By Peter Pham – Free markets are not always safe. If a state-run economy implements the free market, then it usually goes head over heels, and may even crash.
Over the last ten years, China’s state-controlled economy has been alleviating capital controls and freeing its market. Will the 1997 Asian financial crisis repeat itself?
After WW2 ended, savings and investment rates in most Asian nations were between 30 to 50 percent. That means governments were able to allocate as much funds as they pleased.
Japan, South Korea and other Northeast Asian countries preferred to invest in Asian Capital Development (ACD), where governments protect and control certain industries.
They funneled credit to sectors that are less profitable (in the short-run) such as agriculture and export-oriented manufacturing. The goal was to slowly and surely develop human capital. This process gave birth to globally competitive companies and increased foreign exchange reserves. more>