The "JIIA-ISIS Malaysia Symposium on East Asian Economies: Sustaining Growth and Stability, Kuala Lumpur, 7-9 March 1996
East Asia has attracted considerable attention in recent years. And the prime reason is that these countries have succeeded in sustaining a high level of economic growth, for a relatively long period. East Asian growth rates have surpassed the growth rates of all other regions on the globe. The World Bank has shown that East Asia grew at 7.5 per cent per annum over the period 1974-93, compared to 2.9 per cent for the rich industrialised countries, 4.8 per cent for South Asia, 2.6 per cent for Latin America , and 2 per cent for Sub-Saharan Africa. According to the World Bank, the mathematical probability of all of us doing so well is of the order of 10,000 to one!
The winning formula that has produced the so-called "East Asian Miracle" is a combination of high levels of savings and domestic investment, declining populaiton growth rates and a better educated labour force. Rapidly growing human capital aided the rapid increases in labour force skills. Private investment was supported by unusually good macroeconomic management. In most of these economies governments intervened in a "market- friendly" way that was good for growth.
The prospects for long term economic growth for the East Asian countries, as we move into the next century, will remain uncertain. Nevertheless, the consensus is that over the next 25 years or so, we will be witnessing the biggest change in economic strength for more than a century. Within a generation, the industrial economies that have dominated the globe will be surpassed by the new economic powers.
If the developed and developing countries grow at the rate forecast by the World Bank, then by 2020 the developed countries' share of world output would decline to less than two-fifths, with a commensurate rise in the share of the developing countries. Seven of the top fifteen economies in the world will be from East Asia.
While the past will give us a sense of achievement, we should not however dwell too long on it. Our past successes may luss us into complacency and we must guard against the tendency of blowing our horns. Indeed, we must recognize that there are inherent weaknesses. The so-called East Asian miracle owes in no small part to borrowed technology and invention. No doubt, we can be proud of our manufacturing sector, the quality of our products and their current competitiveness in the global marketplace. Yet it remains sadly true that, in most cases, we did not originate the creative ideas or even know how to improve on them. This realization must surely spur us on to greater efforts not only to master the current available technology, but also to improve and even to innovate.
In this regard, the overall expenditure on research and development in the newly emerging East Asian economies is still insignificant. Unless we become less dependent on imported technology and become ourselves producers of innovation, we may not be able to sustain the kind of growth we now enjoy. And, from another perspective, unless we are completely independent of borrowed technology and ideas, we are nowhere near the ability to prepare ourselves for changing tastes and circumstances.
The bright prospects for our growth and our future will only materialise if we maintain an open global trading system. We have been continuously reminded, in the past, that free trade will be good for developing economies. All we are doing now is to repeat this reminder to the industrialised countries.
There are two extreme options that the industrialised countries can choose from. The first is to try to throttle the growth momentum of East Asia. The barriers to trade will go up to stop the influx of exports from East Asia. New forms of protectionism will be devised and we will then enter a new age of protectionism, trade wars and unbridled mercantilism.
Fortunately there is a second option. And it is to open their markets to the exports from East Asia and to promote free trade in the global trading system. A fast growing and open East Asia is good for North America, for Europe, and indeed for all. The more prosperous such an East Asia is, the better it will be for all. A continuously growing East Asia will provide the entire world with larger markets and more business opportunities.
The fears of various groups in the industrialised countries that unfettered free trade will destroy their economies are very alarmist indeed. It would seem that there has been a reversal in the roles of the industrialised and developing countries. Much earlier it was the developing countries who had feared that free trade would be bad for them. Now the champions of protectionism seemed to be residing in the industrialised world.
The bright prospects for the future will however not simply unfold. We must work hard and diligently for them. And we must work together, and not retreat into an inward-looking East Asia. The whole world must be our stage. Although the problems and opportunities that each of us are facing, and are likely to face, will differ, there are enough common problems and opportunities that will demand co-operation and a common approach.
The forces that impel us to seek co-operation are all too apparent. The economies in East Asia have become more integrated. Intra-regional trade within East Asia has been growing rapidly. Trade between North East Asia and South-East Asia, for example, make up the largest proportion of our world trade. Capital flows within the region have been growing substantially. Intra-East Asian investment has been growing. Similarly, the flows of human capital within the region have also increased phenomenally. Immigrant labour in many economies in the region are playing an important role in the economies that are facing labour shortages. Borders between countries in the region have become porous.
Mobility of economic resources has pushed the East Asian economies ever closer together. In every part of the world countries are cooperating regionally and this should be a natural and sensible development for East Asians. It is for this purpose that Malaysia initiated the setting-up of an East Asian Economic Calcus (EAEC) five years ago. I believe that the present Asean proposal for an EAEC can provide the framework for co- operation between the East Asian countries.
When we speak of co-operation we tend to think that only sovereign countries are involved. This is a misconception. Co-operation between the private sectors in East Asia is a vital part of this effort to widen and strengthen the bonds of co-operation between all of us. The private sector is a crucial agent of change, perhaps the most crucial agent of change, in the region. Trade and investment flows, to a large extent, are flows between corporations residing in different countries. Intra-company economic linkages in reality are the building blocks of economic integration. This corporate integration will become more and more pervasive. We must find new ways to harness the dynamism of the private sector to further the cause of greater co-operation between us.
Despite the overall prosperity our region enjoys, there are still pockets of poverty in our midst. We have generally succeeded in reducing the overall percentage of our populations living in absolute poverty. Yet in some cases, as we rush to pursue an agenda based purely on economics, there is a tendency to ignore or push to the background the plight of those who are not able to keep up with the rapid pace of development. We tend also to become less concerned about some of the intangibles, issues such as values and traditions, or even care for nature and the environment. To my mind, growth in the truest sense cannot be measured purely in economic terms. Quality of life issues are equally vital. Likewise, true growth in a society implies greater distributive justice, reducing the inequities in the distribution of wealth. It must bring about an overall sense of well- being through the personal sense of achievement of every individual in that society, where no group is marginalized or side-stepped. It should also take us closer towards the realization of a civil society.