Sunday, March 8, 2009

The Global Financial Crisis: Is this the end of the Asian Tigers’ Model?

It was supposed to be a straight forward model. To get out of the poverty trap all countries needed to do was to set up industries and factories for producing cheaply priced goods for the American and European markets. That setting up industries would create jobs and jobs would come with high incomes and millions would be lifted out of poverty and deprivation.
On the basis of this export-led growth model, Japan’s Toyota and Nissan produced reliable but competitively priced vehicles, South Korea’s Hyundai and LG produced electronics and China ,’ the factory to the world’ produced all these goods and almost everything else . Malaysia, Taiwan, Singapore and others soon joined to complete the ‘Asian Tigers’ club.
For decades the Asian Tigers recorded unprecedented economic growth rates and established themselves as world- class industrial production power houses and not even the 1997 Asian financial crisis could stop them. Many western companies couldn’t compete with Asia’s low production costs, especially low-wage labour and soon moved many of their production houses to Asia. Have you noticed that it seems all computers are now manufactured in China?
Then came the global financial crisis or the credit crunch which unraveled in 2008.Suddenly
consumer spending in America and Europe drastically reduced, heralding the ’ end of free-wheeling consumption fueled by easy credit and the wealth effect of ever rising asset values’. As the economic slump deepens, export demand from the west can no longer sustain Asian industry. Tens of thousands of thousands of factories are closing down and millions have become newly unemployed.
According to a recent issue of TIME magazine, it is estimated that last year, 60,000 enterprises were shut down in China’s Guandong province alone, as export orders and credit dried up. In India, the organization for Indian Exporters warned that 10 million Indian workers were set to lose their jobs as a result of the slump in export demand.

Ajay Chhibber, the director of the Asia bureau at the United Nations Development programme says’ in a medium and long term sense the export-led growth model is coming under stress’.
The export-led growth model adopted by Asian leaders, including China ‘s Deng Xiaoping in 1978 and India’s Manmohan Singh in 1991 was responsible for lifting millions in Asia out of poverty as farmer workers become factory workers and their incomes skyrocketed overnight.
According to the World Bank, In 1981, nearly 80% of East Asians lived on less than$1.25 a day and by 2005 only 18% did In a comparable period, Sub Saharan Africa’s poverty levels have remained at 50% between 1981 and 2005 owing to our inability to hop on the globalization train by producing cheap toys, textiles, TVs that the west demands.
Critics of the export-led growth model point out the exclusion of the rural population who are left out in the mainly urban-based industrial jobs. For example despite India being touted as an emerging economy still has 70% of its population as being regarded as rural and poor. The number of poor Indians increased from 436 million in 1990 to 456 million in 2005. The majority have been largely left behind by the production-for-export sector that is majorly based in urban centres such as Mumbai. It is therefore clear that the export-led growth model on its own is not sufficient to lift entire populations out of poverty if it’s not accompanied by other initiatives such as land reform and investments education, roads and other infrastructure.
Dependence on western export markets and the global financial crisis has brought into focus the need to nurture domestic markets. The Chinese premier speaking at the World Economic Forum earlier this year has conceded this much and clearly China’s huge domestic market should be tapped as an alternative market.

In the words of Charles Dickens, these are ’ hard times’ for the export-led growth model but clearly there don’t seem to be many tested models for lifting millions out of poverty.

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