hen Soichiro Honda saw his
first automobile as a child, he was so overcome with
excitement that he put his nose to the puddle of oil that
the car left behind and smeared his hands and arms with the
grease. The son of a village blacksmith, he vowed to build a
car of his own one day.
Did he ever. Honda started a car-repair garage, then founded a manufacturing firm in 1948. Twelve years later, it became the world's largest maker of motorcycles. Honda Motors has gone on to become the biggest Japanese company created since World War II; it is a $40 billion titan in an industry where Asian autos have become the global standard.
Taiwan-born James Liao didn't want to be a doctor like his father. Instead, he went to work for a chemical company, selling adhesives for the shoe industry. In 1974, at age 28, he sank $25,000 into his own shoe-stitching firm. A few years later, a Nike official gave Liao a contract. By the mid-1980s, Liao had four factories employing 5,000 people and earning $90 million annually. As Liao prospered, displaying the breathtaking flexibility and opportunism that is typical of Taiwan's entrepreneurial spirit, he leaped into a radically different field. Now his company, ADI, is a globe-girdling producer of computer monitors.
Honda (who died in 1991) and Liao embody the reinvention of an entire continent. Since the end of World War II, Asia has created the speediest rags-to-prosperity transformation ever witnessed, and the most vast. Japan's journey down the road of export-led growth was astonishing enough. It was quickly followed by South Korea, Taiwan, Singapore and Hong Kong -- the so-called Little Dragons -- and more recently by Indonesia, Malaysia, Thailand and China. Last year Japan alone exported more goods to the rest of Asia than to the U.S. and Western Europe combined. The region's gross domestic product has reached $6.7 trillion, roughly 29% of the global total.
Remarkably, East Asia made the heady ascent from Honda's original smithy to Liao's computer components while simultaneously achieving a rapid increase in overall income and an improvement in economic equality. Between 1970 and 1990, the proportion of Indonesians living in absolute poverty dropped from 60% to 14%; Indonesians now have a per capita income of $1,000. China doubles its per capita income every 10 years, vs. the 50 years it took the U.S. in the past century.
How did Asia do it? It got the basics right. It financed private investment through high savings. Land reforms boosted productivity and farm income. East Asia seized free trade as an opportunity to sell labor-intensive goods. The U.S. played an important part by keeping its markets open to Asian exports and helping provide the stability the region needed. Asian governments, meanwhile, invested heavily in education, yet kept state spending low -- typically 20% of GDP, vs. about 50% in industrialized economies. Says R.V. Navaratnam, a Malaysian who spent most of his career in the Finance Ministry: "We didn't have ideological hang-ups. Of all the isms, we had pragmatism."
Yet even as Asian governments acknowledged the primacy of the private sector, they stepped in repeatedly to direct it. Says Yukio Yoshimura, an official in Japan's Ministry of Finance: "Bureaucrats were terribly important in disseminating information and advising managers. This was contrary to the Anglo-Saxon free-market orthodoxy, but it was marvelously successful." In this and other key policies, Japan led the way.
