Table of Contents
Section I. Introduction
The article “The Myth of Asia's Miracle” by Paul Krugman is devoted to the so-called miracle of the economic boom in the Asian countries in the 1960s-1990s. The author stated that it was not a miracle, and the growth was possible due to the growth of resource input without the growth of productivity; thus, it was predicted that the growth rates would slow down. In this paper, the arguments of the author will be critically evaluated and supported with additional sources.
In the 1990s, many Western scientists and leaders focused on the extraordinary growth rates of some Asian countries. Traditionally, the Western economies were leaders, but the situation changed quickly. Thus, economic performance became a real political issue. It was considered that the economic growth was rooted in the communist regimes. Incredible growth rates were possible due to the saving and expansion of employment and resources. However, growth rates were still not as rapid as expected because economical limits existed. The growth of input and the lack of technological growth and productivity growth were impossible to make it permanent, and the growth was expected to slow down. There are some parallels with the communist countries’ growth in the 1960s and the growth of the Asian countries in the 1990s. They achieved rapid growth mostly due to the mobilization of resources. For example, Singapore achieved rapid growth rates due to the increase of employment, the education of employees, and the investment in physical capital. Thus, it resembled the communist economies because such changes could not be repeated, and the economic growth would not be permanent. Similar situations were with Japan and China (Krugman 62-78).
Section II. Economic Growth Statistics
Paul Krugman stated that the economic growth of the Asian countries was a temporary process because it was caused by the changes in factors that were impossible to repeat or continue. His article was written in 1994, and the current situation with the economic growth of the Asian countries can be studied to know if his predictions had become true in reality or not. As an example, GDP of Japan, China, and Singapore will be analyzed from the 1960s until now, as those countries were mentioned in the article. For Japan, the exponent growth of GDP can be noticed from the 1960s until the middle of the 1990s. According to statistics, it was about $500 billion in the 1970s, about $1,000 billion in the 1980s, and about $3,000-5,000 billion in the 1990s. In the 1990s, growth rate became slower, and GDP figures fluctuated from year to year. They continue fluctuating until now. In 2014, GDP of Japan was $ 4601.46 billion (“Japan GDP”). Thus, for Japan, the expectations of economic growth going slower became true. For China, the situation is different. Its GDP continues growing rapidly. However, the speed of growth is not as high currently as it was in the 1990s and the 2000s (“China GDP”). Thus, the predictions made by Paul Krugman can be considered true for China, although the trend is not as evident as for Japan. For Singapore, the situation with GDP is similar to that of Japan. In the 1990s, the growth was rapid, and GDP changed from about $50 billion to about $100 billion. In the 2000s, GDP declined and it was quite stable for several years. In 2003, it continued growing again, and became slower in 2010. The latest GDP for Singapore was $307.86 billion (“Singapore GDP”). As a result, the expectations of lower economic growth rates in 2000s for Singapore became true as well.
Section III. Evidences from Literature
It is obvious that the speed of the economic growth for the Asian countries became slower in the 2000s as compared to the 1990s. Paul Krugman explained that with the fact that the economic growth was caused by the increase of factor input in the economy, and the productivity did not change much. To check this argument, it is necessary to study relevant literature and find supporting evidences to prove this claim. For instance, it is possible to study statistics of factors that had influenced the economic growth. Real output per labor hour without growth is a factor that contributes to the economic growth, but it is extensive. It is impossible to increase it unlimitedly. For the Asian countries, this factor increased rapidly from the 1960s to the 1990s. The highest speed of growth can be noticed for Japan, Hong Kong, and Singapore. Human capital is an extensive factor too. Its growth was similar to the growth of real output from the 1960s to the 1990s. When extensive factors are exhausted, Asian countries can continue their growth but with the use of other factors such as R&D, savings, and education. In fact, most of them did that, but the growth rate declined in the 2000s as compared to the 1990s (Lau 4-86).
For the Asian countries, technical progress took place in the 1980s and the 1990s. However, its role was not as significant as the role of the extensive factors. R&D contributed to the economic growth mostly in the 2000s, and before that, investment in tangible items was prevalent (Lau and Park 71). One more issue is that the growth of the Asian economies was financed mostly with foreign capital. Thus, they became dependent on the foreign investment. This situation cannot be considered very positive because the Asian countries have become dependent on the economic situations in foreign countries. Any crisis in those countries can cause the lack of investment and the economic decline of the Asian economies. Thus, in order to continue their economic growth, it is necessary for the Asian economies to focus on the domestic investment. Therefore, they will become more independent, and their growth will be more stable (Bello).
Each Asian country had its own model of economic development in the 1990s. However, they had many common features, and they contributed to the economic growth of all countries. Most factors were extensive, and because of that, the tempo of the economic growth declined in the 2000s. In general, most Asian economies were focused on the policies to support stable business environments with the relatively low rates of inflation to encourage investment, mostly in fixed assets. Fiscal policies were prudent and sustainable to support equal sharing and high growth rates. The exchange rates were regulated to maintain export goods relatively cheap. Moreover, the domestic investment was restricted and, at the same time, governments supported the domestic saving and efficient allocation and integration of resources. It was also natural to control prices and minimize their fluctuations. The Asian governments supported primary and secondary schooling to receive the greater amount of educated employees who would be able to bring higher productivity. Finally, the level of bureaucracy was high to control economies and support the long-term economic development (Stiglitz and Yusuf 5-6). Thus, those features contributed to the extensive development of economies that was impossible to be permanent. As a result, the rate of their growth became lower in the 2000s.
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Section IV. Conclusion
In conclusion, in the article “The Myth of Asia's Miracle”, Paul Krugman states that the growth of Asian economies until the 1990s was caused by the use of extensive factors of production like the growth of employment and input in tangible assets. Thus, he predicted that the growth rate would decline in the 2000s. In fact, those expectations became true. In the 2000s, GDP of Japan, China, and Singapore had lower growth rates as compared to the 1990s. Other authors also prove the expectations made by Paul Krugman. The use of extensive factors was prevalent in the Asian economies to contribute to growth, but it was not endless, and the growth rates declined.