In response to my write-up on China, Tyson asked me to do an extra bit on Taiwan and Hong Kong. These backwoods island stops somehow turned themselves into economic tigers, in a rather remarkable story.
Taiwan is a pretty typical study of a successful Asian tiger. The only interesting question is why the Nationalists managed to succeed so well in Taiwan when they had failed so spectacularly in China.
The answer comes in two simple reasons: stability guaranteed by the US government and effective control of the bureaucracy. The US plays a pivotal role in Taiwan’s growth. The main source comes from the simple fact that having the US as an ally guaranteed that the Chinese would not invade. Although the US had no stomach for another war with China after the Korean War, Mao and his generals had also learned some hard lessons about tangling with the US. In particular, they were very frightened of US air superiority. But it also comes economically from allowing Taiwan to have an undervalued peg to the dollar. This allowed Taiwan to take a long-term view of their development and invest in policies for future growth, the ones I laid out before: health care, education, manufacturing, trade. In China, the Nationalists had struggled with economic turmoil, especially the fact that their currency was backed by silver (because a century of unequal treaties with Europe had drained them of gold – incidentally a reason the West became so enamored with gold is that they gave all their silver to China, even the opium trade couldn’t balance it out).
The other simple fact is that long-term policies that work for a country of 20 million people are not so simple in a country with 1.6 billion. The sheer weight of the bureaucracy almost guaranteed failure, on top of endemic problems like corruption and incompetent management. It took a generation for the Taiwanese to cleanse corruption from eating away the heart of their system. Their governance was not always good, it was almost never magnanimous or kind, but it worked.
Hong Kong is basically the same story but with a white face. Chinese residents in Hong Kong were much happier with British rule because they had a front seat view watching India screw itself over and seeing how badly the Communists could muck up China. The vicious Japanese occupation had also proved that maybe enlightened British rule was not the worst thing that could happen to them. For their part, the British took a far less imperious view of their place in Hong Kong after the world wars, working to develop HK as a financial center to maintain their influence in Asia.