Reflective Marker

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REFLECTIVE MARKER 6

Reflective Marker

How might we best account for the economic success of the countries of East Asia in the period 1945 to 1980?

Introduction

This paper explores possible explanations for the rapid economic growth in the countries of East Asia in the period 1945 to 1980. During this period, East Asia became of the most economically dynamic regions in the world. The region’s economic performance was led by Japan in 1950s and 1960s, followed in 1970s by the newly industrialized countries of Singapore, Hong Kong, Taiwan and South Korea (Asian Tigers). This pattern of regional economic growth characterized by successive and sometimes overlapping waves has been described as the ‘flying geese’ phenomenon. As the name suggests, the flying geese pattern of development describes a situation where countries in the same region takes off, one after the other, towards the path of rapid industrialization. In the process, countries that join the industrialization bandwagon later benefit from the other countries’ access to technology and capital, which enables them to grow quickly (PRS Group 2013).

Japan’s Economic Development between 1945 and 1980

There are several possible explanations for the rapid economic development in Japan between 1945 and 1980.The country’s economic recovery occurred rapidly because of the strong leadership from Japan’s post war government. Japan’s economic leadership was spearheaded by the Ministry of International Trade and Industry (MITI). The ministry negotiated successfully with the Bank of Japan to give loans to private companies and investors, and also collaborated with the Foreign Affairs ministry to implement favorable policies for foreign direct investment inflow into Japan. MITI also encouraged mergers between companies to make them more competitive both domestically and internationally (The PRS Group 2013).

Private enterprises also played a central role in Japan’s miraculous economic recovery after the Second World War. Although the Japanese government did not directly control private businesses, it did play a role in shepherding and creating opportunities for competitive advantages, thereby enabling private companies to participate actively in national economic growth. In effect, both the public and private sectors collaborated aggressively, which allowed Japan to build a strong economy based on exports. As foreign companies (particularly from America and Europe) began to outsource their production to countries with cheap labor, they looked at Japan where human capital was well developed and cost of labor cheap. This led to rapid inflow of foreign investment thereby enabling Japan’s economy to grow at unprecedented rates in 1960s and 1970s (Perkins 1994, p.520-525).

There are other important developments that helped Japan to attain economic competitiveness in such a short time span despite sustaining immense destruction of its economic infrastructure during the war. One of these developments was the pacifist policies implemented by the government. The pacifist doctrine was developed in 1950s and called for reduction of military spending. The doctrine aimed to give priority to Japan’s economic reconstruction as the principal national goal while saving on military expenses by letting the United States take charge of Japan’s military. The subsequent reduction in Japan’s military spending allowed the company to focus its resources on national reconstruction and economic development (Amsden 1991, p. 282-286). In addition, Japan implemented another domestic policy whose aim was to double the amount of income earned by domestic workers. This policy was facilitated by government loans and support for public and private enterprises. The income doubling plan led to rapid improvement in living standards for Japanese workers between 1960 and 1980 (The PRS Group 2013).

South Korea and the Flying Geese Model

The flying geese models describe the emulation of Japan’s economic policies and technologies by the neighboring East Asian countries. As the Japanese economy became extremely successful within a span of a few decades, neighboring East Asian countries were motivated the Japanese economic policies and development model. By following the Japanese example, the Asian Tigers fundamentally changed their economies from agricultural-based to rapidly growing and newly industrialized nations. Taiwan, South Korea, Hong Kong and Singapore were very successful and their economic growth has been called the East Asian miracle (Denison & Chung 1976, p. 41).

South Korea’s economic miracle was a result of a combination of several factors. According to Amsden (1991, p. 282-286), in-migration of skilled workers and enterprising individuals, key land reforms, sustained investment in the education sector and primacy of capitalism contributed to Korea’s rapid economic development. In addition, competitive exchange rates, favourable tax policies and promotion of key industries enabled Korea to gain competitive advantages in the production of high quality products such as machineries, automobiles, petrochemicals and consumer electronics. As a result of this, Korea’s economy grew at an average annual rate of 6.8% between 1960 and 1980.

It can be noted that Korea’s close association with the United States also played an important role in its miraculous economic growth. Korea’s favorable foreign policies allowed American enterprises to invest in the Asian country (Perkins 1994, p. 484). In addition, the United States found South Korea to be an important front in the global struggle to contain the spread of communism in Asia. The influx of capital from the United States and other Western countries into South Korea helped stimulate Korea’s economy, making it a key regional player. The United States also provided ready market for products from South Korea (Choi 2009, p. 203-226).

Although South Korea closely followed the Japanese model of economic development, it implemented unique policies taking into account resource endowment and comparative advantages. For example, the country began with the export of low value goods, educated its people to become knowledgeable and competitive internationally and then focused on increasing the value of goods being exported. As a result, South Korea had by 1980 become a technological hub capable of competing with the United States and Japan (Amsden 1991, p. 282-286).

Conclusion

In conclusion, Japan’s economic growth between 1945 and 1980 was largely due to the policies implemented by the government which emphasized favorable trading conditions for investors and economic collaboration with the United States. The economic success in Japan quickly bred emulators, the most important of which were South Korea, Hong Kong, Singapore and Taiwan. The four countries rapidly expanded their industries and educated their people to compete effectively with other countries. Accordingly, East Asia became economically vibrant and a key player in international trade.

References

Amsden, A H 1991, ‘Diffusion of Development: the Late-Industrializing Model and Greater East Asia’, The American Economic Review, vol. 81, no. 2, pp. 282-286.

Choi, J Y 2009,‘Rethinking Economic Development and the Financial Crisis in South Korea and the State in an Era of Globalization’, Journal of Third World Studies, vol. 16, no. 2, pp. 203-226.

Denison, E & Chung, W 1976, ‘How Japan’s Economy. Grew So Fast’, Boltho: TheBrookings Institution.

Perkins, D 1994, ‘There are at Least Three Models of East Asian Development’ World Development: vol. 22, no. 1, pp. 483-670.

The PRS Group 2013, Japan: country report, USA:The PRS Group Inc.