In what sense, if any, has there been an East Asian “Miracle”? Does it matter whether it can be deemed to be a “miracle”?
The second half of the twentieth century had witnessed the highest growth rates in such East Asian countries as Japan, China; the Four Tigers – Hong Kong, the Republic of Korea, Singapore, and Taiwan, and the newly industrializing economies - Indonesia, Malaysia, and Thailand. The so-called East Asian «Miracle» had impressed all the economic society by the most rapid economic growth and the most dramatic decline in the inequality and income distribution. The progress, that had overcome the Latin America’s developing countries and rich in oil MENA countries, was followed by human welfare improvements, the life expectancy rise and poverty decline. Economists still continue exploring this phenomenon, whether it was a real economic miracle or a prudent policy management in combination with favorable economic conditions.
The World Bank in its research supposes that firstly, Asian countries had certain prerequisites for their success, determined by the high rate of private investment and rapidly growing human capital. If to compare UNESCO data of human development, it is evident that the population was growing steadily along with the fertility rate in the East Asia, the literacy growth in 1970-1990 was faster than in other developing countries, at the same time the education enrollment was equal to the developed economies, so that the labor forces were better-prepared for the growth and the basis for sustaining human capital existed even before the “Miracle”.
The World Bank in its research supposes, that the «miracle» was rather a lucky coincidence of economic policy and favorable economic environment, concluding that there was little that “miraculous” (World Bank research, p.5). However, the Bank team consists mostly of the United States members, who rather support the capitalism system and might deny that the taxation can be low along with the government budgets in surplus. At the same time, the report denies the correlation between the government intervention and the growth, but it neither does not prove that Asian economies would have achieved more or at least something without government intervention.
The economist Paul Krugman finds nothing miraculous in the East Asian growth and even notices some similar features between East Asian growth and the former Soviet Union rise. He supposes that the result was achieved rather by “perspiration than aspiration” at in both cases was caused by the mobilization of recourses, brutal pressure on the population to work more and to train more, and to invest in physical capital (Krugman 69-70).
Meanwhile, Jeffrey A. Frankel explains the Asian rapid growth in term of «convergence» - the country's tendency to overtake the rival ahead, as a result, the economy rises rapidly in the beginning of the pace and slows down after reaching the rival. (Frankel 331).
In all cases above, the institutions and economists all deny its miraculous origin clarifying it as “ordinary basics that worked well”. However, nobody could expect or foresee such a tremendous growth of East Asian countries, even if the only factor was well-working basis.
In terms of forecasting, the HPAEs had overcome the expectations. There is still no answer that could reveal secrets of Asian countries’ success, but every other economy, that tried to repeat the East-Asian policy, failed. The Asian development model is completely different from the Keynesian one. The model cannot be transformed to other economies, because to achieve the same success, a government should possess the same basics as HPAEs had. That is the first evidence of “miracle” – incommensurable basics. And those differences from the capitalist system was a first key to success.
Although these eight countries were grouped together, the policy practices implemented by every single government had differences and multiple channels of regulation. The macroeconomic policy was introduced in a smooth and gradual manner avoiding excessive pressure. This allowed to conduct reforms without painful reaction in the form of high inflation or budget deficits. For example, when fiscal costs threatened the macroeconomic stability, Korea and Malaysia introduced subsidies for producers and exporters (World Bank Research 7).
The task was strategically easy. Asians have managed to mobilize recourses, produce a wide range of products that were highly demanded in the world market, thus, they increased export and maintained positive current account balances. The miracle, however, lied in a successful combination of excising potential and capability, access to necessary recourses and literate politicians ready to run prudent policy. Cannot it be a miracle today? There are more factors that contributed to the economic growth: historical, cultural and ideological. Eastern mentality is focused more on the pragmatic, long-term expectations, while the westerns prefer to act fast and to gain more. The culture is another miraculous contributor to the result.
Many African and Latin America’s countries try to repeat the success of HPAE’s. The world is expecting the African miracle as well as the Mexican Miracle. But the deep obstacle is that culture and behavior in certain economies cannot be repeated. Asian countries were technologically and outward-oriented (foreign investment, higher export), while the uptake of smartphones in India is one of the lowest in the world, despite its high and also impressive economic growth and the role of the major technologies exporter.
The miracle lies not only in the impressing economic growth and shocking export rise as a result, but also in miraculous combination of stable macroeconomics, reliable human capital and correctly chosen and maintained measures. The mix of existing grounds for successful reforms and stable and prudent macroeconomic policy is already an unusual consequence of two favorable circumstances that can be called a “Miracle”.
5. Assess India’s development experience from independence until today, particularly since 1980. What have been the different development strategies? What have been their pros and cons?
India’s development from independence showed a considerable contrast with Eastern Asia. Before 1990 all attempts to conduct reforms were weak and unsustainable, the human background was poor – education and health systems were neglected, high inequality gap in the society was deepening as a backwash of the past Caste system and relations between laborers and their dependents in agriculture sector. The economic growth during the period from independence until the 1980s had been at an average level of 3-4% that was considered as an improvement over the colonial period and stagnation. However, for the last half of the 20th century India had demonstrated the continuous and impressive growth. The development history started in 1947 when India had become an independent state. Since then it had experienced a number of changes and reforms that had influenced Indian development. First liberalization attempts were witnessed in 1980s when the growth rate had crossed the 5 percent mark and continued at nearly 6 %. The first pro-business liberalization took place in the 1980s and resulted in the growth acceleration due to the progress in both the rate of investment and productivity. A new policy model was shifted in the direction of a state and business alliance for economic growth. However, some economists presume, that the growth remained “unstable and fragile” until in 1990 strong and systematic pro-market reforms had liberalized its internal regulatory framework, reduced tariffs, adopted a floating exchange rate and gave assess to foreign investors. Foreign investment played a significant role in building a foundation: developing technology, entrepreneurship and management; training workers; creating jobs and providing a demand in the economy. As a result, the use of capital and the efficiency of the economy improved, pushing India onto the ranks of the leading growers (Kohli 1251, 1255). The next challenging period was connected to the oil price hike in 2007-08. This shock revealed he high dependency on oil prices, because oil comprised the largest share of Indian import.
The present period is the current Indian development in the 21st century. Nowadays, the situation observed in 2007 turned around and India started to benefit from its oil dependency. An oil slump allowed to narrow the budget deficit, and to decrease the government debt to a “comparatively modest” level, according to the World Bank. The economists assume, that India demonstrates now a sustainable growth, an in spite of others’ assurance of coming emerging economies’ crises, India is supposed to be more prepared.
The overview of the Indian development since the independence allows to define different strategies of the growth and their pros and cons. First of all, the reforms of 1990 were very contributing for the economic development, they enhanced the role of private sector and attracted a massive investment to the economy. Foreign investment was vitally important as it provided improvements in the labor market, infrastructure, and built up basic environment for business and growth, while the government kept the growth in public investment. Second, liberalization gave more freedom to the capital flow, technology transfer and industry expansion. In the end, the external orientation significantly increased the import and made India an export-oriented, knowledge-based economy, driven by services and technology. Today India is perceived as a first destination for foreign direct investment.
However, new policies had also disadvantages and, to some extent, created new problems for the Indian economy. Liberalization was inevitably followed by the neglected import-substitution and high dependency on import. The response came with the first oil price hike. Nevertheless, this point is very controversial, nowadays the oil-dependency even contributes to internal improvements. Liberalization also created current account disbalance, as a result, the government debt was growing rapidly along with the widening budget deficit. Besides, the major beneficiaries of pro-business strategy advantages were big companies, while it was not very fruitful for small and medium enterprises. And the last and very important omission of the liberalization policy was the lack of consideration of the human capital. The inequality has been even deepened, and the education remained poor. While the investment and technology were growing rapidly the poverty rate decreased in less pace than expected, smartphones are not affordable for the population of the world’s major ICTs provider, where only 18% can use the Internet (Human Development Report 244, 264). At present, infrastructure, social protection and poverty are the main challenge of the Indian economy.
6. Compare the development experiences of China and India.
India’s development represents a considerable contrast in comparison with China. Both economies have risen rapidly during the half-century, however, there were significant differences in the approach. Unlike in much of high growth east Asia, including China, the Indian economy has been developing within the framework of a democracy (Kohli 1251), keeping the strategy of “liberalization, privatization, globalization”. China combined more eclectic strategy with a prudent balance between state, market and social responsibilities. Whereas Indian development was driven by the service sector growth and engineering technology, China was focused more on manufacturing (physical product), meanwhile accepting technology as a competitive advantage, but not the only one. China promoted export and developed special economic zones, encouraged FDI, while always having a protection against massive import. State-owned enterprises and banks had usually an absolute advantage. Otherwise, India welcomed massive investment inflows and let the import fill the market, thus, it became highly dependent on international trade, that led to budget deficits. While China has been growing at an average level of 9-10% annually, the Indian growth remained behind (6-7%), but in front of difficulties (the USSR’s collapse, world recession in 2008) China suffered from more steep drops and India was usually more sustainable and recovered fast.
In terms of human capital, India was not so successful as China, who had a significant and rapid improvement in human development. The poverty reduction was remarkable. “During 1981 - 2004, the share of the population consuming below the poverty line fell from 65% to 10%, and in absolute numbers the poverty fell from 652 to 135 million people – nearly a six-fold decline» (From poor areas to poor people iii). India saw slower pace than expected and almost three out of four Indians remained close to the Indian poor live, according to the World Bank estimations (India Achievements i). A theory of Deepak Lal supposes, that “when rate rises 9-10% annually (that China has seen), the poverty rate can fall from its current rate of over 30 % to just over 5%” (Lal, 1999). Although the question of poverty reduction remains actual and controversial. Poverty declining rate was not enough to reduce the absolute number of the poor due to India's rapid population growth. The World bank concludes, that “health, education, and nutrition indicators describe an economy which has achieved considerable gains against widespread deprivation over the last half-century but failed to reach the momentum needed to lift the great majority of its poor into the economic mainstream” (India Achievements 1). India still had the highest rate of Infant mortality rates, lower life expectancy rate than in China, poorer literacy rates (specifically, for females). The population in India keeps rising, making more pressure on the human capital development. At the same time, China made a great stride in population growth reduction (due to the one-child policy) and achieved a remarkably high 95% of adult literacy rate, 10,9 per thousand live births infant mortality rate versus 41,4 in India, and a high 63 % share of women workers – nearly three times more the comparable figure in India – 27% (Human development report 225-226, 243-244, 239-240).
Although two countries have similar features in terms of economic growth and extremely high pace of development, the contemporary situation proves there is a large gap between their development models. Stabilization in India did not become the way to prosperity, the country still fights against inequality and needs urgent human development. As well as China’s approach did not insure the economy against global challenges. Today Chinese sustainability causes many controversies and India seemed to be more prepared to meet future emerging economies’ challenges.
Works Cited
Deepak Lal, The Financial Times, October 8, 1999.
Human development report Statistics (2015). United Nations. Retrieved from http://hdr.undp.org/sites/default/files/hdr_2015_statistical_annex.pdf
India Achievements and Challenges in Reducing Poverty. The World Bank. May, 27, 1997. Web. March, 12, 2016 <http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1997/05/27/000009265_3971104184304/Rendered/PDF/multi_page.pdf>
Jeffrey A. Frankel. The Asian Model, the Miracle, the Crisis, and the Fund. National Bureau of Economic Research, January 2000. Web. 11 March 2016 <http://www.nber.org/chapters/c8696.pdf>
Kohli, Atul. Politics of Economic Growth in India, 1980-2005Part I: The 1980s. Economic and Political Weekly, April 1, 2006. Web 12 March 2016. http://www.princeton.edu/~kohli/docs/PEGI_PartI.pdf
Krugman, Paul. The myth of Asia's miracle. Foreign Affairs, Nov/Dec 1994; 73, 6. P. 68-78. Web. 11 March 2016 http://econ.sciences-po.fr/sites/default/files/file/myth_of_asias-miracle.pdf
The East Asian Miracle. The world Bank Research Report. 1993. Web. 11 March 2016 <http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1993/09/01/000009265_3970716142516/Rendered/PDF/multi_page.pdf>
