Econ 3317 East Asian Economies

PPP #1: Preview of the Course’s Frameworks of Economics Theories

East Asian Miracles: How did they happen?; What are they like?; Where are they going?; Can they be reproduced?

How come they have become so successful in such a short-period of time?• Classical Economics Theories – Growth Theories Y = F (K, L, T) “The east Asians are frugal (S=I, K), working hard (L), and are taking in, or

developing, new technology (T).”

- Not enough to give total credit to east Asians because people in many other areas are like them and still there is no comparable ‘economic miracles’.

- If you inject K, L, and T, would other countries get as successful as East Asia?

These are not enough of explanation:• (still we need something more)

For example, a large amount of savings does not automatically lead to sustainable economic growth.

Investment, based on savings, should be made in an efficient way. We have evidence that the Japanese economic growth owed to an

Improved Efficiency of Investment as well as Increases in Savings and Investment.

• (still puzzles exist)Currently the fast growing Chinese economy has an apparently low

investment efficiency.

How do you explain this apparent contradiction?

Pros and Cons of Over Savings/Underconsumption of east Asia• Is the level of consumption adequate? Not in general according to the Solow Model

• The situation is worse in east Asia as it is designed to be so: Underconsumption means Oversavings for east Asia, but Overconsumption and Overinvestment for U.S.- they ‘dovetail’ and

make perfect partnership

• Endogenous Growth Theories look for a fourth factor, which is only endogenous to east Asia.-may be something related to education and leading to technical

innovation -> Human Capital; or

-may be something related to social system of values and ethics, or , social organization, etc.

• Extended Endogenous Growth Theories- Neo Confucian Economic Growth Model

-social capital is the main factor for east Asian success.-social capitals is high when social structure is based on a ‘right’ social value

which is the Neo Confucian ideals; There is a strong social consensus, and a reinforcing built-in mechanism, that

virtuous yet dictatorial leader/government and Conglomerates take care of people and demand an absolute loyalty in return.

-This line of thought owes to Max Weber’s ideal type of Modern Capitalism and the Protestants’ Ethics.

Social Ethics and Roles of Japanese and Korea Conglomerates • Zaibatsu – Keiretsu in Japan Matsushita, Mitsui, Mitsubishi, Toyota, Sony…. Japanese National

Brands what is the history behind them?• Chaeo-bol Samsung, Hyundai, LG, SK, Daewoo(defunct)…..Korean National

Brands what is the story behind them?• The heads of these corporate are expected to behave like Neo-

Confucians: in what ways?; what if they could not?

Comparison of Industrial Structure between Japan-Korea and China• China’s dominant private business organization is based on family-

oriented small-medium size firms; Japan-Korea has conglomerate dominated business organization. • China will need larger firms of global scales to internationally

compete as it gets out of OEM manufacturer stage. • Can Japan-Korea’s Conglomerate-centred ‘hierarchical industrial

structure’ be extended to China? What would be needed for its successful implantation(Japanese style Zaibatsu)/reinstitution(Chinese unique historical ‘Jinshang’)?

Side Effects

• It is really suitable for Massive Scale Production where Docile/Tamed east Asians work hard and long on assembly lines in a factory.

• It creates side effect in urbanization, income distribution, etc., during the industrialization

• It will create side effect in labor market and gender issues in the post-industrialization period where production factories move on to other countries with lower wages.

• We would like to add International Trade and Politics Theory for the U.S. Supply Chain in east Asia-what does it mean by ‘International Supply Chain’?-what does it mean by the ‘Flying Geese Model’ for interntional division of labor and

industrial structure? -what characteristics, in terms of production/supply, trade, macroeconomics, are required

of a successful operation of the U.S. Supply Chain? -How does east Asia as a whole fit them?-Since when have the U.S. opened up to east Asia? -what is the best example of product/industry? Mobile phones where fundamental technology comes from U.S. (Qualcomm ); most

expensive derived industrial technologies come from Japan; major parts come from Korea and Taiwan; and finally parts are assembled into a phone.

References

• DiPasquale, Denise and Edward L. Glaeser, “The Los Angeles Riot and the Economics of Urban Unrest,” Journal of Urban Economics, January 1998, 43 (1), 52–78.• Rob Gillezeau, “Did the War on Poverty Cause Race Riots?”, seminar

paper, University of Michigan, 2010.