[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

closing this gap, with remarkable success. Some countries, like Singapore,
encouraged foreign firms to invest directly, bringing with them access to
foreign markets as well as new technology. Other countries, like Korea,
focused on licensing new technologies from the more advanced countries.
• Political and social stability, which provides an environment conducive to
investment.
So impressive have the outcomes in East Asia been that many refer to them as
the East Asian miracle. Some economists, however, find nothing miraculous in them—
the growth can be explained largely by standard economics of the kind that we have
studied in this text (see Chapter 27). High saving rates, high investment in both
capital and education, and knowledge are part of the standard recipe. Still, one
point argues for a miracle: no other set of countries has been able to achieve
similar outcomes.
Underlying these successes were both good policies (such as those that led
to macroeconomic stability) and strong institutions (such as newly created financial
institutions that allocated the capital well). Three features of East Asia’s
development strategy deserve special attention: the roles of government, exports,
and egalitarian policies.
The Role of Government Perhaps the most distinctive feature of the East
Asia model was the balance the countries achieved between the role of the state and
the role of the market. Their governments pursued market-oriented policies that
encouraged development of the private sector. They sought to augment and “govern”
the market, not to replace it.
They also fostered high saving rates—often in excess of 25 percent. In Japan,
more than a third of these savings went into accounts at the postal savings banks
established by the government. In Singapore, the government established a
provident fund, to which all workers were required to contribute 40 percent of
their income.
These governments also influenced the allocation of capital in myriad ways.
Banks were discouraged from making real estate loans and loans for durable consumer
goods. This action helped to increase private saving rates and to discourage
real estate speculation, which often serves to destabilize the economy. As a result,
more funds were available for investment in growth-oriented activities like purchasing
new equipment. In addition, governments established development banks to
promote long-term investment in sectors such as shipbuilding, steel mills, and the
chemical industry. These interventions have been more controversial, and their success
has been mixed. On the positive side, the steel firms in Taiwan and Korea are
among the most efficient in the world. With more mixed results, the Japanese and
Korean governments took a variety of initiatives to promote certain industries,
including the computer chip industry. By the early 1980s, Japan seemed poised to completely
dominate that market. During the late 1980s and early 1990s, a series of
agreements reached between Japan and the United States lowered tariffs on semiconductors
and allowed U.S. manufactures access to the Japanese market. These
800 ∂ CHAPTER 36 DEVELOPMENT AND TRANSITION