Yet, for all the differences between them, the Asia-Pacific economies have certain characteristics in common. Government spending, borrowing and taxation as a share of GDP are low. They are unencumbered with swollen welfare states. Workforces are highly motivated, efficient and increasingly well rewarded — the caricature of Asia-Pacific economic success achieved on the back of low wages rather than high productivity becomes ever less representative of reality. Even the relatively more regimented systems of Japan and South Korea are a far cry from the mildest socialism: government forswears social engineering, is keen that success be rewarded and values the role of small, independent business. As with the evolution of modern Western capitalism, cultural factors play an important part: but the fundamentals of economic success are the same.
The case of India, on the edge of the region and an emerging great power in its own right, is also instructive. Britain’s legacy to India was mixed. Among the benefits were a rule of law, a tradition of honest administration, a common language and, of course, an established democratic system. Corresponding disadvantages, however, were excessive bureaucracy, an overmanned state sector and LSE/Oxbridge socialism, which influenced two generations of indigenous politicians. Policies of wealth redistribution, industrial planning, subsidies, price and exchange controls, monopolies, import licensing and almost insurmountably high tariffs had the same result as in other countries and continents — poverty. The first steps away from this self-destructive economic regime began with agricultural reforms in the late sixties. They continued intermittently under Rajiv Gandhi. But it was only the jolt from the economic crisis of 1991 — and the appointment of Narasimha Rao as Prime Minister and Manmohan Singh as Finance Minister — which set India firmly on the right road. Tariffs have now been cut sharply and are due to fall further. Foreign exchange controls have been liberalized. Foreign investment is encouraged — and foreign firms are taking full advantage of the opportunities. With the removal of controls on farm prices, grain production has increased and farmers can begin to afford up-to-date equipment. A new, self-confident middle class is emerging. India’s economy is growing strongly.
A similar economic experiment has been taking place at the other edge of the Asia-Pacific region. Australia and New Zealand were infected by socialism á I’anglaise long before India. Public (often monopoly) ownership and effective trade union control over the labour market went further in Australia. But in New Zealand too ‘socialism without doctrines’ had become the dominant slogan even before the First World War.[115] Both countries were able temporarily to withstand the debilitating effects of collectivist policies pursued by both left-and right-wing governments because of their ability to export commodities, in particular minerals and agricultural products, with which they were endowed. But by the early 1980s the extent of relative economic decline was apparent to alclass="underline" a new course was required.
In Australia a Labor Government removed many financial controls and, most important, abandoned protectionism, though for political reasons the excessive controls on the labour market remained. This limited opening-up of the Australian economy to competitive pressures reversed the spiral of decline as regards economic growth; but the fact that this was not accompanied by measures to free up the labour market has kept unemployment relatively high.
New Zealand, first under the Labour Government’s Finance Minister, Roger Douglas, and subsequently under the National Party Government’s Finance Minister, Ruth Richardson, has gone much further — and the results have been that much better. Financial controls were lifted, import restrictions abolished, tariffs lowered, foreign competition in services welcomed, unemployment benefits reduced, income tax cut and the emphasis shifted to indirect taxes. Also — and crucially — unlike Australia, the labour market has been freed up. The result has been annual growth at over 4 per cent, more new jobs, falling unemployment and very low inflation, while productivity has increased and business is investing. The traditional similarities between New Zealand and Britain make the former’s success — achieved by following the same general policies as I implemented in Britain in the 1980s — of particular significance.
THE AFRICAN PROBLEM
Even more than Latin America or India, African countries have suffered from misdirected economic policies associated with the collectivist concepts of ‘development planning’.[116] But, as elsewhere in the Third World, the same implicit reason (or, depending on one’s point of view, excuse) for believing that the laws of economics can be defied with impunity is consistently advanced, namely that Africa is somehow ‘different’. A wide range of arguments was used to justify this — general underdevelopment, lack of local investment capital, over-dependence on a single commodity, the encouragement of ‘infant industries’ or, even more dangerous in its quasi-racist implications, the ‘special’ character of the African himself and his culture. It is, of course, true that cultural factors have played a role in Africa’s problems, particularly when departing colonial governments took insufficient heed of tribal and religious differences in putting together African states.[117] But, as Peter Bauer, above all, points out, experience in Africa (and elsewhere) shows two things. First, if two peoples live under the same regime of liberal capitalism, one will usually out-perform the other; but if one people lives under two regimes — capitalism and collectivism — that portion living under capitalism will out-perform its cousins. A commonsense conclusion is to choose the (capitalist) regime that makes everyone better off, even it if also allows some relative inequalities between ethnic groups with different cultural aptitudes. So anyone who understands the consequences of abandoning the tried and tested model of limited government, a rule of law and free markets can also understand why the post-colonial economic performance of African states is so abysmal.
And abysmal it certainly is. Per capita output in Africa actually declined during the 1970s and 1980s and, as a result, Africa is poorer than in 1960. Yet Africans in the 1980s received per capita a larger share of development aid from the West than anyone else. Price controls imposed on agricultural products in order to subsidize urban élites undermined agriculture, as did the confiscatory policies associated with export marketing boards and brutal forced collectivization of farms. Foreign imports and investment were discouraged. Mountains of international debt were accumulated in order to construct ill-conceived prestige projects. Finally, over-centralized power had the inevitable result of turning government in many African countries into a giant kleptocracy. As a result of this catalogue of failure, there is a tendency to give up on Africa. This must be resisted. In any case, Western countries should recall that the record of institutions like the World Bank and the contribution of those Western development economists who prompted such follies hardly inspire pride.
115
N.R. Evans, ‘Antipodean Economics: Up from Down Under’,
116
George B.N. Ayittey, ‘The Failure of Development Planning in Africa’, in