12 Special reportAsian tigers The EconomistDecember 7th 2019
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ven in theirprime, the tigers had their detractors. Twenty-
five years ago this month, Paul Krugman, an economist, wrote
an article in Foreign Affairs, an American policy journal, entitled
“The Myth of Asia’s Miracle”. He argued that Asia’s seemingly dy-
namic economies displayed, on closer inspection, “startlingly lit-
tle evidence of improvements in efficiency”. Their growth relied
instead on rapidly increasing inputs of labour, capital and so on. It
was a miracle based on “perspiration” not “inspiration”. Singa-
pore, in particular, “grew through a mobilisation of resources that
would have done Stalin proud”, Mr Krugman wrote.
This sweaty growth model faced some natural limits. Employ-
ment rates could not increase for ever. And the accumulation of
capital would eventually run into diminishing returns. Therefore
the tigers’ pace of expansion would inevitably slow.
On the last point Mr Krugman was unquestionably right. The
Asian tigers have averaged growth of 3% this decade, down from
8% in the early 1990s. But their mix of perspiration and inspiration
is now better than Mr Krugman feared. As inputs of labour have
grown more slowly, total factor productivity, an oft-cited (if theo-
retically controversial) gauge of efficiency, has made a bigger con-
tribution. Between 2000 and 2017, it grew at least twice as fast in
the tigers as in America, according to the Asian Productivity Orga-
nisation in Tokyo.
The comparison that most scares the tigers is not with the Sta-
linist industrialisation of the Soviet Union but with Japan’s ele-
gant stagnation. Life in Japan is, for many, comfortable and afflu-
ent. But its economy has lost ground. Japan’s gdpper person, at
purchasing power parity, reached 85% of America’s in 1990; today
it is closer to 70%. One cause of Japan’s prolonged slowdown is
ageing: it is now older than anywhere except tiny Monaco. But in
the coming three decades the tigers will age even more quickly
than Japan has done. The tigers also see much of themselves in Ja-
pan’s economic model, which once served as an example for their
own. South Korea and Taiwan are far stronger in manufacturing
than in services and all four are unusually reliant on exports to
generate growth in demand. Will they replicate Japan’s failure as
faithfully as they copied its success?
Emulating Japan’s drift would not be a total disaster: many
countries, worried about a supposed middle-income trap, would
dearly love to fall into the Japan-income trap. But the tigers can
still aspire to do better. Despite their parallels with Japan, they are
different in many respects.
Compared with Japan during its bubble years, they are para-
gons of financial conservatism. Since the market mayhem of the
Asian financial crisis of 1997-98, they have insisted on big capital
buffers for their banks and pioneered macroprudential limits on
borrowing. In addition, the tigers are even more deeply ensconced
in the global trading system and have also shown great determina-
tion to stay at the global leading edge. All four love to boast of their
positions at, or near, the top of global rankings like the World Eco-
nomic Forum’s global competitiveness index or the World Bank’s
“ease of doing business” rankings.
If the tigers stumble, it will be for their own reasons, not be-
cause they are repeating Japan’s mistakes. Taiwan wants to lessen
its economic entanglements with China, but that is difficult nowthat China is the centre of Asian economic gravity. Anger at the
concentration of economic power in South Korea has led to de-
mands for a fairer system. But many of the government’s respons-
es have been ineffectual or counterproductive.
Singapore’s carefully managed political system has come un-
der more strain, and a backlash against immigration shows that it
is not immune to the populism that has reared its head throughout
the world. Hong Kong, sadly, is the tiger most at risk of going back-
wards. Its people, successful and sophisticated, understandably
want to make big decisions for themselves. Yet their rulers will
have none of it.
So it is only sensible to remain grounded about the tigers. There
is still much that can go wrong for them. Nevertheless, there is also
much that can continue to go right. They each have plenty of
strengths. South Korea has emerged as a research powerhouse, at
the same time as building up strong global brands, from smart-
phones to pop idols. Taiwan, in the toughest of geopolitical cir-
cumstances, has made itself an essential player in global supply
chains, while also developing a thriving ecosystem of small busi-
nesses. Hong Kong, for all its current woes, has established itself
as the financial conduit between China and the world. Singapore is
top of the tiger class in many ways: it has a diversified economy,
despite being a small city-state, and it has mitigated the inequality
that has come with its recent flourishing.
The tigers also matter to the rest of the
world. Their record in their boom years re-
mains a vital reference for other develop-
ing countries trying to get ahead. Their ex-
perience over the past two decades shows
how countries can climb from middle-in-
come levels to greater heights. Of particu-
lar interest to the developed world will be
their record in the coming few decades.
The quartet can be seen as test cases for
the future. They are often the pioneers for
new technologies thanks to their innova-
tive firms. And their societies are facing distilled versions of many
of the dilemmas now haunting the rich world: how to cope with
ageing; how to cushion workers from the effects of automation;
how to revive productivity growth; how to stay close to both Amer-
ica and China; and how to push up stagnant wages and hold down
soaring property prices.
Decades before they were nicknamed the tigers, Asia’s smaller
economies were likened to a different kind of animal: “flying
geese”, fanning out behind Japan. In nature, as in economics, trail-
ing geese find it easier to fly in the leader’s wake, benefiting from
the extra lift its wings create. But what the original metaphor for-
got is that birds take turns leading and following. Hong Kong, Sing-
apore, Taiwan and South Korea spent decades flying comfortably
behind more advanced economies. The good news and the bad is
that there is now no one left to follow. 7Fearful symmetries
Where do they go from here?The tigers’ futureThe comparison
that most scares
the tigers is with
Japan’s elegant
stagnation