How the Asian Tigers and Wall Street Reshaped the American Economy

How the Asian Tigers and Wall Street Reshaped the American Economy

IN The book “The American Economic Miracle and Alexander Hamilton” by Stephen Cohen and Bradford DeLong examines the latest “modernization” of the American economy, which began in the 1980s under the influence of the export expansion of the Asian tigers and large-scale deregulation in the field of finance.

“Economic Truth” publishes excerpts from the book published by “Nash Format” publishing house

Two teams, Asian and American, conducted something like a plastic surgery operation of the American economy – corrected her body. The transformation of the American market into a home for Asian export industries – manufacturing of steel, ships, cars, machine tools, electronics – was presented as liposuction, the removal of fat from the American economy.

She just lost a lot of muscle. In fact, the weight of manufacturing in the US economy fell by 9%: from 21.2% of GDP in 1979 to 12% at the peak of the last business cycle in 2007. This is a large number – the size of two Pentagon budgets. We can call her Nonagon.

The Washington team carried out “prosthesis” in the place of the lost: deregulation of large and small finances; acceleration of real estate transactions; multiplying the share of economic activity that simply processes health insurance applications. And so on.

Fake economic growth in India

These were supposed to be highly productive, leading sectors of the economy, the share of which increased to 5% of GDP – one Pentagon. Today, they account for a fifth of the entire economy. This is pure inflation of the economy. Excess ballast. When everything goes well, most of it produces zero results – no net profit.

The decline in American production of manufactured goods is not entirely or primarily due to the transition to a post-industrial society, as some would like to think. This transition accounted for at most a third of the relative decline in production.

We can see this at least by the fact that the relative consumption of manufactured goods has decreased quite out of proportion to production. We still needed industrial products.

And we imported them. And those manufactured imports accounted for the lion’s share of America’s trade deficit — 5% of GDP — before the Great Recession reduced imports, as did almost everything else.

In order to finance the purchase of all the industrial goods we no longer produced, we cut back on investment in creating our own goods that we could export. Instead, we accumulated debt – mountains of debt.

East Asian countries sought to increase their production capacity and potential, and our ideological restructuring of the American economy claimed that we did not care because we did not need these sectors.

Asian states sought to expand business lending and accumulate ever larger masses of dollars despite the risk of their devaluation. In return, they received a huge treasure in the form of industries and related engineering communities with technological expertise.

East Asian states practiced the Hamiltonian strategy of protecting and supporting industry. The first was Japan, then this strategy was used with significant modifications by South Korea, and then it was applied on a devastating scale by China.

This has led to unprecedented rapid growth due to the concentration of resources in the production of manufactured goods for export on an ever-larger scale and with ever-increasing complexity and added value.

The bet on the international system of open trade, which America supported at all costs, also played its role. As a result, these states have created the potential for industrial development (using Hamilton’s “turbo mode”) strategy, with government playing a leading and active role.

Is it wrong that the Asian states zealously, systematically and steadfastly protected their young industries from foreign competitors, supported them with all their might, oriented them to exports, restrained consumption and reinvested the proceeds in new and better production opportunities?


And there’s definitely a lot right here: it works. The economies of East Asian countries – industrial, export-oriented, with a high level of investment – grew faster than any other in the history of the world (with the exception of the idle economy of the oil sheikhs and, perhaps, the economy of the financial “sheikhs” of Wall Street).

But this practice, which was first used by the Japanese, is to export more than you import, purposefully choose an industry for the production of products for export (first clothes and toys, then steel and ships, then cars and machine tools, and then electronics) and do it on a global scale – means that some other large country (for example, the USA) must import more than it exports.

This will continue for years, this country will deplete the reserves of its own foreign assets, climb into debt and reduce the scale and income of those of its industries that compete with Asian exporters.

Is this bad in terms of world welfare?


More poor people will become not so poor and a much smaller number of richer people (but not necessarily rich) will become less rich. But this is very reminiscent of textbook economics, which avoids the question of state borders when it comes to economic activity, and the Asian model of development is precisely related to state borders.

Is this correct or not? Depends on whose well-being you care about (unless you unquestioningly believe university economics textbooks about right and wrong).

The textbooks tell us that transactions in a free trade system create a positive-sum game: all parties win. But in industries where there are significant economies of scale, where experiential learning and spillover effects play a large role, the outcome often contains a zero-sum element.

Few governments put the well-being of the rest of the world above the well-being of their own citizens: a gain for one may well be a loss for another, and in most cases it is.

Industries (often critically important ones) experience ups and downs on both sides of trade relations not so much because of the dynamics of the classical free market as because of the decision and determination of the state performing the industry targeting and the willingness of the management of the targeted industries to facilitate this.

This is a significant difference from the automatic balances of the classical doctrine of free trade and mutual benefits from it, where governments do not appear at all in the equations, which have only become more complicated in recent years.

From the point of view of the structure of production and employment, one party gains at the expense of the other, unless that other party (in our case the United States) is able to direct its own resources and people into the industry of the future with even higher added value. Then the game can go on and everyone will prosper.

The party targeted by such a policy has three options:

  1. Reorient one’s own economy to industries with even higher added value.
  2. To ignore what is happening and simply accept the fact that its economy is being rebuilt by Asian states.
  3. To refuse to play this game means either to “disarm” the competitor, forcing him to stop the strategy and measures of targeted export, or simply to block his efforts.

The United States chose option #1 (deliberately moving to higher value-added industries of the future), but at the same time pretended to the world and itself that it chose #2 – to do absolutely nothing and let the free market influence the course of events.

By implementing these bold, if somewhat covert, policies, they allowed their economies to expand into new, higher-value-added activities. But the choice of these same species was very unsuccessful.

This molding of the “new” America was supposed to contribute to the transition of the country to the industries of the future. Poorer peoples in other countries had to sew the seams, pour the plastic into the molds, join the parts and stamp the metal, and we – to focus on activities with a higher added value.

This is exactly what happened under Eisenhower and his successors: the government tolerated a slow shift away from the production of clothes, toys, suitcases, shoes, and luxury goods, and actively supported the transition to advanced technologies such as commercial aviation, semiconductors, and computers.

It was a major investment that for two generations continued to generate entirely new, high-value industries, from the sky (satellites and their communications and military capabilities) to the sea and underground (the use of sound waves and the latest computers to detect oil deposits).

But that was then.

This time, a major reorientation was carried out in the direction of real estate transactions, servicing of health insurance policies and especially finances. It could even be argued that these industries produced nothing (or incredibly little) of value and served mainly to redistribute income upwards.

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