Boombustology, 2nd Edition

CHAPTER 9The Asian Financial Crisis: THE MIRAGE OF A MIRACLE

The great Asian slump is one for the record books. Never in the course of economic events—not even in the early years of the Depression—has so large a part of the world economy experienced so devastating a fall from grace.

—Paul Krugman

In many ways, the seeds of economic success in Asia were sown in the early aftermath of World War II. In an effort to rebuild societies and generate long-term economic growth, many Asian countries adopted export-oriented development policies designed to utilize their abundant (and therefore cheap) labor to meet global demands. Combined with increased opportunities for trade, the economic strategies caught a massive tailwind in the early 1990s—and asset markets took notice, rising to lofty heights. The resulting bubble eventually collapsed in 1997 and 1998, with the ripple effects being felt around the world.

Boom Times in East Asia

The early to mid-1990s were a spectacular time for many East Asian economies (Japan, as we have just learned, was an exception). A 1993 book titled the East Asian Miracle: Economic Growth and Public Policy, began with this summary:

East Asia has a record of high and sustained economic growth. From 1965 to 1990 the twenty-three economies of East Asia grew faster than all other regions of the world. Most of this achievement is attributable to seemingly miraculous growth in just eight economies: Japan; the “four Tigers”—Hong Kong, the Republic of Korea, ...