How to Get Rich the Asian Way

By Steven Mufson
Sunday, September 6, 2009

THE MIRACLE

The Epic Story Of Asia's Quest For Wealth

By Michael Schuman

HarperBusiness. 422 pp. $29.99

What makes an economy tick? What makes it grow?

In 1890, Japan's average income was only somewhat higher than Mexico's and lower than Argentina's. Yet a century later -- despite the devastation left by World War II -- Japan's average income was nearly three times as great as Mexico's, more than twice as great as Argentina's and only modestly lower than that of the United States. From the late 19th century to the end of the 20th, Japan's economy managed to grow twice as fast as Britain's. How does a nation do that?

Japan is not alone. In the early 1960s, South Korea was poorer than Liberia; 35 years later it was a member of the club of rich industrial nations, the Organization for Economic Cooperation and Development. Why did one nation transform itself while the other fell deeper into poverty and disarray?

These are the sorts of questions journalist Michael Schuman sets out to answer in his cleanly written book "The Miracle." For readers unfamiliar with the story of Asia's rise, Schuman provides an engaging and readable account of some of Asia's key policy makers, national leaders and business tycoons. It is economics as biography, character as developmental destiny.

Almost every chapter features a political leader and private business figure. For Japan, Schuman gives one leading role to Shigeru Sahashi, a career bureaucrat in the Ministry of International Trade and Industry, which picked economic winners and provided them with loans and protection. The counterpart is Akio Morita, the founder of Sony, who defied Japan's industrial planners to build his own empire. For South Korea, Schuman pairs military strongman Park Chung Hee, who mimicked Japan and steered money to a handful of sectors such as steel, and Park's favorite businessman, Chung Ju Yung, founder of Hyundai, a sprawling conglomerate that builds highways, cars and ships, among other things.

For China, Schuman describes the reforms of Deng Xiaoping. He appropriately gives credit to Wan Li's introduction of private farming plots after years of collectivization, a move that gave peasants an incentive to work hard, and to Deng's lieutenants Zhao Ziyang and Hu Yaobang. He points to Deng's decision to permit freer capitalism in special economic zones. Later Schuman profiles the head of Lenovo, which eventually bought IBM's personal computer manufacturing business. Business, political and military leaders from Indonesia, Hong Kong, Singapore, Malaysia, Taiwan and India also march across Schuman's stage.

One important point Schuman makes is that even though the Asian tigers are often lumped together in the minds of Americans, those nations took different routes to prosperity. Japan and South Korea protected their home markets, while Hong Kong and Singapore welcomed foreign investment and companies. South Korea nurtured its own unwieldy conglomerates, or chaebols, while multinationals took the lead in Singapore. India infused energy into its economy by controlling and shrinking its bureaucracy. And China's government under Deng interfered less in the economy, while Korea and Japan's governments interfered more.

So what binds these nations' experiences together? Schuman presents the leading explanations for Asia's stunning postwar economic success: culture, authoritarian leadership, industrial planning, high savings rates (itself perhaps a facet of culture) or some combination of them all.

Yet the precise combination of ingredients for the elixir of economic success remains elusive. For example, if Asia's economic success is a cultural phenomenon, why does performance change both for better and worse? Japan's economy stagnated in the 1990s, but the country was culturally more or less the same as before. In addition, Asia has catapulted forward because it started at a low point. Economic growth depends on productivity gains, and the impact of capital investment is greatest when a country has essentially no machinery or equipment. Looking forward, it is unlikely that Asia's growth rates are sustainable.

Asia's economic development has not come without its dark side, and Schuman honestly maps out such negative developments as political repression, cronyism and uncontrolled and reckless corporate expansion. Yes, South Korea developed. But the military government came very close to assassinating a democratic activist who later became president. Malaysia has boomed, but its leading opposition figure has been in and out of jail for having the temerity to challenge the leadership. And many of the companies that reaped the benefits of cozy relationships with authoritarian leaders ran amok, borrowing far more than they could afford. Schuman pays less attention, however, to the plight of scores of millions of poorly paid workers, environmental degradation in China or the extreme inequality in India and China.

On balance, this is a mostly admiring account of Asia's "quest for wealth." Schuman's explanation of the "Miracle" -- he reverently capitalizes this shorthand for the region's economic transformation -- veers close to Asian chauvinism and goes too easy on Asia's authoritarians. He says that it is a thorny question whether South Korea needed a "developmental dictatorship" in order to achieve its economic success. It was certainly thorny for anyone who opposed the country's ruler, Park. But Schuman is ready to excuse authoritarianism for the sake of economic growth. "For the most part . . . Koreans willingly sacrificed civil liberties in return for national economic advancement," he writes.

A less myopic view of what it takes to transform a poor country might question further the alleged benefits of authoritarianism. In Latin America, the economies of nations such as Chile and Brazil have thrived under democracy after years of floundering under authoritarian rule. In 1900, Brazil's average income was lower than Indonesia's. By 1997 it was nearly twice as high. In Africa, today's democratic Ghana is growing quickly now that its authoritarian era seems safely behind it. Meanwhile the continent's many authoritarian rulers, from Zaire's Mobutu Sese Seko to Zimbabwe's Robert Mugabe, have done little for their nations' development.

Perhaps the "Asian model" is not a model for everyone.

Steven Mufson covers energy for The Post. He has also reported on economic policy, foreign policy and China.

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