Systemic vulnerability

Dissatisfied with ‘state autonomy’ held by conventional accounts for the ‘developmental states’, this research adopts ‘systemic vulnerability’ concepts coined by Doner, R., B. Ritchie, and D. Slater (2005). They argued that the Far East Asian developmental state actually emerged from the challenges of delivering (1) ‘side payments’ to restive popular sectors under conditions of (2) ‘extreme geopolitical insecurity’ and (3) ‘severe resource constraints’.

This research tracks an earlier discussion on ‘extreme geopolitical insecurity’ in ‘systemic vulnerability’ to Otto Hintze’s inspiration to new-historical institutionalism of American scholars in the 1970s. An English translation of the work of Otto Hintze (1860- 1940), The historical essays of Otto Hintze (1975), had inspired a rise of the historical institutionalism in America (Amenta, 2005). American scholars understood better Weber’s ‘autonomous bureaucracy’ under a state as a ‘monopoly on the legitimate use of physical force’ by reading Hintze’s thesis on the impact of the military in state formation when he interpreted ‘all state organisation as originally military organisation’, which aroused structural interests (Hintze, 1975, 181; Amenta, 2005, 97).

The German historian Hintze grouped political structures of modern European states into two main categories: ‘absolutist government with bureaucratic administration on the continent and parliamentary government with non-bureaucratic administration through local notables in England’ (Ertman, 2005, 368-369). Hintze argued that the origins of these divergent outcomes between continental Europe and England springs from ‘compelling political imperatives on the continent Auf dem Kontinent zwingende politische

Notwendigkeiten obwalteten’. Hintze stated that the existence of a security threat from strong military forces of neighbouring states led to the development of militarism, absolutism and bureaucracy, whereas England was protected by the seas from such a sway. (Hintze, 1970, p 428). According to Hintze, the threat of war from neighbouring armies forced the continental rulers to establish centralised government underpinned by bureaucracies in rejection of the parliamentary system. In contrast, owing to the role of the Channel as a natural barrier to foreign invasion, England resisted from the military imperatives of any neighbouring state. Hence, England could develop less centralised parliamentary system and liberalism.

As to ‘side payments’, Waldner (1999) provided initial insights through the lens of elite conflicts. He used levels of elite conflict to understand the relationship between state building and late development through institutional analysis. His hypothesis was that ‘levels of elite conflict determined whether state transformation occurred simultaneously with or before popular incorporation’ (Waldner, 1999, 3). In his arguments, the power elites form a different type of coalition as to the relationship between the state and the economy in the industrialisation process. If the ruling elites are cohesive enough to have low level of conflict, they can maintain a narrow political coalition. On the other hand, if there is an intensive conflict and a high level of differences among the political elites, they will have to broaden coalitions across class to involve the popular classes. A narrow coalition costs less to maintain power while a broad coalition costs more and forces the government to provide ‘side payments’, a social welfare. Hence, a broad-based coalition results in a ‘precocious Keynesian state’ coined by Waldner and characterised by cross-class alliance, and industrialisation, which ultimately leads to economic policies that retards economic growth. In contrast, a narrow coalition leads to the developmental state, which directs resources toward targeted sectors of the economy that produce higher rates of return (Waldner, 1999, 1- 19).

Based on his hypothesis, Waldner addressed state building and late development by comparing four states including Turkey, Syria, South Korea, and Taiwan by categorising two groups: (1) the Syrian and Turkish examples as having ‘high levels of elite conflict’ and (2) South Korea and Taiwan as having ‘low levels of elite conflict’ (Waldner, 1999, 8). In Syria and Turkey, elites embarked on state building under conditions of intense elite conflict that hindered the ability to compromise. In these two states, ‘the elite conflict was resolved only when the elite mobilised popular sector support as a means of providing a social base for

Waldner stated that the elites in South Korea and Taiwan were cohesive enough to compromise with ease. In particular, South Korea was marching towards the path of Syria in the early 1960s. But Waldner claimed that the emergence of President Park had eliminated incentives for meeting the immediate needs of the popular-sector for political consolidation. Park and his elites committed themselves to long-term needs of economic development through the institutional approach (Waldner, 1999, 4).

Furthermore Waldner specified the institutional roles in resolving what he called ‘Gerschenkronian’ and ‘Kaldorian’ collective dilemmas in pursuit of economic growth. The former refers to ‘problems of capital accumulation’ for ‘new investments and the expansion of industrial production or extensive growth’ as a mobilisation of investment in order to catch-up due to late industrialisation; the latter refers to ‘problems of enhancing efficiency and achieving international competitiveness’and aiming for ‘intensive growth’ (Waldner, 1999, 154). According to Waldner, developmental states are better able to overcome both Gerschenkronian and Kaldorian collective dilemmas than ‘precocious Keynesian states’. Waldner also made critical errors in his account of elite compromise from elite cohesiveness. Alongside many questions on his hypothesis, his grouping of South Korea as a country with low level of elite conflict is empirically wrong.

Inspired by Waldner (1999), Doner et al. saw inter-elite conflicts for political power as a reason for the expansion of the ruling coalition. Doner et al. referred to ‘side payments’ as a payment to popular sectors in return for accepting political marginalisation through economic institutions (Doner et al., 2005, 331). They argued that the political origins of developmental states can be located in the conditions of ‘systemic vulnerability’ resulting from the simultaneous interplay of three separate constraints: (1) broad coalitional commitments, (2) scarce resource endowments, and (3) severe security threats. To maintain political power, any ruler should overcome these constraints by improving institutional performance (Doner et al., 2005, 329).

Figure II-1 Argument flow from systemic vulnerability

(Doner et al., 2005, 330).

Based on their assumption on the interaction between political responses and the three constraints, their causal logic works as follows: To survive politically, leaders seek to form coalitions, which leaders generally try to keep as narrow as possible. However, ruling elites in confrontation to pressure such as intense social conflict or danger from disruptive mass mobilisation become forced to enlarge coalitions beyond their initial ‘minimum winning’ size.

To accomplish broad coalitions, ‘side payments’ to popular sectors in a wide cross- section of society are required. This is done most efficiently through the provision of public goods such as (1) ‘the expansion of education and training infrastructure’ to be dealt with in Chapter VI, (2) ‘the reallocation of resources in ways that improve equality and access to power’ in Chapter VII, and (3) ‘public housing and welfare redistribution’ in Chapter VIII (Bueno de Mesquita et al., 2003).

But provision of the ‘side payments’ to the public is subjected to severe budget constraints. In particular, if a state under a strong external threat does not have abundant resources to cover the ‘side payments’, the political leaders should upgrade their industries by establishing developmental institutions. In other words, the systemic vulnerability forces political leaders to abandon low-wage-based export growth and establish developmental institutions for the purpose of sustained growth based on higher-skill and quality-based export. Developmental states rise as a response by the elite to popular pressures in such cases. The key to the Far East Asian economic institutions lies in how popular sectors have been compensated for their political marginalisation (Doner et al., 2005, 331).

They regarded that the Korean ruling elites did not have abundant revenue sources to ‘buy popular quiescence with massive government spending programs’. Park and his military officers could dare to ‘break the bank’ to appease the militancy of popular sectors against the military regime. However, in the face of a state relying excessively on uncertain flows of US aid for its viability, Park was forced to provide ‘a necessary political impetus for ruling elites to craft side payments with a broad impact, but at a low cost rather than by subsidies’. Hence, in South Korea, side payments took the form of ‘wealth-sharing mechanisms’ and expansion of primary education for increasing individual mobility (Doner et al., 2005, 342).

However, the poor resource endowment of Korea may have been beneficial in kicking off industrialisation because it was free from the resource curse. Aunty claimed that South Korea may have been more dynamic than resource-abundant countries. For Aunty, the ‘staple trap model’ denotes that ‘the longer dependence of resource-abundant countries on commodity exports retards competitive industrialisation’. The staple trap could occur in resource abundant countries (Aunty, 2002, 246). Hence, Aunty claimed that South Korea was free from distortions of the staple trap’, allowing it to embark on a smooth industrialisation (Aunty, 2002, 252).

Finally, Doner et al. claimed that the security threat had a substantial influence on coalitional breadth and participation. War or external threats are a critical factor. However, it depends critically on the ability of the state to ‘meet the financial challenges of war’ (Doner et al., 2005, 339).

Among three authors, Brian Ritchie developed the original discussion of 2005 into a single book Systemic vulnerability and sustainable economic growth (Ritchie, 2010). This book focuses on the origins of institutions that facilitate the capacities needed for improving technical intellectual capital. In particular, Ritchie focused his analysis on the education and

training systems as he regarded that knowledge and innovation were so critical to long - term economic upgrading’ in developing countries (Ritchie, 2010, xii).

As to the reasons for institutionalising the role of education for producing technical intellectuals, Ritchie claimed that there are three collective dilemmas in education. First, establishing an educational infrastructure means meeting the challenges of overcoming a massive investment cost with a delayed pay-off. Only a government can deal with these financing challenges. Second, a problem of positive externalities arises if all firms were to train specialised skilled in an environment of high labour mobility. If a state has high mobility in its labour market, workforces with specialised skills trained by firms become easy targets for scouting and recruiting by competing firms and firms become reluctant to invest in training. Finally, education and training will have little impact if there is no demand for the skills once they are created. Demand is best fostered when firms conduct innovation (Ritchie, 2010, 5-6).

Hence, Ritchie distinguished two aspects in the nature of education and training: (1) ‘political priorities’ in low ruling coalitions and (2) ‘economic technology priorities’ in high ruling coalitions (Ritchie, 2010, 28-33). Ritchie’s theory accounts well for Park’s pursuit of heavy industrialisation and his education reform aimed at producing more technical talent. To prolong his office beyond the constitutional limit, Park had to broaden the political coalition with big business with the goal of upgrading the Korean economy, the pretext being the survival of South Korea from the communist security threat. In confronting the issues of low natural resource endowment and the antagonistic behavior of North Korea, Park embarked on reforming the educational and training systems by gearing them towards science and technology while emphasising the need for South Korea to survive against the security threat.