The recent financial crisis in East and Southeast Asia has deflected attention from the significant economic achievements of these two regions. Although the effects of the financial crisis were indeed quite negative, it should be remembered, especially in East Asia's case, just how rapid economic growth has been in this region since the end of World War II. In addition, it seems to be the case that economic recovery is well under way in much of the region. Thus this paper is concerned with analyzing the rapid economic success achieved in East Asia (Japan, South Korea, and Taiwan) prior to the financial crisis.
Initially, the rapid economic growth achieved in East Asia was thought to be due to their adherence to free trade and free markets. 1 However, additional analysis now indicates that government intervention was quite widespread in all three economies. 2 In fact Amsden 3 has argued that governments in this region purposefully distorted prices, purposefully got them wrong, in order to promote rapid industrialization. There is still great debate about the effectiveness of this government intervention. However, this is not the issue that will be discussed in this paper. Instead, it will be presumed that effective state policy in all three nations was a critical ingredient in the overall development process. The issue to be addressed in this paper concerns why state intervention here was so successful.
The question is of importance because of the contrasting experiences of developing nations with state intervention. Nations throughout South and Central America, much of Africa, and South Asia have had much less success in promoting economic transformation via state intervention. Why are their experiences so different from those of East Asia?
There are a number of explanations that have been put forward to explain why East Asian economic success occurred within the context of significant government involvement. In Section I of this paper, a number of these explanations will be presented and discussed. The conventional view implies that government interventions were of an