Could Ireland follow the Asian Tiger model?

Amhran Nua

I came across an interesting article there about the comparions between th Japanese situation in the 1980s and the Chinese situation today:

Japan's economic miracle was no accident: It came out of a careful program of subsidized investment in "strategic industries" -- steel, machinery, electronics, chemicals, autos, shipbuilding, and aircraft. Japanese leaders focused on exports to drive their economy, suppressing domestic consumption with taxes and limited consumer credit, while encouraging high savings and investment rates. They established world-class factories and emphasized Japanese-developed technology, while requiring foreign companies to hand over their own as a condition of market access. They prevented industrywide labor unions and kept the yen undervalued against the dollar, while protecting domestic industries with tariffs and trade barriers.

If this sounds familiar, it should. Japan's economic miracle became the template that other Asian tigers would follow in the decades to come: South Korea, Malaysia, Singapore, Taiwan, Thailand, and now, the biggest of them all, China. Which is why it's important to know the truth about how the United States, today facing a new Asian economic challenge, dealt with the last one -- not the myths we've told ourselves for the past 20 years about how our free market tactics defeated our Japanese rival.

For all its laissez-faire rhetoric, the Reagan administration fought fire with fire, responding to Japan's market-distorting industrial and trade policies with a firm hand. It quickly concluded a "voluntary export restraint" agreement under which Tokyo, threatened with protectionist congressional legislation, limited its auto exports to 1.68 million per year. In effect, this forced Japanese automakers to build transplant factories in the United States, somewhat stanching the loss of U.S.-based auto-production and manufacturing jobs. Washington also rescued the failing Harley-Davidson company by raising tariffs temporarily on certain high-end motorcycle imports and was even more aggressive in its support of the domestic semiconductor industry, initiating anti-dumping procedures and getting Tokyo to guarantee U.S. manufacturers 20 percent of the Japanese market.



...


Somehow these successes from America's last great trade war have been forgotten -- blotted out by patriotic sloganeering ("American industry pulled up its socks to meet the Japanese challenge") and economic shibboleths ("Trade is always and everywhere a win-win proposition"). But wishful thinking won't help with China -- much less at such a volatile time in the global economy.

...

For though Reagan's aggressive policies were enough to stop the bleeding, they weren't enough to make the U.S. economy genuinely competitive again. Most U.S. producers never recovered what they lost in the 1980s. In fact, the question of just who beat whom in the last great trade war has no easy answer. Consider this: Japanese GDP growth from 1990 to 2000 -- Japan's so-called lost decade -- was just 0.2 percent less than America's when you account for increases in the U.S. population. And Japan comes out ahead on a per capita basis. Even with the battering it took, Japan's productivity growth outpaced that of U.S. workers in the 1990s. As for that $55 billion trade deficit with Japan that so concerned Reagan in 1986? By 2006, it was $90 billion. Overall, the United States today is running a global trade deficit of roughly $600 billion.
The numbers aren't lying: It's time to realize that the United States never really beat Japan -- and it's unlikely to win against China without a new strategy. Chanting tired ideological mantras didn't save us in the 1980s. And it won't save us now.

Anyone who's had a good look at the policies in the sig there will recognise certain elements of the Asian Tiger model in them, an element of state direction for industry, which has proven so successful for those countries. The question we need to ask ourselves in these straitened economic times is whether or not we can use a more direct blow-by-blow copy of that model in order to secure a prosperous future for Ireland.

I'm starting from the assumption that the Asian Tiger model is a good one to follow, since it has demonstrably achieved wonderful things for those Asian countries.

From the article, we can isolate the main competitive advantages listed by the author, and see how they might be applied to Ireland:

• A careful program of subsidized investment in "strategic industries": This should be doable unless EU anticompetition rules make it difficult. All we need to do is pick a few high growth industrial areas and focus on them - energy storage, robotics, aquaculture and maritime exploitation for example.
• Japanese leaders focused on exports to drive their economy, suppressing domestic consumption with taxes and limited consumer credit, while encouraging high savings and investment rates: An export focus is not a problem, you just need to incorporate that with the above mentioned direction and some heavyweight language expertise to hit the eurozone. You could jack VAT up to 25% to suppress domestic consumption and increase the interest rates at the state owned banks to encourage saving, although how you would avoid simultaneously bankrupting them when people can't pay their giant mortgages is another question.
• They established world-class factories and emphasized Japanese-developed technology, while requiring foreign companies to hand over their own as a condition of market access: This is branding and marketing, along with technology transfers. We haven't anywhere near the economic power to make such a demand unfortunately, yet at least, so I'd recommend substituting that with focused R&D, an area where Ireland has little difficulty.
• They prevented industrywide labor unions: This is already going on in the multinationals which provide so much employment in Ireland.
• and kept the yen undervalued against the dollar, while protecting domestic industries with tariffs and trade barriers: We can't devalue our own currency since we don't have one, however we can mimic the effect by cutting corporate taxes even further, which has a similar result; goods are cheaper to produce here.

So can it be done? Should it be done? Any more ideas on how we could do it?

Amhran Nua

Actually now that I look at it you wouldn't even need the second bullet point, except for investment incentives, we already have suppressed domestic demand and credit availability. Its interesting that the Asian Tiger model sidesteps the "get consumers spending no matter what" emphasis we've all heard so much about recently. Its the exact opposite approach to what the government has been doing.

ardmacha

This model is largely irrelevant to Ireland. It related to a largely closed economy with a significant home market. Ireland is a small open economy and few of these ideas have any real use here.

Amhran Nua

ardmacha wrote: »

This model is largely irrelevant to Ireland. It related to a largely closed economy with a significant home market. Ireland is a small open economy and few of these ideas have any real use here.

That's not a substantive disagreement though. What is a "small open economy"? We have exports and imports, we have control over taxation and investment incentives. I see no reason why any of the above methodologies would fail to work, why do you think they would, specifically?

GenericName

Amhran Nua wrote: »

• A careful program of subsidized investment in "strategic industries": This should be doable unless EU anticompetition rules make it difficult. All we need to do is pick a few high growth industrial areas and focus on them - energy storage, robotics, aquaculture and maritime exploitation for example.

For all its talk of knowledge economy, the government has failed to direct undergraduate trends towards maths and science, never mind any of the potential high growth areas. Biotechnology is an example of a high growth strategic industry trumpeted by the government 10 years ago. Successful in attracting large multinationals, successful is spawning domestic world leaders, not so much. Surely the state can play a better role with smart investment in education and the building of a fluid business climate with easy access to credit and efficient supporting institutions. Subsidies always incur waste.

Amhran Nua wrote: »

• Japanese leaders focused on exports to drive their economy, suppressing domestic consumption with taxes and limited consumer credit, while encouraging high savings and investment rates: An export focus is not a problem, you just need to incorporate that with the above mentioned direction and some heavyweight language expertise to hit the eurozone. You could jack VAT up to 25% to suppress domestic consumption and increase the interest rates at the state owned banks to encourage saving, although how you would avoid simultaneously bankrupting them when people can't pay their giant mortgages is another question.

The nation’s large (domestic) exporters are doing relatively well, Kerry Group, Smurfit Kappa, Elan etc are all reporting profits, many quite significant. Large corporations and SMEs operating within or primarily reliant the domestic economy are the ones haemorrhaging jobs and defaulting on loans. To compound this catastrophic situation by suppressing domestic demand further using a higher VAT rate or other methods is suicidal, especially as we share an open land border with the UK. An increase in savings is usually a natural trend after recession so this will probably occur naturally and there is no need to tempt deflation.

Amhran Nua wrote: »

• They established world-class factories and emphasized Japanese-developed technology, while requiring foreign companies to hand over their own as a condition of market access: This is branding and marketing, along with technology transfers. We haven't anywhere near the economic power to make such a demand unfortunately, yet at least, so I'd recommend substituting that with focused R&D, an area where Ireland has little difficulty.

Entrepreneurialism and creativity is by no means alien to Ireland, but our rate at turning out game successful innovative companies isn’t going to match Japanese levels over the course of decade. To achieve this bankruptcy laws would need reform, our education system would need an overhaul, vested interests would have to be swept away. Of course within the context of a particularly tight credit crunch this would be some task anyway. Our nation needs to look in this direction but surely within the context of a 20 year+ plan.

Amhran Nua wrote: »

• They prevented industrywide labor unions: This is already going on in the multinationals which provide so much employment in Ireland.

Trade union participation in Ireland has dropped over the last two decades, but not as fast as in other developed countries. Perhaps the biggest problem we have though is the Irish trade union movement’s inability to comprehend or accept the changing roles of unions in today's world. Genuine leadership is needed to overcome this particular leech.

Amhran Nua wrote: »

• and kept the yen undervalued against the dollar, while protecting domestic industries with tariffs and trade barriers: We can't devalue our own currency since we don't have one, however we can mimic the effect by cutting corporate taxes even further, which has a similar result; goods are cheaper to produce here.

I'm not sure about this, but I understood that under EU rules our corporation tax rate could only be raised, not lowered further.

The economies South Korea and Taiwan grew on the back of cheap labour with one generation making great sacrifices for the next. Ireland essentially skipped this phase in development. Hong Kong and Singapore are have grown historically as centres for international finance and sea freight, with London less than an hour away our little IFSC is pretty insignificant. Maybe Shannon can be transformed into a some sort of super port for American - Northern European freight at lower cost to existing facilities but
but perhaps we have missed the boat on this one.. Thailand, Malaysia and Indonesia having been surfing commodity booms in addition to providing low cost manufacturing. Commodities are something we don't have despite Indo propaganda. While their low cost exporters have undoubtedly found ingenious ways to cut costs and exploit a multitude of industries, there is little in the way of R&D taking place in these economies. Domestically most protectionist and strangled by cosy tycoon/politician relationships.

It's hard to see how the lessons of the Tiger economies could apply to a high cost, commodity starved, small, open economy beyond what can be done with smart investement in education.

Amhran Nua

GenericName wrote: »

For all its talk of knowledge economy, the government has failed to direct undergraduate trends towards maths and science, never mind any of the potential high growth areas.

Indeed, its pretty much a given in the thread that previous efforts have been resounding failures, mostly due to the fixation with property portfolios.

GenericName wrote: »

Surely the state can play a better role with smart investment in education and the building of a fluid business climate with easy access to credit and efficient supporting institutions. Subsidies always incur waste.

No reason not to do both. The resounding success of the Asian Tiger economies tell a different story about state direction and subsidies, although I'd be more in favour of direction than subsidy.

GenericName wrote: »

The nation’s large (domestic) exporters are doing relatively well, Kerry Group, Smurfit Kappa, Elan etc are all reporting profits, many quite significant. Large corporations and SMEs operating within or primarily reliant the domestic economy are the ones haemorrhaging jobs and defaulting on loans.

I'll admit I was a little puzzled by this mention of suppressing domestic demand in the economy myself. Near as I can work it out, he's referring to moving employment away from service industries and towards export based industries, which does make sense. And since the domestic economy is in fact losing jobs hand over fist, perhaps now is the best time to start that process. I'd agree active suppression at this date is pointless.

GenericName wrote: »

To achieve this bankruptcy laws would need reform, our education system would need an overhaul, vested interests would have to be swept away. Of course within the context of a particularly tight credit crunch this would be some task anyway. Our nation needs to look in this direction but surely within the context of a 20 year+ plan.

Surely the economic woes of the country would help to expedite the process, compressing it down to optimistically a half dozen years in the best case scenario?

GenericName wrote: »

I'm not sure about this, but I understood that under EU rules our corporation tax rate could only be raised, not lowered further.

I'd love to know if that were the case, it might explain grants being handed out to FDI groups as a workaround. You pay normal corporate tax but get half of it back in grants or something.

GenericName wrote: »

The economies South Korea and Taiwan grew on the back of cheap labour with one generation making great sacrifices for the next.

I don't accept the cheap labour argument against our regearing towards an export based economy, nine of the ten top global exporters are fully developed countries with similar cost bases to ourselves, and even China gets around third of its competitive advantage from currency manipulation, not low labour costs.

GenericName wrote: »

It's hard to see how the lessons of the Tiger economies could apply to a high cost, commodity starved, small, open economy beyond what can be done with smart investement in education.

We're not really that high cost, and if you look at Japan, they have almost no natural resources either, which makes them an interesting model for us to follow. As mentioned, we can't do the technology transfer in exchange for access to domestic markets, we're too small, so more heavily directed R&D, and we can't regulate imports and exports with tarriffs, so we need to give domestic industry a head start with lower taxes/tax refunds, which amounts to a similar benefit.

southsiderosie

First, I think we need to question many of the assumptions in the model about what the Asian Tiger's growth rates were really based on. Several economists, most notably Paul Krugman, have pointed out that much of the so-called "Asian Miracle" was a myth. Instead of being a result of state industrial policy, most of the gains in growth came from resource mobilization: 1) expanding the labor market to include women and achieve an overall higher level of workforce participation among natives, 2) increase in the percentage of the population with third level qualifications, and 3) investment in infrastructure driven by high levels of savings and low levels of consumption.

In reference to Ireland, many economists have pinned the Celtic Tiger (the 1990s version) on the same input factors that Krugman highlights: increased workforce participation and an increase in completion of third level education. Ireland's tax policy and ability to attract FDI are also seen as favorable drivers of its growth - and both of these are threatened by the situation in the US and in Brussels.

So I guess to sum it up, I'm not sure what the Irish can learn from the Asian Tigers at this point, seeing as how it basically went through the high-input high-growth stage, but failed to use these gains to hugely upgrade infrastructure. And as we can unfortunately see, the generation involved in this boom made few sacrifices and saved little in order to benefit the next generation. I think Krugman's quote just about sums it up:

The newly industrializing countries of the Pacific Rim have received a reward for their extraordinary mobilization of resources that is no more than what the most boringly conventional economic theory would lead us to expect. If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain.

Oops.

Therefore, it seems that the lesson for Ireland is not how to follow the Singapore model - the moment has passed - but instead, how to avoid Japanese-style deflation while dealing with its massive government debt. If - as the above article has suggested - Ireland must maintain its low corporate tax rate, then it will have to focus on revenue from other streams: most notably VAT and income tax. But in order to be attractive for FDI, wages have to come under control, which then limits revenues from income tax. If Ireland decides to focus more on domestic investment, rather than FDI, savings rates have to come up - thus lowering consumption and subsequently revenue from VAT. In addition, Japan's government has been able to run huge budget deficits for decades because it basically forces its domestic banks to lend to them; Ireland's banks are on life support, and it cannot manage its own currency or interest rates anyway. Not to mention that its EU partners will not allow out of control deficit spending or massive government debt to continue.

In other words, Ireland can't be Singapore, doesn't want to be Japan, and to be honest, I have no idea where it can or should go from here.

Lockstep

Keep in mind Japan has a public debt that makes us look decent.
Plus, as Southsiderosie has pointed out, we don't have the savings mentality that the Japanese do (although their inadvertence to spending isn't helping their debt to GDP ratio)

As it stands, we're pretty much a textbook case of what JK Galbraith criticised; rather than investing in infrastructure and industry, the Celtic Tiger cash cow was spent on a consumer society which doesn't help us much when the cash has run out.

Amhran Nua

southsiderosie wrote: »

First, I think we need to question many of the assumptions in the model about what the Asian Tiger's growth rates were really based on. Several economists, most notably Paul Krugman, have pointed out that much of the so-called "Asian Miracle" was a myth. Instead of being a result of state industrial policy, most of the gains in growth came from resource mobilization:

Krugman's analysis is flawed on at least one level, the direct comparison of Asian tigers with the old Soviet Union - they have shown no sign of collapse anywhere near that scale, and as per the linked article above, even in the doldrums have kept pace with the US.

The rest of his points appear to centre on the fact that exponential growth has not continued, and you don't need a phd to work that one out I'm afraid. Plus he seems to contradict himself, earlier, he says that Japanese efficiency did grow tremendously, and later he maintains that growth has not been matched by efficiency. Furthermore he goes on to suggest that policy makers should focus on increasing savings and reducing deficits, two areas that were specifically highlighted in the original article as places where central planning came into play. Then after saying that you can't classify all Asian growth economies in the same way, he proceeds to compare them en masse to the old Soviet Union; who exactly is he writing this for?

The conclusions for his centrepiece, Japan, were apparently arrived at by looking at their GDP and other statistics, rather than the actual picture of what happened in Japan at the time. I recommend you look up MITI and what they did. Ironically it was only after MITI had its teeth pulled that the Japanese economy started to slow down.

Topping the whole off he doesn't connect the dots between input and the policies that created those inputs - education, employment, and capital. Seriously, that's it for his analysis, looks like a bit of a publish or die piece to be honest. Pithy free marketeer soundbites, easy to debunk.

Your analysis of Krugman's analysis is flawed on another level, in that he does emphasise resource mobilisation as a positive - who do you think mobilised and directed these resources? Also I think you have misunderstood his input growth as far as employment goes, he states that employment grew, not employees. You can continue to add employees to an economy forever and it won't create jobs, that has to come from somewhere else.

southsiderosie wrote: »

3) investment in infrastructure driven by high levels of savings and low levels of consumption.

Sorry, did the people of Asian growth regions reach into their own pockets to pay contractors to create infrastructure?

southsiderosie wrote: »

increased workforce participation and an increase in completion of third level education. Ireland's tax policy and ability to attract FDI are also seen as favorable drivers of its growth - and both of these are threatened by the situation in the US and in Brussels.

Third level education is a government direction effort, although you are unreletingly against free third level education, can younot see the correlation there? And again, how does expanding your workforce create employment? If a half million more Eastern Europeans came into the country right now, would our economic problems be over?

southsiderosie wrote: »

So I guess to sum it up, I'm not sure what the Irish can learn from the Asian Tigers at this point, seeing as how it basically went through the high-input high-growth stage, but failed to use these gains to hugely upgrade infrastructure.

- the moment has passed -

Eh this is completely out of touch with reality, and in particular with the Irish situation. The Asian growth areas went through export and industrial based growth which required the creation of infrastructure as a precursor. Ireland went through an artifical and above all else anachronistic property bubble that was hyperinflated by bad policy decisions and bad advice, which ultimately resulted in the massive destruction of future wealth by interest payment.

It stuck out like a sore thumb in the economic progress of the nation. Japan had a property bubble long after its industrial growth phase was slowing down.

So I'm not sure what "stages" you think countries have to pass through on some national cycle of life, but we haven't even touched on the full potential growth phase of Ireland yet.

southsiderosie wrote: »

In addition, Japan's government has been able to run huge budget deficits for decades because it basically forces its domestic banks to lend to them;

No more than Krugman, this displays a complete lack of understanding of the Japanese economic system. Keiretsus, or combines of corporations, formerly called Zaibatsus, formed interlocking and complementary corporate groups arranged around their very own central bank which allowed them to get loans and run deficits at very favourable rates, organisation on a scale beyond the comprehension of most Western commentators like Krugman. This was all organised under the aegis of MITI, who in turn maintained a great deal of control over the direction of each Keiretsu, at least until recently, and is still deeply intertwined with the operation of large companies. The Japanese government "forcing" banks to give them cheap loans is not nearly as simple as it seems on the surface.

The Asian tiger economic model follows this overall concept to one degree or another, the Chinese to a fairly harsh and brutal degree, South Korean to a lesser and more balanced degree. The underlying theme is one of national directions being chosen and pursued by policy makers, and it has worked over and over again. The irony of being able to type your criticism of the model on a Chinese manufactured and assembled keyboard must surely not be lost.

Anyway, if the "Asian tiger" term is causing a problem, Denmark did pretty much the same thing with green initiatives; their turbine industry alone provides work for over 30,000 people, with over four billion in exports annually.

Amhran Nua

kickoutthejams wrote: »

Plus, as Southsiderosie has pointed out, we don't have the savings mentality that the Japanese do (although their inadvertence to spending isn't helping their debt to GDP ratio)

According to the article, that savings mentality was carefully cultivated by Japanese policy and higher interest rates. No reason we can't do the same here.

kickoutthejams wrote: »

As it stands, we're pretty much a textbook case of what JK Galbraith criticised; rather than investing in infrastructure and industry, the Celtic Tiger cash cow was spent on a consumer society which doesn't help us much when the cash has run out.

Very true, however I would dispute that the ship has sailed, in fact its quite clear that we don't have any industrial infrastructure to speak of, so the book has yet to be written. We haven't even begun to tap into our potential, and the end of the property boom is certainly not the end of Ireland. All that really remains is to decide the best method of doing so.

southsiderosie

Good lord, this is the longest response I have ever written on boards. I am never ever doing this again.

Amhran Nua wrote: »

Krugman's analysis is flawed on at least one level, the direct comparison of Asian tigers with the old Soviet Union - they have shown no sign of collapse anywhere near that scale, and as per the linked article above, even in the doldrums have kept pace with the US.

Krugman's two main points are that 1) it isn't industrial policy that should be getting the credit for the explosive growth in these countries, but rather smart fiscal and monetary policies and 2) input-led growth cannot continue at double digit rates forever because of the law of diminishing returns. Nowhere does he say that South Korea will experience a Soviet-style collapse; he's just saying that most countries will never return to the kind of growth rates they experienced while pulling themselves out of poverty.

Amhran Nua wrote: »

The rest of his points appear to centre on the fact that exponential growth has not continued, and you don't need a phd to work that one out I'm afraid. Plus he seems to contradict himself, earlier, he says that Japanese efficiency did grow tremendously, and later he maintains that growth has not been matched by efficiency. Furthermore he goes on to suggest that policy makers should focus on increasing savings and reducing deficits, two areas that were specifically highlighted in the original article as places where central planning came into play. Then after saying that you can't classify all Asian growth economies in the same way, he proceeds to compare them en masse to the old Soviet Union; who exactly is he writing this for?

I think you are confusing central planning in terms of industrial policy and government planning in terms of monetary and fiscal policy. Increasing savings can be achieved by raising interest rates (monetary policy) and tinkering with tax regimes (fiscal policy) and reducing deficits can be achieved by raising taxes or lowering expenditures (fiscal policy). Krugman does not have a problem with governments using the tools of monetary and fiscal policy to promote growth and investment; he does have a problem however with government picking specific industrial winners and losers, largely because they generally have a horrible track record of choosing wisely.
And again, Krugman is using the Soviet example to make a point about fast rising ("VE VILL CRRRRUSH YOU") versus sustainable growth.

Amhran Nua wrote: »

The conclusions for his centrepiece, Japan, were apparently arrived at by looking at their GDP and other statistics, rather than the actual picture of what happened in Japan at the time. I recommend you look up MITI and what they did. Ironically it was only after MITI had its teeth pulled that the Japanese economy started to slow down.

I have actually read quite a bit on MITI thanks. Please stop assuming that other people are somehow ignorant just because they disagree with you.
From what I have read, the jury is out on that one as well. First, one would expect to see rapid growth in Japan in the decades after WWII given the fact that the country was decimated by conflict (same as Germany). In addition, given that Japan (along with Germany) were industrial powers before the war, much of the post-war economic activity and growth was a 'return to form' rather than a 'starting from scratch' phenomenon. You can see the same effect in parts of Central and Eastern Europe - the countries that were doing better before the Iron Curtain fell (Hungary for example) rebounded from communism much quicker than the countries that were lagging and relatively backwards before the war.

Second, the problem with MITI (and industrial policy in general) is that while it may explain why some companies did well, it can't explain why companies that didn't deal with MITI, or had to fight MITI to pursue their own business strategies, performed just as well or better than those that did. Sony revolutionized the electronics industry not because of help from MITI, but because they ignored them and fought to pursue their own growth and investment strategies.

Finally, the close relationship between Japanese banks, corporations, and government officials helped to prop up bad companies long after they should have been liquidated, had a corrosive effect on government, and has inhibited any efforts at economic or political reform.

Amhran Nua wrote: »

Topping the whole off he doesn't connect the dots between input and the policies that created those inputs - education, employment, and capital. Seriously, that's it for his analysis, looks like a bit of a publish or die piece to be honest. Pithy free marketeer soundbites, easy to debunk.

Putting government money into research or creating tax incentives to do so (fiscal policy), maintaining a weak exchange rate (monetary policy) and high domestic interest rates (monetary policy) are standard policy tools. Setting up a government agency in order to support specific firms and industries and then rotating the leadership of said agencies and firms in and out, creating a crony system lacking in any kind of transparency is not . The central premise of the Krugman article is that Asian growth was due to the former, not the latter.

As for being a "publish or die" (it's actually "publish or perish") throwaway piece, this is one of the most influential articles within development economics in the last 20 years. And Krugman was already a long-tenured professor when it was published. So, no, it's not a throwaway piece; rather it forced people to really examine a lot of underlying assumptions about Asia's economic success.

Amhran Nua wrote: »

Your analysis of Krugman's analysis is flawed on another level, in that he does emphasise resource mobilisation as a positive - who do you think mobilised and directed these resources? Also I think you have misunderstood his input growth as far as employment goes, he states that employment grew, not employees. You can continue to add employees to an economy forever and it won't create jobs, that has to come from somewhere else.

As I have said repeatedly, governments can use standard fiscal and monetary tools to direct resources, in particular those that would encourage savings and investment.

Nowhere in my post did I use the term "employees": what are you talking about? I used the term "workforce participation" for natives, and so did Krugman. Workforce participation rates are simply the percentage of able bodied adults generally between the ages of 16 – 55 (or 65) who are working or seeking work (therefore this rate has nothing to do with the actual number of jobs in the economy). As Krugman noted, in Singapore, this number was less than 30% in the 1960s, and today it is over 60%. Ireland's big boost in workforce participation came in the 1990s when emigration slowed, return migration increased, and women entered the workforce en masse. But, as the article noted, this is a one-time boost to the economy.

Amhran Nua wrote: »

Sorry, did the people of Asian growth regions reach into their own pockets to pay contractors to create infrastructure?

Kind of, yes. High levels of domestic savings means that there is lots of domestic capital available for investment.

If you are going to be snide, then at least be snide and understand the basic principles of macroeconomics.

Amhran Nua wrote: »

Third level education is a government direction effort, although you are unreletingly against free third level education, can you not see the correlation there?

You seem to be confusing my position on government funding and universities. I am not opposed to governments funding universities. I am opposed to governments funding tuition for everyone. Government can be deeply involved in funding research and creating hothouses for technological innovation within their universities, but that is not the same thing as not charging fees. I am absolutely in favor of the former, and part of the reason why I am opposed to government subsidization of fees is because it takes away from their ability to fund basic research. I'm not sure why you don't see this distinction and/or think it is not important.

Oh, and by the way, third level education is Asia is not free. Hong Kong University is over $5,000/year. University of Tokyo, Japan costs around $10,000/year. National University of Singapore is $19,000/year, but is heavily subsidized by the government in exchange for 3-6 year "service bonds"; even with the subsidy students are responsible for over $5,000 in fees. (all prices are in USD)

Amhran Nua wrote: »

And again, how does expanding your workforce create employment? If a half million more Eastern Europeans came into the country right now, would our economic problems be over?

High levels of workforce participation leads to more demand for goods and services in the economy and lower dependency ratios. But there are limits, and at some point, for growth to continue, individual productivity must increase. This is why having a well-trained workforce is important; better workers means that there is more economic output with the same number of people. This is how countries like Singapore and South Korea have been able to maintain growth even though they have pretty much maxed out on workforce participation.

Post-2004 migration only had a minor impact on the workforce participation rate because both the numerator (the number of people seeking to participate in the labor market) and the denominator (the number of people in the working age bracket) were increasing at the same time. Again, this is a distinctly different issue from employment.

southsiderosie

Amhran Nua wrote: »

Eh this is completely out of touch with reality, and in particular with the Irish situation. The Asian growth areas went through export and industrial based growth which required the creation of infrastructure as a precursor. Ireland went through an artifical and above all else anachronistic property bubble that was hyperinflated by bad policy decisions and bad advice, which ultimately resulted in the massive destruction of future wealth by interest payment.

Hm, this sounds suspiciously like the description of Japan from the original article you cited.

Infrastructure development doesn't necessarily mean just building deepwater ports and factories. For one thing, Ireland's national broadband network (or lack thereof) is a disgrace. Investing in IT infrastructure for the HSE or other large bureaucracies and businesses could have helped Ireland develop more indigenous companies to specialize in these kinds of systems for export. In addition, investing in an alternative energy infrastructure could have done for the Irish what it did for the Danes.

Personally, I think that if the government had managed the airport/transport network more effectively, it could have positioned itself as a new international transit hub, especially given its US pre-clearance capacity. But the Dublin Airport Authority is a disgrace. No Asian airport authority in the world would have 1) taken so long to manage an airport expansion, and 2) had an airport with no rail connections to the city center or other major transportation hubs. They also wouldn't be stupid enough to build a rail "network" consisting of two lines that don't actually connect, but the Luas is my particular bugbear, and I digress. Given how incompetent most Irish government bureaucracies and quangoes are, the idea of putting any of these people in charge of picking winners and losers of Irish industry is terrifying.

Basically Ireland did not invest in much domestically during the boom, other than overpriced property. Rather both consumers and the government engaged in mass consumption, meaning they will get no future benefit from the past and current cash outlays. To me, that is the great tragedy of the Celtic Tiger boom and bust.

Amhran Nua wrote: »

So I'm not sure what "stages" you think countries have to pass through on some national cycle of life, but we haven't even touched on the full potential growth phase of Ireland yet.

I don't think there are universal stages, as a country's route to growth will be shaped largely in part by external economic and political conditions. And despite all of its problems, Ireland is a far better off country today than it was 30 years ago. But if the Asian input-driven model is to be used as an example, then Ireland has largely missed the boat: it can't repeat the bounce it got from increased workforce participation in the 1990s, it can no longer control its own currency, and the Irish government relies on external borrowing and VAT from consumption (rather than domestic savings) to fund its own operations. It also can’t run up massive deficits (a la Japan) or suppress dissent (a la the military dictatorship in South Korea).

Amhran Nua wrote: »

No more than Krugman, this displays a complete lack of understanding of the Japanese economic system. Keiretsus, or combines of corporations, formerly called Zaibatsus, formed interlocking and complementary corporate groups arranged around their very own central bank which allowed them to get loans and run deficits at very favourable rates, organisation on a scale beyond the comprehension of most Western commentators like Krugman. This was all organised under the aegis of MITI, who in turn maintained a great deal of control over the direction of each Keiretsu, at least until recently, and is still deeply intertwined with the operation of large companies. The Japanese government "forcing" banks to give them cheap loans is not nearly as simple as it seems on the surface.

And today Japan is stuck with zombie banks and firms that, because of their incestuous ties to government, are not allowed to die.

Amhran Nua wrote: »

The Asian tiger economic model follows this overall concept to one degree or another, the Chinese to a fairly harsh and brutal degree, South Korean to a lesser and more balanced degree. The underlying theme is one of national directions being chosen and pursued by policy makers, and it has worked over and over again. The irony of being able to type your criticism of the model on a Chinese manufactured and assembled keyboard must surely not be lost.

The South Korean system was quite brutal under the military dictatorship.

And the Chinese-made keyboard I am typing this on is a piece of shít; I bought it less than a year ago, and it is already wonky.

Lockstep

Amhran Nua wrote: »

According to the article, that savings mentality was carefully cultivated by Japanese policy and higher interest rates. No reason we can't do the same here.

Where does it say that?

In another of his books (The Return of Depression Economics), Krugman notes that even cutting interest rates to close to zero percent hasn't helped the Japanese. I'll try and dig the exact citation out for you tomorrow (won't be home until very late this evening)

Amhran Nua wrote: »

Very true, however I would dispute that the ship has sailed, in fact its quite clear that we don't have any industrial infrastructure to speak of, so the book has yet to be written. We haven't even begun to tap into our potential, and the end of the property boom is certainly not the end of Ireland. All that really remains is to decide the best method of doing so.

I completely agree with you here. We're a small nation with growth potential in renewable energy (Portugal is already pushing ahead with this, as, like us, they have little enough fossil fuels, forcing them to import). Investing in areas like green energy and broadband has some excellent potential for the future.
Hopefully, we can kickstart another boom and invest wisely enough so that when the boom slows, we can ease it out from becoming a freefall bust.

rumour

Amhran Nua wrote: »

From the article, we can isolate the main competitive advantages listed by the author, and see how they might be applied to Ireland:

• A careful program of subsidized investment in "strategic industries": This should be doable unless EU anticompetition rules make it difficult. All we need to do is pick a few high growth industrial areas and focus on them - energy storage, robotics, aquaculture and maritime exploitation for example.
• Japanese leaders focused on exports to drive their economy, suppressing domestic consumption with taxes and limited consumer credit, while encouraging high savings and investment rates: An export focus is not a problem, you just need to incorporate that with the above mentioned direction and some heavyweight language expertise to hit the eurozone. You could jack VAT up to 25% to suppress domestic consumption and increase the interest rates at the state owned banks to encourage saving, although how you would avoid simultaneously bankrupting them when people can't pay their giant mortgages is another question.
• They established world-class factories and emphasized Japanese-developed technology, while requiring foreign companies to hand over their own as a condition of market access: This is branding and marketing, along with technology transfers. We haven't anywhere near the economic power to make such a demand unfortunately, yet at least, so I'd recommend substituting that with focused R&D, an area where Ireland has little difficulty.
• They prevented industrywide labor unions: This is already going on in the multinationals which provide so much employment in Ireland.
• and kept the yen undervalued against the dollar, while protecting domestic industries with tariffs and trade barriers: We can't devalue our own currency since we don't have one, however we can mimic the effect by cutting corporate taxes even further, which has a similar result; goods are cheaper to produce here.

So can it be done? Should it be done? Any more ideas on how we could do it?

This is a good long term strategy and I think a very good idea. Being small island both public sector and private sector need to be channelled onto the same objectives. However rational as you proposal is I cannot for the life of me see how Ireland(the irish) would make this work.

This calls for a collective directed focus with by-in from all parties. First of all what will the media do with that? Where's the angle the story, so any national focus would be subject to a critical onslaught from the media for the duration. Politicians would then succumb to the pressure. (opinion polls are enough to overturn referendums and cause leadership challenges). End result is that no long term strategy would ever be enacted.
Secondly the opportunism of the Irish does not lend itself to self sacrifice and discipline. While you and presumably myself set about trying to achieve long term objectives, the gombeen men will come in a bleed any chance of creating wealth. I'm thinking of estate agents, car sales men etc etc (who ultimately come along and present themselves as an industry), but who are not wealth creators.

However the policy is sound in my books, sorry for being negative, I am compelled to apply some realism if for nothing else but to contribute to the debate.

Amhran Nua

southsiderosie wrote: »

Krugman's two main points are that 1) it isn't industrial policy that should be getting the credit for the explosive growth in these countries, but rather smart fiscal and monetary policies and 2) input-led growth cannot continue at double digit rates forever because of the law of diminishing returns. Nowhere does he say that South Korea will experience a Soviet-style collapse; he's just saying that most countries will never return to the kind of growth rates they experienced while pulling themselves out of poverty.

And once again, why would we need Paul Krugman to tell us this. Nobody can expect double digit growth rates to eternally persist in anything, ever. However what he does seem to be doing is writing these economies off to an extent, hence the comparison to the old Soviet Union, which was an entirely different kettle of fish, and was the point of the original linked article. Also, nobody, not me or the original article, is solely pinning economic success on government direction in industry, but rather on a combination of factors. Thats just the factor that causes free marketeers to hyperventilate, and once again, is the point of the original article.

Even our own government sort of kind of chose a national direction, ostensibly the knowledge economy, which was a resounding failure more or less because nobody in government really cared about it and hence didn't put the needed resources behind it.

southsiderosie wrote: »

I think you are confusing central planning in terms of industrial policy and government planning in terms of monetary and fiscal policy.

And I think you're accepting the benefits of one while rejecting the other from an ideological perspective. Yes of course it can be done wrong, anything can be done wrong, but the benefits when it is done right can be potent. Many large and well known companies got their startup and inital growth mostly from government contracts, which amounts to the exact same thing as a subsidy if done correctly. Even FDR recognised the difference between keeping companies on life support and moving towards independence, the second part of which he was in the process of enacting with his New Deal before world war two interrupted.

Most large Chinese companies are locked directly into the government, and China is currently the largest exporter on earth.

southsiderosie wrote: »

he does have a problem however with government picking specific industrial winners and losers, largely because they generally have a horrible track record of choosing wisely.

And again, the very fact of having government contracts/support gives a company a competitive advantage. I've heard that the EU has regulations which mean that the lowest bidder in an EU wide tender must be taken, which I would view as a destructive policy since it favours not startups and growth but vertical monopolies and entrneched interests. Again that needs further clarification though.

Lets take as an example shipbuilding, a common milestone in the industrial growth process. Shipbuilding is for the most part really hard to make any sort of profit on, and needs to be maintained semi permanently on government life support. So why is it a milestone? The industrial infrastructure, in-depth expertise and equipment needed for the industry can be spun off into many different industries, it creates a sort of industrial backbone while minimising costs.

In the 20th century, shipbuilding (which encompasses the shipyards, the marine equipment manufacturers, and many related service and knowledge providers) grew as an important and strategic industry in a number of countries around the world. This importance stems from:

• The large number of skilled workers required directly by the shipyard, along with supporting industries such as steel mills and engine manufacturers; and
• A nation's need to manufacture and repair its own navy and vessels that support its primary industries

Historically, the industry has suffered from the absence of global rules and a tendency towards (state-supported) over-investment due to the fact that shipyards offer a wide range of technologies, employ a significant number of workers, and generate foreign currency income (as the shipbuilding market is both global and dollar-based).

Shipbuilding is therefore an attractive industry for developing nations. Japan used shipbuilding in the 1950s and 1960s to rebuild its industrial structure; South Korea started to make shipbuilding a strategic industry in the 1970s, and China is now in the process of repeating these models with large state-supported investments in this industry.

So what we have here is no sustainable growth, but long term benefits that go far beyond Krugman's analysis.

southsiderosie wrote: »

And again, Krugman is using the Soviet example to make a point about fast rising ("VE VILL CRRRRUSH YOU") versus sustainable growth.

When you're starting from nothing, fast growth is easy to create. Expecting fast growth to continue permanently is not a realistic position in any economic model, so I've no idea why he thinks it's relevant. The point and reason for the Asian tiger model is to bootstrap a languishing economy into a more productive and competitive form, which oddly enough is exactly what we need here.

southsiderosie wrote: »

I have actually read quite a bit on MITI thanks. Please stop assuming that other people are somehow ignorant just because they disagree with you.

And please stop assuming people know that you are aware of something before it is mentioned.

southsiderosie wrote: »

From what I have read, the jury is out on that one as well. First, one would expect to see rapid growth in Japan in the decades after WWII given the fact that the country was decimated by conflict (same as Germany).

No, you wouldn't expect to see rapid growth. That's why they called it a "miracle". Countries that were equally devastated by the war like the Philippines haven't recovered to this day.

southsiderosie wrote: »

In addition, given that Japan (along with Germany) were industrial powers before the war, much of the post-war economic activity and growth was a 'return to form' rather than a 'starting from scratch' phenomenon.

Manila, pearl of the orient, was among the most highly developed cities in Asia before the war. And none of these nations started out industrialised. We have a unique opportunity in that we can look at the history of these other countries and learn from their successes and mistakes, and take what we want from them, which is really the idea behind the thread.

southsiderosie wrote: »

Second, the problem with MITI (and industrial policy in general) is that while it may explain why some companies did well, it can't explain why companies that didn't deal with MITI, or had to fight MITI to pursue their own business strategies, performed just as well or better than those that did. Sony revolutionized the electronics industry not because of help from MITI, but because they ignored them and fought to pursue their own growth and investment strategies.

Here's a little more information on MITI, so we aren't cherry picking:

MITI was created with the split of the Ministry of Commerce and Industry in May 1949 and given the mission for coordinating international trade policy with other groups, such as the Bank of Japan, the Economic planning Agency, and the various commerce-related cabinet ministries. At the time it was created, Japan was still recovering from the economic disaster of World War II. With inflation rising and productivity failing to keep up, the government sought a better mechanism for reviving the Japanese economy.

MITI has been responsible not only in the areas of exports and imports but also for all domestic industries and businesses not specifically covered by other ministries in the areas of investment in plant and equipment, pollution control, energy and power, some aspects of foreign economic assistance, and consumer complaints. This span has allowed MITI to integrate conflicting policies, such as those on pollution control and export competitiveness, to minimize damage to export industries.

MITI has served as an architect of industrial policy, an arbiter on industrial problems and disputes, and a regulator. A major objective of the ministry has been to strengthen the country's industrial base. It has not managed Japanese trade and industry along the lines of a centrally planned economy, but it has provided industries with administrative guidance and other direction, both formal and informal, on modernization, technology, investments in new plants and equipment, and domestic and foreign competition.

The close relationship between MITI and Japanese industry has led to foreign trade policy that often complements the ministry's efforts to strengthen domestic manufacturing interests. MITI facilitated the early development of nearly all major industries by providing protection from import competition, technological intelligence, help in licensing foreign technology, access to foreign exchange, and assistance in mergers.

These policies to promote domestic industry and to protect it from international competition were strongest in the 1950s and 1960s. As industry became stronger and as MITI lost some of its policy tools, such as control over allocation of foreign exchange, MITI's policies also changed. The success of Japanese exports and the tension it has caused in other countries led MITI to provide guidance on limiting exports of particular products to various countries. Starting in 1981, MITI presided over the establishment of voluntary restraints on automobile exports to the United States to allay criticism from American manufacturers and their unions.

Similarly, MITI was forced to liberalize import policies, despite its traditional protectionist focus. During the 1980s, the ministry helped to craft a number of market-opening and import promoting measures, including the creation of an import promotion office within the ministry. The close relationship between MITI and industry allowed the ministry to play such a role in fostering more open markets, but conflict remained between the need to open markets and the desire to continue promoting new and growing domestic industries.

southsiderosie wrote: »

Finally, the close relationship between Japanese banks, corporations, and government officials helped to prop up bad companies long after they should have been liquidated, had a corrosive effect on government, and has inhibited any efforts at economic or political reform.

Quite true, and something similar happened in Korea. However we aren't at that stage yet, we're still at the pre-growth stage. We can learn from the mistakes of these countries and avoid these problems before they arise.

southsiderosie wrote: »

Setting up a government agency in order to support specific firms and industries and then rotating the leadership of said agencies and firms in and out, creating a crony system lacking in any kind of transparency is not .

Who said we have to have a lack of transparency? Or indeed a crony system?

southsiderosie wrote: »

As for being a "publish or die" (it's actually "publish or perish") throwaway piece, this is one of the most influential articles within development economics in the last 20 years.

It certainly seems tailored to administration policies, in flat defiance of the realistic article produced in the OP.

southsiderosie wrote: »

And Krugman was already a long-tenured professor when it was published. So, no, it's not a throwaway piece; rather it forced people to really examine a lot of underlying assumptions about Asia's economic success.

Hmm. Krugman is a well known academic, and therefore is no stranger to self publicity. I find it likely that an article of this sort would provoke a lot of pointless debate while holding enough shreds of credibility not to be immediately discarded. Also, he is not without his critics. Quite a few of them as it turns out, including faculties which have turned out a half dozen Nobel prize winners...

Many friends and colleagues have asked me what I think of Paul Krugman’s New York Times Magazine article, “How did Economists get it so wrong?”

Most of all, it’s sad. Imagine this weren’t economics for a moment. Imagine this were a respected scientist turned popular writer, who says, most basically, that everything everyone has done in his field since the mid 1960s is a complete waste of time. Everything that fills its academic journals, is taught in its PhD programs, presented at its conferences, summarized in its graduate textbooks, and rewarded with the accolades a profession can bestow, including multiple Nobel prizes, is totally wrong. Instead, he calls for a return to the eternal verities of a rather convoluted book written in the 1930s, as taught to our author in his undergraduate introductory courses. If a scientist, he might be an AIDS-HIV disbeliever, a creationist, a stalwart that maybe continents don’t move after all.

It gets worse. Krugman hints at dark conspiracies, claiming “dissenters are marginalized.” Most of the article is just a calumnious personal attack on an ever-growing enemies list, which now includes “new Keynesians” such as Olivier Blanchard and Greg Mankiw. Rather than source professional writing, he plays gotcha with out-of-context second-hand quotes from media interviews. He makes stuff up, boldly putting words in people’s mouths that run contrary to their written opinions. Even this isn’t enough: he adds cartoons to try to make his “enemies” look silly, and puts them in false and embarrassing situations. He accuses us of adopting ideas for pay, selling out for “sabbaticals at the Hoover institution” and fat “Wall street paychecks.” It sounds a bit paranoid.

It’s annoying to the victims, but we’re big boys and girls. It’s a disservice to New York Times readers. They depend on Krugman to read real academic literature and digest it, and they get this attack instead. And it’s ineffective. Any astute reader knows that personal attacks and innuendo mean the author has run out of ideas.

That’s the biggest and saddest news of this piece: Paul Krugman has no interesting ideas whatsoever about what caused our current financial and economic problems, what policies might have prevented it, or what might help us in the future, and he has no contact with people who do. “Irrationality” and advice to spend like a drunken sailor are pretty superficial compared to all the fascinating things economists are writing about it these days.

southsiderosie wrote: »

If you are going to be snide, then at least be snide and understand the basic principles of macroeconomics.

One does one's best. Its not our first discussion, SSRosie, but should you know by now I reject dogmatic positions out of hand. They lead to situations like this one, where you start with a position and then try to bend the facts to fit your opinions, rather than observing the facts and drawing the conclusions from that.

southsiderosie wrote: »

I am opposed to governments funding tuition for everyone.

And yet you see no difficulty with praising the benefits of a highly educated workforce on economies with the other hand.

southsiderosie wrote: »

Oh, and by the way, third level education is Asia is not free. Hong Kong University is over $5,000/year. University of Tokyo, Japan costs around $10,000/year. National University of Singapore is $19,000/year, but is heavily subsidized by the government in exchange for 3-6 year "service bonds"; even with the subsidy students are responsible for over $5,000 in fees. (all prices are in USD)

Again, you're holding up a variety of Asian education systems as the ideal. In our last discussion it was thoroughly shown that your favoured "cut throat" (in your own words) systems are detrimental to educational success. Likewise you specifically mentioned you were in favour of social darwinism, which pretty much casts a long shadow over most of the rest of your arguments as being prejuidiced and out of touch with socioeconomic reality.

southsiderosie wrote: »

High levels of workforce participation leads to more demand for goods and services in the economy and lower dependency ratios.

They don't if the jobs aren't there. India is overrun with workforce participation and is still one of the poorest countries around. Even Krugman recognised that. You need increased workforce participation to take advantage of economic opportunities, but it doesn't create them, which is why it got no mention at all in the article cited in the OP. Not a one.

southsiderosie wrote: »

Hm, this sounds suspiciously like the description of Japan from the original article you cited.

No, it doesn't. Japan had a surplus of savings and investments that was looking for somewhere to go to maintain those growth rates, and into property it went. Ireland had no such bulwark, and still doesn't.

southsiderosie wrote: »

Infrastructure development doesn't necessarily mean just building deepwater ports and factories. For one thing, Ireland's national broadband network (or lack thereof) is a disgrace. Investing in IT infrastructure for the HSE or other large bureaucracies and businesses could have helped Ireland develop more indigenous companies to specialize in these kinds of systems for export. In addition, investing in an alternative energy infrastructure could have done for the Irish what it did for the Danes.

Indeed, I agree completely and have argued just that in many places. Another benefit to an enhanced broadband infrastructure is a reduced burden on physical infrastructure, as it enables a lot more telecommuting. Its high time internet access was recognised as the utility it is.

southsiderosie wrote: »

Given how incompetent most Irish government bureaucracies and quangoes are, the idea of putting any of these people in charge of picking winners and losers of Irish industry is terrifying.

Agreed on all of the above points, emphatically. However it is an assumption in the thread that prior to embarking on these growth strategies, there would be a fundamental change in governmental and political systems. Not so big a task as you might think, especially now.

southsiderosie wrote: »

To me, that is the great tragedy of the Celtic Tiger boom and bust.

We're singing from the same hymn sheet.

southsiderosie wrote: »

But if the Asian input-driven model is to be used as an example, then Ireland has largely missed the boat: it can't repeat the bounce it got from increased workforce participation in the 1990s, it can no longer control its own currency, and the Irish government relies on external borrowing and VAT from consumption (rather than domestic savings) to fund its own operations. It also can’t run up massive deficits (a la Japan) or suppress dissent (a la the military dictatorship in South Korea).

Again though, this just shows you don't understand the mechanisms involved in the tiger model. You keep referring to increased workforce participation as if it created prosperity; it did not. Currency control and savings rates have already been mentioned in the OP, the Irish government demonstrably can and has run up massive deficits, and why would you need to suppress anything?

southsiderosie wrote: »

And today Japan is stuck with zombie banks and firms that, because of their incestuous ties to government, are not allowed to die.

Eh you've gone and contradicted yourself here again, is the government forcing banks to give them loans, or is the government supporting zombie banks?

southsiderosie wrote: »

And the Chinese-made keyboard I am typing this on is a piece of shít; I bought it less than a year ago, and it is already wonky.

And Japan used to be a byword for dodgy equipment. You can see cartoons from the 1950s and 60s which show Japanese tourists taking tours in the US toting cameras and photographing everything, including the inside of the factories on tours. Although the cartoons were intended to be semi-racist parodies, the Japanese tourists had the last laugh, because they weren't tourists.

Scratch the surface, you might be surprised whats under there.

Amhran Nua

kickoutthejams wrote: »

Where does it say that?

"while encouraging high savings and investment rates"

kickoutthejams wrote: »

In another of his books (The Return of Depression Economics), Krugman notes that even cutting interest rates to close to zero percent hasn't helped the Japanese. I'll try and dig the exact citation out for you tomorrow (won't be home until very late this evening)

That's not actually bad news, the economic bootstrap tiger model seems to favour higher interest rates.

kickoutthejams wrote: »

Hopefully, we can kickstart another boom and invest wisely enough so that when the boom slows, we can ease it out from becoming a freefall bust.

Well I wouldn't be mad about getting another boom started, but we might need some of the fallout effects from it if its the right kind of boom; if we can get the electorate to see it the same way we're good.

Amhran Nua

rumour wrote: »

This calls for a collective directed focus with by-in from all parties. First of all what will the media do with that? Where's the angle the story, so any national focus would be subject to a critical onslaught from the media for the duration. Politicians would then succumb to the pressure. (opinion polls are enough to overturn referendums and cause leadership challenges). End result is that no long term strategy would ever be enacted.

Yes, this is a reasonable point, but of course we'd need simultaneous political reform. While some might say it will never happen, I would say that its not only possible its quite likely in the near future. The rusty cogs of the Irish political machine have seen daylight for the first time.

rumour wrote: »

Secondly the opportunism of the Irish does not lend itself to self sacrifice and discipline.

I dislike generalisations about an entire nation as a rule. For every chancer, spiv, and gombeen, there are a hundred hardworking, honest, and well educated people, many of whom are emigrating as we speak.

rumour

Amhran Nua wrote: »

Yes, this is a reasonable point, but of course we'd need simultaneous political reform. While some might say it will never happen, I would say that its not only possible its quite likely in the near future. The rusty cogs of the Irish political machine have seen daylight for the first time.

I am wary of new dawns. We had the chance to put a former Taoiseach on the stand for his less than ethical behavious and the state bottled it on the most dubious grounds. Instead we got 10/15 years of tribunals that have achived nothing.
In addition it appears we will all jump on board with FG as the only alternative and ignore the moral ambiguity at the heart of their leadership which can justify a teachers pensions despite it being how long since he tought in a classroom? If he can justify this what else can he justify??

Amhran Nua wrote: »

I dislike generalisations about an entire nation as a rule. For every chancer, spiv, and gombeen, there are a hundred hardworking, honest, and well educated people, many of whom are emigrating as we speak.

I do to, but we must deal with international perception. I did type out a lengthy answer and when I went to post it said service not available grrrrr. The point being currently we are being viewed in less than favourable terms. Unfortunately this is being put in the context of our history. This I have had more or lesss lectured to me twice by lets say jittery international investors over the last few weeks. Quite difficult to deal with.

Amhran Nua

rumour wrote: »

In addition it appears we will all jump on board with FG as the only alternative and ignore the moral ambiguity at the heart of their leadership which can justify a teachers pensions despite it being how long since he tought in a classroom? If he can justify this what else can he justify??

I think he gave up the pension a while back. How and ever you have to start somewhere, and now is a better time than most.

rumour wrote: »

do to, but we must deal with international perception. I did type out a lengthy answer and when I went to post it said service not available grrrrr. The point being currently we are being viewed in less than favourable terms. Unfortunately this is being put in the context of our history. This I have had more or lesss lectured to me twice by lets say jittery international investors over the last few weeks. Quite difficult to deal with.

Sounds like they were just jockeying for a better deal to be honest, sweeten the terms because we don't trust ye shifty paddies. The only way to deal with an international perception, if such exists, and I don't accept that it does, is to produce real results. I reckon using the lessons of the Asian tiger model is one of the better ways to achieve that.

rumour

Amhran Nua wrote: »

Sounds like they were just jockeying for a better deal to be honest, sweeten the terms because we don't trust ye shifty paddies. .

Perhaps some months back now its become much more black and white.

Amhran Nua wrote: »

The only way to deal with an international perception, if such exists, and I don't accept that it does, is to produce real results..

My experience leads me to believe it does. General impression I'm getting is 'bad place for business', then you are forced to deal with the perception issue.I am not dispondent about this and have faced it before. Certainly doesn't help with one leader drunk, the ex leader in a cupboard, the opposition (labour) are promising everything. South Park or the Simpsons couldn't make **** this up.

Amhran Nua wrote: »

I reckon using the lessons of the Asian tiger model is one of the better ways to achieve that.

I agree which is why you have my interest. Up hill struggle to say the least.

Lockstep

Amhran Nua wrote: »

"while encouraging high savings and investment rates"

Read through it again: couldn't see it.

In The Return of Depression Economics (p.71), Krugman cites Japan as a good example of a liquidity trap. Interest rates were being cut throughout the 90s but the Japanese still wouldn't move away from the savings mentality. Even when they were practically zero, the savings mentality stayed the same.

Amhran Nua wrote: »

That's not actually bad news, the economic bootstrap tiger model seems to favour higher interest rates.

If a society is too welded to one way of thinking, it's not good news either.
In 2003, the Japanese interest rate was 0.5%, meaning that when recession struck, the usual trick of alleviating a busy (cutting interest rates) was gone, as interest rates were already so low.
High interest rates *can* be a good thing but only when needed. Having a society welded to a save or a spend theory, rather than a mix of the two is not good news.

Amhran Nua

kickoutthejams wrote: »

Read through it again: couldn't see it.

Second paragraph, about four lines down.

kickoutthejams wrote: »

In The Return of Depression Economics (p.71), Krugman cites Japan as a good example of a liquidity trap. Interest rates were being cut throughout the 90s but the Japanese still wouldn't move away from the savings mentality. Even when they were practically zero, the savings mentality stayed the same.

Yes but the general concept is of how to apply the Asian tiger lessons regarding rapid growth and employment to our current situation, not so much after the growth-seeking capital generated by that growth fled into the property market. Japan is at a more advanced stage than us because it went through its proper rapid growth phase from the 1950s to the 1980s. The small spurt we experienced in the 1990s couldn't be described in similar terms.

Having seen what happened to Japan we can disincentivise destructive pricing bubbles like the property one should it reach that stage. In a way we're fortunate we have learned that lesson early, the Chinese government is already taking steps to deflate its own property markets.

And of course the point remains that even during its "lost decade", Japan kept pace with the US in terms of growth. The key is to learn from both the successes and failures.

kickoutthejams wrote: »

High interest rates *can* be a good thing but only when needed. Having a society welded to a save or a spend theory, rather than a mix of the two is not good news.

In a way we've already achieved that criteria of the tiger model, after the many burnt fingers of this recession the "saving" mentality will be engraved in the Irish psyche for a long time to come.

Lockstep

Amhran Nua wrote: »

Second paragraph, about four lines down.

Are we talking about the same article?
The Krugman link in Southsiderosie's link?

Krugman's other work has him nothing that the Japanese are welded to the savings mentality, interest rates that run close to zero didn't incentivise them during the 90s, whereas interest rates weren't very high during the boom years.

Amhran Nua wrote: »

Yes but the general concept is of how to apply the Asian tiger lessons regarding rapid growth and employment to our current situation, not so much after the growth-seeking capital generated by that growth fled into the property market. Japan is at a more advanced stage than us because it went through its proper rapid growth phase from the 1950s to the 1980s. The small spurt we experienced in the 1990s couldn't be described in similar terms.

Most European companies went through massive boosts during this period (with Japan, Germany and France leading the fray) To a large extent, they were able to change so quickly as their social structure had been brought down in WWII so they were able to rapidly change their actions. Britain was still in a pre-war mindset and tried to protect its old industries.

Amhran Nua wrote: »

Having seen what happened to Japan we can disincentivise destructive pricing bubbles like the property one should it reach that stage. In a way we're fortunate we have learned that lesson early, the Chinese government is already taking steps to deflate its own property markets.

How can learn this from Japan?

Amhran Nua wrote: »

And of course the point remains that even during its "lost decade", Japan kept pace with the US in terms of growth. The key is to learn from both the successes and failures.

Japan's growth is combined with a colossal public debt (running at around 190% of GDP if I remember rightly). So the extent of their current growth is a difficult thing to look at.

Amhran Nua wrote: »

In a way we've already achieved that criteria of the tiger model, after the many burnt fingers of this recession the "saving" mentality will be engraved in the Irish psyche for a long time to come.

That's way too much of a theoretical model. National psyches play a large part in the saving/spending circle (which is why Krugman notes that studying the Asian Tiger model involves a lot of sociology, especially regarding the savings model of the Japanese.

Amhran Nua

kickoutthejams wrote: »

Are we talking about the same article?
The Krugman link in Southsiderosie's link?

No, that article was demolished earlier. I'm referring to the original link in the OP.

kickoutthejams wrote: »

Krugman's other work has him nothing that the Japanese are welded to the savings mentality, interest rates that run close to zero didn't incentivise them during the 90s, whereas interest rates weren't very high during the boom years.

This underlines the differences between our situation and theirs. Also keep in mind they had two effective booms, the industrial one and the property one, with very different reasons and end results. Besides which, if interest rates were zero in Ireland now, would many people want a consumer loan? Rates are low enough.

kickoutthejams wrote: »

How can learn this from Japan?

I think you're conflating the healthy high growth economic period in Japan with the unhealthy property bubble there.

kickoutthejams wrote: »

Japan's growth is combined with a colossal public debt (running at around 190% of GDP if I remember rightly). So the extent of their current growth is a difficult thing to look at.

But we aren't looking at their current growth, we're looking at their initial and medium term growth. The property boom there had nothing to do with the Asian tiger model.

kickoutthejams wrote: »

That's way too much of a theoretical model. National psyches play a large part in the saving/spending circle (which is why Krugman notes that studying the Asian Tiger model involves a lot of sociology, especially regarding the savings model of the Japanese.

Well as pointed out earlier, Krugman likes to cause a stir to raise his profile, so I'd take a lot of what he says with a pinch of salt. In the first place, they wouldn't have had to encourage saving unless it needed encouraging. Secondly its a lot easier to encourage saving than it is to demand spending, especially after an economic collapse. If the interest rates go high enough, people simply won't be able to get loans, which is also a reference to the credit element of the tiger model, placing the emphasis on corporate loans. Its interesting that it was only after they abandoned this idea that the model really fell apart.

Lockstep

Amhran Nua wrote: »

No, that article was demolished earlier. I'm referring to the original link in the OP.

Fair enough, although Krugman maintains in other articles/books that the Japanese mentality is as much of a product of sociology as economics. If it was simply a case that they'd been encouraged to save then they could be as encouraged to spend, which never worked.

Amhran Nua wrote: »

This underlines the differences between our situation and theirs. Also keep in mind they had two effective booms, the industrial one and the property one, with very different reasons and end results. Besides which, if interest rates were zero in Ireland now, would many people want a consumer loan? Rates are low enough.

Their property boom coincided with industrial boom (property prices went through the roof during their industrial boom)
Both were heavily tied in with the banks/lending.
Nowadays, a problem is that the banks aren't doing a lot of lending. Entrepreneurship is on the up (it was on RTÉ a few days ago on the various schemes people were stetting up) However, these aren't much good when the banks aren't lending much.
Part of cutting interest rates is the psychological effect, which is especially useful for setting up new businesses whereas it helps the use of things like credit cards to stimulate some consumer spending.

Amhran Nua wrote: »

I think you're conflating the healthy high growth economic period in Japan with the unhealthy property bubble there.

Property in Japan was a problem throughout their economic boom (thee areas around the square mile of the Imperial Palace was worth more than California) and throughout the 1980s, the property and stock boom was a part of their economic growth (the 80s was Japan's Roaring Twenties), both property and stock prices tripled.
It was the very crony capitalism that made Japan so successful that brought in realtors paying off politicians and Yakuza connections: property almost caused a massive recession in the 70s except for an unexpected burst of inflation which turned bad loans good again.

Amhran Nua wrote: »

But we aren't looking at their current growth, we're looking at their initial and medium term growth. The property boom there had nothing to do with the Asian tiger model.

Their initial growth was largely built around insulation of companies from financial pressures and again, the Japanese mentality of saving.

Furthermore, you play up the role of the MITI whereas it was the quieter and more influential Ministy of Finance that was the cornerstone of Japanese growth.

Amhran Nua wrote: »

Well as pointed out earlier, Krugman likes to cause a stir to raise his profile, so I'd take a lot of what he says with a pinch of salt. In the first place, they wouldn't have had to encourage saving unless it needed encouraging. Secondly its a lot easier to encourage saving than it is to demand spending, especially after an economic collapse. If the interest rates go high enough, people simply won't be able to get loans, which is also a reference to the credit element of the tiger model, placing the emphasis on corporate loans. Its interesting that it was only after they abandoned this idea that the model really fell apart.

THe Japanese model fell apart due to the advance of crony capitalism and moral hazardry. The Banks were engaged in risky spending due to their belief that they'd be propped up (sounds familiar).
Savings have always been a part of Japanese culture, in the same way that they have a shameful attitude to welfare. (the Japanese were cutting interest rates to try and reduce the reliance on saving during the boom but it never had much of an effect on their psyche.

Amhran Nua

kickoutthejams wrote: »

Their property boom coincided with industrial boom (property prices went through the roof during their industrial boom)

No, the Asian tiger model was applied from the 1950s to the 1970s (when Japan became the world's second largest economy), and to a continually decreasing extent after that. When the end of that rapid growth period was reached, as it inevitably had to, investors started to seek other areas to find the same returns, and the property bubble was formed. Note also that investment as well as saving was encouraged.

kickoutthejams wrote: »

Entrepreneurship is on the up (it was on RTÉ a few days ago on the various schemes people were stetting up) However, these aren't much good when the banks aren't lending much.

Exactly where this model excels; where lending falls down government contracts and subsidies provide the impetus. We're running straight into the fungus-like bottom feeding free market problem, except without the massive market of the US to support us. Efficient, yes, but unable to gain momentum.

kickoutthejams wrote: »

Part of cutting interest rates is the psychological effect, which is especially useful for setting up new businesses whereas it helps the use of things like credit cards to stimulate some consumer spending.

Again though, the cuts came after the model was discontinued to all intents and purposes.

kickoutthejams wrote: »

Their initial growth was largely built around insulation of companies from financial pressures and again, the Japanese mentality of saving.

Tarriffs and taxes were already covered in the OP.

kickoutthejams wrote: »

property almost caused a massive recession in the 70s except for an unexpected burst of inflation which turned bad loans good again.

So the Arab oil embargo had nothing to do with it? Again property prices in Japan in the 1970s grew because of development as a result of their eariler success, not so much because the banks acted like lunatics, as per the Irish example.

kickoutthejams wrote: »

Furthermore, you play up the role of the MITI whereas it was the quieter and more influential Ministy of Finance that was the cornerstone of Japanese growth.

I disagree, and have supported this assertion.

kickoutthejams wrote: »

Savings have always been a part of Japanese culture, in the same way that they have a shameful attitude to welfare. (the Japanese were cutting interest rates to try and reduce the reliance on saving during the boom but it never had much of an effect on their psyche.

Again, why would they need to encourage savings and investments were that the case?

southsiderosie

Amhran Nua wrote: »

Again, why would they need to encourage savings and investments were that the case?

But this is an interesting point, and raises an issue that is core to our disagreement over the Asian miracle case: is policy getting the credit for something that would have happened anyway?

We obviously disagree on the role of MITI. That said, there is an important counter-factual question here: if MITI didn't exist, what would Japanese growth have looked like? Japan's most successful international firms (Sony, Nissan, Honda, and Toyota) were able to expand both at home and abroad largely in spite of, rather than because of MITI. Would other segments of Japanese industry be healthier today if they had not been protected by their own banks and the government for so long?

Savings and interest rates pose another counter-factual. Yes, changes in interest rates may prompt some shifts in savings and consumption behavior. But if savings rates remain stable despite changes in interest rates, this would suggest that, like kickouthejams noted, that there are social/cultural factors in play, rather than policy outcomes. If savings rates are the same when interest rates are 9.5% as they are when rates are 0.5%, this suggests there is something else driving consumer behavior besides prices.

To put it simply: to what extent might Japanese economic success be independent of industrial policy? Might it not be the case that the Japanese were successful in spite of rather than because of their industrial policies?

maninasia

It's not a good comparison. Most Asian countries have much larger domestic populations than Ireland and they are certainly not socialist in the same manner as Ireland. Plus culturally they have a work ethic that far surpasses Ireland and a belief in the capitalist system.
There is one that is similar to Ireland and that is Singapore. Ireland cannot emulate an Asian tiger such as Singapore simply because it is not in Asia..not in the current high growth region of the world. However there is much Ireland could do to improve trade and cultural links with Asia.

Amhran Nua

southsiderosie wrote: »

But this is an interesting point, and raises an issue that is core to our disagreement over the Asian miracle case: is policy getting the credit for something that would have happened anyway?

Its not really that central, since its only one of many different policies. The fact remains however that it was encouraged by policy.

southsiderosie wrote: »

We obviously disagree on the role of MITI. That said, there is an important counter-factual question here: if MITI didn't exist, what would Japanese growth have looked like?

Hold up; Korea, China, and several other countries used the same model with the same effect. If you want to look at countries that didn't, there's the Philippines.

southsiderosie wrote: »

Savings and interest rates pose another counter-factual. Yes, changes in interest rates may prompt some shifts in savings and consumption behavior.

They sure can, they prompted our destructive property bubble directly and in no uncertain terms.

southsiderosie wrote: »

If savings rates are the same when interest rates are 9.5% as they are when rates are 0.5%, this suggests there is something else driving consumer behavior besides prices.

It probably does; were they? And please don't say yes without some kind of statistical support.

southsiderosie wrote: »

To put it simply: to what extent might Japanese economic success be independent of industrial policy? Might it not be the case that the Japanese were successful in spite of rather than because of their industrial policies?

No, it mightn't. That the same model has been used to varying degrees of success by other countries would indicate otherwise. Also note its not called "the Soviet tiger", thats a very different beast.

maninasia wrote: »

It's not a good comparison. Most Asian countries have much larger domestic populations than Ireland and they are certainly not socialist in the same manner as Ireland.

Yup, I'm not advocating a direct carbon copy, legislatively and diplomatically we have our hands tied in several areas.

maninasia wrote: »

Plus culturally they have a work ethic that far surpasses Ireland and a belief in the capitalist system.

During the boom, long term unemployment in Ireland hovered around the 1% mark, including those on disability. I can't see much wrong with the Irish work ethic. As for belief, not many in Ireland would know capitalism/socialism from a hole in the wall, something they'd share with most of the populations of most countries.

maninasia wrote: »

There is one that is similar to Ireland and that is Singapore.

How so? Historically, geographically, politically, the whole shebang, Singapore is nothing like Ireland. Anyway, again its not about just lifting the idea straight from Japan and dropping it onto Ireland. That couldn't work unless we left the EU, and even then we'd need a much larger domestic population to fulfil some of the criteria. Then again being in the single market offers advantages that Japan never had. I'll list off the details in the OP again, with a few adjustments:

From the article, we can isolate the main competitive advantages listed by the author, and see how they might be applied to Ireland:

• A careful program of subsidized investment in "strategic industries": This should be doable unless EU anticompetition rules make it difficult. All we need to do is pick a few high growth industrial areas and focus on them - energy storage, robotics, aquaculture and maritime exploitation for example.
• Japanese leaders focused on exports to drive their economy, An export focus is not a problem, you just need to incorporate that with the above mentioned direction and some heavyweight language expertise to hit the eurozone.
• suppressing domestic consumption with taxes and limited consumer credit, while encouraging high savings and investment rates: We don't need to do this, its something which is already happening in Ireland. Investment can be encouraged by tax incentives and a variety of investment vehicles which enable normal people to use their credit card to invest in common or garden variety limited companies, as well as business and employment co-operatives.
• They established world-class factories and emphasized Japanese-developed technology, Long way to go here, but doable.
• while requiring foreign companies to hand over their own as a condition of market access: This is branding and marketing, along with technology transfers. We haven't anywhere near the economic power to make such a demand unfortunately, yet at least, so I'd recommend substituting that with focused R&D, an area where Ireland has little difficulty.
• They prevented industrywide labor unions: This is already going on in the multinationals which provide so much employment in Ireland.
• and kept the yen undervalued against the dollar, while protecting domestic industries with tariffs and trade barriers: We can't devalue our own currency since we don't have one, however we, on foot of the thread about Google's corporate tax rate, have apparently got a 2.5% corporate tax band, which achieves the exact same result.

So really we've got what, three of the seven above already achieved. Sound like a great start to me. Its the active elements that need to be pursued next.