The East Asian Miracle Revisited
HONG KONG – Almost two decades ago, the World Bank published its landmark study The East Asian Miracle, analyzing why East Asian economies grew faster than emerging markets in Latin America, Africa, and elsewhere. These economies, the study concluded, achieved high growth rates by getting the basics right, promoting investment, nurturing human capital, and opening up to export manufacturing.
But that was not all. The World Bank also acknowledged, grudgingly, that governments intervened – systematically and through multiple channels – to foster development, including in specific industries in specific locations via subsidies, tax incentives, and financial repression.
In the intervening years, particularly after the Asian Financial Crisis, the pro-market, anti-intervention Washington Consensus fell out of favor. A “New Institutional Economics” (NIE) gained ground by filling in the gaps left by mainstream models, which ignored the central importance of institutions in managing the change and uncertainty that affect resource allocation and social choice. Indeed, in light of today’s Great Recession and the current European debt crisis, the main question remains that of the role of the state in promoting growth and development.