Going by its dictionary meaning, an economic miracle occurs when a nation-state witnesses unprecedented levels of growth sustained over long periods of time. Four countries in East and Southeast Asia experienced just that – incredible economic growth spanning decades – which ultimately helped them become developed countries with high levels of GDP per capita and excellent human development indices.

As recently as the 1960s, Singapore, Hong Kong, South Korea and Taiwan were all relegated to the definition of the Third World. While the 1950s had seen the Japanese miracle and the Wirtschaftswunder, the four Tigers roared their way to glory starting from the next decade and became advanced economies by the turn of the millennium; transitioning from Third World backwardness to First World affluence in a single generation. In fact, two years ago, the last of the Tigers leapfrogged Japan in terms of per capita income.

All four of the Tigers started as “backward basket cases of underdevelopment,” and each had a colonial past. Hong Kong and Singapore were British colonies while Korea and Taiwan had been colonies of Imperial Japan. In fact, at the height of World War II, they were all under Japanese occupation.

None of the countries was rich in natural resources, with Hong Kong and Singapore being city states with a small land area. Although South Korea was primarily an agrarian economy and Taiwan a self-sufficient food producer, both the city-states imported much of their food requirements. The populations and thus, domestic economic markets were small with low levels of consumption.

The Tigers began their industrialisation in the 1960s with the exception of Hong Kong where it began a decade earlier. At this point in history, the global economy was starting to undergo Post-War recovery and international trade was booming as a result of technological advances. All four nations adopted systemic yet flexible macroeconomic policies over different phases of development, by investing heavily in infrastructure and industrial estates, doling out tax incentives to encourage foreign investment and mandating basic education for the young.

Tiger 1: Hong Kong

A crown colony of Britain, it came under brief Japanese rule towards the end of World War II. After the British regained control, the city-state saw an influx of skilled Chinese migrants who sought refuge from the Chinese Civil War. It then became the first of the Asian Tigers, with industrialisation starting in the 1950s. Construction activity was revamped and the textile industry was given a major boost. As textile exports drove growth, tax incentives and cheap labour attracted investments and the manufacturing industry diversified with an export-oriented outlook. Facing competition in manufacturing from the Chinese resurgence under Deng Xiaoping, Hong Kong shifted focus to trade and financial services.

As a historical trade port with an excellent geo-strategic location, it became a major financial centre and is now home to one of the world’s biggest ports. The GDP of Hong Kong grew by 180 times between 1961 and 1997. While neoliberal accounts cite the city-state as an exemplar of laissez-faire, the state’s allocation of public funds and investments in infrastructure while following positive non-interventionism were crucial to its economic success.

Tiger 2: South Korea

South Korea was surrendered by the Japanese at the end of World War II and came under US military occupation. But at the commencement of 1950, the Korean War wiped out two-thirds of production facilities in the country. Post-war, the agriculture-driven economy remained one of the poorest nations in the world for another decade before the government adopted a policy of import substitution and developed light industries. It then shifted to an export-oriented strategy, the gains from which were reinvested into the development of heavy industries.

The country’s emergence as a leading global manufacturer of engineered goods can majorly be attributed to significant investments in education and training of the workforce that enabled the manufacture of advanced goods with higher value additions. Also, South Korea has followed a flexible interventionist model that only partly conforms to Keynesian thought. Industrial policy has revolved around state-led investment, trade protectionism and liberalisation at different points of time; but with limited role of the Central Bank.

Tiger 3: Taiwan

Similar to South Korea, the Japanese surrendered Taiwan at the end of World War II. The Chinese nationalists established a government-in-exile in Taipei after they were ousted from the mainland by the Communist Party. No aggressive efforts at industrialisation were made until the US threatened to reduce aid, following which there was a boom of light industries for import substitution. Land reforms were initiated which created a class of landowners who used the capital to become entrepreneurs. But the small size of the domestic market and uncertainty over the continuation of foreign aid forced the island country to look outward. Heavy industries were set up and huge investments were made in infrastructure, all with a focus on increasing exports.

Once again, huge investments in human capital and training were fundamental to the growth of the economy. With increased competition in labour-intensive manufacturing from mainland China, Taiwan quickly shifted to manufacture of skill-intensive, advanced electronics, becoming home to much of the world’s semiconductor industry.

Trivia: While following neoliberal market-friendly policies, Taiwan set up state-owned heavy industries, particularly steel, electronics and petrochemical. These weren’t privatised with other state firms because they were believed to be strategically important to regain control over the mainland.

Tiger 4: Singapore

The control of Singapore changed various hands. It was initially a British Colony which briefly came under Japanese rule during World War II before British reoccupation, eventual independence and a subsequent merger with Malaysia. It finally became an independent republic in 1965 post-Malaysian separation.

The city-state had an acute scarcity of land and imported much of its edible requirements. In order to balance trade, the last of the Tigers set up an Economic Development Board and attracted foreign investment using tax incentives. Ever increasing inflows of FDI provided impetus to local manufacturing.

When faced with the challenge posed by Deng’s China, Singapore initially ramped up heavy industries and increased minimum wages to induce a shift to more efficient methods of production. But eventually, it followed Hong Kong’s path, transitioning into a financial centre and a logistics hub. The strategically located deep-water harbour helped the nation transform into a trade hub, while tax incentives induced various companies to shift their headquarters to the country, thus increasing financial trade and making Singapore one of the world’s largest centres of currency exchange.

How is this replicable?

The incredible narrative of these countries’ transition could inspire developing countries grappling with low levels of income around the world. Neoliberal thought would have us believe that these are exemplars of economic progress being brought about using free markets; but timely state intervention and initiative, without translating into overreach, has been fundamental to the growth of these economies. However, the intervention here was not Keynesian but heterodoxical–the administration acted flexibly, adapting to the situation, and with interventions going beyond fiscal measures. They emphasised anti-corruption measures, avoided public debt and encouraged savings in the economy.

As a result, many associate the success of these economies to their good governance and goal-oriented leadership, and the soft authoritarianism prevalent in all of these. These states weren’t democratic and thus, did not need to resort to short-term appeasement of the populace, but these were also not communist nation-states with inflexible, rigid ideologies or autocracies designed to benefit a particular group of people at the expense of the general public.

Links drawn with Confucianism:

Proponents of free markets who are critical of theories of state-led growth believe that the success of the Tigers is not replicable because it can actually be attributed to the countries’ shared Confucian culture. The Confucian concept of nation-family that valued hard work and loyalty towards the state authorities is believed to have induced the populace to sacrifice personal interest for the sake of the country’s long-term growth.

However, this theory is often refuted by citing other nation-states with Confucianism that failed to register significant economic growth. Mainland China, for example, is the birthplace of Confucianism and could not compete with the Tiger economies until the 1970s.

Future of the Tiger economies:

All four Tiger economies are currently facing serious threats to their stability. First, there is the demographic problem – fertility rates in all the four countries are among the lowest in the world – danger lurks for all four nations where rapidly ageing populations pose a threat of Japan-like stagnation.

The challenge posed by the domestic and international political climate is even greater. The worst affected is the state of South Korea, where a corruption scandal led to the impeachment of the President and the new leader is being seen as ineffective. Pro-democracy protests in Hong Kong also hint at growing political instability, while Singapore’s position as a centre of financial trade is risked by protectionist policies under the Trump administration which seek to bring back US companies to the national boundaries. Taiwan, on the other hand, faces an impatient China that is seeking reunification by increasing Taiwan’s economic dependence on the mainland. It remains to be seen whether the roar of the Tigers shall fall silent or grow louder.

By Yashaswi