Jean-Luc MAURER Professor in Development Policies Director Centre for Asian Studies

1. IHEID2008 Summer ProgrammeInternational Affairs and Multilateral GovernanceConference, Wednesday July 2 2008The “East Asian Miracle” Revisited Jean-Luc MAURER Professor in Development Policies Director Centre for Asian Studies The Graduate Institute

2. Origin and interest of the EAM concept • The so-called “East Asian Miracle” (EAM) is the major regional-wide economic and development success story which has happened in the “Third World” since WWII. • The EAM concept, elaborated by the World Bank in its famous 1993 report resulted from a subtle ideological compromise between market fundamentalism and the recognition that the state had been playing a major role. • An analysis of the EAM (and its further debacle during the 1997-98 Asian Financial Crisis, or AFC) constitutes the best possible example of the linkages existing between development and globalization, and their effects on economic growth, poverty and inequality. IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

3. Historical process and animal naming • In the 50’s and the 60’s, South Korea, Taiwan, Hong Kong and Singapore launched a successful process of very rapid industrialization. Soon known as the “Four Little Dragons”, they followed the example previously given by Japan in a so-called “Flying Geese Pattern” of regional development. • In the 70’s and 80’s, Thailand, Malaysia and Indonesia, sometimes referred for their part as “Asian Tigers”, joined the club of these Newly Industrialized Countries (NIC’s). • In 1993, the World Bank study on the “East Asian Miracle” focused on these 7 countries, putting them in the same new category of High Performing Asian Economies (HPAE’s). • Since the early 90’s, the “East Asian Miracle” concept can be extended to Vietnam and China given their performance. IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

4. The EAM Map of Asia Scope and linkages Source: F. Muniga, OCD IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

5. EAM countries: demographic dimensions IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

6. The three major characteristics of the “East Asian Miracle” • High and sustained economic growth About 6% a year from 1960 to 1995, that is 3 times more than Latin America and 8 times more than Africa. • Spectacular poverty reduction From more than 70% in 1960 down to 57% in 1975, 21% in 1995 and most probably less than 15% today. • Social inequality remains moderate In 1990, in Taiwan, Q5 is only five times richer than Q1, against around 20 to 25 times in Mexico or Brazil. IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

7. EAM: Growth with Equity Source: J. Page, WB, 1993 IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

8. Newly Industrialized Countries (NIC’s) as an approximation of EAM countries: the five key indicators • Share of agriculture in GDP ≤ 20% • Share of industrial manuf. in GDP ≥ 20% • Saving rate ≥ 15% • GDP per capita ≥ US$ 1’000 • HDI ≥ to 0.75 IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

9. Position of the “East Asian Miracle” NICs, 1997 IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

10. The five economic factors explaining the EAM according to the World Bank • Strict macroeconomic stability (BOP and budget deficits, inflation, debt, exchange rate, etc.) • Appropriate public investment policies (infrastructures and human resources) • Export-led growth strategy • Efficient use, combination and market allocation of productive factors (labour versus capital) • Flexible and adjustable economic policies IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

11. Five aspects of a broader multidimensional explanation of the EAM • “Nothing arrives by chance”: history and culture are in the end the main explanatory factor • Strong authoritarianism and political legitimacy based on the capacity to “deliver” development • “Governing the market”: States and public policies have been playing a key role in the process • “First things first”: priority to agricultural and rural development translating into broad-based and pro-poor growth strategy • A very favourable international & regional context IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

12. EAM countries growth performance, 1965-1995 IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

13. Main comments on economic growth • For the major part, the economic growth performance of the “Four Little Dragons” has taken place from the mid-60’s to the late-80’s, in the midst of Cold War, behind strong trade barriers and protections of infant industries. • Since the beginning of the current phase of globalization and the acceleration of economic liberalization, their growth performance has clearly tended to slow down. • Things are well marked but comparable for the three other HPAE’s and there are signs that they basically follow the same trend, with a time differential of 10 to 20 years. • This does not apply to China and Vietnam, whose later departure, starting level, huge needs and size probably explain that growth continues to be sustained up to now. IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

14. EAM countries poverty reduction results, 1975-95 IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

15. Main comments on poverty reduction • The “Four Little Dragons” are not part of the picture since poverty had already been eradicated before 1975. • Globally, the number of people suffering from most severe forms of poverty (< 1 US$ a day) has been halved between 1975 and 1995 in the whole of East Asia, China included. • But China still makes about 78% of the poor in East Asia. • In Thailand and Malaysia, where poverty had already diminished before 1975, it had fallen below 1% in 1995. • In Indonesia, the number of poor people has been divided by 4 times and their proportion by 6 times in 20 years. • In Vietnam, the beginning of the trend is as impressive. IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

16. EAM countries inequality trend, 1970-95 IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

17. Main comments on inequality trend • Inequality has increased on 8 out of the 10 countries over the period of time concerned, but with marked differences. • For Hong Kong, Singapore and the Philippines, inequality, which was already high, has become even higher. • Starting from moderate to rather low levels, inequality has literally exploded in Thailand, China and even Vietnam. • Inequality has also slightly increased in Taiwan and Korea, but was starting from low and remains low to moderate. • Inequality has decreased only in Malaysia and Indonesia, but it was starting from high and keeps high in the former while it is still rather moderate in the latter. IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

18. A recap on the « East Asian Miracle » • The process of accelerated development combining growth with equity which has taken place in East Asia from the mid 50’s to the mid-90’s is definitely not a “miracle” and can perfectly be explained in rational terms. • For the major part, this so-called “miracle” has taken place before the end of the Cold War in 1989 and the beginning of the wave of economic liberalization characterizing the present phase of globalization. • Since the early 90’s, the acceleration of this liberalization trend has on the contrary had adverse effects on growth and equity and its extension to the financial sector is largely responsible for the 1997-98 debacle of the Asian Financial Crisis (AFC) which will put an end to the “miracle”. IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008

19. That’s all folks! Thanks for your attention IHEID - 2008 Summer Prog. IAMG Jean-Luc Maurer- EAM-July 2 2008