The Asian Economic Miracle:
(“Global Economics” – Chapters #14 and #15 and “The
Commanding Heights” – Chapter #6)
Examination of the collective experience of several Asian countries post WW-II: the “Asian Economic Miracle”…
“HPAE’s” – High Performance Asian Economies
: a group of eight Asian countries that experienced spectacular economic growth at different points in time during the second half of the twentieth century
Three groups, based upon differences in when initial rapid growth began:
1.
1950’s: Japan
2.
1960’s:
Asian Tigers
– Hong Kong, Taiwan, South
Korea, Singapore
3.
Late 1970’s/Early 1980’s:
New Tigers – Malaysia,
Thailand, Indonesia
Recall the…
“Rule of 70” – a variable that grows at a constant rate of
“X% per period” will double in value in approximately
“(70/X) periods.”

GDP Growth of “Asian Tigers” and “New Tigers” from
1965-1990:

Thailand, Malaysia, and Indonesia had 5% annual growth rates of “Per Capita GDP” => “Per Capita
GDP” doubled every 14 years

Hong Kong, Singapore, Taiwan, and South Korea had 7% annual growth rates of “Per Capita GDP”
=> “Per Capita GDP” doubled every 10 years
Example: it took Malaysia just 30 years to transform from a
“former rubber colony” into “one of the world’s largest manufacturers of semiconductors”
Increases in annual Per Capita GDP (PPP):

Taiwan: $100 in 1949 => $29,800 in 2007

South Korea: $100 in 1963 => $24,600 in 2007

Singapore: $427 in 1960 => $48,900 in 2007

Thailand: $196 in 1970 => $8,000 in 2007

Malaysia: $390 in 1970 => $14,400 in 2007

Indonesia: $74 in 1970 => $3,400 in 2007
Part of this tremendous growth is likely a result of the
“catch-up effect”…

Growth with “Greater Income Equality”:

From 1965-1990 the “Asian Tigers” and the “New
Tigers” not only experienced tremendous growth, but also “greater income equality”

Value of Gini-Coefficient decreased in all seven of these countries during this time-period

Recall that post WW-II many “already industrialized countries” such as France, U.S., and U.K. had
“increasing inequality” along with their much more modest growth
Common sources of Asian Miracle – HPAE’s generally had

Low government budget deficits
 High “Individual Savings Rates” and high rates of
“Private Investment”

Emphasis on education => substantial increases in
“human capital”

Institutional and Legal Framework that encouraged enterprise and commerce => commitment to establishing/enforcing “property rights” and
“economic freedom”

Trade Policies “favorable” to growth => (discussed in greater detail below)
 Industrial Policies “favorable” to growth =>
(discussed in greater detail below)

Trade Policies Favorable to Growth:

Globally, there has been a clear trend toward greater international trade since WW-II.
 Generally, international trade is a “good thing” for all countries involved, since it allows for greater overall production through the “Principle of
Comparative Advantage.”
 Economists generally agree that restrictions on trade not only lower “total global welfare,” but also reduce the long term total welfare of the individual countries imposing the restrictions.

That being said, trade restrictions can sometimes benefit segments of a society (particularly in the short term) or possibly help promote growth within targeted sectors of an economy

Two clear objectives to trade policies and restrictions:

Assisting Exports : policies which make it easier for firms within a country to sell goods abroad.

Protecting the Home Market : policies that give domestic firms advantages at supplying a good within the home market
 Many HPAE’s followed an “Export Led Growth” model by implementing trade policies with the aims of both “protecting the home market” and also aggressively “assisting exports” (particularly to highly industrialized, wealthy countries)

Industrial Policies “favorable” to growth:
Industrial Policy – general term that encompasses the involvement of the government in the promotion of economic growth.
 “macro” industrial policy – stabilization policy, control of interest rates, control of exchange rates.
 “micro” industrial policy – subsidy payments to specific firms, funding of research and development, discriminatory tax relief, use of tariffs or quotas to protect domestic industries.

Industrial structure and relation between industry and government differed across countries, but all enjoyed good labor relations

Japan: Keiretsu
– coalition or network of large enterprises with “interlocking business relationships and shareholdings” (e.g. – the “Mitsubishi” Keiretsu consists of Mitsubishi Electric, Mitsubishi Motors,
Kirin Brewery, Nippon Oil, Nikon…)

South Korea: Chaebol – large conglomerates, typically owned by a single family, operated with authoritarian management, and with substantial government support (e.g. – Samsung, Hyundai, & LG)

Taiwan: a large network of small, family-operated firms

Singapore: high level of government intervention, with emphasis on “attracting investment from large, multi-national corporations”

Hong Kong: virtually a “laissez-faire” economy with very little government intervention

 Most HPAE’s had Government policies targeted at promoting production or research/development in
“favored” industries or enterprises
 “Augmenting the Market Through Competition”
– in some cases the government supported multiple enterprises within a particular industry, and used
“relative export performance” as a yardstick against which they could measure relative performance, in order to determine which enterprise would receive continued government support
 If the government undertakes “active, interventionist industrial policy,” it is not only important to “picks winners” to support, but also important to “let go of losers” (i.e., no longer supporting enterprises that
“should fail”)
 e.g. – decision by Korean government to “allow
Daewoo to collapse under $80 billion of debt” in 1999
 contrast this with the unwillingness of the British government to let the coal industry shrink in the decades following World War II

Not everything that these Governments did was
“successful” => Notable “Failures” of Industrial Policy

Japanese consumer electronics success, absent government support
 Attempts by Japan to have Honda focus on “motorbike production and not automobile production”
 Korea’s costly “Heavy and Chemical Industries
Initiative” (unsuccessful government led effort to industrialize during the 1970’s)

Debate over the “Asian Miracle”:
Competing explanations of the “Asian Economic Miracle”:
1.
view during early 1980’s: explanations for the “Asian
Miracle” focused on “reliance on market fundamentals and limited government intervention.”
2. view by Late 1980’s: many began to note that (at least in Japan, South Korea, and Taiwan) the government
 targeted particular sectors for growth, affording protection from foreign competition and subsidized access to capital
 these targeted sectors enjoyed tremendously high growth, and essentially powered the rest of the economy
 in many instances government played an active role in markets, manipulating “key prices” (particularly in financial markets)
These two competing views are perhaps reconciled by the notion of the:
“
Market Friendly Approach
” – viewpoint that the market is efficient in the long term, but in the short term gains may come from selective government intervention
Two Primary “Lessons from Asian Miracle”:
1.
the global economy is NOT “rigged against new entrants” and does NOT “prevent poor countries from becoming rich”
2.
economic development need not be based upon
“import substitution,” as was often previously claimed
( Import Substitution – policies aimed at replacing imports of goods with domestic production of the same items) => “Export Led Growth” is possible