Astounding Japan, South Korea, Taiwan, and China

Across the history of mankind there are few more fantastic stories of economic transformation than the four Asian Tigers, followed by the stunning economic development of China.

It may be hard to comprehend the poverty across China in the 1960s, 1970s, and 1980s. Since the early 1990s over five hundred million in China have lifted themselves out poverty. They follow the path tens of millions took from poverty to prosperity decades earlier in Hong Kong, Taiwan, South Korea, and Singapore.

For a recent Middle East debate topic, students could draw from the success of Hong Kong, Singapore, South Korea, and Taiwan. Hong Kong was a refugee camp in the 1950s, yet its economy grew rapidly even as millions more impoverished refugees arrived from Communist China. (And in Could Refugee Camps be Startup Cities?, the case is made that refugees in camps across the Middle East and Africa could have similar prosperity if allowed similar economic freedoms.)

Japan’s economy, like West Germany’s, grew spectacularly after being bombed flat in World War II. Economists attribute much of this success to the fact that before the war Japan and Germany were industrialized, so had the culture and traditions of developed economies.

Not so for Taiwan and South Korea, both poor countries in the 1950s and 1960s, along with Hong Kong and Singapore. Long impoverished people in these countries worked their way from poverty to prosperity in a generation, and have continued becoming freer and more prosperous ever since. Significant investment and expertise from these countries led the surging economic development across China since the 1980s. (The overseas Chinese played a major role, and William Overhold explains in his book The Rise of China.)

From the 1960s to 1990s, governments across the Middle East and Africa were accepting western economic advice and millions of foreign aid dollars for plans for developing their economies from the top-down. Most of these countries stifled domestic enterprise with taxes and regulations, and blocked or corrupted foreign direct investment.

In East Asia, as governments of the Four Tigers opened their economies significantly to foreign investment, prosperity followed.

Here is a campaign speech from long ago 1980 by Singapore’s Lee Kuan Yew:

“You got on the one hand, the Open Free Market System in America, you have on the other hand, the exact opposite, the closed, controlled, command economy of the Soviet Union, Communist Russia…

The Chinese tried the Communist model, with their own modifications, and it failed! And they have admitted that it failed, and they’re trying to pick up the same competitive spirit between workers, between different enterprises, which they noticed in Hong Kong, so they have opened a new town on the border with Hong Kong called “Shamchun” (Shenzhen in Cantonese) and they’re inducing Hong Kong entrepreneurs to go… and create employment!

This is a worthwhile debate for students to research. Did government-directed investment help these economies develop, or did it hamper and distort development? Much recent research supports the role trade liberalization, where governments “get out of the way” and let people and firms exchange goods and services with people and firms in other countries.

Allowing foreign direct investment along with trade liberalization seems the key to economic development in the Four Asian Tigers and later in China, Thailand, Malaysia, and Vietnam. Recent economic research is presented in the Development and Trade presentation in the Marginal Revolution University course discussed below. Economic growth came rapidly to China after Deng Xiaoping opened the economy to trade, investments, and markets.

For a fast-paced introduction to the role of trade in Asia’s development, and an introduction to economic history and market principles, see the online video Free or Equal with Johan Norberg, which updates an episode of Free to Choose.

For a whole course of Development Economics, you can take the Marginal Revolution University course online. The entire course is recommended, but students can skip ahead to the trade section, and to the Development and Trade presentation.