Development: The East Asian Miracle

THE FOREST: The big issues that I’m going to touch on in my lecture and discussion are:

1) Through the late 1980s and early 1990s, there was a debate as to the causes of the miracle economic growth in Southeast and East Asia. In this debate, different groups offered different explanations for that growth. We’ll take a look at some different views offered from the right and from the left of that debate.

2)We will go further and talk about some of the political effects of that growth. You’ve learned about modernization theory which says that as countries modernize, they go through various processes that will lead to democratization. We'll take a look at one of the Southeast Asian countries to see

if that is in fact the case. Thus far, the case of Singapore has stood modernization theory on its head.

3) As many of these countries experienced rapid growth, one explanation for that growth that was offered by some of the region’s governments was that strong authoritarian government and Asian values led to development. This had both domestic and international repercussions. On the domestic level, this explanation served as a justification for maintaining tight one-party control. On the international level, this explanation meant that pro-democracy or prohuman rights interference by the United States and other meddlers could be resisted.

THE TREES: Many of the countries of East and Southeast Asia (specifically Japan, Taiwan, South Korea, Hong Kong, Singapore, Thailand, Malaysia, and Indonesia) were considered to be part of an “East Asian Miracle” of development. I will focus today on the miracle in Southeast Asia.

1965-1995 per capita GDP growth Singapore 7.2% Indonesia 4.7% Malaysia 4.8% Thailand 4.8%

Sub-Saharan Africa 0.2% Latin America 1.9%

We can see that growth in Singapore, Malaysia, Thailand, and Indonesia was high —and for a sustained period, well above that achieved by other developing countries. Imagine that kind of growth, every year for thirty years!

If you look at just the years 1980-1995, growth was even higher. Four countries averaging 7-8% per year growth. Keep in mind the figures for Sub-Saharan Africa and Latin America and you get a sense of which these countries’ growth was truly miraculous!

From living in Southeast Asia, I can say that the optimism generated by the growth was palpable. Living in Singapore in 1991, you could get a sense from people you met that everyday would be better than the one before it. The kind of optimism made me think of perhaps the optimism that the Americans of my parents' generation enjoyed in the 1950s.

But, these countries by no means had been guaranteed economic success as a birthright. Singapore in the early 1960s was considered a “basketcase,” the future Cuba of Southeast Asia. Singapore had inter-ethnic strife as well as a radical labor movement that led perpetual strikes that often paralyzed the country’s economy. It was believed it was only a matter of time before the island "went Communist."

Indonesia in 1965 was experiencing hyper-inflation and hyper-political turmoil. Her first president Sukarno was overthrown and a military regime under General Suharto took over. Suharto’s rise was paralleled by massive killings in an attempt to rid the nation of the Communist threat. In these pogroms, it is estimated, 500,000 people were killed across the country.

Malaysia had fought off a Communist insurgency by the early 1960s but had inter-ethnic strife to worry about. That strife erupted into riots in 1969 that caused democracy to be suspended and the country to go through a period of emergency rule in which radically new political and economic policies were introduced.

Thailand was under a succession of military governments and continued to battle Communist insurgency through the 1960s and 1970s, but the generals who ran the country adopted a conscious strategy of the battle against Communism as not being just a military matter, but also a matter of delivering the economic goods to the people. Thailand’s generals led the way in fostering economic development as a primary goal of the state.

So, we can see that there was nothing particularly special about these countries that marked them as future development stars. Remember that one of the reasons the US was involved in the Vietnam War was to prevent the Southeast Asian states from collapsing like dominos, falling to Communism. There was a real fear in the US in the 1960s and into the early 1970s that these countries might become Communist, fall like dominos.

As the miracle progresses and these countries racked up tremendous development successes into the 1980s and 1990s, a great debate arose among policymakers and scholars in different parts of the world as to how—given this tumultuous beginning of fears of Communist revolutions—East Asian miracle growth was achieved. Never before had so many people been lifted out of poverty so quickly, never before had such rapid growth been achieved on such a sustained basis—especially true after China joined the development bandwagon. What caused the growth? Could other countries do the same things and achieve similar results? Or were these countries somehow special?

The debate over East Asian growth:

Can envision the different arguments about growth as if on a spectrum.

On the right was the neoclassical or orthodox view. What these countries did right was to establish a business-friendly environment and get out of the way. This is the “Washington Consensus,” so named for the international financial institutions headquartered in Washington. These international financial institutions, with their aid and lending policies, fostered a specific view of the state’s role in the economy that was extremely minimalist. So, the best thing a state can do to foster development in this view is to establish a market-friendly environment and get out of the way.

On the other side, on the left, there was offered a revisionist or heterodox view. This emerged out of dissatisfaction with the prevailing wisdom. This view posited that, in the case of East Asia, the state led the market in critical ways that led to “miracle growth.” It was not in fact the case that the states established a business friendly environment and got out of the way but that the state consciously targeted economic sectors for growth and used its powers over credit and taxation to encourage development.

RIGHT—symbolic of the views on the right, symbolic of the Washington Consensus, was the view propounded by the World Bank in a book published in 1993 called The East Asian Miracle. This book sought to explain East Asian miracle growth as it reflected prudent policy choices by governments, prudent policy choices that happened to fit with the prevailing wisdom of the Washington Consensus.

The types of measures highlighted and lauded by the World Bank included:

Economic policies:

Stable macro-economy—keeping inflation and deficits under control, maintaining stable interest rates, ensuring a business friendly legal and regulatory environment. Effective and secure financial systems Limit price distortions—in contrast to import substitution industrialization (ISI) which often led to severe price distortions in an attempt to protect domestic, infant industries and which led resources to be used in not the most productive ways, the East Asian countries limited price distortions by competing on the world market. Openness to foreign technology—remain open to outside investments, so that countries can climb up the technology ladder. Singapore, an example of a country that was very open to technology from the outside. Singapore progressed from the 70s with light consumer goods (shoes, clothing) to the 80s with electronics (period where most of the world’s harddrives for computers came out of Singapore) to the 90s (financial services, regional brain). Move gradually up the technology ladder in line with comparative advantages. Develop agriculture—while declining in importance to the overall economy—as manufacturing, especially for export, comes to play a greater role, these countries did pay attention to the Green Revolution, attempt to get more out of agriculture. Still a lot of people in Thailand and Indonesia in the rural areas—everyone can’t move to the urban areas, have to find a way to make agriculture more productive to provide a sustainable livelihood for the 50% to 60% to 70% of the population that remains in the rural areas. Selective interventions. This echoes the views on the left about how growth was achieved, making selective interventions to favor certain sectors of the economy. According to the World Bank, these worked best when they were disciplined and performance-based (when they were doing more harm than good, the countries pulled back--example Malaysia's affirmative action New Economic Policy). So, for the World Bank, it was important to have a reality-tested learning process in your policy making. If something works, fine. If not, if introducing distortions, back off. Export push—this is most commonly associated with the East Asian Miracle. Develop goods for export markets. As in the Singapore example,

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start small low-tech, play to advantages of cheap labor. Later, as labor becomes more expensive and population more educated, move up the ladder—export electronics, computer parts. But the emphasis stays on exporting. For a country, like Singapore, small population 3-4 million. Could never sell enough in home market to encourage development, so foster export. Use the markets of the big countries to earn money to finance own development. Less urgent for a country like Indonesia— population 220 million today. Kept with export push. Nike shoes, textiles . . .. Malaysia, small home market of 20 million people, following behind Singapore, when Singapore could no longer manufacture the hard drives, moved to Malaysia. • Maintain competitive discipline—when government and business working together, potential for problems (collusion, for example). This works best when it is market-based, export-oriented so at least accountable to world market (ISI—when not accountable to world market, can develop wasteful lethargic enterprises).

Other supportive policies:

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High human capital—invest in education. Singapore JIT education. Technocratic insulation of policymakers (insulated from political pressures, demands for favors, corruption)—could go through each criterion and talk about how adherence varied across the region. Hard to say one model at all. Here great differences across the region. From Singapore’s squeaky clean technocrats to Indonesia’s corrupt ruling kleptocracy. High quality civil service Information exchange among government, business, workers to foster a collaborative development effort. Singapore example again. National Wages Council. High levels of savings—a result and a cause of high growth Flexible labor markets (company unions, Singapore Wages Council)

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That is a cursory look at the general East Asian model. Keep in mind the diversity of approaches within the model. Some more laissez-faire, some more interventionist than others.

ON THE LEFT—heterodox explanations

Heterodox explanations arose because some found the orthodox version of how growth was achieved to be unsatisfying. These countries’ governments did intervene strongly in the market, so it couldn’t just be a free market system that brought success. Evidence in the neo-mercantilism of Japan, Korea. The keiretsu, interlocking firms of Japan. Korea’s giant chaebol. Strong role of the government in picking winners in development, channeling credit to firms, and directing development. "We will move into semi-conductors now," and it happens. Governments would offer incentives to firms to begin to produce in that area . . . Gear to export, protect the home market.

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Doesn’t look like the same explanation at all. Not just an academic matter. Which side of the debate matters on the international level: what types of policies will the international financial institutions support? To which policies will they give their imprimatur, which could on its own serve to attract other investment and buzz to a country. On a domestic level, which policies work? Should the state lead? Or should it get out of the way?

Other types of explanations for the East Asian miracle:

Geography—All these countries happen to be near each other. Demonstration effects of successful policies and reverberations from living in a good neighborhood. Flying geese.

History—Networks of overseas Chinese throughout much of the region. With their entrepreneurial abilities, education, and "immigrant ethic," they were often among the most successful in the various countries. Other historical arguments: former Japanese colonies, US support during the Cold War (aid, military spending Thailand and Singapore and access to US market on favorable terms).

Finally, culture—This was an explanation that was attractive to many. These countries were successful because their Confucian-influenced cultures were supportive of strong states, order, and harmony. Culturally, the people were seen to be submissive to government, hard-working, respectful of authority, and oriented to the welfare of the group.

Take Singapore as an example and talk about some of the ways this cultural and political argument was made by Singapore’s leaders, most prominently by former Prime Minister Lee Kuan Yew (LKY). Singapore’s government is run by a party called the People’s Action Party (PAP), which has been in charge of the government since home rule was granted by Britain in 1959. Currently, there are only two opposition members elected to parliament, in contrast to 81 PAP parliamentarians. This is a strong government.

Growth brought a lot of changes to Singapore. It went from being the region’s basketcase to being a gleaming example of economic success. Went from thousands of man-hours lost to strikes in the 1960s to a gleaming high-tech showcase, “the intelligent island” or “the wired island” as it is known. Singaporeans live longer, live better, travel abroad, and are educated abroad in tremendous numbers. Singaporeans moved from simple manufacturing up the technological ladder, through higher technologies, current vision of the island is to be the “brain” of the Southeast Asian region—hub of multinational corporations operating in the region, center of excellence in medicine, education, and financial services.

Leaders like LKY aware of the modernization argument. The idea that as countries become more developed, rise of civil society, rise of a middle class, that will press for democratization. Consciously looking at the end of the 1980s for “a new political formula” (Current Prime Minister Goh Chok Tong) to take Singapore into the next stages of growth.

Singapore’s leadership consciously sought to turn the modernization theory argument on its head and create a different vision of modernization. The government argued that the process worked differently. It wasn’t modernization that led to democratization, but Singapore’s economic miracle which was due to a wise, benevolent, and strong government.

Over the course of the 1980s and 1990s, the government consciously sought to limit the growth of a potential opposition by propounding this view in a number of ways.

1) The government propounded this view in seeking domestic legitimacy. Made overt claims to linking economic success to PAP’s wise management (“performance legitimacy”) The government made an overt and anti-democratic case. The government said, the reason we are able to make

wise policies that have brought so much success is because we do not have to take a short-term view that democracy would require. We are able to plan for the long term and make policy choices in the national best interest.

Why would democracy require a short-term view? Well, according to the PAP, the government would have to listen to clamoring interest groups and would have to answer those specific interests, would wind up with budget deficits as happened with “economic populism” of the United States during much of the 1980s and 1990s. This short-term perspective would “force the government to take what it knows is the wrong turn” (Goh). This would cause the government to lose sight of the long-term goal of development because it would always have to be worried about the next election. In a famous article, a Singaporean (Bilahari Kausikan) argued that Singapore’s system was “governance that works.” He meant this in contrast to Western democracy, which, by implication, doesn't.

2) The government consciously promoted policies that would foster its view of what Singapore is—not only governance that works, but governance that is in tune with the Asian values of the people. In this line of thought, Singaporeans like harmony, respect authority, do not seek conflict. In fact, given Singapore’s heterogeneity, conflict is dangerous. Government, in this different values context, will look different. People want different things from government and expect it to operate differently. Used policies to reinforce views about values at crux of development. A) One example was the creation in the 1980s of a White Paper on Shared Values. These values, mostly arising out of Confucianism were:

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Nation before community and society before self Family as the basic unit of society Community support and respect for the individual Consensus, not conflict Racial and religious harmony

These types of views are reflected in Singapore policy. B) Children have an obligation to provide for parents in their old age (parents can sue for support). Say values arise from the population but reinforcing process-using policy to shape values. C) Another example, woman cannot be a head of household for various purposes in Singapore (access to insurance). Keep focus on family. Can see this in other policies: Campaigns to encourage women, especially educated

women, to have children. Campaigns reinforced by tax incentives and various other levers of policy. Keep focus on family, don’t want to see rise of rampant and destructive liberalism and individuality as exists in the West.

3) Use anti-democratic argument with modernization’s success to justify certain anti-democratic features of the political system. A) control over civil liberties. Government has an internal security act (ISA) under which it can arrest and hold anyone for any reason deemed to jeopardize national security. The government has also shown itself willing to interpret that widely. Some democratic activists of the 1980s arrested and held on charges of being part of a Marxist conspiracy. B) civil liberties include free speech. Can be put in jail for speech in Singapore, especially if it is determined by the government to jeopardize tranquil inter-ethnic relations. One scholar-activist, James Gomez, says that controls over speech in Singapore are so pervasive that they have been internalized by Singaporeans into “self-censorship.” C) free press. The press has to be licensed in Singapore, licenses up for yearly renewal (Newspaper and Printing Presses Act). Government can ban any publication deemed to go out of line. Government can prohibit circulation of overseas publications. Most press outlets controlled by a government holding company, Singapore Press Holdings. Guided by government policy—as an example that reinforces values argument above—government put the breaks on an argument in Her World magazine about people living together ("flatting out")—didn’t want to encourage that type of behavior. D) control over growth of civil society. Could not form autonomous groups. All organizations integrated into the state or responsible in some way to it. Impossible for civil society to rise as modernization theory suggests that it will, if those same civil society organizations controlled by the government— therefore, can’t serve as check. E) unfairnesses in the system of electoral competition. With controls over the press, hard for any opposition to get its message across. Government able to spin portrayal to make opposition look ill informed, unprofessional, extreme. Government can also design electoral constituencies to minimize prospects of troublesome wards. If there is a group, like the minority Malay population, that you don’t trust, disperse concentrations through other parts of the population (GRCs, housing estates)—drown out votes. Created certain features to tell Singaporeans you don’t have to vote for an opposition, we’ll give you an opposition. Included in parliament non-constituency members of parliament—a couple of people each term who by virtue of election results performed best. Also, nominated members of parliament, from the professions—supposed to serve as a check on the government. F) unfairness in timing of campaigns and elections—election campaigns have been getting shorter and shorter. Down to seven to nine days. Difficult again for opposition to get its message out. G) Even managing to keep political implications of internet under control through government regulation (Singapore media, no use in campaigning).

4) Cultural argument. We are Asians. We want an orderly government. We don’t want any of this partisan sniping. All move in one direction with “Team Singapore.” We want to avoid the “mistakes” made in Western countries—rise of teen pregnancy, drug abuse, violent cultures, crime, homelessness, declining educational standards in re: the rest of the world. Singaporeans have a longerterm trusteeship vision of government. Elections are important as a measure of the government’s legitimacy but the question is win by how much, not whether or not the government will win at all.

In this way, while important domestic features to the debate, also implicitly an international debate as well. Do Western countries have the right to intervene in other countries’ internal affairs to push their vision of what democracy is? Singaporeans, only able to talk about here, but backed up by the Malaysians and China mounted a strong counterattack on the basis of necessity of keeping Asian values and preserving strong government as the way to preserve harmony and growth, avoid the mistakes of the West.

Conclusion: Singapore has attained remarkable economic success that has led to certain political changes. The government has fought against changes that would convert Singapore into a Western liberal democracy, offering a robust challenge on the basis of values and effectiveness of government in leading development. To today, can at best characterize Singapore as a semi-democracy: with certain features of democratic system like elections and parliament but limitations on civil liberties and competition that make real alternation in power elusive.

Nothing stands still. Things are changing in Singapore. Free speech—the government opened up a sort of Singaporean Hyde Park where people can apply, then go to have free speech in this park.

Civil society—government creation of civil society to meet challenge of globalization. Singaporeans have to be more creative, more entrepreneurial. Recognition that there were problems with the model of the past. Have to change in order to keep up with globalization, business will go to better places. Singapore’s best will go to better places unless open up. Singapore 21 and Remaking Singapore projects, greater role for civil society but being pushed in a humanitarian rather than political direction..

Asian crisis—Asian crisis hurt claims about Asian values. Some of those features touted as successful like cooperation between business and government, exposed in many cases as shells for corrupt cronyistic relationships where business trades money to government for exclusive deals and breaks. Not effective. Debate about Asian Values has become much less assertive, less caustic as US economy went up and Southeast Asian economies went down. No longer asserting superiority of Asian model, simply that international community should respect diversity of cultures, histories, and political choices made by different people around the world.