Rethinking Asia's Economic Miracle

The Second World War had a devastating impact on much of East and Southeast Asia. The scale of the destruction was immense. The Japanese Army’s occupation of parts of China and its sweep through Southeast Asia combined with the American bombing campaigns of the final year of the war to ensure that in nearly every corner of the region much of the physical infrastructure was destroyed and the social, economic and political institutions severely dislocated if not washed away altogether. One eyewitness to the Japanese occupation of Singapore saw ‘a whole social system crumble suddenly before an occupying army that was absolutely merciless’ (Lee 1998: 74). An American journalist who entered Tokyo a few days after Douglas MacArthur accepted the surrender of the Imperial Japanese Government writes of it being a ‘sea of rubble’ (Christopher 1983: 17). And miles away in Hong Kong, ‘thousands of buildings lay derelict, engulfed by vegetation and crawling with rats’ (Snow 2003: 263). Even after the war’s end, chaos and destruction rippled through the region as bouts of localized violence flared up in different places. Some fighting simmered on for years as the tensions and conflicts unleashed by the Second World War played themselves out. In China, it produced a civil war and in Korea a full scale conventional war

The Korean War broke out on 25 June 1950 and had an immediate and dramatic impact on the geopolitics of East and Southeast Asia and the economic fortunes of the region. Some analysts of Asia’s economic success acknowledge the importance of the Korean War to the process of creating the ‘miracle’ economies. In particular, those who seek to explain the success of the Asian economies in terms of the exercise of US hegemony have recognized the Korean War as marking the beginning of US involvement in the region (e.g. Cumings 1984a). Similarly, early analysts who employ the neoclassical economic explanation and some who adopt a statist perspective in accounting for the success of the original seven ‘miracle’ economies note the significance of American economic and military aid in helping to get the economies of Japan, Taiwan and later South Korea on their feet after the devastation of the Second World War and its aftermath (e.g. Cole 1980; Johnson 1982).

From the end of the Korean War to the middle of the 1960s, the Cold War dominated life in East and Southeast Asia. The immediate threat was thought to be an invasion by one of the communist countries. It was widely perceived that China, North Korea and – after the 1954 Geneva Agreement – North Vietnam, possibly in conjunction with the Soviet Union, were all capable of mounting an attack. The success of the People’s Liberation Army in taking over China and fighting the Americans to a standstill in Korea was portrayed as clear evidence of how powerful the communists had become. There was also the fear of communist subversion destroying a society from within. The communist-inspired guerrilla wars in Malaya, the Philippines and Vietnam were widely seen as evidence that communism was trying to infiltrate the region by whatever means it could. Moreover, hand-in-hand with this ubiquitous sense of threat came a sense of vulnerability and insecurity. Few wanted a return to the chaos and destruction of the fighting during the war years of the 1940s and its spill-over into the early 1950s.

In early August 1964, the US claimed that American naval ships operating in international waters in the Gulf of Tonkin were attacked in two separate incidents by North Vietnamese torpedo boats. President Johnson immediately ordered retaliatory air strikes against North Vietnam. He sought and received authorization from Congress to use military force to counter what was portrayed as an increasingly successful communist campaign to take over South Vietnam. In February 1965, the first regular US combat troops arrived at Da Nang air base in South Vietnam. A few months later they were fully engaged in the fighting. From that point on, troops were quickly deployed to the region. By early 1969 there were over 540,000 US military personnel based in Vietnam. Towards the end of 1969, discouraged by the obvious lack of success in combating the communists, the US began a ‘Vietnamization’ of its war effort. By the end of 1971, Washington had reduced the number of US soldiers stationed in Vietnam to 139,000. In January 1973, a peace agreement was signed with North Vietnam and by March, America’s military participation in the War had essentially come to an end.

In 1976, in a move that symbolized America’s waning influence in Southeast Asia, the US government was asked to close its bases in Thailand. The US agreed to the Thai government’s request. Coming close on the heels of the official end of the Vietnam War in 1975, it appeared that America was interested in turning its back on a particularly divisive and dispiriting period in its history. The US did retain its bases in Japan, South Korea and the Philippines and continued to provide a nuclear ‘shield’ in the face of the communist threat. However, troop withdrawals, which followed the announcement in 1969 of the Nixon Doctrine and the new US policy of promoting greater regional self-help in defence, continued through the 1970s (Weintraub 1978; Woo 1991: 123–25). From 1976 onwards, military aid to East and Southeast Asia was reduced. US economic aid to Asia dropped from an annual average of US$1.25 billion in the early 1970s to average US$500 million per year during late 1970s and early 1980s (Inada 1989). That US firms continued to invest in the region and that the US market remained open were crucial to the rapid development of the initial set of ‘miracle’ economies – Japan, South Korea, Taiwan, Hong Kong, Singapore, Malaysia and Thailand. But, despite President Reagan arresting the decline in America’s military interest in the region during the early 1980s, the US was not the dominant military or economic force in East and Southeast Asia that it had been up to the early 1970s.

The Cold War came to an end in 1989. In Europe, this was symbolized by the fall of the Berlin Wall. In Asia, it was marked by the withdrawal of Vietnam from Cambodia and the signing of an agreement between the Communist Party of Malaysia (CPM) and the Malaysian and Thai governments by which the CPM was dismantled. Although vestiges of the Cold War lingered on in the Korean peninsula and the Taiwan Strait, communism was no longer seen as the threat to the region it had once been. Just as the Cold War was a major factor in the rise of Asia’s first three waves of ‘miracle’ economies, so its demise also had a significant effect. The international context within which the successful Asian economies had achieved their rapid rates of growth changed in very important ways. And these changes, in turn, had an impact on the domestic dynamics that shaped each Asian country’s economic and political life.

In the 20 years following the 1997–98 Asian financial crisis (AFC) the development of the ‘miracle’ economies of East and Southeast Asia were dominated by the rise of China. Just as the US was a major driver of economic development through the 1950s, 1960s and 1970s and Japan during the 1980s and 1990s, so China was the critical factor in the region’s economic growth after the turn of the century. Even though China’s economy did not surpass that of Japan as the second largest economy in the world until 2010, the rapid growth in the Chinese economy, which averaged well over 10 percent annually from 2002 to 2011, gave neighbouring economies a real boost. However, from 2012 onwards growth in the Chinese economy slowed to under 8 percent annually. This slowdown created problems for those economies of East and Southeast Asia which had become closely linked to the expanding Chinese economy.

This book argues that the geopolitical history of East and Southeast Asia had a major impact on the economic success of the region’s ‘miracle’ economies. The series of ‘hot’ wars, such as the Korean and Vietnam Wars, that preoccupied the region from the Second World War onwards, in conjunction with the all-encompassing Cold War, significantly shaped the political and economic institutions that emerged in the three waves of highly successful Asian economies. No analysis of the booming economies of Japan, South Korea, Taiwan, Hong Kong and Singapore and, subsequently, Malaysia and Thailand; the more recent success of China and Vietnam; and, by comparison, the more sporadic success of Indonesia and the problems of the Philippines is complete without considering the crucial geopolitical context. Just as importantly, the institutions and policies that were put in place in the ‘miracle’ economies during the Cold War years have been perpetuated by the developmental-state coalitions that still play an influential role in economic policy-making. There is, then, a need to rethink the way we examine East and Southeast Asia’s remarkable economic success, the 1997–98 Asian financial crisis, and the way the region’s achievements have been continued into the twenty-first century.