Development of infrastructure vital for economic success

Throughout a major part of contemporary economic history, two dominant development paradigms prevailed. One took the view that markets would lead to efficient outcomes, whereas the other looked to governments to ensure resources were deployed in a way that promoted growth.

The latter half of the 20th century, however, witnessed the strong emergence of a number of East Asian countries which followed neither of these two extremes. The policy orientation of these economies was mixed in nature, where the state played a central role in facilitating structural adjustment.

The models of economic policy and practice adopted by many of these successful East and Southeast Asian economies such as Japan, particularly at the height of their rapid industrialisation and growth, has become known widely in the summary expression of 'developmental state'.

The East Asian miracle and the role of State over the years, the remarkable success of the East Asian economies has stimulated a whole array of interpretations on the role of State.

One interpretation - termed the Washington Consensus interpretation, attributes that the major part of East Asia's success lies on the role played by governments of getting the economic fundamentals right.

Another version explains that the region's success is beyond getting the fundamentals right, and attributes it to proactive governments, which leveraged industrial policy to facilitate structural adjustment and industrial upgrading in their economies.

Nevertheless, each of the successful East Asian economies is unique in terms of their characteristics and pathways to structural change. Each economy differs in its geography, culture and history.

Therefore, there exists no unique East Asian model per se, but what they share in common is the proactive nature in which governments pursued economic policy in catalysing development. At the very heart of the developmental state was also proactive 'industrial policy'.

In addition to getting the economic fundamentals right, the Governments of East Asia also took on a broader role in facilitating economic development by enacting policy interventions that assist enterprise growth.

Efficient allocation of resources, driving competition and economies of scale, facilitating technology transfer are necessities in supporting the growth and competitiveness of the economy.

Through resource mobilisation within the public sector and effective bureaucracy, Governments also played a direct role in coordinating investments.

Apart from that, infrastructure also played a key role in supporting a Government's development policy. In the case of East Asia, infrastructure development was often closely linked to industrial policies.

As these policies had distinct priorities, infrastructure development projects could also be prioritised to suit the needs of the time.

At the onset of their development process, the East Asian countries focused on improving levels of higher education and ensuring that the education system was addressing labour market demands.

Much like the infrastructure development strategies, developing human capital was also closely linked to the growth policies pursued at the time.

As a result, education planning has played a crucial role in improving the human capital stock in East Asia.

The education policies in many East Asian countries were integrated into the growth strategy of the country at the time and, therefore, the education system was geared to meet the labour market demands and minimise the potential occurrence of a skills mismatch.

This article is based on the comprehensive chapter on 'The Asian Developmental State - Getting the Interventions Right' in the 'Sri Lanka: State of the Economy 2014' report - the flagship publication of the Institute of Policy Studies of Sri Lanka.