Some countries have opted to “skip” some of the industrial portion
Evolutionary economic cycle and go directly to investing in information and knowledge industries. They educate their workforce and retrain it accordingly. They invite multinationals – using a cocktail of tax incentives and direct grants and subsidies – to open back office operations (accounting, administration) and telemarketing operations in their countries. This calls for lower investment than in classic (or sunset) industries and has a high value added to the economy. But the single largest driving force behind economic recovery is foreign capital. Foreign Direct Investment (FDI) is pouring in and with it.Nnew markets, technology transfers through joint ventures, new, attractive product mixes, new management, new ideas and new ownership clear and decisive. So, industrial production is picking up and will continue to grow briskly in all countries in transition that have the peaceful conditions necessary for long term development. If Macedonia will follow the examples of the Baltic countries, of Poland, the Czech Republic, Hungary, Slovenia, even Russia, Ireland, Egypt, Chile, Indonesia, Israel and the Philippines – it will double its industrial production within 10 years and redouble it again in 15 years. But was their secret? How come Hong Kong and Singapore are richer than Britain by some measures? Together with South Korea and Taiwan they have been growing at an average rate of 7.5% annually for the last 30 years. China, Indonesia, Malaysia, Thailand, The Philippines have joined the "Asian Tigers" club.
Massive injections of labour (by massive immigration from rural areas to the cities, urbanization). Massive injections of capital and technology. The above injections were financed by an exceedingly high level of savings and investments (savings amount to 35% of GDP, on average).
Wise government direction provided through a clear industrial policy. This, though, is a double edged sword: a less wise policy would have backfired with the same strength. A capitalist, profit seeking mentality. An annual increase of 2-3% in productivity which is the result of copying technology and other forms of technology transfers from the rich West. Strong work, family and society ethics within a cohesive, conformist and supportive social environment. Low taxation and small government budgets less than 20% of GDP compared to twice as much in the West and 3 times as much in France today. Flexible and mobile labour and capital markets. When mobility or flexibility are restricted Japan it is the result of social treaty rather than of legislation, regulation, or other statist intervention. A firm, long lasting commitment to education and to skill acquisition, even in hard circumstances. The number of educated people is low but growing rapidly, as a result. Openness to trade, knowledge and to technology. Imports are composed mostly of investment goods and capital assets. The culture of conspicuous, addictive or even normal consumption is less developed there. Still, these countries started from a very low income base. It is common economic knowledge that low income countries always grow fast because they can increase their productivity simply by purchasing technology and management in the rich country. Purchasing technology is always much cheaper than developing it while maintaining roughly the same economic benefits. Thus, Hong Kong grew by 9% in the 60s. This growth coefficient was reduced to 7.5% in the 80s and to 5% in the 90s. But China, Malaysia, Thailand and Indonesia are likely to grow annually by 7-9% during the next decade.
Not that these countries are exempt from problems. The process of maturation creates many of them. There is the dependence on export markets and volatile exchange rates (which determine the terms of trade). When the West reduced its consumption of microchips and the Dollar appreciated by 50% against the Japanese Yen all the tigers suffered a decline in economic growth rates, current account deficits of 5-8% of their GDP, strikes (South Korea) and Stock Market crashes (Thailand, to name but one of many). In Singapore’s and in Hong Kong, the industrial production plummeted by 5% last year (1996). Years of easy money and cheap credits directed by the state at selected industries starved small businesses, created overinvestment and overcapacity in certain, state-supported, industries and destabilized the banking and the financial systems. It helped forge infrastructure bottlenecks and led to a shortage in skilled or educated manpower. In Thailand only 38% of those 14 years old attend school and in China, the situation is not much better. Finally, the financial markets proved to be too regulated, the government proved to be too bureaucratic, corruption proved to be too rampant Indonesia, Japan, almost everybody else. There were too many old conglomerate type mega companies which prevented competition. So, the emerging economies are looking to Hong Kong, Singapore and Taiwan to supply the ideal: truly flexible labour markets, no state involvement, lots of nimble, small businesses, deregulated markets, transigent industrial policies. These countries – and the rest of the Asian Tigers are expected to beat the West at its own game: money. They have many more years of economic growth ahead. Each Korean worker has only 40% of the capital goods, available to his Western comrade, at his disposal. Putting more technology at his fingertips will increase his productivity. An industrial worker in the west has a minimum of 10 years of education. In Indonesia and Thailand he has 4 years and even in South Korea he has merely 9 years. On average, an industrial worker in one of the Asian Tigers countries carries 7 years of education in his satchel hardly the stuff that generals are made of. Research demonstrated that the more educated the worker the higher his productivity. Finally, increasing wages and looming current account deficits will force the tigers to move to higher value added industries (the services, information and knowledge industries). Then, it will be the turn of countries like Macedonia to take their place in some labour intensive areas and to rise to tigerdom.