[FOUNTAIN]To grow, quality is importantAbout ten years ago, Foreign Affairs magazine published a paper on the limits of Asia’s economic growth. The writer was Professor Paul Krugman, an American economist.
He wrote in the paper that Asia’s rapid economic growth was nothing special. According to Mr. Krugman, the development was mere quantitative growth as a result of capital and manpower investments in a short period of time. With capital and labor inputs, production is destined to grow, and Mr. Krugman claimed that that was how Asia achieved its glorious development so quickly.
Meanwhile, he continued, Asia had not been particularly successful in innovating technology or improving productivity, the factors that could bring sustainable economic development. Based on this theory, he warned that Asia’s economic growth drive would eventually slow down. To the eyes of an economist emphasizing the “quality” of growth, Asia’s miraculous prosperity was only a castle in the air.
The controversial paper created quite a stir. Many argued that Mr. Krugman ignored the substance of the growth and reached a theoretical conclusion hastily. Koreans thought that Professor Krugman’s opinion on Asia was not about Korea. Excited in the hope to become an Organization for Economic Cooperation and Development, we were not concerned about the warning.
But Asia was hit hard by the 1997 foreign currency crisis. Hedge funds were largely responsible for the crisis, but just as Mr. Krugman predicted, every Asian nation was affected. Korea was no exception. The Korean economy had to endure belated restructuring and efficiency improvements. At a price, we became aware of the importance of quality of growth.
China is faced with that question now. Last year, it invested 40 percent of GDP and grew 9 percent. The number is certainly respectable, but the report card is hardly satisfying considering the size of the inputs.
Beijing is trying to slow inefficient investments. Recently, Chinese Premier Wen Jiabao reiterated the government’s retrenchment policy in order to cool the overheated economy. He also said Beijing’s policies would be aimed at qualitative growth. Mr. Krugman’s decade-old paper on the quality of growth is now posing a question for China.
by Nahm Yoon-ho
The writer is a deputy city news editor of the JoongAng Ilbo.