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POLS 459 Politics of East Asia Lecture Topic: The East Asian “Miracle” September 25, 2007 Professor Timothy C. Lim California State University, Los Angeles

The East Asian “Miracle” Course Introduction East Asia is an ambiguous terms, but it typically includes Japan, China, North and South Korea, and Taiwan The focus of our attention for the first part of the quarter are the three economies and societies of Japan, South Korea and Taiwan. We will be discussing China in the second part of the quarter. Geographic Bearings

The East Asian “Miracle” Course Introduction Compared to other regions, the High Performing East Asian economies (HPAEs) have grown at a remarkable pace, especially between 1965 and 1990 The East Asian Miracle: Basic Data

GDP Per Capita: International Ranking (Selected Countries), 2005 On a per capita basis, Japan is the 18th wealthiest country in the world,* while Taiwan and South Korea are in the top 20% of wealthiest countries in the world ____________________ * Most countries richer than Japan have much smaller populations--e.g., Luxembourg, Ireland, Norway, Iceland, Denmark, etc.) NOTE: GDP dollar estimates are derived from PPP calculations. Figures come from the IMF, World Bank and the University of Pennsylvania. Complete listing of countries is available at: _capita_%28PPP%29 _capita_%28PPP%29 Country GDP per capita 3. United States$41, Japan$32, Taiwan$27, New Zealand$24, South Korea$20, Saudi Arabia$15, South Africa$12, Mexico$10, Turkey$7, Peru$5, Philippines$4, Kenya$1,445 The East Asian “Miracle” Course Introduction The East Asian Miracle: Basic Data

GDP: International Comparison, Selected Countries, 2006 est.  On an absolute basis, South Korea was the 13th richest country in the world in 2006 with a GDP of $1.1 trillion, while Taiwan was 18th with a GDP of $668 billion  Japan had the 3rd largest economy in the world with a GDP of $4.2 trillion (China was second at $10 trillion ) Source: CIA World Factbook--Rank Order -GDP (PPP)CIA World Factbook--Rank Order -GDP (PPP) Country GDP (PPP), in million $ 1. United States$12,980, Japan$4,220,00 8. United Kingdom$1,930, South Korea$1,180, Canada$1,165, Taiwan$668, Saudi Arabia$374, Peru$181, Ghana$59, Kenya$44, Bolivia$27,210 The East Asian “Miracle” Course Introduction The East Asian Miracle: Basic Data

The East Asian “Miracle” Course Introduction Even more surprising, this rapid growth has been achieved with relative equity (that is, equitable distribution of income) The East Asian Miracle: Basic Data The Gini coefficient measures the inequality of income distribution within a country. It varies from zero, which indicates perfect equality, with every household earning exactly the same, to one, which implies absolute inequality, with a single household earning a country's entire income. Latin America is the world's most unequal region, with a Gini coefficient of around 0.5; in rich countries the figure is closer to 0.3.

The East Asian “Miracle” Course Introduction “The rapid economic growth of eight East Asian economies, often called the ‘East Asian miracle,’ raises two questions: What policies and other factors contributed to that growth? And can other developing countries replicate those policies to stimulate equally rapid growth?” - Joseph Stiglitz (click to view Dr. Stiglizt’s homepage)Joseph Stiglitz The East Asian Miracle: Two Questions

The East Asian “Miracle” Course Introduction To what can we attribute East Asia’s remarkable economic success? In other words, what is the best explanation of rapid and sustained capitalist development in East Asia? The East Asian Miracle: First Question Discussion Question. What do you think is the reason for East Asia’s economic success? Do you agree with the authors of the two readings assigned for today? To what do they attribute East Asia’s success?

The East Asian “Miracle” Course Introduction Some Key Points: The HPAEs, while highly diverse, share three important attributes … 1.High rates of investment 2.High and rising endowments of human capital due to universal primary and secondary education 3.Superior productivity performance The East Asian Miracle: Page Reading } These two factors are not hard to understand: more investment = higher rates of economic growth. In this sense, there is no “miracle” to explain. The third factor, though, requires more analysis.

The East Asian “Miracle” Course Introduction Total Factor Productivity (TFP) To adequately explain the success of the HPAEs, it is necessary to identify the source(s) of the their relatively high TFP Page suggests two sources … a.______________________________________ _____ b.______________________________________ _____ The East Asian Miracle: Page Reading Unusual success at allocating capital to high yielding investments Catching up technologically to the advanced economies Identifying the sources of high TPF, however, raises another critical question, namely …

The East Asian “Miracle” Course Introduction The East Asian Miracle: Page Reading Who or what was (primarily) responsible for the unusual success of allocating capital to high yielding investments and for catching up technologically? Markets? Firms and entrepreneurs? States or governments? Something else? The answer, it is important to emphasize, need not be either/or. We should also consider relationships and/or combinations …

The East Asian “Miracle” Course Introduction The East Asian Miracle: Stiglitz Reading Some Key Points In thinking about the process of economic development, it is useful to consider the metaphors discussed by Stiglitz The engine metaphor The chemical or catalyst metaphor The biological or “adaptive systems” metaphor The physics or equilibrium metaphor This metaphor relies on identifying an “engine of growth”; it suggests that growth is a function of a particular factor. The stronger that factor is, the stronger economic growth will be. This metaphor suggests, among other things, that economic growth is a function of a more complex reaction, where certain factors can serve as a catalyst, but where other factors are equally essential to the overall process. This metaphor suggests that economic success is achieved through a process of adaptation-- the ability to respond to changes and opportunities in the environment, and to learn from past mistakes. Systems that cannot adapt die; those that have superior adaptive capacities thrive. This metaphor is used by mainstream economists, who see the economy as an equilibrium system, meaning one that automatically adjusts to imbalances. In this view, the best economic system is one that is left alone by “non-market” actors or forces.

The East Asian “Miracle” Course Introduction The East Asian Miracle: Introduction We will have much more to say about the various explanations of East Asian economic growth, including those offered by Page and Stiglitz, in subsequent classes This first lecture, however, is meant only to give you a taste of the issues and concerns; with this in mind, we will now look at the issue from a very different perspective …

Background Video: Asia Rising Japan and Korea Rebuild As you watch, consider the following questions: Can you identify an implicit argument(s) about the reasons for East Asia’ economic success? Or can you identify the specific (explanatory) factors that the filmmaker focuses on? How does the film’s explanation differ from the ones offered by Page and Stiglitz? Also, as you watch, jot down what you consider to be particularly interesting or important points; think about any questions you may have The East Asian “Miracle” Video Presentation Asia Rising Japan and Korea Rebuild