H1B Competition or Affirmative Action?

Why Northeast Asia industrialized and Southeast Asia didn't

If Indians are such brilliant engineers, Auron MacIntyre asks, why don’t they build their own country instead of migrating to America? The euphoric backlash to Sriram Krishnan’s H1B comments has emboldened a chorus of passportless bros to dismiss the entire non-Western world as poor, disorganized, and unlivable. But one glaring exception remains: East Asia. What happened there—something in the water supply?

As Jared Taylor might put it, East Asians are ‘Johnnies-come-lately’ to the developed country game. Britain industrialized first in the 1780s, with France and Germany following in the early to mid-1800s. Over a century followed of Europeans mogging the rest of the world with the unmatched power of machine and managerial systems. But by the late 19th and 20th centuries, Japan and East Asia started joining this club.

Europeans, high on the hog from all the winning, confidently exported their liberal norms and institutions across the globe, a practice better known as ‘colonialism.’ Some colonial subjects accepted the rhetoric, while others… accepted it with a moral inversion (‘anticolonialism’). East Asia, however, skipped the sermons and focused on mastering the European playbook, according to Joe Studwell’s book How Asia Works.

The Sweatshop-to-Great-Power Pipeline

The European path to prosperity was remarkably consistent across countries: turn farms into factories, then factories into offices. But revolutionaries, again and again, dream of ‘leapfrogging’ over the first step. Isn’t manufacturing dirty, dangerous, and demeaning? Sure—but you’re not rich enough to worry about ‘human rights’ yet. Fresh-off-the-farm workers can add value right away and pick up skills on the job!

It’s worth dwelling on this point because developmental economics has a massive ‘do as I say, not as I did’ problem. Take Germany: while it eventually became a leader in industrial innovation, its rise to modernity came from copying pig iron and electricity generation techniques pioneered in England and France. Germans first had to eat crow before serving it to the Japanese—who then served it to the Koreans, and so on.

Farming is low time preference, but manufacturing is systems thinking.

Upfront costs aside, why not just train millions of farmers to become receptionists or underwriters and ship them off to air-conditioned offices? The practical problem that makes manufacturing the more reliable path to development is that trade in goods is much freer than trade in services, which depends on labor mobility. More rich countries will accept ‘Made in Bangladesh’ apparel than Bengali migrant laborers.

East Asians are often derided for thinking more practically than metaphysically. But this instinct protected them from many bullshit abstractions. Japan’s MITI, the nerve center of its industrial policy, had almost no PhDs in economics even into the 1960s. Korea’s senior personnel in the 1970s were largely of peasant stock, and Taiwan’s industrial bureau didn’t employ economists—just engineers and scientists—until 1981.

All’s Fair in Love and Corporate Espionage

A popular meme among LinkedIn-Americans is that Black women are the most educated group in the U.S. A more powerful variant among the BlueSky crowd asserts that ‘Palestinians have the highest ratio of PhDs per capita in the world.’ The Soviet Union and Cuba put this inspirational idea into practice by deploying formal education to uplift marginalized groups and prepare them for socially useful work.

This cargo-cult belief in education as a substitute for industrial competence plagued Southeast Asia as well. Vocational training, which powered Northeast Asia’s rise, was deemphasized in favor of the more fashionable liberal and pure science education. The tropical former U.S. and European colonies found themselves in a situation of ‘too much education of the wrong kind,’ in contrast to the German-inspired kind:

The engineering qualification of a Taiwanese student may be more appropriate to the initial task of economic advancement than the accountancy qualification of the Malaysian student. By the late 1980s, vocational training (mostly focused on manufacturing) constituted 55 percent of tertiary education in Taiwan, while less than 10 percent of students were taking humanities subjects. In the 1980s, relative to population, Taiwan had 70 percent more engineers than the US.

To solve for why centralized economies churning out swarms of junior doctors and machinists weren’t roaring successes, we could also add ‘too little education of the right kind.’ Most technological learning happens not in classrooms but within businesses, especially those engaged in global competition. Yet multinational companies are keen to guard their trade secrets from industrial espionage.

In the fight to climb the value chain, every joint venture becomes a battlefield of strategy and leverage. South Korea’s steel giant POSCO, founded in 1968, took early technical advice from Nippon Steel but hired Australia’s BHP to audit it. When the Japanese cut POSCO off in the 1980s, it pivoted to European suppliers. Hyundai turned a similar trick, draining Mitsubishi’s IP before courting European suitors.

Global Competition or DEI for Natives?

Hyundai became a household name from the 2000s, but only after outmaneuvering fierce domestic rivals like Shinjin (later Daewoo) and Kia. For all three automakers, South Korea tied state loan approvals to strict export targets. Studwell dubs this pan-East-Asian strategy ‘export discipline,’ a policy forcing domestic companies to produce products competitive enough to sell abroad, rather than relying on tariffs.

In 1981, Malaysia’s newly elected Prime Minister, Mahathir Mohamad, launched a heavy industry policy explicitly modeled on Japanese and Korean successes. His national car project, Proton, even partnered with Mitsubishi, just as Hyundai had. But there was no export discipline, and there was also the problem of Mahathir leading a racial supremacist party bent on suppressing its entrepreneurial ethnic minorities:

Mahathir mixed up industrial policy with affirmative action. He came to power promising to raise up the indigenous bumiputera population. In so doing, he painted himself into a racial corner where he decided he could not use Malaysia’s mostly ethnic Chinese and Tamil established entrepreneurs to run his new heavy industrial investments. Instead, he tried to implement effective industrial policy and create a new generation of Malay entrepreneurs at the same time.

Before Malaysia, and concurrently with it, two successive Indonesian leaders tried combining ambitious industrial policy with nationalist efforts to promote bumiputera and suppress ethnic Chinese.¹ Southeast Asian states focused on picking winners, while Northeast Asian states prioritized culling losers. The harsher policy showed results in Taiwan, where companies like Acer and HTC thrived with no state support.

From China’s opening up in 1978, to Vietnam’s in 1986, to India’s in 1991, countries in Asia learned the hard way that the creative destruction of international market feedback beats the pain of autarkic ignorance and stagnation. In 1997, the Asian Financial Crisis delivered its stark judgment on developing countries outside this group that built their economies on speculation rather than adding real value.

Industrial policy is back in fashion in America, making it a good time to remember that the most effective examples in recent history embraced risk, feedback, and discipline from global markets. Picking market winners and losers based on domestic racial resentments failed against mercantile minorities in Asia, and it’s unlikely to succeed elsewhere. Our choice is between the invisible hand and the barrel of a gun.

1. In Malaysia, the general policy of Malay Supremacy is called Ketuanan Melayu, with its economic component known as the ‘New Economic Policy’ (NEP). In Indonesia, a local synonym for bumiputera (also commonly used) is pribumi, and the NEP equivalent is Benteng.