Economic lessons from Lee Kuan Yew

By John Ross
0 Comment(s)Print E-mail, March 24, 2015
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This reality was first noted in the 1990s by the United Kingdom-based economist Alwyn Young. His finding was used by U.S. economist Paul Krugman in a famous 1994 paper entitled "The Myth of Asia's Miracle" to predict Asia's coming economic failure. Krugman argued that successful economic growth should be based on productivity development, not on accumulation of capital and labor. But, of course, it was Krugman who was proved wrong as Singapore's per capita GDP overtook even that of the U.S.

Young's finding has since been replicated by every major study of Singapore since. The latest, by Vu Minh Khuong of the Lee Kuan Yew School of Public Policy at the National University of Singapore, is summarized in Figure 2 below. This study found that 59 percent of Singapore's economic growth came from capital investment, 34 percent from growth of labor inputs, and only 8 percent from productivity (TFP) increases.

Figure 2

In short, every study has found that Singapore's achievement of the highest level of economic development in Asia - a higher level of per capita GDP than the U.S. - was based on massive accumulation first of capital and then of labor, with productivity growth playing a tiny, almost nonexistent, role.

Vu, in the most exhaustive study of the subject so far, also found that Singapore's model corresponded to successful economic development in Asia in general. Successful Asian developing countries showed a pattern of economic growth fundamentally driven by capital accumulation. As Vu summarized, "The secret of the Asian growth model lies not in achieving high TFP growth but in sustaining reasonable TFP growth despite the intensive mobilization of factor inputs over extended periods."

As Dale Jorgenson of Harvard University, whose work has led to the most modern official methods of calculating the sources of economic growth by the OECD and other international agencies, put it, "The emergence of Asia from the underdevelopment that persisted until the middle of the last century is the great economic achievement of our time. This has created a new model for economic growth built on globalization and the patient accumulation of human and non-human capital. Economic commentators, especially those outside Asia, have been reluctant to recognize the new paradigm for economic growth that originated in Asia, since this would acknowledge the failure of Western ideas that still greatly predominate in the literature on economic growth and development."

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