‘Asian Miracles’, or Not?

J.D. Han

1. ‘Asian Miracles’ by World Bank

• The first official report started in 1993.

• The full report can be found at http://www-wds.worldbank.org/external/default/main?pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&theSitePK=523679&entityID=000009265_3970716142516&searchMenuPK=64187283&theSitePK=523679

1. Fact

• Rapid Growth in HPAE’s

• (Recent) High Growth of China

What are in common in these Asian countries?

• The High Performing Asian Economies (HPAEs) : Japan, Hong Kong, the Republic of Korea, Singapore, Taiwan, Indonesia, Malaysia, and Thailand.

• It finds that the diversity of experience, the variety of institutions, and the variations in policies among the HPAEs does not allow a model to be developed.

• However, some lessons for other developing countries can be learned from the East Asian experience.

• First, growth is not Automatic: HAPEs use a variety of government intervention or policies to achieve three functions of growth - accumulation, allocation, and productivity growth.

• Second, it is essential to get the fundamentals right. 1) High levels of domestic saving, 2) good macroeconomic management, and 3) broad based human capital.

• Third, the government intervention should have specific orientations, such as limited price(market economy) distortions.

2. Word Bank attributed the Asian Miracles to

1) Accumulation of Physical Capital (Savings);

2) Fostering Human Capital (Education); 3) Social Capital (Harmony-not confrontation,

Law and Order, Lack of Corruption); 4) Sound Government Policies (Macro as

well as Microeconomic Policies: for example, Export Promotion and Industrial Policy, etc.)

* Ambivalent about Technology(?).

5) The composition of Capitals is important:

-World Bank report classifies K into at least 4 (Physical; Natural; Human; Social)

West Africa: Natural Capital is relatively large, but Human Capital is relatively small

East Asia: Human Capital is relatively large and Natural Capital is relatively small

The World Bank Report mainly focuses on

• Human Capital, which is fostered by Education; and

thus

• Emphasis on Education, which is rooted in Neo-Confucian

culture

Public Expenditure on Education is misleading: It is not High in Asia

• Evaluation of the World Bank Model of East Asian Economic Growth focusing

on Human Capital measured by certain types of Education

However, not including Expenditures on Private Education and Other Educations leads to underestimate of Human Capital in East Asia.1) Private Spending on Education is large in East Asia• Juku (Japan)• Hank-Won or Ga-Wai (Korea)• Buxi(China)2) East Asia is the major source of International Migration

for Education: Largest groups of International Students in English

Speaking Countries are from East Asia• Refer to Paper by Han and Ibbott(2005).3) There are other social educations, such as education

through compulsory military training (China, and Korea just like Swiss, and Israel).

* Individual’s Motivation/Demand for Education in East Asian History reflects

• Neo-Confucian Concept of Social Class

• Social Class Structure

• Social Mobility and Education

Click here for an interesting paper on the social mobility of China

Encyclopaedia Britannica says

• Ch’ing (Qing) dynasty Social mobility increased during the early Ch'ing, supported by a

pervasive belief that it was possible for a peasant boy to become the first scholar in the land. An ethic that stressed education and hard work motivated many households to invest their surplus in the arduous preparation of sons for the civil service examinations. Although the most prestigious career in Ch'ing society remained...

• Ming dynasty ...the Ming civil service, that influential families did not monopolize or

dominate the service, and that men regularly rose from obscurity to posts of great esteem and power on the basis of merit. Social mobility, as reflected in the Ming civil service, was very possibly greater than in Sung times and was clearly greater than in the succeeding Ch'ing era.

• T’ang dynasty ...examination system had facilitated the recruitment into the higher ranks

of the bureaucracy of persons from lesser aristocratic families, most officials continued to come from the established elite. Social mobility increased after the An Lu-shan rebellion: provincial governments emerged, their staffs in many cases recruited from soldiers of very lowly social origins, and specialized finance...

** Contemporary China• X.Wu, Institutional structures and social mobility in China: 1949-1996

Научный руководитель, edited by D.J.Treiman, 2001

• Results show that (1)receiving education or obtaining political credentials are two major channels for individuals to achieve upward social mobility in the hierarchical status system of socialist China; (2)there exist high rates of inter-generational inheritance in terms of status as defined in the Chinese institutional context; (3)although one can overcome disadvantages in family background by acquiring educational and political credentials, access to these two fundamental currencies of mobility is highly constrained by one's hukou origin and first work unit affiliation. The analysis reveals an intertwined relationship among hukou status, work unit status, and employment status. The temporal trend of social mobility, especially the impact of economic reform, is also addressed. Economic reform, especially during its late stage, has yielded limited consequences for the Chinese stratification system. The research contributes to understanding of how the Communist party-state controlled and allocated life chances and status, which in Western societies is allocated mainly through competition in labor markets.

• What does this mean?

• Fully paper is at http://72.14.205.104/search?q=cache:bSx1y9NxpFoJ:www.ecsocman.edu.ru/db/msg/24362.html+social+mobility+in+china&hl=en&ct=clnk&cd=7

A high demand for education reflects the institutional and historical tradition that the East Asian society has been a meritorious one or a society of a high level of class mobility in which the most able people can become the rulers through open competition.

3. Criticisms of the World Bank Report on East Asian

Miracles:“There was no miracle”

1) Paul Krugman - Growth is due to increased factor intensity, or

increases in K, and L input, and Not much due to Technical Innovation;

- East Asia's phenomenal growth was "mainly a matter of perspiration rather than inspiration".

-Neoclassical Theory is enough, and Endogenous theory is not necessary*.

- According to Neoclassical Theory, there will be convergence, and the East Asian growth is not sustainable.

*Of course: Krugman does not think much of Social Captial, or Human Capital as a separate factor for growth.

* Evidence:

• Growth Accounting applied to East Asia does not show Technology as an Important Factor

*Refer to my note on Growth AccountingIn the East Asian setting; In most countries,

the economic growth can be explained by mostly dL or/and some dK. There is no room left for dT.

• Likewise, in explaining the extraordinary postwar growth of the Four Tigers, Young (1994b) concludes that

• one arrives at total factor productivity growth rates, both for the nonagricultural economy and for manufacturing in particular, which are well within the bounds of those experienced by the OECD and Latin American economies over equally long periods of time. While the growth of output and manufacturing exports in the newly industrializing countries of East Asia is virtually unprecedented, the growth of total factor productivity in these countries is not.

but GA is limited and incomplete. Read Michael Sarel’s IMF paper Yes, in Neo-classical model, growth

slows down without technical innovation.

However, in Endogenous Growth Model, even if technology is not an important factor, it does not mean that the growth will slow down.

Institution can be a substitute for technology.

2) Asian (Financial) Crisis of 1998 showed the weakness of the East

Asian Economies

• Western Economists attribute the Crisis to internal problems of the East Asian economy, such as

• Corruption at all levels of society• Lack of Transparency - Opaqueness

of Governance• Vulnerable to ‘Herding’

• Joseph Stiglitz and Shahid Yusuf, Rethinking the East Asian Miracle, Oxford University Press, 2001

• A good summary is given here(of course it includes Krugman’s

paper)

• This is the opposite of the Endogenous Theory of East Asian Economic Growth focusing on the positive sides of the

East Asia.

*Reflection

• Opaqueness also exists in Western Economies

• Transparency may not be the only way to Information Efficiency

: “Dominicans and Jews Need not Apply” in Cents and Non-Senses by J. Carr

• Transparency may not be culturally possible

: “Zen”(禅）； ”From Heart to Heart”(以心传心）

3) Japan’ Long Term Recession

• What were the causes of the Japanese Economic Recession since the 1990s?

-Liquidity Trap （ Krugman), or simply ‘Hollowing of the Domestic Economy( 经济 空洞化） ?

-Both are due to ‘Grim Prospect of the Economy’ and thus the lack of investment despite a high saving.

-What are the causes for “Hollowing”? * There is always a possibility of hollowing in East

Asia.

• Will she be able to rise again so that her economic growth picks up?

4) Japanese Extension of ‘East Asian Miracle’ has some element of imperialism or ‘crony capitalism’.

• Flying Goose Model ( 雁行）

Japan as the leader

Korea and Other LDC’s

China

• This is not just the order of economic development across countries over time, but the East Asian Supply Chain that U.S. and Japan have in mind.

U.S. -> Japan -> Korea / Taiwan -> China

• Those countries based on this type of ‘crony capitalism’ should always look for

countries at a lower rank and transfer

3D industries to them.