Working Papers

The Cold War and the Origins of the Developmental State

Scholars have attributed the first wave of the East Asian economic miracle to a model of state-led industrialization known as the developmental state. This paper argues that this development strategy was the legacy of the international politics of the Cold War. Using historical case studies based on original archival research, I argue that a developmental state emerged when the United States defended a client against a severe, long-term threat from the Communist bloc. I focus on American national security policy in the early Cold War and argue that this configuration of threat led the United States to play a decisive role in the emergence of the developmental state on Taiwan. In response to the crisis of the 1950s, the U.S. supported state planning in order to stabilize Taiwan’s economy. After the crisis passed, the United States sought to strengthen Taiwan while reducing its outlays of economic aid by encouraging liberalization and support for private industry. The net effect of these interventions was a capitalist developmental state. In contrast, the absence of a severe, long-term threat led the United States to forego supporting the formation of a developmental state in the Philippines. I present evidence that because the Philippines was not on the front lines of the Cold War, the United States subordinated Philippine economic interests to Washington’s larger strategic objectives. Instead of promoting large-scale industrialization as on Taiwan, U.S. aid agencies directed assistance toward the production and processing of Philippine primary goods for export to Japan.

American Diplomacy and Export-Oriented Industrialization on Taiwan

Scholars have pointed to the period 1958-1962 as marking Taiwan’s transition to export-oriented industrialization. Previous studies have explained the reforms of this period either as a strictly autonomous decision of the Chinese Nationalist (KMT) government or as the product of American coercion. Using historical case studies based on original archival research, I argue that the reforms reflected a U.S. diplomatic strategy of persuasion that altered the political balance between competing factions in the Nationalist economic bureaucracy. American officials claimed that a new economic strategy would enable the party to pursue its core interests: an autonomous existence in the Cold War and the eventual reunification of China under Nationalist rule. These arguments created political support for reform at the highest levels of the Nationalist leadership, ensuring a rapid transition to an outward-oriented development strategy. I conclude that the KMT’s decision to pursue export-oriented industrialization can only be understood at the intersection of domestic and international politics.

Strategies of Assistance: American Aid Policy in the Cold War

There is a common assumption in the literature on aid policy that geopolitical goals are distinct from developmental goals. However, some of the most successful aid programs in history, such as the Marshall Plan and American assistance to Taiwan, were fundamentally political in nature. This paper argues that the extent of the trade-off between strategic interests and developmental effectiveness is governed by the geopolitical alignment of the recipient country. Client states share the donor’s interests but are vulnerable to attack or coercion from the donor’s geopolitical adversary; therefore, the donor’s aid to allies and security partners generally places a higher emphasis on economic development in order to strengthen the recipient. Neutral states, on the other hand, do not share the donor’s interests and may lean toward the donor’s adversary; therefore, the donor’s aid to neutral countries will place a greater emphasis on influencing the recipient’s foreign policy. I substantiate this claim using statistical analysis of an original data set on U.S. aid programs during the Cold War that includes a novel measure of geopolitical alignment. I demonstrate that the more distant an aid recipient was from the United States in its geopolitical orientation, the more the United States gave in the form of soft loans that were economically unproductive. These findings shed light on the relationship between economic development and geopolitical motives in aid policy.