Chapter 5. The Myth of Asia's Miracle

Chapter 5 HEADLINE: The Myth of Asia’s Miracle

A CAUTIONARY FABLE: Once upon a time, Western opinion leaders found themselves both impressed and frightened by the extraordinary growth rates achieved by a set of Eastern economies. Although those economies were still substantially poorer and smaller than those of the West, the speed with which they had transformed themselves from peasant societies into industrial powerhouses, their continuing ability to achieve growth rates several times higher than the advanced nations, and their increasing ability to challenge or even surpass American and European technology in certain areas seemed to call into question the dominance not only of Western power but of Western ideology. The leaders of those nations did not share our faith in free markets or unlimited civil liberties. They asserted with increasing self-confidence that their system was superior: societies that accepted strong, even authoritarian governments and were willing to limit individual liberties in the interest of the common good, take charge of their economics, and sacrifice short-run consumer interests for the sake of long-run growth would eventually outperform the increasingly chaotic societies of the West. And a growing minority of Western intellectuals agreed.

The gap between Western and Eastern economic performance eventually became a political issue. The Democrats recaptured the White House under the leadership of a young, energetic new president who pledged to “get the country moving again”—a pledge that, to him and his closest advisers, meant accelerating America’s economic growth to meet the Eastern challenge.

The time, of course, was the early 1960s. The dynamic young president was John F. Kennedy. The technological feats that so alarmed the West were the launch of Sputnik and the early Soviet lead in space. And the rapidly growing Eastern economies were those of the Soviet Union and its satellite nations.

Were you tricked by this fable? Did you think that the “Eastern economies” that the author, Paul Krugman, referred to in the beginning were the Asian economies? Krugman is using this rhetorical trick to suggest that the high growth of the Asian economies is not too different from the growth of the Soviet Union in the 1950s and 1960s, which was due to capital accumulation but without much productivity growth. Other economists disagree and believe that Asian growth is due in significant part to improved productivity, in addition to capital accumulation.

Source: Excerpted from Paul Krugman, 1994, “The Myth of Asia’s Miracle,” Foreign Affairs, November/December, 63–79. Reprinted by permission of FOREIGN AFFAIRS, November/December. Copyright 1994 by the Council on Foreign Relations, Inc. www.ForeignAffairs.com.

Question 1

Question

What’s the central reason for the Headline’s concern over “capital accumulation … without much productivity growth”?

Question 2

Question

Are you convinced by Krugman’s parallel between the rapid growth of the Soviet Union in the early 60s and the Asian economies in the 90s?