Losing Traction

The developing world has had no shortage of dictators who made lofty promises to uplift the poor and build powerful nations. Few ever delivered. But then there is South Korea's Park Chung Hee. A general who took control of South Korea after a coup in 1961, he ruled, often with an iron fist, for 18 years. Yet he was also deeply moved by South Korea's destitution. In the early 1960s, the country's per capita national income was just over $100 and the economy depended on American aid. Park, a virulent nationalist, vowed to do something about this. "I had to break, once and for all, the vicious cycle of poverty and economic stagnation," he later wrote.

The solution Park divined was to hitch South Korea's future to an expanding global economy. The country took advantage of its cheap labor to manufacture necessities like shoes and clothes to sell to consumers in the developed world, particularly those in the U.S. The strategy proved to be wonderfully efficient. It drew investment capital into the country, generating factory jobs for impoverished farmers, infrastructure to supercharge commercial development, and otherwise produced wealth South Korea could never have generated on its own. Eager to raise living standards in their own countries, Asian policymakers and businessmen to varying degrees adopted the same fast-track formula. The economies of South Korea, Taiwan, Hong Kong and Singapore did so with such success they became known as the Asian tigers. Their growth model produced miracles — and as Park said in a 1965 speech, exports were "the economic lifeline."

Today, the tigers are being tripped up by that same lifeline. As consumer and industrial demand dries up in recession-wracked Western countries, East Asia's export-led nations are proving to be extremely vulnerable to a synchronized global slowdown. Among the tigers, overseas trade is shrinking with frightening speed: Taiwan's exports in January plunged 44% from the same month a year earlier, while Singapore's fell 35% and South Korea's 33%. Overall economic growth is following suit. In the fourth quarter of 2008, Taiwan's GDP contracted 8.4% from the same period a year earlier, the worst quarter on record. South Korea's GDP shrunk 3.4% in the fourth quarter, Singapore's fell 3.7% and Hong Kong's dipped 2.5%. Eric Fishwick, head of economic research at brokerage CLSA in Hong Kong, predicts these dismal numbers will persist. He sees Singapore's GDP contracting 10% this year, while South Korea's will decline 7%, Hong Kong's will slide 5% and Taiwan's will drop, stunningly, by double digits. "We've never seen an external shock in Asia like this," says Fishwick.

Too Much of a Good Thing
the problem with the tiger economies is that, four decades on, the spirit of Park Chung Hee is alive and well. While the mix of products may have changed from sneakers and stuffed toys to microchips and flat-panel TVs, the tigers remain heavily reliant upon exports to power growth. And like any addict, they're now experiencing the pain of rapid withdrawal as factories close and millions of workers across the region lose their jobs. Homelessness is on the rise in South Korea's capital, Seoul, where at 2 a.m. each night the city's largest train station becomes a makeshift hostel as scores of 6-ft.-long benches are taken up by dozing men and women seeking shelter from Korea's icy winter nights.

Once booming businesses are resorting to desperate discounting to try to keep customers coming. In Hong Kong, 1,000 restaurants have joined together to offer dishes such as dim sum and roast pigeon for one Hong Kong dollar (about 13 cents). In Taipei, Taiwan's capital, fast-food chain KFC held a press conference last month to announce 50% discounts on every second meal ordered, only to have McDonald's employees interrupt by parading with signs promoting $2 lunch specials.