Compressed Development

D. Hugh Whittaker, Tianbiao Zhu, Timothy J. Sturgeon,

Mon Han Tsai, and Toshie Okita

MIT IPC Working Paper 08-005

October 2008

The views expressed herein are the authors’ responsibility and do not necessarily reflect

those of the MIT Industrial Performance Center or the Massachusetts Institute of

Technology.

Compressed Development

D. Hugh Whittaker

(corresponding author)

Professor, University of Auckland Business School

Phone +64-9-373-7599 Ext. 83266

Fax: +64-9-373-7477

h.whittaker@auckland.ac.nz

Tianbiao Zhu

Associate Professor, School of Government, Peking University

Tianbiao@pku.edu.cn

Timothy J. Sturgeon

Senior Research Affiliate, Industrial Performance Centre, MIT

sturgeon@MIT.EDU

Mon Han Tsai

Associate Professor, Graduate School of Social Sciences and Humanities,

Chiba University

monhantsai@faculty.chiba-u.jp

Toshie Okita

Research Fellow, University of Auckland

tow1000@xtra.co.nz

Compressed Development

Abstract: In this paper we argue that the path of economic development for would-be

developers has changed fundamentally since the 1980s. Focusing on the case of East

Asia, we contend that the “late development” path has shifted to what we call

“compressed development.” Key differences are the scope of compression, its

consequences, and the thrust of industrial and economic development, which has

changed from creating “nationally integrated production systems” to leveraging

“globally engaged production systems.” These differences, of degree and kind,

reinforce each other to produce new development experiences, challenges, choices and

solutions. We examine these using a broad perspective that spans the economic,

political and social dimensions of development.

Keywords: Compressed development, late development, global value chains, policy

stretch, East Asia, China

Submitted for review at Studies in Comparative International Development on

September 10, 2008. An earlier version appeared as ITEC Working Paper 07-29.

Acknowledgements: The authors wish to thank Suzanne Berger, Wan-Wen Chu,

Ronald Dore, Gary Gereffi, Nigel Haworth, Takashi Hikino, Takeshi Inagami, Raphael

Kaplinsky, Song Lei, John Ravenhill, Eric Thun, Robert Wade, Linda Weiss and Marie

Wilson for discussions and comments on an earlier draft of this paper. The normal

disclaimers apply. Financial support from MEXT”s 21st Century COE program and

the Institute of Technology, Enterprise, and Competitiveness (ITEC) in Kyoto, Japan, is

gratefully acknowledged. This paper is dedicated to our late colleague and friend,

Seishi Kimura, whose presence in this project is sorely missed.

Author biographies appear at the end of the paper.

1

Introduction

In the countries that are emblematic of compressed development, it is not

unusual to see donkey carts passing in front of gleaming skyscrapers, themselves

shading crumbling apartment buildings only twenty years old. In the factories of

compressed developers, primitive machine tools can be at work in one room while

advanced computer controlled machining centers are at work in another. In the

medical clinics of compressed developers doctors treat patients for communicative

diseases or malnutrition one minute, and morbid obesity the next. These

juxtapositions and paradoxes may be symbols of yawning wealth differentials as much

as compressed development, of course, but the two are intertwined. In this article we

describe a set of new patterns and challenges emerging in the most recent developers

that have often been noted in passing, but not sufficiently explored. Indeed, the

simultaneity of high and low development indicators in today’s most successful

developing countries signals something unprecedented in human history, something that

stretches policy instruments into new shapes and combinations. These new features of

development, we contend, are sufficiently different from “late development” to warrant

a new label.

In essence, the differences are two-fold. The first is the compression of

development time. Development that unfolded over the span of a century and a half in

the UK, and fifty years in Japan, has been compressed into ever-shorter time frames in

more recent developers. For a visitor from Japan, the primitive factory equipment being

used in some Chinese factories today may spark nostalgia for the early years of Japan’s

high growth era, while a visitor from the UK will have only seen such machinery in a

museum, if at all. Both, however, will have seen the advanced machining centers

before, since they are identical to those used in their own countries.

Such are the visible aspects of compression. Less visibly, the social relations

and values commonly associated with agricultural or early industrial societies – a high

value placed on male children, for instance – can overlap with late or post-industrial

emphases on equality and higher education opportunities for women, exacerbating

gender tensions and accelerating trends towards later marriage, declining childbirth

rates and societal ageing that typically come with later stages of economic development.

Studies of late development have noted the accelerated pace of change in East Asian

2

industrializers and the uneven pace of change in attitudes and institutions. While late

developers have only recently begun to de- (or post-) industrialize, however,

compressed developers are doing this at the same time as they are industrializing.

The second difference is also related to time, in the sense of “era.” Late

developers embarking on industrialization had before them (in now developed

countries) the image and reality of increasing scale and vertical integration in leading

sectors, a model of development that required large-scale capital and the integration of

large numbers of workers within the organizational boundaries of large firms. Some

found innovative ways to achieve these goals, creating the late development model.

Compressed developers, however, confront a world in which production systems have

become dis-integrated and spatially dispersed, creating new models of industrial,

economic, and spatial organization. Even if they attempt to reproduce elements of the

late industrialization experience, compressed developers are unlikely to recreate an

industrial model from the past. Instead, they are more likely to emulate and engage

with the globally distributed production systems, or “global value chains,” that now

span developed and developing countries in a broad range of industries, and participate

in “open innovation,” even as they try to promote domestically-encapsulated innovation

through investments in clusters, university research, and technology transfer.

The drivers of compressed development include the accelerated development of

new technology, especially information and communications technology (ICT); new

business models featuring specialization and modularity, reversing the twentieth century

trend towards vertical integration; functional integration of cross-border business

activities through global value chains, financial liberalization and global capital flows;

mobility of people across borders, both short and long term; and the hegemonic

influence – and propagation – of liberal market economy concepts.

These have, of course, been widely discussed in the framework of

“globalization,” which has no shortage of critics in the area of development.1 One

criticism has been the assumption that now-developed countries (NDCs) represent the

future of less-developed countries (LDCs). We are sympathetic to these nuanced and

historically situated views of economic development, and in a similar spirit highlight

the distinctive experiences and dilemmas faced by LDCs, even as they try to engage

1 See, for instance, contributions to Navarro ed., 2007.

3

with or imitate practices in NDCs. We believe that a focus on compression, and the

novel features of development it creates, can provide new insights into development in

the 21st century.

The paper is structured as follows. In the first section we review the late

development perspective, and its application to the high growth economies of East Asia,

including the challenges – practical and ideological – posed by the Asian financial crisis

of 1997. We then consider the collapsing of development stages, as well as

simultaneous industrialization and de-industrialization, which we see in compressed

developers. Section three examines the compressed path of development through

participation in global value chains (GVCs), presenting Taiwan as a transitional case

from late to compressed development, and more recently mainland China as an

emblematic case of compression. Participation in GVCs intensifies compression, and

offers distinctive challenges as well as opportunities. In the fourth section we broaden

our focus to include human and social development, including health, education and

gender relations. Finally, we consider how compressed development has created

“policy stretch” in LDCs and how this necessitates a changed role for the state. The

overall result is likely to be greater unevenness, disjointedness and inequality compared

with early and late developers, which experienced more comprehensive and integrated

industrialization at the national level. Our concluding comments point to the broader

relevance of compressed development.

1) Late development

It has long been argued that late developers can, and should, develop differently

from the first industrializers. List’s (1873 [1983]) claim that Germany should develop

differently from Britain, and should promote its nascent industries, drew on similar,

earlier arguments by Hamilton and others in the US (cf. Chang, 2002). Such views

were systematized by Gerschenkron who, in his famous essay Economic Backwardness

in Historical Perspective, wrote:

“(I)n a number of important historical instances industrialization processes, when launched

at length in a backward country, showed considerable differences, as compared with more

4

advanced countries, not only with regard to the speed of the development (the rate of

industrial growth) but also with regard to the productive and organizational structures of

industry which emerged from those processes. Furthermore, these differences in the speed

and character of industrial development were to a considerable extent the result of

application of institutional instruments for which there was little or no counterpart in an

established industrial country” (Gerschenkron, 1962: 7).

Essentially Gerschenkron argued that the later a country develops, the more it

will have strong institutional involvement in economic development and larger firms

driving industrialization, for two reasons. First, late developers have the example of

earlier industrializers, and therefore know what to emulate and what to avoid. Taking

shortcuts requires the organizing power of institutions. Second, late developers lack

capital, so it is rational for them to deliberately concentrate and direct limited capital to

areas that have proved vital to early developers.

These tasks – catching up by taking shortcuts and channeling capital – require

centralized institutional and productive capacity for coordination and enforcement.

Gerschenkron showed that as a late developer, Germany in the late 19th century

developed by using banks and large industrial firms as coordinators and promoters of

rapid industrial growth. When Russia began to develop later, the government was

directly involved in economic development and production.

That this path will be taken, however, is far from certain. Hirschman (1971)

found a different pattern of development in Latin America, which he called “late late

industrialization.” Instead of concentrating on producer goods, building large

industrial plants, and suppressing consumption to channel investment into large-scale

production, Latin American developers prioritized consumer goods, started with

relatively small plants, and paid special attention to boosting consumption. In this

case, the institutions designed to supply capital and entrepreneurial guidance became

important only after the import-substituting industrialization process “had already been

underway as a result of private, decentralized initiative for a considerable time” (ibid,

p.95).

The most important reason for these differences, according to Hirschman, was

“the fact that it has become possible for industrialization to penetrate into Latin America

and elsewhere among the late latecomers without requiring the fundamental social and

5

political changes which it wrought among the pioneer industrial countries and also

among the earlier group of latecomers” (ibid, p.123). This made the late late

industrialization route attractive even if the long-term cost was a weak industrial base.

The rise of Northeast Asia – Japan, South Korea, Taiwan – from the late 1960s

rekindled interest in Gerschenkron’s view.2 Amsden (1989: 8), for instance, argued

that the same set of factors explain the progress and delays in late industrialization in

both Europe and Northeast Asia: “The institutions of late industrialization that

underscore its success, and whose absence is responsible for delay, are the following: an

interventionist state, salaried managers, and an abundant supply of low-cost,

well-educated labor.”

Many studies of Northeast Asian development have concentrated on the key

institutions of capital supply – the developmental state and its dominant relationship

with banks and businesses. The concept of the capitalist developmental state was most

powerfully formulated by Johnson (1982), and further developed by Wade (1990) and

others, who argued that the Northeast Asian economic success in the cold war period

was created by developmental states in Japan, South Korea and Taiwan, all of which

had strong and consistent commitments to industrialization, formed cooperative

government-business relationships, and pushed forward economic development by

using selective industrial policies that included the promotion of specific industries.

The 1997 Asian financial crisis posed a challenge to the developmental state

argument. The same type of state that had received credit for economic success was

now held responsible for causing financial disaster (e.g. Moon and Rhyu, 2000). This

view informed the “Washington Consensus” and the conditions imposed by the IMF for

financial relief following the crisis. Partly in response to earlier criticism, the events

and aftermath of the Asian financial crisis, and changes in East Asian countries

themselves, developmental state arguments have been refined, with greater emphasis

placed on reciprocal state-society interaction and to some extent entrepreneurship, in

what Breznitz (2007) calls neo-developmental state writing (cf. Evans, 1995; Amsden

and Chu, 2003; Weiss and Hobson, 1995; Weiss, 2003).

Without denying the many insights of such research, and in particular the

continued importance of the state and state-society/business interaction, we question

2 Japan’s development from the late 19th century is a better case of a state-led development than Russia

according to scholars like Schwartz (2000: 95).

6

whether would-be developers in Asia can, would, or should continue to follow the late

development path traveled by late developers such as Japan and South Korea. This is

not just because the “Washington Consensus” and requirements of the WTO and other

international organizations make it difficult to do so. Rather it is because the dominant

production paradigm has changed, and because compression has increased to such an

extent as to foreclose that path. While elements of the late development model remain

attractive — in a new twist to Hirschman’s view — it is debatable whether current

governments of less-developed countries would seriously seek to suppress domestic

consumption in order to raise capital for industrialization when there are other, tempting

alternatives from abroad, as well as pressures to follow them.

Learning and industrial upgrading

For many observers, learning is the key to the industrial upgrading that drives

economic catch up (Dore, 1986; Lall et al., 2005). For “backward” countries,

technical and market capabilities must, at least in part, come from absorbing knowledge

created elsewhere. Building on Gerschenkron’s ideas about the codification of

knowledge, Amsden (1989) argues that development in the 20th century has not been

dependant on indigenous inventive capacity, but on the ability to “borrow” technology

from the world’s “technological shelf.” In contrast to the tacit, idiosyncratic

knowledge necessary for invention, the codifiable, theoretical knowledge that feeds the

process of innovation has made information about new products and processes more

portable, providing developing countries with access to technology through licensing

and reverse engineering.

While this analysis is correct as far as it goes, and might describe the situation

for late developers, it is no longer sufficient. Technology that has been licensed or

reverse engineered rapidly ages, especially in fast-moving technology-intensive

industries such as ICT. To catch up with now developed countries (NDCs), where the

pace of technological innovation has accelerated in recent decades, less developed

countries (LDCs) must move even faster. Additionally, technological change has

become more collaborative, involving the interaction of a range of producers, advanced

users, and non-corporate actors (such as university researchers) that are increasingly

spread across national boundaries (Gibbons et al, 1994). All of this presents new

challenges, requiring new learning strategies. A key strategy, which we will discuss in

7

Section 3, is engagement in global value chains, where learning is by doing, and

continuously necessary.

2) Compression of stages

Development theory has, by and large, rested on the concept of developmental

stages. Rostow’s (1960) formulation, posed as a counter to Marxist stage theory, was

particularly influential (and contentious). Rostow saw economic growth as

progressing through five stages: traditional, transitional, take-off, drive to maturity, and

high mass consumption. Industrialization is both the driver and indicator of

development, and industrialization itself progresses through orderly stages: “A

developing country, in an open economy context, industrializes and goes through

industrial upgrading, step by step, by capitalizing on the learning opportunities made

available through its external relation with the more advanced world” (UNCTAD, 1995:

259, cited in Nam, 2002).

Stage theory has been applied to East Asia in various formulations. Perhaps

the most famous is the “flying geese” metaphor of Akamatsu, whose original (1930s)

version saw development moving from the importation of foreign goods, through the

substitution of imports with locally produced goods, to exports, followed by eventual

sectoral decline as newer developers emerged through a similar process and successful

developers moved on to new leading sectors (cf. Akamatsu, 1961). Akamatsu’s model

was subsequently extended to explain regional economic development in East Asia,

with declining industries in the leading geese, particularly Japan, developed sequentially

by following geese, such as South Korea and Taiwan. Indeed, this became the official

Japanese government view in the late 1980s, influencing Japan’s international relations.

Japan capitalized on the rise of its declining industries in other East Asian countries by

exporting capital goods and licensing technology to them.3

Other formulations also posit three stages of development, typically labor

intensive, capital intensive and knowledge-intensive or high technology (cf. Nam, 2002).

3 From the late 1990s, however, there has been increasing debate as to whether East Asia”s geese are

still flying in formation, and in the same direction. See Kojima, 2000; also Ozawa 2001 on the ailments

of the lead goose Japan due to path dependence.

8

While East Asian late developers could partially skip stages, or “leapfrog” (Dore 1958;

1973; Wade, 1990; Amsden, 1989; also Mathews and Cho, 2000), the notion of stages

itself remained largely intact until the 1990s. Bernard and Ravenhill (1995) argued

that the flying geese model had been rendered obsolete by regionalization of production

in networks, and jockeying to claim access to or control these networks – in other words,

changes in the spatial extent and organization of production systems.4 Nam (2002: 5)

also believes that “sharp separation among the three developmental stages is now

weakening as these stages now overlap.” Indeed, Breznitz (2007) shows not only that

“rapid innovation-based industries” (especially IT) can be established rapidly in

“backward” countries, but implicitly that they can be established “out of sequence”

under “intensified globalization.”

From a slightly different perspective, industrialization itself can be seen as a

stage, to be followed by a subsequent stage of “de-industrialization,” a process that

began in the UK in the 1960s (Singh, 1977; Cairncross, 1979). Rowthorn and Coutts

(2004) document the spread of de-industrialization from early to recent industrializers

such as Korea and Taiwan, economies that began to industrialize rapidly in the 1960s,

and within three decades were well on their way down the de-industrialization curve.

In fact, it appears that the turning point of the inverted U (representing changing share

of employment in manufacturing with per capita GDP growth) is happening at lower

and lower levels of GDP, and additionally that the inverted U has become shallower

in more recent developers (Palma, 2005). As Dasgupta and Singh (2006: 5) note: “In

the past this historical turning point occurred at a per capita of almost US$10,000 in

current prices; it is now being estimated to take place at levels of income as low as

US$3000 in some countries.”

Dasgupta and Singh call this phenomenon “premature de-industrialization,” but

it can also be seen as simultaneous industrialization and de-industrialization, especially

if we view service industries as integral to manufacturing, and important sources of

innovation and economic development in their own right. Aggregate statistics mask

even more dramatic changes at the level of industries and firms. In specific industries,

especially those linked to global value chains in electronics, apparel, and consumer

4 “We emphasize in particular, first, the need to incorporate both geopolitics and world historical time

as intrinsic rather than exogenous features of the development process and, second, the centrality of the

shift to production based on regional networks for understanding the contemporary political economy of

East Asia” (Bernard and Ravenhill, 1995: 178).

9

goods such as toys and household products, industrialization and de-industrialization

have occurred simultaneously. In practice, workers come into factories from farms

through the front door, while others leave for the service sector through the back door,

sometimes via military service.5 National aggregations also tend to mask the fact that

rural regions might be industrializing while urban areas are de-industrializing.

Social relations and value orientations are likely to be similarly complex. On

the one hand, compressed developers will come under intense pressure from developed

countries and international bodies to introduce legislation on a broad range of issues,

from universal suffrage to property rights protection to information transparency, at a

much earlier phase of their development (measured in per capita GDP) than early

developers, as Chang (2002a) shows. Some aspects, or pockets, of social relations in

compressed developers might in fact appear to be “hyper-modern” or “post-modern.”

Other pockets, on the other hand, might appear to be “pre-modern.” In fact, what

might be distinctive about the compressed developer is a juxtaposition of contrasts, a

point we will return to below.

It sum, it appears that the “stages” of development have been compressed to

such an extent as to render the concept empirically problematic if not meaningless.

“Stages” may still inform the analysis of development, but mainly as a historical

comparison to processes that are now likely to occur simultaneously rather than

sequentially. This means that different “stages” of development interact and influence

each other in real time, a situation which not only presents new policy choices, but also

policy dilemmas which early and even late developers did not confront and do not

appear to recognize.

3) Compressed development and new production systems

The late development model relies on a close interaction between the state on

the one hand and corporate and industry leaders on the other, especially through the

development and implementation of industrial policy. This interaction sought to

5 These observations come from interviews by Whittaker and Inagami with Korean and Taiwanese die

and mould makers in 1997. Dasgupta and Singh’s positive examples all come from Asia, while their

negative examples are from Latin America: cf. also Palma, 2005.

10

nurture integrated product manufacturers in strategic industries so they could be

competitive in world markets. It also involved nurturing separate domestic suppliers

and feeder industries, with the objective of achieving as much value creation and

capture as possible at home. In the flying geese model, geographic fragmentation

occurred later, in mature or low value added activities.

Under compressed development, the mosaic of specialization and intermediate

goods flows that make up distributed production systems and global value chains

(GVCs) means that domestic capabilities and development cannot easily be causally

linked to domestic sources. As a result, industrial policy becomes more equivocal

with respect to its support of integrated product manufacturing, its anointing of specific

firms as “national champions,” and its nurturing of supply industries in a nationally

contained value capture project. To some extent policies have shifted to focus on

maximizing the benefits from engagement with GVCs, but more typically state actions

are confused and contradictory, and arguably only Singapore has developed a coherent

strategy in this regard.

Global value chains and the real-time integration of East and West

Global value chains embody three new dynamics; the fragmentation of

value-added production chains, the geographic dispersal of the fragments, and the

functional integration, of work, firms and of entire industries across borders. As Dean,

Fung, and Wang (2007: 1) put it:

“…production processes are sliced thinner and thinner into many stages, and the

resulting production fragments are carried out in different locations. The production of

a finished product thus involves the participation of many economies, with countries

specializing in different fragments of the vertical production chain. … While the

international division of labor in the global economy is nothing new, the vast scope and

the intricate nature of this pattern of global production sharing seems genuinely

unprecedented.”

GVCs emerged from the US retail revolution of the 1960s and the rise of

powerful retailers such as Wal-Mart and branded merchandisers like Liz Clairborne and

Nike as “global buyers” (Gereffi, 1994; 1999; cf. also Feenstra and Hamiltion, 2006).

Global buyers not only place orders, but they can actively help to create, shape, and

11

coordinate the global value chains that supply their products, sometimes directly from

overseas buying offices and sometimes through intermediaries. They were joined in

the late 1980s and 1990s by branded manufacturing firms, such as IBM, General

Motors, and Alcatel, seeking to increase shareholder value by unloading fixed assets

(like factories) and risk to suppliers – both to an emergent set of “global suppliers”

based in the United States and Europe, and to local suppliers in East Asia that could

meet, or be taught to meet, the required specifications, and to adopt the right process

technologies and procedures (Sturgeon and Lester, 2004). The result has been the

development of interlocking structures of specialization within GVCs.

GVCs have become very extensive and complex. The plants producing vast

quantities of electronics, apparel, and consumer goods in China, for example, collect

inputs locally, but also from a number of other countries in East Asia. Some

components make their way into finished goods that are exported, and some into

products that are sold in domestic markets. Still others are exported to third countries,

such as Mexico and the Czech Republic, where they are combined with other imported

and locally produced components in the final assembly of products destined for both

regional export and domestic consumption.6

On one side of the coin, GVCs have been characterized by increasing

fragmentation, but the other side is rapid improvements in the functional integration of

these globally dispersed fragments. Of the array of new techniques, technologies, and

infrastructure improvements that enable better functional integration, three of the most

important are: 1) improvements in information technology and industry-level standards

that allow the codification and easy hand-off of complex information from one stage of

the chain to the next (Baldwin and Clark, 2000; Balconi, 2002); 2) flexible,

computerized production machinery that allows capital-intensive manufacturing

capacity to be shared and pooled like labor-intensive manufacturing (Brusoni and

Principe, 2001; Langlois, 2003); and, 3) supply-chain management tools, such as

“enterprise resource planning” software and radio-frequency identification tags, that are

pushing even labor-intensive industries up the technology curve (Abernathy et al, 1999).

Taken in combination, these techniques and technologies have enabled new levels of

6 According to Dean, Fung and Wang’s (2007) calculations, China”s “vertical specialization” of exports,

utilizing imported intermediate goods, increased in most industries between 1997 and 2002 – the opposite

of what one would expect from progressive import substitution.

12

“modularity” (Baldwin and Clark, 2000; Takeishi and Fujimoto, 2001), and have

allowed suppliers to link to buyers in ways that do not require geographic co-location,

enlarging the field for the participation of developing countries in GVCs (Sturgeon,

2002; Gereffi et al, 2005).

Taiwan and the end of integrated national development

East Asian industrializers have linked to GVCs in different ways. Japanese

trading companies were some of the earliest sources of low cost consumer goods for the

West, such as footwear, and apparel produced for large retailers in the United States, but

wages rose quickly in Japan, and these companies soon became intermediaries in more

complex “triangle manufacturing” arrangements that brought factories in Korea, Taiwan,

and Hong Kong into GVC fold (Gereffi, 1999). Eventually, global buyers in the West

learned how to buy directly from these factories, or from local intermediaries, as

Japanese manufacturers stepped into their current role as suppliers of key components

and technologies to later developers in East Asia.

As firms in Korea and Taiwan made their own moves to supply more

technology intensive products, with help from the state, their paths diverged. By and

large, Korean firms followed in Japan’s footsteps. The chaebol became large,

diversified enterprise groups with a vertically integrated stance toward product

development, manufacturing, and marketing. Their initial focus was on import

substitution rather than exports, but they nevertheless followed the late development

upgrading path quite closely. Today, using their own brand names, Samsung, LG and

Hyundai Motors compete on global markets for technology intensive products such as

mobile phone handsets, flat panel television sets, and passenger vehicles.

In Taiwan, on the other hand, many manufacturers began by supplying

components and sub-assemblies, rather than finished products, but they sought, and

indeed were asked and in some cases forced, by global buyers and de-verticalized

“manufacturers” in the West, to move up the value chain. As a result they began to

assist with the design process and take full responsibility for component purchasing,

final assembly, and the organization of multi-country supply-chains in East Asia.

Firms such as Acer hoped to leverage this learning process to become fully

blown “original brand manufacturers” selling their own brand of products in end

markets. Few were successful, however, partly because doing so brought them into

13

direct competition with their customers (small in number and very powerful), putting

future orders at risk.7 The fall-back was to remain within the expanding set of value

chain niches that had been made available, and to increase their range of competencies

in contract manufacturing and design, while expanding geographically into mainland

China in an effort to respond to customer demands for ongoing cost reductions. As a

result, a different business model, and path to development, separates Taiwanese firms

such as Quanta and Hon Hai from their South Korean “national champion” counterparts

such as Samsung and LG.

Taiwan Semiconductor Manufacturing Company (TSMC), perhaps Taiwan’s

most successful company, only briefly aspired to vertical integration. The company’s

founder, Morris Chang, earned his Ph.D. in electrical engineering from Stanford

University in 1964, and had a 25-year career at Texas Instruments. After returning to

Taiwan to become Director of the state-funded technology laboratory ITRI (Industrial

Technology Research Institute), Chang took the CEO role in TSMC, an ITRI spin-off,

in 1987. Instead of focusing on catching up, technologically, with semiconductor

firms in Japan and the West, TSMC developed a new business model – providing

manufacturing (or “foundry”) services for a burgeoning set of semiconductor design

firms, such as LSI Logic, many of which were (and continue to be) located in Silicon

Valley.

TSMC grew rapidly with this model, and based on its success UMC, an earlier

ITRI spin-off, also entered the pure-play foundry business. The example of TSMC

allowed it to follow suit by abandoning its line of semiconductor memory products and

focusing entirely on the provision of foundry services. Together, TSMC and UMC

now account for 60% of the world market for semiconductor foundry services. As a

result, Taiwan”s semiconductor industry became embedded in cross-border networks, or

global value chains, and so moved away from earlier attempts by Taiwan industrial

policy to create a fully blown, vertically integrated, globally competitive electronics

companies through a process of sequential industrial upgrading.8

7 Exceptions include Giant Bicycles, which began as a supplier of “private label” bicycles to US retailers such as Montgomery Wards and eventually developed its own line of high quality branded

products, and to some extent Acer. Full success with this upgrading model, however, has been elusive. 8 The reasons for the different paths of Korea and Taiwan are complex. They include the more

fragmented industrial structure of Taiwan noted by Feenstra and Hamilton (2006), the larger home market

in Korea, different capabilities in the customer base (retailers versus de-verticalizing manufacturing

companies), and different state policies (the Korean state actively promoted vertical and horizontal

14

Mainland China: Modularity traps and value chain inversions

The allure of the late development model remains strong, and can be seen in

mainland China’s attempts to nurture a group of former state owned enterprises as

national champions (or a “national team”: cf. Nolan, 2001; Sutherland, 2003). China

also appears to be following the path of close engagement in GVCs, however, with its

export sector driven by financial, technological, and organizational resources developed

elsewhere. The success of the latter approach is underscored by the fact nearly

two-thirds of China’s manufactured exports come from foreign-invested firms.9

On the one hand, according to Steinfeld (2004) many mainland Chinese firms

are small, localized, vertically integrated, and diversified. They produce a portfolio of

highly commodified goods and services, and engage in intense price competition with

other local firms. Many fail, but little rationalization results. Song (2007) has shown

how profits in China’s electronics industries have become very thin, despite massive

increases in labor productivity, in what he calls a “Chinese-style modularity trap.”10

Imai and Shiu (2006) provide an example from the domestic mobile phone

handset industry. While dominated by multinational firms, the industry includes a

collection of more than forty domestic branded companies (Bird is the largest) whose

market share soared from a mere 5% in 1999, to a 55% in 2003. Subsequently – and

very suddenly – they lost ground to foreign brands, notably Motorola and Nokia, as

consumers began to expect handsets with color LCDs and increased functionality, such

as MP3 music playback and cameras with both still and video capabilities. Local

handset design houses did not have the competencies needed to bundle these new

technologies in larger, more integrated design platforms, re-opening the window for the

multinational brands, whose deep internal design and system integration capabilities,

integration). Korea’s earlier insertion into global value chains also played a role. From more

arms-length relationships, GVC co-ordination and governance evolved. Taiwan’s buyers were more

circumspect about off-loading full design and product conception responsibilities to suppliers, in part

because they had observed how Japanese and South Korean suppliers had overtaken their customers with

their own brands in consumer electronics such as televisions, and home appliances such as microwave

ovens. The differences between Korea and Taiwan, then, reflect differences in strategy, developed in a co-evolutionary manner with a set of de-verticalizing customers, and not just different starting points in

industrial structure. 9 Four Asian economies, Japan, South Korea, Taiwan, and Hong Kong, account for 70 percent of

foreign direct investment in China: Hamilton and Gereffi, 2008: 145. 10 Linden et al (2007) estimate that China captures only a few dollars of the $300 retail price of every

Apple video iPod exported to the United States.

15

built up over many decades, allowed them to rapidly retake market share.

Such examples reveal the challenges and limits to industrial upgrading via

global engagement. On the other hand, there are a growing number of important

exceptions, and a new model of learning through close engagement in GVCs could be

emerging, one with broader lessons for developing countries. Consider the case of

Lenovo, founded in 1984 as the Legend Co. in a guardhouse of the Chinese Academy of

Sciences with a $25,000 grant provided by the government to encourage researchers to

leave state employment and start their own business. Lenovo’s initial product was a

PC add-on card that allowed the use of Chinese characters. By the mid-1990s, the

company was the leading domestic producer of personal computers in China. In 2004,

20 years after founding, the company purchased IBM’s huge personal computer

division, but instead of becoming the Chinese IBM, as was the founder’s dream, it has

been transformed into a globally operating company that happens to be China-based,.

First, the purchase gave Lenovo a new headquarters in the United States with a

large research and development facility, an advanced notebook computer development

facility in Japan, three final assembly plants in China and one in India, regional

distribution facilities in the Netherlands, Dubai, Florida, Australia, and India, and an

important corporate planning, finance and business process development group in

Singapore. The deal also came with a dense set of ongoing supply relationships,

mainly with Korean, Taiwanese and American component producers and contract

manufacturers, the largest with global operations, to provide main boards,

microprocessors, memory, disk drives, monitors, LCD screens, keyboards, and contract

manufacturing services.11 Lenovo’s American CEO, based in Singapore, is a former

Dell Computer executive. He leads a management team with top executives from

China, the United States, Europe, and India. While it would be wrong to portray

Lenovo as something other than a China-based company, the structure, geography,

ownership, leadership, supply-base, and sources of innovation at today’s Lenovo are

vastly different from the national champions that emerged under late development. It

11 The IBM PC Division was in many ways the vanguard of de-verticalization at IBM, and the focus on

design and marketing and select critical technologies and capabilities (e.g., integrated mouse pointer

technology and notebook design in its Japanese “Thinkpad” design facility) is a prime example of what a

leading US “manufacturing” firms had become during the 1990s though the process of co-evolution with

its global (mostly Asian) supply-base.

16

is also a remarkable case of compressed development at the corporate level.12

Lenovo is an example of a small but dynamic set of “dragon multinationals”

(Mathews, 2002) that include other Chinese firms such as Huawei (communications

equipment) and Haier (home appliances and consumer electronics), as well as firms

from countries as diverse as Mexico (Mabe – home appliances) and Turkey (Arçelik -

home appliances). In India, the largest IT and business process services firms TCS,

Infosys and Wipro, have all established global operations to serve local customers and

to funnel work back to India. As Bonaglia et al (2007) put it, “These new

[multinational enterprises] did not delay their internationalization until they were large,

as did most of their predecessors, and often become global as a result of direct

firm-to-firm contracting. Many grow large as they internationalize; conversely, they

internationalize in order to grow large” (2005: 3, emphasis in the original). These

companies have become global by “rolling up” (purchasing) smaller regional producers

with well known brands, with funds generated, not so much by selling products and

services in their home markets, but by acting as suppliers to existing multinationals and

tapping into international capital markets.

A different, if no less remarkable case is Chery Automobile, a small

state-controlled Chinese company based in Wuhu, some 200km west of Shanghai.

Within a very short time frame Chery has been able to develop and market a line of

Chery badged vehicles that, while perhaps not world class, are nevertheless suitable for

both the local market and for export. The first Chery prototype was built in December

1999, and volume production began in March 2001. By the end of 2007 capacity had

grown to 600,000 units, and Chery was already China’s largest vehicle exporter.

To grasp how remarkable this is, we need to understand a few details. Vehicle

design and development are a notoriously difficult set of tasks, typically the purview of

companies that have been in the business for 4-5 decades. New vehicle designs

commonly require more than 30,000 engineering hours, 3-5 years to complete, and

several billion dollars of up-front investment (Sturgeon et al, 2008). If a firm does

enter the business, it usually comes from a field such as aircraft, where related design

12 In 2007 Lenovo had 27,000 employees worldwide: 18,400 in China; 2,780 in the USA; 2,040 in

Europe, the Middle East, and Africa; and 3,800 elsewhere. In terms of ownership, 45% of the company’s

shares are publicly traded; 6% are held by IBM, 7% by investment banks, 42% by its parent company

Legend Holdings. The Chinese Academy of Sciences maintains 27% ownership of Lenovo through its

65% share of Legend Holdings (Interviews, 19 March, 2007; Ling, 2006).

17

and engineering experience has been accumulated over a similarly long period

(Mitsubishi, Subaru, BMW and SAAB are examples).

Chery has been able to launch its own line of branded vehicles in a very short

time frame by tapping the new global supply-base, both within China and in the West,

to obtain a full range of inputs, from parts to processes to design expertise.13 These

sourcing arrangements, which have only recently become readily available for fledgling

companies like Chery to stitch together, show that Chery is nothing like a typical car

company, and that it is far removed from the most recent entrants to the mass market for

cars, the vertically integrated and horizontally diversified national champions from

Korea, Hyundai, Kia and Daewoo. Companies that jump to the head of global value

chains in this way, however, may still fail to develop deep design and system

integration expertise that allow them to compete at the vanguard of fast-moving

markets.

In sum, the late development path of industrialization has become both more

dynamic and more tenuous. While new opportunities have developed through

co-evolution of GVCs, which offer the prospect of rapid learning and market entry, this

path is far from problem free. This helps to explain why compressed developers have

continued to pursue late development industrialization strategies alongside GVC

engagement. They seek to ramp up investment in domestic R&D capabilities (NSF,

2007), nurturing local technology-based firms, and develop GVC specializations all at

the same time. The result is a set of disjointed policies that appear — and in many

cases are — incoherent, especially when contrasted to the policies associated with late

development.

13 For styling and engineering, Chery works with Italdesign, Pininfarina and Torino in Italy. Additional engineering and development work is outsourced to Lotus Engineering and MIRA in the UK and to

Porsche Engineering in Germany and Austria. It works with AVL in Austria on gasoline and diesel

engines, and with Ricardo in the UK on hybrid powertrains. Heuliez in France supplies a retractable

hardtop for the Chery A3 coupe cabriolet, a car designed by Pininfarina. For critical parts and

subsystems, Chery sources from global suppliers such as Bosch, ZF, Johnson Controls, Luk, Valeo, TRW

and Siemens VDO (Automotive News, 2007).

18

4) The human and social dimensions of compressed development

In recent years there has been a growing recognition of both the social

dimension of development, and the role of social policy in promoting economic

development, especially among late developers.14 Citing Pierson (1998), Mkandawire

(2001: 15) notes that: “(I)mplicit in late industrialization was social policy that served

not only to ensure national cohesion (as is often asserted of Bismarck’s innovative

welfare legislation), but also to produce the social pacts and the human capital that

facilitated industrialization.“

This recognition extends to East Asia (Chang, 2002b; Jomo 2003). Sen’s

(1999a) East Asian model is characterized by: 1) an emphasis on basic education from

the beginning of the development process, if not before; 2) wide dissemination of

economic entitlements through education and training, land reform and credit

availability; and 3) a deliberate combination of state action and use of the market.

Human development is enabled by basic education and health care, creating social

opportunities that “make it possible for the bulk of the people to participate directly in

the process of economic expansion” (Sen, 1999b: 5).15 Like the economic model, this

model came under intense scrutiny and criticism in the wake of the Asian financial

crisis for its reliance on informal practices and its vulnerability to corruption and

external disruptions.

Compressed development is not fundamentally different in intent, but

compression and engagement in new production systems create new challenges and

dilemmas. Like simultaneous industrialization and de-industrialization, features

normally associated with different stages of development appear simultaneously. In

this section we will briefly examine examples from health and education, and offer

some comments on gender in compressed development.

14 See, for example, Mkandawire, 2001; also other publications of the UN Research Institute for Social Development 15 The East Asian model of “developmental welfare systems” of Goodman et.al. (1998) features

relatively low state expenditure on welfare, and weak guarantees of welfare as a social right, but also “the

strategic role of states in directing a process of economic development with distributive as well as growth

objectives, resulting in a relatively egalitarian pattern of income distribution compared with other

industrializing regions such as Latin America” (White and Goodman, 1998: 13).

19

Double burden of disease

Health may be considered a basic prerequisite of development. As with

simultaneous industrialization and de-industrialization, however, in compressed

development the transition from under-nutrition and communicable diseases to

over-nutrition and non-communicable diseases is happening ever more quickly, and at

lower levels of per capital income, to such an extent that the two can co-exist, not just in

the same generation, but in the same household.

Nowhere is this “double burden of disease” (WHO, 2006) dimension of

compression more apparent than in China: “Preventable communicative diseases, which

are common in low-income countries remain a significant cause of death, particularly

among young children. In addition to this, driven by socio-economic and demographic

transitions, chronic non-communicable diseases, which are common in high-income

countries have become increasingly prevalent” (OWHORC/SDDC 2006: 11). On

the one hand China is one of the WHO’s twenty two “high burden” tuberculosis

countries. It is estimated that 1.4 million people contract active TB in China each year,

600,000 the highly infectious form, and several hundred people die each day from the

disease.16 On the other hand, China is also home to an estimated one fifth of the

world’s obese population. Driving the latter are dramatic changes in the working,

leisure and eating habits of the burgeoning Chinese middle class (Popkin, 2002;

Prentice, 2006).

Not only are non-communicable diseases costly to treat compared to infectious

diseases, but the compression produces distinctive deleterious effects. Low weight

infants develop problems with their metabolism that later increase risk of obesity when

they are exposed to new diets and activity patterns (Hoffman et al., cited in Popkin,

2002). These are problems which late developers like South Korea and Japan, which

had time to mobilize efforts to preserve the healthful elements of their traditional diets,

did not experience (Lee et.al., 2002).

There are further twists in compressed developers. In developed countries

there is typically an inverse relation between obesity and socio-economic status. In

compressed developers like China, there is a positive relation. The rural poor have

still not acquired the extra income to develop sedentary lifestyles and to consume more

16 WHO Representative Office in China website: www.wpro.who.int/china/sites/stb/overview.htm

accessed 20 November, 2007

20

(animal) fat-rich food, and food prepared away from home. This is not the case among

the growing numbers of urban middle class families, whose propensity to consume such

food may be further exacerbated by recent memory of economic hardship, and an

associated positive view of excess body weight.17

Exacerbating this is the “early” domestic retail revolution, and sophisticated

marketing and advertising techniques (cf. Popkin, 2001).18 Supermarkets have rapidly

become commonplace (Hu et al, 2004). Access to the Internet increases exposure to

online advertising and “advergames,” which frequently breach even minimal standards

of regulation to protect children, as recognized by the International Obesity Taskforce’s

call for an international code in 2006.19 Thus compression serves as an inbuilt driver

amplifying the effects of changing diets, occupations and lifestyles.

Double challenge of education

Education is also a basic prerequisite of development, and here compressed

developers face a double challenge, if not a double burden. At the same time as they

are building (or consolidating) basic education, compressed developers are challenged

with building (or securing) advanced knowledge and specialist skills necessary for

engaging in modern production systems and global value chains, as described in section

3. The first challenge is expressed in China as the “two basics” – to promote and

consolidate nine-year compulsory education, particularly in rural areas, as well as to

eradicate illiteracy.” While the proportion of children moving from primary to middle

school has risen markedly, and may soon be effectively universal, the proportion

completing middle school, and in particular going on to high school, is substantially

smaller, especially among girls.20

17 Wu, 2006. As the Chinese Vice Minister for Health noted: “Parents and grandparents often fed their

offspring excessively to make up for being fed inadequately themselves” (BBC News, 12 October, 2004).

Cf. also Song, 2006. 18 Cf. Popkin, 2001. China’s Tenth Five Year Plan envisaged an expansion in the number of chain

stores from just over 20,000 in 2000 to 100,000 by 2005. Huang Hai, director-general of the

Department of Trade and Market under the State Economic and Trade Commission called for them to

“sharpen their competitive edge via re-organizations, acquisitions and mergers as soon as possible”

(China Daily, 9 February, 2002; cf. also China Daily 19 November, 2002). Experiencing a retail revolution as they industrialize will have important consequences for how manufacturers develop in

compressed developers as well (cf. Taylor, 2003: 197). 19 IOTF press release, 5 September, 2006. Further complicating the situation are problems related to

food safety. Here control systems which were implemented relatively late in developed countries must

be put in place over a much shorter time span, earlier, and with fewer resources 20 Still, the proportion going on to (senior) high school jumped from 43.6% in 1992 to 58.3% in 2002.

21

At the same time, the proportion of high school graduates going on to tertiary

education has jumped dramatically, from just 4% of the 18-22 year old cohort in 1990

to 21% in 2005. Within tertiary education the number of students in Masters and Ph.D

programs has increased even more dramatically (OECD/MoE 2007: 15; 17). Thus

there appears to be a bifurcation, with many students, especially in rural areas, leaving

school at or before the end of middle school, and an increasing proportion of the

remainder, especially in urban areas, completing high school and going on to tertiary

education.

In consolidating its compulsory education system to promote economic and

social development, China appears to be following the route of other East Asian late

industrializers, such as Japan and South Korea. The huge expansion of tertiary

education is happening comparatively earlier, however, and the expansion of

postgraduate education, in particular, is happening at the same time as Japan, at a time

when half of the Chinese labor force is still engaged in agriculture.21 Part of this might

be credential inflation – the “diploma disease” (Dore, 1976) – but it also reflects new

development paths, including the need to engage with and work for foreign firms, and

the drive for indigenous science and technology development.

Gender and compressed development

As Chang (2002a) has shown, legislation promoting gender equality has been

passed earlier and earlier (in terms of per capita GDP) in later developers, often under

pressure from international institutions and conventions. Creating gender equality,

however, is an entirely different matter. The reality is that economic development

processes are gendered, and have different outcomes for men and women. This

applies even (or perhaps especially) to East Asian late developers, despite their

“relatively egalitarian income distribution” and “removal of unfreedoms.”

Numerically prominent in labor-intensive factories in early stages of industrialization,

women became shadowy figures in the capital intensive stages of development (cf. Cho

Cf. China Education and Research Network: www.edu.cn/20060310/3177910.shtml accessed 14

November, 2007; also www.moe.edu.cn/english/planning!n.htm accessed 25 November, 2007;

www.moe.cn/english/planning!s.htm accessed 14 November, 2007. 21 Postgraduate participation in Japan almost trebled between 1990 and 2005, with the proportion of

graduates advancing to Masters degrees increasing from roughly 6% to 17%: OECD/MEXT 2006:

136-37.

22

et.al., 2004 on Korea; also Razavi and Pearson, 2004), with only gradual improvements

offered by the rise of service sector employment.

Is the situation any different under compressed development? It appears so.

Compression exacerbates bifurcation. At a very basic level, the value placed on male

babies for future productive and welfare reasons, commonly associated with

pre-industrial societies, may not only persist, but be stimulated by (supposedly gender

neutral) social policy seeking to limit population growth, and be amplified by modern

medical technology, resulting in large numbers of “missing girls.”22 Girls may also

face discrimination over access to nutrition, medical treatment and education,

magnifying gender differences. Almost three quarters of those illiterate in China are

women (NBS, 2004: 59).

On the other hand, there are growing numbers of women seeking advancement

through education and work, drawn to the cities, or in the case of elites, going abroad

for higher education. The rapid increase in Chinese tertiary education noted above, for

example, is marked by an even higher increase on the part of women, from 35.4% of

those registered in 1995 to 44.0% in 2002. The proportion of women among those

registered for Masters degrees rose from 28.0% to 38.7%, and for Doctorates from

12.0% to 26.0% over the same time (NBS, 2004: 63). Surveys have also found high

ratios of businesses with women in senior management posts, and high ratios of women

senior managers.23 Elite women who go abroad to study might either stay abroad, or

return to work for foreign firms or for the “progressive” domestic businesses that

interact closely with them through global value chains linkages.

One result of compression may well be an increase in gender-related social

tensions. Overall, the relationship between human and social development on the one

hand, and economic development on the other, will become more complex in

22 On China, Hershatter (2007: 31, citing Chu, 2001) notes: “Technically illegal, the practice of using

ultrasound for sex determination is almost impossible to regulate, and skewed sex ratios have spread

along with ultrasound machines from coastal to inland provinces.” From 108.5:100 in 1990, the ratio of

newborn boys to girls increased to 117:100 in 2000, according to Chinese Census data. “(E)xperts agree

that the impact is likely to be negative in terms of the occurrence of violence, trafficking, commercial sex and sexually transmitted diseases” (OWHORC/EDDC, 2006: 13). There are idiosyncratic factors in

China’s case, but there are also some similarities in countries like India. 23 E.g. Grant Thornton International, press release, 8 March 2007. Both mainland China and Taiwan

were in the top echelon on both measures, but the social relations behind these figures were not explored.

In general, well-off and elite women have received little attention from researchers of development, and

gender (Herschatter, 2007: 113).

23

compressed developers, and will compound policy dilemmas. It is these dilemmas we

now turn to.

5) Policy stretch through compression

The compressed developer faces a number of policy challenges and dilemmas,

some of which are shared with late developers, and some of which are new. New

dilemmas include:

• Whether or not to try to emulate the late development model (as it has now

become);

• How to address the greater array of economic developmental “stage” targets

simultaneously (a new dimension to backward and forward linkages);

• How to capitalize on, and develop linkages from, domestic business participation

in global value chains, whose evolving dynamics are not necessarily well

understood or under their control;

• Addressing compression and multiple challenges in human and social

development.

Most importantly, the state must try to co-ordinate its responses to these new

challenges. And while it is doing so, it must negotiate pressures to sign up to and

implement a host of international treaties and initiatives that early and late developers did

not confront, or were faced with at later stages of development, but which are now

deemed essential for membership of the international community. Chang (2002a) has

described this – after List – as “kicking away the ladder,” but it should also be seen in the

context of globalizing and homogenizing dynamics.

Compressed developers must interact with “a welter of international

governmental and non-governmental associations” which “share models of medicine,

science, education, economic organization, human rights, environmental protection,

technical development, rational political and social organization” (Meyer, 2000: 241).24

While potentially benefiting from instruction in “proper actorhood,” the power of states

24 There are “huge global consulting industries that instruct national states, organizations and

procedures for properly agentic actorhood” (ibid.) Diversity here is relegated to expressive culture,

“precisely the things that in the modern system do not matter” (p.245).

24

to act independently, or differently, is curtailed. The “Weberian bureaucracy” of the late

developer (Kim et.al., 1995; Evans, 1995; Evans and Rauch, 1999) was initially

entrepreneurial to some extent – seen, for example, in MITI’s use of proceeds from track

cycling races to help nurture the machine tool industry in Japan – but in the compressed

developer it must be even more so, while operating under greater constraints.

Meeting these challenges and dilemmas is extremely difficult, especially for

would-be developers with limited resources. The inevitable result is “policy stretch,” a

thin spread of resources and limitations to policy implementation and enforcement.

Education and training resources will be spread over basic education and training

institutions as well as tertiary education institutions charged with producing high quality

researchers and technology. Health resources for fighting malnutrition and infectious

diseases must be shared with initiatives to tackle obesity and non-communicable diseases.

A concrete example of the above can be seen in China’s recent (2006) decision to

introduce professionalized personal social care. Originating initially from calls to

improve care for the rapidly increasing numbers of elderly, as well as growing pressures

from inequality, the decision resulted in an attempt to rapidly ramp up education of

professional social care workers. Many course graduates, however, struggle to find jobs,

and face overt and covert resistance from existing workers whose authority is threatened.

The predominantly individualistic and therapeutic concepts being applied to the

expansion are being transferred largely from the United States and may not work well in

China, but have been deemed easier to implement than other models (cf. Law and Gu,

2008; Leung, 2007; Xiang and Wang, 2007). Significantly, in late developers such as

Japan and Korea, personal social care is even now weakly developed, with the provision

of care still dominated largely by non-professional civil servants.25

Gaps and inconsistencies are inevitable, and there will be pressures to plug them

with diverse actors, domestic and foreign. The issue is not states versus markets, but it

is clear that “governing the market” (Wade, 1990) has become more difficult. Even with

an integrated and coherent state, the diversity of actors complicates attempts to nurture

intermediate organizations such as industry associations for corporatist, developmental

objectives. (In addition, of course, there has been an ideological swing associated with

25 The following comment on Korea broadly summarizes the situation for both countries: “In the areas

of social services and social care, there has been little improvement compared to those of public

assistance, pensions, healthcare and unemployment” (Kwon, 2005: 494; cf. also Takahashi, 2004).

25

the Washington Consensus, as Wade, 2003, notes.) A key issue then becomes the

balance of governing and tapping the market – or as Hirschman (1958) would see it,

encouraging hidden rationalities and entrepreneurship, and expanding and joining linkages

from these.26 Development is likely to be more unbalanced than ever.

It is one thing to sketch the challenges of policy stretch, and another to propose

solutions. We do not expect the reader to be satisfied with our brief comments in this

regard. When Gerschenkron first introduced the idea of late development, he discussed

both the challenges posed by late development and the solutions he found in a small

number of late developers. In this article, compressed development is juxtaposed as a

condition, and indeed an ideal type. We will have to wait for a clearly successful

compressed developer to emerge, and be aware that success stories are likely to be limited

in number. Just as successful late developers tackled the challenges of their time,

however, successful compressed developers will have tackled the challenges we have

identified, and created new solutions.

Concluding comments

Late developers traveled different paths to industrialization than the earliest

developers. In this paper we have argued that the development path is changing yet

again, significantly enough for us to seek a different label to describe it. We have used

the label “compressed development,” recognizing that all late development is

compressed in the sense that it accelerated, but that development in the context of

deepening global integration introduces levels of simultaneity and international

interdependency that is qualitatively different from those of archetypical late developers.

As such, compression challenges the developmental state, whose efficacy will depend

on how well policy makers are able to understand these new conditions, seize

opportunities, and develop innovative solutions in concert with a wide range of actors,

domestic and foreign.

26 Hamilton and Gereffi (2008: 160) argue, probably correctly, that late development literature tends to

assign state policy makers more agency than they actually had, and that perhaps the best they can do

(especially under compressed development) is to “refine what is already present and to cultivate what is

already growing.”

26

There has been much reflection and criticism in recent years about

Western-centric notions of development. On top of this, newly developed countries

have been accused of “kicking away” the ladder of development they themselves

climbed, creating a distorted field for would-be developers. If they are unable or

unwilling to remember their own past, they are even less likely to recognize and

understand the distinctive dilemmas associated with compressed development. With

compression come problems associated with simultaneous industrialization and

de-industrialization, extreme wealth and poverty, and the social frictions associated with

the co-mingling of pre-industrial, industrial, and post-industrial societies.

By highlighting the lens of compression, we hope to generate interest and debate

over these dilemmas. We have also sought to delineate a ground between late

development defensiveness one hand, and globalization evangelism on the other; a

policy space that lies between state-led development and neo-liberal marketism. The

role of the state remains crucial, but it has become a more complex and difficult role

than in the past.

The dynamics intensifying compression are powerful. On the one hand,

would-be developers seeking to play “catch-up” are chasing a moving target. Science

and technology-based innovation in NDCs has undergone “intensification” (Dodgson,

Gann and Salter, 2005). Product cycle times have been drastically shortened through

synchronization of inputs (Best, 2001) extending back into R&D and forwards into

sales and marketing. Global value chains facilitate these processes, but through

co-evolution NDCs themselves are forced to run as developing countries jockey for

position in the lowest segments of global value chains, and seek to claim a more

significant stake over time.

Furthermore, when we hear policy makers in the United States and other NDCs

bemoaning the loss of manufacturing jobs to China, and service and even R&D work to

India, it appears that we are all compressed developers now. The idea of compressed

development, then, broadens the development debate to encompass, not just dynamics

within individual developing countries, but the global-scale development project that all

countries are inevitably engaged in. Because of this, the dynamics of compressed

development are mutually reinforcing and beyond the tight control of any single state.

The policy stance of compressed developers is less akin to “governing” domestic

markets, and more to riding the waves propagated by globalization without crashing

27

into the foam. This difficult balancing act requires agility and a clear understanding of

the forces at work.

Perhaps most significantly, the compressed development perspective enables us

to analyze phenomena previously treated completely separately, such as economic

growth and the “double burden of disease.” By bringing diverse phenomenon and

problems together in the framework of compression, we can begin to appreciate the

challenges that confront would-be developers today, and to engage more constructively

with them.

28

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Author biographies

D. Hugh Whittaker is a Professor of Management at the University of Auckland

Business School, NZ, and a Visiting Professor and Director of ITEC at Doshisha

University, Kyoto. He previously taught at Cambridge University, where he was

Reader, and Assistant Director of the Centre for Business Research. His books include

Managing Innovation: A study of British and Japanese Factories (1990); Small Firms in

the Japanese Economy (1997); with T. Inagami The New Community Firm: Employment,

Governance and Management Reform in Japan (2005: all Cambridge University Press);

co-edited with R. Cole Recovering From Success: Technology and Innovation

Management in Japan (2006: Oxford University Press); co-edited with H-J Chang and

G. Palma Financial Liberalization and the Asian Crisis (2001: Palgrave) and with R.

Dore, Social Evolution, Economic Development and Culture: What it means to take

Japan seriously (2001: Edward Elgar).

Tianbiao Zhu is Associate Dean and Associate Professor at the School of Government,

Peking University. He has an M.Phil from Cambridge University and Ph.D from

Cornell University in international and comparative political economy. Recent

publications include ‘Rethinking Import-Substituting Industrialization’ H-J Chang ed.

Institutional Change and Economic Development, WIDER: UN Univ. Press, 2007;

Comparative Political Economy (in Chinese), Peking University Press, 2006, and

‘Building Institutional Capacity for China’s Economic Opening’ in L. Weiss ed., States

in the Global Economy: Bringing Institutions Back In, Cambridge Univ. Press, 2003.

Timothy J. Sturgeon is Senior Research Affiliate at MIT’s Industrial Performance

Center. He has a Ph.D in economic geography from UC Berkeley, and is co-organizer

of the Global Value Chains Initiative (www.globalvaluechains.org). He is a leading

contributor to global value chain theory and research with a special interest in the

electronics and motor vehicle industries. His papers have appeared in international

peer-reviewed journals including Industrial and Corporate Change, Review of

International Political Economy, Journal of East Asian Studies, and Journal of

Economic Geography, and as chapters in edited volumes, the most recent being, “From

Commodity Chains to Value Chains, Interdisciplinary Theory Building in an Age of

37

Globalization,” in Jennifer Bair (ed.) Frontiers of Commodity Chain Research, Stanford

University Press, forthcoming, October 2008.

Mon Han Tsai is Associate Professor, Graduate School of Social Sciences and

Humanities, Chiba University. His research interests are in comparative politics and

the political economy of economic development. His publications include “The Myth

of Monozukuri- Manufactured Manufacturing Ideology”, Japanese Studies, 2007 No 2,

pp 123-132 CASS; and "Rehabilitation of !Nation-State" in Japan”, co-authored with

I-Chung Chen, in 21st Century, Journal of the Chinese University of Hong Kong, Hong

Kong, June, 2005#both in Chinese).

Toshie Okita is a Research Fellow at the University of Auckland. She has a Ph.D in

family sociology and education from the University of Cambridge, and is author of

Invisible Work: Bilingualism, language choice and childrearing in intermarried families

(2002, John Benjamins). Her research interests include education, youth sociology,

welfare and the sociology of development.