1.0 Introduction
For a period of 25 years from 1965 to 1990, there was a sharp ascendance of economic growth in eight Asian economies which consist of Japan; the four tigers (Singapore, Taiwan, Korea, Hong Kong) and the newly industrialised economies of Malaysia, Indonesia and Thailand. Therefore, to assess this growth, the world bank conducted a report called “The East Asian Miracle (1993)” in which they explained the success of these high performing Asian economies (HPAE’S).
This report will therefore evaluate further on how the world bank viewed the success of the HPAE’S in regard to the report they conducted, as well as provide additional insights on further evaluations that were administered by authors such as Krugman, Stiglitz in regard to the economic growth of the Asian economies.
2.0 Rapid Productivity Growth
As productivity growth figures in the HPAE’S were significantly high in comparison to other developing and industrial economies, these high rates of productivity performance mostly originated from the coalition of unordinary success at allocating capital to high-yielding ventures and at making up for lost time technologically to the industrial economies (World Bank, 1993, p. 8).
But what were the specific policies that were implemented in achieving rapid productivity growth? Well, there are a few views that have arose in regard to the HPAE’S success:
2.1 The Neoclassical View
The first view is the Neoclassical approach in which Advocates of this ideology strain that the Asian economies were successful through getting the ‘basics right’. They argue that fruitful Asian economies have been exceptional than others at dispensing a stable macroeconomic environment as well as having a solid legal structure to advance local and international competition. In addition, the role of a government in a neoclassical framework is to invest in individuals, education and well-being, and neoclassical adherents emphasise on the significance of human capital in the HPAES’ success (World Bank, 1993, p. 9).
2.2 The Revisionist View
In accordance to this approach, adherents of this framework argue that that main reason for success in the HPAE’S was due to a “lead the market” perspective which was implemented by the governments mainly to boost industries that were not doing well in the economy, this was due to markets continuously failing to provide investments to those industries that would initiate the highest growth for the economy in general. The governments solution to this was to intentionally “get the prices wrong” which in turn altered the incentive structure, boosting the industries (World Bank, 1993, p. 9).
2.3 The Market-Friendly View
In this “market friendly” strategy, the suitable role for the government is to guarantee sufficient investments in individuals, produce a competitive atmosphere for private undertaking, keep the economy open to international exchange and keep up a stable macro-economy. As the Asian economies are stable macro economically, heavy investments in individuals are made, and there is strong competition amongst firms, this market-friendly approach captures key aspects of the success of the HPAE’S. However, this success was only possible through intensive government intervention in markets to escort private-sector resource allocation (World Bank , 1993, p. 10).
3.0 Macroeconomic Stability and Export Growth
Macroeconomic stability depicts a national economy that has limited culpability to external shocks, which thus expands its prospects for managed development (The Reut Institute, 2006). The HPAE’S utilised macroeconomic stability through constraining monetary deficits to levels that could be judiciously financed without expanding inflationary pressures, and reacted immediately when fiscal pressures were seen as rising.
Therefore, this empowered long-term planning and private ventures, and through its effect on real interest rates and the real value of monetary assets helped to surge financial savings.
Furthermore, as macroeconomic policies contributed to rapid export growth, the HPAE’S utilised a number of methods to promoting exports. One example is how the governments of Japan, Taiwan and Korea set up a pro-export impetus structure that coincided with direct yet highly variable protection of the domestic market. An assortment of instruments was utilized such as export credit, duty-free imports for exporters and their suppliers, as well as export targets and tax incentives. (World Bank, 1993, p. 13) .
4.0 Institutional Basis for Growth
As the growth of the economy played a major role in the success of the HPAE’S, the governments realised that economic progression was impossible without collaboration. Therefore, the governments established two ways in which this could work:
4.1 Principle of Shared Growth
To achieve shared growth, leaders had to convince the economic elites to encourage growth policies and this involved sharing the benefits of growth with the middle class and poor. Finally, for the middle class and poor to corporate with the leaders, they had to show them the benefit of future growth. This was implemented in several ways such as Korea and Taiwan establishing land reform programs, Indonesia using rice and fertilizer price strategies to increase rural earnings and Hong Kong and Singapore undertaking several housing schemes to benefit the public. These initiatives therefore expressed how willing the governments were to share the benefits of growth (World Bank , 1993, p. 13).
4.2 Deliberation councils
A deliberation council can be defined as a gathering compromising of government authorities, and business pioneers. The deliberation council examines and helps outline economic policies (Atlee, 2003).
One of the ways in which deliberation councils assisted in the economic development of the HPAE’S was through encouraging data exchanges between the government and private sector, amongst firms, and between administration and labour.
This process was made possible in the economies of Japan and Korea because the as the process of drafting rules was transparent to all private sector groups, this developed a sense of trust within the groups and they became more willing to partake in the leaders’ development efforts (World Bank , 1993, p. 14).
5.0 The Functional Model
According to figure 2.1 on “The East Asian Miracle, pg. 88”, this is an illustration conducted by the World Bank that links rapid growth in the HPAE’S to three functions. These functions are accumulation, efficient allocation and rapid technological catch up.
The figure illustrates, the cooperation among two arrangements of policy choices (fundamental and selective interventions); two techniques for competitive discipline (market and contest based); the three focal elements of economic management; and the outcomes of rapid growth and equal income distribution.
The solid lines in the figure indicate how policy decisions added to outcomes by means of fulfilment of the three functions. An example of this is how elevated and developing investments in human capital contributed both to accumulation, since human capital is a basic input to economic growth, and to productivity-based catching up by permitting better authority of innovation.
In addition, viable and secure monetary systems helped to expand the level of financial savings (accumulation) and transfer it to high-productivity investments (allocation) (World Bank, 1993, p. 88).
Furthermore, the arrows on the illustration show that the framework has various self-fortifying feedbacks. For example, rapid development and generally equal income distributions added to the HPAES’ unrivalled accumulation by expanding savings rates and creating larger and more effective investments in human capital; they likewise added to superior allocation of human capital by encouraging work mobility and market determination of wages.
6.0 The Asian Myth
Paul Krugman published an article during 1994 called “The Myth of Asia’s Miracle” in which he criticized the success of the Asian economies as being ‘a miracle’ and recommended that it was a blend of stringent government policy and the further adoption of free trade that was critical to managing economic development in East Asia (Vuong, 2013).
Krugman further elaborated on the newly industrialising countries of Asia’s success, mentioning in his article that their success was mainly due to having a vast amount of mobilized resources. He further compared Asia’s growth to the Soviet Union of the 1950’s stating that both economies were driven by exceptional development in inputs like labour and capital rather than by benefits in efficiency (Krugman, 1994, p. 70).
Krugman additionally elaborated on Singapore’s economic growth stating that this was been possible through the upgrade of educational standards for the workforce, as well as making a large investment in physical capital.
However, Krugman argues that even though Singapore’s workforce has been replaced by one with a vast majority of workers having high-school diplomas and also attaining an invest share of 40percent, it is highly unlikely that Singapore will manage to achieve higher growth rates in the future (Krugman, 1994, p. 71).
7.0 The Stiglitz Approach
The author Joseph E. Stiglitz published an article during 1996 called “Some Lessons from the East Asian Miracle” in which he elaborates on specific government policies that were utilised during the economic up rise of the HPAE’S.
One of the main factors that contributed to the success of the Asian economies, was the ability to reduce the technology gap in comparison to the Western countries in a short period of time.
This was made possible through making colossal investments in human capital, educating extensive quantities of skilled engineers who were able to retain and adjust to the most advanced technology. Also, the East Asian economies were prepared to acknowledge foreign investment and establish an economic climate ready for its entry. Moreover, they consolidated these endeavours on the most technologically advanced investment (Stiglitz, 1996, p. 153).
Furthermore, Stiglitz mentioned that as other economies such as the former Soviet Union and developing countries tried to diminish failed markets by having them replaced, however, the East Asian governments realised that it would be more effective to promote failed markets through the use of government interventions.
As governments of the Asian economies knew that corruption may be an issue within companies, they implemented a strategy where a performance-based reward structure gave solid growth oriented inducements and filled in as a reason for granting government subsides. This structure was moderately free from corruption and guided assets to regions that delivered high financial returns (Stiglitz, 1996, p. 157).
In addition, the East Asian governments were extremely successful at developing and encouraging certain sectors in the economy. These interventions were mainly known as industrial policies.
An example of a few industrial policies that were utilized were; firstly, the assistance in education, in particular science and engineering education which provided an intellectual foundation that encouraged technological transfer.
Secondly, the choice to prevent the allocation of cash-flow to areas, for example, real estate implied that more capital was accessible for sectors with higher technological advantages, such as plants and equipment.
Lastly, in a few industries, especially those with many firms, governments encouraged technology programs, including science centres that offered services operating from recognizing new products to producing research and development to organisations that did not have facilities of their own.
A fine example of the result of these industrial policies is how Malaysia constructed modern parks for high-technology industries, both to enable firms to receive a portion of the diffuse externalities related with these enterprises and additionally to reduce the barriers to entry (Stiglitz, 1996, p. 157).