East Asian model
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The East Asian model (sometimes known as state–sponsored capitalism) is an economic system where the government invests in certain sectors of the economy in order to stimulate the growth of new (or specific) industries in the private sector. It generally refers to the model of development pursued in East Asian economies such as Japan and the Four Asian Tigers of Hong Kong, Singapore, South Korea and Taiwan. Macau is also sometimes included. It has also been used to classify the contemporary economic system in Mainland China since Deng Xiaoping's economic reforms during the late 1970s and the current economy system of Vietnam after its Doi Moi policy was implemented in 1986.
The main shared approach of East Asian economies is the strong role of the government. East Asian governments had recognized the limitations of markets in allocation of scarce resources in the economy, and thus its governments had used interventions to promote economic development. Similar to dirigisme, key aspects of the East Asian model include state control of finance, direct support for state-owned enterprises in strategic sectors of the economy or the creation of privately owned national champions, with high dependence on the export market for growth and a high rate of savings.
This economic system differs from a centrally planned economy, where the national government would mobilize its own resources to create the needed industries which would themselves end up being state-owned and operated. The East Asian model refers to the high rate of savings, investments, educational standards, assiduity and a export-oriented policy.
Success of the model
East Asian countries saw rapid economic growth during from of the end of the Second World War to the East Asian financial crisis in 1997. For instance, percentage annual average growth was high between 1970–96 in mainland China, Hong Kong, Singapore, South Korea and Taiwan. Within this period, development of these countries were growing three times as more than was the rate of growth of the global world economy. Hence those countries attract most of foreign and private capital inflows into those countries.
During this period, East Asian countries also achieved dramatic reductions in poverty; the greatest example is Indonesia, where the percentage of people living below the official poverty line fell from 60% to 12% between 1970 and 1996. Further, Indonesia's population increased from 117 to 200 million. Equally impressive is the growth of real wages between 1980 and 1992, with average wages in newly industrialised Asian countries increasing at a rate of 5 percent a year, whereas at the same employment in manufacturing increased by 6 per cent a year. In conclusion the growth period in the East Asian countries saw a large improvement in the overall standards of living.
Causes of GDP growth
Behind this success stands the export–oriented economy mentioned above, which has brought high foreign direct investment and greater technological developments. Big companies such as Creative, Hyundai, LG, Mitsubishi, Razer and Samsung were successful due to the huge government support and its intervention into the bank sector in order to give huge credit to big companies. The governments were also crucial in controlling infrastructure, provisions and trade unions. Such policies also made these countries more attractive for foreign investors.
Examples of the Asian miracle
The East Asian model of capitalism was first used in Japan in 1950 shortly after the Second World War. After the war and American occupation, recently occupied Japan was considered a developing country. The main development was between 1950 and 1980. It took Japan about 25 years, a non-competitive country (in steel production), to overcome Germany in producing cars (Germany was at that time the largest exporter of automobiles in the world. 5 years later, Japan produced more automobiles than the United States. In a post-war period, The Korean War (1950-1953) can be seen as a turning point for the Japanese economy, as the country moved from economic depression to economic recovery. Japan, still being occupied by the U.S. military, was a staging place for the US-led United Nations forces deployed in the Korean peninsula. The country found itself in a good position to make a profit as Japanese goods and services were procured by the U.N. troops. This, along with economic reform, gave an initial boost for economy that will experience rapid growth for next half a century. In 1950s and early 1960s, average annual growth rates were around 10% to 13%.
In the early post-war years, Japan had also initiated economic reforms, Zaibatsu corporations were dismantled, and agricultural land reform brought modern machinery and practices in recently distributed land, which meant that small agricultural producers can earn profit as opposed to the pre-war years where big land lords were owners of agricultural land. In the 1960s, Japan developed a consumer-oriented economy, with industry orienting towards production of high-quality technological products aimed for exports as well as domestic market. Japanese exports rose rapidly and in subsequent years it became the world leader in car manufacturing, shipbuilding, precision optical devices, high technology. Beginning with 1965, Japan started having a trade surplus and by the next decade saw Japan having the third largest gross national product in the world. In 1970s, the growth was significantly slow down partly due to the oil crisis, as the country was heavily dependent on oil and food imports. In the 1980s, Japan diversified its raw material sources, due to economic misfortunes of the previous decade, and shifted its production’s emphasis towards telecommunication and computer technologies. Even though Japanese economic expansion ended in early 1990s, Japan is still the leader in highly sophisticated technology along with its traditional heavy industry products.
Facing severe unemployment and a housing crisis after the end of World War II, Singapore embarked on a modernisation programme beginning in the late 1960s through the 1970s that focused on establishing a manufacturing industry, developing large public housing estates, and investing heavily in public education and infrastructure under the leadership of Lee Kuan Yew.
Lee's programs in Singapore had a profound effect on the leadership in China, who made a major effort, especially under Deng Xiaoping, to emulate his policies of economic growth and entrepreneurship. Over 22,000 Chinese officials were sent to Singapore to study its methods.
By the 1990s, the country had become one of the world's most prosperous nations, with a highly developed free market economy and strong international trading links. It now has the highest per capita gross domestic product in Asia and is 7th in the world, and it is ranked 9th on the UN Human Development Index, the highest for a sovereign country in Asia.
Despite its backward industrial development for nearly 40 years due to World War II and the Korean War, the country was able to compete in chip technology. In the 1950s, South Korea was one of the poorest countries in the world, heavily depended on foreign help provided mostly by the United States. Beginning in the early 1960s, the country’s autocratic leadership initiated economic development reforms that paved the way for rapid economic expansion. Heavy protectionist policies only allowed imports of raw materials, which initiated domestic production of consumer goods.
By 1990, average annual growth was around 9%. Family businesses that turned into big conglomerates such as Hyundai and Samsung had government financial help, for instance in a form of tax breaks, thus spearheading economic growth. South Korea became a highly industrialised country with a skilled workforce and along with Hong Kong, Singapore and Taiwan ended up being one of the Four Asian Tigers. However, in 1990s economic growth also significantly slowed especially during the financial crisis of 1997, which resulted in huge financial aid from the International Monetary Fund of US$57 billion. In the early 21st century however, South Korea has recovered and enjoyed a stable developed economy.
- Chinese model
- Developmental state
- Economic interventionism
- Four Asian Tigers
- Nordic model
- Singapore model
- State capitalism
- Tiger Cub Economies
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