Growth in Europe and Asia

April 17, 2012

Franklin Allen gave a fascinating talk here today, sponsored by the China Initiative of the Center.   The issue is whether the emerging Asian economies can follow a different path from the European countries that developed before them.  Here’s my two-bullet take, but by all means read the paper, it’s filled with interesting stories and examples.

1. Sustained economic growth occurred first in Western Europe a couple centuries ago for reasons we’re still debating.    One consequence is that advice to growing countries often comes pretty close to “do what Europe did.”  The focus is then on the rule of law, strong independent financial systems, and honest and effective government.

2. A close look at developing Asian economies, many of which have been wildly successful, suggests they followed a different path.  His focus is on China, but he mentions India, Singapore, Taiwan, Japan, and Korea as well.  In some of these countries, corruption has been rampant, financial markets are underdeveloped and include a central role for government, and intellectual property protection is limited.  From a European perspective, we might regard all of these as weaknesses, yet economic performance has been extraordinary.  With respect to the rule of law, Franklin suggests that in a dynamic environment, a rigid legal system may be more hindrance than help, because the system can’t adapt quickly enough to keep up with a rapidly changing system.

That leaves us with some questions.   If, say, China continues to grow, will it have to come closer to the European model, or is an alternative path possible?  If you were running China today, where would you place your bet?  And if you are a Western developed country, what things can you learn from Asia about economic success?

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