Analysis of East Asian Economy with Reference to Japan - Essay Example

Critical Analysis of East Asian Economy with reference to Japan Introduction The East Asian economy is considered as one of the most successful regional economies worldwide. It is home to World’s Highest Performing Asian Economies (HPAEs) - Japan, Korea, Hong Kong, Singapore and Taiwan. Three more industrially developed economies have been added to its crown- Malaysia, Thailand and Indonesia. In the East Asian economies, variety of policy frameworks can be observed. While countries like Hong Kong believe in laissez faire, Japan and Korea have extremely selective policy (Barro, 2001). With passing time, East Asia is becoming the centre of economic power. The transformation was initiated when Japan became a major industrial power along with Europe and United States of America. The rapid growth and development of East Asian economies, mainly Japan, Korea and Singapore has drawn significant attention from economists all over the world. Despite being part of the East Asian economy, the HPAEs are diversified in terms of culture, resources, population trend and economic policy (Haggard, 2004). The most astonishing factor that has set apart the developing economies of East Asia from other developed as well as developing countries is the continuous growth they have undergone since 1960 to 1990. The financial crisis of 1997 was a huge blow for these countries but they overcame it after considerable support from IMF and structural changes in their policies and reforms (Radelet and Sachs, 2000). The paper focuses on understanding the various factors contributing towards rapid development of the East Asian economies, which will be explained in the latter sections of this essay. The paper will also throw light on the economic crisis that these economies faced in 1997 and combated it successfully. In addition, the essay will also study the underlying rationales of the sustainable development of the largest developed East Asian economy, Japan. Asian Financial Crisis of 1997 The financial crisis of 1997 brewed in Thailand and eventually affected the whole of East Asia. The crisis initiated when the government of Thailand in absence of sufficient foreign reserve to support fixed exchange rate, floated the Baht. The country was burdened with heavy foreign debt which resulted in bankrupt situation and currency collapse. Major nations apart from Thailand that were severely affected by the crisis are Indonesia and South Korea. The countries that were less affected by the crisis are China, Taiwan, Philippines, Singapore and Vietnam (Barro, 2001). Different countries of the East Asian economy had their own minor issues that, when added gave the crisis a bigger shape. While Thailand’s bankruptcy was the aftermath of floating exchange rate, Indonesian corporations were extremely dependent on US investment that got pulled out after the crisis triggered. Moreover, South Korea and Philippines had issues related to excessive non-performing loans and drop in value of currency respectively. Countries like China, Malaysia and Singapore suffered mild recession. Though the crisis did not affect Japan much but Japan had its own worries. The Japanese market did not collapse but was heavily affected being the most prominent economy in the region. For a certain period, the New York Stock Exchange suspended all it’s trading with Japan. Overall, the Asian stock market and currency value suffered badly as well as resulted in political disturbances. The situation of these economies stabilized with Indian Monetary Fund’s intervention. IMF suggested a series of bailouts and provided fund to help the affected economies to prevent defaulting of these nations (Radelet and Sachs, 2000). The Success story of East Asian Economy The East Asian economy observed terrific growth during 1960-1990. The reasons for this tremendously rapid growth can be attributed to heavy industrialisation, functional efficiency and an autonomous economic system. Other factors that influenced that success of these economies are openness of trade and foreign investment, minimum import duties on consumer and capital goods and most importantly, grouping of the HPAEs so that growth and risk can be shared (Barro, 2001). It has also been observed that these countries have great access to free as well as flexible labour market which helps in employing inexpensive labours, resulting in high performance. In addition, East Asian population has exhibited quick learning abilities which make them learn various processes and techniques quickly and ensure valuable contribution in production sector. One major advantage of these economies is their ability to produce almost major types of consumer goods. The East Asian countries are known for export of electrical and electronic goods, toys, cars and automotive parts and many more consumer durables. The growth of these economies has often termed as the Asian Miracle. The credit of Asian Miracle is given to appropriate centralised planning and decentralised market. Moreover, the HPAEs ensure that their policies conform to accumulation and allocation of physical and human resources, educational reforms, competitiveness and liberalised trade. It is truly amazing that post 1997 financial crisis, the economies underwent quick recovery and by 2001, they were performing unexpectedly well (Barro, 2001). The following section will discuss factors like government policy, impact of international environment, culture, competitiveness and education that has helped Japan to become the largest economy and centre of international business worldwide. Japan To understand the overall structural development of the Japanese economy, it is important to an overview of its history and economic background: History and Culture: Japan is considered as one of the freest economies in the world. However, it has not been like this forever; Japan primarily consists of four main islands- Honshu, Kyushu, Hokkaido and Shikoku. Post World War II, in 1947 Japan officially declared formation of constitution where the citizens elected new legislature. In 1951, Japan and United States signed the peace treaty. The Japanese culture is very rich and unique. Japanese is the official language of Japan and was shaped with the help of three different dialects. The Japanese literary works are highly influenced by the Chinese culture and literature. Japan is famous for beautiful gardens and admired by many for the same. One of the most important festivals of the country is the Tea ceremony. Manners and customs are considered one of the many important facets of the Japanese culture. The main religions followed in the country are Shintoism and Buddhism (The Heritage foundation, 2014). Government Policy: Japan has a parliamentary government with constitutional monarchy. The Japanese judiciary system is independent in nature and has been designed on the basis of customary law, civil law and common law. The Japanese constitution has implemented bill of rights and necessary efforts have been taken to combat corruption from the system, even though the country is voted with one of least corrupt countries. Japan has implemented policy of freedom for its citizens, that is, they are free to move, live and work as per their preferences. According to the property Right in Japan, private properties need to conform to public welfare for acceptance. The country has a policy of frequent international negotiation of custom duties. Japan practices sufficient immigration control to prevent epidemics, crisis and provide economic safeguard. Measures have been taken by the Japanese government to ensure effective taxation system. The current income tax levied on the individuals is 40.8 percent and corporate tax has been lowered to 25.5 percent (Global Edge, 2014). International business environment: a number of companies have established profitable business in the Japanese market, such as, Christian Dior, Louis Vuitton, Yahoo, Mercedes-Benz, BMW and Chanel. Early entry in the market has proved very beneficial for sever companies. However, there are many foreign business houses that are sceptical about the Japanese work environment. According to them, Japanese business culture is complicated. It is indeed true that the Japanese business environment is different from that of Europe and other developed economies but that does not prove it to be risky (Haggard, 2004). The truth about this situation is that Japanese are conservative and believe in long term stable business relationships. For them, trust and loyalty is important. In the international business environment, the politeness of the Japanese is frequently misinterpreted as fake expression, whereas Japanese are firm believers in good customer service. However, the foreign firms that have entered in this country have been enjoying open market, low tariff rates and custom duties (The Heritage foundation, 2014). Education: Japan is considered to be one of the few nations worldwide who have always attainted 100 percent literacy rate. There are about 24000 elementary schools, 11000 junior high schools and 5500 senior schools in the country. In addition, there are 995 schools for special children, 500 colleges and 700 universities present. The children are taught various compulsory subjects along with art and crafts and general chivalry they need to maintain with others. The statistics suggests that more than 90 percent students are high school graduates, 40 percent are university graduates and 100 percent of students have completed elementary education. There is no gender inequality in Japan and even girl children are encouraged to have proper education. Many writers have also claimed that the reason behind the economic accomplishment of Japan is its well-educated and highly literate population (Fujita, 2000). Efficient work culture: the Japanese work culture is based on continuous involvement of fresh talent and job security. The work culture is defined by healthy competition, willingness towards work, efficiency, flexibility, collaborative, organised structure and effectiveness. Job security, insurance, housing subsidies, bonus and pension, and recreational facilities are methods of compensation. Healthy work environment, cooperative colleagues and loyalty is preferred by Japanese workers over monetary remuneration. Japanese corporate culture ensures free flow of communication and freedom of speech; frequent reporting and discussing are a few of its various attributes. In addition, the work culture of the country favours teamwork, gender equality and honesty. Women are given equal importance in the management of the companies. A very good example of women employment is when Japan had labour shortage, it was sceptical about hiring foreign workers; as a resulted, it employed higher number of female workers (Haggard, 2004). Foreign relations: Japan is the third largest economy in the world and is considered as a major economic power in Asia and across the globe. The foreign policy of Japan aims at committing towards peace and prosperity at international level. Japan has extensive ties with different countries in the world. It has also signed a peace treaty with the United States which is of paramount interest for stability of peace in East Asia. Recently, Japan has extended its ties with Middle Eastern countries; alongside, it has entered in Economic Partnership Agreements with Africa and Latin America as well as has extended support to development projects in these regions. The economic engagement of Japan has also increased by manifold with Singapore, Thailand, Malaysia, Indonesia and Brunei (Global Edge, 2014). Conclusion The essay was composed with the purpose to understand and critically access the factors that has resulted in rapid development and growth of the East Asian region. The paper outlines that the East Asian economies have implemented several conventional and unconventional policies to achieve the position they hold presently worldwide. These countries have shown outstanding performance during 1960-1990 and Japan is considered as the country that has shown highest growth during this period. However, during 1997 Thailand floated its exchange rate and its currency collapsed. This followed a series of activities that affected the other countries in the region as well. Japan’s market was severely affected but did not collapse unlike other countries. With sufficient reforms, bailout methods and monetary support, the countries rebounded by 2001, while Japan recovered by 2007. Apart from East Asian economies, the paper particularly focuses on Japan and the strategies it has implemented to achieve and sustain its growth. In this essay, a detail structure of the country has been portrayed including its history, post World War II. An outline of the Japanese culture has been drawn which explains its traditions, ethics, regions, dialects and literatures. Further, the efficiency of Japanese education has been discussed elaborately, which is frequently considered as one of the reason for Japan’s economic success. The paper has highlighted scope of international business scenario in Japan, along with the country’s foreign relations and work culture. Reference List Barro, R. J., 2001. Economic growth in East Asia before and after the financial crisis. [pdf] National Bureau of Economic Research. Available at: [Accessed 17 May 2014]. Fujita, H., 2000. Education reform and education politics in Japan. The American sociologist, 31(3), pp. 42-57. Global Edge, 2014. Japan: Government. [online] Available at: [Accessed 17 May 2014]. Haggard, S., 2004. Institutions and growth in East Asia. Studies in comparative international development, 38(4), pp. 53-81. Radelet, S. and Sachs, J. D., 2000. The onset of the East Asian financial crisis. [pdf] National Bureau of Economic Research. Available at: [Accessed 17 May 2014]. The Heritage foundation, 2014. Index of Economic Freedom: Japan. [online] Available at: [Accessed 17 May 2014]. Read More