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History: Questions Essay

5. Compare and contrast policies, factors influencing success and outcomes achieved by the following “Asian Miracle” countries: Taiwan, Korea, Thailand, Malaysia, Vietnam and Laos.

After the end of World War 2, East Asia experienced a rapid economic growth which lasted till 1990; before the Asian Financial Crisis. The countries that achieved substantial growth were Taiwan, South Korea, Hong Kong, Singapore and Japan. These countries were referred to as the Asian Tigers and they were known for achieving and maintaining incomparably high growth rates and rapid industrialization between 1960 and 1990 (Lall, 1996). By the 21st century, the Asian Tigers had grown into high-income and advanced economies (Page, 1994).

Initially, these countries were not expected to achieve such rapid growth as compared to Western countries (Amsden,1993). The other countries which were not far behind from the five miracle economies were Malaysia, Thailand and Indonesia. These countries were known as the Second-Generation Tigers. However, less fortunate countries such as the former French Indochina (Focusing on Vietnam and Laos) remained lagged in terms of development.

Source: Summers and Heston (1991). Barro (1989). World Bank data.

Figure 1 shows the eight HPAEs; all have a positive outlier in the income-growth distribution. While Malaysia, Thailand, and Indonesia are closer to the predicted values, the other five economies, Taiwan, Korea, Japan, Singapore and Hong Kong, are significantly above the predicted Gross Domestic Product growth rates on the basis of relative income level. From this chart, it is concluded that all of the HPAEs were catching up to the more developed countries.

This essay analyses the causes that led to the difference in development between the Asian Tigers (5 miracle countries), Second-Generation Tigers (Second-tier countries) and the least developed ones. This essay will also state the multiple factors which led to the countries’ divergent paths and compare and analyse the impacts of each factor. The factors that will be expounded on are: (1) Economic Policies, (3) Factors influencing success and lastly, (4)

Domestic and Regional Political outcomes.

In 1960, the companies that achieved high growth rates and rapid industrialization were addressed as High Performing Asian Economies of Northeast Asia (HPEAs) of Northeast Asia and the Second-tier were referred to as Newly Industrialising Economies (NIEs) of Southeast Asia (Fisher & Rotemberg, 1994). Key events such as colonialism, decolonisation and the cold war played a part in this phenomenon as it contributed to the building of HPEAs and NIEs economies.

Colonialism

Majority of HPEAs and NIEs countries used to be under colonial rule except for Thailand and Japan. Both Thailand and Japan used various methods to run their country; two of their main methods where their geographical location and resources available (Andressen, 2002). During the colonial era, majority of Southeast Asian countries used to have higher GDPs than Northeast Asian miracles; in the early 19th century, countries like Burma and Vietnam were wealthier than Taiwan, which GDP was $499 in 1820. During that period, both Malaysia and Indonesia’s GDP topped Taiwan and Korea until the 1940s, during the fall of colonisation.

Burma and Vietnam owed most of its achievements to colonial institutions and natural resources. Unfortunately, colonialism did everything but good for both countries’ welfare (Easterly, 1994). The aim of colonialism was to acquiring full or partial political control over both countries, occupy it with settlers and exploit it economically. The Dutch, for example, introduced social classification and applied a divide-and-rule method to attain superiority over the indigenous people while exploiting them to work in plantations.

The Dutch did not teach the colonies any form of manufacturing as they had no intention to invest in human resources. Similarly, British Malaya had its resources drained by colonists and when the colonist left, the countries that made up British Malaya declared independence. These independent countries continued to carry out the colonial style of administration; as this once produced significant profits, and system without the knowledge of manufacturing.

The Asian Tigers: Korea & Taiwan

In contrast, Korea, Taiwan, Singapore and Hong Kong, which were colonised by Japan and Britain, did not own many natural resources. Little was to be exploited from those colonies as the colonist only found their geographical location and labourers of use. Unlike Korea and Taiwan, which were the main hub of food production and labour-intensive industries, Singapore and Hong Kong were used as import harbours. This put Singapore and Hong Kong at an advantage as basic education was provided and allowed them to gain the upper hand in industrialization when they gained independence.

In 1960, during the Cold War, when political and military tension grew between both Western Bloc and Eastern Bloc, the economies of Taiwan, Korea, Japan, Hong Kong and Singapore were not affected. These Asian countries were not affected as they had leaders who put communal interests over personal benefits. Both private companies and governments of HPEAs worked together and collaborated. This act is attributed to the Confucian culture which majority of Asian countries practice. The Confucian culture emphasises on prioritising of community over individual (Johnson, 1982). Their economic strategies constituted of advanced industries supported by exceptional human resources, export-oriented, market-adjusting state interventions, efficient bureaucrats and institutional cooperation consisting of both government and certain companies.

Korea and Taiwan, both former Japanese colonies, promoted their local companies and invested in improving their human resources skill and technological capability by following the Japanese model with their own adaptation (Beasley, 1987). They also used protectionist policies; such as tariffs, to ensure that their immature domestic market would not be forced to compete with foreign products. For the Koreans, their post-war economic strategy was to obtain knowledge from developed countries to adopt foreign technology. This was done to provide a foundation for its domestic industries (Woronoff, 1992).

Korea’s oligopolistic development model was founded in 1960, under authoritative administration of Park Chung Hee. This development model was made up of collaboration between conglomerates called chaebols. Chaebols consisted of successful exporting companies that were chosen and given privileges (Wad, 2002). Korea’s development was also supported by its human resources. Its human resource were organised in military-like discipline. Gradually, after gaining independence from Japan, Taiwan entered into industrialisation stage by allowing government bodies to supervise its development.

In 1950, the Economic Planning Institution was started. The Economic Stabilisation Board executed the first four-years of economic plans, continued by Council for Economic Planning and Development (CEPD) who was tasked with national and regional planning (Kuznets, 1959). CEPD coordinated with ministries to ensure that development would be done according to plan but they had no authority to supervise. Government involvement could also be seen through the Ministry of Economic Affairs’ role in outlining which subdivision should be supported and this included industries of which Taiwan is reputable for: machinery, electronics, and telecommunications. In mid 1960, the government built export-allocated zones which were easy to access from harbours and airports. To stimulate export, customs and taxes were reduced and low interest loans were promoted. In 1980, labour skills gradually improved and this also resulted in the improvement of the education sector.

Meanwhile, the NIEs and other less fortunate countries such as Vietnam and Laos; although predicted to be the next tigers following the success of their Northeast Asian counterparts, could not catch up with HPEAs. Some of the NIEs formed a ‘neo-patrimonial’ state. Neo-patrimonial is classified by having inefficient bureaucracy, nepotistic leaders and unstable authority. These nepotistic leaders show favouritism and public interest becomes second priority. This leads to poor economic growth along with disorganised policies. Furthermore, unlike the HPEAs that benefited from having a relatively homogenous ethnicity, Southeast Asian countries were diverse. This diversity in ethnic groups made it difficult for the ethnic groups to understand each other. In addition, due to the Cold War, the former French Indochina suffered severe political instability and economic collapse.

The Second Generation Tigers: Thailand & Malaysia

Similarly, Thailand and Malaysia both failed to achieve HPEAs success. In 1980, Malaysia tried to adapt HPEAs intervention model, but failed implement their policies. Thailand, on the other hand, was hindered by political instability (Unger, 1995). In Malaysia’s case, participation of local companies was low and foreign companies played a greater role in Malaysia’s economy (Lubeck, 1992). Also, local companies depended on foreign technology and the country’s demand for advanced technical skills was not fulfilled. Furthermore, there was an ethnic divide between the indigenous people and Chinese. This prevented cohesive cooperation in both Thailand and Malaysia As for Thailand, the government, shareholders and military were unable to cooperate. The military would occasionally launch coup attempts and such attempts disrupted both political stability and economic activities.

Vietnam & Laos

Vietnam, Laos and Cambodia were the main Southeast Asian countries with poor economies. These countries’ economic problems were the result of internal conflicts (Tran Van Tho, 2003). The conflicts in Vietnam and Laos resulted in the victory of the communist party and as for Cambodia, the democratic government ruled.

In 1970s, Vietnam was exhausted and isolated due to its involvement with the conflict between Cambodia and USA. Due to the conflict, Vietnam became one of the poorest countries in the region. Realising the need to fix their economic condition, Vietnam adapted a reformist pace by allowing private ownership in small to medium enterprises and opened itself to investments (Brown, 1995). This move led to Vietnam’s economic prospers, though lagging behind its capitalist neighbours. Vietnam currently relies on raw and secondary products (Department of Foreign Affairs and Trade, 2014).

Cambodia and Laos were both alienated from being one of the Asian Miracle. Laos, being in between Thailand and Vietnam became a heated political theatre during the Cold War. Although Laos reformed it’s economic sector simultaneously with Vietnam, its economic growth pace was slow as the country relied on natural resources, agriculture and low skilled labourers. Only in early 1990 did Laos manage to expand its industry and attract foreign investors.

To summarise, this essay has argued that the Asian miracle was an uneven phenomenon that only happened to some countries. It also states how rapid economic growth occurred in the eight East Asian countries; mainly focussing on Hong Kong, Korea, Taiwan, Malaysia, and Thailand. Furthermore, the common denominators of success: (1) maintaining macroeconomic stability, (2) broad-based educational strategies, (3) export growth, and (4) insignificance of industrial policy have been discussed upon. This essay argues that export push was a successful strategy, while industrial policy was “insignificant.” In conclusion, the substantial achievements of the HPEAs were owed to the collaboration of both companies and the government whose goal was to build a sustainable economy for the country.

Majority of the Asian Tigers (First- tiers) were not blessed with plenty of natural resources but they managed to improve by investing in human resources and value-added goods. In addition, these countries also showed a strong unity among the society, government, and businessmen. The government’s authoritative nature created stability and helped to bring about positive impacts on the economy. The second-tier managed to get closer to the first-tiers due to the resources available. However, the second-tiers did not manage to draw alongside or surpass the first-tiers as they relied on low value-added goods, raw materials and low wage labourers. Also, their governments personal interests and corruption hindered the countries development.

Citation

Amsden, A. H. (1993). Why isn’t the whole world experimenting with the East Asian model to develop? Review of the World Bank’s East Asian Miracle Report, to appear in Symposium on the World Bank’s East Asian Miracle Report, in World Development.

Andressen, C. A. (2002). Short History of Japan: from Samurai to Sony, Allen & Unwin. St. Leonards.

Beasley, W. G.(1987). Japanese Imperialism 1894-1945, Oxford University Press, New York.

Brown, FZ ‘The Economic Development of Vietnam Laos, and Cambodia’ in Young C Kim (ed.), The Southeast Asian Economic Miracle, Transaction Publishers, London, 1995 pp. 85-104

Department of Foreign Affairs and Trade, The New ASEANS: Vietnam, Burma, Cambodia, & Laos, Australian Department of Foreign Affairs and Trade. 2014. [ONLINE] Available at: http://www.dfat.gov.au/publications/catalogue/new_asia.pdf. [Accessed 03 September 2014].

Easterly, W. (1994). Explaining miracles: Growth regressions meet the gang of four. In NBER, East Asian seminar on economics 1993, T. Ito and A. O. Krueger (eds.).

Johnson, C. (1982). MITI and The Japanese Miracle: The Growth of Industrial Policy, 1925-1975, Stanford University Press, Stanford.

Kuznets, S. (1959). Six lectures on economic growth. Glencoe, IL: Free Press.

Lall, S.(1996). Learning from the Asian Tigers, Macmillan Press Ltd., London.

Lubeck, PM ‘Malaysian Industrialization, Ethnic Division, and the NIC Model’, in RP Appelbaum & J Henderson (eds.), States and Development in Asia Pacific Rim, Sage Publications, London, 1992, p.177-181

Page, J. ‘The East Asian Miracle: Four Lessons for Development Policy’, in S Fisher & J J Rotemberg (eds.), NBER Macroeconomics Annual, MIT Press 1994, pp. 219-282

Tran Van Tho. (2003). ‘Economic development in Vietnam during the second half of the 20th century: How to avoid the danger of lagging behind’ in Binh Tran Nam and Chi Do Pham (eds) The Vietnamese Economy: Awakening the dorming dragon. RoutledCurzon.

Unger, D. (1995). ‘Government and Business in Thailand’, in Young C Kim (ed.), The Southeast Asian Economic Miracle, Transaction Publishers, London, 1995 pp.137-158

Wad, P ‘The Political Business of Development in South Korea’, in Edmund Terrence Gomez (ed.) Political Business in East Asia, Routledge, London & New York, 2002 pp. 182-215

World Bank, The East Asian Miracle: Economic Growth and Public Policy, Oxford University Press, New York, 1993, pp. 90-92

Woronoff, J.(1992). Asia’s Miracle Economies, 2nd ed., M. E. Sharpe Publisher. New York.


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