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Asian-Tiger Governments Are Steering Their Economies With A Lighter Touch - The Economist
Asian-Tiger Governments Are Steering Their Economies With A Lighter Touch - The Economist
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or an operation that originated in Singapore, it was improbably grim and bloody. Last month Jack and
49 others boarded a transport aeroplane and parachuted onto an island. Their mission was simple: kill
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F
02/03/2023, 11:29 Asian-tiger governments are steering their economies with a lighter touch | The Economist
49 others boarded a transport aeroplane and parachuted onto an island. Their mission was simple: kill
or be killed. Jack picked up grenades and worked his way to an abandoned factory. He crouched for safety,
thinking he had escaped detection. He was wrong. After a hail of bullets, silence descended. Jack had once
again failed to pass level one.
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Welcome to Free Fire, one of this year’s most downloaded fighting games for phones. Its developer is Sea
Group, an internet company founded in Singapore a decade ago, now worth $17bn. As well as its hit
game, the group also has an e-commerce app, Shoppee, which is far more popular in South-East Asia than
Amazon. Its success reflects an important shift in the tigers’ economies.
During their boom years, many of their biggest companies were outgrowths of government policy. South
Korea’s chaebol were showered with cheap credit and tax breaks. Taiwan’s semiconductor champions were
spin-offs from an official research institution. Hong Kong’s tycoons cultivated close ties with officials and
benefited from its land policies. Singapore’s biggest firms were ultimately owned by the state.
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Sea represents something else. Its success has few direct links to government policy. Singapore’s
technocrats, the authors of many detailed economic blueprints, presumably never dreamt of a multiplayer
fighting game that includes such characters as a beauty queen turned arms dealer. Lee Kuan Yew would
have been unamused. Officials today are grateful.
Industrial policy was a big factor in the tigers’ take-off. Even the International Monetary Fund,
traditionally a sceptic, published a lengthy paper this year about the success of their government-led
models. But what works for a developing country does not necessarily help a wealthy one. In the 1970s,
the tigers could follow others. South Korea’s focus on heavy industry borrowed liberally from Japan. They
could also license advanced technology, as Taiwan did in its semiconductor sector. And they could poach
researchers.
The tigers’ plans these days can sometimes sound like old-fashioned industrial policies. President Tsai Ing-
wen in Taiwan has her “5+2 Innovative Industries Plan” eyeing sectors such as green energy and smart
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wen in Taiwan has her 5+2 Innovative Industries Plan , eyeing sectors such as green energy and smart
machinery. Singapore has its 23 Industry Transformation Maps, covering everything from food
manufacturing to aerospace. South Korea aims to invest 30trn won (more than $25bn) over five years in
eight emerging industries, from artificial intelligence to autonomous vehicles.
But look a little more closely, and the difference with the schemes of yesteryear becomes clear. These are
not top-down exercises in planning but rather the outcome of deliberations with companies and experts.
And the point is not to recommend subsidies for this or that sector but rather to work out what building
blocks are needed. “The process of developing the plan was just as important as the final product,” says
Gabriel Lim, permanent secretary of Singapore’s Ministry of Trade and Industry.
Some of the elements are obvious: good infrastructure, from ports to internet; openness to trade; highly
educated workforces; and high spending on research and development (see chart). But the tigers also have
innovative ways to promote innovation.
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02/03/2023, 11:29 Asian-tiger governments are steering their economies with a lighter touch | The Economist
Nevertheless, the tigers’ officials also know their limits. The big decisions these days are made in corporate
boardrooms: Samsung’s bet on foldable screens; tsmc’s huge investment in capacity in Taiwan; the rise of
startups like Sea in Singapore; the Hong Kong Stock Exchange’s quest to remain Asia’s premier financial
market (even if its bid for the London Stock Exchange was ill-fated). Economic technocrats now lead from
behind.
The tigers have also started to concentrate on the parts of their economies that remain far behind the
technological frontier. Despite their flair for manufacturing, their service-sector productivity is little more
than half that of America, according to some estimates. Part of the reason is the tyranny of small markets:
a retail chain in a country of 6m people is more constrained than one in a market of, say, 1.3bn. But partly
it is self-inflicted. South Korea imposes high regulatory barriers on its service and network industries—
higher than in any other oecd member except Belgium.
Singapore has been the boldest in trying to whip its service sector into shape, from its restaurants to its
construction firms. It has refined its gauges for measuring productivity (for example, floor area completed
by a construction worker each day). It identifies promising companies and offers help: developing new
business plans, say, or guiding them abroad to expand. Edward Robinson, chief economist of the Monetary
Authority of Singapore, believes that rich Asian countries ought to have an advantage in modernising their
service sectors. Given that so many of their people are trained for high-tech work, they are well-placed to
deploy digital tools to serve the population more efficiently.
Not keeping up
In Hwaseong, 35km south of Seoul, a newly built village enjoys 5g network speeds that would be the envy
of any city. Visitors will find other essential amenities, such as a school, a car wash and a restaurant
offering chicken’s feet. But lest it sound too appealing, be warned: the buildings are all fakes. The
counterfeit town, built by the Korean Automobile Testing and Research Institute, is used to test
autonomous vehicles, like the Kia car that successfully completed a circuit one recent afternoon. Reaching
speeds of almost 70kph, the car coped with flashes of dazzling sunlight and road-markings that can
confuse computer vision. The technician in the driver’s seat kept his hands on his chest as the wheel
turned itself.
South Korea has some of the best infrastructure in the world for autonomous vehicles, including world-
class chipmakers and carmakers, as well as a growing 5g network. The government is supportive,
permitting tests on real roads for vehicles that prove themselves at test sites. Why then is South Korea
ranked only 13th by kpmg, a consultancy, on a list of countries best prepared for autonomous vehicles?
One reason is the country’s ambivalence towards other related technologies, such as ride-sharing apps. A
popular version, Kakao Mobility, was vociferously opposed at rallies in Seoul by the drivers of traditional
taxis. In protest at the emergence of such apps, four older drivers have set themselves on fire.
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Innovation, though glorified by businessmen and policymakers, adds nothing to an economy’s productivity
until it is widely adopted. As Paul David of Stanford University long ago pointed out, it was not until the
1920s, four decades after Thomas Edison’s first power station, that manufacturers embraced a killer app
for electricity, designing factories to accommodate dynamo-powered assembly lines.
South Korea’s wariness towards ride-sharing apps highlights the infrastructure in which the tigers are most
lacking: well-functioning social-security systems. The key to progress in a new technology, like
autonomous vehicles, may not be a better 5g network but a better pension system. Without a cushion for
those left behind by technological progress, it is harder to marshal support for that progress in the first
place.
The tigers have always been good at mobilising resources quickly. They are becoming better at allocating
them creatively. But as recent signs of social discontent attest, some of them now struggle to muster public
support effectively.7
This article appeared in the Special report section of the print edition under the headline "A sea change"
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