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.