Amsden's Reciprocal Control Mechanism

This is a continuation of the discussion over at mlq3's on Abe's proposal. Over there, Abe asked me to explain Amsden's concept of reciprocity.

In Amsden's framework, the concept of reciprocity is an alternative or supplementary control mechanism to that of the free market.

According to Amsden,

"A control mechanism is a set of institutions that imposes discipline on economic behavior. The control mechanism of 'the rest' revolved around the principle of reciprocity. Subsidies ('intermediate assets') were allocated to make manufacturing profitable - to facilitate the flow of resources from primary product assets to knowledge-based assets - but did not become giveaways. Recipients of subsidies were subjected to monitorable performance standards that were redistributive in nature and results-oriented.

The reciprocal control mechanism of 'the rest' thus transformed the inefficiency and venality associated with government intervention into collective good, just as the 'invisible hand' of the North Atlantic's market-driven control mechanism transformed the chaos and selfishness of market forces into general well-being. The reciprocal control mechanism of the North Atlantic minimized market failure. The reciprocal control mechanism of 'the rest' minimized government failure."

We should note that by 'the rest', it does not only mean just the East Asian tiger economies. In this classification, Amsden includes Argentina, Brazil, Chile, China, India, Indonesia, Korea, Malaysia, Mexico, Taiwan, Thailand and Turkey. These are the countries that, after World War 2, "had acquired enough manufacturing experience in the production of silk, cotton textiles, foodstuffs, and light consumer goods to move into mid-technology and later high-technology sectors. The 'remainder'" [which includes us] "which comprised countries that had been less exposed to modern factory life in the prewar period, failed thereafter to achieve anywhere near 'the rest's' industrial diversification."

[Source: The Rise of 'The Rest' - Here's a concise summary (and critique at the end).]