3. by Rhyu Sang-Young Professor, Graduate School of International
Studies, Yonsei University
(1) Rethinking the Transformation of the Flying Geese Model in Asia
The flying geese model,
which has mainly focused on industrial cooperation, has been evaluated
as a powerful scheme to recast and forecast the international division
of labor in Asia.
There are three perspectives
explaining the structure and transformation of division of labor in
Asia: (a) economic perspective to analyze vertical integration amongst
Asian countries based on the flying geese model, (b) political economy
perspective to argue that the East Asian vertical specialization was
formed at a regional level as the Japanese political economy model spread
out over other East Asian countries, (c) and international political
economy perspective to contend that a new international division of
labor structure in Asia resulted from the conflicts of interests between
the U.S. and the Japanese.
First, the flying geese
model became a leading paradigm to describe a pattern of gradual development
and specialization that Japan had structured in East Asia during the
Cold War. Second, political scientists, including Bruce Cumings, understand
that regardless of industrial and technological analysis, it is the
hegemonic structure combined with military strategic interests that
determine economic division of labor. In other words, Korean economic
development after the 1960s came not only from the specialization based
on just comparative advantage but from the structural attributes received
from Japan, e.g. competent bureaucracy, insulation from social pressure,
political authoritarianism . Furthermore, Cumings argues more that these
structural attributes commonly appear in Taiwan, which used to be a
colony under Japan's control and Asian countries that actively adopted
the Japanese model of development as well. He named the political economic
system with such attributes as being the 'Bureaucratic Authoritarian
Industrializing Regimes (BAIRs)'. His argument has a relevance to the
so called "Cold War-typed Development Model".
Third, Mitchel Bernard
and John Ravenhill harshly criticized the flying geese model and the
product cycle theory, having watched a new specialization in Asia since
the mid-1980s . They pointed out that after the mid-1980s, a new regional
production network among Japan and the other Asian countries deepened
the latter's subordination to Japan, which was a lot different from
the prediction that East Asian countries, including Korea, would reach
Japanese economic level through the spread of technology as they kept
on imitating and reproducing the Japanese model. It was caused by a
closed type of management strategy of the Japanese economy, which is
called the 'one-set economy' or the 'full-set economy' . The newly emerged
regional production network originated from the Plaza accord in 1985.
Today's report examines
nicely current situation and presents an optimistic view on the regional
integration based on the flying geese model. According to this analysis,
which focuses the trade structure between Japan and China, there is
no evidence showing that the flying-geese formation has been disrupted
by the emergence of China. A clear division of labor still exists between
the two countries, with Japan specializing in high-value-added products
and China in low-value-added products.
Current structure between
Japan and China confirms the success of the flying geese model. It,
however, posits subsequent questions of whether it can be exclusively
applied to the Japan-China relations and whether it will necessarily
lead to the success of regionalism in Asia by co-leadership of Japan
and China. The answer is not so affirmative. China has similarly built
a vertical division of labor with several western countries such as
U.S. and Germany. China-U.S. economic relations and industrial division
of labor can be better described through flying geese model, since most
of the increasing FDI into China targets high-value-added products and
technology and the Chinese economy is totally separated into a dual
system.
According to the original
thinking of the flying geese model, the first goose (e.g., Japan) is
supposed to transfer certain technology and industry, those of which
has matured in its domestic market, to the second goose. However, Japan
has remained in the market instead, making technology transfer to Asian
geese deferred, which constituted a hierarchy of regional production
networks and hindered further and sustainable development of the flying
geese model in Asia.
<Figure 1> Flying Geese Model 1 (Open Type)
<Figure 2> Flying Geese Model 2 (Closed Type)
Figures 1 and 2 present a visual review of the two types of the flying geese model. Here, I argue that Japan has actually pursued the closed type of industrial specialization. Given this closed system, regional integration led by the industrial sector in Asia is not likely to emerge.
(2) Role of Japan Before and After the Asian Crisis
Although, Japan was
once criticized of being partly responsible for the Asian Crisis, it
also has contributed significantly to the recovery. It is an undeniable
fact that Japan is reinforcing its role as a regional leader, through
projects such as the New Miyazawa Plan, in Asia. The importance of the
regionalism has been brought forth by the Asian Crisis and various policy
guidelines to promote regionalism, such as AMF or FTA, has been suggested.
Japan, in particular, once tried to decrease the dependency on US dollar
by strengthening the Yen through the internalization of the Yen. Just
after the crisis, Asian countries showed positive attitudes toward this
idea.
However, reality came
to be different from the prediction. As table 1 and 2 illustrate, the
share of Japanese Yen in the global market and the capital market has
been declining. Average daily transaction of the Yen in the foreign
exchange market declined from 27% in 1989 to 21% in 1998. Additionally,
in the foreign reserve holdings, Yen declined from 6% in 1996 to 4.5%
in 2002. On top of this, since the Chinese FDI is rapidly increasing,
arguments of the Yuan-bloc being more effective than the Yen-bloc are
rising. This is thought to be due partly to the long recession (the
lost decade) of the Japanese economy as well as the Japanese capital
market and financial market losing their attractiveness. Regardless
of the financial big bang in 1996, the confidence of the Japanese Yen
is still not recovering. The influence of the Yen, whether it can replace
US dollar in the global market, will determine the possibility of a
Japan-led Asian regionalism.
<Table 1> Share of National Currencies in Total Identified Official
Holdings of Foreign Exchange, End of Year (All Countries, %)
| 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | |
| U.S. Dollar | 60.2 | 62.2 | 65.7 | 67.9 | 67.6 | 67.7 | 64.8 |
| Euro | - | - | - | 12.6 | 13 | 13.2 | 14.6 |
| Japanese Yen |
6 | 5.2 | 5.4 | 5.5 | 5.2 | 4.9 | 4.5 |
| Others | 33.9 | 32.6 | 28.9 | 14.1 | 14.2 | 14.3 | 16.1 |
<Table 2> Amount of Daily Turnover in Global Market by Currencies
(Unit: %)
| April, 1989 | April, 1992 | April, 1995 | April, 1998 | |
| U.S. Dollar | 90 | 82 | 83 | 87 |
| Deutsche Mark | 27 | 40 | 37 | 30 |
| Japanese Yen | 27 | 23 | 24 | 21 |
Source: Bank for International Settlements, Central Bank Survey of Foreign Exchange and Derivatives Market Activities (1995; 1998).
(3) Political Economy Approach to Asian Regionalism
Considering only the
economic imperatives, Asian regional integration should have been completed
a few years ago. For example, what have protracted the regionalism is
not the lack of economic gain but the politically hampering factor and
the lack of trust.
All trade policies or
dialogues for regionalism very often changes into political-economic
issues from the economic issues. FTA always creates the winners and
the losers in the arena of domestic politics. From this perspective,
I cannot be optimistic about the regional cooperation between Japan
and China. In spite of the numerous attempts at economic cooperation,
what determines the last instance of the Japan-China cooperation in
Asia is not the size of economic gain, but rather the competition for
the regional leadership. Both the significant economic gains and the
existence of an undisputed regional leader would make the regional integration
happen successfully in Asia. Unfortunately, neither Japan nor China
has willingness to take on the burden. The experiences of the EU and
NAFTA teach this lesson to Asia.
The U.S. influence in
the Asian regionalism cannot be ignored. The U.S. is playing a major
role in the Asian security; hence, they are pursuing economic hegemony
in Asia. The U.S. will not allow a closed regionalism that excludes
the U.S. For example, the reason why the formation of the AMF failed
was partly due to the opposition by the U.S. and the IMF. China also
opposed to the idea of the Yen-centric economic order. The reason why
the APEC is still in the consultative body level is because the U.S.
does not want a bigger role for APEC, and the existing disagreement
between the U.S. and Japan.
North Korean nuclear
issue is still left as being a huge obstacle that threatens peace and
prosperity in East Asia. Presently, the key holders to the solution
are the U.S. and North Korea. Remnants of the Cold War, political and
military confrontation in Asia surrounding the North Korean nuclear
issue will be a hindrance to the development of Asian regionalism. Unless
the nuclear issue is resolved, the U.S.'s influence in Asia will remain
strong, limiting Asian regionalism.
Katzenstein attributes
the weak institutionalization of regional integration in Asia to an
informal dense network . The formal institution has been replaced by
an informal network structure. Japan-led networks of trade, investment,
technology and aid, as well as the web of entrepreneurial relationship
formed among Chinese through ethnic ties, have created an abnormal form
of regionalism. Asian network capitalism could produce welfare for all
without going through a formal institutionalization. His argument is
convincing, but fundamental changes have taken place. During the Cold
War period, the dominance of American power, on the one hand, inhibited
the formation of alternative regional formal institutions, while on
the other hand, it assured a high economic growth only through an informal
network in Asia. Today, the post-Cold War era requires Asia to institutionalize
regionalism formally. This is why regionalism discourse erupted abruptly
after the Asian Crisis.
Nationalism is also
a major factor impeding sub-regional integration and its institutionalization
. Each Asian country has all been known for its mercantilist behavior,
embedded in its social templates and government policies. Despite the
increasing external pressure for reform, its inertia and legacy still
remain. The self-serving conceptualization of a regional economic community
predominates in Asian nationalism. Japan, China and Korea have respectively
their own vision of regional community such as Greater Chinese Economic
Circle, Greater East Asian Co-prosperity Sphere and East Asian Business
Hub, which might deter them from harmonizing through a common vision
of Asian economic community. And finally collective memory of the historical
past, where each nation has been abused and misused politically, pose
another obstacle to trust building for Asian regionalism.
(4) Forecasting the Korea-Japan Free Trade Agreement
The Korean-Japan FTA
negotiation still has not started and has remained at the initial research
stage since 1998. Meanwhile, the Japan-Singapore FTA was accomplished
and the Korea-Chile FTA is addressed in the National Assembly as being
a priority. In October 2003, South Korean President Roh Moo-Hyun announced
that by 2005, he will have completed the Korea-Japan FTA. Such an announcement
from President Roh is looked at as he is trying to find a break through
from the domestic political turmoil by means of the foreign affair tool.
Then why is the Korea-Japan
FTA not advancing? The answer can be found from the comparison of the
Korea-Chile FTA and the Japan-Singapore FTA. Singapore does not face
opposition from the farming industry since its agricultural production
is negligible and its effective tariff is almost 0%. The Korea-Chile
FTA is also advancing slowly, but agricultural seasonality is different
and the structure of the industry is complementary, which result in
a weaker opposition than the Japan case. Korea-Japan FTA has many other
problems. In domestic politics, the winners' and losers' positions are
radically different and the gap between the nationalists and the internationalists
are also big.
Korea calls for a leadership
that can bring together the radical difference and present a common
vision. Although President Roh declared to accomplish the Korea-Japan
FTA as a package of the East Asian Business Hub, whether this will be
proceed is very skeptical. To begin with, it is strategically not a
good idea to promise a deadline in the international negotiation.
The biggest losers in
the Korea-Japan FTA will be the Korean conglomerates. Especially, the
automobile, electricity, and some capital industries will be largely
affected. On the other hand, the Japanese agricultural sector will not
be affected too much. Price of Korean rice is relatively cheaper than
Japanese rice, however, since the domestic supply is low, exports to
Japan is limited. The South Korean Roh administration will probably
overcome the opposition from the conglomerates based on its anti-Chaebol
policy, but the administration's ability to overcome the growing concerns
of the trade deficit and the consequent actions of the nationalists
are questionable.
At this point, time
and efforts in confidence building in Korea-Japan relation is needed
more than anything. Political and social consensus is needed more than
the economic imperative.
(4) Open Governance and Japanese Economic Reform
Recently, we can see
many signs of recovery in the Japanese economy. It is good news for
the neighboring countries who were waiting for such recovery. Unless
the Japanese economic reform is completed and the Japanese economy recovers,
it is impossible to anticipate Japan's role as a regional leader. Recovery
of the economy results from a series of economic reform.
In order for Japan to
play a positive role in Asian regionalism, I expect Japan to build an
open governance. In 2000, one prime minister advisory council report
suggested that the Japanese system should shift from control to governance.
It suggested that a horizontal network management structure should be
adopted and an open and cooperative relationship with the neighboring
countries should be encouraged.
An open governance system
is a must for Asian regionalism. As the figure 3 shows, open governance
can be achieved when domestic reform and regional integration takes
places simultaneously. In the Cold War period, closed governance was
enough, but in the post-Cold War period, a new set of governance is
required. Through the formal institutions, the Japanese economy can
connect with rest of the Asia, and, through economic reform, a flexible
system should be structured. In order to change 'the perspective of
China's threat' to 'the perspective of Harmony with China', open governance
is indispensable.
<Figure 3> The Direction of Governance Transformation
<Table 3> Major Components of Governance in Asia: Closed vs. Open
| Closed governance | Open governance | |
| Global | Cold War-typed hierarchy (bi-polar system) | Post-Cold War-typed horizontal network (multi-polar system) |
| Regional | Economic cooperation based on Informal network | Regionalism based on formal institution |
| National | 1955 system - 1940 system (Japan) Park Chung-hee model (Korea) Development State |
Post - 1955 system (Japan) Post - Park Chung-hee model (Korea) Post-development State(?) |
| Industrial | Industrial capital centered Flying geese model (catch-up) |
Competition between industrial and financial capital Scattering sparrows model |
| Firm | Product cycle Hierarchy-typed organization (chaebol) and keiretsu |
Learning effect and innovation Network-typed organization (Venture firm) and strategic alliance |
| Society | Mercantilist/ Nationalist | Internationalist |
Especially, both Korea and Japan should implement open governance in order to achieve a Korea-Japan economic cooperation. As table 3 illustrates, the two countries are still adapted to the Cold War development model, and both are undergoing reform after the crisis. China and the ASEAN countries cannot be an exception.
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