Asia's growth model still holding true

By Jean-Pierre Lehmann

Saturday, Dec 01, 2001, Page 9

ILLUSTRATION: YU SHA

With the proverbial benefit (and embarrassment) of hindsight, it is clear that the patterns of growth that occurred over the last half-century were little understood and rarely (if ever) forecast by economists. At the very moment in the 1960s when Asia's tiger economies were beginning to take off, for example, the Nobel laureate Gunnar Myrdal, wrote his The Asian Drama to diagnose the causes of Asian poverty and to explain why its poverty appeared to be ineradicable.

Simultaneous to this, a strong consensus developed among economists and policymakers that favored the import substitution policies then being pursued by countries including India, Argentina, Brazil, Egypt and Turkey.

After beggaring their adherents, these policies are now utterly discredited.

The key point here is not only that economists got so much wrong, but that almost no one got things right.

Take the phenomenal growth of Taiwan? No one predicted it. Indeed, Japan's economic "miracle" went unnoticed by the economics profession until Norman Macrae of The Economist published his seminal "Consider Japan" article in 1962. So, this year, we should recognize that, although we do not necessarily understand what precisely causes growth and development, we do know that some things work (for whatever reason) and others do not. Unfortunately, too few examples of "successful development" exist; those few outstanding cases, however, deserve greater understanding.

`The big difference between Asia's successes and failures is that some countries engaged in globalization, and others closed their doors tight.'

Outstanding cases of failure -- ie, countries that not only do poorly on purely economic criteria, but that are also basket cases in the Human Development Index -- should also be closely examined. Although these failures are found primarily in sub-Saharan Africa, Central Asia and the Middle East, the interesting thing about East Asia is that it contains both remarkable success stories and abject failures. The achievements of South Korea, Taiwan, Singapore and Hong Kong stand virtually next door to the catastrophes of North Korea, Laos, Cambodia and Burma.

When I first visited Taiwan in 1966, a major source of foreign exchange was prostitution for American soldiers on R&R (rest and recuperation) from the Vietnam War. Today, Information Technology fuels Taiwan's economy.

When I first visited South Korea at the same time, its GDP per capita was lower than Nigeria's. Today South Korea, a member of the OECD, provides aid to Nigeria.

Similar stories could be told about Singapore and Hong Kong.

Of course, the East Asian ``tiger economies'' suffered set-backs with the Asian financial crisis of 1997 -- both in real and reputation terms -- and they are also now badly affected by today's global downturn and the bursting of the IT bubble. These crises illustrate weaknesses both in globalization and in the systems of internal governance within these economies. But, their policy options need to stress improvement, not dismantlement or destruction, of their rules and institutions.

I have never been to North Korea, but spent part of 1967 in Cambodia and also visited Burma. At that time, both were better off than South Korea; Burma, indeed, was perceived as one of Asia's more promising economies. Today Cambodia stands as one of the worst tragedies of the last half-century and Burma as one of its most pitiful dramas. North Korea, it should be noted, was significantly better endowed in every respect than South Korea, yet today it is a basket case.

The big difference between Asia's successes and failures is that some countries engaged in globalization, and others closed their doors tight. An open economy provides all sorts of positive spin-offs. South Korea opened itself not only to foreign technology, but also to music. Koreans buy more classical music as a proportion of their CD purchases than any other country (including Poland, Austria, and Italy) in the world Moreover, an open economic society leads to a more open and pluralistic political society.

South Korea and Taiwan are rare instances of successful democratization. North Korea, Cambodia or Burma remain closed and sterile places.

India is an anomalous case of a hitherto "closed-economy democracy." But as Armatya Sen argued in his Development as Freedom, had India opened its economy earlier it would have become even more democratic, because it would undoubtedly have been compelled to spend more on education. With 35 percent of India's men and some 60 percent of its women illiterate, the country can charitably be described as an imperfect democracy. In contrast, by virtue of competing in the global market, South Korea's military dictatorship had no choice but to invest in education to improve its workforce. This sowed the seeds of its ultimate demise, as "revolting students" took to the streets and eventually sent the military back to the barracks.

The historical dynamics and empirical evidence from Asia are overwhelming. Globalization and open societies, even if imperfect and in need of improvement, benefit nations not only in purely economic terms, but in social, political and cultural ones as well.

The historical dynamics and empirical evidence in respect to anti-globalization and closed societies clearly indicate negative outcomes.

These considerations should lead us to focus on how to develop open societies and how to encourage greater and better integration of global markets, rather than seek to resuscitate bankrupt theories of economic autarchy, self-reliance and protectionism which impede growth and inflict untold damage.

Jean-Pierre Lehmann is professor of international political economy at the International Institute for Management Development, Paris, and is a director of the Evian Group.

Copyright: Project Syndicate