The Roaring Tigers And The Asian Miracle

The Roaring Tigers and the Asian Miracle

Until a few years ago one could not open the pages of a public affairs magazine without running into a commentary claiming for example that ÐŽ®Asian countries have developed a new and superior form of capitalism that is beating the pants off Western, free market economiesЎЇ (Altfest, 1998). Between 1965 and 1990 the economy of East Asia grew faster than all other regions of the world, roughly three times as fast as other developing regions and twenty-five times faster than Sub-Saharan Africa. The export performance of these East Asia economies has been particularly dramatic, with their share of world exports of manufactures leaping from 9 per cent in 1965 to 21 per cent in 1990, thus significantly outperforming the industrial economies and the oil-rich Middle East-North Africa region (World Bank, 1993). Most of this achievement was attributable to six economies: Japan, Hong Kong, the Republic of Korea, Singapore, Taiwan, and China; and the three newly industrializing economies of South East Asia, Indonesia, Malaysia, and Thailand.

Real income per capita also increased more than four times in Japan and the Four Tigers (Hong Kong, Korea, Singapore, and Taiwan), and more than doubled in the South East Asian newly industrialized economies. Annual GDP growth in the ASEAN Five (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) averaged close to 8 per cent over the last decade. Indeed, during the thirty years preceding the crisis per capita income levels had increased tenfold in Korea, fivefold in Thailand, and fourfold in Malaysia (Yellen, 1998). Human welfare also improved dramatically. In South Korea and Singapore, for example, real per capita income grew more than 700 per cent between 1965 and 1995. Over the same period Taiwan and Hong Kong logged increases of more than 400 per cent, while Malaysia, Thailand, and Indonesia each experienced real per capita income growth of over 300 per cent. South Korea specifically experienced an unprecedented growth in per capita GNP from 6.9 per cent over the period 1960ЁC81 and 8.5 per cent over the period 1980ЁC94 with increased incomes from US$1,700 in 1981 to US$8,260 in 1994. Equally impressively, Indonesia's GNP rose from US$90 in 1972 to US$880 in 1994, Thailand's rose from US$220 to US$2,410 and Malaysia's from US$450 to US$3,480 during the same period (Sharma, 1998).

Not only did these nine economies grow rapidly, they were also successful in sharing the fruits of growth, with low and declining inequality of income. For example in Malaysia, the percentage of the population living in absolute poverty has dropped from 37 per cent in 1960 to less than 5 per cent in 1990 (Yellen, 1998). Thailand poverty (measured on purchasing power parity) had been reduced from over 57 per cent in the late 1960s to about 13 per cent in 1996, with Thais enjoying dramatic improvements in social welfare such as food security, education, infant mortality, and life expectancy. Similarly, in Indonesia, despite remaining disparities, the benefits of growth had extended to all of the twenty-seven culturally diverse provinces. Between 1970 and 1996 the proportion of population living below the official poverty line declined from 64 per cent to an estimated 11 per cent. The quality of life for the average Indonesian had improved greatly: infant mortality declined from 145 per 1,000 live births in 1970 to 53 per 1,000 in 1995. Life expectancy rose from 46 to 63 during the same period, and the country achieved universal primary education in 1995 (Sharma, 1998). Life expectancy increased from 56 years in 1960 to 71 years in 1990. The proportion of people living in absolute poverty, lacking such basic necessities as clean water, food, and shelter, dropped from 58 per cent in 1960 to 17 per cent in 1990 in Indonesia, and from 37 per cent to less than 5 per cent in Malaysia during the same period (World Bank, 1993: 5). Additionally, until the current crisis Asia attracted almost half of total capital inflows to developing countriesЎЄnearly $100 billion in 1996. In the last decade, the share of developing and emerging market economies of Asia in world exports has nearly doubled to almost one-fifth of the total. Prior to the crisis, East Asian countries also had one of the highest savings rates in the worldЎЄabove 30 per cent on average over the 1975ЁC95 period and their investment rates were 30ЁC40 per cent of GDP (Yellen, 1998).

Although there is no single explanation for such impressive growth rates in South East Asia, a considerable amount of research and publication by policy analysts, investors, and academics has been developed with often repeated praises for the virtues of East Asian-style state-guided capitalism. What follows is a brief synthesis of the literature developed to explain the factors which only a few years ago were in fact praised for contributing to the outstanding growth between 1960 and 1990, the so-called ÐŽ®Asian MiracleЎЇ period.

Causes and Circumstances surrounding the ÐŽ®Asian MiracleЎЇ

There have been several explanations offered for the extraordinary Asian economic growth. Although several factors have been identified as significant to the so-called ÐŽ®miracleЎЇ, most of the studies reviewed seem to attribute the successful East Asian growth to the following main factors: stable macroeconomic and stable financial systems, state-guided capitalism, administrative competence of the government, political and economic stability, and social cohesion.

Stable Macroeconomic and Stable Financial Systems

According to World Bank reports, most East Asian economies generally limited fiscal deficits to levels that could be prudently financed without increasing inflationary pressures and responded quickly when fiscal pressures were perceived to be building up. Between 1960 and 1990, annual inflation averaged approximately 9 per cent in these economies compared with 18 per cent in other low and middle-income economies. When macroeconomics control lapsed, it was swiftly re-established. For example when Korea's inflation rate rose to 20 per cent in the late 1970s as a result of the expensive drive to develop the heavy and chemical industries, the government acted decisively to cut fiscal spending. Indonesia's public sector deficit exceeded 4 per cent of GDP in 1986 as oil prices declined, but the government made sharp budget cuts and reduced the deficit to a manageable 1.3 per cent by 1989. In some countries, prudent fiscal behaviour was aided by legislation that limited the size of public deficits (e.g. Indonesia, Taiwan, Thailand), while in others the anti-inflation stance of the political leadership (e.g. Korea, Malaysia, and Singapore) served to keep macroeconomic