Abstract
This chapter develops the theoretical framework that guides the empirical analysis. To this end, it first characterizes the political economy of the developmental state. In a second step, it examines if China falls into the category of the developmental state. It then introduces the concept of the instrumental developmental state to account for the crucial differences between China’s political economy and the political economy of the classic developmental states of Japan, South Korea and Taiwan. In a third step, it develops a typology of financial power and provides an overview of the implications of the political economy of the developmental state for its financial power potential.
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Notes
- 1.
Two decades earlier Alexander Gerschenkron (1962) had developed similar ideas.
- 2.
Instead of adopting Johnson’s (1982) distinction between regulatory and developmental state, Zysman (1983: 75) distinguishes between the government as an economic regulator, an economic administrator and an economic player. According to Zysman (1983: 326, footnote 14), the difference between a player state and a developmental state is that the former may intervene without pursuing a developmental objective. Zysman thus considers the developmental state a subcategory of the player state.
- 3.
As Zysman (1983: 72) has pointed out, both the second and the third type are associated with late and rapid development, while the first type has usually emerged within the context of earlier industrial growth. According to Zysman (1983: 63), the reason for the association of credit-based systems with rapid and late economic growth is the fact that companies operating in such an environment need to secure large amounts of funds to be able to achieve high growth rates.
- 4.
The centrality of the state’s control over the financial system to the classification of China as a developmental state has also been emphasized by Baek (2005).
- 5.
For a detailed analysis of the political priorities of China’s reform process see Susan Shirk (1993).
- 6.
- 7.
A related difference between China’s political economy and the political economy of the classic developmental states is the fact that China’s development strategy has crucially relied on the promotion of foreign direct investment for the creation of a competitive export sector, whereas the classic developmental states strongly discouraged FDI. While export-oriented business groups in Japan and South Korea greatly benefited from the state’s control over the allocation of credit, China’s financial system has been geared to support state-owned enterprises that focus on the domestic market (Kroeber 2011: 48, Beeson 2009: 27–28, Baek 2005: 494).
- 8.
- 9.
On the Chinese nomenklatura system see Heilmann and Kirchberger (2000).
- 10.
To be more specific, the aim of this section is to provide a comprehensive typology of the external dimension of financial power in the context of interstate relations.
- 11.
In his definition of the realm of international finance, Cohen (2001: 430) draws on Strange (1988: 88) who argued that a “financial structure can be defined as the sum of all the arrangements governing the availability of credit plus all the factors determining the terms on which currencies are exchanged for one another.”
- 12.
The concepts of financial power and monetary power are used synonymously in the literature.
- 13.
We prefer the use of the concept of influence rather than change since the exercise of a state’s financial power may also prevent another state from changing its behavior.
- 14.
For Strange’s distinction between structural and relational financial power see for example Strange (1982, 1986, 1988, 1990). The following sections have been influenced by Eric Helleiner (2006) who also discusses the relationship between the concepts of structural power proposed by Strange (1988), Guzzini (1993), Cohen (1977) and Kirshner (1995) but arrives at different conclusions.
- 15.
For the classic definition of hegemonic stability theory see Keohane (1980).
- 16.
As Helleiner (2006: 76) has emphasized, Strange aimed at providing a definition of power that was not limited to the power of one state over another, but also included a state’s power to influence nonstate actors and market forces.
- 17.
This concept of institutional power should not be confused with Guzzini’s (1993) concept of indirect institutional power that is defined as power applied to structures. To avoid misunderstandings, it also needs to be pointed out that due to her broader understanding of the concept of structural financial power, Strange (1982) considered a state’s ability to influence the behavior of other states indirectly through the policy decisions of international financial institutions as an aspect of structural financial power.
- 18.
- 19.
These points will be further explained in Chap. 5.
- 20.
Cohen (2006: 46) distinguishes between the power to delay the continuing cost of adjustment and the power to deflect the transitional cost of adjustment, arguing that the power to deflect “derives not from financial variables but […] from more fundamental structural variables that distinguish one national economy from another”, namely “the degree of openness and the degree of adaptability of each individual economy.” Since the power to deflect does not derive from the realm of finance, its analysis is not included in this book.
- 21.
Reserves can also be acquired by external borrowing that leads to costs in the form of interest payment.
- 22.
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Heep, S. (2014). Financial Power and the Developmental State. In: China in Global Finance. Global Power Shift. Springer, Cham. https://doi.org/10.1007/978-3-319-02466-0_2
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