BY ROBERT J. BARRO THE EAST ASIAN TIGERS HAVE PLENTY TO ROAR ABOUT ntil last year, many East Asian coun- compared some Asian economic policies to tries were widely regarded as eco- the high-investment programs of Stalin’s So- U nomic miracles. The standouts included viet Union. This argument never made sense, the four Asian Tigers-Hong Kong, Singa- because the Soviet Union’s output was valued pore, South Korea, and Taiwan-where at artificial prices made up by government growth rates of real per capita gross domestic bureaucrats. When realistic prices were ap- product from 1960 to 1995 were around 6% plied in the post-communist ‘SOS, the mea- per year,Right behind were Indonesia, sured level of per capita output turned out to Malaysia, Thailand, and China. These perfor- be low. In contrast, for the Tigers, most out- mances placed this East Asian group at the put is valued at world market prices, and top of the world’s growth list. there is no reason to think that growth is The Asian reputation has suffered recently overstated. because of financial crises and recessions. SINGAPORE SWING. A recent study by Chang- These crises did highlight some policy short- Tai Hsieh published by the University of Cal- comings, such as unwise credit subsidies and ifornia at Berkeley challenges key parts of deficient regulation of financial markets. But Young’s conclusions on productivity growth. the negative reaction has been sharply over- The most dramatic revisions apply to Singa- done. In comparison with typical developing pore, where Hsieh notes that observed rates FLAWED: countries, government policies in most of the of return on investment have been roughly East Asian countries have been fiscally re- stable since the mid-1970s, not declining as sponsible, pro-market, and, hence, reasonable. Young’s calculations would imply. Combine Earlier studies Yet even before the recent setbacks, the that fact with Singapore’s robust growth in four Tigers’ economic record was challenged in real wages, and Hsieh shows that measured suggested that two well-known studies by Alwyn Young (in productivity growth had to be positive-an the 1992 NBER Macroeconomic Annual and estimated 2.2% per year-rather than the the region’s the 1995 Quarterly Journal of Economics). -0.7% reported by Young. According to Hsieh, Young argued that the high rates of econom- Young’s analysis went wrong because of its growth came ic growth reflected very little technological reliance on Singapore’s government national progress. Growth occurred mainly because of account statistics, which dramatically over- mainly from a extraordinary rates of capital accumulation, stated the growth of the capital stock. Hsieh some in the form of education (“human capi- also found that Taiwan’s productivity growth capital surge. tal”), but most in machines and buildings. was better than previously assessed by Young The lack of technological progress was sur- (3.7% vs. 2.l%), but got less dramatic results Technology prising because, even if these countries were for South Korea (1.5% vs. 1.7%) and Hong inventing little, they should have been bene- Kong (2.7% vs. 2.3%‘). had a lot to do fiting from the superior techniques they were Even these higher estimates on produc- imitating from the world’s most advanced tivity growth for Singapore and Taiwan un- with it, too countries. Historically, long-term economic derstate the contribution of technological growth has been sustained by significant in- progress to economic growth. Improvements creases in productivity due to technological in technology raise the demand for physical and organizational change. The accumulation capital (machines and buildings) and human of huge amounts of capital and labor can work capital (highly educated workers). But the for a time, but ultimately must be backed by resulting expansions of capital input are fil- improvements in technology. tered out in the usual calculations of pro- In Singapore, Young’s analysis suggests ductivity growth. A full explanation of these that rapid growth was supported almost en- countries’ growth would attribute more to tirely by physical and human capital accumu- the contribution of technology than Young’s lation. In fact, investment was so high that original thesis. It is improvements in tech- the rate of measured productivity growth nology that explain why so much capital ac- was actually negative. To Young, the high cumulation could have occurred, especially rate of investment persisted only because of in Singapore, without encountering dimin- the government’s policies of forced saving ishing returns. Thus, overall, we continue to Robert J. Barro IS a professor of eco- and implicit subsidies to foreign capital. have ample grounds to view the East Asian nomics at Harvard University and a The Young thesis was popularized and mis- growth and technological performances as senior fellow of the Hoover Institution ([email protected]). interpreted by economic journalists who even miraculous. 24 BUSINESS WEEK, APRIL 27. 1998.