East Asia's Economic Model Is No Miracle, Study Shows

WHEN Japan asked the World Bank to study East Asia's ``model'' of economic success, it got more than it bargained for. The study, although titled ``The East Asia Miracle: Economic Growth and Public Policy,'' finds neither a miracle nor any unique method used to create the most economically dynamic region in the world.

``The process of growth in East Asia does not differ significantly from economic growth in any other regions of the developing world,'' declares John Page, team leader of the study, which was released yesterday. While the 389-page report praises Japan and eight other East Asian nations for simply practicing good fundamental economics, the other conclusions are likely to disappoint the Japanese government, which paid for the study.

Since the late 1980s, when Japan's economy hit a postwar peak, officials in Tokyo have tried to counter Western criticism that Japan has used anticompetitive mercantile practices to dominate global industrial markets. And since the end of the cold war, Japan has tried to convince China, Russia, and other emerging market economies to follow its ``model'' rather than Western-style capitalism. A history of how Japanese companies were coached to become global exporters by the Ministry of International Trade and Industry (MITI) - written by MITI itself - is being translated into several languages.

Within the World Bank and other multilateral institutions, Japan has tried to quietly win converts to its economic ways and to tilt lending to developing nations in favor of government-led industrial policies. But MITI's success has ``bedeviled'' Japan since the late 1970s, the Bank's study concludes. Japan's trading partners have protested loudly, and MITI now uses industrial policy ``to prevent trade conflicts and to control and limit the damage from those that occurred.''

MITI's adaptability has been essential to Japan's success. A common thread among East Asian policymaking, the report states, has been the ``pragmatic flexibility with which governments tried policy instruments in pursuit of economic objectives.'' When South Korea and Malaysia found that promoting heavy and chemical industries were too much of a fiscal burden, they changed tack. Singapore shifted from repressing wages to promoting rapid wage growth to force companies to raise productivity.

The Bank uses the phrase ``high performing Asian economies,'' to group together Japan, Hong Kong, South Korea, Singapore, Taiwan, China, Indonesia, Malaysia, and Thailand. These countries have grown more than twice as fast as the rest of East Asia, roughly three times as fast as Latin America and South Asia, and five times faster than sub-Saharan Africa.

Despite the absence of a model, East Asia has lessons to teach. High growth was achieved by ``getting the basics right,'' such as macroeconomic stability, education of workers, secure financial systems, high savings rates, an effective bureaucracy, and ``superior'' accumulation of capital. But the study finds no proof that government intervention in the marketplace was a cause of high growth. Little evidence can be found that industrial policies altered the structure of industry or raised productivity. Attempts to transplant such practices outside the region ``have often failed,'' the study finds.

While the bank warns of high risks if a government intrudes on market decisions, it nonetheless finds that East Asia's success lies in official commitments to export promotion. But Japan's path to export success before the 1980s cannot likely be imitated in today's different international trading climate, the study warns.

``That doesn't mean that the export push can't be achieved, but that it probably needs to be achieved in a more broad-based, market-oriented manner than was the case for Japan and Korea or Taiwan during their takeoff,'' Mr. Page states.

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