Money Matters

Economics, Banking, Finance, and Supply Chains

Is there a pattern to how poor nations create economic value?

Economic value: An image of currencies from around the world
This entry is part 9 of 9 in the series Creating Economic Value

In this series of posts, we’ve taken a look at seven nations whose growth in economic value is considered to be somewhat miraculous.

The seven nations are the four Asian Tigers (Singapore, Taiwan, South Korea, and Hong Kong), the Celtic Tiger (Ireland) and the post WW2 rebuilding of Germany and Japan.

This is my “wrap up” post where I look for patterns.

The big question for me now is…. Is there a common thread that runs through all seven?

What I looked at

I looked at the following for the seven nations:

  • Government structures
  • Politics
  • Government corruption
  • The legal system
  • The banking system
  • Natural resources
  • Direct government support and intervention
  • Direct foreign investment
  • Important domestic partnerships
  • Wealth and income inequality

The government

This identifies governments on a spectrum of autocratic to democratic.

This was not an easy call for every country, as some countries (Singapore in particular) democratically elected autocratic governments.

It is also true that some countries were very autocratic when the economic revitalization got underway and are very democratic now.

When this happened, I identified how they were when the economic revitalization got underway.

SingaporeAutocratic
TaiwanAutocratic
South KoreaVERY autocratic
Hong KongDemocratic
IrelandDemocratic
GermanyAutocratic (post WW2)
JapanAutocratic (post WW2)

It would appear the difference that makes the difference is not in how autocratic or democratic the government is.

Politics

What matters here?

  • How many parties are registered?
  • How many parties have seats in the legislature?
  • How combative or angry the parties seem to be with each other?

I’m honestly not sure, so I’m going to summarize all of the above and see what I get.

Country# Parties# Parties in legePolitical anger
Singapore153Low
Taiwan124High
South Korea427Low
Hong Kong1610Medium
Ireland169Low (post troubles)
Germany329Low (post WW2)
Japan2510Low (post WW2)

I see no consistent pattern here either.

Government corruption

Transparency international rates governments on their level of corruption.

They assign what they call Corruption Perceptions Index scores and ranks

The lower the rank number, the lower the level of government corruption.

In the prior posts in this series, I made a mistake where I thought no two countries had the rank, so I represented things like “Singapore is the 3rd least corrupt nation on earth” when what I really should said is “Singapore has a CPI rank of 3, which is VERY low”.

CountryCPI rank
Singapore3
Taiwan28
South Korea33
Hong Kong11
Ireland20
Germany9
Japan19

I think we’ve got something here. As the worst rank is 180, every country on the list is in the least corrupt 20% of nations.

The legal system

They were all so similar here I’m not even going to bother to create a chart. Some nations have laws based on English common law, others on French and German civil law, some Asian countries blended the above with ancient practices from their region.

But the differences seem very slight when compared to the similarities.

The banking system

The same is true of the banking system.

Every nation uses a fiat currency, floating exchange rates, and a credit expansion banking system.

One thing I did NOT look for, that I’m thinking makes sense for a second pass later is to what degree do the banking system separate loans for productive purposes (the making of stuff) from loans for speculative purposes (the buying of assets).

As it did not occur to me earlier to look for this, I don’t have this information at this time.

Natural resources

Some had, some didn’t.

SingaporeLittle to none
TaiwanCoal, copper, gold
South KoreaLittle to none
Hong KongExcellent harbour, fishing
IrelandFram land, fishing, oil and gas
GermanyTimber, natural gas, coil. lignite, iron, farmland, nickel, copper
JapanTimber, fishing, farmland

So, all over the map here as well.

Direct government support and intervention

There are no governments who do not intervene in their economies, so it seems in terms of rating this, it’s a question of how much. So I identify this as low, medium, and high.

SingaporeHigh
TaiwanHigh
South KoreaHigh
Hong KongLow
IrelandMedium
GermanyHigh (post WW2)
JapanHigh (post WW2)

Again, no distinct pattern here.

Important domestic partnerships

As with direct government support and intervention, no country has zero such partnerships.

In terms of a rating, this is rated in terms of how extensive and pervasive these partnerships were.

The “ratings” used are:

  • Extensive: Such partnerships included many groups of stakeholders.
  • Infrastructure: Such partnership are foscued on public-private financing of infrastructure projects
  • Corporate: Such partnerships are focused on supporting corporations
SingaporeExtensive
TaiwanInfrastructure
South KoreaCorporate
Hong KongNone to speak of
IrelandExtensive
GermanyExtensive (social free market)
JapanCorporate

Once again, no pattern emerges.

Wealth and income inequality

For this, I’m using the Gini Coefficient index and rank. The lower the index, the greater the equality.

The rank is a ranking of inequality. That South Africa ranks #1 means South Africa has the greatest inequality on earth.

The rank is out of 172 countries that are rated.

CountryCoefficientRank
Singapore45.927
Taiwan33.6125
South Korea35.4102
Hong Kong53.98
Ireland32.8131
Germany31.9139
Japan32.9130

So again, all over the map. Hong Kong is one of the most unequal nations on earth, while Germany is within the most equal 20%.

In closing

So far, only one thing has emerged as a common thread.

All seven of these countries are considered to have low levels of government corruption.

For everything else, there does not seem to be an obvious pattern.

As stated earlier, I do think knowing how much bank lending occurs for productive uses vs speculative uses might be interesting, and I am planning to make a second pass through this data later to add this.


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