[ Pobierz całość w formacie PDF ]
.Consider the case of car production.Korea had no comparativeadvantage in this industry, at first.Enormous US, European andJapanese car giants could exploit economies of scale to keep costs ofproduction down and with product names and logos well-recognised all round the world there were considerable barriers toentry into this global market place.Nonetheless, the South Koreangovernment realised that comparative advantage is a dynamic, not astatic concept.What seems impossible today might not be sotomorrow.Policies were therefore implemented to raise levels ofgeneral education and to support management training.Similarly, thegrowing capital markets (domestic banks and money traders) wereinstructed to give low cost access to finance to certain chosen sectors,and the government gave tax breaks, subsidised investment and,directly and indirectly, encouraged the growth of fledgling exportindustries that would otherwise have been unable to compete inworld markets.The strategy worked.Korea now has a highly skilledand hard-working urban, industrial workforce and a capital marketstructure that gives its motor industry a competitive advantage.Infant industries need protection from world competition untilthey have grown up enough to cope with it.Free trade may be thebest policy in the long run but in the short term there are soundeconomic arguments to grant protection as a means to that end.(Note, however, that all involved must accept that governmentprotection is short term only.Dependent infants have no incentiveto grow up otherwise.) External EffectsThe Korean example given previously introduces the concept ofEXTERNALITIES.Markets will fail to allocate resources efficiently iftheir prices do not reflect all the external costs and benefitsinvolved in both production and consumption.If many of therewards for a certain enterprise are all external (e.g.workers receiveexcellent training in accountancy then leave to set up their ownbusinesses) then it profits the entrepreneur little to start up.Government must take a lead in these circumstances (Box 6.7).© 2004 Tony Cleaver Box 6.7 Korean steel and administrative guidanceThe case of POSCO, Korea s state-owned integrated steelindustry, is an excellent example of how governments canovercome MARKET FAILURE.In the early 1970s the Korean govern-ment applied for a concessionary loan (i.e.at a lower thanmarket rate of interest) from the World Bank to build a steel mill.The application was rejected on the grounds that Koreapossessed no comparative advantage in steel.The World Bank,using standard market valuation, was correct in its decision.There are enormous economies of scale in building such capitalequipment, (see Chapter 3) which implies a long gestationperiod before output is large enough to be efficient.And wherewas the market for all the steel that was proposed? Worldmarkets were glutted and domestic steel demands in this devel-oping country were not great.Thus returns on any investmentin Korean steel seemed to be way below market rates for theforeseeable future.The government went ahead with the investment anyway andfound its own finance.Additionally, the government providedessential infrastructure such as water supplies, port facilities,power stations, road and rail communications.Manufacturing inchosen sectors like the motor industry was also subsidisedso that steel production when it eventually came on-stream hada ready-made market.Current market signals were, in effect,ignored and producers were responding to governmentcommands a system in East Asia known as ADMINISTRATIVEGUIDANCE.Some years later, POSCO eventually won the WorldBank accolade of being the world s most efficient producer ofsteel , out-competing many other producers around the globe.Moreover, its success stimulated a host of domestic supplyindustries to set up which could now sell a range of products tothe steel mills: the fraction of local content in POSCO s outputincreased from 44 to 75 per cent between 1977 and 1984.Source: Rodrik, D.(1995) Getting Interventions Right: How SouthKorea and Taiwan Grew Rich Economic Policy 20.© 2004 Tony Cleaver Direct government allocation can thus lead to greater efficiencythan free markets are able to secure on their own.Countries learnby doing.Management skills improve in coping with developingindustries.Technology (like skills) can be expensive to develop butquick to disperse.Linkages between industries can be exploited both forward and backward.A cement plant provides constructionmaterials for office blocks (a forward linkage), whilst pulp and paperindustries set up to produce sacks for cement (a backward linkage).No one industry would contemplate starting on their own but if allset up more or less together the costs for all would be reduced.Co-ordinating such decisions and implementing them requires thehand of government.There are negative externalities that markets omit also.Freetrade and specialisation can promote the exploitation of exhaustiblenatural resources.For example, Borneo in East Malaysia has awealth of tropical rainforest which supports irreplaceable ecologies yet the profits received by private logging companies for sellinghardwoods to customers overseas do nothing to compensate for theloss of precious eco-diversity.Similarly, tourism is frequently citedas an industry that many poor countries can develop but this too canbring problems.Cultural pollution occurs a superficial materialismthat begins to erode a rich cultural and spiritual heritage.As a general aim, therefore, free trade has much to commend itbut arguments given in this section show that it must be carefullymanaged.There are a variety of private and social costs and benefitsinvolved in opening up sectors of an economy to trade.Nationalincome and welfare may be enhanced by trade in the long run butdevelopment takes time and governments may need to give guid-ance, support and, indeed, protection to certain natural and culturalassets whose values are not recognised in the short term.Gettingthe policy mix right in all circumstances is not easy [ Pobierz caÅ‚ość w formacie PDF ]
zanotowane.pl doc.pisz.pl pdf.pisz.pl milosnikstop.keep.pl
.Consider the case of car production.Korea had no comparativeadvantage in this industry, at first.Enormous US, European andJapanese car giants could exploit economies of scale to keep costs ofproduction down and with product names and logos well-recognised all round the world there were considerable barriers toentry into this global market place.Nonetheless, the South Koreangovernment realised that comparative advantage is a dynamic, not astatic concept.What seems impossible today might not be sotomorrow.Policies were therefore implemented to raise levels ofgeneral education and to support management training.Similarly, thegrowing capital markets (domestic banks and money traders) wereinstructed to give low cost access to finance to certain chosen sectors,and the government gave tax breaks, subsidised investment and,directly and indirectly, encouraged the growth of fledgling exportindustries that would otherwise have been unable to compete inworld markets.The strategy worked.Korea now has a highly skilledand hard-working urban, industrial workforce and a capital marketstructure that gives its motor industry a competitive advantage.Infant industries need protection from world competition untilthey have grown up enough to cope with it.Free trade may be thebest policy in the long run but in the short term there are soundeconomic arguments to grant protection as a means to that end.(Note, however, that all involved must accept that governmentprotection is short term only.Dependent infants have no incentiveto grow up otherwise.) External EffectsThe Korean example given previously introduces the concept ofEXTERNALITIES.Markets will fail to allocate resources efficiently iftheir prices do not reflect all the external costs and benefitsinvolved in both production and consumption.If many of therewards for a certain enterprise are all external (e.g.workers receiveexcellent training in accountancy then leave to set up their ownbusinesses) then it profits the entrepreneur little to start up.Government must take a lead in these circumstances (Box 6.7).© 2004 Tony Cleaver Box 6.7 Korean steel and administrative guidanceThe case of POSCO, Korea s state-owned integrated steelindustry, is an excellent example of how governments canovercome MARKET FAILURE.In the early 1970s the Korean govern-ment applied for a concessionary loan (i.e.at a lower thanmarket rate of interest) from the World Bank to build a steel mill.The application was rejected on the grounds that Koreapossessed no comparative advantage in steel.The World Bank,using standard market valuation, was correct in its decision.There are enormous economies of scale in building such capitalequipment, (see Chapter 3) which implies a long gestationperiod before output is large enough to be efficient.And wherewas the market for all the steel that was proposed? Worldmarkets were glutted and domestic steel demands in this devel-oping country were not great.Thus returns on any investmentin Korean steel seemed to be way below market rates for theforeseeable future.The government went ahead with the investment anyway andfound its own finance.Additionally, the government providedessential infrastructure such as water supplies, port facilities,power stations, road and rail communications.Manufacturing inchosen sectors like the motor industry was also subsidisedso that steel production when it eventually came on-stream hada ready-made market.Current market signals were, in effect,ignored and producers were responding to governmentcommands a system in East Asia known as ADMINISTRATIVEGUIDANCE.Some years later, POSCO eventually won the WorldBank accolade of being the world s most efficient producer ofsteel , out-competing many other producers around the globe.Moreover, its success stimulated a host of domestic supplyindustries to set up which could now sell a range of products tothe steel mills: the fraction of local content in POSCO s outputincreased from 44 to 75 per cent between 1977 and 1984.Source: Rodrik, D.(1995) Getting Interventions Right: How SouthKorea and Taiwan Grew Rich Economic Policy 20.© 2004 Tony Cleaver Direct government allocation can thus lead to greater efficiencythan free markets are able to secure on their own.Countries learnby doing.Management skills improve in coping with developingindustries.Technology (like skills) can be expensive to develop butquick to disperse.Linkages between industries can be exploited both forward and backward.A cement plant provides constructionmaterials for office blocks (a forward linkage), whilst pulp and paperindustries set up to produce sacks for cement (a backward linkage).No one industry would contemplate starting on their own but if allset up more or less together the costs for all would be reduced.Co-ordinating such decisions and implementing them requires thehand of government.There are negative externalities that markets omit also.Freetrade and specialisation can promote the exploitation of exhaustiblenatural resources.For example, Borneo in East Malaysia has awealth of tropical rainforest which supports irreplaceable ecologies yet the profits received by private logging companies for sellinghardwoods to customers overseas do nothing to compensate for theloss of precious eco-diversity.Similarly, tourism is frequently citedas an industry that many poor countries can develop but this too canbring problems.Cultural pollution occurs a superficial materialismthat begins to erode a rich cultural and spiritual heritage.As a general aim, therefore, free trade has much to commend itbut arguments given in this section show that it must be carefullymanaged.There are a variety of private and social costs and benefitsinvolved in opening up sectors of an economy to trade.Nationalincome and welfare may be enhanced by trade in the long run butdevelopment takes time and governments may need to give guid-ance, support and, indeed, protection to certain natural and culturalassets whose values are not recognised in the short term.Gettingthe policy mix right in all circumstances is not easy [ Pobierz caÅ‚ość w formacie PDF ]