ENTERPRISE54 – Joe Studwell’s book How Asia Works is a great look at the factors that drove the rapid economic growth in several Asian countries. I’d recommend it for anyone who’s doing business in Asia. As I wrote in the review I just posted on my blog, which I’ve shared below, the book also made
ENTERPRISE54 – Joe Studwell’s book How Asia Works is a great look at the factors that drove the rapid economic growth in several Asian countries. I’d recommend it for anyone who’s doing business in Asia. As I wrote in the review I just posted on my blog, which I’ve shared below, the book also made me think about which parts of the Asian Miracle might apply in Africa, where the Gates Foundation funds a lot of work.
I read Joe Studwell’s How Asia Works because it claimed to answer two of the greatest questions in development economics: How did countries like Japan, Taiwan, South Korea, and China achieve sustained, high growth and turn into development success stories? And why have so few other countries managed to do so? Clear answers could benefit billions of people living in countries that are poor today but have the essential ingredients to develop thriving economies.
I’m pleased to report that Studwell, a smart business journalist, delivers clear answers—not the hedged “on the one hand, on the other hand” answers that led an exasperated Harry Truman to ask for a “one-armed economist.” I found the book to be quite compelling. Studwell explains economic history in a concise and understandable way. I asked the whole Agriculture team at our foundation to read it because of its especially good insights into the critical role of household farming for economic development.
So what are Studwell’s answers to the multi-trillion-dollar question of why some Asian countries developed rapidly and others (Philippines, Indonesia, Thailand) did not? He offers a simple, three-part formula:
- Create conditions for small farmers to thrive.
- Use the proceeds from agricultural surpluses to build a manufacturing base that is tooled from the start to produce exports.
- Nurture both these sectors (small farming and export-oriented manufacturing) with financial institutions closely controlled by the government.
Here’s the formula in slightly greater depth:
Agriculture: Studwell’s book does a better job than anything else I’ve read of articulating the key role of agriculture in development. He explains that the one thing that all poor countries have in abundance is farm labor—typically three quarters of their population. Unfortunately, most poor countries have feudal land policies that favor wealthy landowners, with masses of poor farmers working for them. Studwell argues that these policies not only produce huge inequities; they also guarantee lousy crop yields. Conversely, he says, when you give farmers ownership of modest plots and allow them to profit from the fruits of their labor, farm yields are much higher per hectare. And rising yields help countries generate the surpluses and savings they need to power up their manufacturing engine.
Manufacturing: Studwell argues that once countries are producing steady agricultural surpluses, they should start moving to the manufacturing phase of development. He makes a strong historical case that the successful countries do not simply rely on the invisible hand of market forces; they supplement market forces with the heavy hand of state-driven industrial policy. These countries engage in a combination of protectionism (coddling infant industries to give them time to become globally competitive) and then culling losers (cutting off resources to firms that don’t succeed in export markets).
Finances: Studwell shows that rapidly developing countries usually give lip service to free-market principles while actually keeping their financial institutions “on a short leash.” In other words, they enact policies to protect themselves against the shocks and whiplash of global-capital flows, and they make sure their financial institutions serve the country’s long-term development ends rather than the short-term interests of financiers.
I came away from the book with many take-home messages that apply to our foundation’s work. I’ll highlight two.
First, I appreciated Studwell’s thinking about agriculture economics. Drawing on data on crop yields and overall agricultural output, he argues that rapid agricultural development requires redistributing land more equitably among the farming population. To date, I haven’t focused as much on the land ownership piece as I have on the role of better seeds, fertilizers, and farming practices. This book made me to want to learn more about the land ownership picture in countries where our foundation funds work.
Second, Studwell provoked me to think hard about whether his three-part formula is as applicable to Africa as it is to Asia. Certainly, the agricultural piece applies well—and has many economic and health benefits. The big question for me is: Can African countries become successful export-oriented manufacturing hubs? I do see this potential in countries like Ethiopia and Djibouti. They already have a strong connection with China and ambitious, long-term economic plans. Unfortunately, many other countries on the continent don’t have those same success factors, especially landlocked ones with very poor infrastructure. Helping farmers in those countries grow more food and earn more money would be a big help on its own.
How Asia Works is not a gripping page-turner aimed at general audiences, but it’s a good read for anyone who wants to understand what actually determines whether a developing economy will succeed. Studwell’s formula is refreshingly clear—even if it’s very difficult to execute.
Editor’s Note: This piece was written by Bill Gates, Co-chair, Bill & Melinda Gates Foundation.