Asia's Precarious Miracle

Databases selected: Multiple databases...

Full Text (908 words)

Asia's precarious miracle

Anonymous. The Economist. London: Mar 1, 1997. Vol. 342, Iss. 8006; pg. 18, 1 pgs

Abstract (Summary)

Although it has exposed some structural problems, the recent economic slowdown in

Asia is largely cyclical. On most structural issues, its economies have got a large

number of big things absolutely right: high savings, prudent monetary and fiscal

policies, openness to most trade, investment in education, and secure property rights.

Against this background, the argument that growth was merely the result of heavy

capital spending misses the point: that investment was a huge achievement in itself.

As the Asian economies mature, their growth rates will, naturally, tend to slow.

However, most could continue to grow at least twice as fast as the developed world

for many years to come. To do so, however, they will have to correct some of the

structural weaknesses that were concealed by their rapid growth in the past. For

instance, almost all East Asian economies engage in various forms of damaging

government intervention, such as directing cheap credit or tax incentives to selected

industries.

Copyright Economist Newspaper Limited Mar 1, 1997

[Headnote]

Economic growth in East Asia is far from over. But many East Asian countries need

structural reforms if it is to continue apace

THE market for ideas, like markets for currencies or coffee, has a tendency to

overshoot. Shifts in the way East Asia is viewed illustrate the point. Back in the early

1960s, when America and Europe enjoyed their golden age of growth, many western

economists viewed Asia as a gloomy place doomed to stagnation. When instead the

East Asian tigers boomed, putting on the fastest spurt of growth in economic history,

opinions switched. Optimists, extrapolating enthusiastically, concluded that at this rate

of growth, Asia would dominate the global economy within two decades. Theories

about an "Asian century" and the superiority of "Asian values" gained in popularity.

Now, however, after a year in which some East Asian superstars seemed to be

stumbling while America's economy looked fighting fit, the doomsters are writing the

Document View - ProQuest Page 1 of 3

headlines again. It has now become popular to proclaim the "end of the Asian

economic miracle".

Why the change of mood? A catalogue of unsettling news would include strikes in

South Korea, a sharp slump in exports throughout the region and worries about fragile

financial systems in many East Asian countries. Then there is wishful thinking: bad

news in East Asia is sometimes welcomed with huge relief by workers and firms in the

West, who misguidedly believe that the prosperity of Asians threatens their own jobs

and wages. Lastly, some economists have a theory that Asia's famous miracle was

built merely on massive capital spending, not productivity gains, and that growth will

therefore slow sharply as diminishing returns set in. They take Asia's recent woes as

confirmation of this notion.

Not so fast . . .

In truth, it is as foolish to exaggerate the region's recent troubles as it was to react

hysterically to its success. One lesson to draw from its current