Crisis management and the diversity of capitalism: fiscal stimulus packages and the East Asian (neo-)developmental state
This paper contributes to the understanding of East Asian capitalism by investigating the political economy of crisis management in Japan, Korea and China during the global economic crisis. Reacting to the global shock of the global economic crisis that began in 2008, East Asian capitalism has remained a distinct state-led model that differs substantially from the liberal, neo-corporatist or welfare state ‘varieties of capitalism’ (VoC) in the West. More specifically, this paper studies the fiscal stimulus packages implemented by East Asian countries to address the global financial crisis from 2008 to 2010. We show that fiscal stimulus packages in East Asia differed substantially from those implemented in Europe or the US. First, the stimuli in China, Korea and Japan were larger than the stimuli in Europe, and Chinese and Korean stimuli were even larger than that in the US. This finding is surprising given that East Asia has been less severely affected by the crisis since 2008 and given that the crisis was primarily an external shock through the decline of world trade rather than a result of domestic economic deficiencies. Second, in contrast with the short-lived revival of Keynesianism and demand-side policies in the US and some European countries, East Asian countries witnessed a return of industrial policies and a general supply-side bias in fiscal policies. What can explain this distinct East Asian variety of crisis management during the global economic crisis?
Diverging reactions to the same global challenge constitute an obvious problem for studies that assume a convergence of domestic institutions and models of capitalism amid economic globalization. Such convergence or ‘hyper-globalisation’ (Hay, 2004) theories assume that there is an optimal or at least ‘best practice’ solution for a certain problem and that institution building is a process of ‘rational design’ that begins with a ‘clean slate’ (for a critique see for example Streeck and Thelen, 2005). The French regulation school (for an overview see Boyer and Saillard, 2002, Boyer, 2005) and the subsequent debate on the VoC (Hodgson, 1996, Hall and Soskice, 2001) offered a powerful critique that different models of capitalism would converge and follow the assumed best practice of US ‘normal capitalism’ (Streeck and Yamamura, 2001). Indeed, studies of comparative capitalism from diverse traditions show that different institutional arrangements can create distinct pathways that lead to similar results in macroeconomic performance and stability. Unfortunately, studies of the diversity of capitalism and, in particular, the neo-institutionalist VoC approach have been highly Eurocentric with only a very limited number of studies including Japan (Yamamura and Streeck, 2003, Streeck and Yamamura, 2001) and a few other East Asian countries (Whitley, 1999, Coates, 2000, Amable, 2003). Indeed, the study of non-Western political economies is typically considered part of development studies (Nölke, 2011), resulting in the curious situation in which the study of Western capitalism is situated within the field of comparative political economy, whereas the study of non-Western capitalism is regarded as part of international development and thus within the field of international political economy. Rather than superimposing theories that were inductively generated from the observations of Western capitalism, this paper adopts a different approach: to begin with the perspective of East Asian development and to determine what an analysis of East Asia can contribute to our understanding of the diversity of capitalism. The emergence of a new, developed and stable model of capitalism in East Asia poses the challenge of integrating East Asia into the comparative capitalism debate and exposes some important shortcomings of the previous VoC literature. Most notably, studies of comparative capitalism and particularly the firm-centred VoC approach downplay the role of the state in capitalist development. Second-generation VoC studies have integrated the state into the firm-centred approach but have conceptualized it as merely a ‘coordination mechanism’ or highlighted its ‘compensatory role’ for the weakness in the organization of capital and labour (Hancké et al., 2007).
Departing from the firm-centred interpretation, Whitley (2005) highlights the role of the state in shaping business systems and steering economic development. Coates (2002) and Amable (2003) extend this work by introducing a state-led model of capitalism that is clearly distinct from the liberal, coordinated and social democratic forms of capitalism. This paper follows along the lines of the latter two studies but extends these approaches by offering a state-centred approach to the diversity of capitalism inspired by theories of the developmental state that emerged as the most persuasive explanation of East Asia’s successful economic development during recent decades (for an overview see Woo-Cumings, 1999).
By investigating the political economic foundation of crisis management, we show that the specific character of fiscal policies can largely be explained by the path dependency of East Asian developmental state capitalism (section 3). In this sense, we offer some support for the classic VoC argument that external shocks lead to the reinforcement of historically evolved sets of complementary institutions (Hall and Soskice, 2001). Indeed, both Stubbs (2011) and Wade (2012) argue that the global economic crisis has led to a revival of the state-led development model. This paper, however, also highlights the changes occurring within East Asia. The old developmental state focused on growth, macro-planning and macro-coordination is transforming into a neo-developmental state engaged in fragmented micro-interventions and increased government spending to preserve the competiveness of domestic companies. Unlike welfare and corporatist states in Europe, East Asian countries depend more on direct government interventions because they lack automatic stabilisers that cushion the social and economic effects of crises.
Section 4 then investigates the political driving forces of this change and offers an explanation as to why the stimuli are supply-side oriented. We reveal the struggle in the dynamic of East Asian capitalism driven by the embeddedness of institutions in domestic interests. In particular, we highlight the strong links between state and business as well as the weakness of organised labour. We thus conceptualise policies as the result of distinct institutional regimes that constitute a ‘political economic equilibrium’ (Amable, 2003, Streeck, 2011). Most notably, we find that the ‘embedded autonomy’ (Evans, 1995) of the ‘old developmental state’ is fading and that the close alliance of state and business is increasingly tilted in favour of the latter. From this perspective, the neo-developmental state can be described as the East Asian equivalent of the Western ‘competition state’ (Cerny, 1997).
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Crisis management and the diversity of capitalism: fiscal stimulus packages and the East Asian (neo-)developmental state, Economy and Society Volume 44 Number 2 May 2015: 244–270
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