The four Asian Tigers (Hongkong, Taiwan, Korea and Singapore) have been the fastest growing countries in the world for the past three decades. These countries have been hailed as models of development for other emerging economies. The main factors argued for their growth are mainly high saving rates and investment rates, outward orientation, factor productivity macro discipline, and other public policies. However there is continued lack of consensus over these factors despite most of the researchers agreeing over the promotion of a dynamic export sector and factor productivity as the major factors of growth.
Common characteristics of Asian Tigers
- Focus on exports: Where as other developing countries use import substitution strategies for economic development, the Asian tigers focused on export oriented industrial development to richer countries. Domestic production was discouraged through government policies such as high tariffs. also trading the surplus with the richer countries
- Human capital development – they developed specialized skills for their personnel in order to improve productivity
- They had an abundance of cheap labour
- Sustained rate of high growth rates (probably double digits) for decades
- Non democratic and relatively authoritarian political systems during the early years
- High tariffs on imports in the early days
- Undervalued currencies
- High saving rate
A case of Singapore in particular between 1966 and 1990, the economy grew at remarkable 8.5% per annum, 3 times faster than that of the US growth, per capita income grew at 6.6% rate roughly doubling every decade. This achievement seems to be the kind of economic miracle. The employed share of the population surged from 27% to 51%. The educational standards of that workforce were dramatically upgraded. Also the country grew awesome levels of physical capital, investment as share of output rose from 11% to more than 40%.
Factors that engineered the robust growth in Asian economies
Although consensus has not yet been reached by different scholars/researchers and policy makers, the following are the mostly argued to be the factors behind the Asian tigers growth;
Skilled labour force- In the 1960s these nations were poor and had abundance of cheap labour. This excess labour was absorbed by labour intensive industries. Eg in 1965 Korea industry sector only employed 9.4% as opposed to 21.6% in 1980 yet agriculture employment fell from 58.6% to 34% over the same period. The excess labour was transformed into productive workforce through the education reform and yet remained competitively cheap. The focus was placed on education at all levels, all children attending elementary education and compulsory high school education. Money was also spent on improving college and university system.
Capital accumulation With respect to physical capital, the reasons can primarily be traced to the high savings rates. Policies also probably played a significant role in increasing the investment rate of the economy (High savings rates do not automatically translate into high domestic investment rates but nevertheless, the high savings rates have led to high domestic investment rates in Taiwan for example).As much as capital accumulation was key to the growth of these countries, capital productivity (recall labor transferred to industrial sector was accompanied with education reforms to add to its productivity) was essential. Capital productivity was attained through adopt foreign knowledge and technology. The technological catch up coupled with capital accumulation was significant to the Asian tiger’s growth.
Note For most researchers they argue that factor productivity (labour should be enhanced with education and capital enhanced with technological progress) is key for economic growth.
Outward oriented strategies/policies- The more rapid growth can be growth can be associated with much greater openness. Both exports and imports grew about twice as fast in the Asian economies as they did in the latin America. Asian economies maintained much high ratios of exports and imports to GDP. In hongkong and Singapore openness was achieved by ending all restrictions on imports and giving free rein to export sector. In Japan and Korea, and Taiwan, trade barriers were initially during the early 1970s however, the tariffs were gradually reduced. Among the tactics used in different countries were: exchange rate policies to favor exporters, export incentives, and selective tariff protection; financial repression, slowing financial sector development and consumer lending to provide cheap financing to industry – for exports, and for key industries; a high level of consultation between bureaucrats and business – both individual companies and industry groupings.
Slow growth rates of population- This played a great role in reducing family sizes (dependency ratios), creation of an educated labour force, accumulation of household and government savings, rise in wages and impressive growth of investments in manufacturing technology. 1965 each of the Asian tigers established family planning programmes and as a result fertility declined. Emphasis was also placed on civil education, increasing the rate of entry of women into the workforce and education sector; leading to delayed marriages. By 1995, the average fertility level was an average of two children per family (couple). Compare it with the Uganda’s current fertility rate of 6.7 births per mother. Smaller families produced 3 major demographic changes; slowed growth in the number of school-age children, a lower ratio of dependants to the working age adults and a reduced rate of labour force growth.
Ethnic homogeneity-Most of these Asian tigers had largely homogeneous ethnicity e.g. 98% of the Taiwan’s population is Han Chinese. Most researchers argue that ethnic homogeneity is beneficial with respect to creating institutions that are conducive to economic growth. Ethnic fragmentation leads to lower public expenditure on schooling, worse financial institutions, and lower spending on infrastructure. Also lower transactions are associated with ethnicity homogeneity.
Culture and Religious beliefs- Racial and religious harmony is regarded by the government as a crucial part of Singapore's success and played a part in building a Singaporean identity. Due to the many races and cultures in the country, there is no single set of culturally acceptable behaviours. BUddism is the most widely practiced religion in Singapore, with 33% of the resident population declaring themselves adherents at the most recent census. The religious beliefs of Singapore, hard work, innovativeness coupled with their culture of openness and harsh punishments for criminal offences led to a corruption free economy.
Flying Geese Hypothesis-In this case, countries in East Asia aligned successively behind the developed or advanced industrialized countries in their order of different stages of growth in the wild geese flying pattern. In this pattern the leading goose pattern is Japan, the second tier of countries are four tigers (Hongkong, Korea, Singapore, and Taiwan) where as the third 3rd stage consisted of countries such as Indonesia, Thailand, and Malaysia).China and Vietnam served as the rear guard in the formation. The “flying geese” hypothesis predicts as labor cost surges in one economy, firms tend to move their investment to the less developed neighboring countries or regions to take advantage of lower wage rates. In the recent East Asian economic history, the phase of flying geese lasts less than two decades. The New Industrializing Economies (South Korea, TheTaiwan, Singapore and Hong Kong) absorbed most of the Japanese investment in the1960s and 1970s when the production cost in Japan rocketed up Eg in the early years Japan influenced most of these countries like Taiwan after the 2nd world war and these countries adopted the Japanese economic model of economic development. E.g. China external trade development council and the bureau of industrial development were based on the Japanese models. Japan beyond being major trading company with developed countries, it became a major trading company with the Asian tigers e.g. under the policy of agriculturising Taiwan and industrialization of Japan, the Japanese heavily invested in Taiwanese agriculture.
Knowledge driven economy-it was realized that there is need for research and development if a country was to grow to economic maturity. The Asian Tiger governments committed to improving research and development. E.g. in Malaysia the research activity was/is determined by the needs of the industry including the needs of Small & medium industries. Even in these countries, the skills focus was professional and managerial occupational skills, research skills, professorship skill and technical skills. The industries became knowledge driven industries and e.g. in Singapore gradually 2 out of 3 jobs were for knowledged and skilled workers in manufacturing sector and 3 out of 4 of the export services sector. Investment in R&D meant that evidence advised policy decision making in these countries.
Effective and stringent public policies. This consisted of credible macro economic policies that kept inflation low, interest rates low, fiscal policies that focused on raising saving rates and investment rates, as well as policies that enhanced the development of infrastructure. These factors consequently promoted private investment and growth. For example, in Singapore despite the lack of natural resources and the absence of a large domestic market, high growth rates and eventually development were realised. This remarkable success has been attributed largely to sensible and effective policies and the early attention paid to Singapore’s infrastructure
Politically, many of the tiger economies have a recent history of military rule. However, a number of them have liberalized in recent years and Taiwan, Thailand, and South Korea are now amongst the most democratic countries in Asia. This political liberalization may make it more difficult for the tiger governments to resist demands to expand the size of their higher education systems still further. This kind of political system gives government the leverage to meet its development goals according to what it considers priorities as opposed to a democratic system where issues of equity, gender, ethics, etc are paramount.
Pegging performance to milestones
Much has been written about pegging remuneration to performance in the business world. The unique feature of the Singapore system is that public service remuneration was pegged to performance which was benchmarked against the milestones that had been agreed upon by the agencies and the parent ministries. At the highest levels, political office holders and senior public servants had their salaries pegged to economic performance and the salaries of the top echelons of a group of key professional classes. At the lower levels, compensation was pegged against performance against milestones.
Quality and standardization: Emphasis was placed on production of high quality standardized goods that would compete at the global level. Experts on Standardisation and quality assurance were brought in from Japan, US and UK.
