Behind East Asian Growth

The Political and Social Foundations of Prosperity

Henry S. Rowen

• Publisher: Routledge
• Year: 2002
• Topic: Economics
• eBook ISBN:
  9781134709274
• Subtopic: Political Economy
• Index: Economics

East Asian countries have adopted remarkably good policies to ensure sustained economic growth, but how did they come to adopt such policies in the first place? This book produces a more thorough explanation than has previously been advanced drawing on several disciplines including contributions from anthropologists, economists, political scientists, technologists, demographers, historians and psychologists. Several contributors have held high positions in Asian governments. Four broad themes are identified: * effective governance * achieving and learning societies * growth with equity * external influences This is the most comprehensive account of the foundations of East Asia's rise. Its distinctiveness lies in the range of comparisons across the countries of East and South-East Asia and in the wide array of contributing disciplines.

1 The political and social foundations of the rise of East Asia: an overview

Henry S.Rowen

This book addresses this question: why have so many East Asian countries had such remarkably strong and sustained economic growth? The conventional—and clearly correct—answer is that they adopted unusually good policies. But why did they do so? Their record of development is so exceptional, not only in comparison to other developing regions but in world history, that it has recently attracted the attention of scholars from many fields. Because no single discipline has provided a persuasive explanation, this book draws on several in an effort to produce a more convincing explanation than has heretofore been advanced.

The current interest in what can be called the new Asian exceptionalism is juxtaposed against a long-standing puzzle about China: why—when it advanced to the threshold of a systematic experimental investigation of nature and created the world’s earliest mechanized industry from the tenth to the fourteenth century—was it unable to sustain that progress?¹ Although Japan was the first non-European-culture country to break out of the near universal pattern of slow development in the mid-nineteenth century, almost another 100 years passed before other East Asian nations followed suit. Despite this lag they were still ahead of the rest of the developing world.

These countries’ economic policies have been consistently better than those in other developing regions. Their strategies have varied, with some governments strongly shaping their industrial structures (notably South Korea) and others being hands-off (notably Hong Kong); nonetheless, the area of consensus among experts on the merits of these strategies is much greater than that of dissonance.

This only pushes the inquiry one stage further: why were good policies so widely adopted and adhered to so consistently? Were favorable social (including political) factors responsible for their adoption, and might such factors independently have helped to produce exceptional results?

Such success was not predicted. The newly independent South Korea suffered great damage from war. Given the record of the Kuomintang on the mainland, there was no strong basis for optimism in 1949 about Taiwan’s economic prospects. Hong Kong was the destination for many poor and unskilled refugees from China and there was uncertainty about Beijing’s behavior towards it after 1949. Singapore’s prospect under the rule of a socialist-oriented party in a troubled region was problematical. The Indonesian economy under Sukarno was thoroughly mismanaged. China’s progress in industrializing was disrupted by the Great Leap Forward and the Cultural Revolution, and its overall performance through the end of the 1970s was unimpressive. Japan aside, the Philippines in 1950 seemed to have the brightest prospect, an assessment that turned out to be spectacularly wrong.

THEIR PERFORMANCE

The region’s six fastest-growing economies (Japan, South Korea, Taiwan, Hong Kong, Singapore, and China) experienced about 5 percent a year per capita growth (in international purchasing power parity, PPP) from 1965– 95 while three Southeast Asian countries (Thailand, Malaysia and Indonesia) averaged about 3.5 percent a year. The average for the rest of the developing world was only 1.5 percent per year. Seven East Asian countries—North Korea, Mongolia, Vietnam, Cambodia, Laos, the Philippines, and Myanmar—performed poorly. (Oil-rich Brunei is appropriately omitted from most such comparisons.) Vietnam has been on a promising track since 1986, but that is too short a record to warrant inclusion among the sustained, high-growth economies.

Growth in the trade of the nine high-performing countries has been remarkable. Between 1965 and 1990, the region’s developing countries more than doubled their share both of total world exports (from 8 to 18 percent) and of world manufactured exports (from 9 to 21 percent). By 1990, these nine countries had 56 percent of all developing country exports and 73 percent of all manufactured ones; these proportions had increased five-fold over the preceding 25 years.

To underscore the magnitude of their accomplishments, during those years all of the large-population, high-performing countries, were in East Asia; the other four top performers (Botswana, Malta, Cyprus and Mauritius) are tiny.

A growth rate of 5 percent per capita for over three decades is without precedent, although the “miracle” growth years of the 1950s and 1960s in Germany, Italy and France came close; there has been no other nearly comparable performance in history. Japan’s annual per capita growth from the Meiji Restoration to 1940 was respectable at 1.5 percent but that was no better than that of the US and Sweden over the period.² In the rest of the world, Egypt was the only large country whose performance was close to that of the Southeast Asians over the period from 1965, but it stagnated after 1980.

These fast-growing countries fall into four groups. Already industrialized Japan is in a class by itself. A second group has two of its former colonies, Taiwan and South Korea, who modeled their development strategies largely on Japan (especially South Korea) and the two city-states,Hong Kong and Singapore, each exploiting its locational advantages as entrepôts. These countries have some cultural similarities, inherited some common institutions from the period of Japanese colonialism; are ethnically homogenous (less so in Singapore); and are poor in natural resources; long ago they were labeled the Newly Industrialized Economies (NIEs). The third group, Thailand, Malaysia and Indonesia, have more natural resources than those in the Northeast and more ethnic diversity. Fourth is China—almost a world unto itself, one in which development is proceeding rapidly, but unevenly, within the country.

Their present levels of development vary greatly. Japan, with a GDP of $21,000 per capita in 1995 (at 1995 international prices), is highly developed, as are Hong Kong and Singapore, at $21,000 and $20,000 respectively. At the other end of the scale is China, at (approximately) $2,300 in 1995. It is the rapid and sustained growth rates that distinguish several of these nations from the rest of the developing world more than their current per capita income levels. Mexico and Argentina in the 1990s were at levels comparable to Malaysia, above Thailand, and well ahead of Indonesia and China, but the Latins have been growing much more slowly.

Economic statistics do not capture all that matters. For example, they omit such positives as improvements in health and longevity. They also leave out of account such negatives as pollution and other kinds of environmental damage that have grown together with economic output. Fixing them requires large investments that will be a drag on future growth. However, there is no good reason to believe that allowing for these omitted factors greatly changes the conclusion that, for the most part, these are remarkably successful countries.

EXPLANATIONS

It has been argued that the NIEs were lucky in their timing. The international environment was highly favorable for developing countries after World War II: for 25 years the Bretton Woods system provided a stable international financial system; the industrial countries were booming; the US provided a large, relatively open market; development assistance was available; and American military protection was supplied. Not everyone was accorded equal opportunity or help but the environment favored development-oriented and competent governments, those that avoided the off-ramp of socialism and that were not crippled by domestic or foreign conflicts. The NIEs exploited these opportunities. Although the world economy grew more slowly after the early 1970s they continued to do well, world trade continued to grow strongly and multinational companies continued to transfer technology to countries offering good opportunities. Anyone in a poor country who complains that the good old days ended in the early 1970s should be reminded that the Southeast Asians began to grow strongly about then, as did China after 1979 and Vietnam after 1986.

This seems to leave three major explanations: (1) better policies were adopted; (2) their social capabilities are greater; and (3) external influences played important roles.

Policies

Much progress is being made, theoretically and empirically, on the sources of growth and there is a wide consensus on economic policies that are good, albeit with some disputes at the margin. There is, however, no adequate theory that enables one to predict which countries will adopt good policies.

Social capabilities

Successful countries also have social attributes that appear favorable. This category encompasses institutions that less directly—but often profoundly—affect the key requisites of growth: physical investment, the formation of human capital, and the acquisition of technology. A crucial institution is the character and the stability of the politics and laws under which economic activity is carried out; this cluster is addressed below under the heading of effective governance. Another is the set that determines the distribution of incomes, especially through the distribution of opportunities. Still another is the value people put on achievement and learning.

External influences

Influences from outside individual countries—including from outside the entire region—were also important. Historically, Europe’s extension of power from the sixteenth century on had huge effects wherever it impinged. So did Japan’s activities from the late nineteenth century on. More recently, the competition between the communist and noncommunist powers was played out in the region with varying degrees of intensity and conflict. And the United States was important as a market, as an occupying and reforming power, and as a protector.

Methodological difficulties

There are problems with some aspects of the literature on East Asia’s rise. Some scholar identifies a possible explanatory factor such as a pattern of initially authoritarian regimes or government micro-management of the economy and asserts its importance.³ Such claims need to be validated by comparisons among the largest feasible set of countries, and, as Minxin Pei points out in Chapter 2, this is not always done. When it is, such claims sometimes fail to stand up. For instance, the governments of all of the recently successful countries in the region (Japan being an earlier one) were authoritarian 35 years ago at the onset of growth. But there have been many such regimes in the world and the data show no growth advantage to them. Also, the tendency of governments to favor some industries over others through preferential access to credit, subsidies and trade protection is nearly universal; such interventions are usually judged to have contributed much to the poverty of nations. Either the parameters at issue actually differed (e.g. Asian “authoritarianism” or “industrial policies” were not the same as Latin American or South Asian ones) or other influences were at work—or both. A finer grained description and analysis is needed. In any case, single factor explanations do not take us very far; it is the interaction of several, perhaps many—which ones is an open question—that accounts for the outcomes we observe.

A similar problem arises with cultural explanations. The successes of the Chinese-cultural-sphere countries (China, Japan, Korea, Vietnam, Taiwan, Hong Kong, and Singapore) are sometimes attributed to a factor called “Confucianism.” There are several difficulties here. Most obviously, 35 years ago all of these countries except Japan were poor and some still are. Has Confucianism basically changed in that short interval? If Confucianism did contribute to success, it clearly did so in conjunction with other factors. More importantly, how can one identify a potential positive factor without examining countries that do not have it? (This is the same methodological point made above.) There does seem to be mu...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• FIGURES
• TABLES
• CONTRIBUTORS
• EDITOR’S FOREWORD
• 1: THE POLITICAL AND SOCIAL FOUNDATIONS OF THE RISE OF EAST ASIA: AN OVERVIEW
• PART I: EFFECTIVE GOVERNANCE
• PART II: ACHIEVING AND LEARNING SOCIETIES
• PART III: GROWTH WITH EQUALITY
• PART IV: EXTERNAL INFLUENCES
• PART V