The Road to Industrial Power: How Strategic States Defied Markets to Build Wealth

• One of the initial actions taken by any successful industrialiser is to restructure the rural economies by land reforming feudal or colonial agrarian systems into “Productive Growth Platforms”.
• Industrialisation was never about opening the doors to investment or unfettered private enterprise. An unusual blend of market discipline and political control was the peculiar feature of the East Asian model of the so-called developmental state.
• Neoliberal economists have considered financial liberalisation as something sacred, but it has repeatedly proven to be harmful to the countries aspiring to industrialise. Financial repression was instead a tactical strategy in the East Asian narrative.
• An Industrial Policy that lacks an export focus is a formula of stagnation. The East Asian success stories emphasise export-led industrialisation to inject global competition into domestic companies, compelling continuous innovation.

The road to industrialisation and economic development that countries have followed throughout their history is by no means a generic checklist. This is an ambitious state initiative that alters societies and economies with precision interventions, rather than offering well-packaged advice. This discussion supports the fact that it is the developed nations that adopted radical and practical policies that were often contrary to market ideologies and consequently enjoyed rapid and long-term industrial growth. East Asian, Southeast Asian, and other case studies are eloquent examples of outlines of this complicated macro-process.

Radical Land Reform: Between Japan, South Korea, and China

One of the initial actions taken by any successful industrialiser is to restructure the rural economies by land reforming feudal or colonial agrarian systems into “Productive Growth Platforms”. This is not a marginal policy choice but a foundational prerequisite. 

A notable example is the reforms in Japan following the war. According to the World Bank, the 1947 land reform expropriated large estates and redistributed the land, giving millions of tenant farmers the power. This shattered the established rural hierarchies and brought about an increase in agricultural output and rural incomes, which established a mass internal market of industrial products. 

This rigour was paralleled in South Korea in the early 1950s, where Land reform redistribution and the “Elimination of Landlordism” were essential in lifting the rural poor and providing labour in industries. Taiwan has also undertaken similar, systematic reforms that aided in transforming its agrarian economy into an industrial giant.

The example of China is instructive as well. The decollectivization that began in the late 1970s ended decades of agricultural stagnation and initiated productivity benefits that paved the way for industrial take-off in the 1980s and beyond. This contrasts with India, where land reform was biased and partial, retaining huge rural inequality and fragmenting agricultural markets, dampening demand in downstream industries.

Industrial Discipline as State Directed: The Manufacturing Mandate

Industrialisation was never about opening the doors to investment or unfettered private enterprise. An unusual blend of market discipline and political control was the peculiar feature of the East Asian model of the so-called developmental state where the mitigation of the market disorder is combined with the state control and domination over economic affairs in Japan in the form of the MITI (Ministry of International Trade and Industry), South Korea in the form of the Economic Planning Board, and Taiwan in the form of Industrial Bureaus.

Such countries not only chose and cultivated companies, but did so under tough performance conditions. Infant industries were not fully shielded, but support was conditional on achieving measurable outcomes such as export growth, technological modernisation, and higher productivity. Any non-conformity to these benchmarks either led to subsidies or credit withdrawal, which made the firms innovate or exit. 

This is in stark contrast to the Southeast Asian economies, such as Indonesia, where oligarchic cronyism resulted in monopolies in low-tech industries and speculative capital with limited production upgrading or export discipline. Malaysia’s more aggressive industrial policy achieved only partial success compared to Indonesia.

The Third and Fourth Five-Year Plans of South Korea laid down definite priorities on heavy and chemical industries and combined directed credit with export goals. This systematic management of industry moved South Korea from a war-torn nation in the 1950s to a major industrial economy in the 1990s.

Financial Repression: Why Free-Market Finance is not the solution

Neoliberal economists have considered financial liberalisation as something sacred, but it has repeatedly proven to be harmful to the countries aspiring to industrialise. Financial repression was instead a tactical strategy in the East Asian narrative.

Countries like Japan, South Korea, and Taiwan relied on State-managed banking sectors to channel cheap credit to favoured industries, to maintain interest rates artificially low and restrict capital flows. This diversion of savings into industry sectors resulted in building a capital base strong enough to compete internationally. 

For example, government-owned banks in South Korea aggressively supported export-oriented companies, while capital controls protected the economy from harmful hot money flows.

The Asian Financial Crisis of 1997 demonstrated the dangers of deregulated markets in Thailand and Indonesia, which liberalised too quickly, leading to real estate bubbles, unproductive lending, and banking collapses that set back industrial development. 

Export Orientation: The Navigator to the Industrial Upgrading

An Industrial Policy that lacks an export focus is a formula of stagnation. The East Asian success stories emphasise export-led industrialisation to inject global competition into domestic companies, compelling continuous innovation.

Singapore, Taiwan, and South Korea built large export-processing zones and encouraged companies to manufacture globally competitive products. Japan, even during the Meiji and postwar periods, geared its industrial policy toward export markets to overcome limited domestic demand. 

China’s rise is another striking example of how export orientation, combined with vigorous foreign direct investment(FDI) policies and technology transfer, jump-started its industrialisation process, lifting hundreds of millions out of poverty within decades. This contrasts with India, where the delayed and partial adoption of export-oriented strategies limited growth opportunities, despite a large domestic market.

Bureaucracy Capacity: The Unspoken Similarity of Industry Success

All the above fail to work when states lack the capacity and autonomy to implement policies. MITI bureaucrats (Ministry of Economy, Trade and Industry) in Japan had political insulation and meritocratic recruitment that enabled them to design and execute complex industrial policies for decades. 

South Korea’s technocrats also maintained close alignment with industries without engaging in corruption or rent seeking. Taiwan’s government was known for pragmatic policy adjustments and independent planning agencies that learned through trial and error, ensuring credibility and discipline.

Conversely, weak institutions struggle to discipline industry, leading to policy capture or incoherence. India’s License-Permit Raj exemplified how bureaucratic inefficiency and political interference can stifle industrial growth.

Country-Wise Table

The moral of these case studies and macro-processes is clear. Industrialisation requires radical material reforms to eliminate feudal shackles, beginning with land. It requires an unforgiving growth-oriented state that enforces uncompromising export and output goals.

Monetary systems must be designed to channel savings into strategic industries to withstand market volatility. Persistent export orientation cultivates competitiveness, while a capable, insulated bureaucracy ensures continuity. Anything less than this coordinated approach risks reviving poverty, inequality, or stagnation.

It is the countries that face these realities and act decisively, however ideologically unfashionable their methods appear, that eventually become rich. 

References:

1. _{https://www.researchgate.net/publication/280134829_How_Asia_Works_Success_and_Failure_in_the_World’s_Most_Dynamic_Region}
2. _{8 East Asian Industrial Pioneers: Japan, Korea, and Taiwan}: _{https://academic.oup.com/book/7358/chapter/152146196?login=false}
3. _{Can India grow? Challenges, opportunities, and the way forward. Carnegie Endowment for International Peace. https://carnegieendowment.org/research/2016/11/can-india-grow-challenges-opportunities-and-the-way-forward?lang=en}
4.  _{https://ideas.repec.org/p/wbk/wbrwps/2111.html}

Parag Gilada

Parag Gilada is a Mukherjee Fellow who has recently graduated from the Jindal School of International Affairs with a keen interest in Sports Diplomacy. Views expressed are the author’s own.