The developmental state played a crucial role in orchestrating the East Asian miracle. Having fixed economic development as the major national goal, the governments articulated short-, medium-, and long-term development plans and used a wide spectrum of tools to make their growth targets achievable.
The main job done by the developmental state was creating, often from scratch, and promoting the manufacturing industries which lead economic growth. To fulfill this task, the governments pursued various kinds of industrial policy, actively intervening in resource allocation.
The developmental state is different from the state in a conventional capitalist economy, which is supposed to limit its involvement at the industry level, entrusting the resource allocation job to market forces. Still, with the exception of the countries ruled by Communist parties—notably, China and Vietnam, before the start of market reforms—East Asian states remained basically “true” to the capitalist paradigm. As time went by and private businesses became stronger, the state gradually restrained and narrowed its involvement, opening more room for private enterprise and competition.
The Asian crisis dramatically accelerated this shift. It explicitly showed that the developmental state, with its traditional set of industrial policy tools, had become outdated and at that point was already doing more harm than ...