A West Asian’s View of East Asian Economic Development

Abstract

The assignment that Professor Hayami gave me at the outset was to prepare a talk on a ‘non-Asian view’ of East Asian development. On second thoughts, I came to the conclusion that I cannot quite comply because I happen to be an Asian myself, albeit from a faraway country — Israel. But there is more to my wording of the title than that. Being an eclectic, I tend to take what might be termed a modified-Western view of the East Asian ‘miracle’, but I will also want to make some comparisons with aspects of my own country’s experience which in several key aspects has had an ‘East Asian’ flavour to its development, at least in the first 25 years of its existence (1948–73). Its subsequent developments have a bearing on a key lesson to be constantly redrawn from the East Asian experience — the overriding importance of prudent macro policies for sustainable growth. Like the East Asian economies, Israel in its early phases had an unusually fast rate of growth, a strong emphasis on education and shared growth, substantial government intervention in the economy, much of it skilfully handled, and a striving for openness (in particular — export-led growth). Moreover some of the social and institutional underpinnings of development bear considerable resemblance to those of some East Asian economies. However, its subsequent developments, in particular its midlife crisis of high inflation and very low growth (1973-85), provide a counterfactual for when a central feature of the East-Asian ‘model’ — fiscal prudence (mostly upheld by shared values and social consensus) — temporarily breaks down. It thus has a bearing on a key lesson to be constantly redrawn from the East Asian experience — the overriding importance of prudent macro policies for sustainable growth. Why and how they managed to keep to these is, of course, an important question. My main topic, clearly, is East Asia and not Israel, and it is that which I will address.