Myth of Asia's Miracle Foreign Affair Term Paper

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Myth of Asian Miracle

Critical Analysis of a Paper by Paul Krugman

The phenomenal growth in the East Asian countries and China during the 1980s-1990s startled the western world. Were they going to overtake the developed economies of the western countries was the question asked in the economic circles. Stanford economist Paul Krugman [1] wrote a controversial article, 'The Myth of Asian Miracle' in November / December 1994 issue of 'Foreign Affairs'.

In this article he compared the rapid growth of the 'Asian Tigers' to the economic development of the former USSR during the 1950s and 60s. He argued that consistent economic development requires increased input of resources as well as increase in output per unit of input, which comes from increase in efficiency and technological advancement.

Krugman argued that rapid development of the U.S.S.R. was due to increased input of resources, controlled economy and a rise in education level of the workforce due to emphasis on education. He argued that while Soviet Union was able to increase the input of resources, she was unable to improve the second critical factor, increase in output per unit of input, resulting in a miserable failure of the U.S.S.R.

The controversy of his paper came from drawing a parallel between the rapid developments of Soviet economy in 1950s-60s and the fast economic growth in some of the ASEAN countries and China during the 1980s and 1990s. This term paper takes a critical look at the points put forward by Krugman.

Critical Analysis

The bust of Asian economies during the last decade has proved that all statements of Asian miracle were indeed a myth. These slogans coined by the economists and politicians to suit their own purposes had no relevance to the actual situation.

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Expecting growth of these Asian economies to continue to grow at the fast pace of the 1980s and 1990s could only be described as wishful thinking.

Krugman's argument that consistent development requires technological development and increase in output per unit of input as a pre-condition is indeed corrects. Merely increasing the resources of manpower, machinery and financial inputs can result in economic growth over a short period but it cannot be expected to make a country economically great.

Countries such as South Korea, Indonesia, Philippine and Thailand found out that fast economic growth based on borrowed capital could undo the economic growth achieved during the boom years. Now these countries have a debt/reserves ratio exceeding 100%. In case of South Korea this ratio is an astonishing 352% [2]. It is ridiculous to suggest that countries, which have a high growth due to short-term policy improvements and huge borrowings from international markets will one-day, overtake the developed economies of the western world. The fast developing Asian economies of the 1970s-80s followed certain sound economic development policies such as investment in education and training, stable environment for private investment, policies designed to encourage private savings and low population growth which, all favored economic development. However, expecting short-term growth of 9-10% per year will make these fast developing economies overtake developed western countries was a bit far fetched. Krugman was therefore absolutely correct in arguing that the economic development….....

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