East Asian Crisis Case Study

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The inherent flaws of the East Asian approach to development were evident during the Asian Financial Crisis. The crisis shows that bad things tend to follow whenever a government becomes too involved in guiding its economy. It reveals that market signals become distorted, investment becomes excessive, and regional and global export markets become saturated. In addition, economic decisions become overly politicized and infected by crony capitalism. The costs of the East Asian approach range from authoritarianism to the exploitation of labor to environmental degradation. With these flaws and costs in mind, the issue then becomes whether or not newly developing countries should emulate this development model. This essay will delve into this issue…show more content…
These favorable developments were made possible by the establishment of a bureaucracy in each state. The East Asian model gave clear emphasis on the role of the state in facilitating development in specific industries. In particular, Taiwan in its early stages, which was small in size and developing, pursued a policy of import substitution industrialization (ISI) to maintain a self-sufficient economy (Vogel 14-15). Foreign dependency was deemed necessary during the early stages of development, but not until the onset of industrialization was it no longer required. This shows that firms were relatively small-sized, since the market primarily consisted of state-owned enterprises (SOEs). However, as with all followers of the East Asian model, Taiwan would eventually shift its economic policy to export-led industrialization (ELI). The explicit focus on exports allows states to become more integrated into the world economy, thereby causing them to experience significant economic growth. For instance, Taiwan's major exports prior to ELI were agricultural goods that constituted for an overwhelming…show more content…
The most important prerequisites to a stable economy are that both inflation and interest rates must be low. The government plays a direct role in ensuring that the market conditions are just right for economic activity to occur. The government does this by encouraging a high rate of savings and long-term investments. This is essential to fostering the growth of the private sector, whose role is absolutely needed in any vibrant economy. The government's provision of incentives motivates the private sector's expansion in a relatively new market setting. This government intervention helps latecomers to the market have ample opportunities to succeed in the face of high entry costs and existing competition. Through this role, the government ensures that the market risks are low enough to the point where the private sector will invest. These accommodations at the beginning of each industry's life cycle were meant to give industries across the board a solid foundation. Essentially, the nurturing of these so-called infant industries prepares them for entering into a self-sustaining market. The extent of the East Asian model for economic development goes further in detailing this self-sustainability. Not only does this occur through the guidance of the government, but also through the dynamism of the private sector. This was shown by the business ethics of Confucianism,
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