# Economic History
2025 Spring, second half

# Lecture 8: Taiwan

## 19th & early 20th Century Taiwan

### Qing Dynasty
- **Overseas Chinese**
- Chinese men migrated to Taiwan to make money.
- Frequent violence due to **weak law enforcement**.
- High incidence of **disease**.
- **Irrigation**
- Structure: **big landlords → small landlords → peasants**.
- Landlords collected **taxes**.
- **Private irrigation** networks emerged, with **water rights** sold.
- **Camphor Industry**
- Located in the **mountain frontier**.
- Important **raw material for plastic**.

### Tea Industry
- **Northern Taiwan** development.
- Driven by **foreign entrepreneurs** (e.g., John Dodd, 李春生).
- **First financial revolution**:
- **Interest rates** differed across regions:
- High in the south.
- Low in the north.
- Low interest rates drove up **land prices**.
- **Foreign capital** flowed in to run the tea industry and then leaked into the **informal financial market**.
- **Flexible tea types**:
- Adapted to **foreign market demand**.
- Sold to the **U.S.** → Japanese introduced **black tea**.
- Evolved from **烏龍茶 → 包種茶 → 紅茶**.

### Sugar Industry
- **Modern industry** built by Japan:
- Transitioned from **small sugar mills** to **large sugar factories**.
- **Sugar cartel**:
- Invited **Japanese corporations** to invest.
- Created **monopsony areas** where factories set the price.
- Exported sugar to the **Japanese domestic market**.
- **Postwar decline**:
- Lost **competitiveness**.

### Rice Industry
- **Capital-intensive** agriculture:
- Raised **interest rates**.
- **Paddy inheritance** strengthened family structures.
- **Rice types**:
- **再來米 → 蓬萊米**.
- **Green Revolution** improvements allowed rice exports to Japan.
- **Second financial revolution**:
- Rice exports accumulated capital.
- **Banks** started lending to Taiwanese farmers.
- Enabled purchase of **fertilizer** and **irrigation technology**.

### Gold Mining Industry
- **Gold rush** in **Northern Taiwan**:
- Initially **low capital intensive**.
- Under Japanese rule:
- Mining rights sold to **big capitalists**.
- Examples: **九份**, **金瓜石**:
- Private mining → capital-intensive mining → split and rental mining (e.g., **顏雲年**).

### Hat Industry
- Weaving in **Middle Taiwan**:
- First **labor-intensive** consumer good.
- Women wove hats for export to Japan.
- Competition with **Okinawa**:
- Full-time workers (Okinawa) = higher quality.
- Part-time workers (Taiwan) = lower quality but more **flexibility**.
- Later overtaken by **paper hats**.
- Led to the **SME industry** boom (e.g., shoes, clothes).

## WWII and Aftermath

### Industrialization
#### Preparing for the war
- Built **electricity infrastructure** (e.g., **Sun Moon Lake Power Plant**).
- Developed **heavy industry** (e.g., **aluminum plant**).
- **Import substitution**:
- Manufactured goods to replace imports as **trade barriers** rose during the war.

### Postwar
- **KMT takeover**:
- corruption issues
- After civil war: **large influx of refugees** (soldiers and families).
- **New colonization patterns**:
- Language and business patterns differed from the mainlanders.
- Population split.

### 1950s – Controlled Growth
- **US aid**:
- Wheat, cotton, beef, loans, and subsidies.
- **Land reform**:
- Abolished joint ownership.
- Distributed land to tenants:
- Reduced financial burdens tied to land.
- Promoted **small-scale, labor-intensive farming** (e.g., asparagus, mushrooms).
- **Crony capitalism**:
- Finance and real estate conglomerates rose.
- Emergence of **big business families** (manufacturing and textiles).

### Taiwan's Miracle
- **Consumer export boom**:
- Driven by the **U.S. retail revolution**.
- Improved **transportation** and **communication**.
- Supported by **Japanese trading companies**.
- **End of U.S. aid**:
- **Currency depreciation**.
- Adoption of **indicative planning**.
- **Speed intensity**:
- Rapid adaptation to changing **consumer goods**.
- Developed **subcontracting and networking systems**:
- Prioritized **speed over quality**.
- **High wages**:
- Valued **labor** over **capital**.

### Heavy Industry
- Driven by **government policy**.
- Example: **王永慶** (plastic manufacturing).
- **Ten Major Projects**:
- Infrastructure and heavy industries:
- Steel, shipbuilding.

### Electronics
- Started with **assembly work**:
- by inward FDI and SEZ (special economic zone)
- Another example of **speed-intensive** industry.
- Progressed to **component manufacturing**.
- Growth stages:
- Calculators → Computers → Semiconductors.
- Relied heavily on **OEM** (original equipment manufacturing).

### FDI
- **Financial bubble**:
- Stock market surge.
- Investments were mostly **short-term**.
- Brokerage fees proportional to trading volume.
- Linked to the **Japanese stock market bubble**.
- **Cross-Strait expansion**:
- Traditional industries squeezed out of Taiwan.
- Relocated to **Southeast Asia** and **Southern China** (e.g., 福建, 深圳, 崑山).

## Present and Future

### Problems
- Threat of **invasion**.
- Rising **competition** (e.g., Korea, Singapore).
- **Aging population** and **low fertility rates**.
- **Overreliance on electronics**:
- Since the 1980s, comparative advantage has spread out.

### Hopes
- Becoming the **new Hong Kong**.
- Becoming the **new Silicon Valley**.
- Potential **changes in family structure**.

# Lecture 9: China

## 9.1 The Republic of China
> 1911-1949

### Statistics (% of world)
* **Population**
* Gradually decreasing (25% → 20%)
* **GDP**
* Falling from 10% to 5% at early 1900s (1900–1930)
* Great fluctuation under Mao's period (1950–1970)
* Surge since 1980 open-up to close 20% of world GDP

### Before Republic (Qing Dynasty)
* **The Great Divergence**
* Why Europe took off but China did not?
* In mid-1800s, China was already behind
* Though lacking big corporations, small businesses were flourishing
* Weak central government and law enforcement → few taxes as % of GDP
* High interest rates → bad for big corporations to form
* Downturn due to rebellions and wars: 太平天國、鴉片戰爭
* Forced open, **unequal treaties** → boosted business
* Not as big an effect as in Japan since transportation cost was high → only coastline opened
* **Self-strengthening movement**
* Investment in manufacturing and heavy industry (textile, mine, arsenal, steamship)
* While keeping industries nationalized
* Example: Hanyeping in 武漢 (SOE -> government-overseen -> privatized)

### Republic of China
* Many wars and civil wars, lack of order, controlled by warlords
* **Golden Decade** (mid-1920s–1930s)
* Uncertain economic growth
* Annual 1% growth vs. no growth
* Lack of reliable data
* Most growth in modern sectors (manufacturing)
* **Shanghai**
* Center of consumer goods production
* Concession
* inside: foreign-own, capital intensive
* around: Chinese-own, labor intensive
* FDI to domestic investment
* Canvas Industry: US → Japan → China
* Match Industry: Europe → Japan → China
* Made use of female labor
* **Heavy industry in Northeast**
* Developed after Russo-Japanese war → Manchuria
* Railroad construction + conglomerates
* Product:
* soybean, iron, bauxite

### Japanese Imperialism
* Initially (1899), fewer investments than British
* 1931: Flood into Northeast China, trade & investment boom
* Initially friendly, then intensified due to wars

### The End (1937–1949)
* 1937 2nd Sino-Japanese War
* Refugees, starvation, loss of modern sectors (coastline)
* Chinese Civil War
* KMT vs. Communist Party (supported by USSR)
* Huge budget issue after WWII
* Unable to borrow, printing money → inflation

### Q. Why did China fall behind?
* China didn't perform as well as Japan in the 20th century
* **Manchu-Chinese split**
* **Lack of feudalism**
* Central government couldn't control locals and businesses
* Hard for big corporations to form (lack of government relations)
* **Joint family system**
* Work with family rather than companies
* Hard for capital accumulation, lack of female labor
* Less developed financial market
* No need to invest for retirement
* **Poor transportation**
* Inland areas faced fewer threats
* **Inability to raise taxes**
* Huge territory
* Middlemen required → less tax flowing to the government
* **Cultural reasons**
* Rule of man (individual consideration) vs. rule of law

---

## 9.2 Imperialism

### Early Western Imperialism
* Usually drives industrial revolution
* Spanish, Portuguese → Latin America (silver for Far East spice trade)
* English, Dutch → Caribbean colonies (sugar)
* British America → food (grain, fish), tobacco
* British India → cotton
* **Capital’s role**
* Low interest rates → flourishing warring and ship-building
* Leads to imperialism, industrialization, capitalism

### High Imperialism
* Colonial countries become local governments
* Due to better transportation (canals, railroads) and communication (telegraph)
* Better sanitation, medicine → more Europeans abroad
* Better bureaucracy and organization → from sent officers to ruling companies
* **Economic venture**
* Colony become a consumer good market
* Infrastructure and shipping benefits home country companies
* Tropical agriculture → sugar, tea, coffee, banana
* Natural resources → oil, minerals
* **Expansion to the frontier**
* Huge cost to governments
* Individuals, not home governments, usually benefited

### Colonial Capitalism = Crony Capitalism
* Spend more on governments than for consumers
* Pursue monopoly benefits
* Lack of creative destruction after initial tech imports
* Colonial governments became conservative

### Effect on Colonies
* British colonies seem to perform better
* **Little per capita income growth**
* Economies already stagnant pre-colonization
* Looting and wealth drain
* colonies pay for military, salaries
* **High tax rates**
* Home country taxes higher than colony taxes
* Tax returns to home country → wealth drain
* Little local investment
* FDI enclaves vs. night watchman state → little property rights protection
* **Imperialism mainly changed ruling parties**
* No significant economic change (no better, no worse)

### Ex-Colonies
* **Countries created by imperialism**
* Example: British united India
* **Immigrant minority**
* Colonial governments welcomed skilled immigrants
* Post-independence governments often resisted
* Example: Muslims in India, Chinese in Southeast Asia
* **Alienated elites**
* Western-educated
* Opposed industry and capitalism under colonialism, but lacked new growth drivers
* **Capital and skills moved out**
* Turned to labor-intensive economies
* Inappropriate investments

#### Q. Why did colonies take off after becoming independent?
* Unlocking restrictions on local entrepreneurs

# Lecture 10: China II

## 10.1 Mao's China

### New Democracy Period (1949–1952)
- **Learning from Russia's experience**
- NEP-style economy (also follow KMT's plan)
- Allowed small private businesses
- Government controlled trade, finance, heavy industry
- Price controls
- **Land reform**
- Government took over land and allowed farmers to use it for free
- Still no property rights
- confiscate animal and capital from rich farmer
- Formation of **mutual aid teams**

### Planned Economy
- Fast recovery (from a low base) in the 1950s
- Peace and strong government
- Still unemployment in urban areas
- **Government ideology**
- Mao → utopian (didn't emphasize detailed planning)
- Liu Shaoqi → followed USSR's planning & meritocracy
- **Before Five-Year Plan**
- take control of the government and society
- 1951 Three Antis: cleaning government corruption
- 1952 Five Antis: cutting down private businesses

### The First Five-Year Plan
- Loosely modeled on USSR plan
- Aimed for autonomy
- From national-wide to province-wide planning
- Residence permit system to develop cities
- Formation of communes (economies of scale)
- Mutual aid → cooperatives → communes
- While government take out half the output
- Overproduction → high marginal costs
- **Effects**
- Fewer private enterprises
- Rising investment
- Growth similar to Taiwan
- Urban-rural gap
- **Mao's Focus**
- Class struggle not yet resolved
- Focused more on revolution than governance
- Revolution from below

### The Great Leap Forward (Second Five-Year Plan)
- "Walk on two legs": urban + rural development
- Militarization of communes
- Doing production and consumption together
- Backyard steel mills
- Failed to produce quality steel
- **Results**
- Urban areas performed relatively well
- Rural areas faced disaster
- Bad consumption and production policies
- Misinvestment
- Excessive resource transfer to cities
- Success case: Dazhai 大寨

### The Cultural Revolution
- Revolution from below; attack elites
- Red Guards: purification of the party
- Workers took over cities & factories
- Less immediate damage compared to Great Leap Forward
- Economy stalled and original plans disrupted

## 10.2 China's Takeoff (1978–2007)

### After Mao's Death
- Fake statistics made planning difficult → planning apparatus destroyed
- **Deng Xiaoping**
- Experienced in foreign policy and market economy → more pragmatic
- Focused on rural areas to prevent urban migration and revolts
- Reversed commune system → household production
- Farmers grew and sold their own crops
- Invested profits into enterprises or capital
- Local financial system
- **1980s: Diminishing rural-urban gap**
- Farmers contributed significantly to economic growth

### Urban SOE Reform
- SOE reforms similar to USSR at the time
- Granted SOEs independence and freedom
- Still received financial support → soft budget constraint
- Shift from permanent to temporary workers
- Permanent workers retired with high pensions
- Temporary rural workers hired at lower wages
- **Bank Reform Effects**
- Increased SOE loans → inflation
- Shortages for price-controlled goods
- Private rural enterprises faced loan cuts
- Bubble burst led to recession

### Foreign Growth
- Why FDI?
- better control than rural enterprise
- Relied increasingly on foreign investment
- Export Processing Zones (EPZs)
- Investor: Hong Kong (tax purposes), then Taiwan (post-bubble), Southeast Asia, Japan, and the West
- **2000s**
- Labor-intensive goods
- Initially only assembly
- Later use materials from Chinese suppliers
- Widening rural-urban gap

### Privatization / Crony Capitalism
- 1990s SOE become privatized
- **Red princelings**
- Bought SOEs leveraging government connections and bank loans
- dominate domestic business
- **1997 Asian Financial Crisis**
- Bankrupted many firms
- Creation of four bad debt management companies
- small difference between government and private company
- **Housing privatization**
- People allowed to lease land and buy the house
- Local Government Financing Vehicle
- Generated revenue through land sales

### 2000s Boom
- Bad debt management companies pumped money → new bubble
- FDI doubled
- Example: Taiwanese computer production
- Exports doubled
- 1998: 32% of GDP → 2007: 62%
- Competition boosted efficiency
- Internet sector took off
- Emergence of Chinese tech giants
- 2008 financial crisis impacted China, but less severely

## 10.3 China's Slowdown
> 2008 - present
### Broad Trends
- GDP growth slowed from 14% (2007) to ~5% (present)
- Started under Hu Jintao, continued under Xi Jinping
- Bad policies ↔ bad economy
- Trade share fell from 65% to ~40%
- Still higher than the U.S.

### 2008 Crisis Response
- Shrinking export markets (especially U.S.)
- Pivot to domestic demand
- Increased loans to SOEs and princelings
- Infrastructure spending and land sales
- More capital for homebuyers
- **New Confidence**
- Perceived fall of the West
- U.S.: Financial crisis
- EU: PIIGS debt crisis
- Belief in strong government crisis control

### Real Estate Boom
- Massive housing investments
- Growing, wealthier urban population seeking capital gains
- Driven by borrowing
- **Misinvestment**
- Rapidly changing economy
- Local governments sold land to boost GDP or pay debts
- Ghost cities

### Infrastructure Boom
- Airports, harbors, roads
- High-Speed Rail (HSR)
- Most lines lost money
- Spillover: boosted real estate prices
- Tight border controls
- Building ahead of demand

### Finance
- Cheap finance available to SOEs
- Rise of local/private financing
- Trust: high interest, high risk
- **Shadow Banking**
- Lightly regulated
- Wealth management products
- Internet finance
- Shift from plan-driven to finance-driven economy

### Belt and Road Initiative
- Xi Jinping's strategy
- Diminishing returns on domestic infrastructure
- Goal: Make China an economic and political center
- Lending and building infrastructure abroad
- Many projects lost money: debt traps
- Binational looting (Chinese and foreign money)

### Why the Growth Decline?
- **Convergence Effect**
- Poor countries grow by imitating rich ones
- Slowdown as they approach middle income
- Risk of middle-income trap
- **Declining TFP (Total Factor Productivity)**
- Misallocation of resources
- **Overemphasis on Manufacturing**
- Common in communist countries
- **Excessive Focus on Modernity**
- Benefits mainly the wealthy
- **Government "Advancement"**
- Shifted to cartel-like economy
- **Excess Capital**
- Attracted looting and inefficiency

### New Direction
- Aim to make China "strong"
- Crackdown on FDI
- Increased control over internet
- Emphasis on military and technology
- Aggressive foreign policy → trade wars
- Inefficient push for self-sufficiency
- Forced rice planting

# Lecture 11: Vietnam

## 11.1 Pre-reformed Vietnam

### France's Control

- **French Indochina**
- **North: Tonkin**
- More influenced by China (gateway)
- More commercial
- **Center: Annam**
- Old, individualistic frontier
- **South Coast: Cochinchina**
- New frontier
- First controlled by French
- Overseas Chinese
- Buddhist culture

- **Export Economy**
- Rice: along Mekong River
- Rubber (the South)
- Commercial crops: tea, coffee, pepper
- Industrial: coal, bauxite, tin
- Indentured labor

- **Finance (Government)**
- Land and poll tax
- Tariff revenue
- Monopoly revenues: salt, opium, alcohol

- **Infrastructure**
- Roads → tighter control
- Railroads → link port to China
- Cities: lighting, sewer

### WWII

- Japan invades from the North then takes over the South, retreats after 1945
- Famine (1944–1945)
- Great famine across countries during WWII
- Food shortage (mostly in the North)
- Japanese requisition (for military & cities)
- Destroyed transportation
- Inefficient local bureaucracy
- Rise of Communist Party in the North

### South vs. North

- **Post-WWII**
- Communists take over the North
- French set up government in the South
- Large immigration to the south

- **South Vietnam**
- Agricultural economy
- Land reform & rent control
- Received U.S. aid
- Quick urbanization
- Economy depends on serving US military

- **Civil War (1955 - 1975)**
- Economic stagnation
- Rice import → farmers migrate to cities
- South falls after U.S. military leaves

- **North Vietnam**
- Communist member grows rapidly
- Severe corruption
- Mutual aid teams
- Land reform: remove landlords
- Organizing national cooperatives
- Rice price control to support cities → rice production falls → ultimately import rice
- War disrupts planning
- Relied on aid from China and USSR

### Unification

- North loots the South
- Educated population and Chinese flees
- De-urbanization
- Failed to establish collectives in the South
- North steps back
- Falling rice production

## 11.2 Reformed Vietnam

### Economic Pattern

- **GDP per Capita**
- Relatively low in East Asia
- High growth rate (~5%) since 1990s

- **Trade**
- Growing % of GDP
- First major jump in 1990s
- Drop during 2008 financial crisis
- Key growth driver
- Some are re-exported goods from China (label washing)

### Renovation (Since 1986)

> Followed China's reform path

- **Policy (Top-down)**
- Allowed small private enterprises
- Freed SOEs
- Broke up cooperatives/communes
- Free inter-provincial trade
- Price decontrol
- Open up foreign trade

- **Anarchy (Bottom-up)**
- Late 1970s: central government lost control
- SOEs split off to local governments
- Free local banks caused inflation
- Local governments controlled business
- Communist officials privatized government
- Corruption rises
- Contradictory laws and plans
- Everyone “in charge,” no accountability

#### Strong local, weak central government

### Agriculture

- Post-collectivization food shortages in the North
- Allowed private farming
- Boom in investment and production
- Farmers had side jobs
- Farming became insurance
- Farm Size
- Laws limit farm size
- Big tenants rented land from many owners, paid wages
- South
- More commercialized, specialized crops
- Existence of large farms
- Export-oriented production
- Produce agricultural input for foreign company

### Industry
- Initially reliant on China/USSR aid
- Often outdated equipment
- Joint Ventures (1990s)
- SOEs with foreign investment
- Real estate, natural resources
- Began with Japan; later China and Taiwan in export sector
- SOEs monopolized domestic markets
- Labor-intensive industry
- Invested by Taiwan and China
- Assembly works
- Trade Practices
- Re-export (label washing)
- Private Firms
- Household enterprises emerging
- Big firms resist competition and maintain government ties
- New Capitalists
- Weak ties to government

> Financial Crisis: Limited impact due to low external openness

## 11.3 Corruption

- What is Corruption?
- Acts for personal gain, not public good
- May still benefit the economy
- Hard to define "public good" → use *public choice* theory
- Different thinking
- Normative Economics
- What’s the right thing to do?
- Positive Economics
- What actually happens?
- Dividend Collecting
- Informal tax to motivate officials
- A form of transaction cost?
- Examples: Korea, Qing dynasty
- Formal Tax
- Less transparent
- Requires negotiation and repetition
- Demands long-term relationships
- Benefits local officials
- Rules
- Formal: slow in developing countries
- Informal (corruption included): time cost roughly the same globally
- Reform
- More rules ≠ better
- Better to:
- Increase transparency
- Create more ways to get things done
- Requires legitimate government to build trust

# Lecture 12: Indonesia

## 12.1 Southeast Asia Boom (Early 19th–20th Century)
> 1870 - 1929

### Broad Economic Conditions
- Free trade and peace
- Falling shipping costs
- Control on tropical disease
- End of slavery
- Resulted in more free labor

### Export and Import
- **Export goods:**
- Rice: mainland (e.g., Vietnam, Thailand, Burma)
- Rubber: islands and peninsula (e.g., Malaysia, Indonesia)
- Sugar and tea (e.g., Java, Philippines)

- **Extensive growth:**
- Population growth, but no GDP per capita growth
- Develop inland area or new islands for living
- Development of **gateway cities (ports)**:
- Influx of Chinese and Indian migrants
- Western capital investment

---

## 12.2 The Dutch East Indies
> mostly development in Java

### Cultivation System (Mid 19th Century)
- Village communes with overseers
- Required villages to grow specific crops as tax (e.g., sugar, coffee)
- Justified as protection from commercial exploitation
- Headmen:
- Held authority to distribute land
- Restricted mobility -> villagers couldn't leave
- No land transactions allowed
- Little private investment
- Colonial government collected significant revenue
- Rising population led to increasing hunger

### Liberal Period (1870–1900)
- Farmers allowed to choose crop type and pay taxes in cash
- Entry of Western private businesses:
- Leased land in long-term
- Expanded plantations
- Growth of Chinese population:
- Banned from agriculture
- Became merchants and lenders
- Government:
- Abandoned agricultural monopolies
- Invested in infrastructure (railroads, harbors, shipping)

### Ethical Period (1900–1942)
- Expansion of public works:
- Funded by increased taxation
- Projects: irrigation, roads, education
- Rising GDP per capita
- Lowland vs. Upland Economies
- Lowland (early developed): rice-growing villages, no private land ownership
- Upland (later developed): allowed private property, commercialized crops (tea, rubber, tobacco, sugar)

### Plantation vs. Smallholders
- Plantation
- Functioned as corporate enclaves
- Capital-, tech-, and info-intensive
- Large scale and high risk, exist agency problems
- Dominated export crops (e.g. sugar)

- Smallholders
- Predominantly on **outer islands**
- Backed by Chinese merchants financially
- Located near rivers/infrastructure
- Focused on food production for local consumption, also small export (e.g. rubber)

### Other Islands

- **Sumatra:**
- 1870s: tabacco plantation by indentrued labor (Chinese & Javanese)
- 1885: Oil discovered
- Plantation experiments: failed coffee/sugar → rubber → palm oil/coffee
- Lightly governed; plantations self-managed

- **Borneo:**
- Predominantly aboriginals
- 1901: Oil discovered
- Early Chinese migration and rubber plantations

---

## 12.3 Indonesia (Post–WWII)

### Key Statistics
- Population:
- Consistently around 3% of world population
- Real GDP per capita:
- Stagnant before war
- Philippines increase post-war, later stagnated
- Thailand took off early
- Indonesia’s growth started later but matched Thailand’s pace

### WWII
- Dutch retreat caused destruction
- Nationalists:
- Cooperated with Japanese
- Later disillusioned
- Wartime famine: Japanese requisitioned food
- Chinese businessmen:
- Distrusted by both Japanese and Indonesians
- Dutch return sparked more conflict
- U.S. backed Indonesian independence

### Post-Independence Challenges
- Indonesia was a Dutch colonial construct; lacked national cohesion
- Deep divisions: language, religion, culture
- Conflicts among nationalists, religionists, communists

---

### Sukarno Era

- Charismatic politician, weak economist
- Early policies:
- **Secularism**, **Socialism**, **Self-sufficiency**
- Continued colonial trade model
- Later alliances:
- Balanced nationalism, religion, communism
- Economy:
- Corruption, mismanagement remain
- Martial law imposed
- Move toward command economy
- Nationalized Dutch, then all foreign firms
- Chinese business restricted
- Nationalized firms deteriorated
- **Hyperinflation** driven by military spending

---

### Suharto and the "New Order"

- Purged communist party, consolidated power
- Led economic boom

#### Economic Reforms:
- Balanced budget, reduced inflation
- Opened trade and FDI
- Oil boom via foreign investment
- Devalued currency
- Bureau of Logistics (BULOG)
- Subsidized rice production and consumption
- Adopted Green Revolution
- Financial sector
- Government-controlled
- Low interest rates
- Preferential loans to connected businesses
- Sectoral Shift:
- Decline in agriculture
- Rise in oil production and manufacturing
- Accelerated urbanization

---

### Comparison with China
> Compare from the year of open up and take off

- **Saving Rate:**
- China: always high
- Indonesia: rose post-inflation control, but partly government oil savings
- Lower total factor productivity (TFP)
- Most growth from capital accumulation
- **GDP per Capita:**
- Similar early growth
- Diverged after 15 years of open up
- Indonesia lagged in productivity and FDI
- **Government Role:**
- Strong state, but corrupt
- Grew with oil revenues (large proportion of export)
- Invested, protected property rights
- **Inequality:**
- Declined
- Strong agriculture
- Rural labor migration to cities
- Labor-intensive infrastructure projects

---

### 1997 Asian Financial Crisis

- 1980s: Shift from oil to labor-intensive exports
- **Crony capitalism:**
- Hold private banks, foreign borrowing
- **Trade shocks:**
- China’s rise → falling export prices
- Thai baht collapse spread to Indonesia:
- Currency depreciation
- falling export price
- Export recovery lagged
- Anti-Chinese riots erupted

---

### 2000s Onward

- Continued real GDP per capita growth
- Transition to service economy
- Trade share fell:
- Services substituted for manufacturing
- Focus on mineral and crop exports instead of industrial goods

# Lecture 13: Thailand

## 13.1 Pre-War Thailand
> 1870-1940
### Early Conditions
* **Growth**: Slow but steady population and GDP per capita growth
* GDP per capita: ~10–20% of the U.S. level
* Richer than China & India at that time
* **Bangkok**:
* Largest city in Thailand pre-war
* Best land quality and irrigation system

### Agriculture
* **Abolition of slavery** in the late 19th century
* Free people faced heavy taxation / corvee (require service)
* **Canal boom**
* Improved irrigation and transportation
* Built both privately and publicly
* **Railroad boom**
* Strengthened central control
* **Land surveys** introduced
* **Rise of rice exports**

### Central Plain vs. Frontier
* Central plain
* Dominated by large aristocratic landlords
* Invested in canals and railroads
* Received government investment
* Imposed limited rent to retain tenants
* Otherwise, tenants migrated to frontier regions
* Frontier
* Less controlled by the central government
* Fewer landlords
* Constant internal migration
* Overseas Chinese settlers moved in

### Bangkok as a Gateway
* **Population (circa 1900)**: 150,000
* Much larger than any other city in Thailand
* **Ethnic Composition**:
* Half were Chinese
* Engaged in trade, manufacturing, labor
* Many were single male migrants
* Sent large remittances back to China
* **Western investors** were few
* Provided capital but held limited presence
* The king preferred Chinese over Westerners for safety reasons

### Trade & Industry
* Affected by **unequal treaties**
* **Chinese merchants** dominated rice exports
* Through Hong Kong and Singapore
* Imported **industrial and consumer goods**
* From Europe and Japan
* **Manufacturing**:
* Rice mills, sawmills
* **Utilities**:
* Mostly controlled by Europeans

### Wealth Shift
* Early on: Chinese tax farmer
* Collect tax for the king
* Later on: Replaced by the "Big Five" Chinese families
* Doing trade, rice milling, financing
* In the end: Replaced again by new Chinese businessmen

### Rise of Nationalism
* **Military overthrew the monarchy**
* Adopted a hostile stance toward the Chinese
* **Military reforms**:
* Controlled rice trade and peasant sales
* Created the Development Company to collect profits
* Established public banks to regulate finance
* **Nationalized Chinese companies**
* Still managed by Chinese for efficiency
* Chinese benefit from the West downturn during war
* **Japanese occupation**:
* Expelled Westerners
* Allowed Chinese to continue running businesses

## 13.2 Post-War (Industrializing) Thailand
> Since 1945

### Modernization: Squeeze the peasant
* **Required funding**
* Extracted capital from agriculture to support urban development
* form export monopoly
* cut rice price
* raise price of fertilizer
* Farmers’ income stagnated
* move the city
* **High tariffs for manufacturing**
* Promoted import substitution strategy
* **Upland corporate agriculture**
* Controlled regions near the Vietnam War zones
* Developed into feed mills, sugar mills → later expanded into manufacturing

### Bangkok
* Local Chinese began to **settle permanently**
* **Development Company**
* Initially government-run since the 1930s
* Performed poorly, later privatized
* **Gradual opening to foreign investment**
* Foreign capital entered to avoid tariffs
* **GDP per capita increased**
* 4% per year > 0.5% post war

### Economic Boom
* Trade boom
* Baht devaluation
* Fewer trading restrictions
* Japanese investment
* due to high domestic manufacturing cost in Japan
* Export goods
* **Textiles**, **toys**, jewelry, **electronics**, seafood
* Financial liberalization
* Free foreign exchange
* Increased savings and foreign borrowing
* Housing bubble
* Short-term foreign borrowing increased

### Financial Crisis
> 1996

* Collapse of Baht
* Decreasing **stock and housing markets**
* foreign investors pulled money out
* Local companies failed to repay loans
* Reason
* China became a key exporter / competitor
* Foreign investment shifted away from Thailand
* IMF bailout
* Came with strict monetary and fiscal requirements
* Recovery
* GDP per capita recovered by 2004
* Remained higher than China's at that point

### Rationalization
* Large conglomerates laid off workers
* give rise to small and medium enterprises (SMEs)
* Crisis affected both rich and poor
* while the poor hurt more
* **Thaksin Shinawatra**
* Described as a *crony capitalist*
* become Prime Minister with the help of rural area
* move emphasis from Bangkok to rural area
* cut the urban-rural gap

# Lecture 14: India

## 14.1 British India
> The world's largest imperialist power and its largest colony

### From Mughal Empire to British Empire
* India had not been unified before the British
* **Mughal Empire**
* 1500s: Central Asians conquered India
* Modeled a Chinese-style central ruling system
* Peaked around 1700
* Later weakened by external invasions
* **British East India Company**
* Took Bengal first, then defeated the Mughals
* Initially aimed for profit, not governance
* Built local administrative structures
* Governance was ineffective and not respected
* British extracted wealth and funneled it back to Britain
* Gradually conquered India through a series of battles
* 1857: Major rebellion against British rule
* 1858: India became a Crown Colony under direct British rule
* **Princely States**
* British cooperated with local kingdoms
* These states followed British rules in trade and taxation

### Government
* **Minimal government presence**: only 6% of GDP
* Very few British officials; most civil servants were Indian
* **Education**
* Liberal arts colleges trained loyal elites
* Graduates became government officials or lawyers
* Lack of technical education
* Huge disparities in access to education
* **Railroads**
* Built to strengthen inland control
* Also enhanced transportation and logistics

### Traditional Economy
* **Agriculture**
* Capital-intensive: irrigation
* Zamindars: large landlords as tax collectors
* Landlord dominance restricted agricultural development
* **Urbanization**
* Limited due to concerns over disease
* Manufacturing remained village-based and caste-dominated
* **Large merchant class**: Marwaris (a sub-caste)
* **Textile Industry**
* Historically a global manufacturing and trading center
* Faced Western protectionism against Indian textiles

### International Trade
* Transitioned from **textile exporter to importer** after the Industrial Revolution
* Shift from handloom → imported textiles → local mills
* **Deindustrialization**
* India’s share of global manufacturing declined
* same pattern as China
* **Share of world trade**
* Increased until WWI
* Exported tea, opium, sugar, cotton through commercial corporations
* Declined due to post-war import substitution policies, then gratually come back

### Economic Thought
* Economic stagnation during the independence movement
* **Jawaharlal Nehru**
* English-educated
* Socialist; skeptical of commerce
* Favored large-scale modernization and planning
* **Mahatma Gandhi**
* Embraced commerce
* Opposed large-scale industrialization
* Favored a village-based economy
* **Subhas Chandra Bose**
* Authoritarian stance
* Advocated strong government
* Pro-Stalin and pro-Hitler ideologically
* **B. R. Ambedkar**
* Advocated for redistribution and equality
* Supported a free economy
* Believed exploitation stemmed from social forces, not just economics

#### Q. Is British India a nightwatchman state?
## 14.2 Independent India

### Independence
* **1930s**: British began losing control
* Example: local elections
* Princely States accounted for 23% of the population
* **Challenges**:
* Hindu-Muslim split
* India lacked a strong national identity or "Indian" consciousness
* **World War II**
* Indian leaders resisted involvement in the war
* **Quit India Movement**
* **1944 Bengal Famine** worsened public sentiment
* Gained independence in **1947**
* Partition created separate Indian and Muslim-majority areas (India and Pakistan)
* **Hyderabad (Mulsim led Princely State)**
* Declared self-governance after India's independence
* Urban modernization: electricity, railroad, university
* Wealth from pearl industry

### Nehru (Socialist Approach)
* Prioritized **modernization** over **equality**
* Bombay Plan
* Congress supported private business
* a **mixed economy**
* import subsitition
* cut government intervention
* followed by 1950 first five year plan
* **State-Owned Enterprises (SOEs)**
* Central to modernization efforts, but many became "white elephants"
* Nationalized banks and heavy industries
* Established new industries: electricity, machine tools, oil, and gas
* **Industrial Licensing System**
* Government decided what and how much to produce
* Jobs in these sectors became permanent and inheritable
* **Small Private Businesses**
* Unliscensed, small-scale (under 10 workers)

### Comparison: China vs. India
* Similar development paths until **1978**
* **China** surged ahead after its economic reforms in the 1980s

### Agriculture (Green Revolution)
* Under Nehru, India faced widespread **hunger**
* Relied on food **imports**
* Failed land reforms
* Little capital investment in agriculture
* Rising inequality & poverty
* **Green Revolution**
* Introduced **dwarf grain varieties**
* Promoted **capital-intensive** farming
* By **1980**, India could **export grain**
* **White Revolution**
* Massive increase in **milk production**

### Indira Gandhi
* **License raj** led to profit repatriation abroad
* Created a **Monopoly Commission**
* Regulated but still allowed monopoly growth
* Required **60% Indian ownership** in companies
* Drove out many foreign firms
* Expanded **public sector enterprises**
* Nationalized many failing companies
* **Nationalized finance system**
* Bank branches became politicized

### Rajiv Gandhi
* Inspired by China's economic reforms
* Implemented **economic liberalization**
* Removed licensing requirements
* Reduced monopolies
* Lowered tax rates and tariff
* Rising **government debt**
* Banks were forced to hold government bonds
* Crowded out **private borrowing**
* Created a large **trade deficit**

## 14.3 Reformed India

### The 1991 Reform Program
* **Trade Liberalization**
* Devalued the **rupee**
* Removed need for **export subsidies**
* Eliminated **import licenses**
* **Foreign Investment**
* Opened economy to **foreign direct investment (FDI)**
* **Financial Sector Reform**
* Government started **borrowing from markets**
* Freed up banks’ capital
* Allowed **interest rates to fluctuate**
* **Industrial Deregulation**
* Eliminated **license requirements**
* Encouraged **private ownership** and **investment**

### Reform Results
* **Increased GDP growth**
* Reduced **government debt**
* Expanded **trade volume** and **foreign exchange reserves**
* However, growth was **slower than China**
* **Post-2000s Growth Challenges**
* **Labor regulations** remained restrictive
* Example: **permanent job** protection
* **Agricultural restrictions**
* Limits on **land purchase**
* **Local inspections**
* Required close ties with government
* Encouraged **corruption**

### Welfare Policies
* Greater effort than China to address **inequality**
* **Reservation System**
* Scheduled benefits by **caste**
* Recognized "Other Backward Classes" (OBC)
* **Public Distribution System**
* Allowed purchase of limited essentials at subsidized prices
* But **buying rights often shifted to the rich**
* **Corruption Issues**
* More poor people than the **total available subsidies**
* Governments often **over-promise, under-deliver**
* **Employment Guarantee Act**
* Ensured **100 days of paid work** per year for rural workers

### Economic Trends
* **Weak in exporting consumer goods**
* Government did not prioritize it
* Mainly produced by **small, unlicensed firms**
* **High tariffs** still exist
* **Services sector** remains heavily regulated
* Success stories:
* **Software boom**
* **Pharmaceuticals**
* Produced generic drugs after patent expiration
* **Comparison with China**
* India remains **poorer**
* Higher **consumption share** of GDP
* Less investment in **infrastructure** and **real estate**

### Democracy vs. Autocracy
* Is **autocracy** more efficient?
* Democracy often shifts policy with **party changes**
* Tends toward **short-term thinking**
* **Democracy focuses on distribution**
* Tends to **split the pie** rather than grow it
* **Populist welfare policies** to attract votes
* Can lead to **overextended welfare programs**
* **Autocracy**
* Can become **bureaucratic and conservative**
* Difficult to **overthrow or reform**

## 14.4 Indian Business

### Early Manufacturing
* **Commercial minorities**
* **Jains** – linked to Buddhist monastic ethics
* **Parsis** – Zoroastrian immigrants from the Middle East
* **Marwaris** – Largest group; migrant traders and manufacturers
* **Scottish** – Dominated the **jute** industry
* **1900–1940**: Industrial growth at **5% per year**
* Slower than China and Japan
* **Cotton textile industry**
* Fewer female workers
* Possibly due to **early marriage**
* Difficulty in raising capital
* Most capital directed toward **irrigation**
* Factories concentrated in **western India**
* **Ahmedabad**, **Bombay**

### Jamsetji Tata
* Member of the **Parsi** community
* Founded **India’s largest business family**
* **1870**: Integrated cotton mill
* Combined **manufacturing and trading**
* Profited during and after **WWI**
* **Son: Dorabji Tata**
* Founded **iron and steel mills**
* Established **technical schools**
* Developed **hydroelectric power**
* Started an **insurance company**
* **Grandson: J.R.D. Tata**
* Profited during **WWII**
* Merged with **British firms** post-independence
* Expanded into **motor manufacturing**, **airlines**, and **consulting**

### G.D. Birla
* From the **Marwari** community
* Entered **jute industry** in Kolkata
* Started as trader, then built **jute mills**
* Gained wealth during **WWI**
* Later diversified into **cotton**, **sugar**, **newspapers**, and **education**
* Strong supporter of the **Congress Party**
* Close ally of **Gandhi**
* Acquired **British companies** after independence

### The Bombay Plan
* Blueprint for **“planning with freedom”** proposed by leading businessmen
* Key features:
* **Property rights protection**
* Emphasis on **manufacturing** over agriculture
* Government investment in:
* **Healthcare** (healthy workforce)
* **Education** (skilled workforce)
* **Foreign loans** to boost industry
* Suggested:
* **Price and wage control**
* **Foreign exchange regulation**
* Measures to **preserve monopolies**

### Dhirubhai Ambani
* Icon of **modern crony capitalism**
* Started with **export trading firm**
* Secured special licenses to trade **spices** and **nylon**
* Founded **Reliance Textile** → grew into **Reliance Group**
* Benefited from **import regulations**
* Expanded into:
* **Chemicals**, **petroleum**, **power**, **IT**
* Hugely successful in the **stock market**
* Attracted capital from **small investors**

### Lakshmi Mittal
* Came from a family with a **small steel business**
* Indian government regulations limited private firm growth
→ Moved capital **abroad**
* Known for **hostile takeovers**
* Bought and turned around **underperforming steel mills**
* Built a **global empire** — second-largest steel producer
* **Q: Does India have a comparative advantage in globalization?**
* Multicultural society
* English-speaking population

### Kamma: New Business Caste
* Originally an **agricultural caste**
* Benefited from **British irrigation projects**
* Shifted to **commercial crops**
* Valued **education**
* Later diversified into:
* **Cotton mills**
* **Construction**
* **Transportation**
* **Entertainment**
* Notable figures:
* **N. Prasad** – pharmaceuticals
* **Ramoji Rao** – film industry

### Infosys
* Provides **software and IT services**
* First Indian company listed on **NASDAQ**

### Wipro
* Started with **oil milling** → moved to **consumer goods**
* After IBM left India:
* Took over **domestic computer market**
* Transitioned into **software services**
* Became a **supercomputer manufacturer**