Podcast Summary
East Asian economic transformation: Urgent need drove East Asian countries to reform and transition from mostly agrarian societies to economic powerhouses, with governments playing a crucial role in aiding or hindering the process
During the latter half of the 20th century, countries in East Asia, specifically China and Taiwan, experienced remarkable economic progress after being mostly poor and agrarian societies. This transformation was driven by a sense of urgency as these countries felt they needed to change or face dire consequences. In the case of China, a secret document signed by starving farmers served as a catalyst for reforms that led to economic growth. Our expert, Changtai Shee, will help us understand the key lessons from these stories about how governments can aid or hinder fragile economies. Additionally, the radical changes China went through are worth exploring, as shown in a story from Planet Money about a village called Jiaogong, where reforms in 1978 transformed the country.
China's agricultural reforms: During the communist era, farmers secretly divided land and kept produce for themselves, marking the beginning of China's agricultural reforms and eventual economic revolution
China's economic transformation from a communist farming society to an industrial powerhouse can be traced back to the experiences of farmers like Yanjin Zhao from Zhaogang. During the communist era, farmers worked on collective farms where they didn't own anything, and their production was centrally planned by the Communist Party. The farmers were given an allotment of food at the end of the harvest, but it was often not enough to sustain them. Out of desperation, farmers like Yan Hunchang came up with a dangerous idea: they would secretly divide the land among themselves and keep the produce for their own use. This marked the beginning of China's agricultural reforms and eventual economic revolution. The fearless actions of these farmers paved the way for China's economic growth and the rise of entrepreneurs like Yanjin Zhao.
Individual land ownership impact: Individual land ownership led to increased productivity, competition, and hard work among farmers in China, but also attracted unwanted attention from authorities.
The economic system significantly impacts individual motivation and productivity. In the story, a group of farmers in China, in a daring move, decide to experiment with individual land ownership and farming, defying the communist collective farming norms. This shift led to increased productivity, competition, and hard work among the farmers. However, their success was a double-edged sword, as it attracted attention from the authorities, leading to potential risks. Despite the fears, the farmers continued, realizing the potential benefits of their newfound freedom. This experiment marked the beginning of the transition towards capitalism in modern China.
Deng Xiaoping's economic approach: Deng Xiaoping's practical approach to economic development led to significant growth and poverty reduction, but the balance between government control and economic freedoms remained a tension, resulting in a model where party organizations acted like mafia bosses to facilitate business growth.
Deng Xiaoping's approach to economic development in China was focused on practicality and results, rather than ideology. He encouraged experimentation and allowed farmers and entrepreneurs to own their produce and businesses, leading to significant economic growth and the lifting of hundreds of millions of people out of poverty. However, the balance between government control and economic freedoms remained a tension, with the government retaining significant control in certain areas. After the 1989 protests, the government tightened control over businesses, leading to a model where local party organizations made deals with entrepreneurs, acting like mafia bosses who provided protection and smoothed the path for business growth. This approach was effective in driving economic growth, but it also meant that the power and influence of the party remained strong.
China vs Taiwan industrial policy: China's economic growth is driven by a mix of local private firms and national industrial policy, while Taiwan's approach focused on R&D, national labs, and talent attraction, resulting in Taiwan's technological superpower status.
While China's economic growth at the local level is driven by private firms with support from local party officials, at the national level, the government implements industrial policy, deciding which industries to invest in and subsidize. This mix of control and economic freedom is unique to China. Meanwhile, Taiwan, without a Communist Party, chose a different approach to industrial policy, pouring resources into research and development, building national laboratories, and luring talent back home to develop the tech sector. This approach led Taiwan to become a technological superpower, particularly in semiconductor manufacturing.
Taiwan's semiconductor industry revival: Min Wu, a Taiwanese engineer, aimed to revive Taiwan's semiconductor industry by establishing his own factories and partnering with companies like Nintendo, leveraging Japan's open microchip market to US companies.
Min Wu, a Taiwanese engineer living in California, saw an opportunity to bring semiconductor innovation back to Taiwan. With Macronics, they invented technologies and licensed them to larger companies, but Min dreamed of having his own factories to produce semiconductor products. He heard whispers of exciting developments back in Taiwan and began recruiting other Taiwanese engineers to join him. The stakes were high, as Taiwan's transformation into Asia's Silicon Valley could make it indispensable to the world. Min faced challenges, including the need for significant funding. He seized an opportunity when Japan agreed to open its local microchip market to US companies, allowing Min to target Nintendo for a potential partnership. This move could change the game for Taiwan's semiconductor industry.
Taiwan's semiconductor industry: Min Lee, posing as a US company while based in Taiwan, sourced semiconductors from South Korea and supplied Nintendo, allowing Taiwan to become a leading semiconductor producer, surpassing Japan and the US.
Min K. Lee, the founder of Macronix, used a clever scheme to supply Nintendo with semiconductors during the late 1980s and early 1990s, taking advantage of a 20% trade agreement between the US and Japan. By posing as a US company while being based in Taiwan, and sourcing semiconductors from South Korean Samsung, Min was able to fund his dream of building a semiconductor factory in Taiwan. This strategic move allowed Taiwan to become a leading producer of advanced semiconductors, surpassing Japan and the US. Min's actions symbolized the rapid evolution of Taiwan's economy and solidified his reputation as the godfather of tech in Taiwan. Despite the geopolitical tensions between China, the US, and Taiwan, Min focused on creating the best solutions for the world as a businessman. Today, Macronix has grown into a roughly $60 billion company.
East Asian Competitiveness: A sense of urgency, accountability through competition, and the ability to scale successful companies with resources are crucial for East Asian economies to become competitive and prosperous.
East Asian economies became very rich quickly due to a sense of urgency, a mechanism of accountability through competition, and the ability to scale successful companies with resources. A sense of urgency drove these countries to outwork their competitors and adjust quickly to new opportunities. Accountability through competition allowed only the best ideas to thrive, as governments encouraged companies to export and compete globally. Lastly, providing resources for successful companies to scale was crucial, whether it be through licenses, talent, or infrastructure. As Professor Chang Taishia emphasized, self-interest and the accountability of the market are essential components of economic growth.
Industrial policy benefits and drawbacks: Government support for industries and companies can foster economic growth but may also sustain unproductive businesses. Success stories like East Asia's were driven by urgency, resources, and competition.
Industrial policy, where governments support specific industries and companies, can be beneficial for economic growth but may also sustain unproductive businesses. The East Asian economies' success stories in the late 20th century were driven by a sense of urgency to change, available resources, and the need for competition, even with government support. To learn more about these lessons and other topics in an entertaining way, check out the Planet Money TikTok team's content. Meanwhile, on the TED Radio Hour, MIT psychologist Sheri Turkle discusses the pros and cons of artificial intimacy through our relationships with chatbots.