The World bank report 1993- East Asian Miracle highlighted East Asia rapidly growing the economy as compared to other developing countries. The report highlighted eight high performing Asian economies (HPAEs) Japan: the four tigers: Hong Kong, Republic of Korea, Singapore and Taiwan and three newly industrializing economies (NIEs) Indonesia, Malaysia and Thailand.
This essay aimed to access the contribution of the World Bank report – East Asian Miracle to its success of HPAEs.
This essay presents two sections on the fundamentals and selective intervention. Under the fundamentals section, macroeconomic stability and infrastructure discussed with regards to the world bank report findings.
Under the Selective intervention section, productivity growth, industry policies, corruption, income inequality and export push will be discussed with regards to the world bank report findings.
Finally, a summary of the findings as compared with the World Bank report.
In this section, fundamentals indicated in World Bank report considered how they relate to the HPAEs success. In the world bank report (World Bank, 1993), it has highlighted that for the economy to prosper; the country has to get the fundamentals right to achieve growth in accumulation, efficient allocation and rapid technological catch-up.
In the world bank report (World Bank, 1993) it has highlighted that stable macroeconomy and the openness to trade was complimentary by two other policies such as human capital; formation and an environment conducive for private investment and competition. These policies were the key to economic and productivity growth.
However, in (Thomas & Wang, 1996) it was analysed that trade, price and macroeconomic policies were critical to the economic and productivity growth.
In (Morrissey & Nelson, 1998) government policies were induced to support the fair distribution of income which then brings the stability in macroeconomics. It was also discussed together with macroeconomic stability, political factors and financial policies determine the HPAEs success. Similarly shared by (Stiglitz, 1996).
To attain macroeconomic stability, government policies together with openness to trade can lead to the economic and productivity growth in the motion of having the prerequisite for political determination to support growth-oriented policies.
World Bank did not state infrastructure as a fundamental in their world bank report (World Bank, 1993). However, East Asian countries have developed their infrastructure such as transport, port facilities, telecommunications and power generation and distribution which then catered a conducive environment to trade (Mody & Walton, 1998) (Stiglitz, 1996).
Singapore was able to capitalise on the infrastructure and became the major international financial centre and export hub utilising the east-west shipping route. The activist government where the primary role in developing the infrastructure and guiding it to economic transformation (Huff, 1994).
Infrastructure should be the foundations of any economy to grow substantially as compared the HPAEs, to attract foreign investments and to increase the economic growth in the region.
Selective Intervention from the government
As per world bank, the HPAE countries adapted the neoliberalism approach (World Bank, 1993) (Berger & Beeson, 1998). However, with Krugman, HPAE countries adopted the revisionist approach (Krugman, 1994) in conjunction with resource allocations.
The growth of the HPAE countries such as Singapore was similar to the Soviet growth in the 1950 (Krugman, 1994) in which was adopting the revisionist approach. It explained that the growth rate based on quantitative measures in relating to the capital growth. The arguments from Krugman were the efficiency growth did not grow together with the capital growth. In the Soviet growth in the 1950s and the East Asian countries did not show clear sign in the increase of efficiency even though there were growths in inputs like labour and capital (Krugman, 1994). Krugman well explained this was established mainly for the proper mobilisation of resources as like the Soviet Union in the 1950s (Krugman, 1994). In (Kwon, 1994), the TFP growth measured by the World Bank were overrated as compared to Park-Kwon (Park & Kwon, 1995) estimates. This caused uncertainty in the report and how factual it is to the readers. Neoliberalism approach based on growth in both inputs and efficiency. In such, the efficiency growth on the HAPEs (less Japan) was relatively low as compared to the US efficiency growth which adopted the neoliberalism approach. The future growths cannot have achieved as compared to the past, but they are growing at a slow snail pace (Krugman, 1994). If countries adopt the same growth functions in allocating the resources that the HPAEs adopted, it highly likely the countries will fail in long-term similar to the growth of the Soviet Union in the 1950s as they lack in labour productivity and TFP.
However, some research indicates (Page, 1994) that the HPAE countries were successful in getting the efficiency right and were high by international standards using the total factor productivity (TFP).
In the world bank report, there were mentions of state intervention was present and HPAE countries relied less on them (World Bank, 1993). However, this was contradicted by many, indicating that the state intervention was the main reason in HPAE countries succeeded in economic growth than other regions (Krugman, 1994). Stiglitz’s six roles on state intervention had assisted in getting the fundamentals right for the HPAEs to boom as compared to other regions (Stiglitz, 1996). When looked into history, there were signs of government intervention which assisted the countries when the economies were financial crisis such the ones in Japan and South Korea (The Economist (UK), 1997) (Akiyoshi, 1984) (Patrick & Park, 1994) (Lukauskas, 2002) to get back on track. During that regime of the four tigers, in other developing countries such as the Philippines, there was little incentive for investments from the government (Medalla, 2006). In the HPAEs the government took on the role to create a conducive market to attract investors in significant and robust scale. If this were to leave with the private market and initiatives, it would not be as successful as compared to the government involvement.
As many would deny state intervention will restrict the economic growth (World Bank, 1993) however the HPAE countries succeeded, unlike other regions.
It was mentioned in the World Bank report on the industry policies was not completely the reason for East Asia’s success (World Bank, 1993) as many critics had considered them as ineffective (Stiglitz, 1996). In (Lee, 1996) report indicates the government intervention in promoting industries via industrial policies did not increase the TFP and labour productivity. Industries that were not intervened by the government by industry policies was to be of a higher productivity growth (Lee, 1996).
The report went on to highlight industry policies were implemented to pick winners. However, (Stiglitz, 1996) indicates the industry policies were not used to identify winners but to identify market failures. Industry policies were able to highlight to the HPAEs government to improve these industries in the earlier stages and promote them instead of eliminating the industry as what happened during the Soviet growth in the 1950s (Stiglitz, 1996). Industry policies introduced by HPAEs were relevant to the success of East Asia success through state intervention but not micromanaging the firms. The government and firms did not force firms were able to risk their capital.
To succeed in economic growth through state intervention, it discussed in (World Bank, 1993) (Stiglitz, 1996) in having a corrupt free government. This was backed up by (Moran, 1999) who highlighted the corrupt free South Korea government during Park regime in the year from 1961 to 1979. It was emphasized the corrupted Philippines government on the weak economic growth faced as opposed to the HPAEs during the East Asia success (Quazi, 2014). However, in (Rodrik, 1994) there was corruption involved among the HPAEs government officials with Japan being the highest with 392 reported cases of corruption from the year 1989 to 1993. For state intervention to succeed with regards to economic growth, the governments shall be corrupt free of the funds and subsidies are directed to appropriate and not misused on own individual self-interest. Reports (Osipian, 2013) indicate the corrupt developing countries failed when there was state intervention due to the lack of competency and corrupted government. With a corrupt government, any state intervention that implemented in the East Asia success will not be successful to the economic growth of the country. To increase FDI research (Quazi, 2014) has indicated corrupted developing countries should adopt in reducing corruption as what the HPAEs has done to improve the economic growth.
World bank report highlights on the low inequality were outcomes of the HPAEs success of the fundamentals and selective state intervention. In (Rodrik, 1994), the income inequality was the foundation or precondition for the success of the HPAEs. However, with (Kuznets, 1955) indicates the higher the growth will lead to higher degree of inequality. This was countered by the HPAEs government policies to reverse such effects (Stiglitz, 1996). There is state intervention in the income inequality to ensure it is low via many avenues such as compress wage structure and restricting increases in the prices of housing (Stiglitz, 1996). Thus, state intervention was necessary to keep the inequality low for the economy to succeed.
The world bank report (World Bank, 1993) indicates that HPAEs government intervention in export push was mainly on providing incentives for foreign exchange, investment licenses and access to credit to boost the export performance of the firms.
However, the HPAES government did more than what indicated in World Bank report. Countries such as Korea and Japan, governments acted as protectionist and developmental to nurture their infant industries (Dicken, 2015). Once the states realised the industry has matured, it will encourage them to compete externally. This helps the industry gain extensive knowledge and technology to compete in the highly competitive external market. This relates to some example such as Korean companies Daewoo and Hyundai (Conolly, et al., 1987).
This approach in getting the industry ready before exposing them external competition had a lower rate of the industry to fail as compared to the neoclassical approach in where the industries were left on their own to survive with a higher rate of failure.
Countries such as Japan, Korea and Taiwan were able to succeed in the export markets (World Bank, 1993), due to the cheaper and high-quality products that were manufactured as compared to other regions (Movahed, 2014). This has increased the demand for such products from the HPAEs rather than exporting from other regions. In which making the HPAEs excel in the export market