THE MYTH OF ASIA'S MIRACLEPaul Krugman

Western opinion leaders were impressed and frightened by the extraordinary growth rates achieved by a set of Eastern economies.

Why?

the speed with which they had transformed themselves from peasant societies into industrial powerhouses

their continuing ability to achieve growth rates several times higher than the advance nations

their increasing ability to challenge or even surpass American and European technology in certain areas seemed to call into question the dominance not only of Western power but also of Western ideology

Paul Krugman presented a less dazzling critique about Asia’s economic success rather it being a “miracle” as what many considered it to be.

it was a combination of stringent government policy the further adoption of free trade that was the key to sustaining

economic growth in East AsiaThey use a variety of policies to achieve the three functions of growth – accumulation, allocation, and productivity growth

He said . . .

Asia did not experience immediate economic success, with most of the benefit of meticulous government planning through a ‘nexus of policies’ only beginning to accrue over the longer term.

Government Policy: What is it for?

Eastern Culture VS Western IdeologyEastern culture was more accepting of authoritarian governments with less of an emphasis on the importance of civil liberties, there was greater willingness to limit individual freedom of expression for the sake of long run growth.

Western: greater emphasis on short-term consumer interests, free trade, democracy and civil liberties.

As a whole, without basic fundamental policies, long-term growth in the economy could and would not be sustained.

A dynamic environment was created to encourage investment and constant innovation.

Prudential regulations along with enhancing the integrity of the financial system, promoted ‘financial deepening’.

By increasing returns on private investment and advancing technology, firms had a strong incentive to improve the skills and capabilities of the workforce, further attracting foreign investment to the region.

Soviet Union’s SlowdownEconomists found was that Soviet growth was based on just rapid growth in inputsThe most shocking thing about Soviet growth was its comprehensibility.which implies 2 crucial conclusions. . .1. claims about the superiority of planned over market

economies turned out to be based on a misapprehension2. because input- driven growth is an inherently limited

process, Soviet growth was virtually certain to slow down

Asia’s Overall Progress

As a result, both the initial growth and later development in East Asia emphasise the importance of getting the basics right.

The so-called ‘miracle’ of economic success in East Asia can be largely attributed to ‘perspiration’ through the development of fundamental government policy. Asia’s success was most certainly not an overnight phenomenon. It certainly is, though, an illustration of the importance of core policy initiatives and ongoing scrutiny.

ConclusionThe success of East Asian economies demonstrates three propositions1. there is a major diffusion of world technology in progress, and

Western nations are losing their traditional advantage2. the world’s economic centre of gravity will inevitably shift to the

Asian nations of the western Pacific3. Asian successes demonstrate the superiority of economies with

fewer civil liberties and more planning than what the West have been willing to accept

All three conclusions are called into question by the simple observation that the remarkable record of East Asian growth has been matched by input growth so rapid that Asian economic growth, incredibly, ceases to be a mystery.