secrets of success

Secrets of success

Governments Must Let the Entrepreneurial Spirit Flourish Outsiders have contemplated the success of eastern Asia’s economics with admiration, wonderment and sometimes hostility. Scholars long sought to pinpoint the secrets behind the achievements of Japan, South Korea, Taiwan, Hong Kong and Singapore. More recently, they have turned their attention to the emerging “tigers”of Thailand, Malaysia and Indonesia. Hard work and entrepreneurial flair were obvious elements. But sometimes it was easier to attribute the region’s economic “miracle” to some kind of voodoo – or even an ability to fool the world with unfair tactics.

In a major new bid to demystify the subject, the World Bank has undertaken a two-year study of the eight aforementioned economies. Its 369-page report, to be released formally this month, endorses export-driven economic strategies. It attributes the regions’success to “getting the basics right.”These include sound fiscal policies, high savings rates, investment in education and openness to foreign technology. The study is particularly upbeat about countries that stress the export of manufactured goods. It said that each of the eight had tailored the strategy to fit its particular circumstances. More importantly, the bank says that the world’s less developed nations would do well to emulate such

gameplans.

But the report cautions that what worked in the past may not do so any longer. At this point, there is a risk of misinterpretation that would buttress the cause of protectionists the world over. The bank’s warning might be taken to mean that encouraging export-intensive industries was no longer a viable option. The opposite is true, of course. Pushing exports in industries where a country has a natural advantage has proven a winning strategy time and again. Nor does any other nation lose. As the overall pie of wealth gets bigger, each prospers even if the proportion of its slice decreases.

If a country is rich in a certain natural or human resource, its government should make sure nothing gets in the way of entrepreneurs who want to develop it, be they local or foreign. By allowing the latter a piece of the action, a nation benefits from the multiplying effects of investment, technology transfers and increased employment. And all the better if heavy tariffs or other forms preferential treatment could be avoided.

In most cases, government’s main job should be to get out of the way of business. Heavy-handed intervention in industrial policy generally does not work. It tends to create inefficiencies and artificial barriers to wealth. Governments should concentrate instead on liberalizing their own trade laws and pushing the same cause internationally. Freeing commerce

allows natural, human and capital resources to flow into endeavors where they are most efficient. Governments should keep interest rates and taxes as low as possible and use revenues to improve infrastructure. They should also make sure the national bureaucracy is capable and relatively clean.

There is some truth to the argument that the region’s economic dynamos “had it easy back then.”Nations with scant resources and hardworking, though largely untrained, populations were able to export their way to wealth in the past three decades. One reason was that markets in North America and Europe were open and booming. Cold-War imperatives also helped. In part, they enabled some countries to protect infant industries. Today’s world is a harsher place. Developed countries are still in the grip of recession and a developing nation may face retaliation for even the most innocuous form of “non-tariff barrier”– for example, tax incentives for certain industries. But as Asia becomes wealthier, it will serve as a huge new market to which developing countries can sell their goods. And the proliferation of technology and sources of capital will make it easier for fledgling industries to forge ahead.

Readers of the World Bank study would do well to remember that its sponsor is an organization that deals essentially with governments. It was created to help them intervene in the development process. Its

prescriptions can be faulty if they call for strategies to be imposed from the top instead of generated by businessmen. Hopefully, the bank’s report will note that in the end it is economic freedom – to apply entrepreneurial creativity, work hard and reap the rewards of such efforts –that makes any individual or nation wealthy. That was, and is, the secret of Asia’s success.