Many studies have noted the reduction in the effectiveness of the East Asian developmental state in formulating growth-promoting policy in South Korea and Taiwan. Current literature attributes the transformation of the developmental state model to the rise of business elites and organised labour. This article argues that another type of social actor – the middle class – also contributed to the state’s reduced capability in directing economic development. Unlike business elites and organised labour who directly challenge the state’s policy decision, the middle class forces East Asian ruling elites to democratise the political system of a country. The democratic transition pushed by the middle class consequently facilitates the emergence of policy constraints on the state’s economic decision-making process. I elaborate this argument in the two divergent cases: the transformation of the developmental state in South Korea and the non-transformation of the developmental state in Singapore.

The institutional changes to the developmental states in South Korea and Taiwan have been well-documented. This paper offers a theory to recount the states' actual transformation processes in these two cases. Advancing existing insight that the state's transformation process is shaped by the emergence of either concentrated or dispersed economic interests, I argue that a crucial process behind the transformation of the developmental state is a democratic transition of a country motivated by ruling elites' strategic choices. Specifically, a democratic transition in a developmental state is shaped by two consecutive elite decisions: (1) the decision to initiate democratic transition in response to the democratic mobilisation of the middle class; (2) the decision to introduce democratic elections in response to an electoral threat from opposition elites. This process of democratic transition facilitates the emergence of state policy constraints by transforming the political foundation of the state.

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