A Commentary on the "East Asian Miracle"
Abstract of article:"Some lessons from the East Asian miracle" by Joseph Stiglitz taken from World Bank Research Observer Volume 11, Number 2 Pp. 151-177. The electronic version of this article can be found online at: http://wbro.oxfordjournals.org/cgi/content/abstract/11/2/151
The rapid economic growth of eight East Asian economies, often called the "East Asian miracle," raises two questions: What policies and other factors contributed to that growth? And can other developing countries replicate those policies to stimulate equally rapid growth? This article, based on case studies, econometric data, and economic theory, offers a list of the ingredients that contributed to that success. But it is the combination of these ingredients, many of which involve government interventions acting together, that accounts for East Asia's success.
This article offered a list of interesting perspectives that contributed to the success of eight economies in eight Asian countries over period 1965-1990. Neither a single fact nor a single policy ensured success. The performance of eight economies, Japan, Hong Kong, Korea, Taiwan, Singapore, Indonesia, Thailand, and Malaysia, was based on a combination of facts of new growth theory presenting the new principle concept to explain economy development. “Some lessons from the East Asian miracle article” is one of the interesting articles containing the new growth theories and various measurements based on case studies, econometric data and supplement economic theories for this empirical work.
Economic development has broadened from a somewhat narrow emphasis on growth to increased concern for the basic needs of poor, recognition of the importance of social capital, and development sustainability. The author, Joseph E. Stiglitz, attempted to delineate what East Asian governments did that resulted in the spectacular rates of economic growth by tracing several contributing factors in the new growth theory: among these, the most important are capital accumulation both physical and human, and technological progress. Another look that the author mentioned was promotion activities in supporting exports and investments, and some microeconomics tools the effects of market failures, externalities and public goods, for example. The last but not least is adaptability of government policies to respond to changes in economy environment in this region.
In addition to principle hypothesis, Stiglitz made an excellently technical exposition by using several metaphors to describe the process of economic growth. Stiglitz stated that capital accumulation as an engine metaphor and viewed the government as catalyst in a chemical metaphor. He supplemented further that the ability to respond to changes in economy climate and to learn from past mistakes could be viewed as “adaptive system” in a biological metaphor. Stiglitz provided an additional aspect of the economy as an equilibrium system; that is, people had expectations of future rates of return; those expectations determine saving rates; in the meantime, firms seek for maximizing profit by looking for technologies to apply, given cost of adjustment. He called this stage as “a metaphor from physics”, omitted from economic growth.
During the remarkable success of the eight economies of East Asia over period 1965-1990, there are a number of questions raised by economists. What are the dominant factors that lie at the heart of the East Asian miracle? To reduce the technology gap, these governments in eight countries spent a large amount of money not just buy technology but also heavily invested Human capital (e.g. skilled labor) in term of the support for education to promote the expansion of advanced technological investments, especially engineering. In term of human capital, however, statistical data that contained outliners might be included to data. Also, accurate measures of human capital are quite difficult. Literacy rate, primary and secondary school enrollments might be counted in one way or another. It’s impossible to capture all these terms.
Stiglitz raised some interesting points on market failures that were likely to be important in developing countries due to nonexistent markets (coordination failures), technological and marketing spillover from increases sharply in human capital input. These problems need government intervention. However, the government intervention may not work effectively if that government banks on replacing market rather than complementing. By using this strategy, the private sector plays a major role in economic activity in most of the Asian countries such as Japan. The governments of East Asia were very successful in these strategies. This paper claimed that creating market institution, such as long-term development capital markets to trade bonds and equities, is another mechanism to stimulate economic growth. Nonetheless, this article was studied in 1996. After this year, economic crisis occurred in this region. This crisis started from a bubble blast in Thailand in 1997. This crisis spread from a country to regions. These eight countries had some common strategies for their prosperous growth such as human capital investment or transferring technologies.
However, the depression in Asia a few years ago indicated that in reality, each country has a different fundamental economy if we have to look closely in eight economies, and eight countries, can be categorized into two categories. The first one is resiliency country. This part consists of Japan, Hong Kong, Taiwan, Korea, and Singapore. These countries have a strong fundamental both politically and economically.
The second one is unsustainable country such as Malaysia, Thailand and Indonesia. The latter group has a weak fundamental both politically and economically. This can lead us to further investigating key economic factors that can supplement the separation of eight countries into two groups.