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Thread on why I think the economic sociology of competition is needed to explain the East Asian growth miracles:
As economic sociologists emphasize, firms don't like to compete, so they find protected niches instead.
Markets don't stay crowded for long. New entrants often leave again, and remaining firms usually settle on a stable arrangement.
Markets don't stay crowded for long. New entrants often leave again, and remaining firms usually settle on a stable arrangement.
In manufacturing, capital intensity acts as barriers to entry, protecting incumbents.
This standard pattern of competition prevailed in pre-war Japan between business groups (zaibatsu). But that changed after the war, when the zaibatsu were dismantled and re-formed/replaced with keiretsu.
Miyazaki, 1967:
Miyazaki, 1967:
MITI gave each keiretsu equal access to foreign tech and currency, and the Bank of Japan gave them equal (and huge!) allotments of investment credit. Indicative planning ensured final demand and the risk of over-investment was mitigated by "administrative guidance" incl. cartels.
So, an entirely new form of competition emerged, and was maintained by state policy. It led to frenzied investment and competition in capital intensive industries such as steel and semiconductors where barriers to entry would otherwise have shut out all but a few firms.
As Porter and Sakakibara (2004) noted (in slightly derogatory terms), Japanese competition was marked by barriers to *exit*
This unique form of competition was what drove the introduction and development of new technologies such as the basic oxygen furnace and continuous casting in steel, making it world leading, and in turn making downstream products such as Japanese ships and cars more competitive.
It created a supercharged form of Kornai's "surplus economy," with massive overcapacity and waste as well as rapid technological progress - but not through hard budget constraints as his theory would have it but rather through soft budget constraints.
In China, a similar pattern emerged along a different route, via the Maoist policy of decentralization. It created a "cellular economy" of self-sufficient localities.
After market reforms were introduced, these localities began competing without restraint, creating the familiar problems of duplication, overcapacity and waste as well as high speed economic growth and innovation.
I haven't studied South Korea or Taiwan from this perspective, but I'd be interested to see the results if someone with time on their hands would do it.
