By Devika Panse
The East Asian Miracle, a much-celebrated growth phenomenon that occurred in the post-war period, continues to be one of the most debated subjects among economists. Since 1960, Asia, the largest and most populous of the continents, has become richer faster than any other region of the world. This growth, however, has not occurred at the same pace all over the continent.
Galloping Tigers
A series of events that took off post-1945 demonstrated unusually high growth rates in Hong-Kong, Singapore, Taiwan and South Korea known as the Four Asian Tigers at that time. These were later followed by Indonesia, Malaysia and Thailand, who joined the galloping growth club, which further went on till the 1990s.
Michael Sarel, in his 1997 paper observes that the Tigers have had annual growth rates of output per person well in excess of 6 percent. These growth rates, sustained over a 30-year period, are simply amazing. While the average resident of a non-Asian country in 1990 was 72 per cent richer than his parents were in 1960, the corresponding figure for an average Korean is no less than 638 per cent.
This baffling growth bewildered even the best economists of the time. Hong Kong has six million people jammed into 400 square miles, with no oil or other natural resources, most of its water and food imported, and its trading partners thousands of miles away. They failed to understand how a country like Hong Kong managed to leapfrog and go on to become the second most prosperous country in the Pacific Basin. Japan, on the other hand, shares a similar story. One of the poorest country in the world in 1945 after the Second World War became an economic superpower in the 1990s, ranked second after the USA.
Initial push
Inspired by Japans evident success, the Tigers collectively marched towards a single goal by using a common strategy- infrastructure, education and human development. By the end of the 1960s, levels of physical and human capital in the four countries far exceeded other nations at similar levels of development. According to an analysis by John Page (1994), the levels of education enrolment in the Four Asian Tigers were higher than predicted given their level of income. By 1965, all four nations had achieved universal primary education. South Korea, in particular, had achieved a secondary education enrolment rate of 88 per cent by 1987. There was also a notable decrease in the gap between male and female enrolments during the Asian miracle
The East Asian growth trajectory
This subsequently led to a rapid growth in per capita income levels. While high investments were essential to their economic growth, the role of human capital was also important. Education, in particular, is cited as playing a major role in the Asian miracle. Overall these advances in education allowed for high levels of literacy and cognitive skills.
Page points out that the creation of stable macroeconomic environments was the foundation upon which the Asian miracle was built. Each of the Four Asian Tiger states managed to control up to various degrees of success, three variables: budget deficits, external debt and exchange rates. Each Tiger nation’s budget deficits were kept within the limits of their financial limits, as to not destabilise the macro-economy. South Korea, in particular, had deficits lower than OECD (Organisation for Economic Co-operation and Development) average in the 1980s. External debt was non-existent for Hong Kong, Singapore and Taiwan, as they did not borrow from abroad. South Korea was the exception to this. Its debt to GNP (Gross National Product) ratio was quite high during the period 1980-1985 which was sustained by the countrys high level of exports.
Reasons for growth
Exchange rates in the Four Asian Tiger nations had been changed from long-term fixed rate regimes to fixed-but-adjustable rate regimes with the occasional steep devaluation of managed floating rate regimes. This active exchange rate management allowed the four Tiger economies to avoid exchange rate appreciation and maintain a stable real exchange rate.
Export policies have been one of the reasons for the rise of these Four Asian Tiger economies. The approach taken has been different among the four nations. Hong Kong and Singapore introduced trade regimes that were neoliberal in nature and encouraged free trade. South Korea and Taiwan adopted mixed regimes that accommodated their own export industries. In Hong Kong and Singapore, due to small domestic markets, domestic prices were linked to international prices. South Korea and Taiwan introduced export incentives for the traded-goods sector. The governments of Singapore, South Korea and Taiwan also worked to promote specific exporting industries, which were termed as an export push strategy. All these policies helped these four nations to achieve a growth averaging 7.5 per cent each year for three decades and as such, they achieved developed country status.
Hardly a miracle?
There have been contradictory views on calling the East Asian development model a miracle. The approach of letting the economy simply be is the basis of Keynesian economic theory. Allowing the free market to dictate the allocation of resources, with governments only role being to facilitate for this freedom of commerce prevails in most the modern day developed economies. The fact that this model drifts away from the traditional Keynesian development framework is one of the major reasons why many economists have refrained from paying much attention to the reasons that brought about this miracle.
Paul Krugman, in his path-breaking paper in 1994, asserted that there was nothing miraculous about the growth seen in East Asia. He added that it is nothing but a reminder of the incredible growth rates of the Soviet Union in a bygone era (1920-1990). The newly industrialising countries of Asia, like the Soviet Union of the 1950s, have achieved rapid growth in large part through an astonishing mobilisation of resources. Once one accounts for the role of rapidly growing inputs in these countries’ growth, one finds little left to explain. Asian growth, like that of the Soviet Union in its high-growth era, seems to be driven by extraordinary growth in inputs like labour and capital rather than by gains in efficiency. The Asian Miracle of the second half of the twentieth century can be largely attributed to the authoritarian regimes implemented by domestic governments.
Sustainability of the development model
There have been multiple attempts to fit in the development model of East Asia into other countries like Africa and India. However, it must be noted that the success of a particular model highly depends on the endowments of the country, economic and political stability. Although achieving high sustained growth rates seem like a pretty picture on the outside, they also bring about some pessimistic results.
First, economic growth in the Four Tigers is hardly miraculous. It is just the expected outcome of a massive accumulation of labour and capital. Second, the progress of these economies along this growth path for the past 30 years cannot continue. Sooner or later, they will experience a dramatic decrease in growth. Third, the societies in these countries made enormous sacrifices of consumption and leisure to achieve these growth rates.
Therefore, even if their so-called success can be replicated in other countries, it is probably not wise to do so.
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