The Newly Industrializing Economies of East Asia

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Newly industrialized country

Japan has managed to develop the instrument in systematic fashion as one that relies less on material incentives than on moral persuasion in explaining the stakes that are involved in solving problems confronting the government, households or firms. A country that is both large and democratic like Japan requires an exceptionally qualified bureaucracy to operate such a system with success.

The evidence of such guidance is massive in Korea, Taiwan and Singapore. Authoritarianism may have compensated any lack of legal sophistication before democratisation and liberalisation set in. But it is by no means a necessary condition. Hong Kong proves that administrative guidance can function in an ideal laissez-faire regime. The Governor has used this instrument sparingly, but there is no doubt that the small, though powerful, business community of the Colony would think twice before refusing, without a sensible reason, his moral persuasion.

They raise the level of administrative guidance from a unilateral to a bilateral one. Many Japanese believe that Japan has the monopoly of that instrument. Arguments reach from their cultural tradition of not putting contracts into writing, to their reluctance even to spell out commitments of loyalty, and to their highly developed sense of give-and-take.

This instrument, however, is used for economic policy purposes in the West as well. The term "gentlemen's agreement", although of British origin, has entered global terminology and covers the same type of implicit commitments. One particularly striking non-Asian example are the gentlemen's agreements concluded by the German Bundesbank, known to be one of the most orthodox neoclassical institution of the world, with leading German banks in order to prevent capital movements running counter to the exchange rate of the deutsche mark prefered by the Bundesbank for reasons of domestic price stability.


As for Korea and Taiwan, the pattern is epitomized by the October stock market crash situation when banks, solicited by government, agreed in the true Japanese fashion to mobilize considerable funds in support of share prices in order to restore confidence. The banks complied, and so did the public. Everyone benefited from the recovery made possible by this implicitly gregarious move.

With authoritarian rule on the decline, the decision-making process is increasingly losing its top-down unilateral direction. To cite the Financial Times 28 , "governments have come to recognise their own weakness in assessing how market trends will move worldwide for different products, and to realise their administrations are overstrained". It is increasingly difficult to know where the center of decision lies, even in the most dirigist of the four, namely Korea.

Consensual modes of policy-making and implicit contracts have increasingly become the pattern of policy integration. Economic incentives, macro-and microeconomic ones are offered by governments everywhere on the basis of the theoretical assumption of the reaction of economic agents.

Lowe calls these incentives "primary" controls of the economy. All too often, there are no "secondary" controls as to whether or not beneficiaries of the incentives performed in accordance with the assumption underlying the primary controls. Considerations of fairness as well as of policy effectiveness call for "sanctions" in case of noncompliance. Such sanctions cannot be of a penal nature but merely consist of swift discontinuation of the incentives or the exclusion of non-complying beneficiaries. Thanks to their relatively small size and the corporatist virtue of their economies, the governments of Korea, Singapore, and Taiwan could easily manage a similar system.

Hong Kong's history of government incentives is extremely recent, as we have seen, but it evolves along the same lines. The MAS had offered extremely favourable conditions to foreign banks for establishing themselves both in the domestic and off-shore markets.

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The off-shore facilities were the incentive provided for operating a domestic branch. The purpose was attraction of foreign capital. When Singapore was hit by a cyclical recession, the MAS attempted to reach with the major banks a gentlemen's agreement of the type just described in the case of the Bundesbank. The aim of the agreement was to offset a speculating run out of the Singapore dollar.

Industrialized Asian Countries

The MAS argued that a cheaper dollar would increase the cost of imported components of manufactured goods and thus ruin Singapore's price competitivity as only 20 percent of export prices depended on wage and locally made components. Facing the non-compliance with the gentlemen's agreement, the MAS was provoked into applying the secondary controls of revoking the primary incentive of freedom of transactions between domestic and off-shore markets For example, Taiwan subordinated industrial policy to neoclassical competition policy unequivocally, but did not reject industrial policy altogether, as West Germany still feels obliged to do.

Korea and Singapore, just as unequivocally, subjected concerns of fair trade to those of industrial policy, while Hong Kong left it to its Schumpeterian entrepreneurs to fight among themselves over the concrete shape of market forms in the advanced sectors of the economy. Small and medium-size enterprises were also left to their fate, not only in Hong Kong, but in Taiwan and Singapore, while they were mostly integrated in a conglomerate network in Korea as in Japan.

Here, too, a clear hierarchy of policies was established. Fair trade policy would serve trade policy through legalisation of exporting cartels setting percentage shares of firms in total exports of designated goods to importing countries threatening protectionist action. Managing markets this way is wholely contested by economic theory because, preventing short-term market disruptions is not its only effect.

In the long run, it is intended to guarantee all the more secure market penetration. In addition, it offers exporters that extra rent of scarcity resulting from reduced supply at higher prices example: Honda cars in Europe and America. Importing countries are not well advised to call for such export restraints, but they regularly do so nonetheless, when faced with overcompetitive supply from East Asia, most prominently the U.

Korea and Taiwan have imitated the Japanese example and have penetrated the U. While relegating such particular structural conditions to the periphery of theoretical interest in their characteristic ceteris paribus propositions, even general equilibrium theorists do recognize the impact of structure as axiomatic, i. Followers of this approach have the problem of explaining the People's Republic of China's lesser performance. There is a wide consensus that below the large official Marxist doctrine, Confucian values are still deeply rooted in Mainland China as well.

What is needed, is a functional approach balancing adaptation, goal attainment, and integration with cultural values pattern maintenance. The functional approach helps focusing on adaptive dysfunctions of China's Marxist economy, especially in the area of price determination and production planning, which Deng's modernization program hopes to overcome.

It can lead to the comprehension of the practical problems of a less than perfect bureaucracy in a big country, in terms of the integrative function. It also invites increased attention to the potential of pragmatic action across the cleavages between centralized government policy and decentralized market decisions in China's future as a two-economic-orders-in-one-state case But in fact, it is less ambitious and conforms better to the scientific standard of critical rationalism than monocausal explanations in terms of only one of the disciplines it covers.

There is much diversity, but are also crucial similarities. In all the four cases, we have dualist economies as in Japan. There is the duality of traditional and advanced sectors, of the multitude of small enterprises and big conglomerates, of wages of temporary and permanent workers, of lifetime and temporary employment.

The social cost involved in some of these dualities is considerable, but on the whole, they account for a sizeable part of the capacity for economic and social adjustment in the NIEs. On average, all sectors of their societies have greatly benefited from that adaptive performance. The functional relation of adaptation and pattern maintenance is obvious here. A far above average saving propensity is common to all four. The average gross saving rate for the Four turns around 33 percent over the period , similar to that of Japan's 32 percent, and more than double that of the U.

The balance was settled at an extremely high level indeed. But there is a catch to this. It does not explain everything. The same frugality and attachment to saving rank high in the theory of Western capitalism, Weberian or not.

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Capitalism is a pluralistic affair in terms of religions The question remains why other capitalist countries have performed less well than the Asian NIEs. Healthy capitalism may thus be a necessary condition of high economic performance, but not a sufficient one. To the question of what the sufficient condition ought to be, I have a tentative answer: Far Eastern Economic Review: Asia Yearbook , pp.

Institute of International Relations, , pp. The Free Press, Modernization, Development and Politics", Comparative Politics vol. Cambridge University Press, , pp. The Free Press, , pp. The Free Press, ; id. Prentice Hall, , pp. Princeton University Press, , vol. University of Chicago Press, Oxford University Press, Harper Torch Books, , p. Pantheon Books, 3 vol.

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Theory, History, Policy New York: Sharpe, , p. Tokyo University Press, ; M. Civilisations Revue internationale d'anthropologie et de sciences humaines. Explaining the Asian Performance. Functional Holism and Critical Rationalism. Japanese Lessons in the Use of In many NICs, social upheaval can occur as primarily rural, or agricultural, populations migrate to the cities, where the growth of manufacturing concerns and factories can draw many thousands of laborers.

NIC's introduce many new immigrants looking to improve their social and or political status thorough newly formed democracy's and increase in wages that most individuals who partake in such changes would obtain. Newly industrialized countries can bring about an increase of stabilization in a country's social and economic status, allowing the people living in these nations to begin to experience better living conditions and better lifestyles.

Another characteristic that appears in newly industrialized countries is the further development in government structures, such as democracy, the rule of law, and less corruption.

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Authoritarianism may have compensated any lack of legal sophistication before democratisation and liberalisation set in. The Limits of Convergence. It rests more particularly on the productive potential of the economy. This instrument, however, is used for economic policy purposes in the West as well. Read this book to become visible in a seemingly noisy online world from day 1.

Other such examples of a better lifestyle people living in such countries can experience are better transportation, electricity, and better access to water, compared to other developing countries. The term came into use around , when the Four Asian Tigers [4] of Hong Kong , Singapore , South Korea , and Taiwan rose to global prominence as NICs in the s and s, with exceptionally fast industrial growth since the s; all four economies have since graduated into advanced economies and high-income economies.

There is a clear distinction between these countries and the countries now considered NICs. In particular, the combination of an open political process, high GNI per capita , and a thriving, export-oriented economic policy has shown that these countries have now not only reached but surpassed the ranks of many developed countries. The table below presents the list of countries consistently considered NICs by different authors and experts.

Green-colored cells indicate higher value or best performance in index, while yellow-colored cells indicate the opposite. For China and India, the immense population of these two countries each with over 1. When GDP per capita is calculated according to purchasing power parity PPP , this takes into account the lower costs of living in each newly industrialized country.

GDP per capita typically is an indicator for living standards in a given country as well. Authors set lists of countries accordingly to different methods of economic analysis. NICs usually benefit from comparatively low wage costs, which translates into lower input prices for suppliers. As a result, it is often easier for producers in NICs to outperform and outproduce factories in developed countries , where the cost of living is higher, and trade unions and other organizations have more political sway.

This comparative advantage is often criticized by advocates of the fair trade movement. Critics of NICs argue economic freedom is not always associated with political freedom in countries such as China , pointing out that Internet censorship and human rights violations are common. Thus, while political freedom in China remains limited, the average Chinese citizen enjoys a higher standard of living than his or her counterpart in India.

South Africa faces an influx of immigrants from countries such as Zimbabwe, although many also come from Burundi, Democratic Republic of the Congo, Rwanda, Eritrea, Ethiopia and Somalia. Mexico's economic growth is hampered in some areas by an ongoing drug war in the north of the country.

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