BackIt’s govt learning that drove the growth miracles in East Asia
Government learning rather than government minimizing drove the East Asian growth engine
PremiumNew Delhi: Most Indian elites routinely invoke Singapore when they talk about how they would like India to become and several economists emphasize the role of market-friendly policies in driving Singapore’s growth over the past few decades. What such accounts often miss is the large (and sometimes coercive) role of the state in powering the Singaporean economy. With most land owned by the government, 85% of homes supplied by the government’s own housing corporation and state-owned enterprises including Singapore Airlines contributing more than one-fifth of its gross domestic product, Singaporean reality combines “extreme elements of socialism and capitalism", the heterodox economist Ha-Joon Chang has argued.
Among the earliest steps of the Singaporean state, which separated from Malaysia in 1965, was the Land Acquisition Act of 1967. The Act gave the government extraordinary control over land resources and allowed it to acquire most of the land in the country within a few years. This not only facilitated the establishment of industrial estates which powered Singapore’s growth, but also allowed the state to plan large public housing and infra projects. To mobilize financial resources, the first Singaporean premier Lee Kuan Yew put in place high rates of compulsory provident fund contributions. To drive investments, government-owned institutional investors were deployed to fund firms. One such large institutional investor, Temasek Holdings Pte, continues to be managed by Lee’s family even today.
Singapore’s experience has not been atypical. All four of the so-called Asian tigers—Hong Kong, Singapore, Taiwan, and South Korea—which made the transition from underdeveloped to developed economies in less than half a century, harnessed both state and market forces to drive economic growth.
There were three key features common to each country’s growth take-off: early egalitarianism, including redistribution of land in South Korea and Taiwan, which eased redistributive demands in take-off years, early investments in education and health, which created a productive workforce, and the absence of strong democratic institutions, which allowed the state to discipline both labour and capital in the pursuit of growth.
A lot of what the Asian ‘tiger economies’ did can’t be replicated by a country as different and as democratic as India. However, there is one lesson worth emphasizing: the ability of the East Asian state to change course when the external environment changed, which led them to compete for exports much earlier than India, or when policy mistakes were recognized. Government learning rather than government minimizing drove the East Asian growth engine, wrote the American economist Henry J. Bruton in a review of the East Asian experience.
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