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Plan versus Market Explanations in Computer Industry

In comparing the different strategies of these countries in developing their computer industries, we seek to shed light on a central question in development economics: how can companies and countries establish and maintain a viable competitive position in a highly globalized, technologically dynamic industry?

The experiences of Japan, Korea, Taiwan, Singapore, and Hong Kongare especially interesting because, although each succeeded in carving out a place in the global computer industry, each started from different positions, followed different approaches, and achieved markedly different levels of success.

How can their different levels of success be explained? Most explanations are based upon either market-directed theories of neoclassical economics or plan-directed, revisionist theories of political economy.

Neoclassical development economics argues that countries should pursue their comparative advantages (such as low wages), and ascribe a minimal industrial policy role for the state beyond providing a stable macroeconomic environment and investing in infrastructure development (such as human resources, R&D, and telecommunications).

Rather than intervene in the market via industrial policies, governments should seek to minimize distortion in the market by getting the economic fundamentals right. The neoclassical approach explains differences in industrial performance between countries primarily in terms of differences in initial factor endowments, the soundness of macroeconomic management, and the level and effectiveness of public investment in infrastructure development.

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