"Develop a questioning of your assumptions and be more intellectually curious"
I agree,.
For the sake of keeping the conversation going.
How dirigisme in Korea, Taiwan and Singapore solved the agency problem.
"..concerning the problem of control of business enterprises, I have suggested that the explanation for the undoubted dirigisme to be found in Korea and Taiwan, for instance, is to be explained by the agency problem that a country faces when it moves up the ladder of comparative advantage—ordered by ascending ratios of capital to labor—into more capital intensive lines of production,where there are likely to be indivisibilities in investment. In the absence of private concentrations of wealth, ownership and control are likely to be separated in these industries, leading to an agency problem, as the interests of the managers who control the day-to-day operation of a firm and the owners who are concerned with maximizing the return to their “shares” diverge.
The problem is one of maintaining beneficial control over resources when there are economies of scale and scope in a firm. This control is in turn related to the amount of private wealth that is required to reduce the degree to which ownership is separated from control of the relevant resources. Inequalities in private wealth may therefore be productive in allowing fewer people to own firms and exercise greater control over the managers There are three ways of overcoming this agency problem.
The first is through sufficient concentration of private wealth, and some institutional means for its spread over a number of enterprises while maintaining control by some concentrated owners. The second is through public enterprises.
The third is through foreign equity controlling local firms.
Korea, following Japan, sought to create concentrations of private wealth through the promotion of the chaehol. The major instrument was long-term subsidized credit to a select number of industrial groups,who were chosen by a relatively efficient dynamic monitoring process based on export success—under a relatively neutral overall trade regime.
In Taiwan, by contrast, as the government was concerned with the political consequences of promoting native Taiwanese economic power, it eschewed the Korean route and instead chose the public sector route for capital-intensive industries like ship-building and petrochemicals;
Singapore chose the third route, but its “neutral” trade regime ensured that the direct foreign investment tariff-jumping kind stayed out, and hence likely to be both socially as well as privately profitable.
