Asian economic miracle could continue: Study

Asian economic miracle could continue: Study

GENEVA (Reuter): Asia's "economic miracle" of the past 30
years, the future of which has been questioned as growth in key
countries has slowed, could continue for many decades, according
to an authoritative Swiss report.

But further advance well into the 21st century will depend on
governments pursuing policies that sustain high savings and
investment and bring reform to agriculture and services, said the
report from the Union Bank of Switzerland (UBS).

"If East Asian nations remain open to competition and
technology, and can avoid the pitfalls of heavy social subsidies
as their economies mature, an Asian 'miracle' can continue for
many decades," it declared.

"High saving and a social commitment to education explain part
of the Asian success. They will not quickly fade," the report
said.

"Policies that subsidize sunset sectors like agriculture or
heavy industry and those that artificially raise labor or capital
costs appear more important in explaining slowing productivity
growth than any shortage of new technology.

Compiled by analysts at the bank, Switzerland's biggest and a
major player on the global financial scene, the report appeared
in the latest edition of the UBS English-language magazine,
International Finance.

The UBS analysts said their findings cast doubt on suggestions
by some prominent economists that Asian growth could not continue
because it had come simply from adding labor and capital more
rapidly than other countries.

These economists have argued that a decline in export growth
from the major East Asian countries was an early sign of overall
burn-out and a reflection of challenge from other developing
economies elsewhere in Asia and in Latin America.

But the UBS study, like a recent report by a senior World bank
official, found little support for this conclusion.

Lower income countries could grow much faster than those
further up the development ladder if they organized their
economies to use available technology efficiently and took full
advantage of gains from international trade, it said.

"The basic factors that have been critical for Asia to take
advantage of these opportunities appear durable -- high saving,
the drive for education, and the will to organize economies to
meet world market competition," the report added.

"The risks to continued above average Asian growth lie in
politics, not in economic competition from the rest of the world,
temporary infrastructure bottlenecks, shortages of particular raw
materials, or other often voiced concerns."

The UBS analysts pointed to what they called "the relatively
closed consumer goods and service markets" of many Asian
countries as a potent reserve that if tapped could provide strong
support for sustaining overall growth rates.

"While manufacturing productivity is rising rapidly,
productivity in the service industries remains relatively low,"
the report said.

If Japan, for example, opened up its retail and financial
sectors to modern technology and international competition, it
added, this would produce above average overall economic growth
even if productivity growth in manufacturing slowed to the pace
of other advanced industrial economies.

Two of the leading "dragons" -- the city states of Hong Kong
and Singapore -- could both maintain growth if they sustained
high investment rates and ensured their economies were fully open
to global markets and international competition.

For Hong Kong, the change to Chinese sovereignty in mid-1997
would probably transfer income to the hinterland. "But above
average growth should still be possible if China as a whole
continues to grow rapidly," the report said.