How Asia Works

Named by Bill Gates as one of his Top 5 Books of the Year
An Economist Best Book of the Year

In the 1980s and 1990s many in the West came to believe in the myth of an East-Asian economic miracle, with countries seen as not just development prodigies but as a unified bloc, culturally and economically similar, and inexorably on the rise. In How Asia Works, Joe Studwell distills extensive research into the economics of nine countries—Japan, South Korea, Taiwan, Indonesia, Malaysia, Thailand, the Philippines, Vietnam, and China—into an accessible, readable narrative that debunks Western misconceptions, shows what really happened in Asia and why, and for once makes clear why some countries have boomed while others have languished. Impressive in scope, How Asia Works is essential reading for anyone interested in a region that will shape the future of the world.

SAMPLE CUSTOMER REVIEWS –

1) Outstanding! - Author Studwell argues that there are three critical interventions that governments can use to speed up economic development. Used in Japan, South Korea, Taiwan, and now China, they have produced the quickest progressions from poverty to wealth that the world has seen.

The first and most overlooked is to maximize output from agriculture. The second is to direct investment and entrepreneurs towards manufacturing exports. Machines can easily be purchased on the world market, and successful east-Asian governments promoted technological upgrading through subsidies conditioned on export performance. (Exporters were almost invariably better businesses than firms that sold only at home.) The third is to focus capital on the fastest possible technology learning and the promise of high long-term profits, not short-term returns and individual consumption. This tends to pit the state against many businessmen and consumers with shorter-term horizons.

Thus, economic development is as simple as one, two, three. Unfortunately, wealthy nations and their economic institutions (the World Bank, the International Monetary Fund) have provided contradictory advice to poor states, despite the fact that no significant economy as ever developed successfully via free-trade and deregulation from the beginning - including the U.S. and Great Britain. Positive intervention has been required in agriculture and manufacturing that fostered early accumulation of capital and technological learning.

Brazil is the only major economy outside east Asia which has grown more than 7%/year for over 25 years. But it crumbled after the 1982 Latin American debt crisis - currency depreciation, inflation, and years of zero growth. Too much of Brazil's earlier growth came from debt that did not translate into a more productive and competitive economy.

Studwell excludes east Asia's failed states - North Korea, Laos, Cambodia, Myanmar, and New Guinea. Their one common characteristic is a failure to trade and interact with the world. He also ignores Asia's two main offshore financial centers - Hong Kong and Singapore because of their lack of an agricultural sector. Micro oil state Brunei and east Asia's gambling center, Macau, are also omitted.

Another key finding is that a large working-age population and proportion increase the possibilities for fast growth. Rapidly declining death rates, especially for children and a rapidly rising work-age population have been a big part of east Asian development success since WWII. Mao boosted population growth in China, telling people there was strength in numbers, while Deng Xiaoping and successors put a stop to that.

The evidence of a positive correlation between total years of education and GDP growth is much weaker than most imagine. The Philippines have the highest levels of tertiary-educated students in southeast Asia, but because more important policy choices were flunked, the country is on the verge of becoming a failed state. Cuba has the world's second-highest literacy rate for children over age 15, and the 6th highest rate of school enrollment. It has inadequate employment opportunities for university graduates, however - one reason 25,000 Cuban physicians take state-subsidized work overseas. Another problem with education - there is too much of the wrong kind - eg. liberal arts. Asian education not only creates a much higher proportion of engineers than most, it also includes a considerable vocational component conducted inside firms and not elite universities.

Political pluralism, rule of law, and democracy are also outside Studwell's scope - again, because the evidence is contradictory. He also ignores geography/climate - most believe colder climates are more conducive to economic success - Studwell, however, points out that the Arabic world's ascension in the early 8th century began in the hot areas of today's Iraq and north Africa, while the famous Tang dynasty operated out of the 'boiling hot Xian' area.

Studwell then goes on to detail the rationale for his thinking - its both interesting and invaluable reading.

By Loyd E. Eskildson HALL OF FAME on June 19, 2013

2) Industrial policy works - This book argues among other things that that protectionism and industry policy are important policy tools for countries at an early stage of development, and that Asian governments have adopted this model with varying degrees of success. Heretical as this claim may be to some, in my opinion it is not even worth debating whether or not the most advanced economies achieved success under "Smithian" conditions.With the possible exception of a few, small trading entrepots, there is not a single example of a country that did. There are rich countries that were "Smithian" (like, laissez-faire Haiti -- if you don't count slaves of course -- in the late 18th Century), but their wealth was unsustainable and they were in no way "advanced" economies.

You can find it all in the works of the brilliant Alexander Hamilton. The "American System" of the early 19th Century was the basis of the economic writings of the German Freidrich List and which went on to influence Germany, Japan (in 1872 one of the leading proponents of the American System, E. Pechine Smith, moved to Tokyo and became the leading adviser to the Mikado on Japan's economic restructuring), and a host of other countries. The three pillars of the American System were infant industry tariffs and subsidies, internal improvements (i.e. infrastructure provided by state and local governments) and a sound system of national finance, with the state playing a leading role.

These are the same pillars that supported the growth of every country that has developed rapidly, and the fact that this is even debated in economic circles suggests to me how unreal academic economics has become and how divorced from historical understanding. I agree with the authors that to debate whether or not industrial policy can work is silly. Of course it can. The real interesting question is to figure out under what conditions it is wealth enhancing and under what conditions it is wealth destroying. This is why the debate is so important for China. The Chinese growth model clearly "worked", I would argue, in the 1980s and 1990s, although in part simply because it involved a rejection of the insanely inefficient polices of the 1950s, 1960s and 1970s. Today, in my opinion, it clearly no longer "works". So why did it sometimes help and sometimes hinder Chinese development?

Unfortunately it is very hard to debate this question because most economists are either ideologically committed to the idea that it is almost always a bad idea (the consensus in economics) or to the idea that it is always the right approach (perhaps the consensus in political economy or economic history). The truth, however,may be that sometimes it works and sometimes it doesn't. Although I don't always agree with Joe Studwell's conclusions. this book does a great job of teasing out the important and relevant issues.

By Michael Pettis on July 11, 2013

For Detail

                                                                  

Click –How Asia Works