[Crony Capitalism and the East]
Bouncing off the discussion on Korea's chaebol, today's Internet Week newsletter reflects on the damage done by Crony Capitalism :
<<<
Plugging In: Open Information Is The Only Cure For Crony
Capitalism
An ill wind is blowing from the East. As we look back on
the lessons of the past year, it behooves us to consider
the implications of the great Asian currency collapse of
1997 on both our industry and our economy.
The Asian "miracle" is over. The government-centric
economic model brought to a pinnacle of development
by Japan and emulated by Korea, Malaysia and the other
Asian Tigers is in shambles. The time has come for "crony
capitalism"-a mix of free-market practices, central
economic planning and systematic corruption-to join
socialism on the trash heap of history.
The roots of crony capitalism run deep. Alexander Hamilton,
first Secretary of the Treasury under George Washington,
was a tireless promoter of government-industry cooperation
supported by carefully orchestrated corruption. He believed
that enriching society's leading citizens through state-
sponsored financial dealing was a key strength of the
British Empire, and recommended this practice in place of
a hereditary aristocracy to help the young United States
counterbalance the excesses of popular democracy.
This philosophy found fertile soil in post-war Japan. A
similar approach later helped the Asian Tigers
emerge from poverty. For decades, crony capitalism
delivered startling economic growth while ensuring
political stability as nations edged toward democracy. But
ever since the Japanese bubble economy burst in the early
'90s, presaging the broader Asian currency debacle, the
bankruptcy of this approach has been revealed.
Transparent economies in which the inner workings of
government, corporate and financial institutions are
publicly disclosed are difficult to corrupt-if for no other
reason than rival factions force checks and balances. This
is why crony capitalists work so hard to deny outsiders
entry into financial markets.
With the advent of global networking, the instant
dissemination of financial news and the ability of currency
traders to shift massive amounts of capital at the speed of
light, the secret circle of control has been broken. And
not a moment too soon. It is not just hidden wealth
transfers that make crony capitalism evil. The more serious
problem is that without transparency, failure is too easy
to hide.
In a transparent economy, dismal economic performance-
whether it be bad loans, bad management policies or
outright fraud-is quickly exposed to the discipline of the
market, which can force corrective action. Under crony
capitalism, failure is rarely acknowledged, so it cannot be
corrected. As failures accumulate, liabilities balloon that
ultimately threaten healthy institutions entangled through
cross-ownership.
Capitalism's "creative destruction" works best when
administered in small doses. Unleash it in a tidal wave and
it can wash away entire national economies. Americans have
been criticized for relying too heavily on instant
information, creating financial markets in which a
company's stock can react sharply to yesterday's cash
register receipts. Yet this so-called short-term
focus has proven far more effective than cadres of
government-industry "experts" working behind closed doors.
Asia must take its medicine, with or without sugarcoating,
by an International Monetary Fund bailout of the venal and
inept. Demanding fiscal austerity in return is not enough.
Only insistence on full financial disclosure can effect a
cure, without which the cycle is doomed to be repeated.
Anything less risks the prosperity of the world.
Bill Frezza is a general partner at Adams Capital
Management. The opinions expressed here are his own. He can
be reached at frezza@alum.MIT.EDU or
techweb.cmp.com/nc/frezza/frezza.html.>>>> |
