Globalization and Growth:then (1972) and now

Globalization is more than trade

• Technology (internet users, hosts, secure servers) • Political Engagement (embassies, participation in

International Organizations)

• Personal Contact (travel, telephone traffic, cross-border transfers)

• Economic Integration (trade, capital flows, international transactions)

• A.T. Kearney/Foreign Policy Magazine issues a Globalization Index for 62 countries each year

Jeopardy 1972

Commenting on the Vietnam War, this US policymaker and eventual Nobel Prize winner prematurely declares, “Peace is at hand.”

Then: 1972

• Henry Kissinger’s negotiations with the North Vietnamese bog down, and remaining US troops are not withdrawn until the following year.

Jeopardy 1972

Arab terrorists kill 11 Israeli athletes at the summer Olympics in this city.

Then: 1972

• Henry Kissinger’s negotiations with the North Vietnamese bog down.

• Arab terrorists kill 11 Israeli athletes at the summer Olympics in Munich, Germany.

Jeopardy 1972

This chess master defeats a Russian contender to become America’s first world chess champion.

Then: 1972

• Henry Kissinger’s negotiations with the North Vietnamese bog down.

• Arab terrorists kill 11 Israeli athletes at the summer Olympics in Munich, Germany.

• Bobby Fischer beats Boris Spassky in chess to become the first US world chess champion.

Jeopardy 1972

This movie won the 1972 Academy Award for Best Picture, and its sequel won the Best Picture award two years later.

Then: 1972

• Henry Kissinger’s negotiations with the North Vietnamese bog down.

• Arab terrorists kill 11 Israeli athletes at the summer Olympics in Munich, Germany.

• Bobby Fischer beats Boris Spassky in chess to become the first US world chess champion.

• The Godfather wins the Academy Award for Best Picture.

Then: 1972 – lesser known facts

• “Globalization” did not appear in economics textbooks

• A natural experiment was in progress:--Import Substitution Industrialization (ISI) versus--Export Led Industrialization (ELI)

• The "Asian Miracle" was underway

Jeopardy 311

These four countries collectively comprise the “Asian Tigers.”

The Asian Tigers pursued ELI:

• South Korea

• Taiwan

• Singapore

• Hong Kong

Tiger 1: South Korea: Background

• 1953: End of Korean War; 2/3 of industrial capacity destroyed

• 1960: Poorer than Bangladesh, Haiti, Ivory Coast• Exported 3% of output; tariff rate exceeded 50%• Began reforms in 1964• Mid 1960s: British economist Joan Robinson

"referred to the economic miracle of North Korea and declared that it would economically overwhelm the poverty-stricken South."

South Korea: 1972

• Chaebols: Hyundai, Samsung, Lucky Star, Daewoo

• Industrial targeting: steel, petrochemicals, nonferrous metals, shipbuilding, electronics, and machinery

• Exported nearly 20% of output, up from 3% in 1960

• 1/4 of exports accounted for by clothing

• Per capita output twice its 1960 level

South Korea today

• Exports over 40% of its output

• Leading exports are computer and transportation goods

• Fastest growing country in the world since 1960

• More than 10 times richer than Bangladesh, Haiti and Ivory Coast, its peers in 1960

Tiger 2: Taiwan: Background

• 1949: Chiang Kai-Shek’s Nationalists arrive• Sociologist Max Weber: Confucianism is

incompatible with capitalism.• Relatively high 50% literacy rate after 50 years of

colonial rule under Japan• 1960: Richer than Korea by close to 40%; nearly

as rich as El Salvador• Population less than 1/2 of Korea's, exported close

to 20% of its output in 1965

Taiwan: 1972

• No US aid since 1965

• Like Korea, doubled its 1960 output per capita

• Already exported as much of its output as Korea does today (42%).

Taiwan today

• Still has an edge over Korea in output per capita--but now just a 20% margin versus 40% in 1960

• The world’s third-fastest growing country since 1960

Tiger 3: Singapore

• 1965: Seceded from 8-year old Malaysia to become its own country

• 1965: 75% richer than Korea, almost as rich as Brazil

• Under 2 million pepole, always open, with exports exceeding output and no tariffs

• Noteworthy for purposely courting MNCs• #2 growth rate since 1960 and now 4 times as rich

as Brazil

Tiger 4: Hong Kong

• Like Singapore: no tariffs and exports exceed output

• 1972: 25% richer than Singapore

• Slightly slower growth, so Singapore has just about caught up today

The Asian Tigers show significant convergence toward US income levels

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The “miracle” is no longer just “Asian”….

Jeopardy 1972

This country, known at the time as “the poor man of Europe,” becomes a member of the European Community (now called the European Union).

In Europe,…IrelandIn 1972, poorer than Spain

and 14 other European countries

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Ireland: Economic reform

• 1987: Undertook substantial macroeconomic reform and invited in foreign corporations (as Singapore did)

Ireland today: the Celtic Tiger

• Foreign direct investment (FDI) up from less than 1% of GDP in 1987 to over 20% in 1999

• #1 Globalization Index ranking for past 2 years• The fastest growing economy in the EU over the

past 15 years• OECD forecasts highest rate of employment

growth in the industrialized world over the coming years

Ireland moved up from #16 in 1987 to #7 in 2001, passing the UK in 1997

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Jeopardy 311

This Latin American country depended on copper for 80% of its export earnings in 1972.

In Latin America,…Chile Background

• Latin America was the laboratory for ISI• Earlier export orientation had failed• Dependency theory• Anti-Americanism• Not clear in early 1970s that ISI wouldn't

work as well or better than ELI• Clearer now: Argentina: 6th richest country

in 1900, 42nd in 2001

Chile: Background

• 1970: Salvador Allende, a Socialist, elected president

• Won 36.2% of the popular vote

• Nixon urged the CIA to prevent his inauguration

Chile: 1971-3

• 1971: Chile nationalized copper mines owned by US firms Kennecott and Anaconda

• US imposed an economic blockade• 1972: Middle and upper class shop owners went

on strike• US provided military training to officers hostile to

Allende• 1973: Allende died in a military coup• Augusto Pinochet assumed power

Chile’s economic reform

• Political repression: 2,400 died or disappeared• Reform administered by the Chicago Boys of

Santiago’s Catholic University• 105 percent average tariff rate sharply reduced by

the late 1970s• Turnaround began slowly, with 2 global and

domestic recessions: by 1983, Chile's standard of living was only 2% higher than a generation before

Chile today

• Applies a uniform tariff on imports--9% in 2001• Since 1983, Latin America's fastest-growing

economy with per capita output growth of 4.3% per year, twice as fast as the US

• Standard of living has doubled• Exports more than twice as much copper now as

in 1972, but copper accounts for less than 40% of export earnings compared to 80% in 1972

Since 1983, Chile has risen from the 8th to the 2nd richest country in Latin America

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Jeopardy 311

This country is the world’s number one diamond exporter.

In Africa,…BotswanaBackground: 1972

• Many African countries newly independent

• Several started off well

• 1972: Nigeria was among the top 25% of the world's countries in its rate of growth

• The curse of wealth: Nigeria is poorer now than in 1972

Botswana

• Ranked as Africa's least corrupt country by Transparency International in 1999 and 2000

• Assigned "A" grade credit ratings by Moody's Investors Service and Standard & Poor's

• Since independence in 1966, has had the world's 6th-fastest growth rate of per capita income

• Moved from one of the poorest countries in the world to a middle-income country with a per capita income of $8,800 in 2001.

• Has the world's highest incidence of HIV/AIDS

Several countries in Africa grew rapidly before 1972, but only a few since then.

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1960-721973-99

Annual percentage growth rate of real income per capita

Late boomers….

Jeopardy 1972

A policymaker from this country defended his pragmatic economic reform proposals by remarking that “It doesn't matter whether a cat is black or white so long as it catches mice.”

China: 1972

• Mao Zedong still in power

• The Cultural Revolution was recent history

• Nixon visited

China: Economic reform

• Pragmatic reformer Deng Xiaoping was “rehabilitated” in 1973

• His lasting reforms kicked in in 1978

• He established China’s first Special Economic Zones (SEZs) in Guangdong province in 1980

China’s economic progress: 1960-1978 (pre-reform)

1960 1978

Per capita GDP ($1985) $567 $823

Real GDP per capita growth rate --- 2.1%

Number of poorer countries 17 19

Exports, % of GDP 3% 4%

China’s economic progress: 1978-1999 (post-reform)

1960 1978 1999

Per capita GDP ($1985) $567 $823 $2,728

Growth rate of per capita GDP

--- 2.1% 5.9%

Number of poorer countries 17 19 60

Exports, % of GDP 3% 4% 22%

India: Background

• Paul Ehrlich. The Population Bomb• According to one of its own economists: "India's

misfortune was to have brilliant economists, an affliction that the Far Eastern super-performers were spared."

• A democracy with Soviet-style economic planning and South American-style ISI strategy

• 1972: exported 4% of its output• Operated under “Permit Raj”

India’s economic progress: 1960-1978

China India

1960 1978 1960 1978

Per capita GDP ($1985)

$567 $823 $766 $882

Growth of per capita GDP

--- 2.1% --- 0.8%

Number of poorer countries

17 19 30 20

Exports, % of GDP 3% 4% NA 6%

India’s economic progress: 1978-1999

China India

1960 1978 1999 1960 1978 1999

Per capita GDP ($1985)

$567 $823 $2,728 $766 $882 $1,780

Growth of per capita GDP

--- 2.1% 5.9% --- 0.8% 3.4%

Number of poorer countries

17 19 60 30 20 42

Exports, % of GDP 3% 4% 22% NA 6% 11%

Recap:

• The “Asian Tigers”: South Korea, Taiwan, Singapore, Hong Kong

• ELI leaders elsewhere: Ireland, Chile, Botswana• Late boomers: China and India• Some other countries on the move:

Africa: Mauritius Asia: Vietnam Latin America: Mexico