“Making Money: How Taiwanese Industrialists Embraced the Global Economy” by Gary G Hamilton and Cheng-shu Kao


In August 1954, the United States revised its revenue code to allow the accelerated depreciation of fixed asset investments. The move was designed to encourage American manufacturers to invest in new plant and equipment. Its actual effect was to fuel an explosion in shopping center construction.

Between 1955 and 1970, the number of shopping centers in the United States rose from fewer than 500 to more than 10,000, and the new centers were much larger, with many more stores. Fifteen years later, the total exceeded 50,000. The retail revolution was complete long before China joined the World Trade Organization and globalization became a household word. By the mid-1980s, the United States was already the world’s first shopping mall society.

Asia’s production networks, it turns out, were “made in America”.

Making Money: How Taiwanese Industrialists Embraced the Global Economy, Gary G Hamilton, Cheng-shu Kao (Stanford University Press, December 2017)
Making Money:
How Taiwanese Industrialists Embraced the Global Economy
Gary G Hamilton, Cheng-shu Kao (Stanford University Press, December 2017)

Gary G Hamilton and Cheng-shu Kao’s Making Money: How Taiwanese Industrialists Embraced the Global Economy doesn’t start in Taiwan, or even in Asia. It starts in America, because thirty years of research and 800-plus interviews have convinced the authors that East Asia’s economic miracles have been led by demand—American demand. Asia’s production networks, it turns out, were “made in America”. That conclusion is all the more remarkable because Hamilton and Kao didn’t start out with a demand-led theory of capitalism. They were supply-siders who, by the 1990s, had emerged as two of the leading academic experts on global production networks.

The standard story of the East Asian miracle has Japan, South Korea, Hong Kong, and Taiwan “flooding” America with cheap manufactured goods in the 1970s and 1980s, after which China took over as East Asia’s cheap exporter-in-chief in 1990s and 2000s. Efficient East Asian manufacturers bankrupted one famous American company after another by using their cheap labor and lax environmental standards to price unionized American factories out of the market. Paternalistic East Asian governments facilitated this process through the judicious use of protectionist tariffs and the development of wise strategic investment policies.

Hamilton and Kao used to buy into that story. In fact, they helped write it. But now, looking back on a lifetime of interviews and reams of detailed customs data, they have become convinced that the standard story is wrong. American manufacturers weren’t done in by low-cost East Asian competitors, or by their unions. American manufacturers were done in by American retailers. The shopping center revolution put retailers in charge of the consumer relationship. Where once a generic local store sold a branded television, now a branded local store sold a generic television. And as the retailers came to “own” the customers, they started cutting the branded manufacturers out of the value chain. They went to East Asia to find goods to fill their shelves.

Making Money thus offers a rare “we were wrong” from smart people who devoted their entire professional lives to the study of capitalism—and is extraordinarily persuasive as a result. Their field research in Taiwan, Hong Kong, and China led Hamilton and Kao to embrace one simple principle: the customer is king. Year after year, their interviews made clear that manufacturing always starts with the order. No orders, no production. The days of supply-push manufacturing are gone; Asian contract manufacturers only produce in response to demand from merchandisers and retailers. Hamilton and Kao call this the rise of “demand-led capitalism”.

Demand-led capitalism is the life-force of contemporary globalization. The older wave of globalization that lasted from the 1870s through the 1920s was characterized by manufacturers going abroad in search of new markets for their products. But in the 1960s, American merchandisers and retailers started going abroad in search of suppliers for the new shopping centers. Technological innovation was driving a “retail revolution” in the United States, as the development of the universal product code (UPC) to cover every single stock-keeping unit (SKU) enabled the emergence of point-of-sale (POS) inventory management. As a result, barcodes and optical scanners are now ubiquitous in retail operations all around the world.

For the first time in history, retailers know exactly how many units they are selling of every variety of every product they stock—every day. That has transformed merchandising from inspired guesswork into a calculable (and thus manageable) business practice. Instead of manufacturers guessing how many units to produce, then doing their best to sell them, retailers now calculate how many units they will sell, then shop for manufacturers to produce them. And that—according to Hamilton and Kao—is what led to the transfer of American manufacturing across the Pacific to Asia.

Before the retail revolution, manufacturers made goods in their own factories, then merchandised them globally. After the retail revolution, retailers sold goods in their own stores, then sourced them globally. That’s how the rise of the shopping center (and its culture of own-brand chain retail stores) in America led to the rise of contract manufacturing in Asia. At first it started with simple goods, like ready-to-wear clothing, but the retailers found that a contractor who could manufacture clothes to a set of specifications could probably manufacture just about anything else, given access to components and the promise of a paying order. And here, at last, Taiwan comes into the picture, because Taiwanese businesspeople (along with their cousins in Hong Kong) became the kings of contract manufacturing.


Hamilton and Kao’s Making Money is not a book about Taiwan, whatever the subtitle may say. It is a book about globalization, or as they would have it, a book about capitalism. The authors focus on Taiwan because they conducted the bulk of their interviews with Taiwanese businesspeople (originally located in Taiwan, but later increasingly in China). Their quantitative data cover all of East Asia, and they provide almost as much insight into the operations of Japanese keiretsu and South Korean chaebol as into the workings of Taiwanese business networks. Nonetheless, they claim that Taiwanese contract manufacturing is at the heart of China’s export sector—and they have the data to back that up.

Two things you won’t find in this book are a lot of nonsense about the mystical qualities of Chinese guanxi, and panegyrics to the East Asian developmental state. Guanxi is mentioned only twice in the book, dismissively, and the authors consistently found that the businesspeople they interviewed were usually not even aware of the state programs that were supposed to be guiding them to greater profitability. They found instead that major investment decisions were more often guided by advice from the big American buyers (or, in the initial phases of Asian take-off, by the big Japanese buyers) than by the state. In fact, the biggest change in East Asian production networks, the epochal move to China, was almost entirely driven by explicit pressure from American buyers. Taiwanese contract manufacturers didn’t go to China to find cheaper inputs; they went to China because American buyers told them that they wanted lower price points, and that China was the only way to meet them. The American buyers told them, quite literally, to go to China or lose their contracts. So they went to China.

Making Money: How Taiwanese Industrialists Embraced the Global Economy is the one truly crucial must-read book for anyone who wants to understand globalization, contemporary capitalism, or how the East Asian economy works today. It is fully up to date with developments through 2016, with interviews that span the heyday of Taiwanese contract manufacturing, the move to China, the heyday of Chinese contract manufacturing, and the current disenchantment with China. The book covers the clothing, footwear, computer/smartphone, and semiconductor industries in detail, and many other industries (including plastics, toys, bicycles, automobiles, machine tools, and dental equipment) in passing.

Hamilton and Kao have put a lifetime of experience into this book, and it shows. Though intended for an academic audience, it is accessible to everyone, and well worth the investment.

Salvatore Babones (@sbabones) is an American sociologist at the University of Sydney. His research takes a long-term approach to interpreting the structure of the global economy, with a particular focus on China. He is the author of American Tianxia: Chinese money, American power and the end of history (Policy 2017).