THE SECRET BEHIND ASIA’S transformation over the past half century from a mainly poor and underdeveloped region into a global economic powerhouse is that there is no secret or mystery about it. The term “East Asian Miracle” is probably misleading, there is “no such thing as an Asian consensus,” and the belief that the twenty-first century will be “Asia’s century” is too early to call.
This rather blunt, but essentially realistic analysis forms the basis of Asia’s Journey to Prosperity, published by the Asian Development Bank in January. It also suggests that it will take time for Asia “to become as influential as the West has been for the past five centuries.”
The work is the product of economists from many countries at the ADB led by outgoing President Takehiko Nakao, who for the past seven years has been a key figure on Asia’s development scene. It represents, he says, his “passion to write Asian development history in a balanced and comprehensive manner in English by economists from Asia.”
Far from dismissing Asia’s economic achievements over the past five or six decades, the book argues that growth, poverty reduction, and progress in education and health have been beyond anyone’s expectations. But Nakao believes that the policies pursued in Asia can be explained by standard economic theories. And these policies are not so different from those prescribed by the so-called “Washington Consensus.”
Asia has pulled itself up by its own bootstraps by learning from the successes and failures of others, rejecting what does not work and building upon what does, by preferring trade openness to protectionism, adopting new technologies, transitioning from agriculture to manufacturing and services and building infrastructure and institutions.
Yet there is “no room for complacency,” warns Nakao, in what is a very readable book that has been three years in the making. There remain many challenges including persistent poverty, gender gaps,environmental degradation, and so on. He argues that Asia must continue to strengthen its institutions, contribute to the development of science and technology, assume more responsibility for global issues and articulate its own ideas.
Published by the Asian Development Bank January 2019
Reviewed by Anthony Rowley
The volume steers away from politics in its analysis (understandable for a multilateral development institution). But some may feel that China could learn something from Nakao’s counsel in favor of caution. Those who know relatively little about Asia can learn much from this book for the context it provides on Asia’s economic history.
For example, Asia produced two- thirds of global GDP (in purchasing- power parity terms) from the beginning of recorded history until the early 19th century, reflecting its large population and relatively high productivity. Chinese and Arab merchants laid the foundations of East-West commerce and scientific progress flourished in parts of Asia while Europe was being repressed by religious dogma.
This all changed after the Industrial Revolution. Except for Japan, which pursued Western- style modernization in the late 19th century, Asian economies stagnated from isolationism, colonization, weak institutions, outdated education systems, domestic conflict, and wars.
As recently as 1966, when the ADB was established, the Asia Pacific region was very poor. Developing Asia’s per capita gross domestic product was just $330. By 2018, this had soared to $4,903, a near 14-fold increase, while global per capita GDP tripled over the same period. As a result, developing-Asia’s share of global GDP jumped from 4 to 24 percent.
As the book observes, the role of markets and the state was shaped by changes in development thinking. After World War II, state- led industrialization and “import- substitution” strategies dominated development policy in developing countries. Nationalist and socialist ideologies had significant influence. These led to massive inefficiencies and even crises in many countries.
Japan had a tradition of a strong private sector going back to premodern merchants. After the Meiji Restoration in 1868, government policies focused on establishing modern institutions and education. Although Japan resorted to “targeted industrial policy” after the war, it was mainly to address serious resource constraints during the rebuilding process.
From the 1960s, South Korea, Hong Kong, Singapore, and Taiwan shifted to export-promotion and market-friendly policies. In the 1970s, Indonesia, Malaysia, and Thailand opened up to trade and foreign direct investment, and became “high-performing Asian economies” in the following two decades.
From the late 1970s, more Asian economies embarked on far-reaching market-oriented reforms and opened to the outside world. China began “reform and opening up” in 1978, and decided to adopt a “socialist market economy” in the early 1990s, enabling 40 years of rapid economic growth.
South Asia also joined the wave of economic reforms. India started comprehensive reforms in 1991 to reduce government control, rely more on market forces, and liberalize trade, and the reforms were followed by growth. From the early 1990s, Central Asian countries started the transition toward market economies.
Development, the book concludes, “requires efficient markets, an effective state and strong institutions. Markets, prices and competition are critical for the efficient allocation of resources and creation of entrepreneurial incentives. The state is needed to establish strong institutions, intervene where markets fail to work efficiently, and promote social equity.” That probably comes close to summing up the elusive Asian consensus.
Anthony Rowley was formerly with the Far Eastern Economic Review and the Times of London, and is the author of several books.