ONCE upon a time, Western opinion leaders found themselves both impressed and frightened by the extraordinary growth rates achieved by a set of Eastern economies. The speed with which they had transformed themselves from peasant societies into industrial powerhouses seemed to call into question the dominance not only of Western power but of Western ideology.
The leaders of those nations did not share our faith in free markets or unlimited civil liberties. They asserted with increasing self-confidence that their system was able to sacrifice short-run consumer interests for the sake of long-run growth which would eventually outperform the increasingly chaotic societies of the West.
The gap between Western and Eastern economic performance eventually became a political issue. The Democrats recaptured the White House under the leadership of a young, energetic new president who pledged to "get the country moving again - a pledge that, to him and his closest advisers, meant accelerating America's economic growth to meet the Eastern challenge.
The time, of course, was the early 1960s. The dynamic young president was John F. Kennedy. The technological feats that so alarmed the West were the launch of Sputnik and the early Soviet lead in space. And the rapidly growing Eastern economies were those of the Soviet Union and its satellite nations.
Can there really be any parallel between the growth of Warsaw Pact nations in the 1950s and the spectacular Asian growth that now preoccupies policy intellectuals? At some levels, of course, the parallel is farfetched: Singapore in the 1990s does not look much like the Soviet Union in the 1950s, and Singapore's Lee Kuan Yew hears little resemblance to the USSR's Nikita Khrushchev and less to Joseph Stalin. Indeed, it is safe to say that the typical business traveller to, say, Singapore, ensconced in one of that city's gleaming hotels, never even thinks of any parallel to its roach-infested counterparts in Moscow.
And yet there are surprising similarities. The newly industrialising countries of Asia, like the Soviet Union of the 1950s, have achieved rapid growth in large part through an astonishing mobilisation of resources. Asian expansion, like that of the Soviet Union in its high-growth era, seems to be driven by extraordinary increase in inputs like labour and capital rather than by gains in efficiency.
Consider, in particular. the case of Singapore. Between 1966 and 1990, the Singaporean economy grew by a remarkable 8.5 per cent per annum, three times as fast as the United States; per capita income grew at a 6.6 per cent rate, roughly doubling every decade.
This achievement seems to be a kind of economic miracle. But the miracle turns out to have been based on perspiration rather than inspiration: Singapore grew through a mobilisation of resources that would have done Stalin proud. The employed share of the population surged from 27 to 57 per cent. The educational standards of that work force were dramatically upgraded. While in 1966 more than half the workers had no formal education at all, by 1990 two-thirds had completed secondary education. Above all, the country had made an awesome investment in physical capital investment as a share of output"" rose from 11 to more than 40 per cent.
Even without going through the formal exercise of growth accounting, these numbers should make it obvious that Singapore's growth has been based largely on one-time changes in behaviour that cannot be repeated. Over the past generation the percentage of people employed has almost doubled; it cannot double again. A half-educated workforce has been replaced by one in which the bulk of workers has high school diplomas; it is unlikely that a generation from now most Singaporeans will have PhDs. And an investment share of 40 per cent is amazingly high by any standard; a share of 70 per cent would be ridiculous. So one can immediately conclude that Singapore is unlikely to achieve future growth rates comparable to those of the past.
Singapore's case is admittedly the most extreme. Other rapidly growing East Asian economies have not increased their labour force participation as much, made such dramatic improvements in educational levels, or raised investment rates quite as far. Nonetheless, the basic conclusion is the same there is startlingly little evidence of improvements in efficiency.
This conclusion runs so counter to conventional wisdom that it is extremely difficult for the economists who have reached it to get a hearing. As early as 1982 a Harvard graduate student, Yuan Tsao, found little evidence of efficiency growth in her dissertation on Singapore, but her work was, as Young, (an academic and author of a paper intitled "The Tyranny of Numbers") puts it, "ignored or dismissed as unbelievable."
BUT what about Japan? Many people who are committed to the view that the destiny of the world economy lies with Pacific Rim are likely to counter scepticism about East-Asian growth prospects with the example of Japan. Here, after all, is a country that started out poor and has now become the second-largest industrial power. Why doubt that other Asian nations can do the same?
There are two answers to that question. First, while many authors have written of an "Asian system" - a common denominator that underlies all of the Asian success stories - the statistical evidence tells a different story. Japan's growth in the 1950s and 1960s does not resemble Singapore's growth in the 1910s and 1980s. Japan, unlike the East Asian "tigers", seems to have grown both through high rates of input growth and through high rates of efficiency. growth. Today's fast-growth economies are nowhere near converging on US efficiency levels, but Japan is staging an unmistakable technological catch up.
Second, while Japan's historical performance has indeed been remarkable, the era of miraculous Japanese growth now lies well in the past. Much of the literature on the subject seems stuck in a time warp with authors writing as if Japan were still the miracle growth economy of the 1960s and early 1970s.
In 1992 Japan's per capita income was still only 83 per cent of that of the United States, and its overall output was only 42 per cent of the American level. The reason was that growth from 1973 to 1992 was far slower than, in the high-growth years: GDP grew only 3.7 per cent annually, and GDP per capita grew only 3 per cent per year. The United States also experienced a growth slowdown after 1973, but it was not nearly as drastic.
When one takes into account the growing evidence for at least a modest acceleration of US productivity growth in the last few years, one ends up with the probable conclusion that Japanese efficiency is gaining on that of the United States at a snails pace, if at all.
For the sceptic, the case of China poses much greater difficulties than that of Japan. Although China is still a very poor country, its population is so huge that it, will become a major economic power if it achieves even a fraction of Western productivity levels. And China, unlike Japan, has in recent years posted truly impressive rates of economic growth.
What about its future prospects?
Accounting for China's boom is difficult for both practical and philosophical reasons. The practical problem is that while we know that China is growing very rapidly, the quality of the numbers is extremely poor. It was recently revealed that official Chinese statistics on foreign investment have been overstated by as much as a factor of six. The reason was that the government offers tax and regulatory incentives to foreign investors, providing an incentive for domestic entrepreneurs to invent fictitious foreign partners or to work through foreign fronts. This episode hardly inspires confidence in any other statistic that emanates from that dynamic but awesomely corrupt society.
The philosophical problem is that it is unclear what year to use as a baseline. If one measures Chinese growth from the point at which it made a decisive turn toward the market, say 1978, there is little question that there has been dramatic improvement in efficiency as well as rapid growth in inputs. But it is hardly surprising that a major recovery in economic efficiency occurred as the country emerged from the chaos of Mao Zedong's later years.
If one instead measures growth from before the Cultural Revolution, say 1964, the picture looks more like the East Asian "tigers" only modest growth in efficiency, with most growth driven by inputs. This calculation, however, also seems unfair: one is weighing down the buoyant performance of Chinese capitalism with the leaden performance of Chinese socialism. Perhaps we should simply split the difference: guess that some, but not all, of the efficiency gains since the turn toward the market represent a one-time recovery, while the rest represent a sustainable trend.
THE extraordinary record of economic growth in the newly countries of East Asia has powerfully influenced the conventional wisdom about both economic policy and geopolitics. It has become common to assert that East Asian economic success demonstrates the fallacy of our traditional laissez-faire approach to economic policy and that the growth of these economies shows the effectiveness of sophisticated industrial policies and selective protectionism. Authors like James Fallows have asserted that the nations of that region have evolved a common "Asian system", whose lessons we ignore at our peril.
But the newly industrialising countries of the Pacific Rim have received a reward for their extraordinary mobilisation of resources that is no more than what the most boringly conventional economic theory would lead us to expect. If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain.
That's a hard answer to accept, especially for those American policy intellectuals who recoil from the dreary task of reducing deficits and raising the national sayings rate. But economics is not a dismal science because the economists like it that, way; it is because in the end we must submit to the tyranny not just of the numbers, but of the logic they express.