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Rethinking the East Asian Economic Model: A Comprehensive Analysis

Explore the evolution and relevance of the East Asian economic model, examining unique features, diverse models, policy shifts, and the impact of global and domestic factors. Discover the complex dynamics of savings, education, government roles, capital markets, company sizes, openness, competition policies, and recent trends in resource allocation, consumption patterns, and corporate restructuring. Delve into the nuanced approach to economic philosophy, policy adjustments, and the absence of a one-size-fits-all model. Stay informed about the ongoing reevaluation of growth strategies and the importance of avoiding oversimplification in economic analyses.

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Rethinking the East Asian Economic Model: A Comprehensive Analysis

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  1. IS THE EAST ASIAN ECONOMIC MODEL STILL RELEVANT? Manu Bhaskaran Centennial Group Inc July 2002

  2. KEY POINTS • East Asian Model • Definition / Was there such a model? • New arguments • Shift to domestic-driven growth? • The real story: • Major re-thinking of growth models

  3. THE EAST ASIAN MODEL Common features • High savings rate • Emphasis on education • Export-friendly policy regimes • Pragmatic, non-ideological • Egalitarian approach • Agriculture in Korea,Taiwan • Public housing in HK/Singapore

  4. THE EAST ASIAN MODEL (2) Were these features unique to Asia? • Good economic housekeeping rules • Other success stories shared these • Botswana: fastest growing economy NOT UNIQUE TO EAST ASIA ALONE

  5. EAST ASIANS PURSUED DIFFERENT MODELS 1. Government role • Hong Kong: laissez-faire • Taiwan: focused in some sectors • Korea: allocated capital,… • Singapore: hyper-active govt • Each had different starting points • Each evolved own responses

  6. DIFFERENT MODELS • Foreign capital inflows • Korea: xenophobic • Taiwan: wary • Singapore: open • Hong Kong: ultra open • Portfolio capital: earlier opening • Direct investment: liberalised later

  7. DIFFERENT MODELS (2) 3. Capital markets • Korea: heavily distorted • Taiwan: some political influence • Singapore: Relatively free, ex-CPF • HK: Free, main allocator of capital Banks under tight govt control ex-HK

  8. DIFFERENT MODELS (3) • Size of companies • Korea: chaebol-driven • Taiwan: Mainly small companies, govt-backed ones in crucial sectors • Singapore: MNCs and GLCs • HK: Vibrant, early globalisers

  9. DIFFERENT MODELS (4) 5. Other degrees of openness • Labour market • HK/Singapore: Highly open • Korea: closed • Protectionism • Korea/Taiwan: High • HK/Singapore: Very low

  10. DIFFERENT MODELS (5) • Domestic competition policy • HK: Some cartels, otherwise free • Taiwan: Generally free • Singapore: GLCs dominated • Korea: SMEs/consumers squeezed

  11. RE-THINKING MODELS SHIFT TO DOMESTIC DEMAND? • Slowdown in global demand • More competitive export markets • Means better depend on domestic

  12. DOMESTIC DEMAND AS DRIVER? Is this possible? • Domestic linked to external demand • Trade sector generates incomes • Freer trade increases incomes • Can policy discriminate? • Favouring domestic demand distorts

  13. NEW THINKING • Economic philosophy • HK: Shift away from laissez-faire • S’pore: Allowing more laissez-faire • Korea: Substantial opening • Taiwan: Opening up as well • Malaysia: Reviewing NEP • Thailand: Moderating growth targets

  14. NEW THINKING (2) 2. Resource allocation • Bond markets: less bank financing • Banks liberalised • Prices less distorted • Interest rates freed • Product prices closer to world prices

  15. NEW THINKING (3) • Savings and consumption • Freer banks: easy consumer credit • Trade liberalisation: prices fell Consumption/GDP rose post-crisis

  16. NEW THINKING (4) 4. Corporate sector • Restructuring: more efficient • More policy emphasis on • Local companies vs MNCs • Consumer protection, competition policy

  17. CONCLUSION • No single model • Pragmatism prevailed • Substantial re-thinking going on BEWARE APPLYING SIMPLISTIC MODELS TO ECONOMIES

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