Asian NIEs and the Global Economy: Industrial Restructuring and Corporate Strategy in the 1990s.

Hong Kong, Korea, Singapore, and Taiwan are alternatively known as the Newly Industrializing Economies (NIEs), the Dragons, or the East Asian Tigers. They are aptly named because, as their appellations combine to suggest, they have been ferocious in growth. During the decade of the 1960s, their rate of labor productivity growth averaged 6.3 percent and continued at 6.0 percent and 5.4 percent into the decades of the 1970s and 1980s respectively. Those rates far outdistanced the ones for the Organization for Economic Cooperation and Development (OECD), whose member countries mustered percentages of 4.2, 2.1, and 1.7 sequentially over the three decades. In keeping with such discrepant growth experiences, the productivity level of the Tigers has been catching up to the level of the OECD; that is, the Tigers have been converging to the leading countries in standard neoclassical fashion. Indeed, they represent a rather impressive, if not miraculous, success story told by various narrators including the present reviewer [1].

The volume edited by Clark and Kim has a different story to tell. The Tigers are in trouble. Running along the path of convergence, they have suffered an erosion of competitive advantage because their labor-intensive industries in garments, electronics, and footwear have been plagued by worsening labor shortages and rising labor costs inter alia. Presently the Tigers find themselves being squeezed from above and below [pp. 6, 219, 252]. Pressure from above involves the political economy of a world trade framework that is strongly influenced by multinational firms. Pressure from below revolves around competition from low-cost nations like China - the Panda - and the Southeast Asian Lions of Indonesia, Malaysia, and Thailand. The moral of the microeconomic tale [pp. 52, 277] by Clark, Kim, and their colleagues is that firms must restructure their operations if the Tigers are to break the grip of the vice and to revitalize their economic performance.

Anchored by a corporate survey from the East-West Center in Honolulu, Hawaii, the book has ten chapters segmented into three parts. In addition, it offers an appendix that reproduces the survey instrument, it brings all references together in a single section, and it includes author and subject indices along with a list of abbreviations. Biographical sketches of the nine contributors are provided as well. The diverse orientations of these scholars seems to be fitting because the volume is obviously aimed at a diverse and broad audience. Accordingly, it is written in an easy-to-read style, and it is light - perhaps too light - on rigor.

Part I, entitled "Global Economic Forces," contains three chapters, the first being the effort by Clark and Kim. Expectedly, this piece presents the theme of the entire volume [p. 4] and summarizes the contents of the individual chapters that follow. However, it also stresses the importance of international trade in the growth success of the Tigers and returns repeatedly, as does the entire volume [pp. 66, 86, 198-99, 277], to the notion of export-led growth. Insights of its own include an interpretation of the Asian development state; namely, government's involvement as an architect of the growth process [pp. 17-18]. It closes with the belief that the future of the Tigers rests in their economic relationship with China [p. 21].

Chapter 2, cast by Michael Webber to include familiar algebra, understands restructuring as an economically motivated process whereby nations switch from one growth model to another [p. 23]. In Webber's judgment, the Tigers are in flux between paradigms [p. 39]. And with the weakening of the Asian development state, their transition from the old system to the new order might need to rely crucially on market imperatives [pp. 50-51]. Plainly, few economists would object to that prospect.

In Chapter 3 Clark examines the four Tigers in the global context. He reasons that since the Tigers base their success on export-led, market-demand forces [pp. 66-67], they are vulnerable to turbulence in the global economy [pp. 56, 67]. Factors behind that turbulence include oil price shocks, exchange rate volatility, the political economy of trade, and financial speculation. Clark also cites the movements of consumer prices and real manufacturing wages. Real wages are shown to rise temporally in each of the Tigers [p. 59], and that pattern invites an intuitive explanation: World demand for Tiger products shifts labor demand curves rightward boosting real wages. Simultaneously, labor shortages arise and imply a leftward shift in the Tiger Phillips curves. Empirical work [2] supports this intuition, but Clark elects to stop the inquiry short of its Phillips curve implication. In a related matter, Clark disputes the widely known conclusion by Robert Barro that growth is "substantially positively related to the starting amount of human capital" [p. 63]. The human-capital hypothesis is faulty, says Clark, because it fails to recognize the role of exports and market demand in the Tiger's growth experience [pp. 65-67].

Part II, "Dimensions of Corporate Strategy," spans five case studies and constitutes the heart of the book [p. xii]. Chapter 4, by Stephen W. K. Chiu and Tai-lok Lui, examines Hong Kong. Chapter 5, by K. C. Ho, looks at Singapore. Korea comes next and occupies two chapters. Sam Ock Park studies Seoul in Chapter 6 whereas Jung Duk Lim focuses on Pusan in Chapter 7. Taiwan, discussed by Ching-lung Tsay, is Chapter 8. Taken together, these five studies identify strong similarities across the individual economies.

For instance, all economies see their labor intensive industries being challenged by labor shortages, high labor costs, and other complications such as fluctuating exchange rates and competition from the Lions and the Panda. Meeting these challenges entails restructuring business operations through technological progress, organizational change, new labor practices, and foreign direct investment. Technological progress, whether homegrown or imported, aims to raise productivity in tight labor markets. Organizational change, which involves the subcontracting and the contracting out of work components, helps firms to seize lower labor costs elsewhere and to improve their production flexibility in response to fluctuating market circumstances. New labor practices, from employee training to improved working conditions, seek to retain labor that is already in short supply. These strategies make great sense. So does foreign direct investment, but it has a twist because it entails investing in the Lions and the Panda - the very economies that compete with the Tigers. This "fight 'em and join 'em" tactic [pp. 257-59] underscores the immensely complicated economic relationship that exists among the metaphorical creatures.

Of course, not everything is similar across the Tigers [p. 67]. Differences include the commitment to technical progress (Hong Kong, p. 90, versus Seoul, p. 165) and the hierarchy of industries in the local communities (shoes in Pusan, p. 168, versus electronics in Singapore, p. 116). Perhaps the most dramatic difference is the role of the government in orchestrating the growth process. In Hong Kong the government remains largely passive [pp. 31, 53, 102] whereas in Taiwan it is a principal agent [pp. 198-99, 213]. As already mentioned, such differences in the development state draw the attention of Clark and Kim in the opening chapter [pp. 17-18].

Deserving special mention in Part II is Lim's Chapter 7. This engaging essay on Pusan describes the worldwide athletic-shoe industry as oligopsonistic with Nike, Reebok, and L.A. Gear being major buyers of Korean footwear products. As typical, these giants exhibit substantial influence in the market and, more particularly, control the economic fortune of Pusan [pp. 171-72]. Passing along the striking statistic that the retail price of Nike or Reebok is four or five times higher than the FOB price in Korea, Lim calls on Korea to develop its own brand name with which to confront the giants head-on [pp. 189-90]. He further contemplates economic cooperation with North Korea, whose relatively cheap labor might mesh well with the capital and technology of South Korea. Both proposals are refreshingly bold although likely impractical. Still, they must be applauded for having a sense of vision.

Part III, "Asian NIEs in Perspective," presents two essays. In Chapter 9 Kim steps back from the individual case studies of Part II and conducts analysis across the cities surveyed. In that city collection Korea is represented twice - by Seoul and Pusan - but Taiwan is ignored altogether in what only can be regarded as an awkward survey design that sacrifices instructive comparisons.

Awkwardness aside, the chapter turns to regression analysis, where Kim matches firm strategies against determinants that include the extent to which business has an export orientation [pp. 237-45]. Since the volume continually asserts that Tiger growth has been export led, an assertion endorsed elsewhere [3], a reasonable anticipation is that exports would be a significant factor behind firm strategy. Nonetheless, the export coefficients prove to be insignificant in wholesale fashion across regressions, and their sign pattern proves to be random. These findings hardly constitute convincing evidence for the export-led hypothesis. Moreover, they raise the possibility that other hypotheses may have validity in the Tiger context.

Once such alternative holds that the Tiger experience is due to the growth of physical capital that embodies new technology [1]. In fact, support for this efficient-capital thesis can be found throughout the pages of the book [pp. 15, 116, 166, 248, 264] and especially in the endeavor by Webber, who notes that efficient capital growth may have caused export-led growth [pp. 34-35]. It must be remembered, of course, that economic growth has many causes, some of which could be interdependent. This sentiment is echoed by Clark, who insists that the formulation of a single, distinctive model of Asian growth is inappropriate [p. 67]. Consequently, the export-led and the efficient-capital hypotheses may be valid together although they may carry different weights and may operate through different channels. The same might be said even for the disputed human-capital notion.

Chapter 10, by Clark and Kim, rounds out the discussion by contemplating the future of the Tigers [p. 253]. Importantly, those thoughts center on China [pp. 258-65] and extend an idea that the editors advanced earlier [p. 21]. They also fill at least partly the vacuum created by the failure of the preceding chapters to deal comprehensively with the reversion of Hong Kong to China and with the tension across the Taiwan Strait. Unquestionably, Hong Kong reversion and Taiwan tension are critical issues that affect the future of the Tigers specifically and the Asian-Pacific region generally, but they tended to receive only fleeting reference [pp. 12, 15, 51, 103, 224, 248]. Chapter 10 helps to fill the void although it might have gone still further in discussing the historical and political linkages between the Tigers on the one hand and the Panda on the other. The essay's final assessment and, therefore, the volume's last word concerning the economic prognosis for the Tigers is somber: The rapid growth enjoyed by the Tigers is a thing of the past [p. 278]. While somber, this conclusion is only natural given the nature of neoclassical convergence.

Judging the merits of a professional contribution turns on numerous criteria. If those criteria include the timeliness and importance of the subject matter, the informativeness of the presentation, and the ability to provoke new thinking, then the present volume rates high marks. Assuredly, it does have blemishes ranging from survey awkwardness to uncompelling econometrics to expository lapses. Nevertheless, it remains a useful and recommended reference piece for any scholar interested in the growth of Dragons [p. 24], Tigers, Lions, a Panda, or even [pp. 255-56] Geese and a Duck.

James H. Gapinski Florida State University 

References

1. Gapinski, James H., "The Growth of Tigers, Elephants, and Other Metaphorical Creatures under Heterogeneous Capital." Southern Economic Journal, July 1997, forthcoming.

2. Lu, Yang. "Two Tigers and the Phillips Curve." Unpublished Manuscript, Department of Economics, Florida State University, April 1996.

3. Western, D. L. The East Asian Miracle: A View from the South. Perth, Western Australia: By the Author, Curtin University, 1996.