Securing the maximum possible amount of investible surplus by controlling capital inflows and outflows may be the first step to
wards guaranteeing its re-investment, but there is still a long way to go before it is actually invested. One obvious hurdle is that the poten
tial investor classes who control such surplus may consum e it in
‘luxury’ goods, rather than investing it - a problem that has been an
Th e Ea s t As ia n Mo d e lo f Ec o n o m ic Po l ic y 2 5
exceptionally emotive issue in the Latin American development dis
course, at least until recently.
O f course, the economics behind luxury consumption is not so simple as to allow us to say that higher luxury consumption necessar
ily reduces investments (think about M althus or Keynes) nor that re
straint o f such consumption necessarily requires governm ent inter
vention10, but the issue is more than a ‘m oralistic' one, contrary to what many mainstream economists believe (for a more detailed dis
cussion, see Chang. 1997b). Especially in many developing countries where imports o f luxury goods (or the parts and components needed to produce them) usually have to chase after scarce foreign exchange in competition with the capital goods that are necessary for invest
ment (given the lack o f a viable capital goods sector), control o f luxury consumption becomes even more important for investment.
The East Asian countries, accordingly, have imposed heavy tar
iffs and domestic taxes on. and sometimes even banned the domestic production as well as the import of, certain ‘luxury’ products espe
cially in the earlier stages of their development. Table 1.2 shows one example of how effective these controls have been. Korea and Japan have had literally the two lowest numbers o f passenger cars per capita than what any of the advanced and developing countries have achieved at comparable levels o f developm ent.11 For another example, in Ko
rea, foreign tourism was banned until the early 1980s, and since then was heavily controlled, until it was (almost) fully liberalised in 1988 (there are still restrictions on the amount of money that one can take abroad for tourism purposes) (for more details, see Chang, 1997b).
The interesting thing is that, after the liberalisation in 1988, Korea’s foreign tourism expenditure increased Five-fold in three years, thus suggesting that the low expenditure before the liberalisation was not really due to a ‘cultural’ aversion to spending, as is sometimes as
serted, but was a result of government control.
10 For example, follow ing Max Weber’s classic work, it is widely accepted that the Protestant Ethic restrained luxury consumption by the entrepreneurial class in the early phases o f capitalist development in Western Europe. 1 thank Chung H. Lee for reminding me o f this important point.
11 Unfortunately, comparable data on Taiwan is not available after the mid-1960s, but until then, it showed a similar, although somewhat milder, pattern to those o f Korea and Japan.
2 6 Th e Ea s t As ia n De v e l o p m e n t Ex p e r ie n c e: Th e Mir a c l e, t h e Cr is isa n dt h e Fu t u r e
Table 1.2: Num ber o f Passenger Cars per 1,000 People (real G D P per capita in constant dollars.
Germany France Italy Japan Korea Source: Summer and Heston. Penn World Table (for income and population Note: Sometimes it is not possible to identify a single year as the point when could pass a certain threshold between two consecutive years. In such casi two years. In some other cases, a country’s income could pass a certai such cases, a range of years is given, which starts from the year when the country’s income does not go below the threshold again (or at least until the is also given as a range.
a. The relevant income level was reached before the earliest year for which b. Income did not reach the level until the last year for which the data are
Th e Ea s t As ia n Mo d e lo f Ec o n o m ic Po l ic y 2 7
for Selected Countries at Fixed Levels o f Per Capita Income expressed in 1985 international prices)
Thailand Malaysia Argentina Brazil Chile Mexico S. Africa
figures) and the United Nations Statistical Yearbooks (for car figures), a country reaches a certain level of income. In some cases, the income the number of the cars given is the simple average of the numbers for the threshold in a certain year but may fall below that level subsequently. In country first passes the level and ends in the year after which the
last year for which the data is available). The number of cars in such cases
the data are available.
available, but was less than 10% below that level.
2 8 The East Asian Development Experience: The Miracle, the Crisisandthe Future
One important, and usually ignored, function of control on luxury consumption is in the realm o f politics. By restraining the extent to which the elite could enjoy their wealth for their personal pleasures, luxury-consumption control in the East Asian countries has helped to create the sense that there is a national ‘com m unity’ with a common project (in this case, economic development), whose burdens and fruits are shared by all the citizens in ‘fair’ (if not equal) measures. Such a sense of a common project has contributed to the political stability of these countries, which then contributed to investment growth by shor
ing up investors’ confidence. Thus, the political and economic stabil
ity o f the East Asian countries was as much an outcome of deliberate governm ent policy as of the lack o f distributional conflicts due to
‘equal income distribution’, as is frequently argued in the current lit
erature (for a review o f the literature propagating such a view, see Alesina and Perotti, 1994).