Impact of Asian model of development

Impact of Asian model of development

The rise of the “tiger” economies of Singapore, Hong Kong, South Korea, and Taiwan led to the idea of an Asian model for growth. Which they dubbed it as the East Asian Miracle by the world bank (Hort & Kuhnle, 170). These countries used an economic system, where the government chooses the sectors in the economy where they will invest. The impact of the investment is that it will stimulate the growth of new industries in the private sector. Some of the aspects associated with the East Asian model include; strategic areas in the state-owned enterprise receive direct support from the government. They depend mostly on the export market for high savings and growth.

The entry of the Asian financial crisis led to the destabilization of the Asian economy. The financial crisis began in Thailand and later spread to the neighboring economies in the region (Haggard). The crisis started after Bangkok decided to unpeg the Thai baht from the United States dollar. Indonesian rupiah decreased by 80 percent; South Korean dropped by 50 percent, Thai baht dropped by 50 percent, and the Malaysian ringgit dropped by 45 percent in the first six months. The economies realized they had a drop-in capital flow by more than $100 billion in just one year (Ito, 250). After the invasion of the financial crisis to Russian and Brazilian economies, they saw it as a global crisis. This paper disagrees that the Asian model of development still holds relevant and positive lessons for today’s developing countries. The monetary and political advancements influence most creating nations like East Asian nations. Most producing nations utilized liberal exchange strategies until World War 1; they were sending out farming products and bringing in assembling the merchandise. Issues changed to move from trade arranged interests to import-competing makers. Along these lines, the state had an improvement approach; it drove fast industrialization; additionally, the government put exchange boundaries and arrangements for speculation. It also disagrees that, the model is an easily replicable one. It even disagrees that countries can possess and develop the domestic attributes and institutions that the East Asian nations utilized. It also differs that developing nations can still draw a lesson from this model to enable them to industrialize and develop.

The East Asian financial crisis showed how the state could not be replied to in performing regulatory functions (Claessens et al. 30). Most of the rules were unable to control the forces of globalization from the international actors. It also displayed the crisis of a state in terms of failing politically. Most of the Asian countries we unable to resist the global Monetary Fund, whose attention showed that the government had no control over its monetary flow. In the case of Indonesia, the failures of the state led to the downfall of Suharto. He had dominated the politics in Indonesia for more than 30 years. It was as a result of the economic crisis turning into a political crisis. There was polarization on interpretations between those who saw the roots of the crisis as domestic. But we had those who saw the issue as an international affair. The neoliberalism viewed the crisis as homegrown; they blamed the state for crony capitalism for the crisis. Another challenge that came with the crisis is that the IMF came in with a lot of conditions; they aimed to eliminate the close government-business relationships, which significantly defined the East Asian development. Their main objective was to replace Asian capitalism with what the neoliberalists believed in. The critics of neoliberalism focused on power structures and the political economy. The international monetary fund prescription brought more problems to the countries compared to the good. Some of the orders included the medicine designed for Latin America to East Asia. The criticisms diminished the dignity of the IMF, leading to debate for new international bodies to regulate the global economy. It shows the negative side of the Asian model, since, the governments who had adopted the model were unable to control their savings. This led to interventions of external global forces that portrayed the states as weak and unable to control their cash flows.

The East Asian countries had the aim of having financial liberation. But this created flows that resulted in the states having substantial bank loans, making most of the countries ending up with foreign debt. Most of the East Asian countries had the greed to have economies grown at a fast rate. This would enhance their economic development, but in doing so, they go themselves having substantial foreign debts. This led to the countries facing had economic times; this led to the overtaking of the value of foreign exchange assets. In a move to help stabilize their economies, most of the countries responded by reducing liquid foreign exchange reserves to protect their currencies. It harmed their currencies; most of the states lost the values of their currencies against the US dollar. The adoption of the model led to inflation in most of the countries. It affected most of the development goals that had been set by the countries. It is noted that the model brought the fall of most of the states economically.

The modeled to both the gross domestic product and export collapsing. The model made most of the countries to accumulate debt to foreign countries, which in turn led to massive foreign direct investment. When the investors and the countries drew out the investment money, it led to rapid flow out from various states. The ability of the countries to produce internally was affected, leading to a decline in the GDP. The inadequacy of internal production led to the state unable to provide a product for export. Export is the main specialization of the model made the countries unable to sustain their needs. All this factors led to the countries lacking employment opportunities, which were mainly caused by the growth of industrialization and an increase in investment in the states. The countries now faced high rates of unemployment, and people unable to cater to their needs.

The model also caused the countries to face the demand-pull inflation, which leading cause is the rise in prices of goods and services. The decline in the production levels in the states led to a decrease in assets. This led to a high demand for the limited rights that existed in the economy. Since the producers couldn’t meet the needs of the consumers, that meant most of the people were unable to access goods. The countries were unable to boost the supply of products since the manufacturing companies had collapsed. And due to the failure of production companies, the output of the state failed to grow. This factor shows how the model made it hard for people to continue serving in these countries. The livelihood of most people fell below the set standards that people should live in.

The model illustrated that promoting economic stability is regionally and international very hard to achieve. It also showed that financial stability is harder for developing countries than in developed countries. It can be noted that the middle-income developing countries’ inflation and stabilization are very different from the developing countries and advanced countries. According to Wade, all developing countries need to protect themselves, and they should always consider the impact of the Asian crisis. Some of the lesson learned is that countries should focus on the outward policies compared to the inward systems. Another lesson learned is that the export orientation policy results in uncertainties; it usually makes the economy vulnerable to contagion in economics.

The newly developing countries should emulate this development model. According to the Asian Model, when the government was involved in the direction to which its economy should take, it brought many investors to its countries. The significant number can see it of investors that moved into the states to invest. It is also noted that the government was involved in borrowing money from other countries that enabled their lands to grow and increase productivity. The government made the final decision in this state; hence, it was hard to have external forces to change the decision. The government made it easier for investors to invade the countries because of the policies that mostly favored them. The increment in investors created room for industrialization in the country (Wade). It created place for employment that helped the countries cut the unemployment rate; it also helped the living standards of people to rise. The creation of new jobs also influenced the growth in the county’s gross domestic products, which increased the productivity of the country.

The global market became saturated with export goods since all the countries from East Asian decided to focus on export. The states had taken loans from foreign countries, so us to enable them to invest. Most of the countries mostly spent in the manufacturing industries, hence the high production rate for export goods. This led to the price of the rights to drop because of low demand from the export market and products retailing at lower prices. Generally, the production of goods increased. We can not assume that the model encouraged labor exploitation, since, the fact is that the developments created employment among the members of the community. Many companies needed labor, and labor was readily available. The industries also gave the workers opportunities to be able to sustain themselves from the income they got. It enables countries to grow fast at a significant rate. The developing countries should now use the model to facilitate the growth in industries. which will in turn create employment, produce goods for its people and develop relationships with foreign countries.

Bibliography

Claessens, Stijn, Simeon Djankov, and Lixin Colln Xu. “Corporate performance in the East Asian financial crisis.” The World Bank Research Observer 15.1 (2000): 23-46.

Haggard, Stephan. The political economy of the Asian financial crisis. Peterson Institute, 2000.

Hort, Sven Olsson, and Stein Kuhnle. “The coming of East and South-East Asian welfare states.” Journal of European Social Policy 10.2 (2000): 162-184.

Ito, Takatoshi. “Capital flows in Asia.” Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies. University of Chicago Press, 2000. 255-296.

Wade, Robert. Governing the market: Economic theory and the role of government in East Asian industrialization. Princeton University Press, 2004.