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It
is dja vu, a reminder of the incredible growth rates of the Soviet Union in a bygone
era (1920-1990). Krugman sees surprising similarities between East Asia and the
former Soviet Union. Both engaged in an extraordinary mobilization of resources.
In the case of the Soviet Union, Krugman notes, Stalinist planners had moved
millions of workers from farms to cities, pushed millions of women into the labor
force and millions of men into longer hours, pursued massive programs of
education, and above all plowed an ever-growing proportion of the countrys
industrial output back into the construction of new factories. According to
Krugman, East Asian leaders have been just as authoritarian, pushing more of the
population to work, upgrading educational standards, and making an awesome
investment in physical capital. In short, East Asia is just like the Soviet Union,
growth achieved purely through mobilization of resources. Moreover, like the Soviet
Union, growth in East Asia is likely to diminish, due to limits on labor and capital.
Krugman states, it is likely that growth in East Asia will continue to outpace growth
in the West for the next decade and beyond. But it will not do so at the pace of
recent years.] Asia is subject to the law of diminishing returns.
The answer is clear. The Asian economies have grown rapidly for a number of
reasons. First, they are largely market-friendly, avoiding wage-price controls and
excessive regulation of business. Second, they encourage macroeconomic stability
(avoiding high levels of inflation and budget deficits), limit government activism,
and discourage social welfare schemes. Third, they offer stable and secure financial
and legal systems. Fourth, they promote high levels of saving and capital
investment rather than high consumption spending. Fifth, many East Asian nations
offer tax holidays for export-oriented businesses and impose few (if any) taxes on
investments. Sixth, they are open to global technology and foreign capital.