Asian Industrialization: A strategic analysis with a memorandum on the Australian response

This essay considers the economic performance of East Asia’s two largest economies in the second half of the twentieth century and debates prospects for the first half of the twenty-first. The discussion takes place in the context of dynamic strategy theory. First in Japan, and then later in China, ‘developmental’ states adopted strikingly successful industrialisation strategies with a common thread of outward orientation. Outward orientation is distinguished from export dependence. The former is an autocatalyzing sub-strategy that can sustain an economy all the way to full membership of the strategic core. Outright export dependent strategies, in contrast, are finite and imitative rather than auto-catalyzing, leaving their practitioners highly exposed to adverse external shocks. Japan’s experience of strategic rise, stagnation and eventual exhaustion is articulated at length to illustrate this important distinction. China’s own outward-oriented strategy, which is currently stimulating rapid economic growth and differs in many important respects from Japan’s, is then analysed in an attempt to examine its future viability. China’s prospects for adapting an alternative strategy prior to exhaustion are then considered. The conclusion is that it is reasonable to expect China’s strategic leadership to attempt to transition towards a sub-strategy that continues to sponsor industrialization through exploitation of the mass internal market in the broad context of outward orientation. Furthermore, the contemporary sub-strategy is clearly far from exhausting itself. However, the risks are consequential. On balance, prospects for a successful transition are sound but not overwhelming. An Asian-facing resource rich economy such as Australia should actively hedge the risks of unsuccessful transition. In the face of this uncertainty, Australian strategists are thankfully not facing an independent binary choice. To hedge against the possibility of the more pessimistic projections coming to fruition in China, thereby unhinging a resource dependent substrategy, Australia must make an independent effort to make an assertive move towards the upper echelons of productivity performance. This will involve a wholesale reassessment of the scale of national resources that should be directed to the innovation infrastructure.