Contemporary Economic Issues

Japanese economic development has been regarded as a ‘miracle’ or an ‘outlier’, which requires an explanation based on something other than mainstream economics. Both non-economic factors, such as culture, religion, and social tradition and economic factors, such as lifetime employment and industrial policy, were discussed as unique, exogenous elements that explained the economic success of Japan. It was implied that those factors were so unique that it could not be repeated elsewhere. However, the view of Japan as an idiosyncratic miracle waned in the 1980s, for two reasons: mainstream economics became more sophisticated so that what were regarded as inexplicable economic institutions in Japan came to be explained with regular economic tools with generalized assumptions, while other East Asian economies, with economic institutions and policies similar to those of Japan, sustained a period of high economic growth, reminiscent of Japan’s ‘miracle’ some decades earlier, appearing to show that Japanese economic development could be replicated. This chapter reviews these two strands of thought: what appears unique in Japanese economic development, from the 1950s to the 1980s, in fact makes economic sense and is replicable by other developing economies given the right initial conditions. The role of industrial policy is examined closely.

A notable common feature of the South Asian economies has been their uniformly rapid growth over the last decade or so. Through the 1980s and 1990s, South Asia’s growth performance as a region ranks next only to the miracle economies of the Pacific rim (including, of course, China). Set against the canvas of protracted stagnation in the OECD countries, of the ‘lost decade’ in Latin America and of the perpetual crisis of most of Africa, South Asia’s economic success is both spectacular and surprising.

Tunisia offers an original example in the Arab world. Despite a number of handicaps such as a rather small territory, which is partly semi-desert and has few natural resources, in 30 years the country has managed to increase the population’s standard of living by 160 per cent, greatly slowed population growth, eliminated extreme poverty and created a large middle class so that inequalities have clearly diminished by comparison with those observed under the former Protectorate.

Since the end of the Second World War, we have witnessed a continuous expansion of the club of developed countries. The process accelerated during the 1970s and 1980s. Some countries, the newly industrialized countries (NICs), like Japan, South Korea, Taiwan and Singapore, achieved phenomenal growth rates. Others, like Tunisia, despite remarkable efforts achieved only moderate but fluctuating growth rates. The mean growth rate was 5.1 per cent and the standard deviation 3.6 per cent (see also chapter 4 in this volume).

The transition to democracy and the market economy in Central and Eastern Europe (CEE) and in the former Soviet Union (FSU) may be the most important political and economic event in the world history of the last decade of the twentieth century. This chapter deals mainly with the problem of the optimal transition strategy and its political economy determinants.¹ The intention is to revisit the controversy of how quickly and radically the new market rules (and their individual components) should be adopted in the formerly communist countries (FCC). Particularly, the chapter deals mainly with two basic questions:

This chapter concentrates more directly on welfare than the transition. Only if the transformations fulfil certain conditions of political acceptability will the momentum of the reform process be sustained and with it the growth it should eventually foster. A particularly simple model (Balcerowicz, 1995) suggests that the electorate’s critical faculties are suspended for a predetermined period after the fall of communism and that anything could be done during the opening of this ‘window of opportunity’ (see also Chapter 6 in this volume).

China is the first among the socialist countries to engage in wide-range economic reforms and so far the most successful one. China’s reforms started at the end of 1978. Since then, China has joined the rank of East Asian NIEs and achieved an average annual growth rate of 9.6 per cent, while the price level has been relatively stable (see Figure 8.1). In the 17 years between 1978 and 1995, the size of China’s GNP increased about five times. As a consequence, the living standard of people improved significantly. It is no exaggeration to say that such a rapid rate of economic growth in such a large country for such a long period of time has never occurred elsewhere in human history. This achievement is especially extraordinary when the Chinese experience is compared with the economic collapse and stagnation in Eastern European countries and the Former Soviet Union (FSU) during their reform process.

Section 1 of this chapter discusses the change of roles and professional capacity building of Chinese economists in response to the challenges of economic reform. Section 2, through a brief account China’s economic reform process, describes how economists can influence the decisionmaking process of reform. Some comment is also made on their actual roles. Section 3 looks at Chinese economists’ special roles in promoting a pro-reform social consciousness, and section 4 provides an analytical review on institutional constraints and historical background to the limited roles that Chinese economists have played in economic reform in an international perspective.

After pursuing for many decades economic policies which disregarded macroeconomic fundamentals and were based on heavy government intervention and isolation from foreign trade, the last decade has witnessed a major overhaul of economic policies in Latin America. These changes were started in Chile in the middle of the 1970s and then extended to most countries in the region. This revolution resulted in a frontal attack on public sector deficits and in a drastic change of the traditional import substitution-cum-government intervention model that had emerged following the great depression and the end of the Second World War.¹

Morocco and Tunisia both signed comprehensive integration agreements with the European Union in the early 1990s. These agreements consist of two essential elements — increased aid flows and technical assistance in exchange for reductions in trade barriers and other impediments to the flow of goods and investment over a period of 12 years. The EU-Mediterranean initiative, of which these agreements form a major part, is one element of a much broader European strategy to forge trade alliances with countries on Europe’s periphery. Agreements with some 10 Eastern European countries in transition were signed in 1991, and the European Union is negotiating with Egypt and Jordan to extend its web of integration agreements to the Mashreq. These European initiatives are intended to promote more rapid convergence of incomes between Europe’s transitional and developing economy neighbours and the European Union.

The ongoing peace process in the Middle East has aroused considerable interest in the potential for economic cooperation and integration in the region, especially among the parties to this process. The underlying presumption seems to be that in addition to the direct social and political benefits of the resultant economic growth, integration will also ensure that peace, once attained, will continue to be maintained, the economic costs of disrupting it becoming prohibitively high.