Henry Wai-chung Yeung: Rethinking East Asia in the New Global Economy

by Xiaonan Zhang, visiting PhD student, Tsinghua University

On Tuesday, April 4, 2017, Henry Wai-chung Yeung, provost’s chair and professor of economic geography at the National University of Singapore, gave a lecture as part of the spring 2017 China Talk Series. He spoke about the economic development and state-firm relations in East Asia, focusing on the region's emerging role in the new global economy, which is based on his recent book, Strategic Coupling (Cornell University Press).

Prof. Yeung began his talk by introducing the rise of East Asian economies with focus on Singapore, Taiwan, and South Korea. Three historical trajectories are defined. East Asia experienced rapid export-oriented industrialization and featured high labor intensity from 1960 to 1979. During the next 20 years, it restructured the industry and turned toward high-tech industrialization. This period is the rise of knowledge-based economies. From 1999 until now, East Asia is the industrial champion and is also facing many technological and market challenges. In fact, there are many leading East Asian firms in highly globalized market segments and industries, such as information and communication technology (ICT), marine and shipping, transport, and biotech. So the key question is what explains East Asian development in the new global economy? Prof. Yeung thinks the answer is a dynamic evolutionary mechanism of development: economic globalization and changing state-firm relations, from developmental states to strategic coupling with global production networks.

Prof. Yeung explained this in detail by revisiting the developmental state. The developmental state emerged in the 1960s, and means the state steers national economic development and governs the market. It features in embedded autonomy and has many policy interventions which may get price wrong. The domestic firms in this condition try to meet the performance requirements and become national champions, shaping oligopolistic competition. This developmental state thesis is critiqued because driving/selecting “national champions” and the “right” industries is beyond the state’s power. In late 1980s, the domestic and international contexts changed, and the state roles began to transform: state power redistributed across multiple state and non-state institutions; policy instruments shifted towards more horizontal and functional policy in support of domestic firms and industries taking advantage of growing global opportunities. In the 1990s, many national firms chose to strategically disembed from the state apparatus, which means they emerged as independent interest groups and stopped following the government’s economic plans.

After disembedding from the state apparatus, the firms successfully reembedded in global industries and global production networks and the developmental partnership shifted from state-firm to inter-firm networks. As the global production networks theory (GPN 2.0) of economic development says, this is an analytical shift from “structural dependence” on the state to “strategic coupling” with global production networks. In fact, GPNs play as new institutional foundation of firms by providing sources of knowledge, power, and capabilities beyond the developmental state. Strategic coupling under GPNs is articulation of domestic firms and economies into competitive dynamics of global lead firms through three component mechanisms: strategic partnership, industrial market specialization and (re)positioning as global lead firms. It finally contributed to vertical specialization, modularization of production in industrial organization and more sophisticated state-firm relations and supportive industrial policy. Prof. Yeung take iPhone as an example to show the strategic partnership in the global production network of a smartphone. The value added of an iPhone is realized in many different countries due to the industrial specialization.

Prof. Yeung concluded that global production networks, the rise of new forms of economic organization and new state-firm-economy assemblages are the drivers of globalization. The windows of opportunity in global industries is more important than just domestic politics and state policies. Firms need to build firm-specific dynamic competencies and capabilities for global competition. The state should adopt GPN-oriented industrial policy, which means creating broad-based capabilities in new technologies, product and process innovations, and market development, rather than on choosing specific winning firms, industries, or sectors.

The talk was followed by a lively question-and-answer session with the audience, which asked about the specific industrial strategy adopted by different countries and the dynamic changes of some industries. Prof. Yeung answered these questions with solid statistics as strong evidence.