What I’ve been reading

The Asian miracles, the middle-income trap, and why accountability is the variable most industrial policy ignores

THE PERFORMANCE TEST

The shared question across these three pieces: what distinguishes the four East Asian economies that kept climbing toward the technology frontier from the four that grew fast for a generation and then settled into a lower rate of growth? Liao opens the historical case. Cherif and Hasanov supply independent empirical corroboration from IMF research. Noah Smith engages with the mechanism directly and adds a twist to it.

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Industrialization Before Liberal Democracy, Part I: Asia Leon Liao — leonliao.substack.com — 12 July 2026

The historical pattern is more decisive than the political science literature usually allows. In South Korea, Taiwan, Singapore, Japan, and Hong Kong, rapid industrialisation preceded liberal democracy by decades. Military rule, one-party governance, or colonial administration came first; democratic transitions arrived only after industrial societies, export-competitive manufacturing sectors, and large middle classes had already formed. Liao’s claim is structural rather than normative: early industrialisation requires the kind of concentrated political authority and long-run policy consistency that competitive democratic politics does not easily generate.

The piece acts as provocation. It establishes the sequence without fully resolving whether causation ran from authoritarian capacity to industrial output or from industrial success to democratic demand. What it does establish cleanly is that the sequencing argument cannot be dismissed as an artefact of particular cases. Five economies, different colonial histories, different political arrangements, the same order every time.

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Modern industrial policy: The Asian miracles’ blueprint for developing economies Reda Cherif and Fuad Hasanov — VoxDev / IMF — 19 March 2026

Two IMF economists, working from a large cross-country dataset, arrive at the same architecture. Their three principles for the Asian miracles — promoting sophisticated export-oriented industries, fostering innovation and competition, ensuring accountability for public support received — collapse into two distinct categories. The first two are inputs: which sectors a country builds and which policies a government runs. The third is the test: whether a firm that fails to win export markets actually loses its backing.

These are senior IMF economists saying, on a major IMF platform, that what separated East Asian transformation from ordinary growth was disciplined conditionality — the willingness to actually withdraw support from firms that did not perform. Governments that ran industrial policy without this mechanism produced growth; those that ran it with the mechanism produced transformation. That the same conclusion is reached by independent routes — historical case analysis on one side, IMF cross-country work on the other — is precisely the corroboration that single-method studies cannot provide.

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Updated thoughts on industrial policy Noah Smith — Noahpinion — 20 April 2026

Smith endorses the export-discipline playbook but adds a twist. When governments channel support through cheap bank loans rather than direct grants, the mechanism breaks down: failing firms do not simply exit, because their banks have too much to lose by letting them go. The lenders’ incentive becomes to keep those companies alive rather than allow a restructuring that would expose the banks’ own losses. This is Japan’s 1990s, not Korea’s 1980s. The mechanism meant to generate competitive selection instead generates zombie lending.

The objection hits China’s current version of the strategy harder than it hits the Korean original, where government support came mainly through direct fiscal transfers — so a failing firm actually lost its backing. But it raises a general point: the performance test works only when underperformance has real consequences, and directing support through banks can nullify those consequences even when firms are nominally exposed to market competition.

Smith does not push this to a conclusion. The piece ends with the observation that distinguishing between industrial policy types — FDI promotion, export subsidies, protectionism — matters more than the term “industrial policy” alone can carry. That decomposition is overdue.

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KOREA AND CHINA

Korea and China transformed; the mechanisms were not the same. Lane provides the causal anchor for Korea. Amodio et al. decompose the mechanism into its components. Magoon, writing from a different starting point entirely, independently identifies the institutional solution China found to the accountability problem that the Korean literature takes for granted.

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Manufacturing Revolutions: Industrial Policy and Industrialization in South Korea Nathan Lane — Quarterly Journal of Economics, 140(3): 1683–1741 — 2025

The most careful recent attempt to separate the effect of Korea’s industrial policy from everything else happening at the same time — Cold War market access, Japanese capital, cheap labour — using detailed historical records on which industries received support and how individual firms responded. The key result is that the Heavy and Chemical Industry Drive generated lasting changes in what Korean firms could produce. Companies that received support under the Drive were making more sophisticated goods, at higher capability levels, a decade later. This is what distinguishes industrial policy that builds lasting capability from industrial policy that merely subsidises what firms are already doing.

The policy worked, but it also channelled resources toward large, politically connected conglomerates in ways that could easily have become permanent. What prevented that from happening was Korea’s willingness to let connected firms fail. The 1997 crisis is the clearest demonstration, though the pattern had been set earlier. Lane’s paper provides the evidence for the first claim. The 1997 crisis literature is where the second is tested. Both are needed to read the episode accurately.

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How export promotion and technology transfer powered South Korea’s industrialisation Francesco Amodio, Jaedo Choi, Markus Poschke, Michael Sposi — VoxDev — 19 February 2026

The companion piece to Lane, focused on how the transformation actually worked inside Korean firms. The central finding is that export promotion and technology transfer had to operate together: neither alone produced the gains; the combination allowed firms to acquire new production methods at scale and, over the period, to shift from simple consumer goods — clothing, textiles — to complex manufactures like machinery and electronics. The export requirement kept firms answerable to foreign buyers who could walk away, while the technology transfer component gave them something new to learn. Remove either element and the dynamic collapses.

The caveat the authors state carefully is that success depended on implementation capacity and on selection criteria — specifically, export performance — that constrained how much officials could direct support toward favoured firms rather than capable ones. Both conditions are hard to replicate, and neither is automatic. The piece ends with the honest observation that the countries most likely to benefit from a Korea-style strategy are those that already have a state capable of credibly enforcing those conditions. That narrows the set of plausible candidates considerably.

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The Puzzle of China’s Economic Success: How a Centralised State Created Competition Among Local Officials Michael Magoon — frompovertytoprogress.substack.com — 14 July 2026

China is the anomaly in the transformation literature. Its institutional profile — no pretence of administrative neutrality, party control of enterprise, no genuine discipline from foreign buyers at the outset — fits none of the standard accounts of how transformation happens. China transformed anyway. Magoon’s explanation is the regional tournament. Local officials competed against each other on measurable growth metrics, with promotion for success and removal for failure, creating results-based competition within a politically unified structure. Successful local experiments were systematically identified and replicated nationally; Beijing set the targets and kept score.

The institutional logic aligns with the Amodio, Huang, Lei, and Poschke analysis of China’s rise, which identifies the same regional tournament mechanism. What the two pieces together establish is that China did have a performance test; it ran inside the party hierarchy. Whether that internal competition is replicable elsewhere is a question neither piece fully resolves, and there are strong reasons to think it is not.

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How China became the world’s factory Amodio, Huang, Lei, and Poschke — VoxDev — 18 February 2026

Where Magoon explains the regional tournament mechanism, this paper documents the external levers that made China’s transformation work: tariff sequencing, WTO accession, special economic zones, and processing trade — the arrangement by which Chinese firms imported components, assembled them, and exported the finished goods. Each mechanism is tracked with data.

The sequencing matters as much as the policies themselves. Tariff reductions were broadly simultaneous rather than sector-specific — falling sharply across the economy in the 1990s as China pursued WTO accession, which it achieved in 2001. The combined reduction in import and export tariffs intensified domestic competition and drove productivity gains. Special economic zones created bounded spaces where global competitive conditions applied, raising investment, wages, and firm entry. Processing trade — importing components duty-free, assembling domestically, re-exporting — provided a lower-cost entry route into global supply chains, though the paper notes that processing firms typically remained less productive and captured less value than ordinary exporters.

Taken together, these mechanisms show how a state without the clean administrative apparatus of 1970s Korea nonetheless engineered genuine competitive exposure — through external commitments and bounded zones rather than through direct performance conditions. The Magoon piece gives you the tournament logic; this one gives you the machinery.

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THE MIDDLE-INCOME TRAP

Three cases and a methodological challenge to the concept that contains them. Masina’s “dependent development” account of Thailand and the World Bank’s “competitive pressure deficit” account of Malaysia are in partial tension with each other, and neither fits Indonesia, where the problem was sound macroeconomic management that never translated into industrial capability. Kumagai provides the regional frame and the contemporary constraint. Katz arrives from outside the case literature to ask whether the trap is a structural phenomenon or a measurement artefact — a prior question the cases cannot settle on their own.

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Thailand and the Myth of the Middle-Income Trap Pietro Masina — pietromasina.substack.com — 13 February 2026

Masina’s reframing is the most structurally challenging piece on the list. Thailand’s stagnation does not result from reaching a natural development ceiling; it results from a model built around foreign investment, in which multinationals retained core technologies and high-value functions while Thailand supplied assembly labour and infrastructure. The country, in Masina’s phrase, “has never been allowed to climb very far at all.” Vietnam’s competitive threat now reveals what was never built: if Thailand had developed genuine industrial sophistication, cheaper Vietnamese labour could not simply replace it. Its substitutability is the evidence.

The prescription of deliberate state-led policy to build home-grown productive capacity is formally identical to what Cherif and Hasanov identify as the missing element in strategies that fail to transform. The political economy is different. Masina’s argument implies the obstacle is partly of external origin: not only domestic policy failure but also the terms on which Thailand was integrated into international production networks. Whether Thai firms ever faced the kind of demanding foreign buyers who would have forced them to upgrade, or whether the buyers retained the technology and left only the assembly work, is a question the piece raises without fully resolving. It is the right question.

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The Final Stretch: Lessons from Malaysia’s Road to High-Income Status Mariana Vijil, Mauricio Pinzón-Latorre, Yew Chong Soh, Siyun He — World Bank Development Talk — 16 April 2026

The World Bank’s diagnosis of Malaysia’s stall lands on insufficient competitive pressure. Malaysia has genuine strengths: management practices, access to finance, and a diversified industrial base with deep integration into global production networks. But firms are underinvesting in new technology and innovation. The authors trace this to sheltered markets: companies insulated from serious competition have little reason to keep improving. The prescription is to expand market access and reduce trade barriers so that innovation becomes a survival requirement rather than a policy aspiration.

The gap between prescription and diagnosis is worth dwelling on. Opening markets to more competition is a structural condition; it does not by itself create the pressure to keep improving that the report’s own analysis says is missing. A firm that can enter a market but face little real threat of losing it faces very different incentives from one that must keep winning customers who can easily go elsewhere. The World Bank is recommending the ingredient while the diagnosis points to the absence of the test. Whether Malaysia’s protected industries can be made genuinely exposed to that kind of competition — given the affirmative action framework that has shaped Malaysian economic policy since the early 1970s — the paper does not say.

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ASEAN Faces a Tighter Middle-Income Trap Satoru Kumagai — East Asia Forum — 10 September 2025

Kumagai provides the broader regional framing and the contemporary constraint. ASEAN’s middle-income economies face weak institutions, insufficient domestic innovation, and excessive reliance on foreign firms — and, unlike their Northeast Asian predecessors, they have not produced homegrown companies with the global scale to pull domestic suppliers into more sophisticated production. The window for the classic escape route is also narrowing: geopolitical uncertainty and U.S. tariff pressure are reshaping the international supply chains through which the standard development playbook assumed access could be obtained.

The prescriptions — deeper regional integration, reform of institutions that currently distribute patronage rather than reward performance — describe the destination rather than the path. The piece is most useful for establishing the constraint that today’s would-be transformers face that 1970s Korea did not: the external environment in which export discipline worked then no longer exists in the same form, and the geopolitical logic is moving in the opposite direction.

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China’s Slowdown and the Myth of the Middle-Income Trap Richard Katz — richardkatz.substack.com — 5 May 2026

The most direct challenge to the concept itself. Katz’s central point is methodological: the World Bank’s definition of middle-income status measures countries’ income in dollars at market exchange rates, which overstates how far behind middle-income countries actually are in terms of what their citizens can afford. Adjust for what money buys in each country, the standard approach for making living standards genuinely comparable across borders, and the picture shifts considerably. On that basis, Katz finds that 55 of the 57 countries in his sample showed positive per capita income growth over three decades, with only two recording absolute decline. China’s recent slowdown, on this reading, reflects specific policy choices under Xi rather than a structural ceiling the country was always going to hit.

The objection does not dissolve the transformation question. Even if most countries eventually converge toward higher living standards, the rate of convergence varies widely. And the gap between those that reached the technology frontier and those that remained well short of it is real in Katz’s own data. It is a genuine caution against treating stagnation as permanent rather than prolonged, and against presenting the gap between transformers and stallers as starker than the evidence allows. If a substantial share of apparently trapped economies are simply decelerating from exceptional earlier growth rather than hitting a structural ceiling, that is a different phenomenon from the one the case literature describes. And the distinction matters for what policy can plausibly achieve.