Two features of Taiwan's post–World War II history are striking. First, it is one of the few nonsocialist economies since Japan to rise from the grossest poverty and to enter the world of the “developed.” Second, the state in Taiwan has played a leading role in the process of capital accumulation. It has positioned itself to prevail on key economic parameters such as the size of the surplus extracted from agriculture and the rate of profit in industry. To understand Taiwan's economic growth, therefore, it is necessary to understand its potent state.

The challenge of understanding the role of the state in Taiwan's economic development is increased by the fact that the state's initial aims were so clearly military and geopolitical rather than economic. When Taiwan was occupied by the vanquished Nationalist government in 1949, the Guomindang was obsessed with one objective: military buildup in order to retake the Mainland. As Edwin Winckler bluntly put it, “The Jiang Jie-Shi forces, if they had had their own way, wouldn't have spent one penny on economic development.” Given that militarism and economic development must to some extent operate at cross-purposes, competing for the same scarce resources, Taiwan's success must seem somewhat paradoxical.

If the role of the state is critical to economic development, why should an economy under the heel of the military end up with a “good claim to be ranked as the most successful of the developing countries”?