SPOKANE VALLEY, Washington — In the 1960s, South Korea, Singapore, Hong Kong and Taiwan were considered as part of the developing world. After World War II and the Korean War, a new world peace opened borders and allowed globalization to begin flourishing. Emerging technologies like air travel and telecommunication allowed a boom in international trade. Each of the four countries had ideal circumstances to take advantage of the new opportunity for economic growth and development. While each had unique advantages, investments in industrialization, tax incentives and quality education were all building blocks that allowed a period of extreme growth.
Between 1960 and 1995, the four countries’ average GDP reached around 6% per year, steadily improving their economic growth. This prolonged growth rate was the basis for each country to prosper into newly industrialized economies and then eventually into fully developed countries. The achievement of rapid economic growth and development earned this group of countries the label the “Four Asian Tigers.” Scholars and economists have long debated the factors behind the successful development of the Four Asian Tigers. They have contested the importance of each factor; however, there are five main factors on which they commonly agree.
The Capitalist Developmental State
This term refers to both economic and human development while the state controls national resources and directs incentives through a specific policy-making process. The Tigers’ policies reflected a willingness to have public-private cooperation while ensuring that exchange rates reflected economic fundamentals, interest rates yielded positive returns. They kept inflation under control and allowed taxes enough flexibility in income to encourage economic activity in the public.
The states’ decisions to expand economically as well as the capacity to implement productive development strategies were essential in differentiating the Asian Tigers from other newly industrialized economies. According to scholar Umesh Gulati, the capitalist developmental state was successful among the Tigers for two reasons. One is that the state was able to deny political opponents a voice in impacting economic decision-making. This allowed rapid strategy shifts in response to changing circumstances without pushback. The other was efficiently running institutional structures that allowed the state to form economic policies and execute them well.
The industrialization that occurred in each country actually began with the transformation of the agricultural sector while under colonial rule. Colonists invested heavily into improving agricultural productivity. Later, land reforms continued increasing productivity levels that helped decrease poverty and laid the foundation for rapid industrialization.
Import substitution industrialization (ISI) was the initial factor that led to the Asian Tigers’ economic success. ISI was a way to protect domestic industries from the competition of the global market while subsidizing and investing in those industries. It allowed industries to become successful in the global market after becoming successful domestically.
Market-friendly economic policies were another factor that allowed industries to develop quickly in each of the Asian Tigers. Low deposit rates and ceilings on borrowing rates increased profits and retained earnings. Governments also provided subsidies and incentives while promoting capital and knowledge-intensive industries.
A Free Market Economy Led by Exports
The Asian Tigers each designed a market to facilitate exports and mostly free trade. This is referred to as export-oriented industrialization. Exports in each country expanded more than twice as fast as the average of most developing countries. The share of exports in GDP tripled in 25 years. Economic policies had moderate import protection from import substitution industrialization. However, the policies ensured that there would not be an anti-export bias, which occurred in other places.
Local prices of traded goods in the Asian Tiger economies, on average, were much closer to world prices than other developing countries. The Asian Tigers did not allow the exchange rate to become overvalued and exporters had access to incentives such as duty exemption, free trade zones and free access to foreign exchange. Direct foreign investment helped establish each country’s trade regime which grew from 16% in 1970 to 33% in 1990.
An Educated and Hard-Working Labor Force
One major difference between the four countries and other low-income countries was human resource development. Starting in the 1960s, the average population with secondary education was much higher than in other developing countries. In the 1980s when the heavy industry began to expand, there was a significant investment in education. This included universal primary education, secondary education as well as science and technology higher education. A growing population also increased the size of the labor force, which resulted in a highly educated, large labor force. The adaptable and disciplined labor force in each country was very important in achieving positive economic outcomes.
Strong Centralized States
A strong centralized state in each of the Asian Tigers was a key element from the beginning stages of development. “East Asia’s bureaucracies emphasized managerial organization and functional responsibilities. Governments centered their efforts on core economic ministries which formulated and coordinated economic policy.” The Asian Tigers each also held tremendous state power with very little dissent. Both authoritarian and participatory institutional mechanisms managed to create features that allowed stability in growth, limited economic controls and provided adequate support services and a strategic vision for the future.
The Possibility of Replication Elsewhere
One of the many reasons that scholars, development experts and economists try to understand the development of the Four Asian Tigers is due to the poverty alleviation that occurred as a result of the tremendous economic growth. In South Korea, absolute poverty went from 40.9% in 1965 to 4.6% in 1984. Each country had a similar achievement in poverty reduction. However, Singapore managed to nearly eradicate poverty completely.
One perspective suggests that good governance was the key to success. Governments prioritized strong regulation alongside anti-corruption measures, and conservative economic policies allowed each country to save substantial capital reserves and avoid debt.
Gulati points beyond simply good governance to the developmental state as the key, emphasizing the importance of a favorable geopolitical environment and a correct institutional framework as prerequisites for the developmental state to implement economic policies that result in success.
Others argue that the specific circumstances of every individual economy make it impossible to apply any one mechanism that contributed to the development of the Asian Tigers. This, according to Michael Sarel of the International Monetary Fund, is in part due to the fact that it is impossible to know the exact level of influence each mechanism had on growth and success in each country.
Insight for Transformation
The answer to economic growth, development and poverty eradication is not something that can be derived from one case. While the case of the development of the Four Asian Tigers cannot be copied as a sure means of success for other countries, understanding the mechanisms that led to each country’s success can still provide valuable insight for the transformation of developing countries.
– Charlotte Severns