When one tries to analyse the 13 success cases from the postwar period, that include economies like Botswana; Brazil; China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Malta; Oman; Singapore; Taiwan and Thailand, there are a number of policy decisions which stand out in each case. Firstly, all these countries post 1950’s exploited international financial trends. Secondly, they all evolved policies to maintain macroeconomic stability. Thirdly, they all managed significantly high rates of savings and investment. Fourthly, they allowed the markets to allocate resources efficiently. Most importantly, all these countries had governments that were committed to changing growth paradigms, and bring about economic dynamism through prudent policy making.
Taking advantage of an increasingly globalised world not only implies cutting tariffs, but also points to expanding the range of goods that can be traded with other countries, in other words, diversifying exports. This also means that this diversification also extends to multilateral trade negotiations.
A reason why human resource continues to be of the utmost importance is because it is possible to borrow, assimilate and improve knowledge of this resource. The transfer of knowledge to a developing country can take a multitude of channels. Foreign direct investment is perhaps one such channel which ensures a transfer of knowledge, technology and resources. Malaysia is one such example that managed to attract multi national corporations to three major electronic clusters – in Penang, Jahore, and the Klang Valley, where these corporations are heavily incentivised by the government.
A fast globalising world also ensured a vast market for the goods of such developing and emerging economies. While some economists in the’50s fell prey to the “export pessimism” syndrome, they somehow believed that as the supply of goods increased in global markets, their price would fall proportionally. This analysis may or may not have held true for primary products, but this hypothesis did not hold true for manufactured goods, an area where the 13 economies highlighted were gradually developing a comparative advantage. In the early 1950’s, Korea by employing a policy of import substitution was maintaining growth rates of only 2-3 per cent. However, in the early 1960’s, by transforming its market orientation with an increased outward focus, trade was prioritised. As a result, the Korean state managed sustained growth of more than six per cent over a long time. Inward looking growth strategies may or may not be sustainable, however, outward looking growth strategies where countries were forced to specialise brought great advantages to their indigenous manufacturing industries. The impact of globalisation was evident in numbers as the four Asian tigers Hong Kong, Taiwan, Singapore and Korea managed to increase their exports from $4.6 billion in 1962 to $715 billion in 2004. The decline in price was eventually compensated by a tremendous growth in sales.
Macroeconomic instability is the worst form of cancer in developing economies and all these 13 success cases very effectively avoided this volatility. While double digit inflation remained a recurring problem, prices in the long run were stable enough not to cloud market signals or deter investors, or curtail savings. Another striking feature of all these economies was that they collectively encouraged high rates of savings and investment. In effect, the policies that were evolved by those sitting at the higher echelons of power, ensured “future-orientation” or forgoing present consumption for future development.
It needs to be understood that in all economies labour, natural resources and capital effectively dictate their comparative advantage. All high growth economies of the post war era, relied heavily on the market system to provide price signals, effectively decentralise decision making and direct supplies through demand speculation.
A former president of Tanzania once said, “In the long run it does not pay to build an economic mansion on a foundation of political sand.” Therefore, when discussing the frontiers of growth, it is not only about economics but also about the political economy that dictates policy making. All high growth economies, when scrutinised reveal that they were built on strong political foundation. Sturdy political foundations are the fundamental input without which any castle no matter how lofty it stands, will crumble like the ashes of time.
The writer is News Editor, Prof
