The Miracle of Growth — The Rise of the Asian Economies

The Asia we saw in the previous episode was a shadowed continent, torn apart by war and division. The Korean Peninsula split in two, Vietnam was scorched by long years of war, and nations in a hurry to develop chose confining forms of governance. The phrase ‘the front line of the Cold War’ truly carries within it a heavy reality.

And yet, in that very same era, a completely different story had begun to move. Out of the scorched earth, and from the very midst of division, there appeared countries and regions that grew rich at a speed astonishing enough to startle the world. Later this would come to be called ‘the East Asian Miracle.’ Why was it that a corner of an Asia that had been poor until only recently could grow so suddenly? The story in search of that answer begins with the defeated nation of Japan.

From Scorched Earth to the World’s Second — Japan’s High-Speed Growth

Japan, defeated in the Second World War, had had much of its land burned, and its industry and the lives of its people had suffered devastating blows. Everyone surely thought that recovery would take many long years. Yet the Japanese economy recovered and grew at a speed that far exceeded expectations.

From around 1955 to about 1973, Japan recorded a real economic growth rate averaging around ten percent a year, an exceptionally high rate of increase even by world standards. This period is called the era of ‘high-speed economic growth.’ Home appliances such as televisions, washing machines, and refrigerators spread into households, the Tōkaidō Shinkansen began to run, and in 1964 the Olympics were held in Tokyo. The lives of the people changed beyond recognition in a mere dozen-odd years.

What supported this growth was a diligent labor force, a high savings rate, the introduction of technology, and a mechanism for earning foreign currency through exports. Japan sold high-quality industrial products to the world, used the profits to further equip its facilities, and sold again — turning such a virtuous cycle. But nothing lasts forever. The oil crisis (oil shock) that struck in 1973 sent crude oil prices soaring, and in 1974 the growth rate turned negative for the first time since the war. By convention, this year of 1974 is taken to mark the end of the era of high-speed economic growth.

The Four Dragons — Nations and Regions That Raced Upward on Small Frames

Following Japan, what astonished the world were the four of South Korea, Taiwan, Hong Kong, and Singapore. Each was small in territory and not blessed with natural resources. Even so, because they achieved rapid industrialization and economic growth from the 1970s into the 80s, these came to be called the ‘Four Asian Dragons,’ or the Newly Industrialized Economies (NIEs).

What the four had in common was a strategy of export-led industrialization. Because their domestic markets were small, they aimed from the very start to sell products to the world market. Beginning by making clothing and sundry goods that drew on cheap and abundant labor, they climbed step by step toward more advanced products such as home appliances and semiconductors. The strong role of policy — with governments choosing industries, nurturing them, and pushing exports forward — is also said to be a characteristic feature.

Hong Kong and Singapore made the most of their geographical advantage as hubs of trade and finance. South Korea and Taiwan, while honing their technology, built up manufacturing industries capable of competing with the world. The fact that, under the Cold War, they could sell products into Western markets is also said to have been a tailwind for these regions. Behind the division and tension touched on in the previous episode, such a quiet economic ascent was steadily advancing.

A Growth Named ‘Miracle’

That so much growth was concentrated in a single region drew the attention of the world’s economists. In 1993, the World Bank published a report titled ‘The East Asian Miracle.’ In it, the high growth that Japan, the Four Dragons, and some countries of Southeast Asia had recorded over roughly thirty years from 1965 was analyzed.

How to explain this miracle was a matter of debate even at the time. On one hand there was the view that it was a free economy making the most of market forces that gave rise to the growth; on the other there were positions that weighed heavily the role of policy, by which governments chose and nurtured industries. A cautious assessment — that neither one alone can fully account for it — is probably the common view today. What is certain is that the elements of investment in education, high savings, and exports oriented toward the world market were seen in common across these regions.

The growth spread to Southeast Asia as well. Countries such as Thailand, Malaysia, and Indonesia also advanced industrialization while drawing in foreign investment, and came to show high growth rates. Asia rapidly increased its presence within the world economy. This continent, once pushed out to the periphery of the West, had begun once again to approach the center of the world’s growth.

The Trial — The Asian Financial Crisis of 1997

But the miracle had its limits as well. Behind the rapid growth, vast amounts of short-term foreign capital had flowed into each country, and the prices of real estate and stocks had swelled beyond their real substance. Then, in 1997, that distortion came to the surface all at once.

The trigger was Thailand. In July 1997, the Thai government found itself unable to maintain the system of pegging its currency, the baht, to the US dollar, and shifted to a floating exchange rate. Immediately afterward, the baht collapsed sharply. This fall of the currency did not stop at Thailand alone. To neighboring countries that bore similar weaknesses, the crisis spread in a chain like a tsunami. Indonesia, South Korea, and others were struck one after another by crises of currency and economy, and it became a vast turmoil that engulfed the whole region.

The following year, 1998, many countries are said to have fallen into sharply negative growth. The International Monetary Fund (IMF) set out to provide enormous emergency loans, but the strict conditions attached to that support pressed each country toward painful reforms. And several of the developmental dictatorship regimes touched on in the previous episode lost trust on the occasion of this crisis and made their exit. In Indonesia, Suharto, who had long held power, stepped down in 1998.

The currency crisis shook Asia’s confidence greatly, once. But that did not mean the story of the miracle had ended. Having learned much from the pain of the crisis, Asia advanced its rebuilding in search of a sturdier footing. And the place this chain of growth was now finally about to reach was two enormous nations that had long seemed to lie sleeping. Those two giants, holding much of the world’s population, were at last about to begin to stir.