Rethinking Asian Drama
Summary (3 min read)
3 Rationale and objective
- The reality of development that has unfolded in Asia since then has belied such pessimism about its prospects.
- Streeten continues this story to write, perhaps tongue in cheek, that for Myrdal ‘In fact, the Americans came almost as high in the rank order of creation as the Swedes.
- The share of Asia in world exports of manufactured goods almost doubled in just two decades, from 21 per cent in 1995 to 39 per cent in 2016.
- This book uses bold strokes on a wide canvas to sketch a picture of the economic transformation of Asia during the past 50 15 For a detailed discussion on this sequence of developments, and on the factors underlying the decline and fall of Asia in the world economy, see Nayyar (2013).
4 Themes, stylized facts, and lessons
- This paper does not even attempt a summary or a synthesis of the UNU-WIDER study (Nayyar 2019a).
- Given the space constraint, it would be an exceedingly difficult task.
- It would also serve little purpose as it might detract from the richness and depth of the analysis.
- In any case, the companion volume (Nayyar 2019b) seeks to provide a cohesive analytical narrative.
- This is, at best, selective and illustrative.
4.1 Diversity in development
- The diversity of Asia is a recurring theme.
- The reliance on markets and the degree of openness in economies varied greatly across space and over time.
- Outcomes in development were also diverse, ranging from success at one end, interspersed with mixed performances or muddling through, to failure at the other, which differed not only between countries at any point in time but also within countries over time.
- There were different paths to development, simply because there were no unique solutions or magic wands, as one size does not fit all.
- 20 Obviously, generalizations are difficult if not perilous.
4.2 History, context, and conjuncture
- It is clear that development trajectories of countries in Asia were shaped, in part, by their histories, while the context and the conjuncture at the outset made a difference.
- The legacy of Japanese colonialism in South 19 Lee (1981) was among the first to emphasize the limitations of export-led industrialization.
- Soon after, the geopolitics of the Cold War era in Asia brought about a dramatic change in the state of affairs, transforming this into an unequal relationship of dependence on the United States for military and economic support.
- Of course, the USSR also provided military and economic support, but communist governments in China and Viet Nam were acutely conscious of their geopolitical vulnerabilities which, together with political ideology, motivated them to address problems in their legacy of initial conditions.
4.3 Economic growth and structural change
- The transformation of Asia was driven by rapid economic growth.
- Over a period that spanned almost five decades, 1970–2016, the GDP growth rate in Asia was more than double that in industrialized countries and almost twice that in the world economy.
- This was associated with a dramatic change in the composition of output and employment.
- 23 21 Manchuria in northern China, or Manchukuo as the Japanese described it, experienced the same colonial legacy.
- For an analysis of structural change in Asia compared with Latin America and Africa, see McMillan and Rodrik (2011) and Nayyar (2013).
4.4 Wellbeing of people
- The rapid economic growth led to a sharp reduction in absolute poverty in Asia, but not as much as it could have, partly because the initial income distribution was unequal and partly because of rising income inequality.
- And inequality rose almost everywhere in Asia from the 1990s.
- The wellbeing of people was also dependent on the social infrastructure that supported social consumption.
- But education and health were also drivers of economic growth in so far as they increased the productivity of the most abundant resource in Asian economies— labour—and were thus instrumental in development.
- In contrast, countries that witnessed slow employment creation or jobless growth, with inadequate or poor public provision of education and healthcare, were laggards in Asian development.
4.5 States, markets, and governments
- The development experience of Asia during the past 50 years shows that the role of governments was critical everywhere, although this role differed significantly across countries.
- Even the ‘soft states’ in Southeast Asia managed to reach some understanding with business elites in the pursuit of national objectives.
4.6 Economic openness
- Economic openness also played an important role in Asian development,30 the possibilities of which had not been recognized by Myrdal.
- The usual characterization of openness is in terms of international trade, international investment, and international finance.
- There were significant differences between Asian countries,31 most of which were restrictive in terms of openness until around 1970.
- Calibrated openness was asymmetries in openness by design manifest in strategic trade policy that was open for the export sector, but restrictive for other sectors, with limits on openness to foreign capital and tight curbs on foreign brand names.
- China, India, and Viet Nam, for quite some time, relied mostly on domestic markets, domestic resources, and domestic technologies, but subsequently these countries joined the quest for external markets with a more open, yet selective, approach to foreign capital and foreign technology.
4.7 Institutions and policies
- In Asian Drama, Myrdal stressed the importance of an institutional approach, and he was perhaps the first to provide a systematic analysis of the role of institutions in development with reference to Asia.
- It is clear the institutions were among the important determinants of success, muddling through, or failure at development in Asia.
- This was also the reason why strategy-based reform with a long-term view of development objectives, emerging from experience or learning within countries rooted in social formations and political processes, did sustain and succeed.
- 37 Similarly, they used orthodox policies for heterodox or unorthodox objectives, such as interest rates to guide the allocation of scarce investible resources in a market economy, or exchange rates that were deliberately undervalued over long periods to break into the world market for manufactured goods.
5 Afterword
- The focus of the study is largely on the past 50 years.
- There are obvious challenges within Asian countries, such as rising economic inequalities between people, emerging divergences among countries, poor infrastructure, underdeveloped institutions, inadequate education, unstable politics, or unsustainable political systems.
- The response of Asian countries to these complex challenges will shape their future.
- Gunnar Myrdal described himself as a cheerful pessimist (Streeten 1998) who hoped that Asia might do better, but did not think that it was likely.
- In contrast, given the remarkable economic transformation of the continent over the past five decades, I could describe myself as a cautious optimist who believes that an even better world is possible for Asia.
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Additional excerpts
...See also, Acemoglu and Robinson (2012)....
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...See, for example, Amsden (1989), Lall (1997), Wade (1990), and Chang (1996)....
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Frequently Asked Questions (15)
Q2. What was the role of the government in the earlier stages of development?
In the earlier stages, it was about reconstructing initial conditions through the creation of physical infrastructure, the spread of education in society, and institutional reform, particularly in the agricultural sector.
Q3. What was the role of effective markets in the pursuit of development?
25 Ultimately, efficient markets needed effective governments, so that success in development was, in important part, attributable to the effectiveness of state interventions, which varied significantly across countries.
Q4. What is the role of the state in the pursuit of industrialization and development?
In the pursuit of industrialization and development, the role of governments in evolving policies, nurturing institutions, and making strategic interventions, whether as a catalyst or a leader, was central to the process everywhere.
Q5. What were the key factors in the success of Asian countries in development?
Asian countries that were success stories in development used heterodox or unorthodox polices for orthodox objectives, such as strategic trade, industrial, and technology policies in the pursuit of industrialization.
Q6. What was the role of education and health in the development of Asia?
The spread of education in society and the delivery of health services to people contributed directly to the wellbeing of people and were thus constitutive of development.
Q7. What was the impact of economic growth on living conditions of ordinary people?
Economic growth had a greater impact on living conditions of ordinary people where employment creation was rapid or where initial income distribution was less unequal.
Q8. What is the purpose of the study?
The object of the study is to analyse the development experience of Asia and its associated transformations over the past 50 years.
Q9. How did the population of Asia change in the last two decades?
In 1965, almost four-fifths of the total population of Asia lived in rural areas, whereas by 2016 this proportion was just over one-half, showing how rapid urbanization has been.
Q10. Why did rapid growth in Asia not reduce absolute poverty?
But sustained rapid growth in Asia did not reduce absolute poverty as much as it could have, in part because the initial income distribution was unequal and in part because of rising income inequality.
Q11. What was the role of education and health in the development of Asian economies?
But education and health were also drivers of economic growth in so far as they increased the productivity of the most abundant resource in Asian economies— labour—and were thus instrumental in development.
Q12. What was the main reason for the rapid growth in Asia?
All the same, it is clear that Asian development in this era was driven by economic growth based on high investment, savings rates, and rapid industrialization, often export-led, associated with structural change in the composition of output and employment, which reinforced the process.
Q13. How much did the ratio of Asia to GDP per capita in industrialized countries increase between 1970 and?
But the ratio of GDP per capita in Asia to GDP per capita in industrialized countries, in current prices at market exchange rates, increased far less from 1:20 in 1970 to 1:8 in 2016.
Q14. How did the share of Asia in world exports of manufactured goods double in just two decades?
The share of Asia in world exports of manufactured goods almost doubled in just two decades, from 21 per cent in 1995 to 39 per cent in 2016.
Q15. What was the impact of rapid economic growth on living conditions of ordinary people in Asia?
this rapid growth was not always transformed into meaningful development that improved the wellbeing of people, particularly in countries where employment creation was slow or where income inequality was high to start with.