The Myth of Asia's Miracle

  • View
    31

  • Download
    2

Embed Size (px)

Text of The Myth of Asia's Miracle

The Myth of Asia's Miracle Author(s): Paul Krugman Reviewed work(s): Source: Foreign Affairs, Vol. 73, No. 6 (Nov. - Dec., 1994), pp. 62-78 Published by: Council on Foreign Relations Stable URL: http://www.jstor.org/stable/20046929 . Accessed: 10/10/2012 14:26Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

.

Council on Foreign Relations is collaborating with JSTOR to digitize, preserve and extend access to Foreign Affairs.

http://www.jstor.org

The

Myth

of Asia's Paul Krugman

Miracle

A CAUTIONARY

FABLE

ONCEUPONa

opinion leaders found themselves both impressed and frightened by the extraordinary growth rates achieved a set of Eastern economies. those economies were still by Although poorer and smaller they had transformed

time, Western

substantially with which

than those of theWest, the speed themselves from peasant societies to achieve into industrial powerhouses, their continuing ability rates several times higher than the advanced nations, and growth or even surpass American their increasing ability to challenge and in certain areas seemed to call into question the European technology not only ofWestern dominance power but ofWestern ideology. The or leaders of those nations did not share our faith in free markets civil liberties. They unlimited asserted with self increasing that their system was superior: societies confidence that accepted to limit and were willing strong, even authoritarian governments in the interest of the common good, take charge individual liberties of their economies, and sacrifice short-run consumer interests for the sake of long-run growth would eventually societies of the West. And chaotic ingly outperform a growing the increas minority of

agreed. between Western and Eastern economic gap performance issue. The Democrats became a political eventually recaptured the White under the leadership of a young, energetic new presi House ThePaul most theAge Krugman recent book ofDiminished is Professor is Peddling of Economics Prosperity: at Stanford University. His Sense and Nonsense in

Western

intellectuals

Economic

Expectations.

[62]

Asia'sMiracle TheMyth ofdent who pledged to "get the country moving again '?a pledge to him and his closest advisers, meant accelerating Americas nomic to meet the Eastern challenge. growth The time, of course, was the early 1960s. The ident was John E Kennedy. The technological that, eco

dynamic young pres feats that so alarmed were those of the

theWest were the launch of Sputnik and the early Soviet lead inspace. And the rapidly growing Eastern and its satellite nations. Soviet Union While economies

economies was the subject of the growth of communist articles in the 1950s, some innumerable alarmist books and polemical looked seriously at the roots of that growth were economists who a most pop putting together picture that differed substantially from rates were ular assumptions. Communist certainly impressive, growth

but not magical. The rapid growth in output could be fully explainedin inputs: expansion increases in of employment, by rapid growth in physical capi investment education levels, and, above all, massive tal. Once those inputs were taken into account, the growth in output was to put it differently, the big surprise about unsurprising?or, it posed no mystery. Soviet growth was that when closely examined two crucial This economic First, most analysis had implications. of the speculation about the superiority of the communist system? including accelerate economies could painlessly some aspects of that growth by borrowing was based off base. Rapid Soviet economic system?was growth on one attribute: the to save, to sacrifice current entirely willingness the popular their own thatWestern The communist view

for the sake of future production. consumption no hint of a free lunch. example offered

the economic countries' growth Second, analysis of communist some future limits to their industrial other implied expansion?in a naive words, projection of their past growth rates into implied that was to the future their real prospects. Eco likely greatly overstate on on growth that is based expansion of inputs, rather than growth in output per unit of input, is inevitably subject to diminish to ing returns. It was simply not possible for the Soviet economies sustain the rates of growth of labor force participation, average edu cation levels, and above all the physical capital stock that had pre nomicFOREIGN AFF'AIRS November/December 1994

[63]

Paul Krugman vailed in previous years. Communist growth would predictably slow

down, perhaps drastically. the growth of Warsaw Can there really be any parallel between Pact nations in the 1950s and the spectacular Asian growth that now some levels, of course, the paral policy intellectuals? At preoccupies in the 1990s does not look much like the lel is far-fetched: Singapore in the 1950s, and Singapore's Lee Kuan Yew bears little Soviet Union resemblance Stalin. Yet Pacific Rim over Soviet to the U.S.S.R.'s Nikita Khrushchev research the results of recent economic growth and less to Joseph into the sources of

debate give the few people who recall the great a strong sense of d?j? vu. Now, as then, the con growth conven trast between popular hype and realistic prospects, between remains so great that sensible eco and hard numbers, tional wisdom

it does get aired, not only widely ignored, but when analysis is as it is usually dismissed grossly implausible. about Asia's boom deserves to have some cold enthusiasm Popular West water thrown on it. Rapid Asian growth is less of amodel for the than many writers claim, and the future prospects for that growth are more limited than almost anyone now imagines. Any such assault on almost universally held beliefs must, of course, overcome a barrier of a account of the Soviet disguised incredulity. This article began with of 30 years ago to try to gain a hearing for the propo growth debate an old error. We have been here sition that we may be revisiting is that so few before. The problem with this literary device, however, the Soviet and terrifying now remember how impressive people to once seemed. Before turning performance empire's economic Asian then, it may be useful to review an important but growth, of economic history. largely forgotten piece nomic

'we will

bury

you'

of the Soviet empire, strewn with the wreckage in aworld the it is hard for most people to realize that there was a time when Soviet economy, far from being a byword for the failure of socialism, Khrushchev when of the world?that was one of the wonders "We will bury his shoe on the U.N. podium and declared, pounded Living [64] FOREIGN AFFAIRS Volume73No.6

s Asia Miracle TheMyth ofwas an economic rather than amilitary boast. It is therefore a you," it shock to browse through, say, issues o? Foreign Affairs from the mid 1950s through the early 1960s and discover that at least one article a

year dealt with the implications of growing Soviet industrialmight.a 1957 article by Calvin B. criticized officiai Hoover.1 Like many Western economists, Hoover the true growth rate. Soviet statistics, arguing that they exaggerated he concluded that Soviet claims of astonishing achieve Nonetheless, a rate of ment were their economy was achieving fully justified: as as that attained by any important capitalistic growth "twice high over any considerable number of years [and] three times as country Illustrative of the tone of discussion was as the average annual rate of increase in the United States." He high was state" concluded that it probable that "a collectivism authoritarian was at achieving economic growth than free-market inherently better that the Soviet economy might democracies and projected outstrip at the time. On the contrary, the general image of Soviet central planning was that itmight consumer be brutal, and might not do a very good job of providing was very effective at industrial growth. In goods, but that it promoting with supporting argu a view shared his readers. ment, confident expressing by economists Yet many Soviet growth were gradually studying to a very different conclusion. Although coming they did not dispute the fact of past Soviet growth, they offered a new interpretation of the a reconsideration one that nature of that of future growth, implied1 Hoover's dinary tone?critical of Soviet typical data but nonetheless the fact of extraor accepting of the time (see, for exam

that of the United States by the early 1970s. These views were not considered outlandish

i960 Wassily Leontief described the Soviet economy as being "directeddetermined ruthless he was skill"?and did sowithout

achievement?was

of much

of the commentary

ple, a series of articles in The Atlantic Monthly by Edward Crankshaw, beginning with "Soviet Industry" in the November 1955 issue). Anxiety about the political implications of Soviet growth reached its high-water mark in 1959, the year Khrushchev visited America. Newsweek took Khrushchev s boasts seriously enough towarn that the Soviet Union might well be "on the high road to economic domination of the world." And in late that year, cia Director Allen hearings held by the Joint Economic C