The cause of Asian financial crisi
...ocial expenditures were generally concentrated on programs that benefited the poor, such as primary and secondary education and basic curative and preventive health care, there was no explicit emphasis on targeting the poor. The approach was instead universalor “encompassing” (Nelson 1999) with an emphasis not on social protection but on human capital investment. Education policy was particularly important. The combination of a greater supply of basic education with the greater demand for educated workers associated with the export-led growth strategy created a virtuous cycle: Rapid gro w t h and good re t u rns to education made it rational for households and individuals to invest in education (Birdsall, Ross, and Sabot 1995). The result was a dramatic increase in average levels of schooling, and equally impressive, a rapid decline in the inequality of schooli n g .1 Public and private investment in education, particularly prim a ry education, also had the effect of lowering inequality by minimizing the wage premiums that scarce educated labor captured in other re g i o n s . Meanwhile, an informal safety net was based on high levels of household savings and strong traditions of family support and private transfers (such as from urban workers to rural households and between generations); in Kore a ’s large firms it was based on the a p p a rent insurance of lifetime employment. With high gro w t h , households or individuals that fell on hard times could rely on family and community support. Economy-wide crises in which family savings would be insufficient and fellow family members could not easily help were infrequent and short - l i v e d . NEW PRESSURES IN THE 1990s Strains in this approach were becoming obvious already a decade ago. Slow but constant increases in the proportion of the aged 11 population (in northeast Asia that proportion will grow from 7.2 percent of the population in 1995 to 17.6 percent in 2025) and large expected increases in urbanization rates throughout the region in the next 25 years are beginning to undermine the informal family- and community-based safety net. More obvious in the 1990s, the foundation of rapid and shared growth, or the export model, was fraying. Taiwan, Korea, Hong Kong, and Singapore were becoming relatively high-wage countries surrounded by lower-wage competitors entering the export game. There was a sharp decline in the previously rapid growth rate of exports in Korea, Thailand, and Malaysia in the second half of the 1990s, and a mild decline in Indonesia (Ranis and Stewart 1998: Table 1). That these declines were associated with exchange rate problems as China entered the market does not obviate the general point that there were increasing risks to...