The Baltic States and the East Asian Model.

In 1997 the world's press devoted an extraordinary amount of space to discussions of the only "reverse transition," when the very wealthy six million inhabitants of the city-state of Hong Kong were merged with the 1.2 billion "Red" Chinese in the People's Republic of China (PRC). The PRC currently is a very poor country with a per capita gross national product (GNP) of $620 in 1995. The PRC's economy is growing rapidly (8.3% annually, 1985-95), but the country is ruled by a single-party government, which continues to be willing to suppress dissent quite brutally. On the other hand, Hong Kong's GNP per capita, at about $23,000, was well ahead of that of its erstwhile colonial master--the United Kingdom, somewhat below $20,000. It is interesting to start the analysis of the East Asian model with the case of Hong Kong. As Thomas Sowell pointed out years ago (in Harper's, November 1983), the economic prospects of a densely populated and resource-poor country, which was still a Western colony, must have appeared v ery bleak

The situation in Singapore, also a British colony until its independence in 1959, was about the same--today it has a slightly smaller population, but a higher per capita GNP($26,730), and a considerably more activist government. Two other resource-poor countries, South Korea (with a per capita GNP around $9,000) and Taiwan (at $12,000) are former Japanese colonies, that have started from a very low level of output and income, and have grown very rapidly indeed. All four of these countries as a special group have earned various nicknames--the "Gang of Four," the "Asian N.I.C.s" (for Newly Industrialized Countries), the "Four Dragons," or finally, "the Asian Tigers." When a few other Southeast Asian countries are added to this group, along with Japan, they might be called the "capitalist-roaders of Asia." There exists an extensive literature about "The East Asian Miracle," which seeks to explain their extraordinary performance. As the 1997 Economic Report of the President pointed out, during the last three dec ades, eight of the world's ten fastest-growing economies were in East and Southeast Asia--and they have achieved this very rapid growth without experiencing large income disparities.

Where do the Baltic states stand? Now that they have regained independence, can they catch the Asian Tigers? Historically, all three were well above the all Union average income in the Soviet period. Latvia's GNP per capita in 1970 was estimated at a little more than one-half of the U.S. level, at a little more than two-thirds of the income in West Germany--and slightly ahead of Japan! In the 1970s, all three Baltic republics were certainly then well ahead of the levels attained by the Asian Tigers, which were just beginning their sustained growth process. Both South Korea and Taiwan had "graduated " from USAID economic assistance only around 1965, and were slowly adjusting their policies from import substitution industrialization policies to an outward-looking strategy of promoting foreign trade and investment. Most other Asian countries were still quite reliant on foreign assistance. By 1980 the USSR had already lost some ground relatively to the U.S. and Western Europe, but that Japan (and by then a numbe r of the "tigers") had surged ahead mightily. Still, in 1980 the standard of living in the three westernmost republics of the USSR was quite high--in those days, they were the show pieces of a large and rich empire. Visitors from Cuba, Nicaragua, and Vietnam could be taken for a bite of pizza at the prosperous Adazi collective farm not very far from Riga, and would undoubtedly be quickly convinced that life under "advanced socialism" would be just fine.

Still, the systematic flaws of the Stalinist central planning model were becoming more and obvious, and the peoples in various nations living under Moscow's domination were feeling quite restive. A detailed enumeration of the reasons for the collapse of the Comecon (or the CMEA) in early 1991, and the USSR itself a bit later in that year, is beyond the scope of this paper. Certainly environmental degradation, waste of natural resources, persistent shortages, and the "soft …