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A 2 pages term paper on The Myth Of Asia’s Miracle:
A Review

     Paul Krugman’s controversial article, "The Myth of Asia's Miracle," which got everyone to sweat, was published in 1994 in the American journal, Foreign Affairs. His contribution, he says, was "to find a way to catch people's attention". His idea was to point out the similarities between contemporary western euphoria about East Asia's growth prospects and the anxiety in the 1950s and 1960s about the Soviet Union's apparently looming economic pre-eminence. Mr. Krugman argued that there had been no economic miracle in East Asia. The region's growth, he said, had largely been achieved through heavy investment and a big shift of labour from farms into factories, rather than from productivity gains based on technological advance or organizational change. He outrageously compared the Asian economies to the Soviet Union and came up with an opinion that once inputs are exhausted and capital-to-output ratios rise towards rich country levels, diminishing returns will set in and growth will slow sharply. 

     Even though recent trends might appear to confirm this thesis. The article summarized research by Alwyn Young of Boston University and Larry Lau of Stanford, who suggested that Asian growth, impressive as it was, could mostly be explained by such bread-and-butter economic forces as high savings rates, good education, and the movement of underemployed citizens into the modern sector. What they found was that once you took account of the growth in these measurable inputs, you could explain most, and in some cases all, of the growth in output. What Young and Lau found was that Asian growth has so far been mainly a matter of perspiration rather than inspiration of working harder, not smarter. These results were and are controversial partly because many people don't want to believe them and are eager to accept contrary calculations.

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The Idea And The Controversies

     According to Krugman, there is nothing miraculous about Asian economic growth. It is déjá vu, a reminder of the incredible growth rates of the Soviet Union in a bygone era (1920-1990). Krugman sees surprising similarities between East Asia and the former Soviet Union. Both engaged in an "extraordinary mobilization of resources." In the case of the Soviet Union, Krugman notes, "Stalinist planners had moved millions of workers from farms to cities, pushed millions of women into the labor force and millions of men into longer hours, pursued massive programs of education, and above all plowed an ever-growing proportion of the country's industrial output back into the construction of new factories." (Source: www.libertyhaven.com)

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     According to Krugman, East Asian leaders have been just as authoritarian, pushing more of the population to work, upgrading educational standards, and making an awesome investment in physical capital. Moreover, Krugman also noted that like the Soviet Union, growth in East Asia is likely to diminish, due to limits on labor and capital. Krugman quoted, "it is likely that growth in East Asia will continue to outpace growth in the West for the next decade and beyond. But it will not do so at the pace of recent years." (Source: www.libertyhaven.com)

  • Some economists say his numbers are just plain wrong. He concedes that it is unknown how to increase his measure of efficiency, total factor productivity (TFP). But he argues that it is possible to construct reasonably reliable indices of inputs. Add these up, and you find that inputs have grown no slower than output. TFP, therefore, has not grown at all. Whereas other studies, however, including one by the World Bank, have produced higher TFP figures for East Asia.

  • Others are criticizing Krugman’s opinion making about Asia's economic growth, that is projecting a past trend into the future. Officials say that past increases in inputs, especially in education, will lead to future increases in TFP. There is a commonsense appeal that international competition will force them to improve efficiency. Not necessarily, according to Mr. Krugman, raising efficiency is much harder than increasing inputs. Krugman is not arguing that the Asian boom is over, merely that it will slow down. Many in Asia did not quarrel with his suggestion that the average annual growth rate for China's economy, for example, is likely to be closer to 7% than 10% between now and 2010. On this assumption it will not, by that date, be larger than the United States' 2010 economy.

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     Without the Asian miracle we might never have heard of Asian values. The self-confidence generated by spectacular economic growth was in part responsible for the attempt to list the moral, social and political ingredients in Asia's recipe for success. So when a bright young American economist tried to throw some light on Asia’s boom and suggested it’s future, his critics were motivated by more than professional disagreement. In some parts of Asia, his analysis was seen as part of a western backlash against a region that had grown too big for its boots.

     Paul Krugman acknowledges that he did not think up all the ideas for this article. It just happened. In that sense, Mr. Krugman has not so much debunked the myth as fostered it, by providing a single explanation for the "miracle". But he has also sounded a warning. He says the Soviet Union is perhaps not as good an analogy as Brazil before its debt crisis, when, from the mid-1960s, its economy grew 11% a year for a decade. Naming no names, Mr. Krugman mentions some "truly impressive" Asian current-account deficits. "It would be surprising if there weren't one or two Brazils out there."

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Works Cited

          Internet Sources: Retrieved from the World Wide Web on November 24, 2001

  • www.time.com/time/asia
  • web.mit.edu/krugman/www/myth 
  • www.worldbank.org/wbi/edimp/eastasia/bib
  • www.libertyhaven.com
  • www.faculty.darden.edu
  • www.ucg.ie/ecn/staff/kane/ec301/readings

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