---
# System prepended metadata

title: ECON His Final Revise
tags: [learning]

---

# 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**
