State Intervention in Eastern Asian Countries - Essay Example

?The Economic Development of Eastern Asia Countries and the Intervention Introduction The economic growth and development being experienced in Eastern Asia today can be traced to the years of the 1960s (Oracle Education Organization, 1999). From a rather deprived state, Eastern Asia now houses what has come to be known as the Four Asian Giants. Together with other nations in the region, Eastern Asian has grown to be a force to reckon with in terms of economic growth and development. Unlike the pre-1960s when the region and its States were regarded as an underdeveloped region, the economic development in Eastern Asia has imparted immensely on the general development of the region. Economists attribute the success of the Eastern Asian region to a number of factors and models. Interventions put together by individual States have also had roles to play in the economic development of the region. This essay therefore reviews the economic development of Eastern Asia countries and the State Interventions. Models Accounting for Economic Development in Eastern Asia A number of economic models have been instrumental in the economic development of most countries of the world. Indeed, economic development is not achieved by coincidence or by chance. Countries all over the world, including Eastern Asia countries have had to depend on one economic model at one point in time or the other. Some of these models have been discussed below. Generally, the models are different from the state interventions in the sense that whereas the economic models refer to a collective number of economic strategies, the state interventions refer to specific plans implemented to solve specific economic problems. This is to say that models work on long term basis whereas interventions work on short term basis. Factors of Production The International Monetary Fund put labour, capital and technology together and refer to them as factors of production (Sarel, 1996). The region of Eastern Asia shifted a lot of focus on its economic growth strategy into improving the human capital base, making capital available and advancing in technology. This way, not only did it take advantage of its large population (Asia is the most populated continent in the world) but also equipped the population to have the needed skills to lead the new world of industrialization. In some circles of the economic world, debate has always raged as to which of the factors of production to give prominence to in the economic development model. But clearly, all three factors are interrelated and equally important. Empowering human resource through education is an effective way of ensuring that population growth does not become a curse but a blessing. As Asia and Eastern Asia for that matter is one of the world’s most populated regions, if efforts are not made to resource the human capital with requisite skills and knowledge to play contributing roles in the economic drive, the populace would become a liability instead of an asset. It is also when the populace are adequately skilled that they can made judicious use of the capital and technology that is pumped into the economy. Macroeconomic Stability The region adopted a model of macroeconomic stability instead of microeconomic growth. Microeconomic stability could not have been adopted as a model because it focuses more on short term economic relief than long term strategies. In their quest to achieving this, the economic climate of the region was positioned in a way that ensured that inflation was kept low, real exchange was made stable and competitive and government budgets deficit and foreign debts were kept within acceptable range. The long term impact that these policies on the macroeconomic state of the region was that it created very conducive working for investors to choose the Eastern Asian trade corridor instead of other trade corridors. As these investors established their businesses, employed citizens of Eastern Asia countries, paid taxes and undertook social intervention projects, the economic growth of the region was sped up (Chenery & Srinivasan, 2010). Again, most of the companies that took advantage of macroeconomic stability to start their businesses continued to remain operating in the region and continue to operate there. This way, the region enjoyed and will continue to enjoy the economic benefits of the companies on long term basis. Because of the macroeconomic stability in the region, “when the economy is struck by external shocks, such as an export price shock or a large rise in world interest rates, fiscal and monetary policy are adjusted quickly to avoid inflation or exchange rate volatility” (GalbiThink Communications Policy, 2003). Population Change Models adopted for the economic development of the region were not only geared towards economic conditions. Socio-cultural models such as population change were also adopted. Examining the experience of six East Asian countries namely Taiwan, Japan, South Korea, Indonesia, Thailand and Singapore between 1960 and 1990, Mason (2002) proposes that “decline in childbearing, the diminished rates of population growth, the accompanying changes in age structure, and the economic status of women” are all population related issues that played roles in ensuring the rapid economic development of Eastern Asia. As the population of Asia as a continent and Eastern Asia as a region continued to rise and widen farther from the population of other continents, the continent was left with very little resources for the ever growing population to live on. As the demarcations of continents will remain as they are for years, it is always important that the population of a particular continent can cater for the needs of its people. It is for reason that population growth has always been a problem if it does not meet the extent of renewal or creation of resources. It was therefore in the right direction that the region targeted population decline as an economic model for development. Indeed, what is more prudent is equipping the few people within the population and creating an open space for each of them – no matter the gender of the person to become economically sound and productive to the region. Hindrances to Economic Development in Eastern Asia In implementing the models, a number of hindrances slowed down the pace of development. These hindrances called for the State Interventions that will be discussed later. Most of these hindrances are blamed on governmental policies that can be tagged as threats to economic recovery. Miller (2009) observes that Eastern Asian governments undertook economic policies that benefited their allies rather than Asia. Some of these policies gave the allies more room to take advantage of the Eastern Asia corridor to better their trade, earn foreign exchange and also give prominence to their economies instead of the Asian economy. But for the hindrances, Eastern Asia would be doing better economically than it is doing presently (Rosser & Rosser, 2004). Another serious hindrance has been identified to be the proliferation of the Eastern Asian market in such an abusive way as the use of the market to champion the production and trade of inferior goods. As a matter of fact, stakeholders in the Eastern Asia market could not guard against the invasion of the market with counterfeit and fake good. For this reason, at a point in the region’s economic development, it became touted as a hub of inferior goods - some state owned industries were even culprits in this sense (Steinfield, 1998). This indeed caused a major distaste of the Eastern Asia market for people from other parts of the world; particularly the European Union. Analysis of Specific Governmental Interventions The following are discussed as intervention that have worked in certain States of the Eastern Asia region and can be replicated in other States. State interventions among Eastern Asia countries are necessitated to bring the economic development train back on track and at a rate that would equal the time of the model or even better it (Simon, 2006). If adopted as regional interventions, the current economic development rate of the region, which is remarkable can growth to an excellent level. Social Status Improvement Intervention As a short term economic recovery intervention, States in the Eastern Asia region can target the improvement of social status of the populace. These social studies improvement interventions focus on improving the environment and general wellness of the people instead of tackling their economic needs directly. So this is more or less an indirect approach to improving the economic state of the people. Some of the approaches that can be adopted in the social status improvement intervention include the promotion of good health – because when the people are health, they will be more productive, provision of social amenities, making education more accessible – to equip people with requisite skills and knowledge to be productive and checking environmental issues such as pollution. In the words of Joo (1994), “although policy priority has always been on economic development in East Asian countries, these countries have also experienced some state intervention in environmental issues” Government Legislation and Regulation In the midst of stagnant economic growth, governments can take advantage of their legislative powers through the parliament to come out with regulations and legislations that will give the State maximum control over its economic affairs. In this regard, Riley (2006) suggests that there could competition policy where legislations would be made to act against price-fixing cartels within the economic market. There could also be employment laws that would enforce the implementation of employment regulations to check that productivity matches all forms of employment remunerations. Again, legislations that oversee price controls can be formulated so that prices for utilities such as water, telecommunication, gas, electricity and transportation could be pegged at levels that would meet the economic deficits and needs of the government. Finally, trade liberalisations and fresh competitions could be introduced to ensure that all major industries are put on their feet to deliver to the population quality service – part of which would be taking up social programmes that ensures the economic improvement of the citizenry. Direct State Provision of Goods and Services Economically, state owned properties and industries fetch the State more proceeds and income than privately owned firms. For this reason, as a way of improving the economy of States, governments could bring forth interventions that ensure that state owned corporations are increased, popularised and patronised. One area where this can be done easily is in the provision of goods and services. As the government does this however, it must not loss sight of the need to help in the growth of private businesses as they also contribute immensely to the microeconomic growth of the State. Fiscal Policy Intervention One other powerful intervention that can be used by States to improve their economic stand and speed up growth is the introduction of fiscal policy interventions. Though the fiscal tone of the nation may partly be determined by economic conditions that the government has no control over, there are yet others that are determined sorely by the government. Riley (2006) ascertains that “fiscal policy can be used to alter the level of demand for different products and also the pattern of demand within the economy.” To drive the economy towards a direction that meets the budget and economic ambitions of the government therefore, the government can intervene, using the following fiscal policies: Indirect taxes, Subsidies, Tax relief and Changes to taxation and welfare payments. The State can manipulate these fiscal policies upwards or downwards depending on what they seek to achieve. For instance all forms of tax and welfare payments can be increased if more money is needed in the economy. Tax reliefs and subsidies can also be reduced if the government wants more money to grow the economy. Conclusion The rate of growth of the Eastern Asia economy is commendable. There is however more room for improvement. It is recommended that as much as possible, the economic strategies and interventions that may be adopted by the region should be done in a more collective way. Though each State in the region is sovereign, there is a saying that two heads are better than one and as such, the individual governments should appreciate the need to champion a common economic course. REFERENCE LIST Amsden, A.H., 1989, Asia's Next Giant: South Korea and late Industrialisation, Oxford University Press. Chenery, H. and Srinivasan, T.N (editors of original volumes), Handbook of Development Economics, 2010 and various other years, Elsevier Fields, k.j.,1995, Enterprise and the State in Korea and Taiwan, Cornell University Press/ GalbiThink Communications Policy, 2003, ‘Macroeconomic Policy in East Asia’, accessed August 9, 2011 Joo J, 1999, ‘Explaining state intervention in pollution issues in South Korea: the case of the evacuation of the pollution victims in Ulsan and Onsan’ Environment and Planning C: Government and Policy 17(4) 483 – 498 Mason A., 2002, ‘Population Change and Economic Development in East Asia: Challenges Met, Opportunities Seized’, Stanford University Press: Stanford Miller A. T., 2009, ‘Government Intervention: A Threat to Economic Recovery’, accessed August 8, 2011 Oracle Education Foundation, 1999, ‘Eastern Asia’, Think Quest, accessed August 9, 2011 Peil, J. and van Staveren, I.(editors), Handbook of Economics and Ethics, 2009 Edward Elgar/ Riley G., 2006, ‘Economies and Diseconomies’, Tutor2u, accessed August 8, 2011 Rosser, J.B., and Rosser, M.V.,2004, Comparative Economics in a Transforming World Economy, MIT Press, 2nd edition Sarel M., 1996, ‘Growth in East Asia: What We Can and What We Cannot Infer’, International Monetary Fund, accessed August 9, 2011 Simon, D.(ed), 2006, Fifty Key Thinkers on Development Economics, Routledge Steinfield, E.S.,1998, Forging Reforms in China: The fate of State Owned-Industry, CUP Read More