Capitalist Development and Economism in East Asia: The Rise of Hong Kong, Singapore, Taiwan, and South Korea

By Kui-Wai Li | Go to book overview

6

The law of first opportunity in economic growth

6.1Introduction

The conceptual contract between poverty and equality is that there must be a bottom line of economic survival, and that everyone should have an equal opportunity to progress upward from the bottom line. Governments maintain a rather small public sector, and provide incentives to various economic agents, who will exercise their choice and freedom in expanding economic welfare. A friendly international sector provides additional channels of economic support in the form of either exports or foreign direct investment. Another aspect of the economism paradigm is the viable domestic economic strength that attracts foreign investment and markets.

Partly because of the export-led nature and the relatively small size of the four East Asian economies, the emphasis of the domestic economic front has consistently been on output generation and the supply side. Although domestic consumption and expenditure have increased substantially, especially since the 1980s, during which time the per capita income of these four East Asian economies has caught up considerably with the rest of the developed world, output expansion has been regarded as the ultimate economic target. This suggests that the ability to earn is considered to be the most fundamental aspect of economic life. One's ability to spend, and possibly borrow, depends on one's ability to earn. At the economy-wide level, an increase in output generates higher earnings and incomes for households. The output-income- expenditure relationship in macroeconomics points squarely to the importance of output generation prior to expenditure.

Technology, labor, and capital are factors of economic growth. The more recent “new growth theory” advocates considering such concepts as human capital and culture as new endogenous factors in explaining economic growth (Jones 1998). Capital accumulation in the form of savings and domestic investment provides the necessary capital input. Equally important, however, is the quality of capital. The productivity of capital depends on the level of existing technology and technology transferred from abroad. Human capital can be discussed within the framework of labor quality, rather than simply the quantity of labor.

In addition to theories advocating growth in the real sector of the economy,

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