Bank on it - World Bank report on thriving East Asian global economies - Editorial

FOR YEARS George Gilder--following Adam Smith--has insisted that, rather than ask what makes nations poor, the more practical approach is to look at what makes them rich. Now the World Bank has done just that. In an exhaustive 389-page study entitled The East Asian Miracle: Economic Growth and Public Policy, the Bank examines the foundations of the spectacular growth in Japan, Hong Kong, South Korea, Taiwan, Singapore, Malaysia, Indonesia, and Thailand. Its conclusion? That East Asia owes its success to "getting the basics right": i.e., classical liberal economics.

From 1965 to 1993 these economies have grown significantly faster than those of any other region, pulling their people from destitution to affluence in a generation. The conventional explanation has been that they did so by finding that elusive "third way" between capitalism and socialism--in particular the brand of state capitalism associated with South Korea and Japan. Proponents of this "third way" were hoping that the World Bank would endorse active, interventionist government.

Instead, it has come down squarely on the side of Milton Friedman. As William McGurn reported in our last issue, the Bank's findings come as a heavy blow to those urging, say, an industrial policy on the United States. While the Bank concedes that some of Asia's interventions have "worked" in the past (i.e., yielded more growth than might otherwise have occurred), it concludes that these interventions carry often unreported costs and in any event were less significant than Asia's adherence to fundamental market principles.

This nicely coincides with our own view, which is that "miracles" of economic growth have less to do with divine favor than with hard virtues such as thrift, work, and enterprise. John Page, leader of the research team that carried out the Bank study, puts it best. "People in these economies," he says, "have simply studied harder, worked harder, and saved more than people in other countries." And it shows.