Limitations of the East Asia Economic Model (EAEM)
As its name suggests, the EAEM is a development strategy somewhat unique
to Asia. The strategy is built around two key features: (a) high investment
rates stemming mainly from foreign direct investment (FDI), and (b) an outward
orientation emphasizing labor intensive manufactured exports. Multinational
corporations often play a dominant role in both aspectssupplying FDI
and mass producing goods for the export market. In practice, it is the development
model followed by the majority of Asia/Pacific countries, including Thailand,
since the late 1970s and early 1980s.
Imbalances created over time by the implementation of the EAEM have undermined
its effectiveness in generating high and sustained rates of growth. For example,
Lian notes that the common pattern is for the
Asia/Pacific region's terms of trade to worsen nearly every time global demand
for electronics, agricultural products or primary commodities declines sharply.
[The] Asia/Pacific region's pursuit of the EAEM directly contributes to
global imbalances and negatively affects the performance of Asian companies
as well as the standard of living of the region's workers and households.
The logic is simple, in our view: excess saving exacerbates the global savings
imbalance that in turn necessitates imbalances in trade; in turn the nature
of trade and production subjects the region to a vicious cycle of price
wars and worsening terms of trade.
Breaking this vicious cycle of price wars is another key component of Thaksinomics.
Here it should also be noted that even in the hey-day of the EAEM, Thailand's
openness relative to other countries, while
high, began declining in the early 1990s, suggesting that the EAEM model was encountering diminishing returns
in terms of integrating the country into the world economy.
It is also not clear that the EAEM model was enabling Thailand to utilize
its resources in the most efficient manner. In his analysis, Porter
found a strong relationship between his Microeconomic Competitiveness Index
(MCI) and per capita income, with over 81 percent of the differences in country
per capita incomes accounted for by the index. However, Thailand's per capita
income is considerably lower than one would anticipate, given the country's
MCI. In this sense the Thai economy was clearly underperforming in the early
2000 period. Korea, Malaysia, China and Indonesia also fell in the under performer
group, while, given their MCI scores, Singapore and Taiwan's per capita incomes
were in line with what one might expect. Hong Kong was the only country in
the region classified as an over-achieverincapable of sustaining its
per capita income with no improvement in its microeconomic fundamentals.