In this chapter, we examine the spending patterns and government performance indicators for some of today's newly industrialized economies. These countries had been growing very fast until they ran into the financial and economic crisis of 1997–8. We find that levels of social and economic indicators almost similar to those of the industrialized countries had been achieved by these countries with much lower levels of public spending. The discussion in this chapter refers to the precrisis period. It remains to be seen how much permanent effect the crisis will have on the social and economic indicators of these countries. The best guess is that the effect will be marginal.

Newly industrialized countries have, so far, not created extensive welfare programs and, therefore, have not experienced the effects of the latter policies on growth, labor markets, and other areas. Although these countries differ in many ways from industrialized countries (their population structure is different, and perhaps strong vested interests dependent on support programs have not yet formed), there may be some lessons to learn from them. We restrict our analysis to three newly industrialized countries – Chile, Korea, and Singapore – and to Hong Kong, China.

PUBLIC EXPENDITURE PATTERNS IN THE NEWLY INDUSTRIALIZED ECONOMIES

The level of public spending in the newly industrialized economies has been much lower than in the industrialized countries. Average total public expenditure in these countries in 1990 amounted to only 18.2 percent of GDP (see Table V.I above), less than half the level in the industrialized countries.