a 50:50 balance between
resource and non-resource assets.

•• Marubeni Corp. announced a new medium-term strategy involving allocating
60 per cent of its budget over three years to non-resource assets, such as infra-
structure, transportation, machinery and food.

The second example of a trading company, also taken from East Asia, is the Hong-
Kong-based firm Li & Fung. This firm is not only the biggest export trading
company in Hong Kong, but also – and more importantly – a sophisticated
logistics company, with offices spread across over 40 countries (see Figure 17.10),
employing more than 28,000 people. Established in Canton in 1906, Li & Fung
was originally a simple commodity broker, connecting buyers and sellers for a
fee. Today, although still a Chinese family firm, it has been transformed from
the simple brokerage to an immensely sophisticated organizer of geographically
dispersed manufacturing and distribution operations, still with a strong speciali-
zation in garments (see Chapter 14) but increasingly in a whole variety of other
consumer goods:

Li & Fung provides sophisticated, one-stop-shop supply chain solu-
tions to meet customers’ specific needs. From product design, raw
material sourcing and production management to quality control,
logistics, shipping and other important functions, its spectrum of ser-
vices covers the entire supply chain end-to-end.30

These two examples show that traditional trading companies have carved out new
roles for themselves, both responding to and creating new demands for distribu-
tion and logistics services.

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LOGISTICS AND DISTRIBUTION SERVICES 559

Globalizing retailers
Retailing is the final link in the production circuit. As such, it is extremely sensi-
tive to the specific characteristics of the consumer markets it serves. Consumer
markets continue to have a high degree of individuality, despite the apparent uni-
versalization of some types of consumer preference. Consequently, retailing has
always had – and continues to have – a strong local orientation, although retailers
invariably source their products from a much broader spectrum of geographical
locations. A few retailers moved into foreign markets at a relatively early stage in
their development. One of the pioneers was the US company F.W. Woolworth,
which opened stores in Canada in 1897, in the UK in 1909 and in Germany in
1926. Indeed, so familiar did Woolworths become in most big cities in the UK
that few of its customers realized it was a foreign firm. But this was an exceptional
case. For the most part, retailers were very reluctant entrants into foreign markets.
Where they did so, it was usually into geographically and/or culturally proximate
locations.

But there has been a marked acceleration in the transnational activities of major
retailers in recent years.31 Table 17.2 lists the world’s leading transnational retailers
ranked by their international sales volume. The list includes the big food retailers
discussed in Chapter 13 (see Figures 13.8 and 13.9). It is significant that only five
of the top twenty transnational retailers are from the USA; many very large US
retailers remain entirely domestically oriented.

Figure 17.10 The global spread of the offices of Li & Fung

Source: Li & Fung

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PART FOUR THE PICTURE IN DIFFERENT SECTORS560

Table 17.2 The world’s leading transnational retailers, 2012 (ranked by international sales volume)

Company Headquarters
International
sales (US$m)

Percentage
of total sales

No. of
countries

Wal-Mart USA 121,456 28 14

Carrefour France 62,715 55 26

Metro Germany 53,856 61 33

Ahold Netherlands 51,590 77

10

Schwartz Germany 42,872 52 23

Auchan France 41,254 60 11

Aldi Germany 37,847 52 16

IKEA Sweden 35,314 94 33

Tesco UK 33,930 35 11

Seven & I Japan 31,036 30 16

Amazon USA 26,602 54 29

Costco USA 24,010 27 9

Casino France 20,185 45 11

Rewe Germany 17,824 28 11

H & M Sweden 16,419 94 28

Delhaize Belgium 16,274 77 11

Apple USA 14,065 44 19

Inditex Spain 13,685 73 40

Best Buy USA 11,535 25 6

Kering France 10,637 94 102

Source: data supplied by Neil Coe

Transnational retailing

Impact on logistics
service providers

Selling products to the
final consumer in different

geographical markets

Sourcing products from
geographically-dispersed

suppliers
Power relations

Figure 17.11 Two dimensions of transnational retailing

Transnational retailing has two main dimensions: selling products and sourcing
products (Figure 17.11).

Selling products in transnational markets involves setting up a new store, merg-
ing with or acquiring an existing retailer in a target market, or setting up a joint

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LOGISTICS AND DISTRIBUTION SERVICES 561

venture with a local firm. The latter two modes have been by far the most
prevalent. In some cases, this is because local regulations restricted direct entry.
The major retail chains have shown a particular propensity to invest heavily in
the emerging markets of East and South Asia, Latin America and Eastern Europe.

The core of this process involves four major types of transfer into a new market:32

•• Transfer of the total culture and business model of the firm: ‘All aspects of the culture
and business model of the retailer are transferred to the host retail economy
when retailers decide that they are international firms with internationalization
integrated into their strategy. Within Tesco, for example, this has become known
as “Tesco in a Box”’ (p. 389).

•• Transfer of the capability to adapt to the market: ‘Retailing is a response to culture.
An international retailer, in order to be successful, has to adapt to the consumer
culture in the market … Adaptation involves not only the understanding of
the difference between home and host country but also the differences in
consumer culture within the host country … The absence of this capability
either in the firm generally (Boots, Marks and Spencer) or in the transfers to
a particular country (Ahold in China, Carrefour in Japan and in the USA,
IKEA’s original entry to Japan, Wal-Mart in Germany) is one of the reasons
for “failed” international retailing’ (p. 390).

•• Transfer of operational techniques of retailing: ‘The operations of an international
retailer (the formula of the retailer) interact with and become part of the structure
of the total retail system … A firm may use different entry and growth mecha-
nisms with acquisitions, joint ventures, agents and merchandising agreements with
consequential different types of transfer of operations in each case’ (p. 391).

•• Transfer of consumer values and expectations: ‘Retailers create consumption in
addition to responding to consumer needs. In a foreign market international
retailing often brings to a country new consumer values and expectations.
These in turn change the ways that consumers behave … The retailer helps to
create the consumer culture and in doing this delivers changes in lifestyle …
In countries where consumption cultures have been weak for an extended
period, for example in Central and Eastern Europe, and in cultures where
there is rapid change in consumption culture, for example, East Asia, then the
foreign retailer, with a clearly defined formula, generates a substantial impact
on consumer values and expectations’ (pp. 391, 392).

Sourcing of products is the second dimension of transnational retailing shown
in Figure 17.11. We referred to this process in the case of food retailing and
clothing in Chapters 13 and 14. But there has been a general trend across
virtually all retail sectors for firms to increase the geographical extent of their
sourcing systems as well as to extend their power and influence over their sup-
pliers. As a result retail supply and logistics networks have been transformed in
the following ways:33

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PART FOUR THE PICTURE IN DIFFERENT SECTORS562

•• Centralization: the establishment of centralized distribution centres, distribu-
tion systems and buying activities.

•• Upgrading of logistics systems: adoption of sophisticated logistics technologies and
management systems, including electronic data exchange, vendor management
inventory, etc.

•• A shift from traditional to specialized/dedicated procurement agents: switch away from
use of wholesalers to specialized procurement agents, often involving contrac-
tual-type relationships with suppliers.

•• A shift towards preferred supplier systems: the use of a smaller number of suppliers
willing/able to meet the stringent standards of quality, price and speed and
flexibility of delivery.

•• Increased use of quasi-formal and formal contracts: to increase control and ensure
on-time delivery.

•• Imposition of private standards: adoption of private, rather than public, standards
of quality and/or safety.

LOGISTICS ‘PLACES’: KEY GEOGRAPHICAL NODES
ON THE GLOBAL LOGISTICS MAP

These developments in the global logistics industries have highly distinctive geog-
raphies, which help to shape their activities and are also shaped by them. For
example, among the thousands of seaports and airports across the world, a few key
nodes have become increasingly important. They reflect three sets of forces:

•• Their position in the twenty-first-century global economy, especially in light of the
global shifts in economic activities we have been discussing throughout this book.

•• The strategies of states in investing in port, airport and IT facilities: for exam-
ple, the highly focused investment strategies of the Singaporean government
to create a ‘globally-integrated logistics hub’:

an integrated IT platform that manages the flow of trade-related infor-
mation … will enable exchange of information between shippers,
freight forwarders, carriers and financial institutions to facilitate the flow
of goods within, through and out of Singapore … The government will
invest up to S$50 million over five years to develop the platform.34

Other states are pursuing broadly similar strategies to develop their logistics
capabilities.35

•• The strategies of the major logistics firms in creating their own globally-
dispersed operations and choosing certain key places as their ‘hubs’.

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LOGISTICS AND DISTRIBUTION SERVICES 563

Figures 17.12 and 17.13 show two examples of these trends. The emergence
of East Asia as the most dynamic economic region in the world is clearly
reflected in Figure 17.12. No fewer than 14 of the 20 leading container ports
are located in East Asia, 8 of them in China (excluding Hong Kong). None of

Figure 17.12 The leading world container hubs

Source: based on World Shipping Council data

Shanghai

1

Singapore

2

Hong Kong

3

Shenzhen

4

Busan

5

Ningbo-
Zhoushan

6

Guangzhou

7

Qingdao

8

Dubai

9

Tianjin

10

Rotterdam

11

Port
Kelang

12

Kaohsiung

13

Hamburg

14

Antwerp

15

Dalian

17

Tanjung
Pelepas

18

Los
Angeles

16

Xiamen

19

Bremerhaven

20

Rank 1 TEU = 1 20-foot container

32.6

15
6

Top 20 container
ports, 2012

(million TEUs)

1
Hong Kong
1

Memphis

2
Shanghai
3

Anchorage

4
Incheon

5

Paris

6
Frankfurt

7
Dubai

8
Louisville

9

Tokyo

10
Singapore

11Miami

12
Los
Angeles
13

Beijing

14

Taipei

15

London

16

Amsterdam

17
New York

18

Bangkok

19

Chicago

20

Rank

4

2
1

Top 20 cargo
airports, 2011

(million tonnes)

1

Figure 17.13 The leading world cargo airports

Source: based on Airports Council International data

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PART FOUR THE PICTURE IN DIFFERENT SECTORS564

them was in the top ten in 1995; now six of them are. Conversely, the leading
European container ports – Rotterdam and Hamburg – have fallen down the
rankings.

The global map of leading cargo airports (Figure 17.13) has some features in
common with the container ports map. Certain key cities, for example Hong
Kong, Shanghai, Tokyo, Singapore, Los Angeles, Dubai, have developed as leading
air cargo hubs as well as major container ports. They are, indeed, key geographical
nodes on the global logistics map. But there are other leading cargo airports that
are quite different. They are the strategic hubs of the leading specialist freight and
logistics firms themselves. The place of Memphis, Tennessee, as the world’s second-
biggest cargo airport is entirely due to its role as FedEx’s main hub. In similar vein,
Louisville, Kentucky, is the main hub of UPS. The importance of Anchorage
Airport in Alaska, likewise, is attributable to its role as a key hub for FedEx and
UPS in their links with China. Leipzig, in Germany, is likely to join this group in
the future: DHL opened its principal European hub there in 2008, replacing its
former hub in Brussels.

NOTES

1 Coe (2014) provides an excellent review of the logistics industries in the context of
GPNs. See also Wrigley (2000).

2 Coe (2014: 225).
3 Schoenberger (2000).
4 Min and Keebler (2001: 265).
5 OECD (2004: 178).
6 Financial Times (25 August 2005).
7 Coe (2014: 228).
8 Schary and Skjøtt-Larsen (2001: 129).
9 Abernathy et al. (1999: chapter 4).
10 Abernathy et al. (1999: 61).
11 Quoted in the Financial Times (20 April 2005).
12 Abernathy et al. (1999: 66).
13 Stalk et al. (1998: 58).
14 Zook and Shelton (2012: 43).
15 Leinbach (2001: 15).
16 Centre for Retail Research (2013), www.retailresearch.org/onlineretailing.php.
17 US Department of Commerce (2000: 18).
18 Schary and Skjøtt-Larsen (2001: 132–6).
19 Schary and Skjøtt-Larsen (2001: 132). See also Fields (2004).
20 See Braithwaite and Drahos (2000).
21 Braithwaite and Drahos (2000: 322).
22 Braithwaite and Drahos (2000: 454).
23 Braithwaite and Drahos (2000: 456–7).

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LOGISTICS AND DISTRIBUTION SERVICES 565

24 The Sunday Times (23 January 2005).
25 Commercial Aviation Today (21 October 2002).
26 This section is based primarily on Schary and Skjøtt-Larsen (2001: 230–41).
27 Schary and Skjøtt-Larsen (2001: 231).
28 See Dicken and Miyamachi (1998).
29 Financial Times (9 May 2013).
30 Company website, www.lifung.com/eng/company.
31 Coe and Wrigley (2009), Dawson (2007).
32 Dawson (2007: 388–92). Numbers in parentheses refer to pages in this work.
33 Coe and Wrigley (2009).
34 Singapore Economic Development Board, June 2004.
35 Wang and Cheng (2010) provide a detailed analysis of the transition of the port of

Hong Kong from a hub port city to a ‘global supply chain management centre’.

Want to know more about this chapter? Visit the companion website at
www.guilford.com/dickenGS7 for free access to author videos, suggested
reading and practice questions to further enhance your study.

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