In a landscape saturated with debates over state-led economic strategy, Richard Hanania delivers a provocative counter-narrative: the "East Asian Miracle" was not a triumph of government planning, but a testament to pre-existing human capital. While the prevailing wisdom credits industrial policy for the region's ascent, Hanania marshals data on cognitive performance to argue that nations like South Korea and China were always destined to outperform their peers, regardless of policy choices. This is a challenging read for policy wonks, but essential for anyone trying to separate genuine economic drivers from political mythology.
The Industrial Policy Myth
Hanania begins by dismantling the post-Cold War retreat from free-market principles. He notes that while communism collapsed spectacularly, the intellectual pendulum didn't swing fully back to markets; instead, it settled on "industrial policy" as a compromise. The author writes, "The state must control capital, as setting up a well-functioning legal system, solving narrow coordination problems, and otherwise leaving things to the market is insufficient." This framing sets the stage for his central critique: the belief that governments are better at allocating capital than markets is an unproven assumption, not a law of economics.
He targets Joe Studwell's influential book How Asia Works, which argues that protectionism and state direction were the engines of growth. Hanania challenges the theoretical underpinnings of this view, asking why markets in developing nations would fail to identify efficient long-term investments while governments succeed. He writes, "There is no theoretical reason why markets should not get to the more economically efficient outcome in the absence of government restrictions on trade or commerce." This is a sharp, logical pivot that forces the reader to confront the lack of a mechanism explaining why state planners consistently outsmart private investors.
Critics might argue that Hanania underestimates the coordination failures that plagued early industrializers, but his point stands: if the market is so inefficient, why do we see successful private sector coordination in other contexts? The author suggests that what is often celebrated as "industrial policy" is merely the result of concentrated interests lobbying for privileges. "When countries get rich, we say it's thanks to industrial policy. When they fail, we say that they didn't do it correctly or maybe the leaders were greedy," Hanania observes. This cyclical logic, he argues, is a post-hoc rationalization rather than a predictive model.
The Human Capital Reality
Shifting from policy to demographics, Hanania introduces a more controversial metric: cognitive ability. He utilizes data from the Programme for International Student Assessment (PISA) to plot educational performance against GDP per capita. The result, he claims, reveals that East Asian nations are actually economic underperformers relative to their cognitive potential. "The East Asian countries and territories are highlighted in the chart above. Chinese and South Korean industrial policy are often held up as major success stories. But both nations are underperformers given the cognitive abilities of their populations," he writes.
This argument reframes the entire historical narrative. Instead of policy creating wealth, Hanania suggests that high human capital allowed these nations to grow despite suboptimal policies. He points to historical data to bolster his case, noting that even in the 1980s, when China was desperately poor, its population scored on par with Western nations in cognitive tests. "This is remarkable given how much poverty it was experiencing," Hanania notes, citing studies from the 1980s that found Chinese IQ scores comparable to or higher than the global average. The implication is clear: the "miracle" was not a sudden policy shift, but the unlocking of latent potential.
The author also addresses the North Korean anomaly, using it as a control group. Despite having a GDP per capita of roughly $600 to $1,000, North Korea's estimated cognitive scores remain high compared to other nations at similar development levels. "If you think Emil Kirkegaard is too racist to trust, here's a paper looking at cross-national cognitive ability by three mainstream scholars. The results are the same no matter how you gather the data," Hanania writes, attempting to insulate his argument from ideological dismissal. This reliance on multiple data sources strengthens his position, even if the topic remains fraught with controversy.
The idea that you need the state to figure these things out is asserted but never explained.
Hanania's analysis suggests that the "Four Asian Tigers" succeeded not because of unique policy interventions, but because their populations possessed the skills to adapt to global markets. He contrasts this with import substitution industrialization, a strategy often associated with Latin America, which protected domestic markets but failed to generate similar growth. "East Asia, in contrast, sought export-oriented growth, where firms were encouraged and incentivized to sell to the rest of the world, which made them subject to market forces," he explains. Yet, he argues, this was a secondary factor; the primary driver was the human capital available to execute these strategies.
The Limits of the Argument
While Hanania's data is compelling, the argument is not without its vulnerabilities. A counterargument worth considering is that human capital and policy are not mutually exclusive; perhaps high cognitive ability made it easier for governments to implement effective industrial policies. Hanania acknowledges the bidirectional nature of causation—"Smarter countries get wealthier, but we've seen many instances where nations getting wealthier has improved cognitive performance"—but maintains that the correlation is too strong to ignore.
Furthermore, the reliance on IQ and PISA scores as proxies for "human capital" can be reductive. It risks overlooking other critical factors like institutional quality, cultural attitudes toward work, or the specific historical timing of the Cold War that allowed these nations to access Western markets. Hanania's dismissal of the role of the state may be too absolute, ignoring the nuanced ways in which infrastructure investment and education systems (often state-run) contributed to these outcomes.
Bottom Line
Richard Hanania's piece is a bold challenge to the orthodoxy of industrial policy, forcing a re-evaluation of what actually drives economic development. Its greatest strength lies in the stark data visualization that reveals East Asian nations as underperformers relative to their cognitive potential. However, its biggest vulnerability is the potential to oversimplify the complex interplay between policy, culture, and human capital. Readers should watch for how this argument influences future debates on state intervention, particularly as nations grapple with the limits of their own human capital resources.