The Role of the State in Export-Oriented Industrialization

It was presented by John M. Leger in a very concise and quite unique formula: Hard work, low taxes, high savings rate, minimal government, economic growth.

In reality, there has been a fairly diverse and rich division of different types of states in the market economy, some of which emphasize the role of the state and on the contrary want to lower the role of the state. However, among these different viewpoints, one can still see certain similarities, especially the compatible relationship between the state and the market, which is a complementary relationship for development, not a relationship that eliminates each other leading to failure, crisis, stagnation and backwardness. Even in the market economy, the state still plays a "minimal" role. On the other hand, the state cannot replace, much less eliminate, the market. The state and the market always exist together, supporting each other to create development, just like the visible hand and the invisible hand exist together like a shadow and a body. Any excess on either side – whether on the part of the state or the market – leads to failure, if it is not a market failure then it is certainly a state failure. It is from this perspective that many studies have advised that regardless of the type, to achieve efficiency, the best way for a state to do is to implement policies and measures to “create markets”, not to eliminate markets. Mohamed Ariff and Hal Hill (Australian National University) assert, “encouraging markets rather than prohibiting markets”.

In summary, scientists have summarized and clearly defined the main functions and areas of operation of the state in a market economy. American economist P. Samuelson is one of the economists who has deeply studied the role of the state in a market economy. According to him, the state can have many functions, including the following important functions:

- The State is the one who can play an important role in improving the efficiency of the economy;

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- The state can perfect the process of distributing national income.

- The state can use macroeconomic policy tools to stabilize the economy.

- The state can propose and implement foreign economic policies, or international economic policies of a country.

To perform the above functions, the state can apply policies and measures such as: "correcting market defects"; ensuring general balances in the economy; adjusting or reallocating scarce resources; balancing financial and budgetary revenues and expenditures; redistributing income sources in society to achieve social balance; and participating in the international division of labor based on relative and absolute comparative advantages.

In recent times, most countries with developed market economies today have acknowledged the fundamental role and essential functions of the state. However, the specific application and emphasis on which function is more important than which depends on the conditions and circumstances of each country. The most difficult thing that countries often encounter is how to correctly assess and understand the current situation of their country in order to choose and apply appropriate solutions, bringing about the desired results, especially policies and measures related to financial liberalization and privatization, which are sensitive issues, not only related to economic factors, but also social and subject to many external influences, beyond the control of the government, very vulnerable, risky and failing, if there are no correct and appropriate decisions and actions. This has been clearly demonstrated through practical experiences in many Asian, African and Latin American countries.

Comparing the practical development processes in Asia, Africa, and Latin America, it can be seen that the reason why Asian countries are more successful than Latin American and African countries is because in Asian countries, financial liberalization is carried out in the context of ensuring financial discipline, and simultaneously implementing liberalization.

Financial stability goes hand in hand with maintaining the stability of the monetary system, especially price stability. Although financial reform has been increasingly deepened, it has only been implemented gradually through the gradual expansion of capital market activities at commercial banks. This approach is quite different from that of Latin American countries such as Chile, Uruguay and Brazil, which have implemented quite thoroughly financial liberalization policies through privatization and complete deregulation, floating prices, and have not had effective policies and measures to control the frequently rising and unstable inflation rate. African countries are also in a similar situation. They implemented financial liberalization and privatization quite thoroughly and without control measures like Latin American countries, so they had to pay a heavy price, suffered serious failures, the economy not only did not grow rapidly with the waves of privatization and liberalization as quickly as they thought but on the contrary fell into stagnation and backwardness. Thus, it can be clearly seen that the main reason why Asian countries are more successful than African and Latin American countries is because in Asian countries, reform and liberalization are not relaxed, but are always controlled effectively. This was also confirmed by Maxwell J. Fry when he studied and compared the implementation of liberalization policies in some countries in two continents, Asia and Latin America. According to Maxwell

J. Fry, the advantage of Asian countries over Latin American countries is that, in Asian countries, although liberalization is promoted, the governments of these countries always make efforts to maintain "three key factors": price stability, financial discipline and ensuring policy reliability.

Empirical evidence has clearly confirmed that the relationship between the state and the market is a compatible one. The state, while actively carrying out necessary reforms to promote the development of the market, encourages the private sector to increase its business efforts, build infrastructure, increase the provision of public goods, and open up the economy.

economic to enhance external exchanges, enhance efforts for international and regional economic integration, in other words, strengthen the implementation of liberalization policies and expand participation in the globalization process to promote economic development, still not taking lightly the preparation, construction and consolidation of the internal foundations of the economy, especially the construction of appropriate institutions and mechanisms to both create the necessary conditions for an open, effective and sustainable development, and ensure control over the liberalization and globalization processes, minimizing the negative impacts caused by those processes. Most of the debt crises, financial-currency crises, and balance of payments crises that have occurred in Asia, Africa, and Latin America, a total of nearly 100 of them since the 1970s, have been caused by the incompatible relationship between reform and the ability to control reform, that is, between the state and the market, between the rapid changes of market forces and the failure of state institutions and mechanisms to keep up. The stability and openness of mechanisms and institutions are the best conditions for a country to take advantage of more opportunities brought about by the liberalization and globalization process and to limit the challenges and risks caused by it. Practice shows that, in the context of rapid development of new technology, the state in developing countries needs to play a more important role in investing in educational development, improving the quality of human resources and strengthening the capacity for R&D activities to increase labor productivity, the most important factor of growth in the modern knowledge economy.

1.2.2. The role of the state in export-oriented industrialization

The role and function of the state in export-oriented industrialization is reflected in the choice of industrialization strategy and policies to implement the strategy.

* Choosing strategies and creating an environment for industrialization

Carrying out export-oriented industrialization is essentially a close association of industrialization with the expansion of international economic relations in order to take advantage of capital, technology, and learn management experience from advanced countries to increase the competitiveness of goods and expand export markets. In such conditions, to carry out export-oriented industrialization, the exploitation of internal and external factors and the creation of a dynamic and effective economic sector structure associated with the promotion of comparative advantages requires the role of the state.

The function of creating an environment for industrialization is carried out through the state issuing a system of legal documents to form a legal framework suitable to market economic conditions, ensuring transparency, strictness, fair treatment, and non-discrimination between domestic and foreign investors. In fact, a country with a clear, transparent, and complete legal system will create peace of mind for investors to conduct production and business activities.

Experience from successful East Asian economies with export-oriented industrialization strategies shows that, in the process of promoting exports, the state always publicly commits to implementing trade liberalization, building a legal system and policies suitable for this process. In fact, building a consistent policy system and creating a trustworthy state is an important part of the state's intervention policy. The state in East Asian countries has created a truly favorable environment for the operation of the market system to promote growth and increase exports. In the context of a constantly fluctuating world economy, stabilizing and reforming macroeconomic policies is a condition to create stability for the overall development of the economy. Reality from East Asian NIEs shows that, even in the innovation of cognitive thinking, development conditions often change, in the establishment of a system of appropriate and effective economic policies to adapt to the changed conditions.

Especially for important infrastructure sectors such as energy (especially electricity), transportation, communications, construction, water supply and drainage systems, etc., which are essential for economic development. With the current state of backward and weak infrastructure, prioritizing investment to renovate, expand, and modernize synchronously, promptly and effectively serving the needs of socio-economic development is an urgent task. These are also necessary conditions to attract investment, develop foreign trade and other foreign economic activities. Therefore, state investment needs to be directed towards this activity and there must be policies to attract diverse social capital sources to invest in infrastructure development. That is to create a favorable business environment that attracts investment.

* Policy to adjust economic structure towards developing industries with export potential

In reality, establishing a suitable industry structure is one of the goals of the industrialization strategy and it always plays an important role for each economy. A wise government will know how to adjust economic sectors to suit specific domestic and international conditions, associated with promoting existing comparative advantages and potential comparative advantages. However, in a market economy, the economic structure is formed under market forces, it cannot be subjectively imposed because the trends in the international division of labor are always affected by the scientific and technological revolution and the processes of international economic integration. As a social entity, the state plays the role of a "midwife" and creates conditions for those trends to operate in a way that does not distort market principles, does not deviate from them, but rather creates favorable conditions for the national economy.

To achieve the goal of economic restructuring, on the one hand, the state can focus on investing in the development of the state economic sector, mainly in areas related to infrastructure and public services. This activity contributes to creating the necessary conditions for the process of social reproduction, and this is also the

prerequisite for industrialization environment innovation. If the state undertakes these fields well, domestic and foreign private investment resources will have the opportunity to focus strongly on processing and manufacturing industries. In some cases, the state also needs to have big pushes to create large enterprises like Korean Chaebol in certain fields on the basis of selection and forecasting their development potential and superior strength in international competition. On the other hand, the state, through specific mechanisms and policy systems, can guide enterprises to apply the trends and movements of the international division of labor in the direction of promoting their advantages. In general, the state needs to properly demonstrate the role of a macro-manager so that the economic structure is innovated according to market principles, according to the new impacts of the international division of labor system and accordingly, how to make the economy truly participate in the international division of labor and the global production network. That will have the effect of changing the economic structure towards increasing the proportion of export manufacturing industries.

The experience of many developing countries that have succeeded in export-oriented industrialization shows that the industrialization process often begins with a focus on exploiting the strengths of the economy, creating development areas with comparative advantages in the world market. Many developing countries have the advantage of abundant and cheap labor, mineral resources and agricultural products, so they have directed their development towards labor-intensive processing industries such as textiles, garments, food processing, etc. Thus, the export-oriented policy focuses on developing areas with comparative advantages in the international market and producing products that meet the needs of the world market, forming an economic structure and industrial structure that focus on industries with comparative advantages. The entire policy system is aimed at encouraging and promoting exports.

Starting from an economy that was mainly dependent on agriculture, East Asian NICs started with export processing industries, using labor-intensive (the most important comparative advantage in the early period of industrialization) and capital when the comparative advantage in labor-intensive production gradually decreased (the period between industrialization processes) and now, East Asian countries have begun to strongly develop industries using technology and knowledge (a new step that started after the end of industrialization and joining the orbit of developed economies). South Korea, Taiwan, and Singapore were considered successful thanks to the industrialization policy oriented towards exporting labor-intensive products in the late 1960s, but by the early 1970s, the East Asian region had many competitors with low wages, the pressure of high wages at home forced this country and territory to have a new industrial restructuring program. In particular, in the early 1990s, taking advantage of the fact that wages are high and financial incentives for R&D programs are encouraged, Singapore focused on developing capital-intensive, skill-intensive, and high-value-added export goods and services. Similarly, South Korea and Taiwan have shifted labor-intensive industries to ASEAN countries to take advantage of cheap labor, cheap raw materials, etc. of these countries in order to focus on developing capital-intensive and technology-intensive industries. Currently, due to fierce competition in the manufacturing industry with the "emergence" of economies such as China, India, etc., the issue of industry structure is of particular concern to developing countries. While China is developing labor-intensive industries, other countries in the region have advocated focusing more on and developing more strongly the service sector, technology-intensive manufacturing industries, and highly specialized areas such as biochemistry and ultra-thin materials. What is important is that the speed of this shift is very fast. After joining the WTO, services in the Chinese economy have also developed rapidly, especially services in finance, insurance, education, etc.

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