1. Criticism of Asian Miracles (1)

2. 1. Back to Convergence Theory
Paul Krugman’s Criticisms
Growth is due to increased factor intensity, or increases in K, and L input, and Not much due to Technical Innovation; According to Neoclassical Theory, there will be convergence, and the East Asian growth is not sustainable.
*Of course: Krugman does not think much of Social Captial, or Human Capital as a separate factor for growth

3. * Evidence:
Growth Accounting applied to East Asia does not show Technology as an Important Factor
*Refer to my note on Growth Accounting
In the East Asian setting; but GA is limited and incomplete.
Yes, in Neo-classical model, growth slows down without technical innovation.
However, in Endogenous Growth Model, even if technology is not an important factor, it does not mean that the growth will slow down.

4. 2. Asian (Financial) Crisis
Corruption at all levels of society
Lack of Transparency - Opaqueness of Governance
Vulnerable to ‘Herding’

5. East Asian economy is declining or will decline under its weight of corruption.

6. *Reflection Opaqueness also exists in Western Economies: Enron, etc.
Transparency may not be the only way to Information Efficiency :
“Dominicans and Jews Need not Apply” in Cents and Non-Senses by J. Carr – closed society has information advantage
Transparency may not be culturally possible: “Zen”(禅）； ”From Heart to Heart”(以心传心）
Asian ways are not necessarily as corrupt as they appear to be – In the imperfect world, corruption may increase the Pareto efficiency. Eg) a sub-optimally government service fees create excess demand for government services. In fact, a ‘speedy train ticket’ (paid to the officials) may be the optimal price for the government service.

7. 3. Japan’ Long Term Recession: Different Views of the Cause of the Japanese recession
What were the causes of the Japanese Economic Recession since the 1990s?
1) Macroeconomic Imbalance –
too little population;
too much savings and capital;
‘Hollowing of the Domestic Economy(经济 空洞化):
too little domestic investment;
too little consumption;
plus Liquidity Trap（Krugman),

8. * 2)Endogenous Failure: Deteriorating Neo-Confucianism
“Fading Neo-Confucianism in Japan is the cause of the fall of
Japan”
- Michi Morishima,‘Why did I expect Japan to collapse?’
-Jon Woronoff,’The Human Element Fails’, Japanese Economic
Crisis
3) Exogenous Failure: A Wrong Financial Liberalization and
changes in International Political Economy
- “ A forced financial liberalization, or financial opening led to a decline in the quality of the Japanese financial system, and finally to the collapse of financial system. “
Trade Wars with U.S., and the 1986 Plaza Accord for Endaka.

9. 4. East Asian Recovery and
“East Asian Miracles live on” declared by the recent reports by the World Bank;
And there is another really Big Miracle happening in
China,
which is the most baffling and complex

10. Conclusion
Thus a variety of criticisms of Asian economies about the Asian Financial Crisis or the Fall of the Japanese economy do not provide the compelling reasons why Asian economies (must) fall.
They do NOT explain the convincing explanation of and how why the Asian economies have risen, either.