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03/10/95

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Koh: Asian growth should be seen as opportunity, not threat

STANFORD -- The stunning economic growth of East Asia over the past three decades is likely to continue well into the 21st century, and a leader from the region says the United States should view the situation as an opportunity rather than a threat.

"The United States should welcome the rising prosperity of East Asia as a challenge," Singapore's Tommy T.B. Koh told a Stanford audience of about 300 on Thursday, March 9.

Koh, ambassador-at-large for the Foreign Ministry of Singapore, is in residence through May at the Institute for International Studies as the Arthur and Frank Payne Lecturer in Global Community and Its Challenges. His talk, "The United States and East Asia: Economic Union or Conflict?" was the first in a series of three concerning U.S.-East Asia relations.

Koh has held a number of high-ranking positions in the government of Singapore, including ambassador to the United Nations and to the United States. A professor who was dean of the Faculty of Law at the University of Singapore during the 1970s, he also is director of the Institute of Policy Studies and chairman of the National Arts Council in Singapore.

In introducing Koh, Professor Walter Falcon, director of the Institute for International Studies, called him "incredibly bright, unbelievably broad and hopelessly energetic. I've already organized relay teams at IIS just to keep up with him."

In his presentation, Koh first outlined the economic growth of East Asia over the past 30 years, then dealt with the factors behind the proposition that continued growth can be of great benefit to the United States and other Western powers.

(East Asia includes China, Japan, Hong Kong, South Korea, Singapore, Taiwan, Indonesia, Malaysia, Thailand and China.)

He offered the following reasons behind his position:

  • The success of East Asia is "a vindication of American economic philosophy," Koh said.

"Most of the economies of East Asia have followed the American prescriptions of the free market, free trade, welcoming foreign investment, rewarding individual initiative and enterprise, and emphasizing the creation of wealth over its distribution."

  • As a whole, East Asia is already the United States' largest trading partner. "United States trade across the Pacific is already three times as great as that with the European Union," Koh said.
  • There exists, Koh said, "an economic complementarity and synergy between many United States businesses and the economies of East Asia."

As an example, he pointed to the electronics industry, saying, "Most of the companies in this sector [in Singapore] are either wholly owned by U.S. companies or are suppliers to U.S. companies. By making such components in, or 'sourcing' them from, Singapore, the U.S. companies are able to reduce the costs of their end products."

  • Recent international trade negotiations may lead to services being added to merchandise when figuring trade surpluses and deficits, Koh said.

"This is good for America because it is extremely competitive in many of the service industries," he said. "Trade statistics published by the U.S. Department of Commerce only show the balance of trade in merchandise.

"Ideally, the statistics should reflect the two-way trade in both merchandise and services," Koh said. "If this is done, I am quite certain that instead of deficits, the United States actually enjoys a favorable balance with several of the economies of East Asia, because of your service industries."

  • An agreement from the 1994 Uruguay Round of the General Agreement on Tariffs and Trade calls for all parties to respect one another's intellectual property rights, Koh said.

"This is very important for the United States," Koh said. "It is right for the United States to demand that its trading partners in East Asia should respect the internationally agreed rules protecting intellectual property rights. I am glad that the United States and China were able to come to an agreement [on Feb. 26] to avoid a trade war."

In exchange, Koh said, the United States should support China's early admission to the World Trade Organization.

  • Finally, Koh said, the United States should take advantage of the fact that "East Asia's need for capital is phenomenal."

Koh said that over the next decade alone, East Asia will attract more than $1 trillion of capital. However, U.S. foreign direct investment in the region has remained "relatively stagnant; United States manufacturers have not responded aggressively to this opportunity."

"America should not regard the growing prosperity of East Asia as a threat to American prosperity, but as an opportunity," Koh concluded. "This is not to say that East Asian companies, products and technology will not be competing against their American counterparts."

But Americans, Koh said, "have never feared competition as long as the playing field is level."

The majority of people living in East Asian nations, he feels, are supportive of the United States playing a leading role in their development.

"East Asians want the United States to be a full partner in the new Asian drama," Koh said. "East Asians want to trade with America, they welcome American investment. They want to acquire American technology and management skills; we are sending an increasing number of children - including both of my sons - to the best colleges and universities of America."

Finally, Koh said, the people of East Asia "know that unless the United States has a growing stake in East Asia's prosperity, there is no guarantee that the U.S. political and security commitment to the region will endure."

Factors behind rapid growth

Koh said the rise of East Asia in the world economy is no less significant in terms of recent world history than the fall of communism in Europe and the Soviet Union and the end of the Cold War.

"I am not altogether surprised that the rise of East Asia in the world economy has either escaped the notice of many people in the West or has been greeted with disbelief," Koh said. This may be because the rise "has been so rapid and so unexpected."

As recently as 1960, Koh said, East Asia accounted for only 4 percent of the world gross national product; by 1992 it had increased to 25 percent, and is projected to be 33 percent by the year 2010. In terms of purchasing power parity, Koh said, East Asia's GNP already was larger than that of either the United States or the European Union, and should be larger than both combined by the year 2005.

"Cast your mind back 20 to 30 years ago, when most of East Asia was stricken with poverty and political instability," Koh said. "Twenty years ago, no Hong Konger, no Singaporean could have imagined, or dared to imagine, that both Hong Kong's and Singapore's per capita incomes would exceed that of the United Kingdom."

Koh said that World Bank figures show that from 1965 to 1990, the economies of East Asia grew faster than those of all the other regions of the world. Most of that growth was due to the performance of nine economies: Japan, Hong Kong, South Korea, Singapore, Taiwan, Indonesia, Malaysia, Thailand and China.

"East Asia's development has not been confined only to the economic realm," he said. "The high growth rates have been accompanied by the growth of per capita incomes, the reduction of poverty, the increase in life expectancy and the fall in the infant mortality rate."

He pointed out that the infant mortality rate in the United States (8.3 per 1,000 births) is higher than that in Japan (4.4), Singapore (5.0), Taiwan (5.7) and Hong Kong (6.4).

Projections indicate the region will continue to grow at a 5 to 6 percent rate, on average, each year over the next few decades. If you exclude Japan, the rate will actually be higher, about 7 percent, Koh said.

"The increase will amount to $13 trillion dollars [in 1990 U.S. dollars] over the next two decades," Koh said.

How did East Asia come so far so fast? Koh offered several theories.

A 1990 World Bank study, published as The East Asian Miracle, focused on eight economies: Japan, Hong Kong, South Korea, Singapore, Taiwan, Indonesia, Malaysia and Thailand. It concluded that those economies succeeded by "getting the basics right."

Private domestic investment and rapidly growing human capital, Koh said, "were the principal engines of growth." High levels of domestic financial savings sustained high levels of investment, he added.

Beyond that, the World Bank cited rapid growth and productivity improvement in agriculture, even while it declined in relative importance; population growth rates that declined more rapidly than in other developing regions; solid macroeconomic management; education policies that focused on primary and secondary education; and economic policies that kept price distortions within reasonable bounds and that were open to foreign ideas and technology.

However, each used a different combination of policies, ranging from hands-off to highly interventionist, Koh said, so "there is no single 'East Asian model' of development."

In addition, non-economic factors, such as culture, politics and history, have contributed to the growth of this region, although the World Bank study did not elaborate on these factors. (Koh said he would, in a subsequent lecture.)

Formula for success

Another attempt to explain the East Asian economic boom was written by John M. Leger and published in the Nov. 24, 1994, issue of the Far Eastern Economic Review.

"Many students in the audience who are in the sciences or engineering will like this, because it can be expressed in the form of an arithmetical formula," Koh said. Leger's formula is:

Hard Work + Low Taxes + High Savings + Minimal Government = Economic Boom.

East Asians, Leger found, work longer hours and have fewer paid holidays than workers in Europe. Also, the maximum income tax rates are lower, and in general they "kick in at a higher [income] level," Koh said.

Koh quoted the current prime minister of Singapore, Goh Chok Tong, who said in 1980, while serving as minister of trade and industry, "Several advanced countries, like Britain, have been hypnotized by a soak- the-rich slogan, only to discover that by heavy taxes on personal incomes, they have stifled the drive to excel and succeed."

Lower taxes tend to encourage savings, Koh said. High savings rates (gross domestic savings as a percentage of gross national product; the figure in Singapore is an amazing 48 percent) are important because they enable countries to finance domestic investment, particularly in the areas of education and infrastructure.

The government's role, Koh said, should be "the creation of wealth." In most East Asian states, he said, "[government] did so by ensuring a stable, predictable economic environment, and actively promoted exports. It let free-market forces operate."

Koh cited another study that concluded that "economic freedom" is the key to economic prosperity.

"The [economic freedom index, calculated using 10 factors] ranks Hong Kong and Singapore tied at number one as having the highest amount of economic freedom in the world," Koh said. "As a result, they have had extremely high levels of economic growth."

Koh will address U.S.-East Asian relations in the contexts of security (on April 12) and culture (May 3). All three lectures will be published by the Institute for International Studies, as were the speeches delivered by the first Payne Lecturer, William Reilly, former Environmental Protection Agency administrator.

In addition, Koh will participate in a forum on Asia that is part of the annual meeting this May of the Advisory Council to the Institute for International Studies, a group of top government and industry leaders from throughout the world.

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