Arnold Kling  

From Poverty to Prosperity Watch

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Dominating the Narrative... Me on Market Wrap...

Josh Lerner writes,


Upon Singapore's independence in 1965--three years after Jamaica's own establishment as a nation--the two nations were about equal in wealth: the gross domestic product (in 2006 U.S. dollars) was $2,850 per person in Jamaica, slightly higher than Singapore's $2,650. Both nations had a centrally located port, a tradition of British colonial rule, and governments with a strong capitalist orientation. (Jamaica, in addition, had plentiful natural resources and a robust tourist industry.) But four decades later, their standing was dramatically different: Singapore had climbed to a per capita GDP of $31,400 (2006 data, in current dollars), while Jamaica's figure was only $4,800.

Lerner, an economist who studies entrepreneurship, writes,

While much of the initial growth in Singapore can be attributed to sound macroeconomic policies, political stability, and various other factors, the nation's entrepreneurship initiatives have played an increasingly important role in stimulating growth.

Read the whole thing. Lerner points to the sorts of institutional factors that Nick Schulz and I talk about in From Poverty to Prosperity. However, I would not advocate any sort of government "entrepreneurship initiatives." As Lerner points out, it is the overall business environment that matters, not whether government has programs specifically designed to support entrepreneurs.


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COMMENTS (14 to date)
stephen writes:

The average IQ in Jamaica is 72. In Singapore, it is 103. This is a huge variable that cannot be ruled out a priori.

John Jenkins writes:
stephen writes:

The much disputed and much hated "IQ and the Wealth of Nations".

http://en.wikipedia.org/wiki/IQ_and_the_Wealth_of_Nations#National_IQ_estimates


BTW I don't wish to claim these numbers are fact, nor that causality runs from IQ to wealth, but I think it should be considered.

david writes:

The first Lee government set prices and industrial policy for nearly every sector of the economy well throughout the 70s. This policy was dismantled later to give the free-market Singapore known now. Singapore was a command economy throughout its early growth. Only by the Goh government were economy-wide price controls lifted.

Nearly all the Asian Tigers and other East Asian NICs - with the noted exception of Hong Kong - imposed massive government intervention in order to favor export-led growth and benefited massively from this.

I suspect Lerner simply looked at current policies and decided that those must be the same policies that promoted growth. Well, no.

Ryan Vann writes:

I simply don't buy the free-market or command-market growth correlations people are making. In my mind, all the Asian Tigers are simply beneficiaries of being second (maybe even 3rd) movers and the higher s-curves granted to second movers.

Every bit of capital they got their hands on added high marginal productivity, without all the RandD costs/or high labor costs. Naturally production rates will be through the roof when those conditions combine. Add in major speculative FDI, and the numbers Tigers posted during their rises shouldn't surprise anyone.

When these Tigers catch up to the rest of the world, they experience diminishing return to capital. At this point, it is much harder to sustain growth and the importance of market structure comes into play.

Les writes:

I have a question for Ryan Vann: if 2nd movers are the beneficiaries of advances in technology, why are Cuba, North Korea, Zimbabwe, Yemen, Sudan, Sierra Leone and Syria not as prosperous as the Asian Tigers?

It would be appreciated if responses simply stuck to factual evidence and avoided attempted witticisms or other diversions.

Ryan Vann writes:

Les,

Second movers are necessarily beneficiaries of previous technology advances; it's pretty much the definition of a second mover. So, I suppose your question is really concerned with whether the Asian Tigers were actually second movers. Considering most of their wealth accrual happened in a 50 year time frame, I'd say that is evidence enough that they were indeed second movers.

Your second question is a bit perplexing. Sudan has seen pretty high growth rates in the same periods as the Asian Tigers, despite issues with civil wars and regime uncertainty. Cuba also had pretty high rates of growth, despite being sanctioned by the US. Zimbabwe was growing rapidly from 1970 to 1980, and then had regime uncertainty, and destroyed their currency (not exactly comparable to the Asian Tigers).

Sierra Leon was pretty much exactly like Zimbabwe. They had crazy growth from the 70s until 82. Then they had a civil war in 91, which pretty much destroyed their growth. They have been doing pretty will in the new millenium, in great part due to FDI (with correspondingly high returns to capital). None of the above countries had nearly the FDI infusions that any of the Asian Tigers did.

Syria has had high growth since the 70s, mostly due to oil (and not capital investments).

So basically, all the countries you mentioned had comparable growth rates as the Asian Tigers, or had high growth rates until their governments were overthrown, and FDI fled the country. If anything that just proves that stable governments (doesn't matter so much what type) are important. None of this is a counterfactual to the second mover idea that I posited.

Mr. Econotarian writes:

Did Jamaica have high levels of economic freedom during the the high-growth periods of Singapore?

It is possible that some countries might grow despite low economic freedom (which may or may not have been the situation of the Asian Tigers), but I would like to see an example of a country with high economic freedom not grow.

I think the more interesting comparison is Jamaica (GDP per capita $8,600 PPP per CIA 2008) with the Bahamas (GDP per capita $30,700 PPP).

Current Index of Economic Freedom score for Jamaica is 65.2, for Bahamas 70.3.

Steve Sailer writes:

If you rank the 156 countries with populations of one million or more in order of per capita GDP, using CIA World Factbook data, the top 23 are made up of one Arab oil country (the United Arab Emirates), four Northeast Asian countries—and 18 countries with populations primarily of European origin.

Number 24 is Israel, where Europeans make up a little less than half the population, but dominate the economy. Not until 33rd place do we find a non-oil country without a predominant European or Northeast Asian population: Trinidad and Tobago, which is 40 percent South Asian and 38 percent black.

The poorest European country is Serbia, which is still ahead of 66 others.

As of 2006, the 43 countries with majority European populations average $22,000 each, the eight Northeast Asian countries $21,000, and the 105 other countries $5,225.

Les writes:

Ryan: thanks for your response. My question was not whether the Asian Tigers were second movers. It was why other countries which had equal access to technological information failed to attain similar prosperity.

Your answer seems to be FDI - but that contradicts your assertion that "I simply don't buy the free-market or command-market growth correlations people are making." Surely you don't mean that FDI is independent of free-market or command-market approaches.

Ryan Vann writes:

Steve,

I thought we were talking about growth rates though, not aggregate production. It is no surprise at all that the top per-capita countries would all be developed nations, with an exception or two for developing oil(or other natural commodity) countries.

Econotarian,

From my recollection Jamaica had very high growth rates from the mid-sixties to early-seventies, which was led primarily by FDI in metal production. After that, their economy completely tanked for some 15 years (in big part due to the oil shocks). They have had difficulties in regards to monetary stability (kind of important for sustaining growth) for a long time.

I honestly don't know much about the Bahamas, and couldn't begin to pin point why they have done better than Jamaica. I do know that Jamaica doesn't invest very much in capital (especially human capital), is dependent on tourism, and thus is primary a service economy (and not the high skilled service type of economy). Also, I highly doubt the Bahamas has a pcGDP of 30,000+, even using PPP.

Pacemaker writes:

Government intervention definitely featured a lot in Singapore's early growth. The government had a massive campaign to promote Singapore as a prime location for investment, cutting deals with various multinational companies regarding tax reductions in return for long-term involvement in the economy. The infrastructure and industrial locales were also built beforehand so that these firms could start operations as soon as possible.

phineas writes:

Somebody asked: "I would like to see an example of a country with high economic freedom not grow." The Catholic part of Ireland (presentday Republic) had very large outmigration and very slow per-capita growth for the 100 years 1860-1960, despite having all the usual Anglophone economic institutions. It also had higher literacy and school attendance rates than most European countries up til about 1940.

In the era since the 1960s, most of the poor countries of the world excluding communist countries have had what I can call economic freedom and even high economic freedom. That includes many African countries. In Iran since the 1979 political revolution, economic growth has crawled very slow (and would be worse without oil exports), yet there's high economic freedom in Iran.

As Arnold says in his new book (which I haven't read), growth depends on the spirit of the people as well as on laws and government institutions.

Holtz writes:

Talk about Occam's butterknife!!

At the macro-social level cognitive competence is more important than economic liberty for the economic growth of nations (Rindermann, 2008a) and it is more important than wealth for the democratic development of countries (Rindermann, 2008b). And intelligence seems to be a sensible measure of development up to indicating failing societies.

Rindermann, H. (2008a). Relevance of education and intelligence at the national level for the economic welfare of people. Intelligence, 36, 127-142.

Rindermann, H. (2008b). Relevance of education and intelligence for the political development of nations: Democracy, rule of law and political liberty. Intelligence, 36, 306-322.

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