Introduction
South East Asian countries (China, South Korea, Japan and Taiwan) have been the object of economic discussions over the past decade. This began in the nineties where experts called these countries ‘economic miracles’. However, in the late nineties, these countries begun underperforming after the vulnerabilities of their economical and political reforms were exposed. In the late nineteen nineties, the Asian crisis sparked off a lot of debate about the problems of the South East Asian economic and political agenda. Many experts began prescribing new approaches that would deal with the crisis. Some of them prescribed reformist agendas that would prepare these south East Asian countries for future effects of globalization. The essay shall examine the legitimacy of these prescriptions and give recommendations on the way forward. (Winters, 2000)
How East Asia performed before the economic crisis
The forces of globalization propagated East Asia’s economic success. Globalization in this context refers to the unprecedented mixing of cultures, technology, manpower and resources from different parts of the world; a phenomenon brought on by Information Technology, the end of communism and the shift towards free market forces. The overall effect of globalization within the South East Asian countries was a rapid increase in the standards of living for a large portion of the region. It also led to increased literacy levels within the countries hence a high quality labor force. On top of this, the South East Asian economies boasted of better health. (Sell, 2000)
Two major ‘recipes’ were crucial to the economic success of the early nineties. These were summarized in the World Bank report (1993) known as the East Asian miracle. The two issues were; solid macro-economic policies and government intervention. The report studied the overall patterns used by eight South East Asian countries and found that these respective governments did the following. First, they reduced fiscal spending and encouraged greater savings. Those savings were then redirected into infrastructural development and export growth. The South East governments demonstrated to the world just what could occur when the government collaborated with the private sector with the aim of improving their economy. Besides this, the government introduced flexibility within the labor markets and also changed their credit markets. It should be noted that this latter aspect was the object of great debate after the Asian crisis.
South East Asian countries reaped the benefits of these reforms because their capital flow increased adversely as was seen in GDP growth rates of close to five point five percent annually. Additionally, these countries could also boast of greater foreign investments and increased productivity within their local environments. Because of the savings culture adopted in the fiscal markets, the countries could provide stable economic environments for greater exportation. This was the point at which major sectors of their economies began opening up to the world. One particular area that depicts these changes was the industrial sector. However, some critics assert that these policy reforms brought on the problems that the country experienced in the late nineties because they ended up benefiting the elite. (Higgot, 1999)
Causes of the South East Asian crisis
Globalization was the key factor propellant of the South East Asian economic and political boom yet at the same time, it was one of the major reasons for its downfall. Through globalization, the South East Asian countries began operating in extremely competitive markets. The countries that had traditionally dominated the world markets were facing threats from these emerging economies. Consequently, the traditional countries started making their own changes. They did not want to be displaced by the emerging economies.
Despite the latter fact, there was another more serious reason that cased the 1997 Southeast Asian crisis. This was the susceptibilities of the Asian markets’ macro economic forces. Many critics have asserted that the South East Asian models was very effective at mobilizing resources but was very poor at controlling those resources that needed to be controlled. For instance, there were no set regulatory mechanisms for choosing the most productive areas of the economy. As matter of fact, key industries were left out in these capital allocations thus leading to plummeting prices and poor service delivery. Examples here include the energy sector and the telecommunications sector. One cannot undermine the importance of these two areas to the economy yet the Asian continent had been very poor at implementing changes here. As a result, the countries could not eliminate the underperforming sectors of the economy thus allowing them to drag other parts of the system too. (Rhodes, 1997)
Other critics also assert that the Asian economies missed the mark when it came to local manufacturers and businesses. The countries had tried protecting their local manufacturers while at the same time promoting exportation. This increased the level of assets within the country without due consideration as to which assets were more profitable to the respective countries. Most of them grew their economies but failed to consider the issue of equity.
Possible reforms
Some experts have suggested reforms that could assist South east Asian countries in the process of restoring back their past economic successes. However, suggestions made by these experts were not well received by the Asian counterparts. Part of the reason for their lukewarm response is because the South East Asian model of economic and political reform created a system that encouraged elites within the system. These elites wanted to maintain their positions and they have the capacity to do so. Consequently, suggesting reforms through aggressive economic and political transformation will be extremely difficult to implement owing to these powerful elites. (Winters, 2000)