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A General Theory of Economic Development

Towards a Capitalist Manifesto

Sung-Hee Jwa

This book makes the bold attempt at proposing a new general theory of economic development. The main premise is that economic institutions and policies must embody ‘economic discrimination’ if there is to be any chance of real economic development. By economic discrimination, the author means ‘treating differences differently’ by selecting and supporting economic entities and behaviour that contribute positively to the economy. The book identifies markets, government and corporations as the ‘holy trinity of economic development’, that is, the three most important institutions that must work together via economic discrimination to steer the economy towards real transformative progress. The book also warns against the current trend of economic egalitarianism or ‘not treating differences differently’ because it destroys economic incentives and results in an array of economic problems including growth stagnation.
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Index

Towards a Capitalist Manifesto

Sung-Hee Jwa

Acemoglu, Daron 54, 158
Adelman, Irma 10
agrarian economy 9, 18, 27, 35, 646, 68, 1045, 146, 160, 173, 180, 183, 185, 1913, 1979
Alchian, Armen A. 25, 49, 112, 11718
Allen, William R. 112
allocation economics 1617, 38, 41, 43, 489, 109, 116, 118, 121, 130, 137, 144, 1845, 190
Amsden, Alice H. 46, 88
Argentina 100, 163
Arthur, Brian 224
Asian Tigers 4, 6, 46
see also individual countries
Austrian economics 22
autarky 19
authoritarianism 158, 16062, 176, 1812
Axelrod, Robert 19
Ayres, Clarence E. 60
balanced growth 4, 12, 72, 165, 180, 1823
bankruptcy 7, 27, 89
barriers to entry 39
Barro, Robert 39
behavioural economics 22, 135
Beinhocker, Eric 23, 25
biological metaphor 257, 36
Britain see Great Britain
Bubble Act (1720) 65
capitalism 56, 11, 42, 478, 656, 68, 70, 81, 989, 1046, 1089, 111, 119, 128, 1367, 139, 142, 145, 16471, 186, 18991
see also corporate economy
as a contradictory system 1689
revised capitalism 4, 47, 7071, 138, 1656, 170, 176, 189
chaebols see corporations, Korean
Chandler, Alfred 1056
Chang, Ha-Joon 67, 88
China 4, 11, 13, 42, 44, 523, 635, 74, 95–100, 119, 1256, 128, 135, 138, 156, 15960, 1624, 1812, 187
classical economics 16
Coase, Ronald 33, 49, 104, 10910, 122
theory of the firm 104, 1069, 122
Colander, David 234
Cold War 478
colonization 65, 68
communism 6, 11, 478, 70, 95, 173, 183
Community Reinvestment Act 139
Companies Act 67
competitiveness 312, 40, 71, 80, 84, 8892, 106, 108, 11112, 11618, 127, 166, 16971, 192
complexity economics 12, 1621, 28, 5660
and development 214
and evolutionary failure see evolutionary economics
externalities 3034
and synergy 2830
condensed economic development 745, 99100
see also China; Japan; Korea
Confucius 1356
conglomeration 11112
Corning, Peter A. 29
corporate economy 9, 66, 99, 104, 106, 1235, 128, 142, 189, 1914
see also capitalism
corporate-led growth 91, 124, 191, 1978
see also Korea
corporations 89, 1214, 356, 423, 53, 659, 745, 82, 99, 104, 11112, 116, 126, 133, 1414, 146, 163, 1778, 183
see also holy trinity of economic development; joint-stock companies
Chinese 956, 989
corporate economy 9, 66, 99, 104, 106, 1235, 128, 142, 189, 1913 as destroyer of spontaneous market order 11011
firm size 10810
importance of in economic development 1056
Japanese 768
see also zaibatsu
Korean 8992, 94, 112
as a market substitute/expansion 1068
and transaction costs see transaction costs
twin function theory of the firm 1223
corruption 3, 82, 100
Cox, Harvey 7
creative destruction 16, 22, 42, 111
cross-country economic development experiences 16063
culture 1546, 173
Daewoo 90
Dawkins, Richard 256, 28
De Rivero, Oswaldo 3
de-industrialization 169, 173
deliberative democracy 164
democracy 46, 12, 48, 13032, 139, 141, 151, 15761, 1634, 171, 176, 17880, 183, 188
and economic development 1812
egalitarian democracy see egalitarian democracy
plural democracy 545
Demsetz, Harold 49, 10910, 112, 11718
Deng Xiao Ping 52, 956, 98, 156, 159, 162, 1812
developing countries 3, 7, 1635, 17071
see also individual countries development policy 817, 93, 126, 145
developmental economics 17, 1434, 1845
developmental failure, 121, 1278
developmental gene see memes
development-friendly/unfriendly states 15660
digital divide 1667
dispensation of justice 135
division of labour 16, 19, 184
downward economic equalization process 16871, 1734
Durlauf, Steven 22
East India Company 65
Eastern economic development 745, 99100, 115, 119, 127, 133, 140, 144, 188
see also individual countries
economic concentration 78, 80, 99, 181
economic development
analytical framework for emergence of 5760
complexity of see complexity economics
corporations in see corporations
definition of 175
and democracy 1812
demystifying 1823
Eastern condensed see Eastern economic development
elusive quest for 12
and firm size 10810
myths and realities of 210, 14, 1823
nature of 1618
role of government in 1256
stimulating 13840
and transaction costs 10810
Western extended see Western economic development
economic discrimination 14, 37, 92, 945, 100, 11723, 12534, 13746, 1513, 15560, 162, 1645, 170, 172, 17583, 1857, 189
failure 12021, 123, 125, 127, 145, 172, 177
and holy trinity of economic development 1324
and motivation 100, 117, 121, 126
origins 1346
economic equality 46, 1112, 45, 478, 71, 130, 139, 153, 157, 1646, 168, 170, 1723, 17981
see also economic inequality
economic freedom 44, 5055, 64, 67, 69, 88, 119, 121, 133, 138, 140, 144, 160, 162, 17981
economic inequality 4, 445, 478, 535, 71, 99, 116, 119, 140, 1456, 1646, 168, 176, 17981, 183
see also economic equality
nature of 1724
economic polarization 70, 137, 146, 152, 16572
economic policy 5, 445, 478, 924, 98, 145, 159, 163, 1656, 168, 170, 172, 186
see also Washington Consensus
economic stagnation 6, 52, 78, 94, 100, 119, 139, 143, 1656, 17072
education 20, 54, 78, 159, 167
education policy 46, 93
egalitarian democracy 478, 55, 712, 78, 90, 924, 1289, 131, 139, 1446, 152, 155, 1634, 168, 17072, 180, 187, 189
egalitarianism 67, 11, 478, 100, 1267, 134, 137, 14041, 143, 158, 16061, 163, 1656, 168, 17071, 1734
as cause of downward economic equalization 169
contradiction of 1658
escaping 1712
emergence 1718, 177
behaviour 14, 17, 18, 29, 43, 74, 80, 120, 141
failure 29, 45, 56, 121, 142
enabling institution 567, 60, 140, 143, 172, 188
entrepreneurs 76, 82, 845, 111
environmental issues 20
equal rights 157
equality see economic equality; social equality
Erhart, Ludwig 162
European Union 478, 139, 164
evolutionary economics 12, 22, 258, 36, 1767
evolutionary failure 25, 26, 27, 29, 34, 35, 45, 56, 142, 176, 177
cultural 26, 27, 29, 35, 121
exchange rates 389, 84
exclusive stagnation 923
externalities 2021, 24, 27, 3035, 189
fairness 12, 128, 153, 172
fertility rate 71, 1667
financial crises 70, 139, 187, 189
firm size 10810
Fortune 500 95, 99
France 668, 163
free entry 49, 54
free goods 29, 121, 124
free markets 8, 53, 172, 180
free trade 8, 83
free-riding 7, 12, 21, 27, 29, 345, 43, 50, 679, 75, 80, 120, 1226, 137, 142, 1445, 1779, 189
Friedman, Milton 5
general equilibrium models 39
General Theory of Economic Development 1214, 26, 63, 74, 115, 124, 1327, 1436, 1524, 157, 1689, 1723, 175, 177, 18191
application and implications of 13743
Germany 668, 126, 1624
globalization 8, 167, 16971
Glorious Revolution 65
governments 1112, 323, 356, 436, 53, 57, 65, 67, 6970, 72, 745, 78, 80, 82, 99, 112, 116, 128, 133, 137, 142, 144, 155, 172, 1789, 181, 183, 185, 1878
see also holy trinity of economic development; leadership; policy
Chinese 95, 98
and economic inequality 1734
Japanese 767
Korean 857, 8994
politics and political ideologies in economic development 13032
role of in economic development 1256
theory of government policy 12930
Great Britain 649, 75, 80, 126, 159, 1623
Industrial Revolution see Industrial Revolution (British)
Great Society 163
Greece 163
gross domestic product (GDP) 105
growth stagnation 5, 7072, 1656, 16872
growth theories 8, 17, 3941, 5960, 70, 834, 912, 166, 1767, 191
Guo Yu136
see also Zuo Qiu Ming
Harari, Yuval Noah 60
Hausman, Jerry A. 30
Hayek, Friedrich Von 49, 11011
Hayekianism 8, 44, 11011, 118
health issues 20
health policy 46
heavy and chemical industry (HCI) drive 889
history 1546
holy trinity of economic development 41, 75, 1314, 1423, 153, 179, 183, 1878, 190
see also corporations; governments; markets
Hong Kong 6
human capital 167
Hyundai 90
ideology 57, 13032, 1512, 1547, 159, 16972, 17880, 183, 188
immigration 8
incentive/ability to abuse economic power 11112
incentive structure 3, 72, 91, 143, 145, 154, 163, 168
see also motivation
inclusive growth 4
income distribution 49, 70, 146, 1656, 168, 170, 1723
income inequality 139, 166
India 100, 159, 1623
industrial policy 910, 457, 679, 99100, 1269, 138, 14041, 183, 1856
Japanese 758, 80
Korean 8891, 94
Industrial Revolution (British) 9, 13, 18, 35, 44, 513, 6470, 745, 105, 1256, 160, 169, 171
industrialization 18, 66, 6870, 768, 8082, 167, 187
see also Industrial Revolution (British); newly industrialized countries (NICs) inequality see economic inequality; income inequality
information costs 43, 106, 118, 1213
information exchange 8, 39
information technology (IT) 8990, 1667
innovation 27, 29, 34, 36, 56, 64, 66, 69, 71, 111, 120, 137, 142, 166, 16971, 17582
institutional economics 22
institutions 569, 64, 69, 1323, 14041, 1514, 1568, 160, 162, 172, 176, 181, 187, 195
interest groups 45
invisible hand theory 105, 118
Italy 163
iterated prisoner’s dilemma 19
Japan 6, 13, 42, 44, 46, 513, 63, 667, 74, 81, 92, 94, 98100, 119, 126, 128, 138, 159, 1624, 187
in ‘egalitarian trap’ 7880
industrial policy 758, 80
Joint Stock Companies Act (1844) 65
joint-stock companies 9, 656, 689, 75, 99, 1046, 123, 177
see also corporations
Jordan, Michael 3031
Jwa, Sung-Hee 100, 110
Kahneman, Daniel 135
keiretsu76, 80
Keynesianism 8, 39, 186
Korea 13, 18, 42, 44, 523, 63, 74, 8088, 945, 98100, 11112, 119, 1269, 138, 140, 156, 159, 1634, 187
as a case for corporate-led growth 912
development policy 817
industrial policy 8891, 94
North Korea 70, 81, 160, 171
South Korea 6, 81
KT 90
Kuznets, Simon 20, 173
labour unions 141, 167, 16970
laissez-faire approach 9, 445, 523, 65, 67, 75
Lane, David 22
leadership 3, 12, 27, 579, 1312, 1423, 146, 1536, 159, 1789, 188
see also governments
Lee Kwan Yew 100, 156, 159, 162, 182
Lee Syngman 81
Legalist school 135
Leonard, Gregory K. 30
Lewis, Arthur 20
LG 90
liberal democracy 158, 1612, 172
liberty 157, 172
Limited Liability Joint Stock Company Act (1855) 65
limited liability system 9, 35, 656, 68, 99, 1046, 123, 177
see also corporations
literacy 20
living standards 170
Lucas, Robert 39, 41
macroeconomics 39, 44, 54, 72, 84, 139, 184, 1867, 191
Maddison, Angus 1
mainstream economics see neoclassical economics
Malaysia 159, 162
Malthusian trap 119, 160
Malthusianism 9, 66
management democracy 170
Mao Tze Tung 160
market, discrimination failure of 12021
market democracy 1578, 1614, 172
market economy 9, 35, 423, 47, 523, 59, 668, 75, 81, 88, 92, 95, 99, 104, 106, 108, 119, 123, 130, 142, 158, 162, 164, 16972, 176, 180, 191
market failures 11, 32, 50, 1212, 1767
synergy 2830
market size 169
markets 79, 1112, 16, 29, 31, 46, 48, 515, 58, 645, 69, 72, 745, 99100, 116, 126, 130, 133, 136, 1412, 144, 1534, 160, 164, 176, 178, 181, 1836
see also holy trinity of economic development
and corporations 104, 1068, 11011
discrimination failure 120, 121, 123, 125, 127, 142, 178
failure of economic discrimination 121, 125
free markets 8
and neoclassical economics 3843
organizations and 334
rediscovering the function of 11619
Marshall, Alfred 16
Marx, Karl 11, 56, 136, 168, 189
Marxism 2, 67, 11, 478, 71, 80, 1368, 16570, 189
Maxon 90
Meiji Restoration 42, 512, 758, 82, 95, 138, 159, 162
memes 268, 356, 120, 125, 175, 177
Mercantilism 65
mergers and acquisitions 912
microeconomics 389, 49
middle-income economy trap 164
Miracle on the Rhine 1623
Mitsubishi 76
Mitsui 76
modernization 8, 96
Monetarianism 39
monopolization 42, 45, 181
moral hazard 34, 90, 100, 119, 127, 13940, 163
Morishima, Michio 778, 80
motivation 78, 82, 84, 90, 934, 100, 112, 11618, 121, 123, 126, 134, 13840, 1445, 171, 176
myths about economic development 210, 14, 1823
National Export Day (Korea) 845
National Homeownership Strategy 139
neoclassical economics 2, 89, 12, 1617, 31, 40, 45, 49, 589, 1057, 110, 118, 1212, 166, 177, 187
critique of 3843
neoliberalism 71, 165
Netherlands 65, 126
New Institutional Economics (NIE) 1213, 4955, 65, 1089, 116, 133, 1523, 166
critique of 5053
and emergence of the complex economy 5660
New Village Movement see Saemaul Undong
newly industrializing countries (NICs) 3, 166, 16970
see also individual countries
Newton, Isaac 32
Newtonian mathematics 20
non-viable national economies 3
North, Douglass 33, 4950, 54, 65, 67, 108
organizations 347
Parable of the Three Servants, Matthew 135
Park Chung-hee 52, 812, 847, 89, 92, 94, 156, 159, 181
partnership companies 104
see also corporations
path-dependence 49
Penrose, Edith 25
perfect competition 3942, 48, 110
Piketty, Thomas 168
plural democracy 545
policy 1267, 12930, 1323, 1389, 141, 143, 153, 157, 1623, 168, 171, 176, 179, 1847
development 817, 93, 126, 145
economic 5, 445, 478, 924, 98, 145, 159, 163, 1656, 168, 170, 172, 186
education 46, 93
egalitarian see egalitarian democracy
health 46
industrial 910, 457, 679, 758, 80, 8891, 94, 99100, 1269, 138, 14041, 183, 1856
infrastructure 46
social 46, 140, 143
stabilization 46
political economy, positive theory of 15160
application of 16574
modern economic development experiences 16065
political economy systems model 15660
population growth 167
see also fertility rate
Portugal 163
positive theory of political economy see political economy, positive theory of
poverty 1, 3, 20, 165
price system 389
priority production system 778
prisoner’s dilemma 19, 34
private property rights 445, 5055, 645, 67, 69, 75, 88, 119, 121, 133, 138, 140, 144, 160, 162, 180
property rights see private property rights
prosperous neighbours 6, 367, 69, 183
purchasing power 176
race to the bottom see downward economic equalization process
Rawls, John 4
Reagan, Ronald 71, 159, 1623, 165
Reich, Robert B. 168
Renaissance 65
rent-seeking 45, 90, 127
research and development (R&D) 91, 128
resource allocation see allocation economics
returns to scale 41
revised capitalism 4, 47, 7071, 138, 1656, 170, 176, 189
see also welfare programmes
Revolution de Mai 163
Rich-Led Nation 956, 98
Robbins, Lionel 184
Robinson, James A. 54, 158
Rodrik, Dani 456, 129
role models 7, 181
Romer, Paul 39
rule of law 54, 57
Saemaul Undong 823, 857, 92
Samsung 90, 126
samurai 778
Santa Fe Institute 22
Schumpeter, Joseph 10, 1617, 42, 111
self-help 3, 5, 72, 857, 90, 92, 117, 129, 135, 140, 156, 159, 162, 179, 186
semiconductor industry 8990
shirking 34
Simon, Herbert 7, 9, 49, 106, 123
Singapore 6, 42, 100, 156, 159, 162, 182
Singh, Manmohan 100, 159, 162
SK 90
small and medium-sized enterprises (SMEs) 8990, 923, 112
Smaller Business Mediation Law (1964) 89
Smiles, Samuel 135
Smith, Adam 16, 19, 42, 68, 105
social democracy 4, 478, 7071, 78, 111, 13940, 1445, 163, 1656, 171, 173, 176
social equality 11
social insurance 46
social norms 57
social policy 46, 140, 143
socialism 2, 4, 11, 423, 52, 70, 81, 95, 100, 11011, 119, 1378, 146, 1667, 169, 171, 176, 183
Solow, Robert M. 39
Solow–Swan growth model 39
Sony 126
Soviet Union 11, 70, 111, 160
Spain 65, 163
spot transactions 107
stagnation
economic 6, 52, 78, 94, 100, 119, 139, 143, 1656, 17072
growth 5, 7072, 1656, 16872
Stanislaw, Joseph 8
Stiglitz, Joseph E. 168
Sumitomo 76
superstars 7, 27, 29, 346
Sweden 1623
synergies 2830, 346, 39, 56, 98, 120, 1223, 125, 127, 1367, 139, 142, 1757, 181, 186, 189
synergy market failure 2836, 45, 56, 121
Taiwan 6, 100, 1623
taxation 32, 48, 82, 92, 163
Thatcher, Margaret 71, 159, 1623, 165
theory of institutional choice 1523
theory of the firm 104, 1069, 122
thermodynamics 212, 49
Third World countries 3
see also individual countries
totalitarianism 81, 11011, 158, 16061
transaction costs 29, 335, 413, 50, 106, 10810, 1213, 127, 142, 177 transparency 35, 50, 54, 56, 85, 91, 121, 127
twin function theory of the firm 1223
unbalanced growth 4, 183
unemployment 32, 39, 139, 16970
United States (US) 649, 8081, 126, 139, 159, 1624
Wade, Robert H. 45
Washington Consensus 9, 445, 5051, 55, 92
wealth creation 16, 19, 190
Weingast, Barry 65, 67
Welch, Jack 135
welfare programmes 11, 48, 72, 78, 139, 141, 163, 170, 173, 179
see also revised capitalism
Western economic development 63, 74, 115, 1256, 133, 1378, 144, 181, 188
see also individual countries
and the Industrial Revolution 647
modern experiences of 7072
summary of industrialization 6970
US catches Britain 679
Williamson, John 49
women in the workforce 167
World Bank 46, 88
World Trade Organization 145, 185
Yasuda 76
Yergin, Daniel 8
Yoon, Yong 100
zaibatsu768, 80
Zuo Qiu Ming 1356