The Development of the Asian Tigers
A Different Perspective
By Kipyo Do
'Asian Tigers’ refers to the four Asian countries that experienced rapid economic growth from the 1950's to the 1990's – before the Asian Financial Crisis of 1997.
The group consists of South Korea, Taiwan, Hong Kong and Singapore. These countries shared a similar economic level with many African countries in the 1950's; like many underdeveloped countries, they suffered from wide-spread poverty among the population and low standards of living.
In the 1950's, the Asian Tigers looked hopeless. Hong Kong was flooded with refugees fleeing from the Chinese Civil War. Singapore was quickly losing its significance as one of the British colonial trade centres of the region as the British Empire crumbled. South Korea and Taiwan were ravaged by wars with the communists and suffered from a consistent threat of another possible communist invasion. Taiwan had just been driven out of mainland China by the Communist forces, losing a huge amount of resources and manpower. South Korea did not fare better. South Korea suffered from a lower GDP per capita than North Korea and, even, Somalia in 1950.
However, within a span of few decades, Asian Tigers managed to undergo a rapid economic growth and development. Poverty and illiteracy was nearly eradicated from the four countries from the 1960's. In Korea, the percentage of people in absolute poverty dropped from 40.9% in 1965 to 23.4% in 1970, 14.8% in 1976 and 9.8% in 1980 and further to 4.6 per cent in 1984. Singapore nearly eradicated absolute poverty by managing to decrease the percentage of its population in absolute poverty from around 25% in the 1950's to 0.3%. In terms of education, in 1965, the enrolment rates in secondary schools in South Korea, Singapore and Hong Kong were 35%, 45% and 29%, respectively. By 1986, the enrolment rates for secondary schools in Taiwan had risen to 92%, in Singapore to 71%, in South Korea to 95% and in Hong Kong to 69%.
With the drastic decrease in poverty and increase in literacy, Asian Tigers experienced drastic shift away from agricultural economies. South Korea and Taiwan established themselves as the world’s leading manufacturers in electronics. South Korea is now a home for global electronic manufacturers: Samsung and LG. Taiwan houses Faxconn, which is one of the largest electronic iPhone manufacturers for Apple. Hong Kong and Singapore have managed to take advantage
of their colonial history as the British Empire’s trade hubs of the region, and established themselves as essential financial trading centres of the region and the world.
The wide-spread consensus credits the ISI (Import Substitution Industrialization) policies conducted by the Asian Tiger governments for their successful development. The rationale of crediting ISI is that governments provided their domestic industries with protection from the fierce competition of the global market while actively investing and subsidizing in their own, which would allow the domestic industries to compete in the global market in the near future. Heavy government intervention is necessary for successful ISI-policy. “ISI-policy believers,” like Dani Rodrik, Alice Amsten and Stephen Haggard, believe that LDC (Least Developed Countries) can replicate Asian Tigers’ success through heavy government intervention in the market and ISI-policies.
However, such ISI-believers’ credit to ISI-policy for the Asian Tigers’ successes are questionable. Firstly, the ISI explanation neglects the two of the Asian Tigers: Hong Kong and Singapore. Hong Kong and Singapore were laissez faire economies – an economic system where private parties including businesses are free from government intervention such as regulation, privileges, tariffs and subsidies. In other words, government intervention in Hong Kong and Singapore were minimal and followed extreme market-friendly policies. In fact, not as extreme as Hong Kong and Singapore, South Korea and Taiwan had considerably neoliberal economies compared to any other LDCs (Less Developed Countries). The level of economic freedom of Asian Tigers were comparable to the West.
According to the economic freedom index – a measure of how free the market is from government intervention (ranging from 1, to 10: being a complete laissez faire economy) – from Fraser Institute, Hong Kong and Singapore both scored a 9 in 1970. This level of economic freedom is unusual even for Western countries: only 2 out of 30 developed Western countries managed to score the same level.
Although South Korea and Taiwan scored lower levels of economic freedom compared to Hong Kong and Singapore, they still followed market-friendly policies comparable to most of the Western countries. In 1970, Taiwan scored a 7. Meanwhile, South Korea scored a 6.5, which was the lowest score out of all Asian Tigers. Putting these scores of economic freedom into the global perspective, South Korea had levels of economic freedom similar to Western countries like Germany, France and the Netherlands. On the other hand, only 9 out of 50 African countries and 11 out of 36 Latin American countries managed to score 6.5 or higher. Although South Korea scored the lowest in terms of economic freedom, it still had a level of economic freedom equivalent to the previously-mentioned Western countries. Meanwhile, only 9 out of 50 African countries and 11 out of 36 Latin American countries managed to do the same.
Martin Paldam suggests that the uniquely high levels of economic freedom are what separated the Asian Tigers from other LDCs conducting ISI-policies. Paul Krugman also credits the uniquely high economic freedom of the Asian Tigers as one of the possible explanations of their success. He proposes that firms in Asian Tigers were able to effectively detect the lack of supply (excess demand) in the global market and direct their resources to meet those needs. The governments of the Asian Tigers invested in their domestic companies only when firms redirected resources to meet the global demand.
Of course, one explanation cannot solely explain what led to the success of the Asian Tigers. There has been an under-emphasises on the uniquely high levels of economic freedom. Now, it is the time to rethink and question the traditionally-held ISI explanation of the Asian Tigers.
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