Asian Tigers' Success Nelson and Term Paper

Excerpt from Term Paper :

Accumulation theory does not inherently rule out the role of technological innovation in the growth of these economies. Indeed, if these economies had not brought their technological status up to that of other modern economies, they would not have been able to grow the way they did.

However, in accumulation theory, technology is not responsible for any unusual improvement in efficiency. It is an ancillary to the economic growth, rather than a key driver. Assimilation theory, on the other hand, assumes that technological innovation equates to improvements in productivity. The increase in capital inputs that drives success under accumulation theory works because it was spent on improving technology.

One of the key differences between the two theories is that assimilation theory leads to the conclusion that robust economic growth is both sustainable and replicable, whereas in accumulation theory the growth in only replicable, but not sustainable.

Krugman puts it bluntly when he states the following, regarding the case of Singapore: "Over the past generation the percentage of people employed has almost doubled; it cannot double again. A half-educated workforce has been replaced by one in which the bulk of workers has a high school diploma; it is unlikely that a generation from now most Singaporeans will have Ph.D.s. And an investment share of 40% is amazingly high by any standard; a share of 70% would be ridiculous. So one can immediately conclude that Singapore is unlikely to achieve growth rates comparable to those of the past." (71).

One can object to some of the logic here, in that there is still a significant room for improvement in a country where only two-thirds of the workforce has a diploma, much less a degree, but the point is clear - the growth of the tigers is not sustainable.

Under assimilation theory, the main driver is not the improvement of capital inputs but rather is the assimilation of technology. Growth rates are thus dependent on the pace of technological innovation. The easy assumption is that here, too, growth rates are unsustainable simply for the fact that at the beginning of this type of economic transition the level of technology is so low.

It is important to remember, however, the process by which technological innovation takes place. It is incremental, and the result of hard work to move from one step to the next quickly. The economy expands on its previous body of knowledge in a cycle that is increasingly fast. This process does not stop once an economy catches up to the world leaders. Indeed, the pace of technological change in the Western world shows that the pace of such change continues increase. We as a species have yet to approach our technological ceiling.

On the issue of replicability, accumulation theory holds that to the extent that economies improve their inputs will show an improvement in their economy. Improvements such as the addition of women into the workforce and higher rates of education will bring more capital into the economy and this will then be invested, leading to growth. On the surface, there are a lot of core similarities between the Asian tigers and those countries who would seek to replicate their success. Even a country like Cuba, poor despite a highly educated populace and ample female workforce, can achieve gains if more money were pumped into the system.

Assimilation theory suggests that replicating the rapid economic growth of the tigers is a more complicated matter. Success will not flow from merely mobilizing and educating a greater proportion of the populace. The government must play a much greater role that merely building schools. It must foster entrepreneurship and encourage technology transfer by opening up to world markets.

At its philosophical core, assimilation theory does not rule out replicating the success of the tigers. Entrepreneurial spirit can in theory be fostered anywhere. All nations seeking to improve their technology can follow the same deliberate, incremental path taken by the tigers. Implied, however, is that the success of the tigers was the result of a combination of complex, interrelated factors and it would take a good amount of skill and a little bit of luck in order to replicate that kind of success.

For all the deconstruction of the Asian tigers' success by economic theorists, it can be argued that there is no one model. Even among the tigers, there were many factors unique to each country that impacted both the degree of success and the ways in which that success occurred. Moreover, the economic world has changed. Regardless of which of accumulation or assimilation theory is more correct, they may no longer apply if there have been fundamental shifts in the ways in which the factors relate to one another. Other nations may encounter a completely different set of external factors in…

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