COMPARING HIGH PERFORMANCE ASIAN ECONOMIES EAST ASIAN TIGERS Prof. Ruthie Garcia Vera AP CGP The High Performance Asian Economies: (HPAE) (as designated by the World Bank) Hong Kong Malaysia Indonesia Singapore Japan South Korea Taiwan Thailand The Four East Asian Tigers: The two city-states of Hong Kong and Singapore, South Korea and Taiwan. They are also referred to as the Four Dragons or the Little Dragons. The East Asian Tigers refers to the economies of Taiwan, Hong Kong, South Korea and Singapure. These economies are notable for maintaining exceptionally high growth rates, over 7% a year, from the 1960s to 1990s. Through this period, they became industrialized, even though they are not rich in natural resources. ▪ These countries have risen out of extreme poverty to become some of Earth's richest nations. ▪ They stand as proof that extreme poverty is not an absolute condition, that actions can be taken to make populations wealthier over the course of just a few decades. ▪ In 2015 the last of the Four Asian Tigers officially overtook Japan in terms of GDP, placing them second only to China in terms of economic success. The reason behind their astonishing growth is that they found their comparative advantage: ▪ Hong Kong and Singapore focused on being international financial centers and Singapore in particular also focused on becoming a port hub. ▪ Taiwan and South Korea focused on their manufacturing sector with an emphasis on information technology. All of these nations in one way or another became some of the leading exporters to the U.S. and they definitely export more than they import. Average Annual Growth in Real GDP per Capita, 1980–2010 Source: World Bank, World development Indicators: IMF World Economic Outlook Database. What did the Tigers do Differently in Terms of Provoking Development? These nations kick started development in the 1960's by implementing import substitution: raising tariffs to reduce the imports of consumer goods, allowing a country's own industries to develop and stabilize. The Asian Tigers decided to capitalize on the growing materialistic attitude developing in Europe and North America and pursued an export-driven model of industrialization and development. This was achieved by rapidly increasing the production of goods that could be exported to the highly industrialized nations of the world. Rankings on the Ease of Doing Business Index, 2011 Common Characteristics of the Tiger Economies ▪ All four territories had strong Chinese influence. Singapore had a population that included 75% ethnic Chinese, Hong Kong had 95% and Taiwan 98%. ▪ They were relatively poor during the 1960's and had an abundance of cheap labor. ▪ They had non-democratic and relatively authoritarian political systems, so the governments could easily drive through their plans for economic development. ■ Domestic consumption was discouraged through government policies such as high tariffs on imports, that led to the encouragement of high saving rates which allowed to invest in specific areas of industry. ■ All four countries singled out education as a means of improving productivity, focusing on improving the education system at all levels and ensuring that all children attended elementary education and compulsory high school education. ■ Money was invested heavily in the development of their university systems and in sending students to foreign universities. ■ Coupled with educational reform, they were able to leverage this combination into a cheap, productive workforce. ■ The East Asian Tigers committed to equality in the form of land reforms, to promote property rights to small and medium-sized farmers, who then had security of tenure, which encouraged them to invest in their own land. ■ Policies of agricultural subsidies and tariffs on agricultural products were implemented as well. ■ This decreased rural discontent and also allowed investment in the mechanization of agriculture, which enabled for further industrialization to occur. ■ They established a banking system that favored their own states. They have also limited their foreign spending, investing solely in their nations. ■ Trade unions were discouraged and governments encouraged managers to provide job security and other benefits in a paternalistic type of industrial organization. Geography as a Factor ▪ The rise of these nations can be attributed to their favorable geography. South Korea and Taiwan are surrounded by water with regular and plentiful rainfall and a variety of rivers to act as base infrastructure. ▪ Singapore is in the perfect spot on the globe to act as a port for fuel services, and its small size help to make it appear more successful than it may actually be. ▪ Hong Kong was leased by the British in 1897 and acted as an intermediate the trading post between Britain and China, making it the perfect spot for European foreign direct investment in China. ▪ The rise of the Asian Tigers thus stands as proof that favorable geography can play a dramatic role in development, acting as an important catalyst for economic growth . Problems with Export-Driven Trade Model ■ The East Asian Tigers were strongly affected by the Asian Economic Crisis, to varying degrees. While Taiwan was not as strongly affected, South Korea was badly battered by the crisis. Because of the focus on export-driven growth, many of the Tigers became caught up in a game of currency devaluation. ■ The current criticism of the East Asian Tigers is that these economies focus exclusively on export-demand, at the cost of import-demand. Thus, these economies are heavily reliant on the economic health of their targeted export nations. ■ In addition, these nations have met difficulties after their initial competitive edge, cheap productive labor, no longer exists, especially with the emergence of India and China. Sources of Growth, 1960–1994 (Percent) South Korea Once a subsistence agricultural country, South Korea spent much of the 20th century driving modern industries such as electronics, robotics and software development. According to the World Bank, South Korea’s GDP grew by an average of 10% per year between 1962 and 1995 and it is now regarded as one of Asia’s most advanced economies. • South Korea is a booming, trillion dollar economy. • Its population is one of the most ethnically and linguistically homogeneous in the world, with the only significant minority being a small Chinese community. • It is the 11th largest economy in the world. • After WWII, their GDP per capita was comparable with levels in the poorest countries of Africa and Asia. • The Korean War made conditions in Korea even worse. • Its citizens enjoy very high incomes and a standard of living rivaling that of wealthy nations such as Britain and Germany. • It boasts the world's greatest number of people with internet access. • It is home to many of the world's leading technological developers including Samsung, LG and the Kia Automotive company. • Their success was achieved by a system of close government-business ties, including: ▪ directed credit ▪ import restrictions ▪ sponsorship of specific industries ▪ a strong labor effort Imports and Exports as a Share of GDP Short History Korea was ruled by Japan from 1910 until the end of World War II. Under colonial rule there was no improvement in Korea's subsistence economy, and the failure to hold democratic elections caused political tension which resulted in a civil war between a dictatorship which favored communist principles at the North and a system based on market principles with a democratically elected government in the South. After the end of the Korean War, the United States, concerned with Communism's growth, aided South Korea in developing its market by subsidizing (paying for) 70% of South Korea's exports such as rice on the world market for reduced prices, giving Korea a significant advantage over the companies of other developing economies such as Egypt or Ecuador. This advantage helped Korea transition from a subsistence economy, producing largely agricultural products (like rice), to a major manufacturer of goods in just seven years (1953-1960). The South Korean government instituted very good economic policies, funding excellent education programs in public schools and building vital infrastructure for their cities and ports. ■ Korea's population is one of the most ethnically and linguistically homogeneous in the world, with the only significant minority being a small Chinese community. ■ Korea is one of the best educated countries in the world, with one of the highest rates of scientific literacy and mathematical knowledge. ■ It's highly skilled, technologically educated public made Korea one of the world's foremost exporters of high-tech goods, including software and electronics. Taiwan Taiwan’s proximity to China and Chinese investment has helped establish a futuristic city filled with skyscrapers, high speed trains, and a strong education system. Foreign investment has meant that Taipei is home to some impressive headquarters such as Foxconn (Apple’s products). In the early 1960s, Taiwan had a GDP per capital of just $170, but in 2015 it was $22,469. It may not be the wealthiest ‘tiger’, but it has experienced the most notable growth. ■ Taiwan has many elements in place for the successful development of high-tech and bio-tech industries. ■ These include strong intellectual property protection, good infrastructure and networks, and ample funding. ■ Beginning as a largely impoverished nation, Taiwan has grown to become one of Earth's economic leaders with a quality of life similar to richer European countries. ■ Their consistent economic growth has made them one of the select few members of the Asian Tigers. Short History In 1927, a war broke out between Chinese capitalists (the Kuomintang), and the Communist Party of China (Mao Zedong). The war lasted until 1950, when the Communists took over the Chinese mainland and the pro-capitalist Kuomintang retreated to Taiwan, where they established a new economy based on market principles. Taiwan started out with significant infrastructure (including roads and railroads) already in place, built by former Japanese colonists to extract rice and sugar from the farms within Taiwan.