The economies of South Korea, Taiwan, Singapore and Hong Kong experienced rapid growth from the 1950s to 1990s and are thus known as the ‘Asian Tigers’.
The term ‘Asian Tiger’ economies references the national economies of Hong Kong, Singapore, Taiwan and South Korea. In the period between the late 1950s and 1990s, many developing countries found it hard to achieve any form of economic growth and development. The ramifications of the second World War, as well as the prompt reduction in imperialism, saw a number of colonies struggle to achieve economic stability in their regions.
Whilst developing countries in South America, Africa and parts of Asia struggled, the economies of Hong Kong, Singapore, Taiwan and South Korea were able to utilize progressive economic models and experienced rapid, sustained growth. Due to their perennial growth during a period of global struggle, these economies were labelled the ‘Asian Tiger’ economies.
What is an economic model?
An economic model is the strategy chosen by the government of a country in order to stimulate economic growth within that nation. An economic model is utilized to benefit companies within the country and promote their growth.
There are two basic economic models that economies follow—a Neoclassical model and an interventionist model. A neoclassical model states that the government and central banks of a country should not intervene in the markets of the country. Instead, the government should allow competition within markets to drive economic development. Competition influences firms to innovate and become more efficient, stimulating progress and profit.
An interventionist model, as the name suggests, states that the government and central bank should utilize policies that would alter the demand and supply within any market. Governments can utilize investment-based policies and provide subsidies. A subsidy is a given amount of money provided by the government to a business in order to promote its growth. A central bank can utilize policies, such as interest rate policies, that can make borrowing money easier for business, helping them fund their growth. An interest rate is the percentage of money that a business must pay back on top of the amount borrowed.
These are the two basic models, each of which may contain countless other policies that nations can utilize in order to achieve economic development.
Asian neoclassical approach
Across the four economies of South Korea, Taiwan, Singapore and Hong Kong, there was evidence of both neoclassical and interventionist policies being applied.
In terms of the neoclassical approach, these economies implemented policies that provided a stable and enriching business environment. All the economies had low and stable interest rates, which allowed businesses to borrow money easily. If interest rates kept changing, business wouldn’t know when it was ideal to borrow, which would cause less borrowing. Thus, stability in the interest rate of an economy is critically important. The governments of these countries also focused on maintaining less volatility in their currencies. This provided confidence to businesses that wanted to trade abroad, as the value of their currency would not change drastically.
Hong Kong’s path to industrialization is an example of a successful implementation of the neoclassical economic model. The government focused on maintaining the perfect business environment within the economy. The effect of the market forces in these favorable conditions allowed for the economy to thrive, as competition between firms encouraged innovation and the expansion of key industries.
Although neoclassical policies nurtured the economic growth of the Asian Tiger economies, interventionist policies also played a critical role in their development. Under the interventionist model, governments are able to invest in industries that would otherwise be unable to grow. Western industries were far more advanced at the time, and could therefore manufacture products at lower prices. Without investment from the government in the form of subsidies, companies in the east would not be able to compete with their western counterparts.
This unique usage of ‘control mechanisms’, however, fostered growth at a rapid pace. Strategies within these mechanisms involved the state setting economic targets for firms and providing subsidies in exchange for the firms meeting those targets. Over time, the state increased the target requirements in order to continue pushing business towards innovation.
South Korea’s economic model put an emphasis on interventionist strategies. The country focused entirely on promoting exports and utilized policies to alter their comparative advantage in the market. This export-based interventionist approach allowed South Korea to expand strategic industries. As a result, they experienced immense levels of growth in a relatively short period of time.
Why couldn’t other countries do the same?
After the success of these Asian economies, wondering why other countries couldn’t also utilize such policies to promote growth is a valid thought. For one, excessive bureaucracy within governments in Latin America and Africa is and was common during the same historical period. Rather than utilizing funds to invest in the economy, government officials often used them for personal gain. Other regions of the world also suffered from political instability. Due to the lack of cohesion within those countries, policies outlined by the government were ineffective and didn’t stimulate economic growth.
The story of the Asian Tiger economies highlights an era of great change and highly effective economic models. Regardless of which economic model represented the more effective form of change, all of the Asian Tigers utilized both neoclassical and interventionist policies in a cohesive manner on their path to achieving industrialization and global economic significance.