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Tigers look for new economic
formula
By Alan Boyd
SYDNEY -
Asia's tigers are bridging the technological divide that
defines their economic potential. But they are still
learning how to harness the three I's of global
competitiveness: innovation, integration and
information.
Five years after the regional
financial meltdown forced a reassessment of low-cost
growth strategies, the jury is coming back in. And so
far the verdict looks promising.
"East Asian
countries start from a position of strength: they have
an adequate supply of resources, the manufacturing
skills, the educational and research infrastructure, and
the base of financial and business services," said World
Bank (WB) adviser Dr Shahid Yusuf. "Most are
increasingly open and competitive economies. Now they
need to go the extra mile and become highly innovative
economies as well."
Shahid co-authored one of
several recent postmortems on the 1997 financial
upheaval that paint a mostly optimistic picture of the
region's struggle to find a new growth formula. All
start from the assumption, expounded by economist Paul
Krugman long before the cracks began to appear, that
East Asia's growth miracle was essentially rooted in
capital generation and cheap labor.
If it is to
be re-created, there must be less emphasis on
manufactured exports and more on the development of
services; less replication and more innovation through
value-adding. There is also a consensus, unsurprisingly,
that the mold cannot be recast until supportive
institutions get the same treatment as the private
sector: inefficient bureaucracies, immature financial
systems and overly protective trade regimes are the
prime targets.
But it is unlikely that such
constraints will stand in the way of a corporate
renaissance, as the mothering instinct that played such
a dominant role in nurturing economic development before
1997 is being supplanted by a more independent spirit.
This is partly reflected in a greater willingness to use
technology to compete, by mechanizing production,
upgrading logistics operations and marketing and
distributing products online.
The United Nations
Development Program (UNDP) ranks three East Asian
nations - Japan, South Korea and Singapore - in the
global top 10 for technological utilization. Taiwan, not
a UN member, is also included unofficially in this
exclusive list, which is based on the number of Internet
hosts, the degree of patents granted, the level of
technology exports, diffusion of electricity and
telecoms, and college education ratios.
A
significant development gap still exists between these
countries and the next Asian tier of Hong Kong (No 24),
Malaysia (30), Thailand (40), the Philippines (44),
China (45) and Indonesia (60). "Korea and Japan were the
only Asia nations with patents even approaching the US
level, showing both countries have crossed the gap
between nations that innovate and nations that merely
manufacture," the UNDP said.
Yet data released
by the International Telecommunications Union (ITU) and
other agencies suggest that infrastructural shortcomings
are only a partial barrier in the drive to embrace new
technology.
China has a relatively low ratio of
mobile-phone handsets, but still boasts the largest
number of mobile-phone users in the world. Taiwan
attracts only a fraction of the venture capital flowing
into US laboratories, but its annual patents growth is
three times as high.
The WB study, which was
co-produced by Oxford University Press, noted that East
Asia is well ahead of other developing regions when it
comes to the per capita availability of computers.
"Connectivity and Internet use in several East Asian
countries approach or exceed those in the industrial
countries, and are significantly higher than in Eastern
Europe or Latin America," the study stated.
Only
some parts of Brazil, Mexico and India can match the
high- technology cluster developments that have been
established in China, South Korea, Malaysia, the
Philippines, Singapore, Thailand and Taiwan.
Singapore is rated fourth for economic clusters
by the World Economic Forum, Taiwan fifth, Japan eighth,
Hong Kong 11th and South Korea 17th. Malaysia, China,
the Philippines, Thailand and Vietnam are all among the
top 40 states worldwide.
Even the traditional
bugbears of insufficient education and training levels
may not be as bad as generally perceived, if one
overlooks their research shortcomings. Universities in
East Asia turn out fewer graduates, but proportionately
more are being channeled into science and technology
fields each year than in other parts of the world.
Despite having a mere 1 percent of the
population of the United States, Singapore matches 70
percent of the US availability of scientists and
engineers. Japan has twice as many as the United States
and South Korea about the same number.
While the
quality of these skills may vary, pupils in Singapore,
South Korea, Taiwan and Japan already have higher
achievement scores in both mathematics and science than
their US counterparts, with Thailand and the Philippines
not far behind.
However, Asian students start
with an immediate disadvantage when it comes to applying
these skills to a knowledge-based economy, as they often
lack a research capability and have limited
opportunities in the marketplace.
Only Japan and
South Korea spend 3 percent of their gross domestic
product on research and development, the minimum
desirable level for achieving industrial innovation.
Singapore invests about 1.5 percent of GDP and China
less than 1 percent.
Supporting business
services, which will play a vital part in the success of
the so-called New Economy, have not progressed since the
mid-1990s, when they already provided an inadequate
legal and financing framework. Weakened by the post-1997
debts cleanout, banks have not grasped the initiative in
offering a broader range of credit options and
underwriting the development of electronic commerce.
Although they dominate domestic markets, often with a
market share in excess of 80 percent, most lack the
capacity to compete on a regional basis, let alone
against circling global predators.
"In order to
succeed at home, financial institutions in East Asia
have to look beyond regional borders, and this is a
process which, seen from outside, has hardly started at
all," German economist Dr Beate Reszat said in an
address to the Asian Business Forum in Kuala Lumpur in
early October. "So far, among East Asia's financial
institutions only Japanese banks and investment houses
stand up against international competitors both in the
region and worldwide. And even their star is in
decline."
Preoccupied with assembly-line
industrial exports, Asian countries paid little
attention to services until the early 1990s, when they
saw the need to build a buffer against external price
pressures.
The eight leading East Asian
economies - excluding China and Taiwan - then drew only
6.1 percent of their GDP from services. Now the average
contribution has soared to 25 percent of GDP, the same
as in the United States and a higher ratio than in the
United Kingdom, France or Germany.
This
achievement has not yet been translated into exports
leverage. China, Japan, Malaysia and the Philippines all
run net trade deficits in services, while surpluses
elsewhere are only as a portion of manufactured exports.
One reason is that the sectoral growth has not been
matched by a commitment to reform that might attract
more outside investment. Regulatory systems are below
international standards, accounting methods often
suspect and foreign investment obstructed.
Nevertheless, the WB study concludes that the
strong domestic growth in services will eventually bring
its own reward of a dual capability of medium and high
technology exports like engineering, wholesaling and
logistics.
Unable to match its established
manufacturing capability, South Asia, Latin America and
the Middle East will continue to look eastward for
economic leadership in the developing world.
"East Asian countries must continue to optimize
on this capability," the WB report concluded.
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