Nepal – the country of the Buddha and the Mt. Everest

Peace comes from within. Do not seek it without – Buddha

Can Asian-Style Capitalism Save the West?

Posted by Ram Kumar Shrestha on March 26, 2012


Getty Images

GETTY IMAGES

As you can imagine, the people out in Asia are feeling pretty good about themselves these days. And why shouldn’t they? While the U.S. and Europe struggle with debt, unemployment and sagging competitiveness, most of Asia seems to jump from strength to strength, its economies powering through the downturn with apparent ease, its companies becoming more and more prominent on the world stage. So it’s no wonder that many Asians have come to believe that their economic systems are superior to those of the U.S. and Europe — and that policymakers in Washington, London and Berlin should finally sit up and pay attention. For decades, Asia had been schooled in the wonders of free capitalism by the West, and benefited tremendously. Now, many out there believe, the time has come for the West to learn from Asia.

Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, made this argument outright in a recent blog post on the Financial Times website, in which he argued that Asian-style capitalism is the solution to the West’s woes:

The time may have come for Asians to reciprocate the generosity of the west in sharing capitalism with Asia. Western policymakers and thought leaders should be invited to visit the industrial complexes and service industries of Japan and Korea, Taiwan and China, Hong Kong and Singapore. There may be a few valuable lessons to be learnt.

What are those lessons? Can they really turn around the economic fortunes of the West? Despite Mahbubani’s confidence, those questions are not so easy to answer.

(MORE: Are China’s Big State Companies a Big Problem for the Global Economy?)

I should point out that there is nothing particularly new in the notion that the secret to the West’s future economic prosperity can be discovered in the exotic East. For a fascinating read, pick up Ezra Vogel’s classic 1979 treatise Japan as Number One, which propagated the argument that the U.S. had to learn from a rising Japan to ensure its economic competitiveness. (Oops!) And the interest in Asian ways as a solution to the West’s ills goes beyond economic policy. We can see that in the attention Amy Chua has gotten with her view that American parents can learn a thing or two about raising successful children from Asian “tiger mom” parenting. Educators in the West admire Asian school systems that seem to churn out students with better test scores. Chinese-American basketball star Jeremy Lin is held up as a paragon of how the Asian values of hard work and perseverance can create miracles.

I’ve lived in various parts of Asia for 16 years and I too believe that the rest of the world can learn a great many things from the ascending East. Those countries still stuck in desperate poverty should look to East Asia for a way out; politicians in the West searching for direction could benefit greatly from a reading of Confucius’ Analects.

But what about Western capitalists?

Well, first we have to define what Asian capitalism actually is. Many analysts make the mistake of thinking that every rapid-growth Asian country has followed the same policies, which is not entirely true. But there are a few general similarities: (1) Asian policymakers don’t trust that free markets always produce the best results, and they are more willing than their Western counterparts to intervene directly to alter their direction (through, for example, industrial policy, or the control of interest rates or exchange rates); (2) Asian governments have traditionally avoided the extensive welfare programs popular in the West (though that is changing); (3) all Asian economies are obsessed with exports; and (4) Asian policies tend to favor industry over services and investment over consumption to drive growth.

(MORE: The 97-Lb. Recovery: Can the Economy Get Back to Fighting Weight?)

So how can this “Asian” capitalism rescue the West? Mahbubani argues that the West needs to adopt Asia’s results-oriented attitude toward government intervention in economies. The West, he says, must become less ideologically predisposed to think markets solve problems better than governments, and more willing to see the state as a potentially positive force in achieving economic results:

The [West’s] first error was to regard capitalism as an ideological good, not as a pragmatic instrument to improve human welfare. Alan Greenspan was probably the greatest victim of this ideological conviction that markets always knew best … As Mr Greenspan … believed that market traders were smarter than government regulation, and he failed to regulate them vigorously … But no Asian society, not even Japan, fell prey to this ideological conviction. Instead, Asians believe that no society can prosper without good governance … For capitalism to work well, governments have to play an essential regulatory and supervisory role.

In order for Mahbubani’s argument to hold, we have to answer a key question: Is heavier regulation the reason why Asian economies are outpacing those in the West? I think it is a very hard case to make that the average financial-market regulator in Asia is somehow more capable than the folks at the SEC. In China, policymakers lay a heavy hand on the financial sector, and that state direction appears to be a threat to the health of the banking sector. Just because Asian regulators tend to be more intrusive, doesn’t mean they are better at their jobs or achieve better results. And it is even harder to prove that Asian economies are so successful these days because their bureaucrats are more eager to meddle. The reason why Asian financial sectors escaped the chaos of the post-Lehman meltdown is because its banks generally avoided dabbling in the toxic assets that tanked so many institutions in the U.S. and Europe. That wasn’t a result of smarter regulation, but smarter, sounder banking. Businessmen I talk to around the region, furthermore, complain a lot more about persistent regulatory hurdles to their business than the supposed helping hand of Asia’s bureaucratic states. In other words, it is difficult, in my opinion, to credit Asia’s recent success with the heavier hand of the state.

The same can be said of Asia’s economic ascent more broadly. In big-picture terms, Mahbubani is weighing in on that great debate over how to fix capitalism. Is the answer more government oversight to prevent capitalism’s excesses, or less government intervention to allow the market to police itself? Mahbubani’s belief, apparently, is that Asia shows us an interventionist state is the way to go.

(MORE: Why China Will Have an Economic Crisis)

However, in my opinion, many analysts have exaggerated the role of government in the Asian growth story. As I argued at length in my 2009 book, The Miracle: The Epic Story of Asia’s Quest for Wealth, the real cause of the region’s ascent has been private enterprise, free trade and entrepreneurship, not “state led” development. It is true that interventionist states helped to kick-start growth, and certain industrial policies aided the advance of a small number of specific sectors. But in the end, the state tended to create as many disasters as successes. The economic crises in Japan and South Korea can be traced to bureaucratic meddling, and state manipulation of the economy in China, as I recently argued, is setting up the Middle Kingdom for a crisis as well. In fact, in most of Asia, the direction of economic policy has been away from the state-led policies of the past, toward freer financial markets and more open trade. Asia is using market forces to correct the distortions of its state system, not the other way around. So I’m not convinced governments in the West should mimic the tendency of their Asian counterparts to manipulate and control capitalism.

Another point Mahbubani makes concerns Asian capitalism and social welfare. He argues that Asian capitalism has done a better job of protecting workers and fostering equality:

Asian governments fought off unemployment by creating incentive schemes to promote investment and employment. Western governments dismissed this as “industrial policy,” an ideological heresy. And when western workers suffered, the capitalists retorted, “markets know best.” Perhaps the time has come for the west to learn from Asia how to manage the existential challenges of the capitalist system.

In reality, it is hard to prove that Asian capitalism is better than Western-style capitalism in dealing with the fallout from free markets. Comparing the income gap in the U.S. and countries in Asia reveals a mixed record. The degree of income inequality in China and Singapore is very roughly the same as in the U.S., in Hong Kong it is higher, and in South Korea and Japan, inequality is much lower. Second, Asian governments have not created sufficient social safety nets. Unemployment benefits and other welfare programs tend to be meager, shifting the burden onto companies and families. China is in a mad scramble to build proper health care and pension systems.

However, Asian capitalism has always put a premium on job creation and employment, and here the West can learn quite a bit from Asia. When things go bad, the first impulse of Asia Inc. isn’t to lay off tons of workers and dump the responsibility for them onto the society at large. Despite all of the complaining in the U.S. about big government, corporations are perfectly happy to boost their own profits by hoisting unwanted workers onto the state. In Asia, it is simply considered unseemly to fire staff in large numbers. Much of that is cultural, but you can also argue it is good economics. During the worst of the Great Recession, companies and governments got together to find all sorts of schemes to keep workers in their jobs. More people employed means more people spending money and a counterbalance to the collapse of global demand. Long term, Asian companies, by showing more loyalty to their staff, get more loyalty in return and therefore are focused on the development of internal talent. Corporate America, in its endless quest for increasing shareholder returns, has forgotten the importance of the people who create those returns. Asian companies haven’t.

(MORE: China State-Run Newspaper Praises Twitter’s New Censorship Policy)

Another key way in which the West can learn from Asian capitalism is in how governments support growth. Being probusiness doesn’t just mean giving CEOs tax breaks. It means providing the public goods necessary for business to thrive – I’m talking infrastructure and education here. It’s hard to get business done if you can’t find talented people to do it or if you’re stuck half a day at the Newark, N.J., airport. In my opinion, Asian governments have been much more focused in recent years than those in the West on upgrading schools, roadways and airports.

That takes us to the main way in which Asian capitalism can help the West. As Mahbubani smartly points out, Asian governments tend to put pragmatism and problem solving over ideology. This process hasn’t been perfect, of course (as in Japan). But in very general terms, Asian policymakers have been more willing to experiment, or go against convention, or toss aside the Economics 101 textbooks in a quest for growth and increased incomes. In the U.S., we see ideological hang-ups standing in the way of what everyone realizes must get done. A diehard belief that governments can’t help economies has prevented the necessary investment in new infrastructure. If Wall Street bankers won’t better police themselves, then they are inviting the government to do it for them.

Perhaps the West can be saved by Asian capitalism – if that means dropping the political bickering and ideological grandstanding and doing whatever is necessary to create prosperity.

 @TIME

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

 
%d bloggers like this: