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The Wall Street Journal Interactive Edition -- December 5, 1997
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Let's Not Bury Asian Values
By BARRY WAIN
HONG KONG--For the past few years, East Asia, especially the
Southeast corner of it, has been setting itself up for a fall.
As the most rapid industrial revolutions in history accelerated
through the region, some business and political leaders began
displaying a smugness that too often lapsed into arrogance. They
had a tendency to wallow in excess, preaching about their
achievements and ignoring their deficiencies.
The current financial crisis has punctured pride and brought most
of them back to reality, though one or two persist in searching
for scapegoats. But, now, as East Asians relearn humility, a
rising tide of Western, mostly American, bombast threatens to
engulf them.
U.S. politicians and pundits are desperately trying to expose the
East Asian Miracle as a sham. At the same time, they are
prescribing, with renewed fervor, the American brand of
democratic capitalism as the only medicine for the region's ills.
What is needed more than anything at this stage is a sense of
perspective. Western hubris is as inappropriate and unwelcome as
Asian hubris ever was.
Make no mistake, as they rushed to modernize, many East Asian
economies overshot themselves. Their institutions, particularly
financial systems, failed to keep pace.
Banking regulation lagged in some cases, inviting irregularities.
Those in power often channeled loans to favored recipients,
either as a matter of government policy or in subterranean
networks of patronage.
As Michel Camdessus, managing director of the International
Monetary Fund, says, the root cause of the crisis was bad
policies. The problem in Thailand, where the trouble began in
July, he says, was a combination of poor macroeconomic
fundamentals and official reluctance to deal with them.
But the upheaval spread so quickly because investors, who were
surprised by Thailand's woes, panicked over similar, though less
severe, weaknesses elsewhere--as Mr. Camdessus confirms.
In other words, whiz-kid fund managers in New York and London, a
few years out of business school and unable to distinguish
between Thailand and Taiwan, yanked their money from all of
Southeast Asia. Local investors joined the stampede. Keep in mind
that the bright boys at head office invested there in the first
place, presumably because they thought it represented value.
Their haste to flee "emerging markets" unleashed the contagion
effect, which sideswiped well-managed economies as it pulverized
the exposed and vulnerable.
Western commentators, too, unfairly tar the entire East Asia with
the same brush when they suggest all countries are guilty of, at
best, incompetence and, at worst, allowing an unsavory nexus to
develop between government and business.
But not all deserved their fate. For instance, Hong Kong, whose
stock market has been battered down 31% in the crisis, and
Singapore, whose currency has plunged 11%, topped the world this
week in the annual Index of Economic Freedom published in the
U.S. by the Heritage Foundation and The Wall Street Journal. They
got perfect scores for free trade, lack of government
intervention, openness to foreign investment, protection of
property rights, low level of regulation, and the absence of a
black market.
Critics in the West, no matter how distant, should be wary of
finger-pointing as the crisis persists and seeks new victims.
More sandstorm than firestorm, it has a way of attacking the
weakest point and penetrating seemingly indestructible economies.
Still, with a herd mentality, many sections of the U.S. press
pile in to denounce "Asian values," a straw man, and try to show
that East Asia's approach to economic development was flawed from
the outset, not least because it was given priority over
political evolution. The bottom line appears to be an effort to
prove that economic success was a result of smoke and mirrors and
is now evaporating.
In fact, there has been no single economic model: Different
countries used vastly different combinations of policies, from
hands-off to highly interventionist. They all worked until a
certain point, when some were literally overwhelmed.
As for the best political system, the tempest hasn't
discriminated between the authoritarian (Indonesia) and the
democratic (South Korea)--and those somewhere in between
(Thailand). As it always has been, the issue is still good
governance and not the nature of the system.
Given that some East Asians once justified political repression
under the rubric of "Asian Values," it may be poetic justice that
the term is being misused against them today. But genuine Asian
values essentially describes social and moral attitudes rather
than economic formulae.
And, as research by retired U.S. government official David I.
Hitchcock shows, differences do exist between East and West.
While the fault lines shouldn't be exaggerated, he says, East
Asia generally tends to stress the community over the individual,
and harmony and stability over personal freedom.
Singapore promoted the notion of Asian values to resist U.S.
pressure over human rights and democracy. But Western naysayers
are seizing on Asian values now to denounce everything that is
supposed to be rotten in the region.
"While the world was enthralled with the best of Asian values,"
wrote the New York Times last month, "phenomenal growth rates
obscured the worst: crony capitalism, corruption ..."
Corruption and crony capitalism are Asian values? Recall the
savings-and-loan debacle in the U.S. at the end of the 1980s. It
eventually cost American taxpayers in excess of $100 billion,
partly because of bad loans to "affiliated parties," which means
lending to friends.
And what about the ongoing election funding scandal in
Washington? No fewer than 20 U.S. congressional committees or
subcommittees are currently investigating how President Bill
Clinton financed his re-election campaign last year.
No amount of vitriol can detract from East Asia's spectacular
performance, which lifted hundreds of millions out of poverty and
created stabilizing middle classes. The region grew at an
unprecedented 6.5% a year between 1965 and 1990, easily outpacing
other parts of the globe.
As explained in the World Bank's landmark 1993 study, "The East
Asian Miracle," the region got "the basics right." They included
low inflation, high levels of domestic saving, heavy investment
in education and openness to foreign technology.
"People in these countries have simply studied harder, worked
harder and saved more than people in other countries," team
leader John Page said then.
A recent study by Harvard's Institute for International
Development also found a "relatively coherent theory of economic
growth" to account for the varying pace of development in 100
countries. Again, East Asia scored because it put together the
required combination, including a heavy dose of the rule of law.
"It's not a miracle, but neither is it a myth," says Jeffrey
Sachs, the institute director.
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