The East Asian Tiger’s and Their Economic Growth Essay

Custom Student Mr. Teacher ENG 1001-04 19 April 2017

The East Asian Tiger’s and Their Economic Growth

The East Asian region has seen unparalled economic growth over the past three decades.  It is a phenomenon that the world has never seen before, which has made economists dub them the Asian Tigers.  How did they grow so quickly?  How important were labor unions in their economy?  Why have some East Asian countries economies grown where other have been stunted or have seen very little growth?  How does the United States growth compare to its Asian counterparts?

 Tiger Economies refers to the economic boom of Malaysia, The Republic of Korea, Taiwan, Hong Kong, and Singapore.  Those countries have had a steady growth rate of 8-10% over a number of years.  South Korea’s has seen the most growth and its growth rate is 8% and its GDP is now over $10,000.  Singapore’s GDP is approaching the United States “The Asian ‘Tiger Economies’”.

The exponential growth of East Asia has led observers to dub the era the “Asian Miracle.”   There are two viewpoints regarding the rise of the East Asian economy, assimilation and accumulation.  Accumulation is the view that the East Asian growth was driven by high rates of capital formation.

The assimilation viewpoint is that the essential component of East Asian high growth was the acquisition and mastery of foreign technology.  Experts believe that if the accumulation growth viewpoint is correct, it will eventually stagnate and burn out because the law of diminishing returns will prevail Iwata, Khan, & Murao “Sources of Economic Growth…”.

It seems like the assimilation viewpoint is responsible for the tremendous East Asian growth.  One of the most crucial factors to the tiger economies growth is their policy towards education and training, plus the creation of a skilled workforce.  Singapore is extraordinary because it has managed to grow without any natural resources or a domestic market.  The country  has grown because it focused on its infrastructure and power “The Asian ‘Tiger Economies’”.

The countries would not have been able to change of they did not undergo an administration change.  Most of the tiger economies were previously under military rule, but have now liberalized, and Thailand, Taiwan, and South Korea are some of the most democratic countries on the continent.  Their liberalism could prevent their governments from ignoring the demands to increase their higher education systems “The Asian ‘Tiger Economies’”.

In East Asia there is a close link between higher education and economic needs.  For instance, Malaysia believes that the demand for an educated workforce will increase simultaneously with industrialization.  Malaysian educational objectives include improving the quality and the relevance of college and university courses, increasing the capacity and ability to do research and development “The Asian ‘Tiger Economies’”.

Even though those are Malaysia’s objectives, they are common objectives within the Asian tigers.  In Taiwan, 55% of undergraduates are taking courses to receive either a business degree or engineering degree.

Another reason the tiger economies push higher education is because they believe it will bring higher social standing and morals (Leeds). Malaysians believe that economic growth can not occur without social cohesion.  Taiwan’s Ministry of Education believes in higher education to promote humanist values and to discourage “individualism, self-indulgence, and sensualism” “The Asian ‘Tiger Economies’”.”

 Most of the tiger economies follow the United States’s system or the United Kingdom’s system.  South Korea has the largest higher educational system, and it is based on the U.S. system.  The U.S. system is a four year degree program with Junior Colleges offering a diploma qualification after two years.  The other East Asian economy that uses the U.S. system is Taiwan.  Malaysia, Hong Kong, and Singapore use the United Kingdom’s system.  The U.K’s system is binary in regards to universities and polytechnics, Singapore also incorporated Junior College “The Asian ‘Tiger Economies’”.

The differences within the systems are located within their missions, their level of qualifications, their rigidity, and their status.  Singapore wants polytechnics to remain vocational, so they are not allowed to offer bachelor’s degrees, and universities must remain primarily as research institutions.  The polytechnic and Junior Colleges do not offer degrees, but a low level certificate or diploma.

For instance, a polytechnic degree is accepted by many universities in the U.K. to enter into the second year of a degree program.  For each institution to retain its purity, there is very little chance to transfer within institutions.  That is the most significant difference between institutions of higher education in the U.S. system and institutions of higher education in the U.K. system.  Hong Kong’s system is a proponent of the U.S. system, so a student can easily transfer from a Junior College to college route there “The Asian ‘Tiger Economies’”.

In Asia, universities are considered to be the more prestigious institutions.  In South Korea, Junior College is usually restricted to students who could not enter university.  In addition, a four year degree is seen as essential for social status.  Junior College students have failed to gain admittance to university under the quota system “The Asian ‘Tiger Economies’”.

There is also a difference between which countries use public and private means of educating college-level students.  South Korea’s concentration of students is in the private sector with 78% of students receiving degrees from private universities in 1992 and 90% of Junior Colleges are private institutions.  The statistic is reversed in Malaysia where most students receive their higher education  in public institutions.

From 1994-1995, there were 90,000 students in public institutions.  Regardless of what institution a country uses, they are all focused on an increased role in education within the private sector.  In Malaysia, a major telecommunications company, Telekom, has been granted a license to establish degree programs under the name University Telekom.  Because the government has high control over higher education, there is very little difference between public and private institutions “The Asian ‘Tiger Economies’”.

In South Korea, the Ministry of Education controls admissions to institutions of higher education.  Until recently, Singapore’s government had complete control over higher education.  Hong Kong is an exception because a Universities Grants Committee acts as a liaison between the government and institutions of higher education “The Asian ‘Tiger Economies’”.

The East Asian tigers have been distancing themselves from complete educational control.  The many recent changes in Korean higher education occurred from the 1987 University Autonomy Plan, which increased the autonomy of private sector institutions.  In Malaysia, a Higher Education Council has been enacted to be an intermediary between the Minister and institutions of higher education.  A National Accreditation Body will be responsible for accrediting institutions and validating courses, yet The Malaysian Minister of Higher Education can still appoint and oversee “The Asian ‘Tiger Economies’”.

South Korea is part of the East Asian countries who have seen an economic boom over the last three decades.  South Korea went from one of the poorest countries in the world to the 11th largest economy and exporter of goods.  The economic boom has created high rates of savings and investment and the government has placed a strong emphasis on education. Now, South Korea is one of the countries with the highest number of enrolled students in the world Korea’s Economy.

Korea’s growth began with the implementation of the First Five-Year Economic Development Plan.  The government decided to shift its interest from exporting light manufactured goods to exporting heavy goods.  Korea possessed comparative advantage because of its cheap labor.  To increase exports, the government decided to devalue the currency by almost 100% and to incorporate a new unified exchange rate.  The plan also included plans for short-term export financing, plans to allow tariff rebates on materials imported for re-export use, and plans to simplify customs procedures Korea’s Economy.

In the early 70s, the international environment was changing and those changes had a marked impact on Korea.  In the United States, the Nixon administration decided to reduce American soldiers stationed on the Korean Peninsula by about one-third.  In 1971, the worldwide economy was threatened when the system that maintained the stability in the international financial system, Bretton Woods, collapsed.  The Bretton Woods collapse caused a fluctuation in exchange rates and had a damaging effect on the balance of payments Korea’s Economy.

From 1972-1974, there was a commodity shortage and a consecutive oil shortage only exacerbated the situation.  To increase the composition of its exports, Korea went to the heavy and chemical industry (HCI).  To aid the government with exporting HCI, it created the Heavy and Chemical Industry Development plan in 1973.

The government Invested in new industries and soon Korea developed successful undertakings in electronics, shipbuilding, and other fields.  A negative impact did occur as a result of the Heavy and Chemical Industry Development Plan, investors accumulated massive debt and the huge demand for low-interest loans overloaded the domestic money supply.  As a result of the government’s strong investment in HCI, producers of light manufactured goods were losing investment funds to the new industries Korea’s Economy.

During the 80s, the Korean government realized it was structurally imbalanced.  To combat the imbalance, it initiated a comprehensive stabilization program to control excess liquidity, realign credit priorities, eliminate price distortions, and promote competition.  They were still plagued with problems;  there was a second oil shock and the assassination of President Park Chung Hee in 1979, set the economy squarely in turmoil Korea’s Economy.

 In 1980, Korea’s economic performance was at its lowest in twenty years.  To get the economy back in order, the government forced mergers between companies suffering from excess capacity.  Therefore, the entire power-generation equipment manufacturing industry changed into the Korea Heavy Industrial Company.  That same year, the Government forced the auto industry to specialize its production of vehicles to attain economies of scale in production From 1984-1987, more industries were rationalized in shipping and overseas construction.  Those moves reduced some of the HCI excess capacity, yet the concentration of economic power increased because many firms were taken over by Korean conglomerates known as chaebol.

The restrictions on market entry and investment enhanced monopolistic hold on markets for HCI products.  From 1981-1983 commercial banks underwent privatization.  The interest rate gap between policy loans and bank loans was almost eradicated in 1982.  The government worked even harder on the economy by relaxing entry barriers into the financial industry and financial services provided by different intermediaries were diversified and streamlined.  The government also relaxed restrictions on foreign direct investments (FDI) because of its role in promoting competition and transferring advanced foreign technology.

  The Foreign Capital Inducement Act of 1984, enabled a shift to a system which abolished restrictions on the foreign ownership ratio and repatriation of capital.  From 1982-1988, GNP growth averaged 10.5% annually and inflation in wholesale and consumer sectors was below 5% after 1982.  Korea reported a trade surplus in 1986.  Market liberalization combined with political democratization since 1987, ignited strong and violent labor disputes and tremendous wage hikes which exceeded rise in productivity Korea’s Economy.

Beginning in the 90s, the average wage hike in Korea was 18%.  Wage hikes combined with high financial cost, excessive administrative regulations on business activities and low overhead capital investment, shifted Korea’s industrial competitiveness and entrepreneurship.  In the 90s, there was a huge increase in disposable income which caused excessive private spending and speculation.

Because of the wild speculation, the balance of payments deteriorated and inflation soared.  Korea’s account balance reverted to a deficit in 1990.  Their inflation almost reached 10% in the early 90s.  The government began to restructure itself through reforms in the financial sector which was highlighted by real name financial transaction system Korea’s Economy.

The real name financial transaction system was the government’s attempt at eradicating corruption.  Through the comprehensive policy of segyehwa (globalization), the government took an active role in participating in international economic activities through the Uruguay Round of trade talks, the launching of the World Trade Organization, and its membership in the Asia-Pacific Economic Cooperation.  The country was able to ascend to membership in the OECD in 1996, which announced to the world that Korea was now a member of the advanced countries Korea’s Economy.

Prior to the industrial revolution and mass production, America relied on the artisan system of labor.  That was when young boys became apprentices, then a journeymen, then possibly a master.  After the United States won its freedom from the British, there was nothing preventing Americans from creating their own markets.

Merchant capitalism eventually appeared and merchant capitalists were the first people to build factories, then divide up the work.  They employed women and children at low wages and taught them only one stage of production.    Because of the large production, the beginning of mass marketing pushed out smaller artisans who had to take longer to make the same piece “Economic Development and Social Change”.

The United States first economy was a colonial economy.  Out of the colonial economy came a small farming economy and it eventually developed into a highly complex industrial economy.  The industrial revolution was the one of the reasons the economy in the United States began to develop into the modern economy that it has now The World Factbook, United States.

Changes in transportation changed cities.  Laws were established to favor investment in transportation, specifically canals and railroads.  When the transportation improved, mass production improved.  People who were restricted to selling to customers in a certain area, could now sell their wares in larger cities or regions like the South Laurie “Nothing on Compulsion…” (qtd in American History, Vol I…pg.215).  Then, the textile industry spurred the machine tool industry Laurie “Nothing on Compulsion…” (qtd in American History, Vol I…pg.215).   Lack of mechanization, emerging capitalist order was hard on the wage earner.

Exploitation of them formed trade unions and joined together under General Trades Union of the City and County of Philadelphia.  Depression 1837 decreased the union’s numbers, so longer hours were put in effect again Laurie “Nothing on Compulsion…” (qtd in American History, Vol I…pg.215).

  Then, the industrial revolution occurred.  Those technological advancements contributed to the nation’s infrastructure because from those inventions, came the big businessman to incorporate them.  The World Factbook, United States   Some of the discoveries that contributed to the industrial age and the new emerging economy was oil being discovered, the typewriter was developed, there were refrigerated railroads, Alexander Graham Bell invented the telephone, the phonograph was invented, and use of the electric light The World Factbook, United States.

Americans left their rural towns for the city and the new factories. The industrial age was good for the new economy, but bad for the workers during that age.  Their working conditions were an abomination and highly unregulated “American Labor History”.   The new factories relied on cheap labor, long hours, and unskilled workers.  At times, employers would take half of their employee’s wages.  In turn, little disposable income meant dismal circumstances for the working class “American Labor History”.

Dismal working conditions did not affect everyone.  The Gilded Age happened after the industrial age.  It was known as the rise of the tycoons because that was when the leaders of the new companies began to enjoy the extreme wealth that came from the industrial age.  In Europe, aristocratic Europeans viewed commerce as beneath them, but the American’s had a more fluid class structure which allowed them to embrace moneymaking, not shun it like their European counterparts “The U.S. Economy”.  Not everyone profited from the Gilded Age.  Labor was still unregulated, so young children were still working.

It was in this environment which gave birth to labor unions.  While fighting for better working conditions, labor unions changed American politics.  Labor unions aligned with the Democratic Party, and may be responsible for Franklin D. Roosevelt winning the election and his New Deal because labor unions were a large part of his constituency “American Labor History”.  The tycoons wielded immeasurable power in American business, but that ended when the government stopped being laissez-faire, and starting regulating business.  Many regulatory agencies were created when the progressives came to power The World Factbook, United States.

The regulatory agencies began to work with unions in the United States.  Unions in the United States use a method called collective bargaining.  Collective bargaining is a negotiation between organized workers and their employer or employees to determine wages, hours, rules, and working conditions “collective barganing”.  Collective bargaining  has three characteristics.

The industrial relations are highly decentralized, there is a principle of exclusive jurisdiction (representation when one union serves as sole representative for all employees), and the role the law plays in the process.  The unions are successful because union and management officials on the local level are familiar with the issues and are able to find common ground for both parties Dunlop “The Barganing Table”.

 Decentralization allowed for greater detail and wider scope in collective bargaining.  Exclusive jurisdiction was a necessary outcome of the early labor unions.  In the early days of labor unions, the Knights of Labor and the trade unions in the same field were involved in conflicts and divided by loyalty.

As a result, the American Federation of Labor (AFL) said there should only be one union in each field of activity.  The last, but more important characteristic of collective bargaining is labor law.  Labor law is concerned with the tactics and procedures of organizing, bargaining, and modes of conflict.  Terms and conditions of employment are kept within private negotiation Dunlop “The Barganing Table”.

The American economy matured in the twentieth century where the “technocrat”, high salaried managers who eventually became the heads of corporations, ushered out the business barons from the previous era.  The technocrat rose to status because the corporation appeared on the American landscape The World Factbook, United States.

The American economy reached its peak in the 90s under President Clinton.  He opened local telephone service to competition, eliminated trade barriers, reduced welfare benefits, and even though he reduced the work force, the economy progressed.  When the Dow Jones hit 11,000 in 1999, it added to the wealth of many people.  The economy was doing so well, that the  government’s deficit decreased steadily and  in 1998 recorded a surplus which was the first surplus of many years The World Factbook, United States.

Just like the American labor system, the Japanese labor system has three  main characteristics.  Their labor system is known as the “holy trinity.”   The holy trinity is composed of the seniority system (nenko joretsu), the lifetime employment system (shushin koyosei), and the enterprise union system (kigyobetsu rodo kumiai).  Before World War II, only the seniority system and the lifetime employment system were  recognized.  They operated in companies with major financial income, but it eventually evolved to include all office workers and finally skilled blue collar workers.  Yet, it still did not include all workers (Nimura “The Characteristics of Labor…”.

The Japanese labor system is constructed whereas, if the seniority system and the lifetime employment system vanished, the enterprise union would still be steady.  Labor unions were not established until post World War II, yet they were not average enterprise unions.  Companies with different workplaces had workplace organizations in them Nimura “The Characteristics of Labor…”.

Japanese labor unions were first organized by the workers who worked together.  Because of the war, management was wary of outside interference, which was  another reason why unions started in the workplace.  More specifically, labor unions began at the company where the workers worked.  The labor unions started in the workforce because craft unionism was non-existent or very weak.  There were some unions that averted the single enterprise union, Ironworkers Union (Meiji period, 1868-1912).  Enterprise unionism is the organization of a single trade union within one plant or a multiplant enterprise rather than within a craft or industry “enterprise unionism”.

Even though the Ironworker’s Union was the exception to the rule, a non-enterprise union had no effect in controlling the labor market.  The Ironworker’s Union did not gain momentum because Japan’s light industry was developing and it was using advanced technology from west.

Those advanced technologies had no need for the traditional technological skills and the union died out.  Since Japan was using western technoloy, and pushing out the traditional skills in favor of the newer skills, there was no galvanizing effect between traditional craftsmen and heavy industry workers Nimura “The Characteristics of Labor…”.

Following Meiji Restoration (1868), the feudalistic order of social status imploded.  The four social classes of the previous feudal order were, samurai, artisans, farmers, and merchants.  The Meiji Restoration erased those social classes, and the interdependent feudal class system was no more.  While the tremors affecting the feudalistic classes affected them deeply, the overall discardment of the feudal system had no effect on the whole of Japanese society.  The Japanese social structure was a hierarchy with the Emperor at the top.

  The closer an individual was to the Emperor, the higher his or her class.  Factory workers were new and were immediately considered a lower class than the previous members of the feudalistic system.  Because of the previous feudal system where every person had a place for every person, the new workers blended seamlessly with the factory hierarchy.  Now social status becomes integrated with one’s rank at work.  Factory workers had no pride being included in the working class; they did not want their children to be workers.

Post war, blue collar and white collar workers joined the same unions, known as mixed occupation unions.  Post war, unions were basically mass organizations for the marketing of labor.  Some unions pushed for a democratization of management and felt that they had a voice in company operations, including strategy and management.  Post war unions were able to give blue collar workers the same prospects for promotion and wage increases as white collar staff Nimura “The Characteristics of Labor…”.

Japan would still like to see more economic growth and so they created the “e-Japan strategy” and are now focusing on the “e’Japan strategy II’.”  The second part of the strategy deals with the IT functions of Japan.  Japan wants to become the world’s most advanced IT nation.

The original “e-Japan Strategy” was implemented in Jan 2001.  The second phase of Japan’s IT strategy is to focus on taking leading measures in seven important areas that relate to people’s lives in order to become a safer, impressive, and more convenient society.  In a country which actively uses IT, the strategy aims to improve the development of new IT social infrastructures that are essential for the sophistication of the active use of IT Koizumi “The 19th Meeting of the IT…”.

Japan’s new economic strategies shows that it is willing to further its economic progress.  Combined with the United States, Japan is one of the two major worldwide economic powers.  Over the past ten years, Japan’s government has adopted a series of economic stimulus packages, most in the form of public works.  Japan issues thirty trillion yen a in government bonds annually when their tax revenue is only fifty trillion.

In spite of what is essentially free spending, Japan does not believe it is free spending.  What is does believe is that structural reforms are needed to revive the economy.  The Prime Minister says that Japan’s administration is trying to achieve “structural reforms without sanctuary.”  Those structural reforms include trying to revitalize the economy by including the disposal of non-performing loans, enacting tax reforms, and through public expenditure reform “Japan-U.S. Alliance…”.

The Resolution and Collection Corporation (RCC) is actively tackling the disposition of loans and revitalization of companies usually through cooperating with Wall Street.  Japan’s economy is difficult, but parts of it are improving.  The Japanese economists believe there is no growth without reform.  Japan’s economy comprises 13% of the global economy.

The Prime Minister wants Japan and the United States to work together to enhance the economy.  He also wants to help the entire Asia-Pacific region to grow and the region agrees with him.  They agree with President Bush in the need to strengthen the ties between the United States and Japan for cooperation in the Asia-Pacific region.  The Prime Minister wants to help open the region up to economic prosperity.  To have the region to truly be open, the region needs to have North Korea open.

Japan wants to normalize relations with North Korea to contribute to stability in the East Asian region.  He also wants to expand East Asian cooperation based upon the Japan-ASEAN relationship.  Japan will be partnering up with Singapore and is interested in a partnership agreement with the Republic of Korea.  In the spirit of opening up the region to more economic growth, Japan hopes to foster cross border business opportunities and contribute to the prosperity of the region Koizumi “Japan-U.S. Alliance…”.

What can Japan do to establish more prosperity in a post World War two Economy?

Japan wants to work with the United States because it is the largest and most technologically powerful economy in the world.  Its per capita GDP is $43,500 and it uses a market-oriented economy.  The United States has more flexibility than Western Europe or Japan when it decides to expand plants.

As a result of countries trying to prevent their markets from being taken over by American products, there are  high barriers of entry in the international markets.  The United States has surpassed the world  in  technology in computers, medicine, aerospace, and military equipment (Factbook).

GDP                                                                                                                                                 2000              2001                2002              2003                2004

 

Korea

 

768.6

 

817.4

 

878.6

 

922.5

 

1005.3

 

Japan

 

1441.1

 

1488.9

 

1528.2

 

1549.0

 

1610.2

 

U.S.

 

9764.8

 

10,075.9

 

10,417.6

 

10,918.5

 

11,679.2

*The data was provided by OECD.  It was extracted in 2007.

What I have done is compare the emerging South Korean economy with an economy in

its region that also played a part in the East Asian tiger economic boom, yet surpassed South Korea.   Those two are compared to the most established economy in the world, the United States economy. Not surprisingly, the United States is the leader in GDP out of the three, but if one looks at the GDP between Japan and Korea, he or she will notice that although Japan is still the leader, South Korea has been closing the gap.  In 2000, South Korea and Japan had a difference of 672.5 between them.  In 2004, that difference had closed to 604.9, even though they both have a steadily increasing GDP.  As one can see, Korea’s focus on education in proved successful.

From 2000 to 2004, the United States steadily increased the gap between Korea and Japan.  This could be because the United States was going through the war in Iraq and had a wartime economy.  The manufacturing of goods specifically for military use was in high demand.  Since the United States was already a world leader in that category, then it could have only been expected to increase at a faster rate and a higher rate than previous projections with all the demands coming in for equipment.

Household Savings Rates

2000                                                                                                  2001                2002              2003                2004

 

Korea

 

10.7

 

6.4

 

2.2

 

3.9

 

5.1

 

Japan

 

9.5

 

6.6

 

7.2

 

7.4

 

6.9

 

U.S.

 

5.0

 

6.3

 

4.8

 

5.3

 

4.4

*The data was provided by OECD.  It was extracted in 2007.

The household savings rates are a different story.  If one compares where the United

States was in 2001 (assuming the data was compiled before September 11) he or she can see exactly how 9/11 subverted America’s economy and possibly the world’s economy.  Koreans started to save more, possibly because they had more faith in their economy.

Even though the United States reigns supreme in those markets, the gap has narrowed post World War II.  The advancements in technology created a “two-tier labor market,” a market where those in the bottom lack education and the professional skills that those at top have.  The working class fails to get pay raises, fails to get health insurance, and fails to get other benefits.  The disparity has gotten worse; since 1975, all gains in household income has gone to the top 20% The World Factbook, United States.

The income disparity has grown in the United States, but what can Japan do to increase their post World War economic progress?  First, Japan needs to restructure their labor unions.  Post WW II, there were mixed occupation unions because the white collar workers had the same needs as the blue collar workers.  That need is no longer there.

Labor unions need to be structured around what their workers need.  That is too difficult when people of different occupations have different needs and wants.  Collective bargaining would be too difficult because there would be a lack of cohesion among the union.  The government would not be able to help them or even to agree on a set of terms because of the lack of common ground within the union’s workers.

Next, even though their economy is the largest economy in East Asia, there are still problems.  Japan’s growth is restricted because it needs labor utilization, it needs to enhance competition in production markets, liberalize the agricultural sector, and encourage more foreign direct investments Citrin & Wolfson,“Japan’s Back”.  I believe foreign direct investment needs to be the main focus after restructuring the labor unions.  Japan has a history of being wary of outsiders (i.e. mixed labor unions), and even though it has made strides there are still ways of overcoming it.

Japan still needs to loosen its trade barriers and customs laws.  South Korea managed to have an economy by utilizing the FDI, in conjunction with maximizing education, because they had no natural resources.  There is a need to open up the production market.  Laws should be written to prevent monopolies within the market.  When consumers feel they have an option, they will choose it and more money will be thrown into the market, establishing stronger ties within the economy.  Monopolies are not successful for economies; all one needs to do is look at Russia and China.  The countries were and at times still are so regulated that there is very little chance of a pure market.

Not everyone in East Asia is seeing economic progress quickly.  China for instance, has seen economic growth, but it is still plagued with a population that is for the most part poor and rural.  In China, the emerging middle class should comprise 19% of the country’s 1.3 billion population by 2003.  It is projected to reach 40% total population by 2020.  Over the past ten years, China has not yet reached the average domestic consumption of GDP worldwide, it has been 59.5% when the world’s average is 78%.

Its consumption rate has been declining sharply which is combined with marginal growth in domestic consumer demand.  The middle class is what stabilizes a country, politically and economically, it is similar to a social intermediary.  The new middle class is will be comprised of five groups, the high-tech entrepreneurs, the managerial staff working in foreign films in China, middle and high level managerial staff in state-owned financial institutions, the professional technicians in various fields especially in intermediary firms, and some self employed private entrepreneurs “Dissecting China’s ‘middle class’”.

China’s market has emerged so recently that the word ‘middle class’ did not enter China’s language until the late 90s.  Even though their economy is new, their income disparity has widened after two decades of economic reform.  The Gini coefficient (which measures income disparity) reports that China’s income disparity has risen to 0.39;  the international alarm level is 0.4.

Over thirty million Chinese live in poverty, in addition to at least twenty million needy residents in the city.  China’s population has at least 786 million farmers and they account for 70% of country’s total population.  China’s farmers are plagued by low income and poor purchasing power.  Even though its market is beginning to emerge, China is only 40% urbanized and the middle class can not become mainstream until it reaches 50% Zhigang “Dissecting China’s ‘middle class’”.

China’s economic growth will continue to be elusive if they do not allow labor unions to allow the workers to govern themselves and not have workers prosecuted.  In China, the government controls the unions and independent labor parties are banned.  If there are any labor dissidents or activists, they are institutionalized with mentally ill patients.  Worker’s have no rights because neither the Chinese Constitution nor the law allows for the right to strike Daifallah “Labor Unions in a Rift….”

Even though China has social barriers to overcome, not all growth in the East Asian market and the United States’s market has been positive.  Both markets have encountered problems in their growth.  One region has encountered problems in the devaluation of currency and the other in encountered problems when September 11th attacked the U.S., throwing their economy into a downswing.

Everything was affected, including their travel industry. There was a 17% drop in overseas travelers; September 11 cost the U.S. more than $15 billion dollars in lost taxes and nearly 200,000 jobs were lost.  Because of the drop in traveling, the economy suffered.  The U.S. market share in the six trillion dollar travel business had dropped to 6.1%, which is down from 7.5% in 2000 “Travel To U.S. Off…”.

On July 2, 1997, the East Asian region went into a major depression.  The Thai baht collapsed and caused a domino effect of currency devaluations and stock market crashes across the region.  The International Monetary Fund (IMF) had to bail out South Korea, Thailand, and Indonesia.  Korea went into instant reforms when President Kim Dae-Jung recapitalized the banks and reformed the Chaebol, but Indonesia is still in conflict Barron “Asian Economy…”.

In Indonesia, the economic crisis ousted President Suharto from office.  The new president was able to stabilize the economy, but he was not able to create prosperity for his people.  At the time, his cabinet had been in power for one year, but there was still no economic programs set up.  The East Asian region, has been undergoing changes.  Monopolies gave way to market forces, the countries’ political systems started to open up, and companies became more accountable to their shareholders Barron “Asian Economy…”.

East Asia needs to enact efforts to help restore its economy or it will face more challenges to restore the region to its previous financial gains.  Only South Korea has enacted the necessary changes to its financial system.  Those changes have given Seoul a reputation of being one of the cities that is taking the deepest structural reforms in the region.  The proof is in the statistics, Korea’s non-performing loans (NPL) to total loans stood at 11.3% .  In December of 2000, that number dropped to 8.1%, and in September 2001, it  fell again to 6%.  It is projected to reach 4.8% in 2002 Macan-Markar “Ravaged Asian Nations….

Overall, the world’s economy is improving.  The East Asian region is stronger and there is still room for growth in Japan.  There is still a possibility for China to maximize its potential, if the government decides to allow labor unions to function independently of the government.  Japan’s labor unions need to be less mixed and more specific so they can truly achieve collective bargaining.  The next economy to watch is Singapore.  They have no natural resources and are now one of the countries in the forefront of Asian economics.

Work Cited

“American Labor History.”  U.S Department of State.  About, Inc.  17 Apr 2007 www.economics.about.com

“The Asian ‘Tiger Economies’, The role of and background to higher education in the Asian ‘tiger economies’.”  University of Leeds, Appendix, Section 9.  18 Apr. 2003 <http://www.leeds.ac.uk>

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