Return to bad old ways not seen for Asia tigers

PUBLISHED : Monday, 08 December, 1997, 12:00am
UPDATED : Monday, 08 December, 1997, 12:00am

During the great American depression the urban unemployed wandered the dust bowl interior in search of a crust.

Returning to their rural origins seemed a natural destination for John Steinbeck's generation of the dispossessed.

Asia's tiger economies produced a similar mass migration from the countryside to grimy city factories over the past 15 years.

Facing recession and the realisation that frantic labour-intensive economics may be done for, policy makers are already pondering the next Asian growth paradigm.

Speaking last week, the King of Thailand offered surprising advice. Thailand should ditch its mad dash for industrialisation and build a farm-based economy supporting the entire nation.

Although treated with unfailing reverence, the monarch's words will have jarred Bangkok's city slickers who remain committed to making Thailand a capitalist hub. For regional business leaders such musings must appear a forlorn desire for paradise lost.

Asia broke free from millennia of abject rural poverty in little more than a generation. The idea of turning back to some imagined utopia seems almost laughable.

Dislocation may follow the summer financial crisis but the region has been through this before. The mid-1980s recession was, after all, the springboard for a decade of surging growth.

Yet the view that the region may never again find it so easy to grow is building. US economist Paul Krugman first advanced the idea two years ago that labour intensive manufacturing was doomed to diminishing returns.

Without a rapid climb up the technology ladder stagnation must follow.

The nemesis for Indonesia, Thailand, Malaysia and the Philippines apparently looms in the shape of China. The World Bank expects the mainland to account for 10 per cent of world exports by 2020.

Last year, it attracted US$42.3 billion of a total $109.5 billion foreign direct investment to developing nations.

This matters hugely for the big four regional tigers.

Their post-1985 growth was driven by foreign investment in downstream manufacturing. Initially, this meant garments, shoes and other low-value-added products and later more complex hi-tech assembly plants for printers, computers and cameras.

Japan's surging yen during that era saw industry dumped wholesale into the region. Cheap, disciplined labour together with pro-business governments offered an alluring investment climate.

Then came China and, to a lesser extent, other low-cost producers like India and Vietnam.

Southeast Asia became increasingly expensive, especially after China's 1994 devaluation of the yuan. Traditional low-end exports were mauled, forcing entry to advanced manufacturing.

To varying degrees this worked. Malaysia pushed into computer chips and advanced electronics while Thailand became the regional equivalent of Motown as big car firms built factories and networks of component suppliers.

Will the trend continue when financial stability returns? Probably not, argues Jardine Fleming which has joined the low-tech, low-growth bandwagon.

High value-added exports are not a viable option for the four tigers, given their educational deficiencies.

If correct, the squeeze from low-cost producers in labour intensive industries will increasingly eat away at higher categories of products. With foreign direct investment on a permanent downward trend Asia seems to need a new growth model.

Jardine Fleming argues Southeast Asia neglected its natural advantages in the dash to industrialise.

These include primary products, such as agriculture, and service sectors like tourism.

In particular, resource-scare, but labour-rich China offers a huge market for basic goods.

If the King has stumbled on the next Asian growth paradigm then perhaps a workers' return to the country will avoid the grapes of wrath.