The case of a very successful developing country—Taiwan—is examined in order to assess the importance of market phenomena and governmental policy leadership for promoting development. In their analysis of postwar Taiwan, therefore, the authors reject the temptation to dichotomize ‘state versus market’, and instead argue strongly in favor of a ‘state and market’ approach. The ability to accommodate and manipulate economic market forces was central to Taiwan's economic miracle because the island's businesses became highly competitive on world markets and carved out a niche of comparative advantage in the global economy. Much of the credit for this, furthermore, rests with the flexible production of small private firms. However, the state also played a significant role in boosting the island's competitiveness by promoting several structural transformations of the economy, creating a good business environment for entrepreneurs, channeling foreign capital into a few vital sectors, and financing infrastructure and human capital development. A key factor in the state's positive role, in turn, appears to be regime autonomy. That is, until quite recently, the government has been rather autonomous from social forces and unconstrained by electoral politics and popular accountability.
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