Sunday, July 31, 2011

Free Trade 18: Regional Trade and East Asian Model

(This is my article today in the, with original title, Philippine Trade and East Asian Economic Model)

Trade, selling what one produces in relative abundance, and buying what one needs but can not produce more efficiently, is among the cornerstones why societies and economies prosper. This philosophy applies both in domestic and international trade.

The National Statistics Office generates the monthly and annual international trade data of the Philippines. The tables though are relatively detailed, like month-on-month and year-on-year changes (value and percentage). I only want to see the cumulative data.

My sister's auditing office has an economics blog, Alas, Oplas & Co. CPAs-RSM. It's cool, short and summarized data, little commentaries. So I used the trade data there in these two tables. The NSO is the primary source of data there.

Of the top 10 or 11 exports market of the Philippines last year, only three are non-Asians: US, Germany and Netherlands. This speaks of the growing regional trade and economic integration in the continent. The main beneficiaries of globalization and global capitalism over the long-term are the neighboring countries themselves, especially if such countries are growing dynamically.

For the top 10 or 11 sources of imports of the Philippines, only the US is non-Asian. Saudi Arabia is also in Asian continent, though the Middle East is much closer to Africa mainland than Asia mainland.

In the first five months of this year, the same top 10 countries in 2010 also ranked in top 10 this year. The difference is that the percentage shares of Germany and Netherlands are shrinking. There is greater regionalism in trade and other economic activities now, than inter-continental trade.

The way the public debt problem of many European and North American economies are dragging and burdening them, slower economic growth, if not economic stagnancy, will be the ultimate result. Governments of welfare states have to retain their high and multiple taxes to sustain those expensive entitlement programs. This process siphons off a big portion of personal, household and corporate income and savings, into state coffers. 

And this brings me to another topic: the East Asian Model (EAM) of economic growth. A friend from Pakistan, Ali Salman, wrote in his article last month, Myth buster: Debunking the clich├ęs in economic policy making". He wrote about certain economic myths like forced collectivism, economic central planning, as “motors” of economic growth in Pakistan and other developing countries. I agreed with many of the things he wrote, except one “myth” which he described as,

"Government should provide everything or at the very least, it should engineer society just like the East Asian Model."

I wrote to him to say that he may have misrepresented the EAM here. The EAM that I know has prospered in recent decades because compared to developed economies of North America and Europe, the EAM is or has:

1. Less welfarist. You don't work, you go hungry. There is little or zero state subsidy for unemployment insurance or food stamps.

2. Less rigid labor laws. Entrepreneurs can hire and fire people easily, the same way that employees can quickly move from one employer to another, or set up own micro or small enterprises.

3. Less environmental dictatorship. Environmentalism and its policies are there, sure, but not as strict as those in Europe and N.America. Thus, many East Asian economies have grown fast via cheap power sources - coal and nuke, especially.

The more that countries and governments attempt to disregard personal responsibility and assert or impose more government responsibility in running the people’s ordinary lives, the bigger will be the long-term restriction on individual and economic freedom, and the larger will be public indebtedness.

As the debt crisis in the US show, BIG governments, socialist or democratic, must learn to step back and scale down their huge bureaucracies and expensive welfare programs. A nanny state that attempts to baby-sit people even if they are already adults, will not help in cultivating more personal responsibility in how people should manage their own lives.

See also,

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