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Forty Years of Asian Drama, part I

From Observer, page 41, issue no. 373, Jun. 23, 2008
Tranlasted by Zuo Maohong
Original article:[Chinese]

EO reporter Li Xiang traces 40 years of economic development in Asia in this two-part series. From the days Asian Drama was penned, predicting a doomed future for the region; and crossed over to the optimistic theory of Flying Geese, which foresaw the taking off of Asian economies one after another; to the current challenges facing countries like China, India and Vietnam.

Below is part one of the special focus, bringing readers back to the late-1960s, when except for Japan, no Asian countries were promising. Yet prospects changed within only a decade or so. Part two will examine Asia in the post-1997 financial crisis era. 

In 1968, 70-yea-old Swedish economist Gunnar Myrdal published Asian Drama: An inquiry into the poverty of nations. That was six years before he was awarded the Nobel Prize in Economics.

One morning in 1974, he received a phone call informing him of having won the prize. An adversary of it, Myrdal later joked he was still half asleep that he accepted it initially. When he learned the prize would be shared with Friedrich A. Hayek, he became enraged, and said the prize should be called off entirely simply because it was once awarded to someone like Hayek.

Myrdal and Hayek were worlds apart--the former a radical, the latter a conservative. The theories of Myrdal laid the foundation for Sweden and other European welfare states, while Hayek's were worshipped by Reagan and Thatcher, who revived capitalism and liberal economy. Years later, Hayek recalled that maybe it was exactly this opposition between him and Myrdal that the judges decided to award the Prize to them both.

The core problem Myrdal attempted to explore in Asian Drama was the poverty of nations. The Asia of his book was plagued by over population, corrupt regimes, and poverty; and risked being failed nations, just like the Africa in Jeffrey D. Sachs's book The End of Poverty. Only massive aid from developed countries and international organizations could save these countries from the abyss of poverty, like what Sachs and some anxious rock singers had expressed.

Many might have forgotten what Asia was like back in 1968. China was still in the fervor of a Utopian revolution. The Cultural Revolution then had virtually stopped economic growth, and was about to bring endless troubles to Deng Xiaoping, the one who led China to its economic boom later.

Indian elites were still immersed in Jawaharlal Nehru's legacy and economic theories they had learned in London School of Economics and Political Science. They revolted against the market economy and advocated a moderately planned economy and social fairness.

Singapore had just gained independence for three years. Lee Kuan Yew and his colleagues were still worrying about how the country should survive.

Taiwan, which was faced with both external and internal troubles, had yet to welcome the reign of Chiang Ching-kuo.

There was a race riot in Malaysia, when the economically advantaged Chinese were regarded as enemies. Mahathir Mohammad was still a young and inexperienced politician who was newly elected chairman of the first Higher Education Council.

Suharto became president of Indonesia that year. But like Malaysia, the country was struggling with race riots and poverty.

Vo Van Kiet, Vietnam's key economic reformer who has just died recently, took the task of marching into Saigon. Other countries in the region showed no sign of progress. None of the other counties like Philippines, Thailand, and Pakistan – as mentioned by the book – were prospering then.

The only hope was Japan, whose GDP surpassed the Federal Republic of Germany and made it the third biggest economy after the US and the USSR in 1968. Like what China did decades later, it was growing at an astoundingly high speed: its average GDP growth between 1967 and 1970 was 17%, and its economic growth throughout the 1960s and 1970s remained around 10%.

Four years after the Tokyo Olympics, in 1968, Japan was busy with preparation for the World Expo about to take place two years later. This same year, the Nobel Prize in Literature went to the Japanese writer Kawabata Yasunari and thus made him the second Asian winner of the Prize after India's Rabindranath Tagore. In its award address, the Swedish Academy noted that because of his experience of Japan's failure, Yasunari knew that aggression, productivity and labor force were necessary for the rebirth of the country.

If Myrdal lived today and continued with his pessimistic declarations about Asia, people would definitely be shocked. Despite the undeniable troubles facing this continent right now, no one could believe the Asian Drama today is being played out by nations ruined by poverty, over population and corrupted regimes.

On the contrary, the whole world is now staring at Asia, especially China and India. While many take the two as the source of numerous disturbances and troubles, the two are also playing the role of balancing the global economy.

While proud westerners are criticizing the Chinese sweatshops have forced out factories in other countries and Chinese cheap labor caused unemployment of many others, they are nevertheless enjoying the sea of China-made commodities in Wal-Mart. To them, China means cheap commodities, and India means the English with an Indian accent that you hear on the line whenever you dialed a hotline number for consultation or help.

Meanwhile, Toyota and other Japan-made cars have been flooding the Detroit market since the 1990s. Even the property magnate Donald Trump had once angrily protested that the entire New York was being bought by Japanese. Though Japan was finally defeated in the battleground of New York, the good luck of Toyota continues—soon it would overtake General Mobile to become the world's biggest auto company. Even the Indian Tata Group has begun to purchase US mobile brands—it bought Jaguar and Land Rover against Americans' wishes.

It's not the numbers of economic growth that are shocking the world, but the massive worldwide purchases made by Asian companies and their products that are standing proudly on the supermarket shelves of western countries, whose own factories are instead moving to China or Vietnam or shutting down.

The Flying Geese
It was 1953 when Akio Morita made his first trip to the US. He was only 32 years old then, and still a handsome young man with metal-framed glasses and hair carefully combed rearwards, revealing his broad forehead.

The eldest son of the Morita family, he was supposed to inherit the family business and deal with soy sauce and sake spirit for his entire life. However, he was determined to deal with the world's future instead and joined Ibuka Masaru's company.

He was in the US to sign a cooperation agreement between Sony and Western Electric. He was somewhat at a loss in the formidable US, though he had learned about its richness before and knew it was this great economic power that had defeated the Japanese Empire.

He was nevertheless astounded, as Winston Churchill once said, at the ever-running motors and pipelines that were driving the US and its allies moving fast forward.

Saloon cars, broad roads, skyscrapers…the US in the eyes of Morita was suffocating. He confided in a childhood friend his unease about working in New York. He doubted that there would be a place for him and Sony in this country.

Later, he visited Volkswagen, Benz, and Siemens in Germany, which was recovering from the Second World War rapidly. What he saw in Germany didn't help to reassure his self-confidence. He was extremely depressed by his experience in a Düsseldorf restaurant, where a waiter, finding him Japanese and out of good intention, told him that the little paper umbrella on the ice cream served was made in Japan. Akio said he could never forget the humiliation that his motherland could only produce such low-tech products.

When people recall the Japanese economic miracle in the 1960s and 1970s, they remember how the outbreak of the Korean War changed the US's strategy. The US decided to forgive Japanese who had once brought it great distress. It began to support this island nation, when MacArthur tried his best to cure it from war wounds and rebuild its political, social and economic systems. Numerous manufacturers moved to Japan. Orders from the US kept Japanese factories busy day and night.

We also remember how the three bureaucracies in charge of economic operation in Japan—the Ministry of Finance, the Ministry of International Trade and Industry, and the Economic Planning Agency—played the role of an economic engine for the country.

To prove that individuals have a much greater impact on Japan's economic growth than policies, US journalist Bob Johnstone recorded the details of how the Japanese electronical industry developed in his book We Were Burning. Entrepreneurs such as Morita and officials and politicians such as Takeo Fukuda were regarded as the engine for the rising of the Japanese economy and true Asian heroes.

Before the Second World War, Japan had already become an example for other Asian countries. Its Meiji reform made Japan strong enough to defeat a European power, and excited Chinese democratic reformers like Kang Youwei and Sun Zhongshan.

But the Indian poet Tagore was disappointed after his trip to Japan, because he thought this was not the way Asia should rise. In his opinion, the rise of the East should be one of spirit and value, though materially it had no choice but to learn from the West. What Tagore saw in Japan was repetition of what western countries had undergone. Japanese now owned a solid industry system, and a consequent strong army. But was it a good example for its neighbors? Could a country which was unwilling to be a part of Asia be the economic center of this region?

If Sun Zhongshan had lived till the China-Japan war that erupted years later, the hope he once placed on Japan would have been completely dashed. For Sun, Japan had always been the new hope for Asia and the East, but in fact, it only demonstrated Tagore's disappointment.

What was behind the second rise of Japan then? Would its close relationship with the US bring hatred from the whole Asia? This time, the country acted differently.

In the 1930s, Japanese economist Kaname Akamastu brought forward the "flying geese model", which he further elaborated in his thesis in 1961 and 1962.

According to this model, Japan was the leading goose who dominated in export-based industrialization. As its economy and material living standard grew, some of the low-technology and low-value industries would transfer to neighboring countries, which then joined the flying team and in turn transfer such industries to their nearby countries later. In firm belief of his "flying geese model", Akamastu was apparently much more optimistic about Asian than Myrdal.

The next who joined the "flying geese" was South Korea, which surprised many people because it was then in a deadlock with North Korea. There were continuous fierce demonstrations in South Korea's capital Seoul. However, the firm-willed autocrat Park Chung-Hee, who became president through a military coup, boldly decided to imitate the way Japan had prosper economically. Once invaded by Japan, South Koreans still feel the repulsion for it today, so do they for Park Chung-Hee.

More joined in later, including Taiwan, Singapore and Hong Kong, all of which caught the world's attention with their economic miracles. Then followed Thailand, Malaysia, Philippines…

In 1993, the World Bank published The East Asian Miracle, which itself was a milestone of the East Asian development. The World Bank concluded the reasons behind this "miracle" were massive devotion of capital and human resources, as well as the governments' market-oriented reforms and policy intervention. A debate over the East Asian economy began thereafter.

In the following year, Paul Krugman spoke out his doubt over the "miracle", saying the economic growth model these countries were adopting depended too much on the mass of capital investment and thus couldn't bring sustainable development.  

Three years later, the "flying geese" were blown hard by the Southeast Asian financial crisis, and Krugman's prophesy was thus highly praised.

Today, however, there's no need at all to continue to panic over the 1997 financial crisis and be pessimistic about the economic outlook of Asia. Having walked out of the shadow, Singapore won an economic growth of 7.7% in 2007, which made it a developed country growing at the pace of a developing nation.

Hong Kong was slow in its revival, and always being denounced by economists. But look what it is like now--it's still splendid enough to arouse envy. As for Japan and South Korea, they have the world's highly competitive companies, such as Toyota, Sony, and Samsung.  

Some believe that the intervention of the International Monetary Fund (IMF) during the 1997 crisis has helped clear up the once disordered financial systems of these countries. The Southeast Asian tycoons had once tapped the financial system to save their own companies, and diverted their burden to the banking system when the crisis came.

The disorder involved complicated relationships between the banking industry and other sectors and companies – this was called the "crony capitalism" – and in the case of Japan, the government footed the bill in the end. Despite the endless debates among economists, it is undeniable that the crisis has indeed cleaned up some of the toxin in the economic system of these countries.

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