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Abstract
Under what conditions does foreign aid in the aftermath of war foster state-building? This article argues that institutional legacy and continuity and the politics of aid may matter. In the aftermath of war, for an aid regime to reinforce state-building, it may need to ensure continuity in the strength of the state and to use recipient mechanisms and finance policies that generate a greater state capacity. The existence and continuity of a Weberian state may increase the likelihood of effective state-building. If the state is relatively strong, with a Weberian bureaucracy, aid can further reinforce it when aid is spent through national systems or is aligned with local priorities, with efforts to ensure that the recipient leaders reinforce state effectiveness by implementing policies that may require greater state capacity. Evidence for this argument is provided through pairwise comparison of state-building patterns between South Korea and Taiwan.
Acknowledgements
The author thanks Robert O. Keohane, Jennifer Widner and John Ikenberry from Princeton University, Ngaire Woods, Emily Jones and John Gledhill from Oxford University, Stephen Howes and Hyung-A Kim from the Australian National University, and colleagues and friends for their valuable feedback on an earlier version of this article.
Notes
1. Collier, The Bottom Billion.
2. Natsios, Clash of the Counter-Bureaucracy and Development.
3. Howes, “Framework for Understanding Aid Effectiveness.”
4. Easterly, ”The Cartel of Good Intention.”
5. Easterly, “Can Foreign Aid Buy Growth?”
6. Howes, “Framework for Understanding Aid Effectiveness,” 67.
7. OECD, Paris Declaration on Aid Effectiveness.
8. Sachs, The End of Poverty, 288–309.
9. Bizhan, Aid Paradoxes in Afghanistan.
10. Fukuyama, State-Building: Governance and World Order. While the concepts of state capacity, autonomy and legtimacy are important for the study of aid impacts on state-building, this study is concerned with building state capacity.
11. Tilly, "War Making and State Making”; Besley and Persson, "State Capacity, Conflict, and Development."
12. Fukuyama, "What Is Governance?"
13. Khan and Gray, State Weakness in Developing Countries, 28.
14. O’Neil, Neopatrimonialism and Public Sector Performance and Reform, 3; Khan and Gray, State Weakness in Developing Countries.
15. Brautigam, Aid Dependence and Governance, 2.
16. Koeberle, Stavreski, and Wallister, Budget Support as More Effective Aid?, 5, 23.
17. Jacoby, US Aid to Taiwan.
18. Ruling arrangements in Seoul were highly authoritarian. The power of the Japanese governor general in both policymaking and implementation was absolute. Incentive structures were created in order to increase the compliance of senior Korean officials. These included higher salaries and ‘entertainment allowances’. When these measures did not work, authority was further centralised. When these measures also failed Korean officials were replaced with Japanese officials. Chen, “Police and Community Control System in the Empire,” 84.
19. While senior police officers were intended to be Japanese, Koreans comprised over half of the (lower officer) force. In addition to formal trainings, the Japanese maintained close supervision over the police force. The Japanese trained the Koreans in Korean police academies which were established for the purpose. The police force penetrated every Korean village and, in addition to performing standard duties of maintaining law and order, was empowered with control over politics, religion, education, morals, health and public welfare. Chen, “Police and Community Control System in the Empire,” 213–39.
20. On the eve of World War II, there were 40,000 Koreans qualified as government officials, though they did not occupy senior government positions. When the demand for Japanese increased elsewhere during World War II, Korean officials moved up in the bureaucratic hierarchy. After the withdrawal of the Japanese, first under the American military government (1945–1948) and then when the sovereign government was established, these officials took over to run the state. Kohli, State-Directed Development, 35.
21. Land revenue increased by 30% in four years, from 4.9 million yen in 1905 to 6.5 million yen in 1908. Ibid., 33.
22. The South Korean development model was inspired by the Japanese experience of the Meiji era for domestic reform in order to catch up with Western powers. Some elements of this development model included: (1) the creation of a centralised state capable of controlling and transforming Japanese society; (2) deliberate state intervention aimed first at agricultural development and second at rapid industrial growth; and (3) production of a disciplined, obedient. and educated workforce. Ibid.
23. Ibid., 64.
24. Kang, History of Contemporary Korea, 276–7.
25. Industrialisation under the Japanese rule was economically dependent on Japan. Thus, after the defeat of Japan and division of Korea, the economic structure of the Korean peninsula was almost unable to function independently. Steinberg, Foreign Aid and the Development; World Bank, East Asian Miracle.
26. Kohli, State-Directed Development, 27, 61, 64.
27. Moon and Jun, Modernization Strategy, 116.
28. Hyung-A, From Anticommunist Industralization to Civic Democracy, 226.
29. Steinberg, Foreign Aid and the Development, 21.
30. World Bank, World Development Indicators.
31. Paine, Nation Building, State Building, and Economic Development, 227.
32. Kohli, State-Directed Development, 24; World Bank, East Asian Miracle, 170.
33. Kang, History of Contemporary Korea, 281–96.
34. World Bank, World Development Indicators.
35. Kim and Vogel, The Park Chung Hee Era, 100; Steinberg, Foreign Aid and the Development, 29.
36. Kim and Vogel, The Park Chung Hee Era, 15.
37. Kohli, State-Directed Development, 104.
38. World Bank, East Asian Miracle, 127.
39. Smith and Howes, “Role of Aid in the Development of Korea and Taiwan.”
40. World Bank, World Development Indicators. With the decline in the US military and economic assistance and its role in (South) Korean politics, development alternatives to transform Korea gained prominence. The US economic advisors were not convinced to invest in heavy industries, which were a crucial part of Park’s economic policy to transform South Korea. Such strong development alternatives, except in Taiwan, did not exist in Iraq and Afghanistan. Donor support was diversified in the early 1960s, especially after the diplomatic and economic relationship with Japan improved. This policy reduced the influence of the US in Korean affairs and gave further leverage to Park to pursue his industrial policy in particular. South Korea eventually moved from reliance on grants to concessional loans. The government policies resulted in real GDP growth averaging 10% annually between 1962 and 1994. This spectacular performance was fuelled by an annual export growth of 20% in real terms, while savings and investment rose sharply above 30% of GDP. The industrial labour force rose to 20% in 1970 from 7% in 1953. Steinberg, Foreign Aid and the Development.
41. USAID, “US Overseas Loans and Grants.”
42. Kang, History of Contemporary Korea, 227.
43. Ibid.
44. Aid also played an important role in the development of the initial stages of import requirements. In the absence of it, inflation might have been prolonged and harder to control. Wu, “Models of Development,” 378.
45. Steinberg, Foreign Aid and the Development.
46. Ibid., 66.
47. Ibid., ix.
48. Chu and Lin, “Political Development in 20th-Century Taiwan,” 106.
49. Aviles, Impacts of Japanese Colonialism; Scitovsky, “Economic Development in Taiwan and South Korea,” 220.
50. Barrett, “Dependency Theory and Taiwan,” 1067.
51. Scitovsky, “Economic Developmentt in Taiwan and South Korea,” 220.
52. Japan was instructed to surrender its troops in Taiwan to the National Revolutionary Army, the military arm of the Chinese Nationalist Party or Kuomintang (KMT). In mainland China, the Chinese Communist Party, under the leadership of Mao Zedong, defeated the Chinese Nationalist Party – led by Chiang Kai-shek – in a civil war. The Communist Party established the People's Republic of China (PRC) on the mainland, while the Chinese Nationalist Party found refuge in Taiwan and established the Government of the Republic of China (ROC). During 1948 and 1949 more than a million and a half people fled from mainland China to Taiwan. When the PRC supported North Korea in the Korean War (1950–1953), this further undermined the PRC’s relations with the US. See Barrett, “Dependency Theory and Taiwan.”
53. Jacoby, US Aid to Taiwan, 284.
54. Historically, Taiwan’s situation differed from that of mainland China. A Chinese official in the 1720s noted, ‘the situation of Taiwan’s order and disorder does not match our expectations’. Phillips, Between Assimilation and Independence, 1, 3. The island had civil rule and military infrastructure based on hierarchical order. Taiwan became a prefecture of China's Fujian province in 1684 and later, in 1885, a full-fledged province of China. Japan invaded Taiwan and turned it into one of its colonies from 1995 to 1945. In 1945, it became a province of ROC and eventually an independent nation. Taiwan, with a population of 23 million, consists of 84% Taiwanese, 14% mainland Chinese and 2% indigenous people, making Taiwan more homogeneous than Iraq and Afghanistan. Mandarin Chinese is the official language. The World Factbook, Taiwan: People and Society.
55. Chu and Lin, “Political Development in 20th-Century Taiwan,” 102.
56. The nationalist party ideology was deeply influenced by its pragmatic founder, Sun Yat-sen, a medical doctor. In the view of a Chinese economist, Sun Yat-sen was a pragmatic leader. He did not advocate for Marxism and nineteenth-century capitalism, but he instead ‘adopted the strong points and rejected the defects of both systems in Europe and America but also of the conditions of [his] own country’; Jacoby, US Aid to Taiwan, 136. The Nationalist party also learned from the past. It believed that its failure in mainland China was due to price inflation and concentration of land ownership. Ibid.
57. Ibid.
58. Wu, “Models of Development,” 379.
59. The reform included ‘Noninfalmatoy fiscal and monetary policy, tax reform, unification of foreign exchange rates, liberalized exchange controls, establishment of a utilities commission and of investment banking machinery, and also the sale of the government enterprise to private owners. Attainment of self-generated growth with five years was projected … actions to encourage saving and private investment, fully utilize government production facilities, remove subsidies, raise public utility rates, liberalize trade regulations and hold the military expenditures to the real 1960 level’; Jacoby, US Aid to Taiwan, 134–5.
60. World Bank, East Asian Miracle, 160–1.
61. Chang, “US Aid and Economic Progress in Taiwan,” 153.
62. Jacoby, US Aid to Taiwan, 33.
63. Ibid., 230.
64. The World Bank, in a 1993 report entitled East Asian Miracle, notes that while by the end of the 1950s, industrial production in Taiwan had doubled, the costs of import substitution have also increased over time, World Bank, East Asian Miracle, 131.
65. Ibid.
66. US Department of State, Milestones 1945–1952, The Chinese Revolution of 1949.
67. Tensions between PRC and ROC in the 1950s resulted in an armed conflict over strategic islands of Jinmen or Quemoy and Mazu (two miles and 10 miles from mainland China and the city of Fuzhou, respectively) in the Taiwan Strait, which were under the control of ROC; US Department of State, Archive, The Taiwan Straits Crises: 1954–55 and 1958. In January 1955, the US Congress passed the ‘Formosa Resolution’. It gave President Eisenhower total authority to defend Taiwan and the offshore islands.
68. Jacoby, US Aid to Taiwan, 121.
69. Ibid., 118.
70. Ibid, 60.
71. Ibid., 222.
72. Ibid.
73. Ibid.
74. Ibid., 330.
75. Ibid., 224.
76. Ibid., 243.