EAST ASIA DEVELOPMENT: Can Malawi Learn Something?

EAST ASIA TREMENDOUS ECONOMIC GROWTH AND DEVELOPMENT: WHAT EXPLAINS SUCH PROGRESS AND WHAT CAN AFRICA LEARN FROM THE SUCCESS AND FAILURES IN THE EAST ASIAN DEVELOPMENT STORY.

The economy of East Asia has been one of the successful regional economies in the world. Singapore, Japan, South Korea, Taiwan, Hong Kong, Indonesia, and Malaysia, have been termed as High Performing Asian Economies, (HPAEs) because they have achieved rapid and sustained growth rates for over four decades. Thus, while growth in many African countries growth has been stagnant, East Asia has experienced a rapid and dynamic industrialization, with a remarkable shift from simple manufacturing to highly sophisticated technologies. Though growth in early stages is often associated with high levels of income inequality, as maintained by Kuznets (1955), East Asia has been an exception to this. The growth has been followed by reduced income inequality (Page 1994:222). This is evident if one examines the Gini coefficient of these economies. However, it is also worth pointing out that growth in East Asia has not always been without hurdles. From 1997 to1998 the East Asian economies faced a contagious currency crisis which originated from Indonesia and spread to other nations. It led to unemployment and a sharp decline in growth rates.  Notwithstanding this crisis, the economies in East Asia were able to bounce back to the path of social progress and economic prosperity. However, other the failures in the East Asia development experience have been associated with environmental pollution, and congestion. They have not been able to strike a balance between economic development and environmental conservation.

The successes and failures in the East Asia Economies provide a benchmark of development policy implications for Africa where growth has mostly stagnated and sometimes retrogressive.   Though the World Bank report of 1993 summaries the reasons of the successes as being a result of getting fundamentals right and some selective state interventions and tries to give more weight to the former, this paper argues that a single model cannot not be effectively and sufficiently constructed to explain East Asia development experience because there are no common patterns among the countries.  However, some limited generalizations can be made and it is from these generalizations where we can form a basis of discussion for an African development policy.

To begin with, leadership centered on the principle of shared growth has been one of the formidable factors for spectacular growth in East Asia. Strong and committed leaders who were able to convince the populace that growth would be shared gained legitimacy, created stability and natured an environment for rapid growth (Campos and Root 1996:1).  The leaders played a role of coordinating the expectations of different sectors and actors of the population. This alone is an ingredient factor for success that is lacking in most African countries. African countries have not been able to synthesize and coordinate the interests of the various actors in development. . Instead, leadership has been a business of pleasing a minority few. This has resulted in lack of social cohesion and disruptions in development policy direction. In Malawi it is the political elites that have enjoyed much since independence and politicians have not been vigilant to promote the interests of the populace. Moreover, development policies in Africa have lacked coherence and continuity.  African countries just resorted to short term development projects which do have a transformative effect. Investments in industry and infrastructure requires a consistency in policy direction because they are long term. A good example of an African country that has done exceptionally better is Botswana. Since independence Botswana development policy has been consistent despite change in regimes.  Campos and Root (1996:4) also notes that a regime founded on the whims of narrow groups is a major source for instability. That is, uncertain of their future such regimes gain as much as they can from government when it is their turn as has been the case with the previous regimes in Malawi. What exists in many African countries is a vampire state, a government , of thugs and crooks who use the instruments of the state to enrich themselves, their cronies and tribesmen (Ayiitey 2002:5).  Leadership centered on patronage has been a breeding ground of corruption, favoritism and rent seeking and these are some of the major evils denting the prospects of an African development. Though, many of the African countries embraced democratic leadership it has shown that democracy alone in not a panacea to its ills. That democracy alone does not guarantee economic success is a lesson that can be drawn by many of the Africa leaders.

East Asia economies were also accumulated of human capital. Human Capital accumulation involves empowering people with knowledge, skills, and capacities. It has been noted that investment in education and training is the main key to progress from one level of economic development to another because it has political and socio-economic gains. (De Silva 1997:1). Politically it prepares people for adult participation in the political processes- a critical mass. Socially, it helps the people to live fuller richer lives less bound by tradition. Economically, human capital is one of the chief factor for economic growth. The total output of an economy is a function of its resource endowments, that is, capital, and human capital, and the productivity with which these endowments are deployed to produce (Rodrick 2003:4).  If this holds then African countries have more to do in the education sector. The Asia Economies achieved universal primary school and had a broadly based secondary school and more importantly managed to close the gap between female and male enrollments (Page 1994: 246). The structure of the education system is also one to embrace. Like the East Asian economies the focus of education in African schools needs to be on vocational training and skills transfer not on only basic literacy and numeracy. Looking at statistics one gets the impression that African governments have done little on education. East Asian expenditure on education per student rose by 355% between 19970 and 1989. The Asian economies therefore had people with higher literacy and numeracy rates and therefore substantially higher cognitive skills.  In comparison, expenditure in Kenya just rose by 38% during the same period (Page Ibid). Africa is therefore facing a dual challenge of increasing literacy rates and restructuring its education systems to make it more responsive and relevant to the current challenges and needs.

East Asia States also developed long lasting wealth sharing mechanisms which were implemented through a comprehensive rural development package. Root and Campos (1996:50) observes that unlike in many of the developing countries where subsidies in fuel and food are means of wealth sharing, the economies in East Asia embarked on transformative and long term income distribution mechanisms specifically aimed at rural and agriculture development. Taiwan and South Korea implemented land reforms aimed at land distribution. The state invested in infrastructure especially in communication network and this linked the producers to consumers in the urban centers. Credit markets for farmers were also established and farmers were offered market information and this was important because it insulated farmers from rent seekers who would extract profits from the farmers.  This is why East Asia has been exceptional in combining income growth and reducing inequality. Infrastructure development is one of the major challenge for African nations. The road network is not well established. Producers are not linked with consumers.  Goods are often sold to middlemen who extract profits from the poor farmers. The middle man in the tobacco farming in Malawi gets richer as the farmers lives in absolute poverty. Rural development is an integral part of the nation’s development as such efforts should be done to develop the road infrastructure.  Information asymmetries also makes it imperative for government to intervene to protect the interests of the rural farmers form rent seekers who extract profits from the farmers.

It is a general fact that the public civil service in most the developing countries lacks the capacity to perform. On the other hand, East Asia development has been attributed to a high performing civil service insulated from political pressures. (Campos and Root 1996: 4). The technocrats in the civil service were able to craft good policies which were implemented by government. The economies had a merit based recruitment and promotions grounded on a stiffer civil service examination and had a well-defined career path (Ibid).  All these are in short supply in many of the African countries. Instead, higher public offices are given as booty to party followers, a tendency that negatively affects motivation, performance and delivery in the public service. The civil service in Malawi has been contaminated with this problem. For instance, Ministry of Education, especially the teaching service lacks clear guidelines on performance appraisal and promotion. The composition of the public civil service is also a major problem as there are more junior staffs while important senior positions are understaffed. If African countries are to make a breakthrough then then they should make serious efforts to reform the public service in order to iron out these irregularities. There is a need to depoliticize the civil service and authorities should give room for criticism and implement the policies formulated by technocrats. Reforms requires a political will, and a more determined government that will perceive beyond re- elections. Reforms are politically disastrous and socially painful to cope up with.  But for African countries to develop they are not supposed to do business as usual.  It is this usual way of running government that has stagnated development prospects.

State intervention in industrial policy is also a major factor that promoted sustained growth in the East Asian economies. In the poorest or transition countries, domestic markets are extremely primitive. In terms of productivity, organization and human resources, such countries have not reached a stage where mere deregulation can unleash the latent market power to sound development (Ohno 2002:6). This demands state intervention to provide direction and coordinate the various actors in the economy. East Asian mobilized resources for capital intensive industries,    invested in development research and infrastructure like roads, railways, communication lines and ports and protected infant industries. These are investments that cannot be left to the market in the initial phases of a country’s development. The private sector is motivated by short term investments whose profits are immediate. The government is well positioned to do long term investments even if their profitability is not immediate.  Most of the developing African countries have not made investments in key priority areas which could have spillover effects on the economy. It is has been argued that higher levels of public investment is positively correlated to aggregate economic growth because states do not merely engage in massive investments, but they also mobilize savings for investment and this may entail moving funds from the private to public. (Kriekhaus, 2004:9).   Interventions however should be done with caution and the funds must be used efficiently to avoid eroding private sector confidence.

 The economies in East Asia also managed to achieve high state savings rates which is a necessary factor for economic growth. The Harold-Domar growth model states that “to grow, economies must save and invest a certain proportion of their GDP. The more they can save and invest, the faster they can grow”. (Todaro 2011:112). Weiss notes that the economies of east Asia maintained reasonably higher savings, invested in industry and manufacturing and this was a major condition for the initial takeoff in the 1960s (Weiss 2005:2). Most of these economies began with technologically simple labour intensive manufacturing like clothing, sports goods and processed foods before shifting to capital intensive technologically sophisticated items. This means African countries still have opportunities to exploit by venturing into these simple manufacturing. It is disappointing to note that most developing countries have not being able to develop simple manufacturing methods which could help in the adding value to its products.   Negative savings rates that have been sustained for decades is also a challenge which African countries needs to overcome. There is a need for Africa to find mechanisms to save and invest in key priority areas of industrial development and infrastructure because these are areas with diverse positive externalities. However, Kriekhaus (2004:10) notes that late industrialization requires heavy capital investments and in order to generate such capital the state should the active role of capital mobilization. In Africa there is a great need for a state led industrialization. The industrial policy in East Asia involved a number policy instruments such as import protection, subsidies for capital and input goods, rewarding performing industries through tax reduction,  loans for further investment, and setting export targets. These were incentives for growth and are a policy option for African nations, but they have re-craft them to suit their contexts. However, interventions also prove useful in environments where there properly functioning and well developed institutions, otherwise state interventions may also result in economic hurdles, and promotion of corruption. For instance, most of the state interventions in Africa and Malawi specifically on fertilizer and fuel have resulted into prolonged deficits, more debts and negative growth rates. Thus, African nations have to identify of key priority areas for investment which will have aggregate spillover effects and intervene in those areas.

The Industrial policies which were export oriented enabled East Asian integration in the international market and make a rapid structural transformation of the economies. It is held that for nations to experience remarkable growth there is a strong need to move from primary extractive activities to the production of manufactured goods and services (Kalua, 2010:3). Japan for instance, shifted from the production of cotton to the manufacturing of consumer technology products which are demand inelastic. This has been a general trend among the East Asia economies. They have made heavy investments in the manufacturing of technology products. Singapore is an economy that has grown much through the service industry. It has managed to position itself as a transport service provider by constructing one of the busiest and profitable ports in the world.  In most of these economies though agriculture experienced growth in productivity, it was becoming less important in the share of the economies GDP. In comparison, the participation of most African states in international trade has been minimal and their share concentrates much on primary goods which are demand elastic, and their prices are not stable. African countries have to exploit this avenue by engaging in manufacturing of their products before exporting them. It is equally important for African countries to stop being over reliance on traditional agriculture as a source of revenue and fast track towards a technological catch up. The international trade is too competitive. The government must actively promote international integration while managing its risks. Developing countries must design an integration timetable which promotes exports while avoiding economic crisis and social instability and this requires an active state (Ohno, 2002:6)

The economies in East Asia also practiced good macroeconomic management by , maintaining limited fiscal deficits, keeping inflation under control and making it more predictable, and maintaining stable interest rates. By maintaining low budget deficit these countries avoided falling into the trap of foreign debts. Low and predictable inflation has been a major incentive to invest in long term projects that have higher returns. In most African countries the economies are not predictable, inflation rates are just too high and interest rates above the profit margin. This is the reason why even after liberation of their economies African countries have not been able to attract adequate foreign direct investment. This is not surprising given the fact that private capital inflows go to countries and regions with the highest financial returns and the greatest perceived safety. Where debt problems are severe, governments are unstable, and economic reforms remain incomplete, the risks of capital loss can be high (Todaro 2011:686). Botswana is one of the African countries that has done much better than the other sub Saharan African countries.  It has managed to control fiscal deficits and International Monetary Fund (IMF) and the World Bank have just played an advisory role because it recognized the dangers of heavy borrowing (Beaulier, 235).

East Asian management of microeconomic variables was both a factor for success and cause economic failure, from which African countries need to draw a lesson. Todaro also notes that though East Asia employed a number of neo-classical economic tenets, it is erroneous to conclude that the High Preforming Asian Economies (HPAEs) were strict adherents of the free market school of economics (Todaro 2011:127). Indeed a cross analysis of the economies of East Asia indicates that states played an active role of manipulating microeconomic variables. For instance, most of the governments followed an exchange rate policy that ranged from fixed, but adjustable with steep devaluations, to managed floating exchange rate regimes (Page 1994:223). This was a source of both success and failure.  IMF and neo-classical economists argue that the root cause of the East Asian currency crisis was not temporary shortage of liquidity but fundamental defects in the East Asian economic structure (Tae Lee, p1). Though one finds this to be inconsistent with previous explanations for Asian Success by World Bank report. However, the key principle with Asian microeconomic management is that, is was very responsive to market changes and this explains why the economies were quick to return to the pre-crisis development trajectory.  For African countries, this is a skill worth adopting. Malawi did not respond timely to calls of devaluation between 2009 and 2012 and when a devaluation came it hit hard. It is important to have conservative macroeconomic policies on one hand and extensive and effective micro-economic intervention on the other (Wen Chu: 8). Developing African countries should craft their microeconomic policies on this basis.  

Apart from the currency crisis, East Asian economies are facing a number of new problems. The region has failed to make a trade-off between economic growth and environmental conservation (Ueta & Mori, 2007:165) Rapid industrialization has brought environment pollution in the cities. Thus, it is important that while African countries are industrialization they should put in place policies that will ensure environmental protection and sustainable development. There is a need for Virgin African countries to frame and industrial policy that will not only ensure economic growth but also sustainable development. African countries can take advantage of their backwardness in technological and industrial back up by learning a number of lessons. They should learn and less polluting and less resource intensive technology and adopt production processes that reduce pollutant and waste discharge. They can learn experiences of environmental policy, institutions and management, and make land use planning and establish investment location policy to promote location of less pollution industries

The discussion in this paper has demonstrated the difficulty of constructing a one size fits all model of development from the East Asia development experience. The methods that were used were country and time specific and ranged from state intervention to market led development. Therefore, even though some of the literature has focused much on examining which factor, between the state and the market has played a great role in the development of the Asian economies, this paper maintains that growth and prosperity in East Asia has been a coordination and interplay of a number of factors. State intervention aimed at addressing market failures in the initial phases of development were able to perfect the market, thereby improving allocative efficiency of the market. African countries have more to learn from East Asia. While the main players of economic development are undoubtedly private firms, simply deregulating and opening up the private sector does not guarantee growth if the country is burdened with underdeveloped markets, lack of human resources and technology, and low productivity. In order to kick start an economy trapped in the vicious circle of low income, low savings, and low technology, the role of government is crucial as an external agent imparting order and direction to the national economy

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