INTRODUCTION

A calamitous financial crisis recently caused economies and markets to collapse. Easy credit and a lack of financial system transparency had led to excessive borrowing at low interest rates. This last had fuelled a boom in housing, property, and asset markets across tightly-coupled economies. The economy at the centre of this maelstrom had its current account deficit balloon to a record 8 per cent of GDP. Investors realised all this was unsustainable and took corrective action. A catastrophic crisis ensued: asset values plunged by up to 70 per cent; real incomes plummeted in different countries by 11 per cent to as much as 35 per cent; millions of people lost their jobs.

What I have just related, however, is not the 2007 U.S. subprime mortgage-sparked credit crunch, although the latter still might emerge to be that. The 8 per cent-current account deficit country is not the U.S., but instead Thailand. The date on those events was 1997–98, not 2007–08. The ‘tightly-coupled economies’ were not the U.S. and Western Europe but instead the collection of Thailand, the East Asian Tiger economies, and the rest of emerging Asia. Those were the economies that, a decade ago, were viewed to be the catastrophes of corporate and political misgovernance, financial excess and wasteful over-investment. Yet, before 1997, those same countries had been held up as the growth miracles and poster children of a then-emerging consensus on managed economic development.

The year 1997 was a watershed. Ideas about successful economic development changed. Confidence in and on East Asia was shaken. Countries such as Singapore experienced for the first time in the modern era unemployment and stagnation. The names of Paul Krugman and my LSE colleague Alwyn Young grew identified with the idea that East Asia had come so far, so quickly through “mere sweat” — i.e., nothing miraculous in productivity but simply hard work and high savings — a growth strategy that ultimately must be unsustainable. A decade after those tumultuous events, once again emerging Asia has surprised.